Commissioner of State Revenue (Vic) v Arrigo
[2016] VSCA 339
•20 December 2016
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2016 0111
| COMMISSIONER OF STATE REVENUE |
| v |
| ANTONINO ARRIGO |
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| JUDGES: | ASHLEY, SANTAMARIA and McLEISH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 8 November 2016 |
| DATE OF JUDGMENT: | 20 December 2016 |
| MEDIUM NEUTRAL CITATION: | [2016] VSCA 339 |
| JUDGMENT APPEALED FROM: | Arrigo v Commissioner of State Revenue (Review and Regulation) [2016] VCAT 1111 (Judge Dyer) |
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TAXATION – Duty – Group investors purchased property for redevelopment and subdivision – Property held on unit trust – Plan of subdivision registered, each subdivided lot subject of new certificate of title – Trustee transferred interest in one lot to unitholder – Exemption for duty in respect of transfer of property subject to ‘fixed trust’ – Whether duty payable on transfer to unitholder – Whether trust deed created initial unit trust existing before registration of plan of subdivision and subsequent ‘fixed trusts’ in favour of respective unitholders arising upon registration of plan of subdivision – Duties Act 2000 s 36 – Appeal allowed.
JUDICIAL REVIEW – Appeal – Questions of law – Whether construction of statute and trust deed are questions of law – Whether application of Duties Act 2000 to facts is question of law – Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315; Hope v Bathurst City Council (1980) 144 CLR 1, applied.
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| APPEARANCES: | Counsel | Solicitors |
| For the applicant | Mr C J Horan QC with Mr C Young | Solicitor to the Commissioner for State Revenue |
| For the respondent | Mr N A Kotros | Rescom Property Lawyers Pty Ltd |
ASHLEY JA
SANTAMARIA JA
McLEISH JA:
Introduction
Chapter 2 of the Duties Act 2000 (‘Duties Act’) is entitled ‘Transactions Concerning Dutiable Property’. Part 1 of chapter 2 identifies which transfers and transactions are dutiable. Part 5 makes provision for exemptions and concessional rates of duty. Division 1 of Pt 5 relates to ‘Trusts’. It makes separate provision for (a) property passing to beneficiaries of fixed trusts;[1] (b) property passing to beneficiaries of discretionary trusts[2] and property passing to unitholders in unit trust schemes[3]. The definition of ‘fixed trust’ ‘excludes a trust to which a unit trust scheme relates’. Each provision has its own specific requirements for there to be a full or partial exemption from duty.
[1]Duties Act s 36.
[2]Duties Act s 36A.
[3]Duties Act s 36B.
In the present case, a group of five investors decided to purchase a property for redevelopment and ultimately subdivision into five separate lots or apartments. Shortly before the settlement of the purchase and the transfer of the land, the investors established a unit trust by deed as the vehicle to hold the property during the development. The units were divided into five nominated classes with a hundred units of each given class. Each unit holder held all the issued units of one of the classes. At the time of the purchase of the property, it was envisaged that the property would be subdivided into five separate titles and that each lot or apartment would be distributed to the respective unit holder.
The question in the present case was whether the eventual transfer to a unitholder of one such lot or apartment was exempt from duty, and, if so, upon what basis? Notwithstanding that it was common ground that, before the transfer of any lot or apartment, the trust was a ‘unit trust scheme’ within the Duties Act, the Victorian Civil and Administrative Tribunal (‘the Tribunal’) held that, upon registration of the plan of subdivision, a fixed trust came into existence and that the subsequent transfer of the lot to the respondent unitholder was pursuant to a fixed trust, with the result that s 36, and not s 36B, applied to the transfer.[4]
[4]Arrigo v Commissioner of State Revenue [2016] VCAT 1111 (‘Reasons’).
The Commissioner of State Revenue (‘the Commissioner’) has applied for leave to appeal. He contended that s 36B applied to the transfer, not s 36. For the reasons given below, the application for leave should be granted and the appeal allowed.
Summary of facts
In accordance with a contract of sale dated 14 November 2009, ResCom 34 Petrie Street Pty Ltd purchased the property at Units 1–5, 34 Petrie Street, Frankston (‘the Parent Property’) for $906,000. The Parent Property was the subject of Certificate of Title Vol 8478 Folio 118 (‘the parent title’).
By a trust deed dated 30 January 2010 (‘the trust deed’), the ResCom 34 Petrie Unit Trust was established with ResCom 34 Petrie Street Pty Ltd as trustee. The initial unitholders were:
(a) Ian Hughes;
(b) Antonino Arrigo;
(c) Craig Dann and Mel Yates;
(d) Matthew Griffin; and
(e) Ange Manson and Doug Manson.
Clause 11.1 of the trust deed provided:
11.1The Trustee declares that the Trustee will from the date of this Deed hold the Trust Fund and the income derived from it in trust for the Unitholders on the terms and subject to the provisions of this Deed.
‘Trust Fund’ was defined in clause 1:
‘Trust Fund’ means and shall comprise:
(a) the sum of the Initial Contributions;
(b)further money and property accepted by the Trustee under the trusts of this Deed;
(c) all investments representing (a) and (b);
(d) the proceeds of the sale, redemption or repayment of any investments;
(e)all investments representing the reinvestment in accordance with the provisions of this Deed of any property forming part of the Trust Fund;
(f) the proceeds of any borrowing; and
(g)all investments and property into which the above may be converted or which by the exercise of any of the powers contained in this Deed may accrue to or otherwise become subject to the trusts;
Clause 2 of the trust deed relevantly provided:
2.1The Initial Contributions and the Trust Fund shall be held by the Trustee on trust for the Unitholders and (subject to any rights or restrictions that apply to any unit or class of units issued pursuant to this Deed) in proportion to the number of units entered in the Register in their respective names.
…
2.3Before the vesting date a Unitholder is not entitled to require the Trustee to pay to him any part of the Trust Fund nor to transfer to him any of the assets or property of the Trust Fund nor to deal with any part of the Trust Fund otherwise than as provided for in this Deed.
…
2.5The beneficial interest of the Unitholders in the Trust Fund shall be divided into units and shall be vested in the unitholders for the time being. All units in the Trust Fund shall be of $1.00 each. Each unit will (subject to any rights or restrictions that apply to any classified units or class of units which may be created pursuant to the terms of this Deed) confer an equal interest in the Trust Fund but shall not confer any interest in any particular part of the Trust Fund nor in any investment but only an interest in the Trust Fund as is conferred on a unit under the provisions contained in this Deed. At any given date all of the units into which the beneficial interest in the Trust Fund is for the time being divided will be of equal value.
…
2.8The Trust Fund will initially be divided into the number of units of $1.00 each set out in the First Schedule and, unless those units are divided into classes, all units shall be designated Ordinary Units and each unit will carry an entitlement to a share in the capital of the Trust Fund on the termination of the Trust, a share in the distribution of the income of the Trust Fund in accordance with this Deed, the right to one vote in respect of each unit held. Units may be allotted on payment of at least one cent per unit with the balance payable at call.
2.9Where the initial units are expressed in the First Schedule to be divided into classes each class of unit will confer the rights and be subject to the restrictions and will be differentiated in the manner set out in the First Schedule under the heading ‘Rights and restrictions of Classes’ and any further issue of units of a class described in the First Schedule shall likewise carry the same rights and restrictions as are set out and described in that Schedule.
Clause 9 of the trust deed empowered the trustee to pay amounts of capital to any unitholder and to transfer in specie any property being part of the Trust Fund to any unitholder. Clause 13.8 of the trust deed empowered the trustee to subdivide land.
The First Schedule to the trust deed identified that the units were to be divided into classes, and the respondent was the initial unitholder of 100 ‘B class units’. The First Schedule further set out the rights and restrictions applicable to ‘B class units’:
‘B’ Class units carry a right to vote at any meeting of unitholders and an entitlement to either:
othe capital and/or income of 20% of the Trust Fund derived from the property known as Units 1–5, 34 Petrie Street, Frankston, Victoria, together with any improvements (‘Property’), prior to subdivision of the Property; or
oafter subdivision of the Property, the capital and/or income of the Trust Fund derived from the property known as Unit 2, 34 Petrie Street, Frankston, Victoria on plan of subdivisions No. , together with any improvements and an equal share of interest in the common property.
Similar provision was made in respect of the ‘A’, ‘C’, ‘D’ and ‘E’ class units. That is, each of the other investors was allotted all the units of a particular class.
Duty was assessed and paid on the trust deed.
By a transfer of land dated 15 February 2010, the Parent Property was transferred to ResCom 34 Petrie Street Pty Ltd. Duty was subsequently paid on that transfer.
On 25 March 2013, plan of subdivision PS 649733K was registered, subdividing the Parent Property into 5 lots, each of which became the subject of a new certificate of title. Lot 2 (in respect of Unit 2) was the subject of Certificate of Title Vol 11411 Folio 764 (‘the child title’).
On or around 15 April 2013, Unit 2 was transferred from ResCom 34 Petrie Street Pty Ltd to the respondent.
By letters dated 17 April 2013 and 3 May 2013, the trustee requested a private ruling from the Commissioner on the application of the exemption in s 36B of the Duties Act to the transfer of Lot 2 to the respondent.
By letter dated 27 September 2013, the Commissioner determined that s 36B of the Duties Act did not apply to exempt the transfer of Lot 2 from duty, and a notice of assessment was issued on the same day (‘the assessment’).
By letter dated 26 November 2013, the respondent objected to the assessment, on the grounds that the transfer was exempt from duty under s 36 of the Duties Act (property passing to beneficiaries of fixed trusts); that the transfer was exempt from duty under s 36B of the Duties Act (property passing to unitholders in unit trust schemes); that by reason of s 27 of the Duties Act (partitions of land), the duty payable was nil or an amount less than that imposed by the assessment; and that only the bare legal estate was transferred which had a nil dutiable value.
By notice of determination dated 23 July 2014, the Commissioner disallowed the objection in full.
On 10–11 May 2016, the Tribunal heard the matter. On 5 July 2016, it gave its decision. The Tribunal decided that the respondent had made out the exemption in s 36 of the Duties Act. It ordered that the determination confirming the assessment be set aside and that there should be a determination that the duty payable on the transfer is reduced to nil.
Legislation
Section 7 of the Duties Act imposes duty on certain transactions concerning dutiable property. Section 7 relevantly provides:
(1) This Chapter charges duty on —
(a) a transfer of dutiable property; and
(b) the following transactions —
(i)a declaration of trust relating to dutiable property the specification of which forms part of the declaration of trust or part of the transaction constituted by the declaration of trust;
…
(vi)any other transaction that results in a change in beneficial ownership of dutiable property (other than an excluded transaction).
…
(4) In this Chapter:
…
change in beneficial ownership includes, but is not limited to —
(a) the creation of dutiable property;
(b) the extinguishment of dutiable property;
(c) a change in equitable interests in dutiable property;
(d) dutiable property becoming the subject of a trust;
(e) dutiable property ceasing to be the subject of a trust;
…
excluded transaction means —
(a)the purchase, gift, allotment or issue of a unit in a unit trust scheme;
(b)the cancellation, redemption or surrender of a unit in a unit trust scheme;
(c)the abrogation or alteration of a right pertaining to a unit in a unit trust scheme;
(d)the payment of an amount owing for a unit in a unit trust scheme;
(e)any combination of the transactions referred to in paragraphs (a), (b), (c) and (d).
Part 5 of the Duties Act provides a number of exemptions from duty for dutiable transactions. Section 36 relevantly provides:
(1)No duty is chargeable under this Chapter in respect of a transfer of dutiable property that is subject to a fixed trust (the principal trust) to a beneficiary of the trust if —
(a)the duty (if any) charged by this Act in respect of the dutiable transaction that resulted in the dutiable property becoming subject to the principal trust has been paid or the Commissioner is satisfied that the duty will be paid; and
(b) the beneficiary was a beneficiary at the relevant time; and
(c) the transfer is-
(i) to the beneficiary absolutely; or
(ii)to the beneficiary as trustee of another trust all the beneficiaries of which are —
(A)natural persons who were beneficiaries of that other trust at the relevant time; or
(B)a corporation as trustee of a further trust all the beneficiaries of which are natural persons who were beneficiaries of that further trust at the relevant time; and
(d)the dutiable value of the property transferred does not exceed the value of the beneficiary’s interest in the principal trust; and
(e)the Commissioner is satisfied that the transfer is not part of a sale or other arrangement under which there exists any consideration for the transfer.
…
(5) In this section-
fixed trust means a trust other than —
(a)a discretionary trust (within the meaning of section 36A); or
(b) a trust to which a unit trust scheme relates; or
(c)a superannuation fund (within the meaning of section 41A);
Section 36B is headed: ‘Property passing to unitholders in unit trust schemes. It relevantly provides:
(1)No duty is chargeable under this Chapter in respect of a transfer of dutiable property that is subject to a unit trust scheme (the principal scheme) to a unitholder in the scheme if —
(a)the duty (if any) charged by this Act in respect of the dutiable transaction that resulted in the dutiable property becoming subject to the principal scheme has been paid or the Commissioner is satisfied that the duty will be paid; and
(b) the unitholder was a unitholder at the relevant time; and
(c) the transfer is in accordance with subsection (2); and
(d)the dutiable value of the property transferred as a proportion of the net assets of the principal scheme does not exceed the value of that proportion of the net assets of the principal scheme represented by the unitholding of the unitholder in the principal scheme at the relevant time; and
(e)as a result of the transfer, the value of the unitholder's unitholding in the principal scheme is reduced by the same amount as the dutiable value of the property transferred; and
(f)the Commissioner is satisfied that any duty charged as a result of the occurrence of a dutiable transaction referred to in section 7(1)(b)(vi) in relation to the property has been paid; and
(g)the Commissioner is satisfied that the transfer is not part of a sale or other arrangement under which there exists any consideration for the transfer.
…
‘Unit trust scheme’ is defined in s 3 of the Duties Act:
unit trust scheme means any arrangements made for the purpose, or having the effect, of providing, for persons having funds available for investment, facilities for the participation by them, as beneficiaries under a trust, in any profits, income or distribution of assets arising from the acquisition, holding, management or disposal of any property whatever pursuant to the trust.
The reasons of the Tribunal
On the s 36 ground, the issue for the Tribunal’s decision was whether the transfer of lot 2 to the respondent fell within the opening words of the section: ‘a transfer of dutiable property that is subject to a fixed trust … to a beneficiary of the trust’.
The respondent contended, inter alia, that lot 2, from its creation on 25 March 2013 until its transfer on 15 April 2013, was subject to a ‘fixed trust’ (as defined) for the sole benefit of the respondent.
The Commissioner contended that the trust deed constituted a single trust, which was a ’unit trust scheme’ (as defined).
In rejecting the Commissioner’s contention, the Tribunal held that the trust deed created two separate trusts: (1) an initial trust which existed before the registration of the plan of subdivision; and (2) a subsequent trust that arose on the registration of the plan of subdivision. At the time of the transfer to the respondent, the relevant land was held on the second of the trusts. The Tribunal said:
21I am satisfied that Mr Arrigo, together with the other unit holders, invested in good faith with the intention of creating a subdivision that would enable each investor, including Mr Arrigo, to obtain an identified asset upon approval of the subdivision and the issuing of separate titles.
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30In order for [Mr Arrigo’s] argument to succeed the Tribunal would need to be satisfied that the relevant trust was one created on 2[5] March 2013 at the time that the plan of subdivision was registered and the child title came into existence. At that time the parent property, which had been the subject of the original trust, ceased to exist. There was no change in the ownership of the child title as it was held by the trust company solely for the benefit of [Mr Arrigo].
…
37I am satisfied on the evidence in this case that the original Trust Deed created not a single trust to benefit each of the described unit holders, but rather an initial unit trust and subsequent fixed trusts which came into existence upon the creation of the child titles in [March] 2013.
…
39In my view it is significant that from the date of subdivision the trust operates in relation to [Mr Arrigo] solely as a beneficiary of the particular identified portion of the property. Prior to that date the trust operated jointly for all five beneficiaries, or groups of beneficiaries, in relation to the unsubdivided property.[5]
[5]Reasons [21]–[39].
Having found for the respondent on the s 36 ground, the Tribunal found it unnecessary to determine the issues relating to ss 27 and 36B of the Duties Act,[6] or the issue whether the property transferred was of nil or nominal value.[7]
[6]Ibid [50]–[51], [47]–[49].
[7]Ibid [41]–[46], [52]–[53].
The Commissioner proposes the following grounds of appeal:
(1) Ground one: construction of the trust deed
(a)The Tribunal erred in law in finding (at [37]) that the trust deed created an initial unit trust and subsequent fixed trusts which came into existence upon the registration of the subdivision and the creation of the 'child titles' in April 2013.
(b)The Tribunal should have found that, on its proper construction, the trust deed created a single unit trust, with the rights and entitlements attaching to each of the units being defined by reference to two time periods: first, prior to the subdivision; and secondly, after the subdivision.
(c)The question of law is: On its proper construction, did the trust deed create a single unit trust, and not an initial unit trust and subsequent fixed trusts?
(2) Ground two: continuation of the unit trust following the subdivision
(a)The Tribunal erred in law in finding (at [30]) that, upon registration of the plan of subdivision, the parent property which had been the subject of the original trust ‘ceased to exist’, with the apparent consequence that the property the subject of each of the child titles could not have been held subject to the same (i.e. the original) trust.
(b)The Tribunal should have held that, notwithstanding the registration of the plan of subdivision, the original unit trust continued and the child titles were held subject to that trust with the rights and entitlements attaching to each class of unit being redefined after the subdivision.
(c)The question of law is: Did the original unit trust continue after the registration of the plan of subdivision?
(3) Ground three: the statutory definition of a ‘unit trust scheme’
(a)Further or alternatively, the Tribunal erred in law in finding (at [36]) that the trust which existed after the subdivision (and before the transfer) was a fixed trust and not a trust to which a ‘unit trust scheme’ relates, as defined by the Duties Act.
(b)The Tribunal should have held that the trust which existed after the subdivision, and before the transfer was a trust to which a ‘unit trust scheme’ relates, and was therefore not a ‘fixed trust’ within the meaning of s 36(5) of the Duties Act.
(c)The question of law is: Was the trust which existed after the subdivision, and before the transfer, a trust to which a ‘unit trust scheme’ relates and not a ’fixed trust’ as defined in the Duties Act?
(4) Ground four: s 36(1)(a) of the Duties Act
(a)If the trust which existed after the subdivision was a ‘fixed trust’ solely for the benefit of the respondent, the Tribunal erred in law in failing to make a finding that s 36(1)(a) of the Duties Act was not satisfied.
(b)The Tribunal should have held that, if and when the relevant property became subject to a fixed trust solely for the benefit of the respondent and ceased to be subject to a unit trust for the benefit of all unitholders, there was a dutiable transaction within the meaning of s 7(1)(b)(i) or s 7(1)(b)(vi) of the Duties Act, and that any duty charged in respect of the dutiable transaction by which the property became subject to the fixed trust had not or would not be paid for the purposes of s 36(1)(a) of the Duties Act.
(c)The question of law is: If and when the property became subject to a fixed trust solely for the benefit of the respondent, was there a dutiable transaction and was the requirement in s 36(1)(a) of the Duties Act satisfied?
The Commissioner’s contentions
The Tribunal found that, at the time of the transfer of property from the trustee to the respondent, he was the sole beneficiary of a ‘fixed trust’ of that property, not being a trust to which a ‘unit trust scheme’ (as defined) related. Accordingly, the Tribunal concluded that the transfer was exempt from duty under s 36 of the Duties Act. The Tribunal took four steps to reach that conclusion, each of which, the Commissioner contended, involved error.
First, the Tribunal found that the trust deed ‘created not a single trust to benefit each of the described unit holders, but rather an initial unit trust and subsequent fixed trusts which came into existence upon [subdivision of the property]’. On a proper construction of the relevant provisions of the trust deed, the Commissioner contended, that finding was incorrect.
Secondly, the Tribunal found that, upon subdivision, the property the subject of the original unit trust had ‘ceased to exist’, so that the subdivided properties could not be held subject to that trust. The Commissioner said that finding failed to give effect to the definition of ‘Trust Fund’ in the trust deed and failed to give effect to the principles concerning continuity of trusts.
Thirdly, the Tribunal found that the ‘subsequent’ trust which it identified operated as a ‘fixed trust’ within the meaning of s 36(5) of the Duties Act, and was not a trust to which a ‘unit trust scheme’ (as defined) related. That finding was said to have failed to address and to apply the statutory definition of ‘unit trust scheme’.
Fourthly, the Commissioner contended that the Tribunal necessarily found that the requirement in s 36(1)(a) of the Duties Act was satisfied, that is, that ‘the duty (if any) charged by this Act in respect of the dutiable transaction that resulted in the dutiable property becoming subject to the principal trust has been paid or the Commissioner is satisfied that the duty will be paid’. In reaching this conclusion, the Tribunal failed to consider whether the transaction that it considered resulted in the property becoming subject to the principal trust (i.e. a fixed trust arising upon the registration of the plan of subdivision and the issue of the child titles) was itself a ‘dutiable transaction’ within the meaning of s 7(1)(b)(i) or s 7(1)(b)(vi) of the Duties Act. The Commissioner said that, if the Tribunal was correct in holding that, upon registration of the plan of subdivision and the creation of the ‘child title’, the trustee held the child title on a fixed trust for the respondent, the transaction would be none the less a ‘dutiable transaction’. Whether duty was in fact payable on that transaction would depend upon the application of the exemption provisions in Part 5, including s 36B.
The Commissioner said that, if he was successful, the matter should be remitted to the Tribunal to determine effectively the application of s 36B or (if there were a fixed trust) whether the requirements in s 36(1)(a) were met. In particular, it would be necessary to work out whether the respondent’s final entitlement exceeded his proportionate share of the unit trust.[8]
[8]During oral argument, the Commissioner also contended that remittal would also be required to deal with two remaining grounds of objection: (1) the partition exemption under s 27; and (2) whether when there is a transfer from a bare trustee to a beneficiary nothing of value is transferred. The Commissioner said that, as there had been no findings of credit, he did not contend that any remittal need be to a reconstituted Tribunal.
The respondent’s contentions
The respondent contended that the Tribunal’s conclusion that lot 2 was subject to a fixed trust for the benefit of the respondent should not be disturbed. He said that the Tribunal had identified the correct question for decision: whether lot 2 was, before its transfer to him, ‘subject to a fixed trust’ for his benefit? Thereafter, the Tribunal : (1) found that lot 2 was held solely for the respondent (pending a transfer to him); and (2) characterised this trust as a ‘fixed trust’ (perhaps a simple trust).
The respondent submitted that the finding was open; and, it was a finding of fact. Contrary to the Commissioner’s contention, the Tribunal did not make any assumption that the necessary consequence of the subdivision was the creation of the trust it found to exist. A subdivision need not create a trust; it depends on what the parties have agreed. Further, certain income tax cases invoked by the Commissioner were correctly seen by the Tribunal to be unhelpful: they concerned issues of continuity in the identity of a taxpayer trust for the purposes of div 6 of pt III of the Income Tax Assessment Act 1936 (Cth) which shed no light on the nature of the relationship between the trustee and the respondent in respect of lot 2.[9]
[9]Federal Commissioner of Taxation v Clark (2011) 190 FCR 206; Federal Commissioner of Taxation v Commercial Nominees of Australia Ltd (2001) 47 ATR 220.
The respondent contended that the characterisation of the trust upon which lot 2 was held solely for the respondent as a ‘fixed trust’ was open to the Tribunal. It was also correct for the Tribunal to take the view that the trust that it had identified was a ‘fixed trust’ rather than a ‘scheme’ between ‘persons’ with ‘facilities’ for ‘participation’ in ‘profits’, etc. The words in these statutory definitions are used in their ordinary meaning. Where a statute uses words in their ordinary meaning, and where different conclusions are open as to whether the primary facts fall outside or within those words, the ultimate question as to which side of the line the case falls is one of fact, not law. It may well be, as the Commissioner contends, that the trust of lot 2 found by the Tribunal was ‘capable’ of being described as a ‘unit trust scheme’; but that was not the only description available. There was no error of law here either.
Further, the Tribunal’s finding that lot 2 was subject to a ‘fixed trust’ for the benefit of the respondent was supported by considerations of context. One should endeavour to give ss 36, 36A, 36B and 41A (inserted by the same amending Act) an harmonious operation. Each section deals with property passing to beneficiaries of a different type of trust. The Commissioner’s approach tended to elevate s 36B in such a way that little or no work remains for the other sections.[10]
[10]The respondent said that the legislative history was relevant. Under the Duties Act as it was before the 2006 amendments (which included the introduction of s 36B), there was no doubt that the transfer in question would have been exempt. Section 36B was introduced to reduce technical impediments to exemption, and to extend the exemption for transfers from trustees to beneficiaries.
In considering the interaction between ss 36B and 36, the respondent said that s 36B appeared to contemplate schemes under which there are multiple beneficiaries with proportionate entitlements. That was not an apt description of the trust to which lot 2 was subject.
Finally, the respondent said that the Court should reject the Commissioner’s contention that, if the trust that existed after the registration of the plan of subdivision (and before the transfer to the respondent) was a ‘fixed trust’, the Tribunal erred in finding that s 36(1)(a) was satisfied. First, the contention was not contained in the decision on the objection.[11] Secondly, there is no further outstanding liability to duty. The subdivision did not give rise to any additional duty. It was not a ‘transaction’, so s 7(1)(b)(vi) cannot apply, even if any transaction was not an ‘excluded transaction' as defined by s 7(4). Nor was there any new ‘declaration of trust’. The trust deed which created the trust in question was a ‘declaration of trust’; but duty had already been assessed and paid thereon. The Commissioner was likely to be out of time, now, to reassess the duty.
[11]Section 109 of the Taxation Administration Act 1997 provides that, on a Tribunal review, unless the Tribunal otherwise orders, the Commissioner’s case is limited to the grounds on which the objection was disallowed.
Analysis
We reject the respondent’s contention that the relevant holdings impeached by the applicant are findings of fact that were open to the Tribunal and, thus, this Court has no jurisdiction to hear the present appeal.[12] The Tribunal was concerned to construe the Duties Act and to construe the trust deed. The subject matter of the present application likewise involves the construction of that Act and that deed. No facts are in dispute.
[12]Section 148 of the Victorian Civil and Administrative Tribunal Act 1998 confines appeals from the Tribunal to questions of law.
During argument, counsel for the respondent said that the question for this Court was whether the Tribunal had adopted a construction of the deed ‘that wasn’t open’. In contending that no question of law arose, he said: ’One has to identify where his Honour went astray in law. Did he adopt a construction of this deed that just wasn't open, did he adopt a wrong approach to construing a contract?’
However, this submission trades on an ambiguity in legal usage of the phrase ‘not open’. It is customary to speak of facts being ‘open’ or ‘not open’ on the evidence. Further, one hears not infrequently expressions such as that more than one construction of a statute or of a provision in a contract or other written instrument is ‘open’. But such expressions anticipate the judicial construction of a statute or an instrument. The judicial construction of a statute or provision in a legal instrument involves determining what the true meaning of that statute or instrument is. The proper construction of a statute or of a written instrument is necessarily a question of law.[13] As a consequence, the questions whether the Tribunal misconstrued the Duties Act or the trust deed are questions of law.[14] Likewise, the question whether the Tribunal properly applied the Duties Act to the facts is a question of law.[15]
[13]See Haritos v The Commissioner of Taxation [2015] FCAFC 92 [62]. The respondent referred to Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280, 287–88. However, see the discussion of that case in OV v Members of the Board of the Wesley Mission Council (2010) 79 NSWLR 606, 609–10 (Allsop P).
[14]See R v Monopolies and Mergers Commission; Ex parte South Yorkshire Transport Ltd [1993] 1 WLR 23, 32 (Lord Mustill). See the discussion of this case in Mark Aronson and Matthew Groves, Judicial Review of Administrative Action (Lawbook Co, 5th ed, 2013) 194–95 [4.80].
[15] Hope v Bathurst City Council (1980) 144 CLR 1, 7 (citation omitted).
The application of statutory words used in their ordinary meaning has been said to involve a question of fact. In Hope v Bathurst City Council, Mason J (with whom Gibbs, Stephen, Murphy and Aickin JJ agreed) said:
Many authorities can be found to sustain the proposition that the question whether facts fully found fall within the provisions of a statutory enactment properly construed is a question of law.
…
However, special considerations apply when we are confronted with a statute which on examination is found to use words according to their common understanding and the question is whether the facts as found fall within these words. Brutus v. Cozens was just such a case. The only question raised was whether the appellant's behaviour was ‘insulting’. As it was not unreasonable to hold that his behaviour was insulting, the question was one of fact.[16] p7)
[16]Ibid.
In the present case, the critical statutory words are ‘fixed trust’ and ‘unit trust scheme’. Neither phrase has an ‘ordinary meaning’; each is defined in the Duties Act itself. The proposed grounds of appeal each raise questions of law which the Court has jurisdiction to determine.
Chapter 2 of the Duties Act is entitled ‘Transactions Concerning Dutiable Property’. Part 1 of c 2 is entitled ’Introduction and Overview’. Section 7 provides for the imposition of duty on certain transfers and transactions concerning dutiable property. In particular, s 7(1)(a) charges duty on a ‘transfer of dutiable property’ and s 7(1)(b) charges duty on certain ‘transactions’. In such transactions, the property may remain in the hands of the trustee but, as a result of the transaction, the property is held for beneficial owners who are different from the corresponding owners before the transaction. The policy of the Act is to relieve the burden of further duty where duty was already paid when the property was made subject to the relevant trust. The policy is implemented by ss 36, 36A and 36B. Sections 36 and 36B provide an exemption in respect of ‘proportionate entitlement’. In the case of unit trusts, such relief is only granted in proportion to the unit holding or the entitlement represented by the unit holding. Section 36B relevantly provides:
(1)No duty is chargeable under this Chapter in respect of a transfer of dutiable property that is subject to a unit trust scheme (the principal scheme) to a unitholder in the scheme if —
…
(d)the dutiable value of the property transferred as a proportion of the net assets of the principal scheme does not exceed the value of that proportion of the net assets of the principal scheme represented by the unitholding of the unitholder in the principal scheme at the relevant time;
…
(3)If a unitholder would be entitled to an exemption from duty under subsection (1) but for subsection (1)(d), the unitholder is entitled to a concession from duty in respect of that proportion of the dutiable value of the dutiable property that does not exceed that proportion of the net assets of the scheme represented by the unitholding of the unitholder in the principal scheme at the relevant time.
Accordingly, in the event that more is transferred to a unitholder than his or her proportionate entitlement, the exemption is not lost entirely; instead, there is a partial exemption.[17]
[17]The Commissioner explained the operation of the partial concession as follows: at the time of transfer, one calculates dutiable value of the property transferred as a proportion of the net assets of the principal scheme. One then determines whether or not that exceeds the proportion represented by the unit holding. There could have been changes in unit holding, including by the redemption of units, between the time of the initial unit trust and the time of transfer. If, for example, the taxpayer had increased his or her unit holding over that period, then that would not give him or her any greater entitlement to the exemption or concession. The exemption is calculated only by reference to the proportion that was held at the time that the property became subject to the trust.
It will be recalled that the Tribunal held that the trust deed created two separate trusts: (1) an initial unit trust which existed before the registration of the plan of subdivision; and (2) subsequent fixed trusts that arose on the registration of the plan of subdivision. At the time of the transfer to the respondent, the Tribunal held that the relevant land was held on the second of the trusts.
In our opinion, the Tribunal erred in its construction of the trust deed as creating ‘an initial unit trust and subsequent fixed trusts which came into existence upon the creation of the child titles in April 2013’.[18]
[18]Reasons [37].
Clause 11 of the trust deed contains the relevant declaration of trust. It provides:
The Trustee declares that the Trustee will from the date of this Deed hold the Trust Fund and the income derived from it in trust for the Unitholders on the terms and subject to the provisions of this Deed.
The definition of the Trust Fund is extracted at [8] above. The Trust Fund was defined to comprise, among other things, (a) the Initial Contributions (namely $500); (b) further property accepted by the trustee (such as the property at 34 Petrie Street, Frankston); and (c) ‘all … property into which the above may be converted or which by the exercise of any of the powers contained in this Deed may accrue to or otherwise become subject to the trusts [of this Deed]’. That definition is inconsistent with there being a new trust arising on the registration of the plan of subdivision. On the contrary, with its reference to the possibility of the conversion of property, it is broad enough to include the child titles that were created when the plan of subdivision was registered.
Clause 2 of the trust deed defines the interest of the unitholders in the Trust Fund. The provisions remain applicable both before and after the subdivision of the parent title into the child titles. Accordingly, the rights of unitholders are the same in nature (if not extent) before and after the registration of the plan of subdivision. For example, unless otherwise provided by the Deed, a unitholder was not entitled to require the trustee to transfer any property to him or her[19] and a unit conferred no interest in any particular part of the Trust Fund nor in any investment.[20] Again, this tells against the Tribunal’s conclusion that the trust deed created an initial fixed unit and subsequent fixed trusts.
[19]Clause 2.3.
[20]Clause 2.5.
Moreover, the Tribunal’s conclusion that, upon subdivision, a fixed trust was created is contrary to the natural meaning of the rights that attach to the ‘B’ class units. As indicated above, Clause 2.9 of the trust deed provides that the units themselves were divided into classes. The rights attached to the ‘B’ class units are set out in [11] above.
The definition of the rights attached to the ‘B’ class units identifies the rights; it does not confer absolute beneficial entitlements to particular assets. It is expressed as an entitlement, ‘after subdivision of the Property, to the capital and/or income of the Trust Fund derived from the property known as Unit 2’. The property itself remains part of the trust fund.
There is no provision in the Trust Deed that, after subdivision, the holder of, say, the ‘B’ class units is entitled to the property known as Unit 2. Nothing in the terms of the First Schedule entitled the respondent to require the trustee to transfer any property to him, nor did those terms confer an interest in any particular property of the Trust Fund. On the contrary, it will be noticed that the First Schedule describes the entitlement as being to ‘the capital and/or income of the Trust Fund derived from the property known as Unit 2’.
We also accept the submission of the Commissioner that the creation of several trusts in respect of the trust property creates ‘an impractical and unlikely scenario’. When the trust was established, the Trust Fund comprised or, at least, was capable of comprising, more than the Parent Property. So much is clear from the definition of ‘Trust Fund’ set out above. If the Tribunal’s construction were correct, there would or might remain a Trust Fund comprising any property other than the subdivided property, which continues to be held for the benefit of all of the unitholders (including the respondent as the holder of 100 ‘B’ Class units), as well as five separate fixed trusts in respect of property which no longer forms part of the ‘Trust Fund’ under the Trust Deed.
We therefore accept the submission of the Commissioner that the description of the rights contained in the First Schedule is not apt to create a fixed trust of Unit 2.[21] Grounds 1 and 2 succeed.
[21]The Commissioner also pointed out that there was a provision in the Trust Deed that expressly contemplated the creation of a further trust. Under cl 9 of the Trust Deed, the Trustee is empowered to appropriate part of the trust Fund for several purposes including a power that it hold property as ‘a separate trust fund on trust for the benefit of that Unitholder absolutely’ in circumstances where capital of the Trust Fund was set aside for a unitholder in the exercise of the Trustee’s discretion.
Even if it were the case that a new trust arose upon the registration of the plan of subdivision, it does not follow that it would have been a ‘fixed trust’, as that term is defined in the Duties Act. In [30] of the Reasons, the Tribunal suggests that, because the parent title went out of existence on the registration of the plan of subdivision, and was replaced by the child titles, the latter were not held on the same trusts as the former. However, the question would then become: what is the nature of the new trusts? The terms of the trust deed expressly contemplate not only the conversion of the Trust Fund but also the subdivision of any real property comprising all or part of it. The trustee has exercised a specific power in the trust deed and has held the resulting property on the same trusts. The Trust Deed itself provides for rights in relation to the property that remains part of the Trust Fund. The continuity of the provisions defining the Trust Fund and the rights of unitholders tells against any different categorisation of a new trust arising on subdivision. Such a trust would still have been a unit trust, rather than a fixed trust.
Moreover, the trust deed did not require that all the ‘B’ class units were held by the respondent. It would always have been possible for those units to be held by more than one investor. When that is understood, it becomes clear that, if a new trust was created upon registration of the plan, it would still have been a unit trust and a trust to which a ‘unit trust scheme’ as defined in the Duties Act relates.
Alternatively, the new trust would be ‘a trust to which a unit trust scheme relates’ and, for that reason alone, excluded from the definition of ‘fixed trust’ by s 36(5) of the Duties Act. The relevant relationship would arise because the terms of the trust deed, which established the unit trust scheme, would govern the new trust.[22]
[22]The Commissioner eschewed any contention that the new trust would ‘relate’ to a unit trust scheme simply because it derived from a ’unit trust scheme’. He said that any such new trust would not necessarily ‘relate’ to a unit trust scheme by reason only of the fact that it came into existence by the exercise of a power conferred by such a scheme.
Ground 3 therefore also succeeds.
In reaching its conclusion that, upon the registration of the plan of subdivision, there was a change from a trust in which the unitholders jointly held the beneficial interest in relation to the Parent Property to separate trusts in which the respondent and each of the other unitholders became separate beneficiaries of a fixed trust in respect of each separate lot,[23] the Tribunal did not deal with the consequence of that conclusion. Although it is unnecessary to decide the point, we would accept the submission of the Commissioner (enshrined in proposed ground 4) that, if the Tribunal were correct in finding that a fixed trust came into existence upon the subdivision, that would give rise to a ‘dutiable transaction’ within s 7(1)(b)(vi) of the Duties Act (read in conjunction with s 7(4)) in so far as it would have involved a ‘change in the beneficial ownership’. We would reject the respondent’s contention that a subdivision is not a ‘transaction’. The word ‘transaction’ is not defined in the Duties Act; there is no reason not to give it its ordinary broad meaning.[24] Secondly, for reasons already given, we would also reject the respondent’s contention that there was no change in beneficial ownership of the parent title because it ceased to exist and there was no change in beneficial ownership of each of the child titles because, from the moment that each came into existence, it was held by the trustee for the same beneficial owner. The changes in beneficial ownership contemplated by the legislation embrace possibilities such as this.
[23]Reasons [39].
[24]Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2014] VSCA 326 [110]–[111] (Santamaria JA, with whom Maxwell P and Whelan JA agreed).
Accordingly, if a new trust did arise, our provisional opinion is that it arose as part of a ‘dutiable transaction’ and, thus, the Tribunal would have needed to determine whether any duty charged in respect of that transaction had been or would be paid for the purposes of s 36(1)(a) of the Duties Act.[25]
[25]During argument before the Court, there was a discussion about whether the substance of ground 4 was before the Tribunal. During argument before the Tribunal, the Commissioner applied for leave to raise the ground that the requirement in s 36(1)(a) was raised by the questions of objection. The respondent conceded that no objection had been made to that application. In the event, the Tribunal itself did not deal either with the application to add the ground, or the ground itself.
Conclusion
The application for leave to appeal should be granted and the appeal allowed. The orders of the Tribunal should be set aside and the matter remitted to the Tribunal for further hearing and determination according to law. In particular, that will enable the remaining grounds of the respondent’s objection to be decided.
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