Marius Street Developments Pty Ltd ATF the Gerryjohn Unit Trust v Chief Commissioner of State Revenue

[2020] NSWCATAD 291

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Marius Street Developments Pty Ltd ATF The Gerryjohn Unit Trust v Chief Commissioner of State Revenue [2020] NSWCATAD 291

Hearing dates:

16 October 2020

Date of orders:

30 November 2020

Decision date:

30 November 2020

Jurisdiction:

Administrative and Equal Opportunity Division

Before:

S E Frost, Senior Member

Decision:

The land tax assessments for the 2015 to 2019 land tax years are confirmed.

Catchwords:

STATE TAXES – land tax – land owned by the trustee of a unit trust – whether the unit trust is a ‘fixed trust’ or a ‘special trust’ – whether the unit holders are ‘owners’ of the land within the statutory definition of ‘owner’ – whether the unit holders have a present right of beneficial enjoyment of the land

Legislation Cited:

Land Tax Management Act 1956

Taxation Administration Act 1996

Cases Cited:

Glenn and others v Federal Commissioner of Land Tax (1915) 20 CLR 490; [1915] HCA 57

CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98; [2005] HCA 53

Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407

Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700; [2013] NSWCA 111

Texts Cited:

None cited

Category:

Principal judgment

Parties:

Marius Street Developments Pty Ltd ATF The Gerryjohn Unit Trust (Applicant)
Chief Commissioner of State Revenue (Respondent)

Representation:

Counsel:
O Berkmann (Applicant)
S Kaur-Bains (Respondent)

Solicitors:
LBK Solicitors (Applicant)
Crown Solicitor (Respondent)

File Number(s):

2020/00136881

Publication restriction:

No restriction

Reasons for decision

Introduction

1. The Applicant as trustee for the Gerryjohn Unit Trust was assessed for land tax by the Chief Commissioner with respect to the 2015 to 2019 land tax years.

2. The assessments for those years were made on the basis that the Unit Trust was a ‘special trust’ pursuant to s 3A of the Land Tax Management Act 1956 (the LTM Act). That meant the land tax was charged on the entire value of the land subject to the trust, without the benefit of the tax threshold – a benefit that would have been available if the Unit Trust had instead been considered a ‘fixed trust’.

3. An objection against the assessments was accepted by the Chief Commissioner even though it was late. The Chief Commissioner allowed the objection, but decided the following day to disallow it instead. When the objection was disallowed the Applicant applied to the Tribunal for review of the assessments.

The issue for determination

4. The sole issue for the Tribunal to decide is whether the Unit Trust is a ‘special trust’ or a ‘fixed trust’ for the purposes of the LTM Act.

Jurisdiction

5. Section 96 of the Taxation Administration Act 1996 (the TA Act) gives the Tribunal jurisdiction to review the assessments. The Tribunal may confirm or revoke the assessments: TA Act, s 101. The Applicant bears the onus of proving its case: TA Act, s 100(3).

The land tax legislation

6. Section 7 of the LTM Act provides that land tax is to be levied and paid on the taxable value of all land situated in New South Wales which is owned by taxpayers, except where the land is exempt.

7. Under s 8 of the LTM Act, land tax is charged on land as owned at midnight on 31 December immediately preceding the year for which the land tax is levied. In other words, tax for the 2019 land tax year is charged on land owned at midnight on 31 December 2018; for the 2018 land tax year it is charged on land owned at midnight on 31 December 2017, and so on. The 31^st of December in each year is often referred to as the ‘taxing date’ for land tax purposes.

8. Consistently with the general rule, the land tax liability in respect of land held on trust falls to an owner of that land on the taxing date. But the LTM Act contains specific provisions governing assessment and liability where ownership of the legal estate and of the equitable estate is held by different persons.

9. Sections 24 and 25 of the LTM Act provide:

24 Trustees

Any person in whom land is vested as a trustee shall be assessed and liable in respect of land tax as if he or she were beneficially entitled to the land:

Provided that where he or she is the owner of different lands in severalty, in trust for different persons who are not for any reason liable to be jointly assessed, the land tax so payable by the person shall be separately assessed in respect of each of those lands:

Provided also that when a trustee is also the beneficial owner of other land, he or she shall be separately assessed for that land, and for the land of which he or she is a trustee, unless for any reason he or she is liable to be jointly assessed independently of this section.

25 Equitable owner

1. The owner of any equitable estate or interest in land is liable in respect of land tax as if he or she were the legal owner of the estate or interest and land tax is to be assessed accordingly.

2. For that purpose:

   (a)   the owner of the legal estate is taken to be the primary taxpayer and the owner of the equitable estate is taken to be the secondary taxpayer, and

   (b)   there is to be deducted from the land tax payable by the secondary taxpayer in respect of the land such amount (if any) as is necessary to prevent double taxation.

3. This section does not apply in respect of land that is subject to a special trust.

4. This section is subject to the other provisions of this Act, in particular sections 25A and 26.

   10. The term ‘owner’ is defined in s 3 of the LTM Act, as follows:

3 Definitions

1. In this Act, unless the context or subject-matter otherwise indicates or requires:

…

Owner includes:

(a)   in relation to land, every person who jointly or severally, whether at law or in equity:

(i)   is entitled to the land for any estate of freehold in possession, or

(ii)   is entitled to receive, or is in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise,

(b)   (Repealed)

(c)   in relation to any leasehold estate in land, whether legal or equitable (other than under any lease to which section 21C or 21D applies), a person, or a person who is a member of a class or description of persons, prescribed for the purposes of this paragraph, and

(d)   a person who, by virtue of this Act, is deemed to be the owner.

11. The final relevant provision is s 3A of the LTM Act, which provides relevantly as follows:

3A Special trust—meaning

1. For the purposes of this Act, a trust is a special trust if:

   (a)   the trust property includes land, and

   (b)   the trustee of the trust is the owner of the legal estate in the land, and

   (c)   the trust is not a fixed trust.

2. For the purposes of this section, a trust is a fixed trust if the equitable estate in all of the land that is the subject of the trust is owned by a person or persons who are owners of the land for land tax purposes (disregarding section 25 (3)).

3. For the purpose of determining whether a trust is a fixed trust under this section, any equitable interest of the trustee as trustee of the trust is to be disregarded.

(3A)   If a trust satisfies the relevant criteria, the persons who are beneficiaries of the trust under the trust deed are taken to be owners of an equitable estate in the land that is the subject of the trust and, accordingly, the trust is taken to be a fixed trust.

Note. Under section 25, owners of an equitable estate or interest in land are liable in respect of land tax as if they were legal owners of the land. Owners of an equitable estate in land are treated as secondary taxpayers.

(3B)   For the purposes of this section, the relevant criteria are as follows:

(a)   the trust deed specifically provides that the beneficiaries of the trust:

(i)   are presently entitled to the income of the trust, subject only to payment of proper expenses by and of the trustee relating to the administration of the trust, and

(ii)   are presently entitled to the capital of the trust, and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property,

(b)   the entitlements referred to in paragraph (a) cannot be removed, restricted or otherwise affected by the exercise of any discretion, or by a failure to exercise any discretion, conferred on a person by the trust deed.

12. In simple terms, and by reference to the distinction explained in s 3A, unless the Applicant can establish that the Unit Trust was a ‘fixed trust’ on each of the taxing dates, it will have been a ‘special trust’ on those dates, and the assessments will have to be confirmed.

13. Now, there are two ways for the Unit Trust to be classified as a ‘fixed trust’:

1. if the equitable estate in all of the land that is the subject of the trust is owned by a person or persons who jointly or severally, whether at law or in equity, are entitled to the land for any estate of freehold in possession (relying on s 3A(2), in conjunction with subparagraph (a)(i) of the definition of ‘owner’ in s 3); or

2. if the relevant criteria in s 3A(3B) are satisfied, which would make the Unit Trust a fixed trust under s 3A(3A).

14. The Applicant initially based its case on both possibilities (a) and (b) but it no longer presses the ‘relevant criteria’ argument in s 3A(3B). Its case therefore stands or falls on whether s 3A(2) of the LTM Act applies – and specifically, whether all the unit holders were in equity entitled, at each of the taxing dates, to the land for any estate of freehold in possession.

The meaning of the expression ‘estate of freehold in possession’

15. The expression ‘estate of freehold in possession’ is not defined in the land tax legislation, but the exact same expression appeared in the Land Tax Assessment Act 1910 (Vic) and was considered by the High Court in Glenn and others v Federal Commissioner of Land Tax (1915) 20 CLR 490; [1915] HCA 57.

16. In Glenn’s case Griffith CJ said at 498:

The essential element of an ‘estate in possession’ is, in my opinion, that the owner of it has a present right of beneficial enjoyment, whether accompanied by physical possession of the land or not.

17. Isaacs J expressed himself this way, at 501:

The real question here, as I view it, is this: Have the appellants, in the eye of a Court of equity, a present right under the provisions of the will to the present enjoyment of the land? If they have, they are equitable ‘owners’ within the meaning of the Act; if they have not, they are outside the definition. I emphasize the word ‘right,’ for nothing short of a right will satisfy the requirement.

18. The notion that a person is entitled to an estate in possession only if the person has a present right of beneficial enjoyment of the land was confirmed in CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98; [2005] HCA 53, where the High Court also marked out the proper approach to a case such as this (at 109 [14]-[15]):

The first step was to ascertain the terms of the trusts upon which the relevant lands were held. The second was to construe the statutory definition to ascertain whether the rights of the taxpayers under those trusts fell within that definition.

In taking those steps, a priori assumptions as to the nature of unit trusts under the general law and principles of equity would not assist and would be apt to mislead. All depends, as Tamberlin and Hely JJ put it in Kent v SS Maria Luisa [No 2] (2003) 130 FCR 12 at 33, upon the terms of the particular trust.

The trust deed

19. The Unit Trust was established by deed dated 26 June 2007.

20. At all relevant times the Applicant was the Trustee of the Unit Trust. The Fund was vested in the Trustee upon trust for the unit holders. At all relevant times the only unit holders were the two initial unit holders, although clause 4 of the deed empowers the Trustee to create and issue additional units ‘on such terms and to such persons as it thinks fit’.

21. Clause 3 of the deed is in the following terms (headings have been included, even though clause 1(4) provides that headings are not to be taken into account in the construction of the deed; in addition, some minor typographical errors have been corrected):

Beneficial interest of unit holders

1. (1)   Beneficial interest in the Fund

   Subject to the rights of holders of units of a class, the beneficial interest in the Fund as originally constituted and existing from time to time shall be vested in the unit holders for the time being in proportion to the units held by them.

   (2)   No entitlement to any part of the Fund

   A unit shall not entitle the registered holder to any particular asset comprised in or any particular part of the Fund but each unit shall entitle the registered holder equally with all other unit holders to the beneficial interest in the Fund as an entirety.

   (3)   Equal value

   Notwithstanding that one or more units may have been issued at a premium, all units of the same class shall be of equal value.

   (4)   Fixed Trust.

   Notwithstanding any other provisions of this Deed, the unit holders are presently entitled to all of the income from any land owned by the Trust after the payment of the expenses properly incurred by the trustee in the authorised administration of the trust. Further the unit holders may require the trustee to wind up the trust and distribute either the land or the net proceeds of the sale of the land.

   22. Clause 18 of the deed provides for the convening of meetings of unit holders. The Trustee may ‘whenever it thinks fit’ convene a meeting of unit holders, and must convene such a meeting ‘if required to do so by a requisition signed by or on behalf of unit holders registered as the holders in the aggregate of fifty (50)% or more of units’. At least 14 days’ notice of a meeting must be given, unless 100% of unit holders consent to a shorter notice period, of at least 24 hours. In exceptional circumstances meetings can be convened with less than 24 hours’ notice.

   23. Clause 23 deals with the termination of the Trust. One of the circumstances in which the Trust can be wound up and terminated is if unit holders holding at least 50% of the units notify the Trustee to determine the Trust. Alternatively, the Trustee can wind up the Trust if it considers that course to be in the interests of the unit holders: clause 23(1).

   24. On determination of the Trust, the Trustee shall ‘as soon as practicable sell, call in and convert into money the investments and property constituting the Fund’, pay out any debts and liabilities, and pay the proceeds, less all proper costs, disbursements, fees and proper provisions for liability, to the unit holders in proportion to the number of units held: clause 23(2).

   25. However, clause 23(3) empowers the Trustee to postpone the sale, calling in and conversion ‘for such time as it thinks desirable in the interests of the unit holders’ and the Trustee is not responsible for any loss attributable to such postponement. Clause 23(4) also authorises the Trustee to make such provision ‘as in its discretion it considers necessary’ to provide for any outgoings or liabilities before making any distribution to the unit holders.

The Applicant’s submissions

26. The Applicant says the entirety of clause 3(4), quoted in [21] of these reasons, operates as an ‘overriding and paramount’ clause through the use of the introductory words ‘Notwithstanding any other provision of this Deed’. It says that, properly construed, those introductory words apply not only to the first sentence but also to the second sentence of clause 3(4): Applicant’s Written Submissions (AWS) at [41]-[42]. Alternatively, it submits that the clause ‘still operates as an overriding and paramount clause when consideration of the nature and content of the clause as well as the entirety of the Trust Deed is taken into account’: AWS at [43].

27. While the Applicant concedes, on the basis of CPT Custodian, that clause 3(2) does not confer equitable ownership of any particular asset or any particular part of the Fund on the unit holders, it submits that clause 3(4) confers on the unit holders a right and entitlement to the land itself, and this is to be contrasted with an entitlement to a beneficial interest in the Fund as an entirety. To the extent that clauses 3(2) and 3(4) are at odds, the Applicant submits that the latter overrides the former.

28. The Applicant summarises its position this way, at AWS [81] and [83]:

The Applicant submits that Clause 3(4) grants each Unit Holder an equitable ownership of an estate of freehold in possession in a particular asset of the Trust Property being the Land itself on the basis that Clause 3(4) confers an absolute power upon the Unit Holders to have their respective 50% interest in the each (sic) of the parcels of land transferred directly to them or after directing the Trustee to sell the Lands to receive the net proceeds of sale. There is a right under the provisions of the Trust to the present enjoyment of the land.

…

The Applicant submits that the use of the words ‘notwithstanding any other provision of this deed’ coupled with the overriding and paramount application of the Clause 3(4) operates so as to resolve any conflict between the Unit Holders’ equitable ownership of the estate of freehold in possession of the Land and the income of the Land and the application of any other clause within the GerryJohn Unit Trust deed similar to the terms considered in the decision of CPT Custodian to the extent that they exist.

29. Finally, the Applicant submits in its Written Submissions in Reply that a proper construction of clause 3(4) provides that either unit holder has the right to compel the trustee to wind up the trust without compliance with either clause 18 or clause 23 of the trust deed. It submits that this right existed at each of the relevant taxing dates; it was not dependent on the expiration of any particular period of time or on the application of clauses 18 and/or 23.

The Chief Commissioner’s submissions

30. The Chief Commissioner disagrees with the Applicant’s construction of clause 3(4) of the trust deed. Specifically, it is submitted that:

1. The words ‘Notwithstanding any other provisions of this Deed’ should not be read into the second sentence of clause 3(4);

2. In any event, and even if they were read into the second sentence, they could only have the effect of resolving any inconsistencies with other provisions of the deed;

3. Clause 3(4) should not be construed as overriding clause 18, as it does not expressly deal with how the unit holders are to determine whether or not to wind up the trust;

4. Clause 3(4) has to be properly construed not only with clause 18 but also with clause 5, which requires the Trustee to keep and maintain an up-to-date register of unit holders. There is no inconsistency between clause 3(4) and clauses 5 and 18. The combined effect of clauses 5 and 18 is that all the unit holders recorded on the register are required to convene a meeting and determine by a poll that 100% of the unit holders have decided to wind up the trust and to have the land distributed to the unit holders. Until that happens there is no right to have the trust wound up and the land (or the proceeds of its sale) distributed;

5. The second sentence of clause 3(4) is properly construed as requiring all the registered unit holders to agree before winding up the trust with no discretion in the Trustee. This is because clause 23 deals with the situation where a unit holder holding not less than 50% of the units can seek to wind up the trust but in that case clause 23(3) reserves in the Trustee a discretion to postpone the winding up.

31. The Chief Commissioner also submits that the reference in the second sentence of clause 3(4) to the ‘unit holders’ is a reference to all of them, and cannot be read as including a reference to any individual one of them. The Chief Commissioner notes that while clause 1(2) of the trust deed provides that the plural includes the singular, that is subject to express provision to the contrary.

31. Finally the Chief Commissioner submits that the trust deed should be construed in a way that recognises the possibility that additional unit holders may be admitted, other than the two original unit holders who were the only unit holders throughout the relevant period. I understood the submission to be that a construction of the deed that delivers a sensible commercial outcome when there are two unit holders will not be the correct construction if it does not also deliver a sensible commercial outcome no matter how many unit holders there are. The submission is evidently based on what was said by the Court of Appeal in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407, and in particular the requirement to give a commercial contract (including, according to the Chief Commissioner, a trust deed) a businesslike interpretation, one that avoids making commercial nonsense or that delivers a commercially inconvenient outcome: at [19].

Consideration

33. Both parties acknowledge that the trust deed is to be interpreted by reference to orthodox principles of construction: Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26; Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700; [2013] NSWCA 111 at [39].

34. The Applicant’s submission concerning the ‘overriding and paramount’ nature of clause 3(4) amounts to an acknowledgment that the trust deed does not otherwise give the unit holders a present right of beneficial enjoyment of the land. Therefore, the Applicant must succeed in establishing either (a) that the words ‘notwithstanding any other provision of this Deed’ apply to the second sentence of the clause as well as the first, or (b) that clause 3(4) is an ‘overriding and paramount’ clause in any event.

35. The drafting of clause 3(4) is such that the words ‘notwithstanding any other provisions of this Deed’ are absent from the second sentence of the clause and I do not consider they can be properly read into it. Orthodox drafting to achieve the end contended for by the Applicant would more likely have seen the expression repeated from the first sentence to the second, or the expression used as a kind of chapeau to introduce the two ideas following it. Even the use of the word ‘further’ at the beginning of the second sentence is not strong enough to import into that sentence the overarching qualification that is present in relation to the content of the first sentence.

36. Nor am I persuaded by the Applicant’s alternative submission, that clause 3(4) is an ‘overriding and paramount clause’ that displaces the remaining provisions of the deed. This is because, even allowing for the fact that the design of the clause might have been better, the content also falls short. In my view, the effect of the second sentence is not to resolve any inconsistencies with other provisions of the deed (which is what a clause of this kind, if it were effective, is generally designed to do: Sayden, at [40]). Instead it is simply to confirm the unit holders’ power to require the Trustee to wind up the trust, but not in such a way that ignores the conditions imposed on that power elsewhere in the deed.

37. For either limb of the Applicant’s submission to be accepted, the language used in clause 3(4) would have to point strongly towards that outcome. This is because the other provisions of the deed set out in detail the powers, duties, rights and obligations of the Trustee and the unit holders. They should not be presumed to be displaced without the clearest language dictating that result. The language simply does not do that.

38. As both Glenn’s case and CPT Custodian make clear, unless it follows from the proper construction of the trust deed that the unit holders had a present right of beneficial enjoyment of the land at any of the relevant taxing dates, the Applicant’s case must fail.

39. Because clause 3(4) does not override the other provisions of the deed, the unit holders do not have a present right of beneficial enjoyment of the land. The most they have is the power under clause 18 to call a meeting and, depending on the outcome of the meeting, the right to have the trust wound up in accordance with clause 23 if the votes go that way. But even the power to call a meeting is not available to every unit holder; it is only available to a unit holder who individually holds, or to unit holders who together hold, at least 50% of the units. It is true that each of the current unit holders holds no less than 50% of the units, and on that basis either one of them could call a meeting – but, all else being equal, the admission of only one additional unit holder would throw that arithmetic out. The power (which even now is less than a right) would be even more diminished in that circumstance. And it cannot be the case that an objective assessment of the unit holders’ power can depend on the number of unit holders recorded on the register: in this regard I agree with the Chief Commissioner’s submission as set out in [32] above.

40. For these reasons the unit holders did not, on any of the relevant taxing dates, have a present right of beneficial enjoyment of the land. The Applicant has therefore failed to establish that the Unit Trust is a fixed trust. It follows that the assessments made by the Chief Commissioner are correct.

Order

1. The land tax assessments for the 2015 to 2019 land tax years are confirmed.

**********

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 30 November 2020