Loaplea Pty Ltd v Chief Commissioner of State Revenue

[2009] NSWADT 137

CITATION:	Loaplea Pty Ltd v Chief Commissioner of State Revenue [2009] NSWADT 137
DIVISION:	Revenue Division
PARTIES:	APPLICANT Loaplea Pty Ltd RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	086078
HEARING DATES:	28 April 2009
SUBMISSIONS CLOSED:	28 April 2009
DATE OF DECISION:	12 June 2009
BEFORE:	Hole M - Judicial Member
LEGISLATION CITED:	Land Tax Act 1956 Land Tax Management Act 1956 Duties Act 1997 Social Security (Administration) Act 1999
CASES CITED:	Chief Commissioner of Land Tax v MacAry Manufacturing Pty Ltd 1999 (NSW) CA 471 Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490 Chief Commissioner of State Revenue v Buckle 1998 HCA 4 DKLR Holding Co (2) P/L v Chief Commissioner of Stamp Duty (NSW) 1982 149 CLR 431 Chief Commissioner of Stamp Duty (Qld) v Livingston 1965 A Cases 694 Executor Trustee and Agency Company of South Australia v Deputy Commissioner of Taxes (SA) (1939) 62 CLR 545 Dynset Pty Ltd v Chief Commissioner of State Revenue [2008] NSWADT 245
REPRESENTATION:	APPLICANT D King, RESPONDENT A Rider, barrister
ORDERS:	1.The decision made by the respondent is confirmed.

1 On 31 December 2007 the company known as Loaplea Pty Ltd (“the company”) was the registered proprietor of a parcel of land in New South Wales. This application has been made on behalf of that company in respect of the land tax year 2008. The company is the nominated trustee of Moran Family Trust No 2 (“the Trust”).

2 On 13 July 2005 the respondent forwarded a form letter to the representative of the company. This form noted that the land registered in the name of the company may have been subject to land tax for the 2005 tax year.

3 Subsequently the respondent forwarded Notices of Assessment to the company for the 2005 tax year issued on 13 August 2005, then retrospectively for the tax years 2002, 2003, 2004, 2005 and 2006 issued on 26 May 2006, and then for the 2007 tax year issued on 29 January 2007. Land tax assessed for those years was paid. On 1 February 2008 a Land Tax Notice of Assessment was forwarded to the company and addressed to Loaplea Pty Ltd ATF Moran Family Trust No 2 for the 2008 tax year.

4 The representative of the company at that time responded to the enquiry forwarded to the company by the respondent on 13 July 2005 noting that the land was owned by the company pursuant to a special trust named the “Moran Family Trust No 2”. This response was forwarded on 1 August 2005.

5 The representative of the company at that time objected to the assessment dated 1 February 2008 by letter dated 29 May 2008 noting that she had become the sole director of the company in December 2004 and noting that the company is non-productive and does not generate income or liabilities in the form of taxation. The representative of the company submitted that she did not have the funds available, that her health was precarious and requested that the Notice of Assessment be reviewed. This letter was incorrectly forwarded to the Department of Lands office on 31 March 2008. The representative of the company was advised on 29 May 2008 that the letter should have been forwarded to the respondent by way of objection. A letter of objection was then forwarded to the respondent on 5 June 2008.

6 The respondent replied to the letter of objection on 9 July 2008 disallowing the objection to the assessment for the 2008 land tax and it is from that decision that this application has been brought.

History

7 On 11 June 1999 by Deed, an independent person settled a sum upon the company as trustee for the Trust to be held by the company as trustee for beneficiaries as named in the Deed. The Deed provides that the income of the Trust is to be distributed to the “Income Beneficiaries” as set out in the schedule to the Trust. The Deed also provides that on the vesting date or on an earlier date of termination of the Trust the whole of the corpus of the Trust will vest in the “Corpus Beneficiaries”. The parties described as the “Income Beneficiaries” are identical to those described as the “Corpus Beneficiaries”. Those beneficiaries are described as a named person, any spouse of the person so named and any child of a person referred to as the named person and any spouse of that person. The Deed also provides that any lineal issue at the distribution date of a child of the named person or any spouse of the person would be a beneficiary and then any sibling or parent of a person being the named person or any spouse of that person would be a beneficiary. The Deed also provides that a beneficiary may be any company holding of which a share is held by a previously named beneficiary or any trust established where a person previously named would have an interest. There is further provision for the benefits to trickle down to a trustee of any charitable trust, etcetera, and ultimately for the person or entity described as the trustee in the deed (being the company).

Applicant’s Submissions

8 The representative of the company, for the purposes of this application, made comprehensive written submissions and verbal submissions made by telephone at the date of the hearing.

9 The submissions noted that once the position had been established that the Deed creating the trust was insufficient to attract an exemption as a trust established for the benefit of a disabled beneficiary then the company made the necessary amendments to enable the Trust to be considered to be a complying trust for the purposes of the exemption referred to as the principal place of residence exemption. Alternatively that the beneficiary of the trust, now being the sole director of the company, is a disabled pensioner and therefore entitled to the exemption provided under Section 3B(1)(b)(iii) of the Land Tax Management Act 1956. That Revenue Ruling LT55 provides for an exemption on behalf of a beneficiary of a trust, established for the benefit of a disabled beneficiary, and that beneficiary’s principal place of residence would qualify.

10 The representative of the company noted that the land tax assessments issued prior to that issued in January 2008 had all been paid. The payments had been made without obtaining advice as to any right to challenge those assessments.

11 The representative of the company noted that the task in objecting to the assessment had been complicated due to various occurrences including that the mother of the company representative had passed away. That the sole director of the company appointed in 2004 was the intended beneficiary (the intended beneficiary) of the Trust. Monies from the mother’s estate had been used to pay the assessments that had been issued back to 2002 and then the amounts became too large for the intended beneficiary to pay.

12 The representative of the company noted that the initial reason for the Trust being set up by the father of the intended beneficiary was to protect that person from claims by any future husbands or partners. The Trust was set up on 11 June 1999 and the property subject of the land tax assessment was purchased shortly thereafter. As and from the date of purchase the intended beneficiary took up residence of that property and has remained as resident of that property together with her two sons continuously therefrom.

13 The submissions referred to the facility for ex gracia relief to be applied for pursuant to paragraph 10 of Revenue Ruling No LT55.

14 The submissions noted that the first time that the representative of the company had realised that there were other beneficiaries included in the Trust was in February 2009 when careful perusal of the Deed was undertaken after receiving the respondent’s submissions in respect of this application.

15 It was always considered by the siblings of the intended beneficiary of the Trust that when the Trust was set up that it was for the benefit of the intended beneficiary and that it would not benefit the parties named in the schedules to the Deed.

Respondent’s Submissions

16 The respondent’s representative provided written submissions to the Tribunal and verbal submissions on hearing.

17 The respondent’s representative drew attention to the amendments that have now been undertaken in respect of the Deed as at March 2009. That the land tax assessment issued for land tax year 2008 was based on the facts as they stood as at 31 December 2007 and that the amendments made since that date to the Deed or to the ownership of the property do not affect the status of the 2008 assessment.

18 The Trust was established initially for family law reasons and the Deed sets out the beneficiaries being both the “Income Beneficiaries” and the “Corpus Beneficiaries” comprehensively. Both types of beneficiaries include several persons and companies other than the intended beneficiary.

19 Revenue Ruling LT55 was issued on 24 January 1997.

20 Paragraph 9 of Revenue Ruling LT55 notes that where a parcel of land is used as a beneficiary’s principal place of residence then the land will be exempt, unless the trustee is a company. In this particular matter the company is the registered proprietor of the land and therefore the principal place of residence exemption referred to in Revenue Ruling LT55 is not applicable.

21 The reference in Revenue Ruling LT55 at paragraph 10 to Revenue Ruling SD136 refers to an exemption in respect of stamp duty payable on a transfer where land is transferred from a trustee to a natural person in order to qualify for the land tax exemption.

22 The reference to Revenue Ruling SD136 does not affect the land tax assessment in respect of the company for the 2008 land tax year. It may be relevant to any transfer from the company to a natural person in order to qualify for the land tax exemption relating to a sole beneficiary’s principal place of residence. In any event it was submitted that the relevant section applicable to Revenue Ruling SD136 is the existing Section 97 of the Duties Act 1997 which replaced Section 73AA and it only applies to land which was owned as at 11 September 1990, consequently any relevance to the land subject of the land tax assessment being considered here is inapplicable because the Trust acquired the land in August 1999.

Legislation

23 The relevant statutory provisions are:

Owner as defined in Section 3(1) of the Land Tax Act 1956 (“LTA”);

Section 24 Land Tax Management Act 1956 (“LTMA”);

Section 25 LTMA;

Section 3A of LTMA;

Section 10 LTMA;

Clause 2 of Schedule 1A of LTMA; and

Clause 11 of Schedule 1A of LTMA.

These are summarised in Dynset Pty Ltd v Chief Commissioner of State Revenue [2008] NSWADT 245 at paragraphs 9 - 20 (“Dynset”) and are relevant to this application.

Reason for decision

24 The submissions addressed the eligibility of the Trust as it was at the 31 December 2007 to be classified as a special trust noting that the company was the registered proprietor of the land as trustee. Attention was drawn to Chief Commissioner of Land Tax v MacAry Manufacturing Pty Ltd 1999 (NSW) CA 471 (“MacAry”) at paragraphs 58 – 60.

25 The next consideration needed to be whether the beneficiaries were to be considered to be any type of owner. Attention was drawn to Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490 (“Glenn”) where the High Court noted that the statutory discretion referred to as “estate in possession” denotes “an estate of which some person has the present right of enjoyment”. This was as opposed to an expectancy to be the owner of the property.

26 Where the land was held by the Trust in this particular case, the only party having an interest in the land is the trustee and that is the company. The beneficiaries as described in the Deed do not have an interest in the land the only activity that they can undertake is to compel the trustee to administer the Trust. In support of this the representative of the respondent drew attention to Chief Commissioner of State Revenue v Buckle 1998 HCA 4 at paragraph 37, DKLR Holding Co (2) P/L v Chief Commissioner of Stamp Duty (NSW) 1982 149 CLR 431 at pages 463 and 474 and Chief Commissioner of Stamp Duty (Qld) v Livingston 1965 A Cases 694 712 – 713.

27 Considering the pronouncement in Glenn and on application of the reasoning in the three cases referred to in paragraph 27 above the two questions that need to be answered are:

1.Was there anyone other than the company entitled to the land? and

2.Who was entitled to the rents and profits in respect of the land?

Based on the evidence the answers to these questions are:

1. No. and

2.No-one was entitled to the rents and profits as it was a discretionary trust. As the beneficiaries described only have a contingent right to receive income and this right is dependent upon the exercise of discretionary powers by the trustee which does not constitute an entitlement to income. This is supported by the reference to entitlement as referred to in Executor Trustee and Agency Company of South Australia v Deputy Commissioner of Taxes (SA) (1939) 62 CLR 545 and therefore no beneficiary is entitled to receive the rents and profits.

28 Section 3B of LTMA describes when a trust may be considered to be a ‘Concessional Trust’. Section 3B(1) must be satisfied in that each person who is a beneficiary of the Trust must be a person capable of description as set out in that section. The Trust provides that there are a number of potential beneficiaries of the income and of the corpus who would not be covered within the descriptions given and accordingly Section 3B of LTMA does not apply.

29 The intended beneficiary was confirmed as a disabled pensioner pursuant to the Social Security (Administration) Act 1999. This does not attract the provisions of Section 3B(1)(iii) of LTMA. As at 31 December 2007 the intended beneficiary was not the only person who could be described as the only beneficiary of the Trust.

30 The applicant’s representative in this matter holds a Power of Attorney in respect of the intended beneficiary. This does not change the status of the assessment of land tax directed to the company.

31 The applicant’s situation in this case is distinguished from Dynset in that the purchase price was provided by settlement pursuant to the Trust and not by the beneficiaries of the Trust as it was as at 31 December 2007. As at that date the property of the Trust did not vest in the beneficiaries.

32 The applicant bears the onus to establish that the property was held as a resulting trust in favour of the intended beneficiary as at 31 December 2007. This has not been established.

33 The intended beneficiary was not entitled as at 31 December 2007 pursuant to the terms of the Deed to any legal or equitable right to the land held in the name of the company.

Order

34 The decision made by the respondent is confirmed.