Axiom88 Pty Ltd ATF Axiom88 Trust v Chief Commissioner of State Revenue

[2023] NSWCATAD 252

Civil and Administrative Tribunal

New South Wales

• Amendment notes

Medium Neutral Citation:

Axiom88 Pty Ltd ATF Axiom88 Trust v Chief Commissioner of State Revenue [2023] NSWCATAD 252

Hearing dates:

12 July 2022 (submissions closed 8 August 2022)

Date of orders:

26 September 2023

Decision date:

26 September 2023

Jurisdiction:

Administrative and Equal Opportunity Division

Before:

S Higgins, Senior Member

Decision:

The surcharge land tax assessment of the Chief Commissioner of State Revenue, made on 11 February 2021, for the 2017, 2018, 2019, 2020 and 2021 is confirmed.

Catchwords:

TAXES AND DUTIES -Land tax – Surcharge land tax – applicant holds land on trust – discretionary trust – whether, during the relevant land tax years, foreign persons were excluded as a beneficiary under the terms of the trust deed

Legislation Cited:

Administrative Decisions Review Act 1997 (NSW)

Foreign Acquisitions and Takeovers Act 1975 (Cth)

Land Tax Act 1956 (NSW)

Land Tax Management Act 1956 (NSW)

State Revenue Legislation Amendment (Budget Measures) Act 2016 (NSW) (repealed)

State Revenue Legislation Amendment (Surcharge) Act 2017 (repealed)

State Revenue Legislation Further Amendment Act 2020 (repealed)

Taxation Administration Act 1996 (NSW)

Cases Cited:

Commissioner of Taxation v Ryan (2000) 201CLR 109

Gunasti v Chief Commissioner of State Revenue [2012] NSWADT 218

Valencia v Chief Commissioner of State Revenue [2017] NSWCATAD 261

Volpatti v Chief Commissioner of State Revenue [2007] NSWADT 222

Texts Cited:

None cited

Category:

Principal judgment

Parties:

Axiom88 Pty Ltd ATF Axiom88 Trust (Applicant)
Chief Commissioner of State Revenue (Respondent)

Representation:

E and C Taylor (Agent) (Applicant)
Crown Solicitor (Respondent)

File Number(s):

2021/00364761

Publication restriction:

Nil

Reasons for decision

1. This is an application by Axiom88 Pty Ltd, as trustee of the Axiom88 Trust (the Applicant), seeking review of the surcharge land tax assessment (the assessment) of the respondent, the Chief Commissioner of State Revenue (Chief Commissioner), for the 2017, 2018, 2019, 2020 and 2021 land tax years. That assessment was issued on 11 February 2021. The assessment relates to residential land of which the Applicant is the registered owner. That land is also used and occupied by Celine Liu Taylor and Edwin Taylor as their principal place of residence.

2. There is no dispute that the Tribunal has jurisdiction to review the assessments of the Chief Commissioner: Administrative Decisions Review Act 1997 (NSW) (ADR Act), ss 7 and 9 and Taxation Administration Act 1996 (NSW) (TA Act), ss 96 and 99(1).

3. The role of the Tribunal is to decide the correct and preferable decision having regard to the material before it and the applicable law: ADR Act s 63(1).

4. In this application, the onus is on the Applicant to prove its case: TA Act s 100(3). In this regard the Applicant contends that it is not liable for surcharge land tax for the 2017, 2018, 2019, 2020 and 2021 land tax years as:

1. the nominated beneficiaries in the Axiom88 Trust Deed do not fall within the categories of ‘foreign person’ as contained in s 2A of the Land Tax Act 1956 (NSW) (LT Act);

2. the land assessed for surcharge land tax is exempt from land tax as it is an Australian corporation entitled to a refund of an amount of surcharge land tax paid by the corporation under s 5C of the LT Act; and

3. in the alternative, in the circumstances where the Axiom88 Trust Deed was amended not long after the 31 December 2020 date and it was accepted by the Chief Commissioner for subsequent years, it is unfair and unjust to make the Applicant liable for surcharge land tax.

5. The Chief Commissioner has at all times contended that the Applicant is liable for surcharge land tax as, the Applicant was, during the relevant land tax years, a ‘foreign person’ for the purposes of s 5D of the LT Act.

6. For the reasons that follow, I am not satisfied that the Applicant has discharged its onus. On this basis, the appropriate order is to confirm that assessments of the Chief Commissioner of the 2017, 2018, 2019, 2020 and 2021 land tax years.

The undisputed facts

The Axiom88 Trust Deed

7. On 10 October 2013, a Deed was entered into establishing the Axiom88 Trust (Trust Deed).

8. Clause 1C of the Trust Deed provides that the trust beneficiaries are:-

i. the persons named in the schedule as nominated beneficiaries; and

ii. the persons who are members of any of the related beneficiary classes specified in the schedule.

9. The word ‘beneficiary’ is defined in cl 13A(ii) of the Trust Deed to mean:

any person named in the schedule as a ‘nominated beneficiary’, any person within the ‘related beneficiary classes’ nominated in the schedule and any entity with the ‘associated beneficiary entities’ class within the schedule.

10. The term ‘related beneficiary classes’ is defined in cl 13A(vii) to mean:

persons within those classes nominated in the schedule but will exclude the settlor and any child or spouse of the settlor.

11. The nominated beneficiary in the schedule to the Trust Deed is Celine Liu Taylor. On 4 December 2013, Edwin Taylor was added as a nominated beneficiary in a Deed of Amendment to the Trust Deed. Celine Liu Taylor is an Australian citizen and Edwin Taylor is a citizen of New Zealand with permanent resident status in Australia.

12. The related beneficiary classes in the schedule to the Trust Deed are:

The spouse of a nominated beneficiary;

The domestic partner of any nominated beneficiary;

The issue of a nominated beneficiary;

The children of a domestic partner of a nominated beneficiary;

The parents of a nominated beneficiary;

The brothers and sisters of nominated beneficiaries and the children of those brothers and sisters;

The uncles and aunts of the named beneficiaries and the children of those uncles and aunts;

The spouse of any issue of the nominated beneficiary;

The spouse of any brothers and sisters of the nominated beneficiary;

The spouse of any nieces and nephews of the nominated beneficiary;

The spouse of any uncle and aunt of the nominated beneficiary.

13. The associated beneficiary entities in the schedule to the Trust Deed are:

Companies:

- Of which any beneficiary otherwise mentioned in this schedule is a shareholder or director; or

- In which at least one share is owned beneficially by any of the beneficiaries otherwise mentioned in this schedule

The trustees of any trusts in which any of the beneficiaries otherwise previously mentioned in this schedule has an interest, including an interest that is only expectant or prospective

Partners in any partnership in which any beneficiary otherwise mentioned in this schedule is a partner;

Charities the trustee nominated for this purpose

Other legal entities the trustee nominates for this purpose

14. Clause 2A of the Trust Deed makes provision for the distribution of income of the Trust Fund to the following:

1. beneficiaries (other than the settlor) nominated in the schedule;

2. trustees of any eligible trust (an associated beneficiary entity - other than an eligible trust under which the settlor is a beneficiary);

3. eligible corporations (an associated beneficiary entity - other than a corporation in which the settlor is a shareholder);

4. any school, university, college, other educational facility or charity anywhere in the world; and

5. a partner in any partnership in which any of the nominated beneficiaries in the schedule or persons who are members of any of the related beneficiary classes described in the schedule.

15. Clause 2B of the Trust Deed gives the Applicant absolute discretion in distributing income from the Trust Fund as follows:

The Trustee may distribute income in such proportions between such beneficiaries, trustees, corporations, charities, educational facilities and other eligible entities, to the exclusion of the others or other of them as the Trustee shall in the absolute discretion of the Trustee ….

16. Clause 3 of the Trust Deed gives the Applicant absolute discretion to pay or apply the whole or such part or parts (if any) of the capital of the Trust Fund as it sees fit to the following:

1. beneficiaries (other than the settlor) nominated in the schedule;

2. trustees of any eligible trust (an associated beneficiary entity - other than an eligible trust under which the settlor is a beneficiary);

3. eligible corporations (an associated beneficiary entity - other than a corporation in which the settlor is a shareholder);

4. a partner in any partnership in which any of the nominated beneficiaries in the schedule or persons who are members of any of the related beneficiary classes described in the schedule.

11 November 2019 letter from the Chief Commissioner to the Applicant

17. On 11 November 2019, the Chief Commissioner wrote to the Applicant requesting that, before 31 December 2020, it up-date details as to the foreign status of the Trust and the property.

22 January 2020 - Land Tax Notice of Assessment for the 2020 land tax year

18. On 22 January 2020, the Chief Commissioner issued the Applicant with a land tax assessment notice for the 2020 land tax year. That assessment was issued on the basis of the trust being a ‘special trust’ for land tax purposes: Land Tax Management Act 1956 (NSW) (LT Management Act), ss 3. That is, the trust property of the Axiom88 Trust included land, the trustee of that Trust was the owner of the legal estate in the land , and the Trust was not a fixed Trust.

14 October 2020 letter from the Chief Commissioner to the Applicant

19. On 14 October 2020, the Chief Commissioner wrote to the Applicant to inform it of the legislative changes applying to surcharge land tax and discretionary trusts. In light of these changes, the Chief Commissioner requested that, before 31 December 2020, the Applicant provide a new declaration and provide a copy of an amending trust deed that irrevocably excluded foreign persons.

11 February 2021 - Land Tax Notice of Assessment for the 2017-2012 land tax years

20. As noted above, on 11 February 2021, the Chief Commissioner issued the Applicant with a surcharge land tax assessment notice for the 2017 to 2021 land tax years.

24 February 2021 – Amendment of Trust Deed

21. In a Deed of Variation, executed on 24 February 2021, the Trust Deed was amended by:

1. amending cl 13A(ii) to expressly exclude any foreign person;

2. inserting a new sub-clause 13A(xi) that defines what is meant by the term ‘Foreign Person’;

3. inserting a new sub-clause 2A(vi) in cl 2A and a new sub-clause 3A(v) in cl 3A which provided that no distribution may be made to Foreign Persons under these clauses; and

4. inserting a new sub-clause 4A(v) in cl 4 which provided that Foreign Persons were specifically excluded from receiving the whole or any part of the Trust Fund under that clause.

22. On 27 February 2021, based on the Variation Deed, the Applicant lodged a land tax variation return.

23. On 17 May 2021, the Chief Commissioner wrote to the Applicant to advise that the Variation Deed had been accepted as preventing foreign persons being beneficiaries of the Trust. The Chief Commissioner went on to advise that on the basis of the Variation Deed the applicant was not liable for surcharge land tax from the 2022 land tax year but remained liable for the 2017 to 2021 land tax years as the Deed had not been amended before 31 December 2020.

24. The applicant subsequently lodged its objection to the assessment, which it was entitled to do. That objection was disallowed in November 2021.

Relevant legislation – surcharge land tax

25. Section 7, of the LT Management Act provides that, other than land which is exempt from taxation under that Act, land tax is to be levied and paid on the taxable value of all land situated in New South Wales which is owned by taxpayers.

26. Section 8 of the LT Management Act provides that land tax is to be charged on land as owned at midnight on the thirty-first day of December immediately preceding the year for which the land is levied.

27. In 2016 Parliament passed legislation that made provision for the taxation on dutiable transactions in respect of, and the ownership of, residential land in New South Wales involving foreign persons: see State Revenue Legislation Amendment (Budget Measures) Act 2016 (NSW) (2016 Budget Measures Act).

28. The 2016 Budget Measures Act amended the Duties Act 1956 (NSW) (Duties Act) by inserting a new insertion of a new Chapter 2A into that Act: 2016 Budget Measures Act, Sch 1. The newly inserted Chapter 2A of the Duties Act came into force on 21 June 2016.

29. Chapter 2A of the Duties Act made provision for the charge of duty on certain dutiable transactions (for example stamp duty) in respect of residential land that are, or are taken to be, transfers to foreign persons: see Duties Act s 104L. This charge of duty (referred to as surcharge purchaser duty) was an additional charge of duty to that charged in Chapter 2 of the Duties Act.

30. Section 104A in Chapter 2A set out the meaning of the term ‘residential land’, which includes a parcel of land on which there is a single dwelling: Duties Act s 104A(1)(a).

31. Section s104J of Chapter 2A set out the meaning of the terms ‘foreign person’ and ‘foreign trustee’. That section relevantly provides:

104J Meanings of “foreign person” and “foreign trustee”

(1) In this Chapter:

foreign person means a person who is a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975 of the Commonwealth, as modified by this section.

foreign trustee means a person who is a foreign person because of the person’s capacity as the trustee of a trust.

(2) The definition of foreign person in the Foreign Acquisitions and Takeovers Act 1975 of the Commonwealth is modified as follows—

(a) an Australian citizen is taken to be ordinarily resident in Australia, whether or not the person is ordinarily resident in Australia under that definition,

(b) a New Zealand citizen who holds a special category visa, within the meaning of section 32 of the Migration Act 1958 of the Commonwealth, at any particular time is taken at that time to be an individual whose continued presence in Australia is not subject to any limitation as to time imposed by law.

(3) …

32. We have dealt with the relevant provisions of the Commonwealth Foreign Acquisitions and Takeovers Act 1975 in more detail below.

33. The 2016 Budget Measures Act also amended the Land Tax Act 1956 (NSW) (LT Act) by inserting a new section 5A into that Act which provided for a levy of surcharge land tax on residential land owned by foreign persons. That levy was expressly stated to apply as of the 2017 land tax year and subsequent land tax years. The terms ‘residential land’ and ‘foreign persons’ and ‘foreign trustee’ were defined in s 5A(6) to have the same meaning as that contained in Chapter 2A of the Duties Act. In subsequent amendments to the LT Act, the meanings of these terms have remained the same. However, they have been removed from s 5A(6) of the LT Act to the definition section in s 2A in that Act.

Section 5A of the Land Tax Act 1956

34. Section 5A of the LT Act relevantly provides as follows:

5A Levy of surcharge land tax on residential land owned by foreign persons—2017 and subsequent land tax years

(1) Land tax is payable under this section in respect of residential land owned by a foreign person (surcharge land tax).

(2) In respect of the taxable value of all the residential land owned by the foreign person at midnight on 31 December in any year (commencing with 2016), surcharge land tax is to be charged, levied, collected and paid under the provisions of the Principal Act and in the manner prescribed under that Act for the period of 12 months commencing on 1 January in the next succeeding year at the rate of:

(a) in the case of all residential land owned by the foreign person at midnight on 31 December 2016—0.75% of that taxable value as assessed under the Principal Act, and

(b) in the case of all residential land owned by the foreign person at midnight on 31 December in any other year (commencing with 2017)—2% of that taxable value as assessed under the Principal Act.

(3) Surcharge land tax is payable in addition to any land tax payable in respect of the residential land under the other provisions of this Act, and is so payable even if no land tax is payable under those other provisions.

(4) The Principal Act applies to surcharge land tax in respect of residential land owned by a foreign person subject to the following:

(a) surcharge land tax is payable as if the residential land were the only land owned by the foreign person,

…

(d) if the Chief Commissioner is satisfied that the residential land is used for purposes other than residential purposes, the taxable value of the land is to be reduced by the apportionment factor determined in accordance with section 104ZB of the Duties Act 1997 in relation to the land,

(e) if the foreign person is the trustee of a fixed trust (within the meaning of section 3A of the Principal Act) in relation to the residential land, the person is not liable to surcharge land tax,

…,

(g) the residential land is not exempt from surcharge land tax because it is the principal place of residence of the foreign person (and accordingly sections 9C and 9D of the Principal Act do not operate to reduce the land value of the residential land if it is the principal place of residence of the person),

(h) the tax thresholds under Division 4A of Part 7 of the Principal Act do not apply to surcharge land tax,

(i) any other modification prescribed by the regulations under the Principal Act applies to surcharge land tax.

(5) If a foreign person defaults in the payment of surcharge land tax then, without releasing the foreign person from his or her liability, the following provisions apply as long as the default continues:

(a) …,

(b) if the foreign person is a beneficiary of a trust relating to the land concerned—the trustee (whether or not a foreign person) is, on being served with a notice by the Chief Commissioner requiring payment of the unpaid surcharge land tax, responsible for its payment and the unpaid tax may be recovered from that trustee as if he or she were the defaulting taxpayer,

(c) all payments made under this subsection by that other joint owner or that trustee are taken to be made on behalf of the defaulting taxpayer,

(d) that other joint owner or that trustee may recover from the foreign person any amount paid by that other joint owner or that trustee under this subsection.

(6) (Repealed)

35. Section 1 of the LT Act provides that the Act is to be read and construed with the LT Management Act and this Act (the LT Act), the LT Management Act is hereinafter referred to as the Principal Act. This means that the reference to the ‘Principal Act’ in the LT Act is the LT Management Act.

Exemptions – ss 5B and 5C of the Land Tax Act 1956

36. In 2017, Parliament passed legislation that inserted two exemptions from liability by a foreign person to pay surcharge land tax in respect of residential land for a land tax year: see State Revenue and Other Legislation Amendment (Budget Measures) Act 2017 (NSW) Sch 2.1 [4] and State Revenue Legislation Amendment (Surcharge) Act 2017 (NSW) Sch 2 [3]. These exemptions are contained in ss 5B and 5C of the LT Act.

37. Section 5B relevantly provides as follows:

5B Surcharge land tax—residence requirement applying to principal place of residence exemption

(1) A person is eligible for an exemption from liability to pay surcharge land tax in respect of residential land for a land tax year because the land is the principal place of residence of the person only if:

(a) the person is a permanent resident at midnight on 31 December of the previous year, and

(b) the Chief Commissioner is satisfied that, during the land tax year, the person intends to use and occupy the land as the principal place of residence of the person in accordance with the residence requirement, and

(c) the person lodges a declaration with a land tax return required to be furnished under section 12 of the Principal Act for the land tax year to the effect that the person has that intention.

(2) The person must use and occupy the land as the person’s principal place of residence for a continuous period of 200 days in the land tax year. This requirement is referred to as the residence requirement. …

38. Section 5C came into force on 5 March 2018 and has no retrospective application. That section relevantly provides:

5C Surcharge land tax—new home development by Australian-based developers that are foreign persons

(1) An Australian corporation is entitled to a refund of an amount of surcharge land tax paid by the corporation in respect of residential land owned by the corporation at midnight on 31 December in a year (the taxing date) if the Chief Commissioner is satisfied that:

(a) a new home has been constructed on the land by the corporation or a related body corporate (before or after the taxing date) and sold by the corporation after the taxing date to a person who is not an associated person of the corporation without the home having been used or occupied for any purpose (other than as a display home) before the completion of that sale, or

(b) the land has been subdivided by the corporation (before or after the taxing date) for the purpose of its use for new home construction and sold by the corporation after the taxing date and after the issue of a subdivision certificate (as referred to in section 109C of the Environmental Planning and Assessment Act 1979) for the subdivision.

(2) The amount of the refund to which an Australian corporation is entitled under this section is the amount that is determined in accordance with an order made by the Treasurer for the purposes of this section and published in the Gazette. The amount of the refund may be the full amount of surcharge land tax paid or a lesser amount (as determined in accordance with the order).

(3) The Chief Commissioner may approve a foreign person as an exempt person for particular land if the Chief Commissioner is of the opinion that the person is likely to become entitled under this section to a refund of the full amount of surcharge land tax payable by the person in respect of the land for a land tax year.

(4) A foreign person is exempt from liability to pay surcharge land tax in respect of land for a land tax year if the person is approved as an exempt person for the land for that land tax year.

(5) The approval of a foreign person as an exempt person under this section is subject to the following provisions:

(a) an approval may be given for one or more land tax years and can be given for a land tax year before or after the end of the land tax year,

(b) an approval may be given subject to conditions and the approval operates subject to any such conditions,

(c) the conditions of an approval may be varied by the Chief Commissioner at any time by notice to the person,

(d) an approval can be revoked by the Chief Commissioner at any time by notice to the person,

(e) the revocation of an approval can be backdated to extend to a tax year in respect of which the exemption conferred by the approval has already been applied, in which case surcharge land tax is payable and is to be assessed or reassessed as if the approval had never applied in respect of that tax year.

(6) Surcharge land tax may be refunded under this section only if an application for the refund is made within 12 months after completion of the sale of the new home or the issue of the subdivision certificate to which the application relates and:

(a) if completion of the transfer of the residential land to the Australian corporation concerned occurred before 21 June 2016—not later than 21 June 2021, or

(b) in any other case—not later than 10 years after completion of the transfer of the residential land to the Australian corporation concerned.

(7) In this section:

associated person has the same meaning as in the Duties Act 1997.

Australian corporation means a corporation that is incorporated or taken to be incorporated under the Corporations Act 2001 of the Commonwealth.

new home has the same meaning as in the First Home Owner Grant (New Homes) Act 2000.

related body corporate has the same meaning as in the Corporations Act 2001 of the Commonwealth.

Transfer includes an assignment and an exchange.

Section 5D of the Land Tax Act 1956

39. In 2020, Parliament passed legislation that amended the LT Act by inserting section 5D into that Act and also amended the LT Management Act by inserting savings and transitional provisions into that Act as a consequence of the insertion of s 5D into the LT Act: State Revenue Legislation Further Amendment Act 2020 (NSW) Sch 2 and Sch 3.

40. These legislative changes related to the liability of a trustee of a discretionary trust to surcharge land tax.

41. Section 5D of the LT Act relevantly provides:

5D Surcharge land tax—discretionary trusts

(1) The trustee of a discretionary trust is taken to be a foreign person in that capacity for the purposes of section 5A if the trust does not prevent a foreign person from being a beneficiary of the trust.

(2) If a discretionary trust prevents a foreign person from being a beneficiary of the trust, the trustee is not in that capacity a foreign person for the purposes of section 5A.

(3) A discretionary trust is considered to prevent a foreign person from being a beneficiary of the trust if (and only if) both of the following requirements are satisfied—

(a) no potential beneficiary of the trust is a foreign person (the no foreign beneficiary requirement),

(b) 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).

Note—

Under the transitional arrangements for this section in Schedule 2 to the Principal Act, the no amendment requirement does not apply to a trust that satisfies the no foreign beneficiary requirement immediately before the commencement of this section.

(4) A person is a potential beneficiary of a discretionary trust if the exercise or failure to exercise a discretion under the terms of the trust can result in any property of the trust being distributed to or applied for the benefit of the person.

Note—

A potential beneficiary is not limited to persons named in the trust instrument and extends to the members of any class of persons to whom or for whose benefit trust property can be distributed or applied pursuant to the discretions of the trust.

(5) For the removal of doubt, a person is not a potential beneficiary of a discretionary trust if the terms of the trust prevent any property of the trust from being distributed to or applied for the benefit of the person.

(6) In this section, property includes money, and a reference to the distribution or application of property includes a reference to the payment of money.

(7) …

42. The savings and transitional provisions that were inserted into the LT Management Act were inserted as s 66 of Part 34 of that Act and relevantly provide as follows:

66 Amendments relating to discretionary trusts

(1) Section 5D of the Land Tax Act 1956 applies to the assessment of land tax liability in respect of the 2017 land tax year and subsequent land tax years.

(2) If the trustee of a discretionary trust is liable in that capacity as a foreign person for surcharge land tax in respect of the 2017, 2018, 2019 or 2020 land tax year—

(a) the trustee is exempt from that land tax if the terms of the trust have been amended, before payment of the land tax is due and before midnight on 31 December 2020, so that the trust prevents a foreign person from being a beneficiary, or

(b) if that land tax has been paid, the trustee is entitled to a refund of that land tax if the terms of the trust have been amended, before midnight on 31 December 2020, so that the trust prevents a foreign person from being a beneficiary.

(3) A trust that satisfies the no foreign beneficiary requirement under section 5D of the Land Tax Act 1956 immediately before the commencement of that section is considered for the purposes of that section to prevent a foreign person from being a beneficiary of the trust (without having to satisfy the no amendment requirement under that section).

(4) …

(5) The Chief Commissioner may in a particular case extend the date by which payment of surcharge land tax by a trustee is due so that the trustee qualifies for exemption from that surcharge land tax under this clause if the terms of the trust have been amended before midnight on 31 December 2020 (but after the date by which payment would otherwise be due) so that the trust prevents a foreign person from being a beneficiary.

(6) …

(7) Expressions in this clause have the same meanings as in section 5D of the Land Tax Act 1956.

Foreign Acquisition and Takeovers Act 1975 (Cth)

43. Section 4 of the Foreign Acquisition and Takeovers Act 1975 (Cth) (FA&T Act (Cth) defines a ‘foreign person’ in the following terms:

“foreign person" means: 

(a) an individual not ordinarily resident in Australia; or

(b) a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or

(c) a corporation in which 2 or more persons, each of whom is an individual not ordinary resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or

(d) the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or

(e) the trustee of a trust in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or

(f) a foreign government; or

(g) any other person, or any other person that meets the conditions, prescribed by the regulations.

44. The term ‘substantial interest’ is also defined in s 4 of the FA&T Act (Cth) as follows:

"substantial interest": a person holds a substantial interest in an entity, trust or unincorporated limited partnership if:

(a) for an entity or unincorporated limited partnership--the person holds an interest of at least 20% in the entity or partnership; or

(b) for a trust (including a unit trust)--the person, together with any one or more associates, holds a beneficial interest in at least 20% of the income or property of the trust.

45. Section 5 of the FA&T Act (Cth) defines what is meant be the term ‘ordinarily resident’ as follows:

(1) An individual who is not an Australian citizen is ordinarily resident in Australia at a particular time if and only if:

(a) the individual has actually been in Australia during 200 or more days in the period of 12 months immediately preceding that time; and

(b) at that time:

(i) the individual is in Australia and the individual's continued presence in Australia is not subject to any limitation as to time imposed by law; or

(ii) the individual is not in Australia but, immediately before the individual's most recent departure from Australia, the individual's continued presence in Australia was not subject to any limitation as to time imposed by law.

(2) Without limiting paragraph (1)(b), an individual's continued presence in Australia is subject to a limitation as to time imposed by law if the individual is an unlawful non-citizen within the meaning of the Migration Act 1958.

46. Section 18 of the FA&T Act (Cth) prescribes certain rules for determining percentages of interest in entities. In this case, the relevant rule is that prescribed for discretionary trusts in s 18(3) which provides as follows:

Discretionary trusts 

(3) For the purposes of this Act, if, under the terms of a trust, a trustee has a power or discretion to distribute the income or property of the trust to one or more beneficiaries, each beneficiary is taken to hold a beneficial interest in the maximum percentage of income or property of the trust that the trustee may distribute to that beneficiary.

47. Since the coming into force of s 5D of the LT Act, it has also modified the meaning of ‘foreign person’ in the FA&T Act (Cth) for the limited purpose set out in s 5D.

Consideration

48. In this application the applicant has been represented by the nominated beneficiaries in the Axiom 88 Trust Deed, Edwin Taylor and Celine Liu Taylor, neither of whom are legally qualified.

49. As can be seen from the above, the relevant legislation does involve some complexity. However, the relevant facts as contained in the material before the Tribunal, the majority of which are not disputed, do not involve any complexity.

Is the Applicant liable for surcharge land tax?

50. There is no dispute that the land the subject of this application is residential land as defined in s 104A of the Duties Act. This means that, by reasons of the meaning of residential land in s 2A of the LT Act, it is also residential land for the purposes of ss 5A and 5D of the LT Act.

51. It is accepted that, on the material before the Tribunal, the subject land is, and has been during the relevant land tax years, the principal place of residence of Edwin Taylor and Celine Liu Taylor. It is also accepted that, during the relevant land tax years, Edwin Taylor and Celine Liu Taylor were not foreign persons as defined in s 104J of the Duties Act: see s 2A of the LT Act.

52. However, Edwin Taylor and Celine Liu Taylor are not the persons against whom the liability for land tax and/or surcharge land tax arises as they do not ‘own’ the land. In this regard, s 3(1) of the LT Management Act defines the terms ‘own’ and ‘owner’ as follows:

Owned and similar expressions have a meaning corresponding with that of owner.

Owner includes—

(a) in relation to land, every person who jointly or severally, whether at law or in equity—

(i) is entitled to the land for any estate of freehold in possession, or

(ii) is entitled to receive, or is in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise,

(b) (Repealed)

(c) in relation to any leasehold estate in land, whether legal or equitable (other than under any lease to which section 21C or 21D applies), a person, or a person who is a member of a class or description of persons, prescribed for the purposes of this paragraph, and

(d) a person who, by virtue of this Act, is deemed to be the owner.

53. In this case, the evidence is that the Applicant is the sole registered owner of the subject land. That is, the Applicant is the sole legal owner of the land, but holds it on trust for the Axiom88 Trust.

54. While Edwin Taylor and Celine Liu Taylor are the nominated beneficiaries in the Trust Deed, they do not have any current legal or equitable entitlement to the subject land. Their only entitlement is that provided for them under the Trust Deed as nominated beneficiaries. That entitlement however, is no more than a possible future entitlement, that is subject to the absolute discretion of the Applicant.

55. Hence, the only question is whether the Applicant is a foreign person and liable for surcharge land tax during the relevant land tax years.

56. The Applicant is not a corporation falling within paragraph (b) or (c) of the meaning of ‘foreign person’ in s 4 of the FA&T Act. However, it is a trustee of a trust falling within paragraph (e) and (f) of that section.

57. There is no dispute that the Axiom88 Trust is a discretionary trust in that cll 2A, 2B and 3 the Trust Deed gives the Applicant absolute discretion to make provision for the distribution of income, distribute income and pay or apply the whole or parts of the capital of the Trust Fund to or for the benefit of the nominated beneficiaries, related beneficiary class and the associated beneficiary entities: see at [11] to [16] above.

58. As noted above, the beneficiaries of the Axiom88 Trust include beneficiary classes of persons related to Edwin Taylor and Celine Liu Taylor, the nominated beneficiaries and entities of which Edwin Taylor, Celine Liu Taylor or any beneficiary in the related beneficiary class is a shareholder or director etc: see Trust Deed schedule which are set out at [12] and [13] above. The latter also includes any charity or legal entity the Applicant may choose.

59. At the same time, prior to 24 February 2021, the Trust Deed did not contain a provision that prevented a foreign person from being a beneficiary of the Trust Fund. While Edwin Taylor and Celine Liu Taylor said that they were not foreign persons and it was not envisaged that any of the related beneficiary classes or the associated beneficiary entities were a foreign person or a foreign entity, this is not the test for the purpose of assessing liability for surcharge land tax.

60. The test is that set out in s 5D of the LT Act.

61. By reason of s 5D(1) of the LT Act, as at 31 December 2020, the Applicant, as trustee of a discretionary trust, is taken to be a foreign person for the purpose of s 5A of that Act because, as at that time, the Trust Deed did not contain any provisions along the lines set out in s 5D(3) of that Act. It is provisions of the kind, prescribed in s 5D(3), which prevent a foreign person from being a beneficiary of the Trust Fund. In the absence of the Trust Deed having been amended, by midnight on 31 December 2020, to include provisions of this kind, the effect of the savings and transition provision in s 66 of the LT Management Act, the Applicant is liable for surcharge land tax for the 2017, 2018, 2019, 2020 and 2021 land tax years.

62. That is, as the Applicant failed to satisfy the requirements of 5D(3) of the LT Act before midnight on 31 December 2020, it does not meet the requirements for an exemption from surcharge land tax liability as set out in s 66(2)(a) of the LT Management Act.

Do any of the exemptions apply

63. As noted above the exemption in s 66(2)(a) of the LT Management Act does not apply to the Applicant’s circumstances.

64. While it has not been contended that the exemption in s 5B of the LT Act applies, for completeness I note it cannot apply. That exemption applies to a natural person and is clearly inapplicable to a corporate entity such as the Applicant.

65. I also agree with the Chief Commissioner that the exemption in s 5C of the LT Act is of no application to the Applicant’s circumstances. While s 5C is not strictly speaking an exemption from surcharge land tax, it makes provision for the refund of surcharge land tax paid by the owner of the land, who is a corporate entity, where the owner or a related corporate entity has constructed and sold a new home on the land, or subdivided the land for the purpose of its use for the construction of a new home.

66. Edwin Taylor and Celine Liu Taylor contend that this exemption does apply because:

1. The Applicant was approved as an exempt person/corporation for land tax surcharge 2017-2021 on the grounds that the conditions and circumstances of the Trust Deed have changed since the assessment of the Chief Commissioner;

2. Pursuant to s 5C(1) - the Applicant is an Australian corporation entitled to a refund of an amount of surcharge land tax paid by the Applicant in respect of residential land owned by the Applicant at midnight on 31 December as at the taxing date;

3. Pursuant to s 5C(3) - the Chief Commissioner may approve the Applicant as an exempt person for particular land if the Chief Commissioner is of the opinion that the Applicant is likely to become entitled to a refund under that section; and

4. Pursuant to s 5C(4) – the Applicant is exempt from liability.

67. It is correct to say that the Trust Deed was changed since the assessment of the Chief Commissioner was made. However, as explained in the Chief Commissioner’s Objection Determination Notice of 15 November 2021, the Deed of Amendment to the Trust Deed (dated 24 February 2021) can only have effect from the date of the Deed of Amendment. And in this case, the Chief Commissioner, accepted the amendment as having that effect from that date. The Chief Commissioner also correctly explained that amendment to the Trust Deed were not retrospective and the ‘subsequent alteration of rights under a discretionary trust do not affect the operation of taxing legislation at the time liability arose’: Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184.

67. Hence, as liability for land tax, including surcharge land tax, is levied every year commencing on 1 January of that year, based on the land owned by the taxpayer as at 31 December of the previous year, the Trust Deed as it applied at that time continues to apply. In this case, for the 2017, 2018, 2019, 2020 and 2021 land tax years, it is the original Trust Deed that continues to apply even though the assessment was issued subsequently.

68. In regard to s 5C, this needs to be read as a whole. It is correct that the Applicant is an Australian corporation and the owner of residential land as at midnight of 31 December 2016, 2017, 2018, 2019 and 2020. However, s 5C only came into force in March 2018, with no retrospective operation. Hence, if it does apply it can only apply for land tax purposes from midnight of 31 December 2018, 2019 and 2020.

69. For s 5C to apply, the Applicant must satisfy s 5C(1)(a) or (b), namely:

1. a new home has been constructed on the land by the Applicant or a related corporation and sold by the Applicant after the taxing date to a person who is not an associated person of the Applicant or the related corporation …; or

2. the land has been subdivided by the Applicant, before the taxing date, for the purpose of its use for a new home construction …

71. As there is no evidence before the Tribunal of any new home construction on the land or a subdivision of the lane, s 5C has no application to the circumstances of the Applicant.

Discretion

72. Finally, to the extent that Edwin Taylor and Celine Liu Taylor contend that in the circumstances where the Trust Deed was amended not long after the 31 December 2020 date and the Chief Commissioner accepted the amendment as complying with the requirements of s 5D(2), the Commissioner should exercise his discretion and allow the exemption in s 66(2) of the LT Management Act.

73. I accept the explanation given by Edwin Taylor and Celine Liu Taylor as to why the Deed of Amendment to the Trust Deed was delayed. However, the LT Management Act, nor the LT Act gives the Chief Commissioner, or the Tribunal on Administrative review, a general discretion to waive, wholly or partially, the Applicant’s liability for surcharge land tax for the 2017, 2018, 2019, 2020 and 2021 land tax years: see Volpatti v Chief Commissioner of State Revenue [2007] NSWADT 222 at [27].

74. As noted by the Chief Commissioner, general notions of unfairness and appeals of leniency or natural justice are not relevant when considering the validity of assessment: see Commissioner of Taxation v Ryan (2000) 201CLR 109, at 123 and Gunasti v Chief Commissioner of State Revenue [2012] NSWADT 218 at [40] to [42].

75. Instead, the Chief Commissioner (and the Tribunal on administrative review) is required to administer the law in accordance with its terms so as to not unfairly disadvantage other taxpayers who have complied with their obligations under the same laws: see Valencia v Chief Commissioner of State Revenue [2017] NSWCATAD 261 at [84].

Conclusion

76. For the reasons set out above, I am not satisfied that the Applicant has discharged its onus. At the same time, I find that the Chief Commissioner’s 11 February 2021 surcharge land tax assessment for the 2017, 2018, 2019, 2020 and 2021 land tax years is the correct and preferred decision and should be confirmed.

Orders

77. Based on my findings above I make the following order:

1. The surcharge land tax assessment of the Chief Commissioner of State Revenue, made on 11 February 2021, for the 2017, 2018, 2019, 2020 and 2021 is confirmed.

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I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal.

Registrar

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Amendments

13 October 2023 - • Paragraph 4(3) – should read 31 December 2020

• Paragraph 23 – should read had not dad

• Paragraph 61 - should read 31 December 2020

• Paragraph 67 – should read 15 November 2021

Decision last updated: 13 October 2023