Monisse v Chief Commissioner of State Revenue [2022] NSWCATAD 276
Background
The Applicant created a Trust via a trust Deed dated 27 October 2008 (“Original Trust Deed”). The Applicant was and remains the Trust’s sole trustee.
The Original Trust Deed did not exclude foreign persons as potential beneficiaries.
In October 2020, Revenue New South Wales (“RNSW”) sent the Applicant a letter addressed to his PO Box address. The Applicant had previously informed RNSW that the PO Box address was prone to delivery difficulties. The letter from RNSW contained details of legislative changes which would require the Applicant to amend the Original Trust Deed to irrevocably exclude foreign persons from being eligible beneficiaries, by 31 December 2020.
The Applicant claimed he never received the letter and was unaware of the legislative changes and the time frame by which he needed to amend the deed.
On 11 February 2021 RNSW issued a Notice of Assessment to the Applicant which included assessments of surcharge land tax for the 2017-2021 land tax years.
On 8 October 2021, the Applicant amended the Original Trust Deed to exclude foreign persons from being eligible beneficiaries (“Deed of Variation”).
On 19 November 2021, the Applicant objected to the Chief Commissioner’s decision to issue the Assessment. The objection was disallowed by the Chief Commissioner on 26 November 2021.
The Statutory Framework
Section 63 of the Act is relevant to deceased estates:
Surcharge land tax is charged on owners of residential land owned by foreign persons pursuant to s. 5A of the Land Tax Act (the LT Act).
Section 5D of the LT Act was introduced on 24 June 2020 and adds provisions relating to the liability of a trustee of a discretionary trust to surcharge land tax.
Section 5D(3) states:
“A discretionary trust is considered to prevent a foreign person from being a beneficiary of a trust only if (and only if) both of the following requirements are satisfied:
- no potential beneficiary of the trust is a foreign person (the "no foreign beneficiary requirement"),
- the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person (the "no amendment requirement").
The note to s. 5D(4) which defines “potential beneficiary” states that a “potential beneficiary is not limited to persons named in the trust and extends to members of any class of persons to whom or for whose benefit trust property can be distributed…”.
The definition of “foreign person” in s. 2A of the LT Act provides that a foreign person has the same meaning as in Chapter 2A of the Duties Act 1997 and within that Chapter section 104J defines “foreign person”.
Section 4 of the Foreign Acquisitions and Takeovers Act 1975 (Cth) defines both “foreign person” and “substantial interest”, and s. 5 of that Act sets out the circumstances in which an individual who is not an Australian citizen will be treated as being ordinarily resident in Australia.
Submissions
The applicant's submission (see [22]-[23])
The Applicant’s primary argument was that he should not have been issued the Assessment because RNSW did not properly notify him of the effect of the amendments to the legislative regime for surcharge land tax or for his need to amend the Original Trust Deed to prevent any foreign person becoming an eligible beneficiary under the Trust, prior to the deadline of 31 December 2020, (i.e. RNSW sent him a letter to his PO Box rather than email him which was his preferred mode of communication).
The Applicant argued that:
- The result of RNSW’s failure to make him aware of his obligations to amend the Original Trust Deed was fundamentally unfair (“Unfairness”); and
- The failure of RNSW to ensure that he was notified operates as an estoppel against the Chief Commissioner issuing the Assessment (“Estoppel”).
- The Tribunal added a third ground, not raised by the Applicant, but which the Tribunal considered and that was whether there was possibly a “general duty owed by public officials to protect those who are affected by their decisions and whether breach of any such duty can emerge from a “pure omission” by the public official in a way that gives rise to a legal remedy” (e.g. warning a taxpayer of possibly new tax liability due to legislative changes) (“General Duty of Public Officials”).
The Chief Commissioner’s submissions (see [24])
The Chief Commissioner argued as follows:
- The Applicant, as trustee, was a “foreign person” under the LT Act for the 2017-2021 land tax years because he did not satisfy the onus he bears to establish that prior to the commencement of s. 5D of the LT Act, no potential beneficiary of the Trust was a foreign person.
- The amendments made by the Deed of Variation to prevent any foreign person from becoming a beneficiary were not in place by 31 December 2020.
- Under the LT Act, including its savings and transitional provisions, there is no requirement on the Chief Commissioner to notify individual taxpayers of amendments to tax legislation such as the amendments to the LT Act which introduced s. 5D.
- The functions of the Chief Commissioner under the relevant legislation are mandatory and not discretionary: Brataniec v Chief Commissioner of State Revenue [2013] NWADT 187.
- Notice of the relevant amendments to the LT Act was provided to taxpayers and potential taxpayers, through publicly available information such as the NSW legislation website, and through the publication of practice note: CPN 004, “Foreign Surcharges and Discretionary Trusts” on the RNSW website on 1 July 2020.
- Considerations of unfairness, such as appeals to leniency or natural justice, are not relevant when considering the validity of the Chief Commissioner’s issuance of tax assessment.
Decision
The Tribunal concluded that the Applicant failed in his onus to demonstrate that the Chief Commissioner’s decision was not the correct and preferable one.
The Applicant failed on all three grounds with the Tribunal concluding the following:
- Unfairness:
The High Court decision in Commissioner of Taxation v Ryan (2000) 201 CLR 109 remains the primary authority on the issue of unfairness and in following this decision the Tribunal concluded that the circumstances raised by the Applicant in relation to fairness were not relevant to the issue of whether the assessed tax was payable. - Estoppel:
Conduct or representation, by or on behalf of the Chief Commissioner, is not regarded as constituting an estoppel such as to prevent the Chief Commissioner from issuing an assessment while carrying out functions and duties in administering the revenue laws of New South Wales. - General Duty of Public Officials:
The Tribunal concluded that while such duty might exist, its application appears to be very narrow and there is “no authority that would stretch the application of the concept so far as to interfere with a revenue assessment”.
Orders
The Tribunal affirmed the decision to issue the Assessment for the 2017 to 2021 land tax years.
Link to decision