Casibond Pty Ltd: In the matter of George Tsivis Family Trust

[2021] NSWSC 320

Supreme Court

New South Wales

Medium Neutral Citation:

Casibond Pty Ltd: In the matter of George Tsivis Family Trust [2021] NSWSC 320

Hearing dates:

3 February 2021

Date of orders:

29 March 2021

Decision date:

29 March 2021

Jurisdiction:

Equity - Expedition List

Before:

Sackar J

Decision:

See paras

Catchwords:

EQUITY — Trusts and trustees — Judicial advice — Variation of trusts — Whether trustee can exercise power to exclude

Legislation Cited:

Conveyancing Act 1919 (NSW)

Duties Act 1997 (NSW)

Land Tax Act 1956 (NSW)

Land Tax Management Act 1956 (NSW)

State Revenue Legislation Further Amendment Act 2020 (NSW)

Trustee Act 1925 (NSW)

Cases Cited:

Cecil Investments Pty Limited [2021] NSWSC 211

Re Dion Investments Pty Ltd [2014] NSWCA 367

Re Dion Investments Pty Ltd [2020] NSWSC 1661

Category:

Principal judgment

Parties:

Casibond Pty Limited in its capacity as trustee of the George Tsivis Family Trust

Representation:

Counsel:
D Barlin (plaintiff)

Solicitors:
N Panos & Associates (plaintiff)

File Number(s):

2020/349226

Publication restriction:

n/a

Judgment

1. This is an application by the Plaintiff, acting as trustee (“the Trustee”) of the George Tsivis Family Trust (“the Trust Estate”), asking the Court for advice under s.63 and or relief under s.81 of the Trustee Act 1925 (NSW) (“Trustee Act”).

2. For the purposes of the s.63 application, the questions for advice are to be found in prayers 2 and 3 of the summons.

3. For the purposes of the s.81 application, the relief sought is contained in prayer 4 of the summons.

4. The reason for application is because of amendments to the Land Tax Act 1956 (NSW) (“Land Tax Act”) and the Duties Act 1997 (NSW) (“Duties Tax Act”) which imposes surcharges to the extent that a “foreign person” may be (not necessarily is) a beneficiary of the trust where the trust holds residential property.

The Land Tax Act

5. Sections 5D(1)-(5) of the Land Tax Act are as follows:

(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. The term “foreign person” for the purposes of the Land Tax Act is defined in section s.104J of the Duties Act as “…A person who is a foreign person within the meaning of the Foreign Acquisition and Takeovers Act 1975 of the Commonwealth, as modified by this section …”

7. Importantly, surcharge land tax is not charged if no beneficiary (including a potential beneficiary) is (or can potentially be) a “foreign person”.

The terms of the Trust Estate

8. The terms of the Trust Estate are contained in a trust deed dated 1 September 1994 (“the Trust Deed”) and made as between Frank Anthony Mason (as settlor) and the Trustee (as trustee).

9. Clause 4 of the Deed contains the trusts as to “income” (defined in paragraph 3(b) of the deed and including “…such other parts of the Trust Fund as the Trustee may decide, even though those parts would otherwise be classified as capital…”) The clause contains a power to appoint income and a gift-over of income in default appointment.

10. Clause 5 of the Trust Deed contains the trusts as to capital. The clause contains a power to appoint capital (on and from the “Distribution Date”); and a gift-over of capital in default of appointment.

11. Therefore, it was submitted by the Plaintiff that clauses 4 and 5 of the Trust Deed are powers of appointment and not powers to vary the terms of the Trust Estate.

12. Clause 15(v) of the Trust Deed is a clause contained under the heading “Trustee’s Powers”, and provides as follows:

Generally, to determine all matters as to which any doubt, difficulty or question arises in relation to the Trust Fund and every such determination shall bind all parties interested in the Trust, but nothing in this sub-clause shall prevent the Trustee or any person interested in the Trust Fund from applying to the Court.

13. The Plaintiff submitted that clause 15(v) of the Trust Deed is not a reserve power to vary, rather it is a power of an administrative character, allowing the Trustee to make “determinations” with respect to matters of doubt and or difficulties or where a question arises. It was argued it is similar to a power to determine whether a receipt is on income account or capital account, which the Full Federal Court (per Spender, Sundberg and McKerracher JJ) in Forrest v Federal Commissioner of Taxation (2010) 78 ATR 417 at 428 considered is a “…limited power…[which]…is not a power which is capable of altering the beneficiaries’ rights…” and which is a power that can be used and “…given full force as a power honestly to classify income or distributions according to law…”

14. This was in contrast to the opinion of Maria and Peter Tsivis, the beneficiaries, who on 8 December 2020 wrote by email to the Plaintiff stating that they believed that Casibond could, in their view, achieve the desired result by passing a resolution that makes an irrevocable determination that no foreign person can receive a distribution of income or capital from the Trust, empowered by clauses 4, 5 and 15(v) of the Trust Deed.

15. Paragraph 4(a)(i) and 5(a) of the Deed provide that the “Nominated Beneficiary” is the object of the power to appoint income and capital (respectively). There is then a gift-over in default of appointment with respect to the income or capital to the Nominated Beneficiaries as tenants in common in equal shares.

16. Paragraph 3(h) and Schedule 7 of the Trust Deed provides that George Tsivis (“the Deceased”) is the “Nominated Beneficiary”. As the Deceased passed away on 13 October 2016, there is now no Nominated Beneficiary.

17. As a result, paragraph 4(a)(ii) of the Trust Deed applies with respect to income, and paragraph 5(b) of the deed applies with respect to capital. That is, there is:

1. power to appoint income to the “Eligible Beneficiaries” pursuant to paragraph 4(a)(ii) of the Trust Deed; and

2. power to appoint income to the “Eligible Beneficiaries” pursuant to paragraph 5(b) of the Trust Deed,

18. with living individual Eligible Beneficiaries the takers in default of appointment of the income and capital.

19. The term “Eligible Beneficiary” is defined in paragraph 3(c) and clause 16 of the Trust Deed. In short, there is a wide class of persons who may benefit, by reference to their relationship with the Deceased. It also includes certain companies (paragraph 16(e) of the Trust Deed), certain trusts (paragraph 16(f) of the Trust Deed), people nominated (paragraph 16(g) of the Trust Deed) and any “recognised charity” (paragraph 16(h) of the Trust Deed).

20. In this regard, given the powers to appoint and the trusts as to default of appointment, and the wide (and open) class of “Eligible Beneficiaries”, there may be (or be in the future) persons who may benefit under the Trust Estate who meet the definition of “foreign persons” contained in the Land Tax Act and the Duties Act.

21. There is no reserve power to vary the terms of the Trust Estate contained in the Deed.

The questions

22. The Summons in prayers 2 and 3 pose the following questions for advice pursuant to s.63 of the Trustee Act:

1. whether the Trustee has the power to amend the terms of the Trust Estate?

2. whether the Trustee is justified in disclaiming and or surrendering its powers to appoint income and or capital to any beneficiary of the Trust Estate whilst the beneficiary is a “foreign person” as that term is defined for the purposes of the Land Tax Act and the Duties Act?

23. I examined similar issues in Re Dion Investments Pty Ltd [2020] NSWSC 1661 (“Re Dion [2020]”) and I gave advice on related questions recently in Cecil Investments Pty Limited [2021] NSWSC 211 (“Cecil”) and refer to those judgments to answer the current questions.

24. Based on my previous findings in Cecil and for the same reasons there, I answer the questions put to me here as follows.

Question 1

25. As observed by Barrett JA (with whom Beazley P and Gleeson JA agreed) in Re Dion Investments Pty Ltd [2014] NSWCA 367 (“Re Dion [2014]”), without more, a settlor and original trustee cannot vary the terms of a trust that has been created (at [42] in Re Dion [2014]). There are only four ways that a settled trust can be varied:

1. where there is a reserved power to amend ([45] in Re Dion [2014]);

2. with the unanimous consent of beneficiaries if all are in being, sui juris and absolutely entitled ([46] in Re Dion [2014]);

3. legislation ([46] in Re Dion [2014]); and

4. limited power of the Court to sanction the departure from the terms of a trust ([47] in Re Dion [2014]).

26. There is no reserve power to vary the terms of the Trust Estate contained in the Trust Deed. I agree with the Plaintiff’s submissions and consider that the Trustee does not have the power to vary the terms of the Trust Estate.

Question 2

27. Whether or not the Trustee can disclaim, release or surrender any powers depends upon the application of s.28 of the Conveyancing Act 1919 (NSW) (“Conveyancing Act”). The question is therefore whether the powers contained in the Trust Deed, being the powers to appoint income and or capital, are powers which are coupled with a duty.

28. The answer to prayer 3 of the Summons is that the Trustee cannot disclaim and or surrender its powers to appoint income and or capital to any beneficiary of the Trust Estate while the beneficiary is a “foreign person” under the Land Tax Act and the Duties Act.

Section 81

29. The relief sought (at prayer 4 of the Summons) under s.81 was an order permitting the Trustee to release all of the trusts and powers (referrable to the Trust Estate) such that any beneficiary of the Trust Estate that is a “foreign person” as that term is defined in the Duties Act and the Land Tax Act is not a beneficiary whilst they are a “foreign person”.

30. This relief is pursued due to the effect of the State Revenue Legislation Further Amendment Act 2020 (NSW) (“the Amending Act”) on the Duties Act, Land Tax Act and the Land Tax Management Act 1956 (NSW). The Amending Act provides for exemptions from refunds of surcharge purchaser duty and surcharge land tax payable in respect of residential land by the trustee of a discretionary trust, if the trust prevents a foreign person from being a beneficiary of the trust. Here, that would result in an estimated liability of $27,000 per annum, plus amounts of approximately $86,000 if the “amendments” to the terms of the Trust Estate are not made. This will amount to an annual liability of 2% of the taxable value of the land (which is residential property) held subject to the Trust Estate.

31. Relief is also sought in the absence of a reserve power to vary the terms of the Trust Estate as contained in the Trust Deed, and because s.28 of the Conveyancing Act cannot be used to disclaim the trusts contained in clause 4 of the Trust Deed.

32. For the same reasons as in Re Dion [2020] and Cecil Investments, I would therefore grant the relief sought in prayer 4 of the Summons under s.81 of the Trustee Act.

33. I have made orders in this matter to the above effect.

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Decision last updated: 31 March 2021