Commissioner of State Revenue v Challenger Listed Investments Ltd
[2011] VSCA 272
•14 September 2011
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2010 0146
| COMMISSIONER OF STATE REVENUE | |
| Appellant | |
| v | |
| CHALLENGER LISTED INVESTMENTS LTD (ACN 055 293 644) (AS TRUSTEE FOR CHALLENGER DIVERSIFIED PROPERTY TRUST 1) | Respondent |
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JUDGES: | BUCHANAN and TATE JJA and SIFRIS AJA | ||
WHERE HELD: | MELBOURNE | ||
DATE OF HEARING: | 22 July 2011 | ||
DATE OF JUDGMENT: | 14 September 2011 | ||
MEDIUM NEUTRAL CITATION: | [2011] VSCA 272 | ||
| JUDGMENT APPEALED FROM: | [2010] VSC 464 (Pagone J | ||
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TAXATION – STAMP DUTY – Liability for duty where private unit trust becomes public unit trust – Requirement that payment is made to a person with an interest of 20% in the scheme or that person ceases to hold an interest of at least 20% - Whether trustee can hold an ‘interest' - Where ‘interest’ defined as holding a ‘beneficial entitlement’ to a distribution of property from the landholder on a winding up - Meaning of ‘beneficial entitlement’ - Duties Act 2000 (Vic) ss 76(1), 77 – Commissioner of State Revenue v Landrow Properties Pty Ltd [2010] VSCA 197.
TAXATION – STAMP DUTY – Duties Act 2000 (Vic) s 89C - Whether transactions occurred ‘under an agreement or arrangement’ – Whether agreement or arrangement must be made before the unit trust becomes a public unit trust – Whether private unit trust must be a land rich landholder at the time the agreement is made.
PRECEDENT – Court of Appeal not strictly bound by its own previous decisions – Criteria for departing from earlier decision – Earlier decision must be ‘plainly wrong’.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr P J Hanks QC with Mr P D Nicholas | Solicitor for the Commissioner of State Revenue |
| For the Respondent | Mr J de Wijn QC with Mr M Richmond SC and Ms E Bennett | Mallesons Stephen Jacques |
BUCHANAN JA:
I would dismiss the appeal for the reasons stated by Sifris AJA.
TATE JA:
I have had the benefit of reading in draft form the reasons of Sifris AJA, with which I agree.
SIFRIS AJA:
A. Summary and background
Challenger Listed Investments Limited (‘CLIL’) is and was at all relevant times, trustee of the Challenger Diversified Property Trust 1 (‘Trust 1’). Prior to 23 October 2006, Trust 1 was a private unit trust. All of the units in Trust 1 were held by Challenger Property Funds Management Limited (‘CPFML’) as trustee of Challenger North of England Gas Holding Trust (‘the Old Holding Trust’).
On 16 October 2006 CLIL, as trustee of Trust 1, had entered into eight contracts for the purchase of land in Victoria. Those contracts were completed on 16 October 2006. Before that date, CLIL, as trustee of Trust 1, did not have an ‘interest in land’ for the purposes of Part 2 of Chapter 3 of the Duties Act 2000 (Vic) (‘the Act’).
On 23 October 2006 Trust 1 became a public unit trust.
The conversion of Trust 1 from a private unit trust to a public unit trust was implemented as follows:
(a)On 17 October 2006, the public acquired 61% of the units in Trust 1 following the issue of 326,730,232 units via an initial public offering. This had the consequence of reducing the interest of CPFML as trustee of the Old Holding Trust from 100% to 39%. However, the actual number of units held by CPFML in Trust 1 remained unchanged.
(b)On 23 October 2006, CPFML, as trustee of the Old Holding Trust,
transferred its 39% holding in Trust 1 (comprising 208,893,199 units) to Challenger Property Nominees Pty Ltd (‘CPNPL’) as trustee of the Challenger Australia Listed Property Holding Trust (‘the New Holding Trust’) for consideration of $208,893,199.[1]
[1]Challenger Life Company Limited (‘CL 2’) was the sole beneficial unit holder of the units in both the Old Holding Trust and the New Holding Trust.
The critical issue before the trial judge and this Court is whether s 89C of the Act applies to the transactions referred to above.
Section 89C of the Act applies when there is a conversion of a private unit trust to a public unit trust. In broad terms, it provides that if, under an agreement or arrangement made before a private unit trust becomes a public unit trust, a party ceases to have an interest in 20% or more of the units in the unit trust, or a payment is made to or on behalf of a party holding an interest of 20% or more in the unit trust, the Commissioner of State Revenue (‘the Commissioner’) will make an assessment of duty unless one of the exemptions apply.
The Commissioner took the view that on a proper construction and application of the Act, duty was payable by CLIL in respect of both the public issue of the units and the internal transfer of units from CPFML, as trustee for the Old Holding Trust, to CPNPL, as trustee for the New Holding Trust.
The Commissioner assessed duty in the amount of $7,976,100.00 under s 89C of the Act, together with $1,994,025.00 penalty tax and $1,027,950.60 interest, totalling $10,998,075.60. The assessment was made on 21 December 2007 (‘the assessment’) and notice was duly given to CLIL.
By notice dated 19 February 2008, CLIL objected to the assessment. By a determination dated 12 March 2009, the Commissioner substantially disallowed the objection.
Pursuant to s 106 of the Taxation Administration Act 1997 (Vic), CLIL requested that the Commissioner treat the objection as an appeal and cause the appeal to be set down for hearing before the Supreme Court.
On 21 September 2010, the trial judge heard CLIL’s appeal against the disallowance of the objection.
On 19 October 2010, the trial judge delivered judgment. His Honour allowed the appeal and ordered that the Commissioner’s determination of CLIL’s objection be set aside and the objection be allowed in full. His Honour also ordered that the Commissioner pay CLIL’s costs of the appeal.
Although other matters were raised and argued before the trial judge, the result of the trial was inevitable. The parties agreed that his Honour was bound by the decision of this Court in Commissioner of State Revenue v Landrow Properties Pty Ltd[2] which, in effect, required the appeal to be allowed.
[2][2010] VSCA 197 (‘Landrow’).
In Landrow, this Court held that an entity which held units in a unit trust landholder on trust for another entity could not hold an ‘interest’ in that landholder within the meaning of s 76(1) of the Act. Section 76(1) required that the interest held was a beneficial entitlement to a distribution of property of the landholder on a winding up. The Court of Appeal held that a trustee did not have such an interest.
Applying Landrow, the trial judge held in the present case that CLIL was not liable for duty in relation to CPFML’s disposition of units to CPNPL. This was because CPFML held its 39% interest in Trust 1 on trust for the Old Holding Trust. Therefore, according to Landrow, CPFML did not hold the relevant beneficial interest as required by s 76(1) and there was no transaction involving an entity with a relevant ‘interest’ in a land rich landholder, which would attract the operation of s 89C of the Act.
The Commissioner appeals from the decision of the trial judge on the basis that the Court was in error in Landrow and that the decision should not be followed in the present case. Principally, the Commissioner submits that an entity may have a beneficial entitlement to a distribution from a landholder on a winding up and therefore, a sufficient interest in that landholder, despite being a trustee for another entity.
In the circumstances, it is necessary to consider whether this Court should reconsider Landrow, as submitted by the Commissioner.
B. When will the Court of Appeal depart from an earlier decision?
Although the Court of Appeal is not strictly bound by its previous decisions (and those of the Full Court before it), a review of the authorities compels the conclusion that the Court of Appeal will only depart from one of its own previous decisions (or a decision of the Full Court) if that decision is plainly wrong.
In Clutha Developments Pty Ltd v Barry[3], Gleeson CJ said that it is only appropriate for an appellate court to overrule one of its earlier decisions where it has a ‘strong conviction’ as to the incorrectness of the earlier decision.[4] His Honour went further and said:
Where the point concerns the meaning of unclear statutory language, and the view expressed in the earlier decisions is well and truly open, a mere preference for a different view will not suffice.[5]
[3](1989) 18 NSWLR 86.
[4]Ibid 100.
[5]Ibid.
In Nguyen v Nguyen[6], the High Court considered whether an intermediate appellate court should regard itself as bound by its previous decisions. In a joint judgment, Dawson, Toohey and McHugh JJ said:
Where a court of appeal holds itself free to depart from an earlier decision it should do so cautiously and only when compelled to the conclusion that the earlier decision is wrong. The occasions upon which the departure from previous authority is warranted are infrequent and exceptional and pose no real threat to the doctrine of precedent and the predictability of the law. [7]
[6](1990) 169 CLR 245 (‘Nguyen’).
[7]Ibid 269 (citations omitted).
In Avco Financial Services Ltd v Abschinski & Ors[8] the Full Court applied Nguyen. It held that it was free to depart from an earlier Full Court decision, but should do so only in exceptional circumstances and when convinced that the earlier decision was wrong.[9]
[8][1994] 2 VR 659.
[9]See also R v Roussety (2008) 24 VR 253 and R v BDX (2009) 24 VR 288.
Senior Counsel for the Commissioner accepted that he needed to show that Landrow was plainly wrong. He submitted that this could be achieved by demonstrating that the decision was erroneous. He asserted that this approach was consistent with the decision of Allsop P in Gett v Tabet[10], where his Honour said that:
[294]The phrase “plainly wrong” or “clearly wrong” can be understood to focus on at least one of more of the following attributes of a ruling:
(a) the fact of error is immediately…apparent from reading the relevant judgment;
(b) the strong conviction of the later court that the earlier judgment was erroneous and not merely the choice of an approach which was open, but no longer preferred… and
(c) the nature of the error that can be demonstrated with a degree of clarity by the application of correct legal analysis.
[295]In our view, the first possibility is liable to be highly subjective and should not be required, where the other two possibilities are satisfied. The existence of (b) and (c) is a precondition to the exercise of the power to depart from earlier authority.
[10](2009) 254 ALR 504, 565-6.
Senior Counsel for the Commissioner contended that the burden of proving that Landrow is plainly wrong was satisfied by establishing that there was a rival construction of the Act, which unlike the construction preferred by this Court in Landrow, promotes the purposes of the Act. The argument was based on s 35(a) of the Interpretation of Legislation Act 1984 (Vic), which provides that a construction which promotes the purpose or object of an Act must be preferred to one that does not.
Accordingly, it is necessary to consider whether Landrow is plainly wrong.
C. Is Landrow plainly wrong?
Landrow is a unanimous decision of the Court of Appeal comprising Neave, Harper and Hansen JJA. The judgment was delivered on 6 August 2010. The Court upheld the decision of Mandie J (as his Honour then was) sitting in the Trial Division.
The decisions of both the trial judge and the Court of Appeal in Landrow are not only recent but also, with respect, carefully considered.
The reasoning of the Court of Appeal and its preferred interpretation and construction of the Act were, in my opinion, well and truly open to the Court.
It is also relevant to note that most of the submissions made by the Commissioner in this appeal were made to the Court of Appeal in Landrow. This is not a case of new and novel submissions being made in respect of an issue previously considered by the Court (although in this appeal the Commissioner did proffer an alternative construction of the relevant provisions of the Act). In these circumstances, in my view, the Court should be particularly cautious before declining to follow one of its own recent decisions.[11]
[11]See R v Roussety (2008) 24 VR 253, [84].
In my opinion, the decision and reasoning in Landrow is not plainly wrong and should be followed in the present case.
The Legislation
The Act has been subject to several amendments and alterations, both before and after the transactions the subject of this appeal. The parties agree that for the purposes of the appeal, as in Landrow, the outcome is governed by the Act as it stood at 11 October 2006.
Section 89C of the Act was enacted with effect from 13 May 2004. The explanatory memorandum accompanying the Bill described s 89C as dealing with ‘a means of acquiring high-value real property from a private unit trust for the portfolio of a proposed managed fund, without payment of duty’.[12]
[12]Explanatory Memorandum, Statute Taxation Acts (Tax Reform) Bill 2004 (Vic) 24.
Section 89C(1) and (2) provide:
(1) This section applies if—
(a)a land rich landholder that is a private unit trust scheme becomes, through whatever means, a public unit trust scheme; and
(b)under an agreement or arrangement made before the scheme becomes a public unit trust scheme—
(i)a payment is made to or on behalf of a person who, or persons who together, held units representing an interest of at least 20% in the private unit trust scheme immediately before the agreement or arrangement was made; or
(ii)a person referred to in subparagraph (i) ceases to hold an interest in the public unit trust scheme that is relevant to an interest of at least 20% in the private unit trust scheme immediately before the agreement or arrangement was made (whether as a consequence of a payment referred to in that subparagraph or otherwise).[13]
[13]Emphasis added.
(2)On a payment referred to in subsection (1)(b)(i) being made or on a person ceasing to hold an interest referred to in sub-section (1)(b)(ii)—
(a)the unit trust scheme is taken, for the purposes of this Part, to have always been a private unit trust scheme; and
(b) all acquisitions of the interests of persons referred to in sub-section (1)(b)(i) are taken to have been a single acquisition of an interest in the private unit trust scheme …
It is a precondition to the operation of s 89C that either a payment was made to or on behalf of a person or persons who held an ‘interest’ of at least 20% in a land rich unit trust,[14] or that such a person ceased to hold an ‘interest’ in the land rich unit trust.[15]
[14]Duties Act 2000 (Vic) s 89C(1)(b)(i).
[15]Ibid s 89C(1)(b)(ii).
Section 3 of the Act defines ‘interest’ in a landholder as having the meaning given by s 76(1). It was that definition, in the context of whether a person had a beneficial entitlement (together with the meaning of acquire an interest in s 77(1) of the Act), that was the subject of the decision in Landrow.
At the relevant time, s 76 of the Act provided:
(1)A person has an ‘interest’ in a landholder if the person has a beneficial entitlement (otherwise than as a creditor or other person to whom the landholder is liable), whether directly or through another person, to a distribution of property from the landholder on a winding up of the landholder.
(2)A person who, by virtue of sub-section (1), has an interest in a landholder has a ‘significant interest’ in the landholder if the person, in the event of a distribution of all the property of the landholder immediately after the interest was acquired, would be entitled to—
(a)in the case of a private unit trust scheme—20% or more of the property distributed; or
(b)in the case of a landholder other than a private unit trust scheme—50% or more of the property distributed.[16]
(3)In this section –
“person” includes a landholder;
“winding up” of a landholder that is a unit trust scheme means the vesting of the trust property in the beneficiaries.
[16]Emphasis in original.
Section 77 of the Act provided:
(1)A person acquires an interest in a land rich landholder if the person obtains an interest beneficially, including if the person’s interest increases, in the landholder regardless of how it is obtained or increased.
(2)Without limiting sub-section (1), a person may acquire an interest in a land rich landholder in the following ways—
(a)the purchase, gift, allotment or issue of a unit or share;
(b)the cancellation, redemption or surrender of a unit or share;
(c)the abrogation or alteration of a right pertaining to a unit or share;
(d) the payment of an amount owing for a unit or share.
…
(3)To remove any doubt, it is declared that an acquisition by way of transfer of units or shares is not necessary to acquire an interest in a land rich landholder.
The Act was amended by the State Taxation Acts (Tax Reform) Act 2004 (Vic), which was drafted in a less complex manner than the earlier provisions. That Act introduced, among other things, the word ‘beneficial’ before the word ‘entitlement’ in s 76(1) and introduced s 77(1), which includes the words ‘obtains an interest beneficially’ (as seen above). The Explanatory Memorandum did not indicate any reason for the insertion of those words, although it said that s 77(1) ‘states the interest must be acquired beneficially but can be acquired by any means.’[17]
[17]Explanatory Memorandum, State Taxation Acts (Tax Reform) Bill 2004 17.
In the Second Reading Speech accompanying the Bill, the then Treasurer, the Hon Mr Brumby, commented that:
the rules for calculating the duty on high-value property transactions conducted through private companies and trusts are to be revised in light of current business practices, which have the effect of reducing taxation liabilities ...
The fundamental basis of stamp duty is that changes in beneficial ownership in land, however achieved, are subject to a conveyance duty. For reasons of equity and revenue protection, it is essential that duties are applied equitably and effectively.
The amendments to the land-rich tests will ensure that an appropriate amount of tax is collected on all transactions in property involving land.[18]
[18]Victoria, Parliamentary Debates, Legislative Assembly, 13 May 2004, 1316 (The Hon John Brumby, Treasurer).
In Landrow, the trial judge held, in the context of considering whether ss 78 and 79 of the Act applied to a particular transaction, that a trustee could neither hold an ‘interest’ nor ‘acquire’ an interest for the purposes of ss 76 and 77. His Honour held that under the provisions of Part 2 of Chapter 3 and in particular s 76(1) (as in force when the transactions occurred), a person who held shares in a land rich private company or units in a land rich private unit trust did not hold an ‘interest’ in the company or unit trust for the purposes of the land rich provisions, if the person held the shares or units in the capacity of trustee.
The Court of Appeal affirmed the decision of the trial judge, holding that where a person acting in the capacity of a trustee acquires shares or units in a land rich landholder, that person does not acquire an ‘interest’ within the meaning of s 76(1) because the person has not obtained an interest ‘beneficially’.
It should be noted that it is no longer necessary for the Commissioner to show the acquisition or holding of a beneficial interest because amendments made in 2007 to s 77 of the Act[19] provide that a person who takes an interest as a trustee is now to be treated as obtaining it beneficially.[20]
[19]State Taxation Acts Amendment Act 2007 (Vic) s 5(1), which inserted s 77(2AA) in the Act.
[20]Consequently, the issues raised by this appeal are only relevant to transactions that occurred between 13 May 2004 and 25 July 2007.
The Reasoning in Landrow
In the Court of Appeal in Landrow, the Commissioner contended that an entity could hold an ‘interest’ for the purposes of s 76(1) of the Act, despite being a trustee and holding units on behalf of another entity. The Court of Appeal rejected this construction. It gave three reasons for its decision. The reasons are compelling.
First, the Court held that the legislation must be interpreted as a coherent whole[21] and it followed that ss 76 and 77 must be read together with ss 78 and 79. Under s 78 of the Act, liability to pay duty under the land rich provisions arises when a person makes a ‘relevant acquisition’. Under s 79, a relevant acquisition is made when a person ‘acquires an interest in a land rich landholder’, that is of itself, or by operation of provisions permitting aggregation of interests, a ‘significant interest’. [22]
[21]The Court referred to Project Blue Sky Inc v Australian Broadcasting Authority (1997) 194 CLR 355, 381-2. The principles of statutory construction were not in dispute.
[22]Duties Act 2000 (Vic) s 79(1)(a)(i).
The Court held that there was an inter-relationship between the sections and that:
… When [s 76 and s 77] are read together we consider that they support the conclusion that ss 78 and 79 only apply to an interest in a land rich landholder if that interest is obtained beneficially. In other words, we would accept the submission of counsel for the respondents as to the inter relationship between the sections. We therefore consider that the trial judge correctly found that:
ss 76 and 77 appear to impose a double requirement. An “interest” is defined by s 76(1) in terms of a notional beneficial entitlement but the interest, as so defined, is required to be obtained “beneficially” by s 77(1). So that even if the Commissioner’s submissions about the meaning of s 76(1) are correct, the provisions of s 77(1) must also be satisfied. [23]
[23]Commissioner of State Revenue v Landrow Properties Pty Ltd [2010] VSCA 197, [53].
No compelling reason has been advanced as to why that analysis and conclusion are wrong.
Senior Counsel for the Commissioner properly conceded that the sections should be read together. However, he submitted that in context, beneficial entitlement (and beneficial interest) means something different to the notion of being entitled to retain for one’s own use and enjoyment or benefit. The context that required such a departure from the usual notion of a beneficial interest he submitted, was the reference to a ‘beneficial entitlement’ to ‘a distribution of property from the landholder on a winding up of the landholder.’
Senior Counsel referred to the definition of winding up in s 76(3) of the Act. At the relevant time, it provided:
“Winding up” of a landholder that is a unit trust scheme means the vesting of the trust property in the beneficiaries.
Senior Counsel for the Commissioner submitted that the Court in Landrow did not refer to s 76(3) and that the section was important in distinguishing the usual notion of beneficial interest from the concept relevant to this section of the Act. It introduced the notion of property vesting in the beneficiaries on a winding up.
It was submitted that CPFML was a beneficiary in the winding up of Trust 1. It held all the units in Trust 1. It was the entity entitled to receive a distribution of the property of Trust 1 upon its vesting. No-one else could properly receive or call on the trustee for such a distribution. Consequently, CPFML had a beneficial entitlement to a distribution of the property of Trust 1 as against the trustee.
Senior Counsel for the Commissioner contended that the property the subject of Trust 1 was different to the property the subject of the Old Holding Trust. He argued that while the property of Trust 1 was land, the property of the Old Holding Trust was units in Trust 1.
It was then submitted that ‘beneficiary’ and ‘beneficial’ were cognate expressions and that the word beneficial, when qualifying ‘entitlement’ in s 76(1) and ‘interest’ in s 77(1), should be read and understood accordingly. Senior Counsel for the Commissioner submitted, as was argued in Landrow, that s 77 was not concerned with the nature of the interest, but merely the method of acquisition of an interest. He submitted that the word ‘beneficially’ in s 77(1) would still have effect according to this construction because it meant that an interest may be acquired when, for example, a contract for the sale of shares in a landholding company is completed, even though formal registration is delayed.
This construction, it was submitted, was preferable to the construction in Landrow. The decision in Landrow was plainly wrong, it was submitted, because the context required beneficial entitlement to be considered in the context of a winding up and no more. It was contended that it was simply not relevant that the beneficiary (CPFML) had trustee or fiduciary obligations in relation to its receipt of the distribution. This was a subsequent matter that had no effect on and could not qualify or affect the rights of the beneficiary to a distribution in the winding up. The party administering the winding up of Trust 1 could not look beyond the beneficiary.
Senior Counsel for the Commissioner submitted that this construction of s 76(1) was bolstered by contextual factors. In this regard, he drew attention to:
(a)the reference to ‘associated person’ in s 79(1)(a)(ii) of the Act, which is defined in s 3(1) to expressly include trustees. He submitted that if a trustee can have or acquire an interest for the purposes of s 79, ‘beneficial entitlement’ in s 76(1) should not be construed in a manner that excludes a trustee from having an ‘interest.’
(b)s 85(1)(b)(i) of the Act, which provides that an acquisition of an interest in a landholder by a trustee in bankruptcy is an exempt acquisition. He submitted that this exemption would be redundant if the construction preferred in Landrow was accepted.
(c)the definition of ‘unit’ and ‘unit trust scheme’ in s 3(1) of the Act, which he submitted was consistent with the use of the word ‘beneficial’ as a cognate of ‘beneficiary’.
I do not accept the construction contended for by the Commissioner.
The fact that as a unit holder, CPFML, was a beneficiary ‘entitled’ to a distribution of property on a winding up says nothing about its ability to retain the distribution for its own use. It merely identifies to whom the distribution goes and nothing more. It is necessary to look further at the quality of the receipt. If immediately upon receipt, the beneficiary is fixed with fiduciary obligations it is difficult to contend that, contrary to those obligations, it is free to use such distribution for its own purposes. It cannot do so. Consequently, it is entitled to the proceeds, but not beneficially. A beneficiary does not necessarily have a beneficial interest. The words and expressions are not cognate in this context. The contextual arguments made on behalf of the Commissioner do not alter my opinion. Further, I consider that this Court was correct in Landrow in holding that ss 76(1) and 77(1) impose a double requirement.
In addition to the reason identified above, the Court of Appeal in Landrow gave two further reasons for rejecting the construction contended for by the Commissioner. The second reason given was that meaning had to be attributed to the amendments made to ss 76 and 77(1) of the Act by the State Taxation Acts (Tax Reform) Act 2004 (Vic).
As noted above, the amendments made to the Act in 2004 included, among others, the insertion of the word ‘beneficial’ before ‘entitlement’ in s 76(1) and the addition of a new s 77(1) which provided that:
A person acquires an interest in a land rich landholder if the person obtains an interest beneficially, including if the person’s interest increases, in the landholder regardless of however it is obtained or increased.[24]
[24]Emphasis added.
Before the Court of Appeal in Landrow and in the present case, the Commissioner submitted that these words are otiose and were not intended to change the meaning of the provisions. The Commissioner argued that the purpose of these amendments was to clarify, not change, the law. In this regard, Senior Counsel for the Commissioner referred to the fact that prior to the 2004 amendments, ‘entitled’ had been defined as ‘beneficially entitled’. Pursuant to s 39 of the Interpretation of Legislation Act 1984 (Vic), the word entitlement in s 76(1) was therefore to be construed as meaning ‘beneficially entitled.’
Senior Counsel for the respondent submitted that the 2004 amendments made significant changes to the Act. He noted that in addition to the amendments outlined above, the amending Act also inserted the words ‘whether directly or through another person’ in s 76(1). According to the respondent, the amendments made in 2004 reflect a coherent legislative scheme designed to ‘look through’ acquisitions by a trustee to the person or persons who are beneficially entitled to the trust property.
I agree and I do not accept the Commissioner’s argument. The earlier version of s 77 provided that an interest in a land rich private corporation could be acquired in a number of different ways and was virtually identical to the current provision in s 77(2). The addition of s 77(1) by the amendments made in 2004 therefore goes well beyond clarifying the effect of the previous provision.
At this point, I should also note that the Act was further amended in 2007 by the State Taxation Acts Amendment Act 2007 (Vic), which introduced s 77(2AA). As noted above, that section provides that ‘a person is taken to obtain an interest beneficially if the person obtains the interest as trustee of a trust.’ Again, Senior Counsel for the Commissioner asserted that the purpose of this amendment was merely to clarify, rather than change, the law. He referred to the object of the amending Act in this regard. In my view, this reference alone is insufficient to justify the construction of s 76(1) for which the Commissioner contends.
The third reason given by the Court of Appeal in Landrow was that the normal meaning had to be given to the words ‘beneficial entitlement’ and that there was nothing in the Act to suggest otherwise.
Undoubtedly, a revenue or other statute may use words or concepts differently from the way they are used under the general law. But there is no indication in the Act that the concepts of ‘beneficial entitlement’ and ‘obtaining an interest beneficially’ were intended to have a meaning specific to the legislation. It is trite law that a person who takes property on trust does not acquire a ‘beneficial entitlement’ in the trust property or ‘obtain an interest beneficially.’
Senior Counsel for the Commissioner submitted further that it cannot be assumed that whenever a legal estate is vested in a trustee, there must be some other person who is entitled to the estate in equity. He contended, on the basis of the decision of Griffith CJ in Glenn v Federal Commissioner of Land Tax[25], that in some cases there will be no other person who is entitled to the estate in equity and in such cases, the trustee is entitled to both the legal and equitable estate. The argument continues that since the property the subject of the Old Holding Trust (ie units in Trust 1) is not the same as the property in Trust 1 (ie the land), it cannot be said that CPFML does not possess the beneficial interest represented by the distribution. In my opinion, the distinction is artificial and does not affect the analysis. Whatever the form of the distribution, that is whether the trustee receives a monetary distribution, a distribution in specie or a repurchase of the units, the crucial point is whether the trustee is entitled to retain such distribution for its own use.
[25](1915) 20 CLR 490, 497-8.
The reasoning of the Court of Appeal in Landrow is not plainly wrong. In fact, I respectfully agree with the reasoning. The rival construction contended for by the Commissioner may well promote the object underlying the Act, but for the reasons given, it is not open.
D. The Commissioner’s alternative construction
By a supplementary outline of submissions dated 19 July 2011, the Commissioner made further submissions in relation to the construction of s 76(1). These submissions, which were not made below or before any Court in Landrow, were developed further in argument.
The further submission was to the effect that s 76(1) of the Act creates a scheme whereby a person may hold an interest directly or on a ‘look-through’ basis.[26] The terms of the relevant trust deed will determine how the interest is held. Senior Counsel for the Commissioner submitted that:
In a “look-through” case, the inquiry is whether there is a beneficiary of the trust who can be said to have a “beneficial entitlement”, “through” the trustee, to the landholder’s property on a notional distribution thereof. If there is, then that beneficiary has an “interest” in the landholding company or unit trust for the purposes of s 76(1) and Chapter 3. This will be the case where the shares or units are held subject to a bare trust.[27]
[26]As mentioned above, when referring to an interest in s 76(1) the words ‘whether directly or through another person’ are used. This phrase has been referred to as a ‘look-through’ provision.
[27]Appellant’s supplementary outline of submissions at [5].
However, it was submitted further that in cases where there is no beneficiary, such as a discretionary trust, the ‘look-through’ provisions do not operate and as a consequence, the trustee must have the relevant beneficial entitlement. This is because the legislation only envisages two possible alternatives, the interest must be held beneficially or on a ‘look-through’ basis. Senior Counsel for the Commissioner submits that the construction in Landrow provides for an unauthorised alternative, where no one holds the beneficial interest.
It was submitted further that various clauses in the trust deed governing and constituting the Old Holding Trust (for example, the discretionary distribution of income) are such that the beneficiary of the Old Holding Trust does not have any beneficial entitlement. If it did not have such an entitlement it follows, it was submitted, that the trustee had such beneficial entitlement.
I do not accept the submission. The Old Holding Trust is a unit trust and the beneficial interest of the trust is divided into units. The sole unit holder, CL2, is listed in a register attached to the trust deed. It is that beneficiary that clearly has a beneficial interest. This interest is not relevantly diminished or qualified because the trustee retains a discretion as to distribution of income. As Senior Counsel for the respondent highlighted, clause 13.9 of the trust deed gives the beneficiary power to direct the trustee to do effectively anything, so long as it is lawful, including distributing the assets of the trust.
CPFML, as trustee of the Old Holding Trust, is clearly subject to various fiduciary duties to CL2 as the sole beneficiary. Whatever the nature and extent of the fiduciary relationship and any restrictions or discretions in the trust deed, one thing remains certain: CPFML does not have any beneficial interest. Further, the whole enquiry is directed to whether CPFML has a beneficial interest for the purpose of the Act. That it may be difficult to identify a beneficiary – if this is the case - or that the trustee retains a discretion in relation to the distribution of income and capital, does not create an interest that does not otherwise exist. Further, it is not correct to say that in the case of a discretionary trust there is no beneficiary, as the beneficiaries make up the list of people to whom the trustee is permitted to make a distribution in its discretion. Further, the cases relied on by the Commissioner are distinguishable.[28]
[28]In this regard, the Commissioner relied on CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 (“CPT Custodian”), Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490 (‘Glenn’) and Kennon v Spry (2008) 238 CLR 366 (‘Kennon’). CPT Custodian and Glenn dealt with different statutory provisions in a different statutory context, namely, the phrase ‘entitled to any land for an estate of freehold in possession’ in the Land Tax Assessment Act 1910-1914. They can therefore be distinguished. Kennon is also distinguishable as it was concerned with the meaning of the phrase ‘property of the parties to a marriage’ in s 79(1)(a) of the Family Law Act 1975 (Cth) in the context of a very particular factual situation, where the sole trustee of a discretionary trust had very broad powers of distribution.
I would dismiss the appeal.
E. Notice of Contention – the s 89C matters
By its Notice of Contention, CLIL contends that s 89C does not apply to the transactions irrespective of whether or not Landrow is correct. In the alternative, it is submitted that if s 89C does apply, it only applies to the 39% acquisition.
Having found that Landrow was correctly decided, it is strictly not necessary to consider whether, assuming Landrow is wrong, s 89C did not in any event apply. The trial judge held that but for Landrow, s 89C would otherwise be applicable and duty would be payable on both the 39% acquisition and the 61% acquisition.[29]
[29]Although the trial judge would have remitted the matter back to the Commissioner for consideration, according to law, of whether the exemption in s85(2) applied and whether the penalty should have been reduced.
The section is set out in paragraph 34 above.
In summary, the following conditions are required in order to establish liability to duty under s 89C:
(a)a ‘land rich landholder that is a private unit trust scheme’ (ie Trust 1) is converted to a public unit trust scheme;
(b)a person or persons who held units representing an interest of at least 20% in ‘the private unit trust scheme’ (ie Trust 1):
(i) receives a payment; or
(ii)ceases to hold an interest in ‘the private unit trust scheme’ (ie Trust 1);
(c)the payment or cessation of the holding of such interest occurred under an agreement or arrangement made before ‘the scheme’ is converted to a public unit trust scheme (ie 23 October 2006).
Where the conditions are satisfied, ss 89C(2) and (3) provide as follows:
(a)the unit trust scheme is taken to remain as a private unit trust scheme (s 89C(2)(a));
(b)all acquisitions of the interests of persons referred to in s 89C(1)(b)(i) are taken to be a single acquisition of an interest in the unit trust scheme (s 89C(2)(b));
(c)the Commissioner is then required to make an assessment of the duty chargeable under the Act in respect of that single acquisition (s 89C(2)(c));
(d)whether duty is payable will turn on whether the interest acquired is a ‘significant interest’ because it is only if that is the case that there will be a relevant acquisition under s 79. This is to be determined by taking into account only the interests that existed immediately before the ‘agreement or arrangement’ referred to in s 89C(1)(b) was made (s 89C(3)); and
(e)the persons liable to the duty, if payable, will be the persons making the deemed single acquisition and the trustee of the unit trust, on a joint and several basis (s 82).
First condition
It is common ground that the first condition referred to in paragraph 75 above was satisfied when Trust 1 converted to a public unit trust scheme on 23 October 2006.
Second condition
As to the second condition, the respondent accepts that a payment was made to CPFML and that it held, as trustee, more than 20% of the issued units in a landholder. However, the respondent contends that the event which resulted in the payment to CPFML was only the 39% acquisition and not the 61% acquisition. It submits that the second condition has not been satisfied in relation to the 61% acquisition.
In respect of the 61% acquisition, the respondent submitted that the Old Holding Trust did not receive any payment (s 89C(1)(b)(i)), nor did it ‘cease to hold an interest’ in Trust 1 (s 89C(1)(b)(ii)).
The respondent submits that the word ‘cease’ in s 89C(1)(b)(ii) has its ordinary meaning of ‘come to an end’. A consequence of the issue of the units to the public was that CPFML’s unit holding represented a smaller proportion of a larger fund. However, it still held the same interest, namely 208,893,199 units, which had the same rights and values as before the issue of units to the public. CPFML’s interest in the Old Holding Trust did not cease, nor did it reduce in value. The respondent contends that insofar as the trial judge suggests the contrary in the judgment at paragraph 12, his Honour was in error.
The Commissioner submitted that CLIL was liable to duty in relation to the 61% acquisition because of the operation of s 89C(2)(b). It was submitted that under s 89C(2), a consequence of the 39% acquisition was not only to deem the unit trust scheme to have always been a private unit trust scheme, but also to regard all acquisitions to have been a single acquisition of an interest in the private unit trust scheme. It was submitted further that the 61% interest held by public investors had been the very interest of the Old Holding Trust.
However, the only interest of CPFML (the applicable party under s 89C(1)(b)(i)) acquired by any party, was the 208,893,199 units acquired by CPNPL. Nothing else was acquired. As submitted by the respondent, this interest remained both before and after the issue of units to the public. The issue of 61% of the units to the public did not involve any acquisition from or payment to CPFML.
Accordingly, in my opinion the second condition has not been satisfied in relation to the 61% acquisition. The allotment of new units to the public did not involve any disposal by CPFML as trustee for the Old Holding Trust of any of its interests in Trust 1 and correspondingly, the new unit holders (the public) did not acquire any part of the interest held by CPFML as trustee for the Old Holding Trust. This follows from the creation of new units and the issue of such units to the public.
The second condition was however satisfied, as admitted, in relation to the 39% acquisition.
Third condition
The respondent next submitted that the third condition was not satisfied because not only must the events contemplated by s 89C(1)(b)(i) and (ii) occur under an agreement or arrangement made before the scheme became a public unit trust scheme (which is admitted), but also and more relevantly, the private unit trust must be a land rich landholder at the time the agreement or arrangement is made. The respondent submits that Trust 1 was not a landholder at or before 13 September 2006 because it did not hold any land in Victoria at that date and consequently, the third condition has not been satisfied.
The trial judge held that although the relevant agreement or arrangement was made by at least 13 September 2006, the private unit trust did not need to be a land rich landholder at such time. It was sufficient if the landholder was land rich only before the date of conversion to a public unit trust.
The respondent submitted that the trial judge’s construction was not correct.
It contended that the following features of s 89C support its construction:
(a)Section 89C(1)(a) is concerned with a private unit trust scheme which (by virtue of the use of the present tense) presently constitutes a land rich landholder.
(b)Section 89C(1)(b) refers to ‘the scheme’ (which is not a defined expression) immediately after ‘before’, and to ‘private unit trust scheme’ in both paragraphs (i) and (ii) (which are defined expressions). The use of ‘the scheme’ in the introductory part of paragraph (b) rather than the defined expression ‘private unit trust scheme’ (as in paragraph (i) and (ii)) suggests that the intention was to refer back to the compound expression in s 89C(1)(a) being ‘a land rich landholder that is a private unit trust scheme’. Otherwise, consistently with the other references in s 89C(1)(b), the expression ‘private unit trust scheme’ would have been used.
(c)As there does not appear to be any other explanation for using ‘the scheme’ in the opening part of s 89C(1)(b) rather than ‘private unit trust scheme’, this suggests that the intention was that ‘the scheme’ would refer back to a private unit trust which was land rich.
(d)The use of the definite article ‘the’ in the phrase ‘the scheme’ in the opening part of s 89C(1)(b) suggests a reference back to the private unit trust scheme referred to s 89C(1)(a) which ‘is’ (present tense) a land rich landholder.
Further, the respondent submitted that the policy of the provision supports it because it is apparent from s 250D(2) and (3) of the Act that the legislative scheme of which s 89C was intended to form part contemplated that the transfer of land to a private unit trust scheme in anticipation of a public float of that private unit trust scheme would be exempt from duty under the corporate reconstruction exemption (as occurred here). Clearly, the public float would introduce new investors who would acquire ‘interests’ in the unit trust and would enable the pre-float unit holders to transfer their units. The respondent contended it would be an odd and capricious result if the corporate reconstruction exemption under s 250B would be undone when the public float occurs as a result of s 89C.
Finally, the respondent submitted that where two constructions of a provision are reasonably open, the Court should prefer the construction which more closely conforms to the legislative intent discernable from other provisions of the statute.[30] It submitted that its construction should be preferred on this basis.
[30]The following authorities were referred to; Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 320; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408.
Senior Counsel for the Commissioner contended that s 89C(1)(b) did not impose a requirement that the private unit trust be land rich at the time the agreement or arrangement was made, either expressly or by necessary implication. It was submitted that the critical event was (as held by the trial judge) the conversion of the private unit trust scheme to a public unit trust scheme. The ‘scheme,’ it was submitted, was a reference back to the private unit trust scheme referred to in s 89C(1)(a).
According to Senior Counsel for the Commissioner, the scheme of the land rich provisions placed significance on the ‘land rich’ status of an entity at the time of the ‘relevant acquisition’. Section 89C operates to deem certain things and then, under s 89C(2)(c), the enquiry reverts back to the ‘normal’ land rich provisions to determine the duty that is payable in respect of the ‘single acquisition’ deemed to have been made by operation of s 89C(2)(b). Thus, whether or not a unit trust scheme was land rich and whether or not an acquisition in the unit trust scheme is a ‘relevant acquisition’ is to be determined under ss 71, 76 and 77 of the Act.
Finally, it was submitted by the Commissioner that s 89C(1)(b) says nothing as to when an acquisition must be made for it to fall within s 89C(2)(b).
I do not accept that the construction submitted by the respondent is compelled or required by the language of the provision or by the underlying policy which it expresses. The section is primarily directed to existing land rich private unit trust schemes becoming public unit trust schemes, but neither the language nor the policy requires the exclusion from s 89C of an arrangement in which a private unit trust scheme becomes land rich during the implementation of an agreement or arrangement. The section certainly does not expressly impose any such limitation.
The legislature has contemplated temporal requirements and imposed one in respect of the time at which an agreement or arrangement was made. Section 89C(1)(b) makes clear that the relevant agreement or arrangement must be made before the scheme becomes a public unit trust scheme. It therefore contemplates the existence of an agreement or arrangement before a scheme becomes a public unit trust scheme but under which (whether before or after) a specified payment is made or a specified person ceases to hold the stipulated interest. In this case, the arrangement was made by no later than 13 September 2006, the scheme became land rich on 16 October 2006 and it became a public unit trust scheme on 23 October 2006.
Accordingly, in my opinion all conditions are made out, but only in respect of the 39% acquisition.
The respondent did not press those paragraphs in the Notice of Contention dealing with available exemptions (paragraphs 7 and 8(d) of the Notice of Contention).
F. Disposition
I would order that the appeal be dismissed.
In the event that, contrary to my opinion, Landrow was not correctly decided:
(a)The 61% acquisition would not be subject to any duty and the Notice of Contention succeeds to such extent.
(b)The 39% acquisition would be subject to duty and the Notice of Contention fails to such extent.[31]
[31]Subject to the matter being remitted to the Commissioner, as recommended by the trial judge, for consideration of the exclusion.
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