Leemhuis Investments Mitchell Pty Ltd v Commissioner for Act Revenue (Administrative Review)
[2023] ACAT 12
•28 February 2023
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
LEEMHUIS INVESTMENTS MITCHELL PTY LTD v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2023] ACAT 12
AT 61/2022
Catchwords: ADMINISTRATIVE REVIEW – Duties Act 1999 – ad valorem duty Notice of assessment – nature of partner’s interest – scope of declaration of trust – whether there was a declaration of trust
Legislation cited: ACT Civil and Administrative Tribunal Act 2008 s 9
Civil Law (Property) Act 2006 ss 201, 202
Conveyancing Act 1919 (NSW) s 23C
Duties Act 1999 ss 6, 7, 8, 9, 10, 11, 14
Duties Act 1997 (NSW) s 8
Duties Act 2001 (Qld)
Statute of Frauds 1677 (UK) 29 Cha 2
Taxation Administration Act 1999 s 108A
Cases cited:Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] NSWCA 285
Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246
Duke Unley Pty Ltd v the Corporation of the City of Unley (2021) 399 ALR 164
Meshumar v Otmy (2018) 97 NSWLR 615
List of
Texts/Papers cited: CPN 025: Change in Beneficial Ownership: Practice Note of the NSW Commissioner of State Revenue, issued November 2022
Macquarie Dictionary Online (2022)
Tribunal:Senior Member Prof T Foley
Date of Orders: 28 February 2023
Date of Reasons for Decision: 28 February 2023
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 61/2022
BETWEEN:
LEEMHUIS INVESTMENTS MITCHELL PTY LTD
Applicant
AND:
COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL:Senior Member Prof T Foley
DATE:28 February 2023
ORDER
The Tribunal orders that:
The decision under review is varied. The respondent should issue a revised ad valorem (according to the value) duty Notice of Assessment based on a dutiable transaction of 50% dated 19 September 2017.
………………………………..
Senior Member Prof T Foley
REASONS FOR DECISION
Leemhuis Investments Mitchell Pty Ltd (the applicant) or (LIM) has sought review of a decision of 18 July 2022 by the Commissioner for ACT Revenue (the respondent) to disallow its objection to an ad valorem[1] duty Notice of Assessment issued on 31 August 2021 requiring it to pay duty, penalty tax and interest totalling $156,248.17 pursuant the Duties Act 1999 (the Duties Act).
[1] Ad valorem from the Latin meaning ‘according to value’.
Jurisdiction to review the respondent’s decision is conferred on the Tribunal by section 108A of the Taxation Administration Act 1999 (the TA Act) which is an authorising law for the purposes of section 9 of the ACT Civil and Administrative Tribunal Act 2008 (the ACAT Act). The review is an application for review by the ACT Civil and Administrative Tribunal pursuant to section 68 of the ACAT Act.
In the reasons below, a reference to ‘ACAT’ or ‘tribunal’ refers to the ACT Civil and Administrative Tribunal generally, whereas ‘Tribunal’ refers to the member who heard the application.
The Hearing
The matter was heard on 21 November 2022. The Tribunal had before it the documents provided by the respondent on which its decision was based (the T Documents), and various submissions filed by the parties. The applicant was represented by Mr Duncan Bedford, solicitor. The respondent was represented by Ms Natalie Obrart of counsel.
Mr Alex Leemhuis gave brief evidence. The applicant’s representative made submissions and responded to questions of the Tribunal. The respondent’s counsel made submissions and responded to questions of the Tribunal.
At the conclusion of the hearing the Tribunal reserved its decision and indicated it would provide written reasons. These are those reasons.
Background
LIM was appointed by the corporate trustees of each of two trusts, The AUL Mitchell Trust (AUL) and The PSL Mitchell Trust (PSL), as authorised agent to “have possession and control but not ownership of the property of the partnership” (The AUL Mitchell Trust and The PSL Mitchell Trust Partnership). That partnership was entered into by AUL and PSL for the purposes of acquiring and holding for investment commercial properties or businesses. Two natural persons who were father and son owned and controlled the respective trusts.
Arising from dealings by LIM with land in the ACT in 2017 and 2018 the respondent issued an ad valorem duty Notice of Assessment (the Assessment) on 31 August 2021 to the applicant for duty of $85,525.00, together with 50% penalty tax of $42,762.50 under section 31(2) of the TA Act and interest of $27,960.67 calculated for the period 19 September 2017 to 13 July 2021, totalling $156,248.17.
The applicant first objected to the Assessment on 28 September 2021 and in a revised form with reasons on 29 November 2021.
The respondent’s delegate disallowed the objection with reasons on 18 July 2022.
On 15 August 2022 the applicant applied to the ACAT for review of the reviewable decision. The review relates to the respondent’s Assessment with respect to the imposition of duty and penalty tax.
The relevant law
Legislation
Various provisions of the Duties Act and the Civil Law (Property) Act 2006 (Civil Law Act) are relevant. Further, findings made in two cases cited by both parties are also relevant.
Sections 6-9 of the Duties Act relevantly provides:
6 Definitions—ch 2
In this chapter:
declaration of trust means any declaration (other than by a will or testamentary instrument) that any identified property vested or to be vested in the person making the declaration is or is to be held in trust for the person or people, or the purpose or purposes, mentioned in the declaration although the beneficial owner of the property, or the person entitled to appoint the property, may not have joined in or assented to the declaration.
7 Imposition of duty on certain transactions concerning dutiable property
(1)This chapter charges duty on—
(a)a transfer of dutiable property; and
(b)the following transactions:
(i)an agreement for the sale or transfer of dutiable property;
(ii)a declaration of trust over dutiable property;
(iii)a grant of a Crown lease;
(iv)a grant of a declared land sublease;
(v)a grant of a commercial lease with premium.
(2)A transfer or transaction mentioned in subsection (1) is a dutiable transaction for this Act.
8 Imposition of duty on dutiable transactions that are not transfers
(1)The duty payable under this chapter on a dutiable transaction mentioned in section 7 (1) (b) is payable as if each such dutiable transaction were a transfer of dutiable property.
(2)For the purpose of paying duty under this chapter, in relation to a dutiable transaction mentioned in column 2 of an item in table 8:
(a)the property mentioned in the item, column 3 is taken to be the property transferred (and a reference in this Act to property transferred includes a reference to such property);
(b)a person mentioned in the item, column 4 is taken to be the transferee of the dutiable property (and a reference in this Act to a transferee includes a reference to such a person);
(c)the transfer of the dutiable property is taken to have happened at the time mentioned in the item, column 5 (and a reference in this Act to the time when a transfer occurs includes a reference to such a time).
Table 8
column 1
item
column 2
dutiable transaction
column 3
property transferred
column 4
transferee
column 5
when transfer happens
1
agreement for sale or transfer
the property agreed to be sold or transferred
the purchaser or transferee
when the agreement is entered into
2
declaration of trust
the property vested or to be vested in the declarant
the person declaring the trust
when the declaration is made
3
grant of a Crown lease (or declared land sublease)
the leasehold interest
the lessee (or for a declared land sublease, the sublessee)
when the lease (or declared land sublease) is granted
4
grant of a commercial lease with premium
the leasehold interest
the lessee
when the lease is granted
9 Form of a dutiable transaction
It is immaterial whether or not a dutiable transaction is effected by an instrument or by any other means, including electronic means.
Also relevant are sections 11 and 14 of the Duties Act:
11 When does a liability for duty arise?
(1)A liability for duty payable under this chapter arises—
(a)when a transfer of dutiable property occurs; or
(b)if a transfer of dutiable property is effected by an instrument— when the instrument is first executed.
Note First executed, for an instrument—see s 243.
(2)However, a liability for duty payable under this chapter must not be paid until it becomes payable under section 16 (When does duty become payable?).
(3)To remove any doubt, the commissioner may assess the liability for duty payable under this chapter before the duty becomes payable under section 16.
14 Necessity for written instrument or written statement
(1)If a dutiable transaction that is liable to ad valorem duty under this chapter is not effected by an instrument, the transferee must make a written statement.
(2)The statement must be made within 90 days after the liability arises.
(3)If a dutiable transaction is completed or evidenced by an instrument within 90 days after the day when the dutiable transaction happens, the requirement to lodge a statement and pay duty in respect of the statement may be satisfied by the lodgment of and payment of duty on the instrument within 90 days after the day when the dutiable transaction happens.
The Civil Law Act provides:
201 Instruments required to be in writing
(1)An interest in land cannot be created or disposed of by a person except—
(a)by writing signed by the person or by the person’s agent properly authorised in writing; or
(b)by the person’s will; or
(c)by operation of law.
Note 1 The Legislation Act, dict, pt 1 defines interest, in relation to land and other property, and land.
Note 2 See also the Legislation Act, s 168 (References to person with interest in land include personal representative etc).
(2)A declaration of trust by a person in relation to an interest in land must be—
(a)in writing signed by the person; or
(b)made by the person’s will.
(3)A disposition by a person of an equitable interest or trust existing at the time of the disposition must be—
(a)in writing signed by the person or by the person’s agent properly authorised in writing; or
(b)made by the person’s will.
(4)This section—
(a)does not affect the creation or operation of a resulting, implied or constructive trust; and
(b)is subject to section 202 (Creation of interests in land by word of mouth).
202 Creation of interests in land by word of mouth
(1)This section applies to an interest in land if the interest is—
(a)created by word of mouth; and
(b)not put into writing signed by the person creating it or by the person’s agent properly authorised in writing.
(2)The interest is an interest at will only, whether or not consideration is given for it.
Case law
The parties agreed that two recent decisions of the High Court of Australia and the NSW Court of Appeal respectively, set out important principles of law going to the heart of the matter at issue.
The High Court in Commissioner of State Revenue v Rojoda Pty Ltd (Rojoda)[2] provides useful guidance as to the nature of a partner’s equitable interest in partnership assets. Rojoda details the position in equity as regards to partnerships and viewed this position as largely preserved in various state partnership legislation based on the UK 1890 counterpart (relevantly for Rojoda, the Partnership Act 1895 (WA)). That position is that, while partnership property is seen as held on trust for each partner, and some of the features of a partner’s equitable rights under that trust are shared with the position of beneficiaries of a fixed trust,[3] the nature of a partner’s interest is not an interest in the specific assets of the partnership as is the case of beneficiaries.[4] Rather, “the only right that the partners have, both before and after dissolution, in relation to each asset is a right to the account and distribution after sale of the proceeds of that asset”(emphasis added).[5] The Court cited the famous description of Lindley LJ to the effect that a partner’s interest is their “proportion of the partnership assets after they have been realised and converted into money, and all the debts and liabilities have been paid and discharged”.[6] This is more often reduced in short form to “the right to call for a distribution of the partnership”. To make the distinction between the equitable rights of partners as compared with those of trust beneficiaries clear, the court affirmed a description of the equitable interest of partners in land as a “personal estate”, rather than a “beneficial interest”.[7] The nature of this personal estate as regards land is that “each partner had a non‑specific interest in relation to all of the partnership freehold titles…with a right, upon dissolution, to compel the sale of the freehold titles…”.[8]
[2] Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246
[3] Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246 at [32]
[4] Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246 at [33]
[5] Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246 at [33], emphasis added. The factual circumstances cover both before and after dissolution of the partnership.
[6] Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246 at [34], citation omitted.
[7] Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246 at [35]
[8] Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246 at [41]
The nature of AUL and PSL’s interest in partnership property is relevant to the assessment of duty.
The NSW Court of Appeal in Chief Commissioner of State Revenue v Benidorm Pty Ltd (Benidorm)[9] also provides useful guidance as to the construction of the ACT legislation given it is in essentially the same terms as that Duties Act 1997 (NSW), the act considered by the court in Benidorm.[10]
[9] Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] NSWCA 285
[10] The Duties Act 1997 (NSW) has been subject to two substantive amendments post the NSW Court of Appeal’s decision, first addressing the effect of Benidorm to now impose duty on acknowledgments of trust; and in May 2022 to impose duty on transactions that result in a change in beneficial ownership.
The court in Benidorm said that section 8(1) (in identical terms to section 7(1) of the ACT Act) “contains powerful indications that the basis of imposing duties under the statute is transactional, involving an alteration in legal and equitable rights”.[11] At the time of its enactment this was a radical departure from the previous regime of “stamping” instruments (hence the change of nomenclature from the Stamp Duties Act 1920 (NSW)). Given this, the relevant principle is that each of the listed transactions in section 7(1)(b) of the ACT Act should, in order to be dutiable, denote something which alters the legal or equitable rights concerning property, that is be transactional in substance.
[11] Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] NSWCA 285 at [82]
Benidorm more specifically also provides an indication that the scope of the meaning of a “declaration of trust” as defined in section 8(1) (in identical terms to section 6 of the ACT Act) may differ considerably from its general law meaning in equity. The court said “a ‘declaration of trust’ for the purposes of [section 7(1)(b)(ii) in the ACT Act] is apt to be broader than what the law of trusts regard as a declaration of trust”.[12]
[12] Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] NSWCA 285 at [79]. Similarly, though not strictly relevant here, a Practice Note of the NSW Commissioner of State Revenue (CPN 025: Change in Beneficial Ownership) issued in November 2022 suggests other meanings broader than the law of trusts countenances. CPN 025 was a guide issued to highlight further changes made to the NSW Act in May 2022 and notes that those amendments gave an “an extended definition of ‘beneficial ownership’”, extending it widely to include in s 8(3) “ownership of dutiable property by a person as trustee of a trust”.
In Benidorm the court found a document which “acknowledged” (rather than “declared”) an existing state of affairs as to property was not dutiable. Whether the circumstances of certain of LIM’s dealings with land on behalf of AUL and PSL equated to a declaration of trust so as to effect a new state of affairs that altered the legal or equitable rights concerning property) is relevant to the assessment of duty.
Outline of the matter at issue
The matter at issue is one of some complexity.
As a starting point the respondent usefully characterised two points in time before and after a set of relevant transactions of 19 July 2017 as the “original position” and the “subsequent position”. There was relative agreement as to the factual elements of each position but considerable dispute as to the legal characterisation, and consequence, of each.
By agreement dated 16 March 2010 the corporate trustees of each of two trusts, AUL and PSL entered into a partnership, The AUL Mitchell Trust and The PSL Mitchell Trust Partnership (the Partnership Agreement) for the purposes of acquiring and holding for investment commercial properties or businesses. Two natural persons who were father and son owned and controlled the respective trusts, AUL was owned and controlled by Alex Peter Leemhuis (Alex), the father and PSL by Peter John Leemhuis (Peter), his son. The partnership agreement provided that each partner respectively held “partnership participating interests” of 50% (clause 5.1) which included “the beneficial ownership as tenant in common of an undivided share in all partnership property” (Clause 1.1). The agreement further provided that the management of the business activities of the partnership, including acquiring property, “shall be taken by the Manager as agent for the Partnership Participants in proportion to the Partnership Participating Interests” (clause 6.1), that proportion being 50% for each of AUL and PSL.
A Commercial Management Agreement (the Management Agreement) executed the same day between the partners and LIM appointed that company as manager. The agreement appointed the manager as authorised agent of the Partnership Participants (Clause 2.3); provided for its monthly remuneration (Clause 4); and included in its “Duties and Responsibilities” to “have possession and control but not ownership of the Partnership property” (Schedule 2, 1.2 (l)).
On 20 July 2010 in furtherance of these agreements the applicant as agent for the partnership acquired Block 16 Section 22 Mitchell, known as 62 Dacre Street Mitchell (the land). On or about 19 May 2017 Units Plan 4330 was registered dividing the property into 4 separate lots, Units 1, 2, 3 and 4. Relevantly, in September 2017 two of those lots, Units 3 and 4, were sold.
The applicant characterises the original position on the acquisition of the property by LIM as agent of the Partnership Participants as a fixed trust, created for the benefit of AUL and PSL with each having a 50% interest in accordance with their partnership interest.
The respondent accepts the characterisation in the original position between the various entities after the acquisition of the land and its unitisation (but before the sale) as a trust but disputes it was a fixed trust.[13]
[13] This became clearer in the respondent’s oral submissions.
Therefore, the parties are largely in accord as to a trust existing in some form, as at the original position but dispute its nature and extent.
On 1 September 2017 LIM entered into a contract for the sale of Units 3 and 4. The sale settled on 19 September 2017 and the net proceeds of sale of approximately $1.7 million was paid either to PSL or directly to Peter as principal (the actual recipient is not clear on the evidence). Subsequently, on 8 August 2018 Peter transferred his shares in LIM to Alex and took other administrative steps, the effect of which was to dissolve the partnership. The remaining assets (Units 1 and 2) were then held by the applicant solely for AUL (the subsequent position).
The respondent characterises the position following this series of transactions (the “subsequent position”) as constituting a declaration of trust by LIM that it holds Units 1 and 2 on trust solely for AUL. The consequence is that this is a dutiable transaction which was assessed for duty.
The applicant delineates the series of transactions consequent on the sale of Units 3 and 4 differently and with more precision. Firstly, the sale to the purchaser, AHB Property Holdings Pty Ltd (which was transaction 1) the effect of which was LIM now held the legal title to Units 1 and 2, and the cash proceeds of the sale of Units 3 and 4 on trust on behalf of AUL and PSL in equal shares. This was followed by the distribution of the net proceeds of sale of Units 3 and 4 to PSL (which was transaction 2), and the surrender by PSL of any interest in the remaining partnership property. The effect of this distribution was to dissolve the partnership. Upon the dissolution, LIM continued to hold legal title to Units 1 and 2 under the existing trust but now on behalf of AUL solely (which was transaction 3) (emphasis added). This alteration in equitable ownership was formalised in August 2018 by Peter transferring his 50% of the shares in LIM to Alex, such that Alex then held 100% of the shares in LIM (which was transaction 4). The applicant characterises this sequence of “transactions” as simply a change in the beneficial ownership of the existing trust and disputes the consequence that it is a dutiable transaction.
Broadly, he parties say this had certain consequences relevant to duty.
The applicant says a declaration of trust over land requires – by long tradition – writing and there was none. The applicant says even if this general law requirement is not accepted, nonetheless some positive form of “declaration” is required. The applicant says if it is accepted that the declaration can be oral, it still needs to have occurred, it cannot simply be asserted from action alone. Further the applicant argues, if a declaration of trust is found to have occurred without writing and without express intent, it still needs to constitute the declaration of a new trust, not simply a declaration rearranging beneficial entitlements.
Conversely, the respondent says words are not required to constitute the trust, the trust can be created by circumstances. The question is simply whether a declaration “within the meaning of the Duties Act” has occurred. The equitable conception of what is required to constitute a trust over land is relevant, such as presumptions as to writing, but that conception is not conclusive in answering the question as to whether a declaration of trust is made under the Duties Act.
The differing consequences which the parties impose on the set of transactions in the subsequent position clearly have different duty implications. The applicant denies a declaration of trust but does allow the possible concession that if a declaration is found transaction 3 would have the effect of transferring PSL’s partnership interest to AUL. This interest was 50% of the unencumbered value of Units 1 and 2 (valued at 50% of $1,700,500 being $855,250) and the applicant conceded ad valorem duty would then be payable on that sum.[14] The respondent says the applicant has declared a trust for the benefit of AUL solely, relating to the whole of the unencumbered value of Units 1 and 2. Accordingly it has issued a Notice of Assessment for duty assessed on 100% of the unencumbered value of Units 1 and 2.
The applicant’s argument
[14] If that was the case the duty would not be payable by the applicant but by AUL as transferee
The applicant’s argument develops, and differs to some extent, between what it contended in its Statement of Reasons filed 15 August 2022, its Further Submissions filed 21 October 2022, and its Reply filed 11 November 2022. Oral submissions made on its behalf at the hearing were mostly consistent with the position put in its Reply and this is taken to be its final position.
In more detail the applicant’s conceptualisation of the factual position can be distilled to the following:
(a)The applicant acquired, and held title to the unitised lots 1-4 as a manager and trustee on a fixed trust for AUL and PSL in accordance with their 50/50 partnership interests.[15]
(b)After the sale of Units 3 and 4, and prior to the dissolution of the partnership, the applicant continued to hold Units 1 and 2 and the cash proceeds from sale of Units 3 and 4 on the same trust for AUL and PSL in equal shares.[16]
(c)The effect of the transfer of the sale proceeds to PSL and the subsequent dissolution of the partnership was that Units 1 and 2 continued to be held by the applicant as trustee under the same trust, save that there was now a change in the beneficial ownership to AUL solely.[17]
(d)There never was a “declaration of trust” nor the creation of a new trust at the subsequent position.[18]
[15] Applicant’s reply filed 11 November 2022 at [10]
[16] Applicant’s reply filed 11 November 2022 at [7(a)]
[17] Applicant’s reply filed 11 November 2022 at [11]
[18] Applicant’s reply filed 11 November 2022 at [12]
The applicant makes three arguments as to why the 19 September 2017 transactions (and more specifically, transaction 3) did not constitute a declaration of trust.
A declaration of trust over land requires writing
The applicant says the scope of what constitutes a “declaration of trust” under section 7 of the Duties Act needs to be considered in the light of the Civil Law Act, specifically section 201. The Civil Law Act is a modern iteration of the Statute of Frauds 1677 and reiterates that dealings with land (including declarations) need to be in writing to be legally effective. Section 201(2) provides in part “A declaration of trust by a person in relation to an interest in land must be in writing signed by the person…”. The applicant says this provision is not qualified in the case of a declaration of trust within the Act by section 202 (which allows creation of interest in land by word of mouth), because a declaration of trust is not a “creation of an interest in land”. The applicant contends the provision as to writing in the Civil Law Act cannot simply be overlooked in determining whether there was a declaration of trust under the Duties Act. The applicant says in the absence of writing the correct and preferable decision for the Tribunal to reach is that there is no dutiable declaration.
An express “declaration” is required
The applicant says, secondly, that some express “declaration” is required and that the word “declaration” assumes expression. The applicant cites the South Australian Court of Appeal’s review of the species of trust in Duke Unley Pty Ltd v the Corporation of the City of Unley[19] to the effect that an intentional trust may be express or implied. In the case of an express trust the clear intention to hold property on trust for another is shown by writing. In the case of an implied the clear expression of intent “can be implied from the words or conduct of the creator”.[20] The applicant says the 19 September 2017 transactions (and more specifically, transaction 3) do not satisfy either of these requirements.
[19] Duke Unley Pty Ltd v the Corporation of the City of Unley (2021) 399 ALR 164 at [46]-[48]
[20] Duke Unley Pty Ltd v the Corporation of the City of Unley (2021) 399 ALR 164 at [48]
The applicant further says the ACT legislature in drafting the Duties Act required some identifiable declaration for the creation of a trust for it to be dutiable. As a comparison, the equivalent Queensland legislation, the Duties Act 2001 (Qld) does not ask for this. It provides a dutiable transaction in the form of a trust can be created simply by starting to hold property as trustee without the need for a declaration in any form. This is not the case with the ACT legislation which requires something further. As to what this identifiable declaration is the applicant points to the Macquarie Dictionary definition of ‘declaration’ which requires “a positive, explicit, or formal statement, announcement, etc”. The applicant says some clear form of words are required and these are absent.
The applicant further cites Meshumar v Otmy[21] to the effect that while the word ‘trust’ itself is not essential, an oral declaration of trust over land in NSW must be compliant with section 23C of the Conveyancing Act 1919 (NSW) which requires that such a declaration “must be manifested and proved by some writing” (section 23C(1)(b)) with those words clearly indicating an intention. The applicant contends its position is supported by the definition of declaration of trust in section 6 of the Duties Act which refers to the beneficiaries of the declaration, or the purposes for which the declaration is made, being “mentioned in the declaration” (emphasis added). The applicant contends that ‘mention’ connotes some words manifesting an intention to create a trust are needed. In their absence there can be no “declaration of trust”.
There was no new trust
[21] Meshumar v Otmy (2018) 97 NSWLR 615 at [449]
The applicant further says if the Tribunal rejects these two arguments there is still no evidence the Tribunal can rely on that there was a new trust (emphasis added). The applicant contends that there is no evidence declaring a new trust as the respondent asserts.[22] The applicant contends that in the original position the joint effect of the Partnership Agreement and the Management Agreement meant that the equitable interest of AUL and PSL as partners was not simply an equitable chose in action as described in Rojoda, namely a distinctive personal estate. This ‘partnership trust’ interest was not all that existed. In addition, as per the terms of the Partnership Agreement and the Management Agreement, there came into effect a fixed trust which created specific, ascertainable equitable interests in Units 1-4 with each of AUL and PSL having a beneficial interest of 50% in the property held by LIM on trust. That is to say a fixed trust existed in the original position. The effect of the 19 September 2017 transactions was that in the subsequent position LIM continued to hold Units 1 and 2 under this existing trust, but now for the benefit of AUL absolutely. There was simply a change in the beneficial ownership of the existing trust, there was not the creation of a new trust, such as would give rise to a dutiable transaction.
The respondent’s argument
[22] Applicant’s reply filed 11 November 2022 at [32] and [34]
The respondent’s argument is set out in its Reviewable Decision and Reasons Statement of 18 July 2022 and its Outline of Submissions of 4 November 2022 as revised. Its argument was consistent with the oral submissions made on its behalf at the hearing.
The respondent says the factual circumstances constituting the “original position” are what was in place at the time the applicant and AUL and PSL entered into the Partnership Agreement and the Management Agreement on 16 March 2010 and the applicant acquired the land in July 2010.
The respondent contends that in the original position AUL and PSL had simply the right to call for an accounting and distribution after sale of the proceeds of partnership assets. That is to say, the Rojoda equitable chose in action. They had no further ascertained beneficial interest in the land that was to be unitised in units 1-4 as the applicant contends. The respondent says that it is inaccurate to categorise what exists in equity in the original position as a fixed trust. There were circumstances that have the quality of a trust relationship, but these relate to the partners’ beneficial personal estate as per Rojoda. This was not altered by the provisions in the Partnership Agreement and the Management Agreement. These were simply internal partnership arrangements which added no further equitable interest.[23]
[23] Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246 at [43]
The respondent says the circumstances in Rojoda is open to a similar “original position”/”subsequent position” distinction that the respondent makes. In the original position the partners had non-specific interests in partnership property consisting of a number of freehold titles.[24] One of the partners died and the partnerships were dissolved. A series of Deeds following the dissolution of the partnerships gave rise to the subsequent position. The court held this series of transactions extinguished the existing non-specific personal estates and created in their place fixed trusts with beneficial interests for the partners according to their partnership shares.[25] This created new, now ascertained equitable rights. This creation in itself was sufficient to attract duty, it was not necessary for dutiable property to have “moved” or been transferred in any way.[26]
[24] Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246 at [41]
[25] Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246 at [42]
[26] Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246 at [44]-[45]
It is the characterisation Rojoda makes of the equitable rights of partners in a partnership that the respondent urges be accepted for AUL’s equitable interest in the original position. There was a “trust relationship” with the applicant holding the legal title and the partners having equitable rights with respect to the partnership property. But this was not the fixed trust the applicant asserts. Each of AUL and PSL did not have specific, identifiable 50% equitable interests in Units 1-4. Rather they each had a non-ascertained but distinctive personal estate.[27]
[27] Described by Gageler J in his dissent as a “peculiar” or “special” equitable right, Commissioner of State Revenue v Rojoda Pty Ltd (2020) 376 CLR 246 at [70]
The respondent says the “subsequent position” later created is the consequence of a set intervening circumstances, namely the 19 September 2017 transactions.
The respondent says its characterisation of the subsequent position is borne out by the financial statements of the applicant when acting as agent for the partnership. Its balance sheet for the year ended 30 June 2017 shows an item in excess of $2.4 million as non-current property assets which it was agreed represented the value of Units 1-4. In the applicant’s balance sheet for the following year ended 30 June 2018 the property asset item no longer appears, the proceeds of the sale of Units 3-4 having been distributed to PSL and Units 1-2 no longer being partnership assets but rather now being held by the applicant on trust for AUL. The balance sheet for AUL for year ended 30 June 2019 (30 June 2018 was not provided) showing Units 1 and 2 as an asset, listed as 16/22 Dacre Street Mitchell, confirms this.
The respondent contends that the 19 September 2017 transactions constituted a declaration by the applicant that it held Units 1-2 in trust for AUL absolutely and this was a dutiable transaction under section 7(a)(ii).
In respect to the three arguments the applicant makes as to why the 19 September 2017 transactions did not constitute a declaration of trust, the respondent made the following submissions.
A declaration of trust under the Duties Act does not require writing
The respondent contends that words are not required to create a trust for the purposes of the Duties Act, a trust within the meaning of the Act can be created by circumstances. The respondent says the scheme of the Act is to impose duty on transactions not on instruments. The respondent says section 7(1)(b)(ii) provides that duty is charged on a declaration of trust over dutiable property. Section 6 which defines a declaration of trust (and which includes the words “mentioned in the declaration”) should be read in the light of section 9 (Form of a Dutiable Transaction) which provides “It is immaterial whether or not a dutiable transaction is effected by an instrument or by any other means”. Section 14 (Necessity for written instrument or written statement) countenances the possibility of the absence of such a written instrument by providing that where “a dutiable transaction that is liable to ad valorem duty under this chapter is not effected by an instrument”, the transferee must make a written declaration and pay the required duty within 90 days. The respondent says as per the table to section 8(2), the “transferee” in the case of a declaration of trust is “the person declaring the trust”, namely LIM and duty is payable by that person.
The respondent contends this “deeming approach” in section 8 underlines it is the effect or substance of the transaction (i.e., the change in ownership of property), rather than the particular form that it might take that is the concern of the Duties Act.[28] It contends that the scope of the definition of declaration of trust in section 6 is deliberately drafted broadly such that “the only limitation that the Duties Act places on a declaration of trust is that it is other than by will or other testamentary instrument”.[29]
An express “declaration” is not required
[28] Respondent’s Outline of Submissions 4 November 2022 at [48]
[29] Respondent’s Outline of Submissions 4 November 2022 at [51]
The respondent says, as Benidorm makes clear, the Duties Act provides a code by which to determine transactions which are dutiable. The code was designed by the legislature to create an entirely new dutiable regime. With respect to declarations which are dutiable, a declaration of trust for “the purposes of [in the case of the ACT Act, section 7(a)(ii)] is apt to be broader than what the law of trusts might regard as a declaration of trust”.[30] The respondent says this supports its contention that any departure from general law form requirements, such as the absence of an express declaration, does not defeat the liability for duty. The relevant consideration is “was there a declaration within the meaning of the Act” and the respondent says there was.
There was a new trust
[30] Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] NSWCA 285 at [79]
The respondent contends there was a new trust. In the original position there was not a fixed trust, simply a trust relationship of the Rojoda formulation, namely the right to call for an accounting and distribution. Prior to the sale of Units 3 and 4 and distribution of the sale proceeds, AUL and PSL had no ascertained beneficial interest in Units 1-4. An oral declaration of trust was made over Units 1 and 2 on 19 September 2017 as the beneficial ownership changed from the partnership to the applicant holding that land on trust for AUL absolutely. The partnership had been dissolved, and there was a new trust by the applicant for the benefit of AUL. This was a new trust.
The Tribunal’s consideration of the matter at issue
The matter turns on the correct application of the Duties Act to the 19 September 2017 transactions, specifically whether the circumstances by which the applicant came to hold Units 1 and 2 on trust for AUL absolutely constituted a “declaration of trust” in terms of section 7. Benidorm provided guidance as to the appropriate test, namely whether there has been an “alteration in the legal or equitable rights concerning property”.
The Tribunal accepts the Rojoda characterisation of the AUL and PSL’s interest as partners in the partnership property in the original position as that of an unascertained personal estate. But, the combined effect of the Partnership Agreement and the Management Agreement appointment of LIM to hold legal title in the partnership property for the partners adds a further equitable interest. The respondent contended these additional arrangements were merely “internal partnership business”. This is not accepted. In the original position these transactions created a fixed trust in an ascertained proportion, namely a 50% share each.
The relevant transaction of 19 September 2017 (namely transaction 3) altered AUL’s equitable interest in partnership interests from 50% to 100%. Applying the principle from Benidorm this amounts to a declaration that AUL’s interest has increased from 50% to 100%. This altered AUL’s equitable rights concerning property.
The 19 September 2017 transactions did not change the personal estate interest of AUL, that is its partnership chose in action as described in Rojoda. This changed because the partnership was dissolved. But it did change AUL’s equitable share in the fixed trust created jointly by the partnership agreement and the management agreement. The effect of this was to increase it by 50%. This increase is therefore dutiable.
The Tribunal accepts that the subsequent position created by the 19 September 2017 transactions (specifically, following transaction 3) does constitute a declaration of trust. The Tribunal accepts that a declaration of trust for “the purposes of the Act” does not require writing; can be created by circumstance; and does not require an express declaration. This leaves the question as to what was created by those circumstances that will, to use the applicant’s words, constitute “an accurate and reasonable description of the transaction that did in fact occur”.[31] The Tribunal finds this reasonable description was a trust for AUL absolutely of a 100% equitable interest in Units 1‑2. This transaction is dutiable and duty is payable as provided in the Table to section 8 by the transferee, who is the person who made the declaration. The nature of this trust is a continuation of the trust existing in the original position, not a new trust. In the trust in the original position AUL held a 50% equitable interest in partnership property. In the subsequent position AUL’s equitable interest in the remaining partnership property had increased to 100%. The applicant is therefore liable for ad valorem duty on 50% of the unimproved value of Units 1-2.
The Tribunal’s conclusions on the matter at issue
[31] Applicant’s Further Submissions filed 21 October 2022 at [17]
The Tribunal finds that duty is payable. The Tribunal accepts as accurate the applicant’s calculation of the duty payable on 50% of the unencumbered value (namely $855,250) of the dutiable property of the partnership, being Units 2 and 3. To this should be added penalty tax. For the reasons set out in the respondent’s Submissions,[32] in particular that there was no evidence of disclosure by the applicant prior to the commencement of its investigations in 2021, the Tribunal sets the penalty payable at the default rate of 50% pursuant to section 31(2) of the TA Act. To this should be added interest calculated in accordance with section 25 of the TA Act.
Decision
[32] Respondent’s Outline of Submissions 4 November 2022 at [81]
The decision under review is varied. The respondent should issue a revised ad valorem duty Notice of Assessment based on a dutiable transaction of 50% dated 19 September 2017.
………………………………..
Senior Member Prof T Foley
Date(s) of hearing: | 21 November 2022 |
| Solicitors for the Applicant: | Duncan Bedford, McCullough Robertson Lawyers |
| Counsel for the Respondent: | Ms Natalie Obrart |
| Solicitors for the Respondent: | Ms Laleshni Chandra, ACT Government Solicitor |
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