Lam & Kym Pty Ltd v Commissioner of State Revenue

[2003] VSC 133

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
VICTORIAN TAXATION APPEALS LIST

No. 5734 of 2002

LAM & KYM PTY LTD	Plaintiff
v
COMMISSIONER OF STATE REVENUE	Defendant

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JUDGE:	HARPER J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	10 FEBRUARY 2003
DATE OF JUDGMENT:	2 MAY 2003
CASE MAY BE CITED AS:	LAM & KYM v COMMISSIONER OF STATE REVENUE
MEDIUM NEUTRAL CITATION:	[2003] VSC 133

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Stamp duty – Family trust – Real property – Whether declaration that real property would be held for nominated discretionary beneficiaries created a new trust – Whether stamp duty payable – Davidson v Chirnside (1908) 7 CLR 324 distinguished – Stamps Act 1958, s.64A(3).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M. Bearman	Rigby Cooke
For the Defendant	Mr R. Boaden	Solicitor for the Commissioner of State Revenue

HIS HONOUR:

1. This appeal arises from a declaration by the trustee of a family trust.  The declaration, which was in writing, was to the effect that certain real estate forming part of the relevant trust fund would thereafter be held for some only of the discretionary beneficiaries on whose behalf it had previously been held.  No change was made to the terms of the applicable trust.  No trustee was removed from office.  No new trustee was appointed.  No addition was made to the class of discretionary beneficiaries.  In other words, the only change effected by the declaration was that the number of persons with a contingent beneficial interest in the land was reduced. 

1. The question is whether the declaration is subject to duty under s.64A(3) of the Stamps Act 1958. As at 15 December 1999, that section was in the following form:

"(3)     Where –

(a)       real property is vested in a person;  and

(b)the real property becomes subject to a trust for another by reason of a declaration of trust by that person –

the person shall, not later than 14 days after the real property becomes subject to the trust –

(c)furnish to the Comptroller of Stamps a statement in the prescribed form accompanied by a statutory declaration setting out the prescribed particulars;  and

(d)pay the Comptroller of Stamps as stamp duty on the statement a sum equal to the amount of stamp duty that would have been payable if the real property had been conveyed by an instrument of conveyance from the person to the other."

1. The intention of the legislature in enacting s.s.(3) is, it seems to me, made apparent from the provision's concluding words.  Stamp duty is levied not upon transactions but upon documents.  The legal and beneficial interest in real property may of course be conveyed by an instrument of conveyance.  Given an arms-length transaction for value, the instrument would undoubtedly attract ad valorem stamp duty.  Much the same effect, at least in relation to the beneficial interest in land, may be achieved by an oral declaration of trust.  The attraction of such a device as a means of avoiding stamp duty was obvious.  Parliament's solution was to compel the creation of a document upon which ad valorem duty might be levied.

1. The land in question here is situated at 28 Main Street, Box Hill.  The appellant, who is the trustee, was registered as proprietor on 6 June 1996.  The property then became an asset of the Huynh Family Trust.  That trust was established on 13 August 1991.  The trust deed provided for two classes of beneficiaries:  primary and discretionary – although all the primary beneficiaries fell into both classes.  They (that is, the primary beneficiaries) are defined in clause 1(a) of the deed and the schedule to it as Ngoc Lam Huynh and Thi Thanh Nga Nguyen "and the parents, grandparents, uncles, aunts, spouses, former spouses, widows, widowers and children" of those two "and the parents, grandparents, uncles, aunts, spouses, former spouses, widows, widowers, and children and grandchildren" of the children of Mr Huynh and his wife.

1. The discretionary beneficiaries are, potentially at least, many and varied.  They include not only the primary beneficiaries but "the parents, grandparents, uncles, aunts, spouses, former spouses, widows, widowers, and children of the primary beneficiaries and the parents, grandparents, uncles, aunts, spouses, former spouses, widows, widowers, and children and grandchildren" of the children of the primary beneficiaries.  They also include the brothers and sisters of the primary beneficiaries and the spouses, former spouses, widows, widowers and children of those brothers and sisters, together with such of the blood or married relatives of the discretionary beneficiaries as the trustee may nominate.  Certain charitable institutions may also be included if "selected" by the trustee.  So may certain other identifiable entities if nominated as such in writing by the trustee:  clause 1(a)(2).

1. The income of the trust fund may in each accounting period until the day described as "the vesting day" be set aside in whole or in part for the benefit of all or any one or more of the discretionary beneficiaries then alive in such proportions and in such manner as the trustee may in its absolute discretion think fit:  clause 3.  Where the trustee holds any amount pursuant to that provision, it may invest the relevant sum and any resulting income in any of the investments authorised by the deed:  clause 5(d).  The trust deed further provided that as from the vesting day, the trustee should stand possessed of the trust fund and its income in trust for such of the discretionary beneficiaries as the trustee may have appointed by instrument in writing before that day:  clause 4.  By that clause, in default of and subject to any such appointment, the trust fund and any undistributed income is to be held in trust for such of the primary beneficiaries as are then alive. 

1. The powers of the trustee are set out in a number of clauses of the trust deed.  Clauses 5 and 6 are particularly relevant in the context of this case.  I mention first the trustee's power, conferred by clause 6(l) to appropriate - either in its actual condition or state of investment or by setting it apart or crediting it in the books or accounts of the trust - any sum or sums forming part of the trust fund.  These may then be employed in satisfaction of any share or shares to which any beneficiary is or may be entitled.

1. A power to amend or revoke is included in clause 21 of the trust deed.  By this clause, the trustee "may at any time and from time to time by deed … revoke, add to or vary all or any of the trusts hereinbefore limited … and may … declare any new or other trusts or powers concerning the trust fund or any part or parts thereof … but so that the law against perpetuities is not thereby infringed."

1. It was in the exercise, or purported exercise, of this power that on or about 15 December 1999 the trustee, by a supplementary trust deed, effected a single amendment to the deed of 13 August 1991.  Clause 5(a) as originally included was by the variation deleted.  In its place, a new paragraph (a) was substituted.  It is relevant here, as is paragraph (d) – which remains in its original form.  The two paragraphs read:

"5.The trustee may at [its] absolute discretion notwithstanding anything to the contrary herein contained or otherwise provided:

(a)At any time or times and from time to time before the vesting day raise any sum out of the capital or the trust fund … and pay or apply the same or transfer the whole or any portion of the trust fund in its existing form of investment to or for the advancement or benefit of any of the discretionary beneficiaries (whether absolutely or by way of re-settlement upon such trusts as the trustee thinks fit) and any such payment or transfer to or in trust for any of the discretionary beneficiaries shall without any receipt constitute a full and final discharge to the trustee in respect thereof.

…

(d)Where the trustee holds any amount upon trust for any beneficiary pursuant to clause 3 … the trustee may … invest on behalf of such person the set amount and the resulting income thereof in any of the investments hereby authorised …"

1. On the same day that the supplementary trust deed was executed, the trustee also executed the declaration to which I earlier referred.  Under the heading "Declaration" in that document, the following appears:

"The trustee hereby declares that the property described in certificate of title volume 9516 folio 732 known as 28 Main Street, Box Hill is hereafter held separately in trust for the primary beneficiaries named in the trust deed and for the primary beneficiaries and their parents, children, grandchildren, uncles, aunts, brothers, sisters, nieces, nephews and the spouses of any of those persons as discretionary beneficiaries to the exclusion of all other beneficiaries of the Huynh Family Trust … but otherwise upon the same trusts and subject to the powers and conditions and for the same period as are set out in the trust deed [of 13 August 1991]."

1. It seems to me that this declaration does not (to adopt the words in clause 5(a)) "raise any sum out of the capital of the trust fund";  and it is even clearer (it seems to me) that no sum has been paid or applied, and no portion of the fund in its existing form has been transferred to or for the advancement or benefit of, anyone.  The fact that, by clause 5(a), the trustee was empowered to do these things is nevertheless significant.  Given that it had such power, it necessarily had the lesser power - which it exercised through the medium of the declaration – to hold the Box Hill land "separately in trust".

1. The effect of this separation was in my opinion very limited.  At most, certain contingent rights were removed, with the result that certain contingent beneficiaries no longer held any contingent interest in the Box Hill land.  Other beneficiaries retained their interests, which by reason of the declaration became slightly less contingent than before. 

1. The Commissioner submitted that the declaration created a new trust to which the land was subject. This amounted to a resettlement of the Box Hill land. It therefore became, in the words of s.64A(3) "subject to a trust for another, by reason of a declaration of trust". Reliance was placed upon the statement in the declaration that "the property … is hereafter held separately in trust".

1. In my opinion, this reliance is unjustified.  I must look to the reality behind the words[1];  and that is that no separate trust exists.  The Box Hill land is held by the same trustee on the same trusts as the balance of the trust fund known as the Huynh Family Trust, of which it continues to form part.  It is "separate" only in that some of those with a contingent beneficial interest in the balance of the fund no longer have a contingent beneficial interest in the land.  Of equal importance, the Box Hill property did not by reason of the declaration become subject to a trust for another.  It was already subject to a trust for the class of beneficiaries which now, following the declaration, continue to have a contingent interest in it.  The only difference is that some discretionary beneficiaries with a contingent beneficial interest in the land before 15 December 1999 were by the declaration deprived of that interest.  It seems to me that it would be impossible properly to describe that result as "real property (becoming) subject to a trust for another by reason of a declaration of trust".

   [1]Davidson v Chirnside (1908) 7 CLR 324 at 344 per Isaacs J

1. As the Commissioner pointed out, the authorities demonstrate that, upon the exercise of the power to revoke trusts and declare new ones, a new settlement is brought into being:  Moffat v The Collector of Imposts[2].  Here, however, there was no revocation, and no new trust.

   [2](1986) 22 VLR 164

1. Davidson v Chirnside[3] is also distinguishable.  There, a testator by his will directed his trustees to set aside a fund on certain trusts.  The trustees were authorised to settle, or cause to be settled, the fund upon other trustees to be nominated by them.  The trusts were to correspond with those which the testator had previously declared.  This circumstance, however, did not result in the conclusion that no new settlement had been effected.  In the words of Isaacs J:

"The moment that instrument was executed it became for all practical purposes the new starting point of [the beneficiary's] rights;  it is now in effect the source of the powers and duties of the settlement trustees, and regulates henceforth the relations between them and their cestui que trust.  The trusts of the will as such no longer apply to her legacy;  and although the trusts, which do apply, correspond to the trusts of the will, they are not the trusts of the will.  This document is, therefore, not a mere appointment of trustees, nor a mere recognition of the trusts of the will, but a separate and independent title deed which answers technically and substantially to the description of settlement as generally understood."[4]

[3](1908) 7 CLR 324

[4](1908) 7 CLR 324 at 345

1. In the present case, by contrast, the trusts which apply to the Box Hill property are not only precisely as before, but there is no new trustee and no new starting point of the beneficiaries' rights:  that starting point remains the original deed of 13 August 1991.  The trustee has merely exercised its power to decide which beneficiaries will continue to hold contingent interests in a particular portion of the trust fund.

1. I have considered the other authorities to which my attention was drawn by the Commissioner.  None of them are concerned with a situation in which the only change to relevantly pre-existing arrangements resulted from the exercise by the trustee or trustees of a power to narrow the class of beneficiaries contingently entitled to an identifiable and identified part of the trust fund.  I have decided that for this reason none are applicable to the circumstances of the present case.

1. It follows that, in bringing the declaration to duty, the Commissioner of State Revenue was not acting pursuant to any power conferred by s.64A(3). The appeal must therefore be allowed.

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