MD Commercial Pty Ltd and AJ Commercial Pty Ltd v Commissioner of State Revenue
[2018] VSC 560
•2 October 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST
S ECI 2018 00081
| MD COMMERCIAL PTY LTD (ACN 156 573 983) AJ COMMERCIAL PTY LTD (ACN 156 573 992) | Appellants |
| v | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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JUDGE: | CROFT J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5 September 2018 |
DATE OF JUDGMENT: | 2 October 2018 |
CASE MAY BE CITED AS: | MD Commercial Pty Ltd & AJ Commercial Pty Ltd v Commissioner of State Revenue |
MEDIUM NEUTRAL CITATION: | [2018] VSC 560 |
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TAXATION AND REVENUE – Whether transfers of land to trustees exempt as transfer to trustee to be held solely as trustee for transferor – Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529 – Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd (2000) 46 ATR 61 – White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77 – Duties Act 2000 s 35(1)(a)
PRACTICE AND PROCEDURE – Victorian Civil and Administrative Tribunal – Appeal against Tribunal orders – Victorian Civil and Administrative Tribunal Act 1998 s 148(1).
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APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr N.A. Kotros | Falcone & Adams Lawyers |
| For the Respondent | Mr C.J. Horan QC with Mr C. Young | Solicitor for the Commissioner of State Revenue |
HIS HONOUR:
Introduction
This application arises from an assessment to duty of two transfers of land, by which a 50% interest as tenant in common in the subject land was transferred to each of the Appellants as trustee for a named beneficiary pursuant to a Deed of Trust. These deeds empowered the trustee to hold the land for the beneficiary and also, where a direction was given by the beneficiary, obliged the trustee to develop, subdivide and sell the land to third parties.
The question of law raised on this appeal is whether the Victorian Civil and Administrative Tribunal (“the Tribunal”), in its decision in MD Commercial Pty Ltd and AJ Commercial Pty Ltd v Commissioner of State Revenue (Review and Regulation)[1] (“the Tribunal Decision”) was correct in concluding that the transfers were not exempt from duty under s 35(1)(a) of the Duties Act 2000 (“the Duties Act”), affirming the decision of the Commissioner to disallow the objection to the assessment.
[1][2018] VCAT 333.
In summary, the Commissioner contends that, under the terms of each of the Deeds of Trust, the property transferred to the Appellants was not “to be held solely as trustee or nominee of the transferor, without any change in the beneficial ownership of the property”. These deeds expressly provided that that trustee had a broad range of powers to deal with the trust property, including the subdivision, development and sale of the land; though those powers were to be exercised at the direction or with the written consent of the beneficiary. The Commissioner points to the terms of the Deeds of Trust under which the trustee had duties or obligations to act in accordance with the directions of the beneficiary beyond merely holding the subject land and conveying it to the beneficiary. Those duties, the Commissioner submits, went beyond simply “guarding” the trust property prior to its conveyance; a concept that emerges from the authorities in respect of relevant legislative provisions. The Appellants, on the other hand, contend otherwise, specifically, that transfers to the trustees were transfers to “bare trustees” in circumstances where the transfer did not change the beneficial ownership of the subject land.
The Commissioner contends that, on the application of established principles and existing authority, the transfers of the subject land were not exempt from duty under s 35(1)(a) of the Duties Act. Moreover, the Commissioner submits that insofar as the Appellants’ submissions seek to revisit central aspects of the reasoning in Comptroller of Stamps v Yellowco Five Pty Ltd,[2] Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd,[3] and White Rock Properties Pty Ltd v Commissioner of State Revenue,[4] or to re-agitate arguments that were unsuccessfully advanced in those cases, the Court must follow and apply the reasoning in those decisions. The Appellants contend, on the other hand, that the present circumstances are distinguishable from the circumstances found to be critical in those cases and, accordingly, the exemption from duty applies.
[2][1993] 2 VR 529 (“Yellowco Five”).
[3](2000) 46 ATR 61 (“Victoria Gardens”).
[4][2015] VSCA 77 (“White Rock”).
In the interests of expedition and economy in terms of time and cost, this proceeding was heard as a combined or “rolled up”[5] application for leave to appeal the Tribunal’s decision and, if leave were to be granted, the hearing of the appeal itself.
[5]An expression now well understood: see R (Miller) v Secretary of State for Exiting the European Union [2016] EWHC 2768 (Admin).
Principles applicable with respect to appeal
Section 148(1) of the Victorian Civil and Administrative Tribunal Act 1998 provides:
A party to a proceeding may appeal on a question of law from an order of the Tribunal in the proceeding—
(a)if the Tribunal was constituted for the purpose of making the order by the President or a Vice President, whether with or without others, to the Court of Appeal with leave of the Court of Appeal; or
(b)in any other case, to the Trial Division of the Supreme Court with leave of the Trial Division.
It follows from this provision that any appeal is dependent upon two important qualifications. First, that the appeal be on a question of law, and secondly, that the Court gives leave to appeal. The legislative policy underlying these provisions is that “VCAT decisions should not generally be disturbed where cases have been decided in that forum other than on questions of law and where there is something about the decision bearing upon the question of law which warrants a grant of leave to appeal.”[6]
[6]Commissioner of State Revenue v Frost (2011) 83 ATR 832 at 834 [5] citing Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335–6 and Myers v Medical Practitioners Board (Vic) (2007) 18 VR 48 at 55 [28].
The leave requirement under s 148(1) of the VCAT Act is designed to maintain this position. As Pagone J said in Commissioner of State Revenue v Frost:[7]
The requirement for leave under s 148(1) of [the VCAT Act] “is a safeguard that the appeal is on a pure question of law and that the grounds supporting the question of law articulated for determination by the Court do found the subject matter of the appeal”.[8] It also confers a discretion about whether to grant leave[9] which an applicant must persuade the Court to exercise in its favour. What must be shown will depend upon the particular case bearing in mind the statutory criteria being a grant of leave and not special leave.[10] It will ordinarily be necessary (in addition to a clearly articulated question of law)[11] for an applicant to make out a prima facie case[12] and in an appropriate case it may be necessary for the applicant to show that the question upon which leave is sought has public or general importance.[13]
[7](2011) 83 ATR 832 at 833–4 [3].
[8]Commissioner of State Revenue v STIC Australia Pty Ltd (2010) 81 ATR 682 at 687 [10].
[9]Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331; Al-Hakim v Monash University (Unreported, Victorian Supreme Court of Appeal, 28 March 2003); Myers v Medical Practitioners Board (Vic) (2007) 18 VR 48.
[10]See Morris v R (1987) 163 CLR 454 at 475.
[11]Osland v Secretary to the Department of Justice [No 2] (2010) 241 CLR 320 at 333 [21].
[12]Morris v R (1987) 163 CLR 454 at 475; Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335.
[13]Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335–6; Commissioner of State Revenue v Challenger Property Nominees Pty Ltd (2006) 63 ATR 65 at 69 [20], 77 [65].
In considering an application of this nature, courts have been concerned to respect the role entrusted by the legislature to the particular tribunal and not, in effect, subvert this position by seeking out error. Thus, Kirby J in Roncevich v Repatriation Commission said:[14]
Courts conducting this form of review have been repeatedly enjoined by this Court to avoid overly pernickety examination of the reasons.[15] The focus of attention is on the substance of the decision and whether it has addressed the “real issue” presented by the contest between the parties.
[14](2005) 222 CLR 115 at 136 [64].
[15]Minister for Immigration and Ethnic Affairs v Guo (1997) 191 CLR 559 at 575, 597. Cf Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 at 348 [74].
For the reasons which follow, I am satisfied that the proposed appeal concerns a question of law on which there is authority, but that the question of law is, nevertheless, an issue of general or public importance, as it is one that is likely to arise further in Duties Act cases and be relevant to the Commissioner’s determination of such cases. Although the Commissioner has demonstrated that no error exists in relation to the Tribunal’s decision, it is, for the preceding reasons, appropriate, in my view, to grant leave to appeal. For the reasons which follow, however, the appeal is unsuccessful.
Factual matters
On 2 October 2011, Christine Margaret Fox died. Her estate included the subject land at 13-15 Torre Road, Pakenham, which was devised and bequeathed to her sons, Anthony Fox and Matthew Fox, in equal shares. The Appellants describe that property as simply a “family home”, a description which the Commissioner submits is inapt. I do, however, simply note this difference between the parties, as nothing turns on it having regard to the reasons which follow.
MD Commercial Pty Ltd and AJ Commercial Pty Ltd were both registered on 30 March 2012.
By Deed of Trust dated 3 May 2012, the M David Trust was established, with MD Commercial Pty Ltd as its trustee and Matthew Fox as beneficiary. By a Deed of Trust dated the same day, the A James Trust was established, with AJ Commercial Pty Ltd as its trustee and Anthony Fox as beneficiary. In relation to these trusts, the Commissioner submits that the wider factual context for their establishment is elaborated in a letter from Mathew (sic) Fox to the State Revenue Office dated 22 July 2016.[16] The Appellants did, however, object to the admissibility of this letter in the present proceedings on the basis that it was not in the evidence before the Tribunal. On that basis, I have had no regard to this letter and have not treated it as being a matter before the Court in these proceedings; for the reasons advanced by the Appellants. Nevertheless, this has not affected the outcome of these proceedings, having regard to the reasons which follow. In any event, each of the Deeds of Trust is in similar form, the contents of which I will come to in due course.
[16]Commissioner’s Outline of Submissions (13 July 2018), [11], n 3.
On 10 August 2012, the subject land was transferred, as to 50% to MD Commercial Pty Ltd and as to the other 50% to AJ Commercial Pty Ltd. Each of these transfers was expressed to be at the direction of Anthony Fox and Matthew Fox, respectively, in the following terms: “the Directing Party being entitled pursuant to the Will of Christine Margaret Fox, deceased, The Transferee being entitled in equity”. On the same day, 10 August 2012, the transfers were stamped as exempt under s 35(1)(a) of the Duties Act. On 20 September 2012, the transfers were registered under the Transfer of Land Act 1958.
In 2016, following the development, subdivision and sale of some of the subject land to third parties,[17] the Commissioner commenced an investigation in relation to whether the transfers on 10 August 2012 were correctly granted exemptions under s 35(1)(a) of the Duties Act.
[17]The details of the development, subdivision and sale are set out at Court Book, 70 in the letter dated 7 November 2016 accompanying the notice of assessment, and at Court Book, 78 in the notice of determination of objection dated 22 February 2017.
On 7 November 2016, the Commissioner advised that he had completed the investigation and determined that the transfers did not qualify for exemption under s 35(1)(a) of the Duties Act and, accordingly, a notice of assessment was issued. By letter dated 22 December 2016, the Appellants objected to the assessment. By letter dated 22 February 2017, the Commissioner determined to disallow the objections.
On 8 March 2018, the Tribunal confirmed the Commissioner’s decision. Critical to the Tribunal’s Decision is its assessment of the effect of the provisions of the Deeds of Trust in the context of the provisions of s 35(1) of the Duties Act and in light of its assessment of the effect of authorities on the proper construction and application of these provisions; critically, Yellowco Five, Victoria Gardens and White Rock.
The Deeds of Trust, which the Appellants contend establish merely “bare” trusts, did, however, contain a variety of provisions; provisions which are summarised by the Commissioner as follows:[18]
[18]Commissioner’s Outline of Submissions (13 July 2018), [11].
11.Each Deed is in a similar form.[19]
(a)In cl 1, the Trustee acknowledged that “it is registered or entitled to become registered as the proprietor of a one half interest in the property” at Pakenham and that, pursuant to the will of Christine Fox, the beneficiary is the beneficial owner of the interest held by the Trustee in the Pakenham property.
(b)In cl 2(a), the Trustee covenanted that it “holds its interest in the Property in trust for the Beneficiary and will transfer and deal with its interest in the Property and any income and all other rights which may accrue by virtue thereof (collectively referred to herein as ‘the Trust Fund’) in such manner as the Beneficiary may from time to time direct”.
(c)In cl 2(b), the Trustee covenanted that, “[s]o long as the Property shall remain registered in the name of the Trustee the Trustee will at all times act in accordance with the directions of the Beneficiary”.
(d)In cl 3, the Trustee irrevocably appointed the Beneficiary as its Attorney “for the purpose of doing every thing which the Beneficiary may deem desirable in order to effect a transfer of the Trustee’s interest in the Property to the Beneficiary or to a purchaser from the Beneficiary and for carrying out any of the provisions of this Deed”.
(e)By cl 6(a), the Trustee was empowered, at the direction or with the written consent of the Beneficiary, “to invest in any investments the Trustee thinks fit as if it were acting in a private capacity as the absolute owner of the Trust Fund”;
(f)By cll 6(d) and 6(e), the Trustee was empowered, at the direction or with the written consent of the Beneficiary, to borrow money and to secure the repayment of any borrowing by mortgage or other encumbrance over all or any part of the Trust Fund including any property which may be subsequently acquired by the Trustee so that it will form part of the Trust Fund.
(g)By cl 6(g), the Trustee was empowered, at the direction or with the written consent of the Beneficiary, “to hold, use, purchase, construct, demolish, maintain, repair, renovate, reconstruct, develop, improve, sell, transfer, convey, surrender, let, lease, exchange, take and grant options or rights in, alienate, mortgage, charge, pledge, reconvey, release or discharge or otherwise deal with any real or personal property”;
(h)By cl 6(h), the Trustee was empowered, at the direction or with the written consent of the Beneficiary, “to partition or agree to the partition of, or to subdivide or agree to the subdivision of any land or other property which may for the time being be subject to the trusts hereof”.
[19]Footnote 3 of paragraph 11 of the Commissioner’s Submissions makes reference to a letter from Matthew Fox to the State Revenue Office dated 22 July 2016, which as indicated previously, is not a document relevant and admissible in the present proceedings.
Legislation
Section 35 of the Duties Act provided as follows:
35 Transfers to and from a trustee or nominee
(1)No duty is chargeable under this Chapter in respect of—
(a)a transfer of dutiable property that is made by the transferor to a trustee or nominee to be held solely as trustee or nominee of the transferor, without any change in the beneficial ownership of the property; or
(b)a declaration of trust by a trustee or nominee referred to in paragraph (a) under which the dutiable property referred to in that paragraph is held on trust solely for the transferor, without any change in the beneficial ownership of the property; or
(c)a transfer made by way of re-transfer of dutiable property referred to in paragraph (a) to the transferor, without any change in the beneficial ownership of the dutiable property, if no person other than the transferor has had a beneficial interest in the property between the transfer to the trustee or nominee and the retransfer.
(2)A reference in subsection (1) to a change in beneficial ownership of dutiable property does not include a reference to the creation of a trustee’s right of indemnity from the property.
(3)This section applies whether or not there has been a change in the legal description of the dutiable property.
Example
An example of a change in the legal description of dutiable property is the issuing of new certificates of title of land following a subdivision of the land.
The predecessor provisions to s 35(1) of the Duties Act were contained in Exemption (18) under Heading VI of the Stamps Act 1958, provisions which exempted the following kind of transfers of land:[20]
Any instrument for the conveyance of real property which is made by the transferor to a trustee or nominee to be held solely as trustee or nominee of the transferor without any change in beneficial ownership or made by way of retransfer to such transferor.
Section 35(1)(a) of the Duties Act is, as the Court of Appeal said in White Rock, not materially different from Exemption (18), hence the applicability of the decisions in Yellowco and Victoria Gardens with respect to the present provisions.[21]
[20]See Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529 at 531; White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77, [69].
[21]White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77, [92]; and see [108] (set out below, [41]).
Effect and application of legislative provisions
The Appellants emphasise that there are now three distinct exemptions, each dealing with a different aspect of a trust established by and for the benefit of a person with property, under the provisions of s 35(1) of the Duties Act. Thus, the Appellants submit that paragraph (a) of s 35(1) covers the transfer setting up the trust—that is merely putting title to the land into the name of the nominee or trustee and where the sole beneficiary must be the transferor. In describing the trust, paragraph (a) refers to property “held solely as trustee or nominee of the transferor” whereas paragraph (b) refers to property “held on trust solely for the transferor”. The Appellants suggest that these expressions were probably thought by the draftsperson of the legislation to be interchangeable. Similarly, it is said that paragraph (a) describes the trust in the future tense—“to be held”—whereas paragraph (b) uses the present tense—“is held”. It is suggested that paragraph (a) describing a trust yet to be constituted accounts for an understandable difference in tenses. However, the Appellants contend that neither paragraph (a) nor paragraph (b) requires the trust property “to be held forever”; adding that trusts do tend to come to an end. More particularly, it is said that neither paragraph (a) nor paragraph (b) requires, at least in terms, that the holding arrangement or trust be capable of ending in only a particular way; adding that the statutory text is silent on “powers of sale” or, indeed, any powers.
Continuing with respect to provisions of s 35(1) of the Duties Act, the Appellants submit that paragraph (c) exempts one way of ending the holding arrangement—namely, “re-transfer”. It was further observed that this word appears initially with a hyphen and later without one; though it is not clear whether or not this has any significance. Moreover, the Appellants submit that the proviso to this exemption—“… if no person…”—appears to cater for a scenario where, after a transfer of property to a trustee within paragraph (a), a third party acquires a beneficial interest in the trust property. So it is said that these two things are not mutually exclusive—that is, the possibility of a future change in beneficial ownership does not deny an exemption for the initial transfer.
Focusing on “beneficial ownership”, the Appellants submit that the phrase “without any change in the beneficial ownership of the property” is present in each paragraph of s 35(1).[22] There is, however, it is submitted, an ambiguity in relation to this phrase. Thus it is said that in paragraph (c), the phrase attaches to the re-transfer—requiring that it not cause any change in beneficial ownership. It is said that, reading the three paragraphs together, one interpretation is that the phrase attaches to the particular transaction in question—requiring that the transfer, declaration of trust or re-transfer occur without any such change. It is said that this view is harmonious with the statute as a whole. An alternative interpretation is, it is said, that the phrase attaches, at least in the case of paragraph (a), to the word “held”—requiring that the property be held without the possibility of any such change in the future. Against this view, the Appellants submit that this would, however, exempt some beneficial ownership-changing transfers. A third interpretation is, the Appellants submit, that the phrase requires both of the things identified—no immediate and no possible future change. This, it is said, “gives the revenue the best of both worlds”, but is a “stretch of the statutory text”.
[22]It is common ground that the definition of the similar but not identical phrase “change in beneficial ownership” that was inserted in s 7(4) of the Duties Act 2000 in 2009 in reaction to Trust Company of Australia Ltd v Commissioner of State Revenue (2007) 19 VR 111 was not directed to s 35.
As to these possible interpretations, the Appellants submit that the better view is probably the first one; but that the issue is probably immaterial in this case, just as it was in Yellowco, Victoria Gardens and White Rock. Hence, it is suggested, the focus of the Tribunal and the Commissioner on the former phrase.
As to ss 35(2) and (3) of the Duties Act, the Appellants submit that these clarify that any “beneficial” interest of the trustee, by virtue of a right of indemnity, and any subdivision activity—change in “legal description” of property—are immaterial to the exemptions.
Moving to the particular circumstances the subject of these proceedings, the Appellants submit that as a matter of ordinary language, it can be said that the Fox brothers transferred property “to a trustee or nominee” (the Appellants) “to be held solely as trustee or nominee of the transferor” (the Fox brothers), “without any change in the beneficial ownership of the property”. Thus it is said that the Appellants took the property as “bare trustees” and that the only beneficiaries were the Fox brothers. Consequently it is said that the beneficial ownership remained unchanged, and no other beneficiaries could be introduced in the future. So it is said that the Appellants were bound to hold the property solely as the trustees for the Fox brothers. Additionally, it is said that the Appellants were also bound to re-transfer or sell the property as the Fox brothers might in the future direct, but that is so with all “bare trusts”. Thus, the Appellants submit that how the trust or holding arrangement might end is immaterial to the exemption for the establishment of the arrangement.
Addressing the “futurity” aspects of s 35(1), the Appellants submit that it is one thing to say that property is not “to be held” because it is “to be sold” as a matter of present trustee obligation, going to the very nature of the trust. Moreover, it is said that the mere possibility of a later sale—or, equally, of the holding arrangement ending instead with a re-transfer, for it is said to be difficult to see any textual basis in the statute for distinction between the two—need not be taken as denying that property was transferred “to a trustee or nominee to be held solely as trustee or nominee of the transferor”. In other words, the Appellants say, it can be said that “the property is held only for the beneficiary when in futurity the property could be sold”. At the very least, it is said, this view is open as a matter of ordinary language as appearing in the statutory provisions.
The Appellants also submit that, just as s 35(1)(a) cannot be understood properly without reference to the rest of that section, s 35 should be read in the context of the Duties Act as a whole. The Appellants say that the Tribunal attempted neither task.
Turning to the Act as a whole, the Appellants observe that this legislation charges duty on various transactions. Chapter 2 is directed at “transactions concerning dutiable property”. “Dutiable property” includes land in Victoria (s 10(1)(a)). A transfer of dutiable property is a dutiable transaction (s 7(1)(a)). Also dutiable is “any other transaction that results in a change in beneficial ownership of dutiable property”, subject to some exclusions—s 7(1)(b)(vi). But there are exemptions (found primarily in Part 5 of Chapter 2). Among those are exemptions for transfers of land consequent upon a change in trustees (s 33); from the trustee of a resulting trust to the beneficiary (s 34(1)(b)); to a trustee or nominee of the transferor (s 35(1)(a)); back from such a trustee (s 35(1)(c)); and from a trustee to a beneficiary of a fixed trust, discretionary trust, unit trust or superannuation fund (ss 36, 36A, 36B and 41A respectively). The Appellants contend that such transfers between trustees or between trustee and beneficiary are exempt on the premise that, broadly speaking, they do not cause any change in the beneficial ownership of the land. Moreover, the Appellants observe that it is sometimes said that the fundamental basis for duty is a change in beneficial ownership.[23] Whilst there is some force in this observation as a generality, legislation such as the Duties Act cannot be approached other than by paying close attention to the language and structure the legislature has actually employed in its provisions.
[23]Victoria, Parliamentary Debates, Legislative Assembly, 13 May 2004, 1316; Commissioner of State Revenue v STIC (Australia) Pty Ltd (2010) 81 ATR 682 at 691–2 [26].
Pursuing this, so-called, “general purpose and policy” of the legislation, the Appellants contend that, by contrast to transfers involving trusts like those mentioned thus far, a transfer upon a sale will likely not find any exemption. Such a transaction changes more than merely the legal title. Further, it is said that Chapter 3 of the Duties Act extends the reach of the legislation to certain transactions involving a change of beneficial ownership of land in a much looser, or economic sense. Continuing, the Appellants submit that if, after a transfer of land to a trustee solely for the transferor that does not change the beneficial ownership of the land, a third party acquires a beneficial interest in the trust property, or acquires the entire property, then this acquisition will be dutiable under Chapters 2 or 3 as outlined. So, it is said, s 35(1)(a) itself need not be concerned about protecting the revenue against possible future changes in beneficial or absolute ownership. Likewise, it is said, none of the other exemptions mentioned are concerned with such possible future changes. More particularly, it is said that, generally speaking, stamp duty does not look to the future and what may, could or even will happen.[24] Reference is also made, specifically, to the purpose of the change in trustee exemption (now s 33 of the Duties Act) which has been described in the following terms:[25]
In such a case [a change in trustee] the transfer is not given in consequence of a sale or other disposition of the real property for valuable consideration. In such circumstances it would be unreasonable to charge the instrument of transfer to duty. The beneficial interest has not changed. There has been a mere change in the registered proprietor…
The “general purpose and policy” of s 35(1)(a) is, the Appellants contend, the same. The “mere change in the registered proprietor”, in the case of s 35(1)(a), arises from merely putting title to the land into the name of a nominee—solely for the transferor. The Appellants say that the Fox brothers here did precisely this and that their transaction fell squarely within the policy of the exemption.
[24]See W M Cory & Son Ltd v Inland Revenue Commissioners [1965] AC 1088 at 1105.
[25]Perpetual Trustee Co Ltd v Commissioner of State Revenue (2000) 44 ATR 273 at 286 [53].
Taking a slightly different approach, the Appellants submit that, if not to this type of case, it is difficult to see when s 35(1)(a) of the Duties Act might ever apply. They say that unless the text unambiguously demands it, the section ought not to be given a narrow construction which might leave it redundant or otherwise thwart its purpose. As to its purpose, the Appellants say this was articulated in similar terms by the Minister responsible for its introduction in 2008 by explaining that it was available “where the property is transferred by the transferor to a trustee or nominee pursuant to a bare trust arrangement”.[26] This, the Appellants say, is consistent with the general approach of the Act “where there is no change in beneficial ownership”.[27]
[26]Victoria, Parliamentary Debates, Legislative Assembly, 29 October 2008, 4326–7.
[27]Victoria, Parliamentary Debates, Legislative Assembly, 29 October 2008, 4326–7.
As to the Explanatory Memorandum, the Appellants say that the Commissioner, or whoever drew the Explanatory Memorandum, added the word “only” to this statement of purpose, saying:[28]
Section 35 is concerned only with transactions which arise in the course of a property being placed into and removed out of a bare trust… Under this bare trust arrangement, there must be no change in the beneficial ownership, and the transferor, as the beneficiary, must retain the entire beneficial interest in the property.
Accordingly [as to section 35(1)(a)], the exemption is available only where a transferor transfers their dutiable property to a trustee or nominee, to hold on bare trust for the transferor.
However, the Appellants say that it is unnecessary to decide whether the exemption is available only for “bare trusts”. They do say, though that it at least covers trusts of this kind—or at least this was accepted until the different position taken by the Commissioner now.
[28]Explanatory Memorandum, State Taxation Acts Further Amendment Bill 2008, 10. See similarly the Commissioner’s view as to bare trusts recorded in Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529 at 536.
Concluding their submissions on the statutory text, content and purpose, the Appellants say that the Tribunal appreciated that the Commissioner’s current position ran contrary to the purpose of the provision as articulated in the Explanatory Memorandum and in the second reading speech. Moreover, it is said that the “anomalous nature” of the result—taxing a mere change in the registered proprietor—did not escape the Tribunal’s attention. It is said, though, that he saw that result was mandated by the authorities; the Appellants observing that it is necessary to see whether this is correct. With this latter proposition, I entirely agree and, for the reasons which follow, I am of the opinion that the result reached by the Tribunal is, indeed, clearly mandated by the authorities; with particular reference to Yellowco Five, Victoria Gardens and White Rock.
Turning to these cases, it has, however, been established by the Court of Appeal, in a series of three cases,[29] that the scope of the exemption provided by s 35(1)(a) of the Duties Act is narrow, quite narrow:
(a)In Yellowco Five, Fullagar J said that the exemption had “very little scope” for its operation,[30] and Tadgell J said that it had “a very narrow field of operation”.[31]
(b)In Victoria Gardens, Batt JA said,[32] Ormiston and Chernov JJA agreeing, that the exemption was “very limited”.
(c)In White Rock, the Court said that the exemption had “very limited scope” for its operation.[33]
[29]Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529; Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd (2000) 46 ATR 61; and White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77.
[30][1993] 2 VR 529 at 532.
[31][1993] 2 VR 529 at 535.
[32](2000) 46 ATR 61 at 77 [38].
[33][2015] VSCA 77, [108].
There is one core case that is clearly within the scope of the exemption: where a transferor transfers land to a trustee or nominee to be held on trust solely for the transferor, in circumstances where the terms of the trust make plain that the persons for whom the trustee holds the land cannot be altered or expanded and do not authorise any change in beneficial ownership whilst the trustee holds the property, and where the terms of the trust do not impose on the trustee any active duties or powers to develop or to sell the land. The cases have not recognised any other category of case where the exemption applies.
The Commissioner contends that a close and careful analysis of the reasons given in each of the three cases on appeal supports the Tribunal’s decision in this case. As indicated previously and for the reasons which follow, I am of the opinion that this is the correct position.
In Yellowco Five, Mr Mapperson conveyed land to the trustee of a unit trust. Mr Mapperson was the first and only unitholder at the time of transfer. The trust deed contained a clause that empowered the trustee to issue additional units, potentially to new unitholders, with the consent of the existing unitholders. Fullagar J said that the exemption contained “three severable requirements”:[34]
[34]Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529 at 531, 532.
The first is that the conveyance effected by the instrument must be a conveyance of the property to a trustee or nominee. The second is that the property conveyed is to be held solely as trustee or nominee of the transferor. The third — and this is less clear — is in my opinion that the property conveyed is to be held without any change in beneficial ownership.
In the second requirement, I think that the words “of the transferor” are intended to qualify not only “nominee” but also “trustee”, so that by the first requirement the conveyance must be, where the transferee is not a mere nominee, to a trustee for the transferor. Either the fact of conveyance simpliciter or another instrument may create the trust. Not only must the transferee be a trustee for the transferor, but the result of the conveyance must be that the land is to be held by the transferee solely as trustee for the transferor.
But whether or not the words “without any change in beneficial ownership” relate back to the earlier words “to be held” — as I think they do — or whether they relate back to the even earlier word “made”, I am clearly of opinion that the words “to be held” introduce an element of futurity necessitating an enquiry whether, immediately upon the conveyance, the trustee-transferee is seen to hold the land for the future in the capacity only of trustee for the transferor. …
…
The foregoing analysis has been made in an endeavour to make clear my view that the exemption requires those who would seek its protection to establish that, forthwith upon the conveyance, it does not appear that the land is to be held by the trustee upon any trusts other than a trust solely for the transferor. In my opinion the respondent fails to establish that situation, by reason of the subsisting trusts of the trust deed.
I am aware that the construction which I would place upon the exemption gives very little scope indeed to the exemption, but that is simply a consequence of the words used by the legislature. …
[emphasis in original]
Tadgell J adopted a similar approach:[35]
[35]Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529 at 534, 535.
… [T]he formula selected appears to me to require the constancy in beneficial ownership to be referrable to the particular circumstance that the subject property is “to be held solely as trustee or nominee of the transferor”. The requirement involves in this case an examination of the terms on which the transferee took the transfer as trustee, as disclosed by the trust deed.
…
The requirement of exemption (18) is that a conveyance be made to a trustee [or nominee] to be held solely as trustee [or nominee] of the transferor without any change in beneficial ownership. That requirement was not in my opinion met by a conveyance of property made to a transferee to be held (at the discretion of the transferor) as trustee of others than the transferor and with such change in beneficial ownership as the exercise of such discretion might involve or produce. It is true enough that, when the instrument of transfer took effect, the transferee happened to hold the subject property solely as trustee of the transferor without any change in beneficial ownership. The conveyance was not, however, of property to be held by the transferee solely as trustee of the transferor without any change in beneficial ownership. On the contrary, the property was to be held on terms that the provisions of exemption (18) do not allow: it was to be held by the transferee not solely as trustee of the transferor.
This interpretation of exemption (18) is, I think, supported by its concluding words, viz. “or made by way of retransfer to such transferor”. Cryptic though they are, they seem to mean something such as this: that the exemption applies to any instrument for the conveyance of real property which is made by way of re-transfer to a transferor who had made a conveyance of real property to a trustee or nominee to be held solely as trustee or nominee of the transferor without any change in beneficial ownership. These concluding words of exemption (18) cannot apply unless (a) there has been a transfer of property to a trustee or nominee to be held by the transferee solely as trustee or nominee of the transferor without any change in beneficial ownership, and (b) there is a re-transfer to the transferor. The interest in the property to be re-transferred is evidently the interest that was originally transferred. Plainly enough, therefore, (b) can be satisfied only if there has been no change in the beneficial ownership since the original transfer occurred. This suggests, rather by way of cross-check, that exemption (18) as a whole is not concerned only that there be no change of beneficial ownership achieved by the original transfer. Looking beyond the mere result achieved by the instrument of transfer, the provision contemplates that the trustee or nominee who takes the original transfer will do so on the terms of taking and holding the property transferred solely as trustee or nominee of the original transferor. Putting it another way, the words “to be held solely as trustee or nominee of the transferor” are not tautologous or otiose. They do add to the requirement that there be no change in the beneficial ownership achieved by the instrument of transfer.
[emphasis in original]
As did JD Phillips J:[36]
If exemption (18) is to be called into operation, it must be established that the property is “to be held” by the trustee for the transferor without any change in beneficial ownership. As I said at the outset, the expression “to be held” surely means “to be held thereafter”. While it is true that the relevant circumstances are those attendant upon the transfer, that principle is satisfied when regard is had to the terms of the trust deed as at the date of the transfer. But according to the trust deed as it then stood, the property in this case was, and is, to be held thereafter for the unitholders from time to time. On the most favourable view to the taxpayer, the property is held for the transferor without any change in beneficial ownership, only so long as further units are not issued. If further units be issued, there may or may not be a change in the beneficial ownership depending upon to whom they are issued, but the trust deed itself authorises the issue of further units. Looking at the obligations of the trustee, as at the date of the transfer, it cannot be established that the property is to be held after the transfer without any change in beneficial ownership.
The critical step is that, according to the terms of the trust deed, the property is to be held for the unit holders from time to time; the trust property is not to be held for the unit holders for the time being or — as I think that the respondent’s argument would have it — for the then unit holders (meaning the unit holders at the time of the transfer). The respondent can then succeed only if it could be demonstrated that, Mr Mapperson being the only unit holder at the time of the transfer, any change in the identity of the unit holders was not open on the terms of the trust deed. Yet the reverse is so. As the appellant’s argument emphasised, under this trust deed there is particular provision for the issue of further units and thus there is provision for the dispersion of beneficial interests in the trust property. By operation of the trust deed itself, the present interest of Mr Mapperson in the real property may be reduced or diminished in favour of others and on that account it cannot be concluded that the property is to be held for the transferor, without any change in beneficial ownership.
On behalf of the respondent, it was submitted that, if the foregoing construction of exemption (18) be correct, then the exemption will never be called into play. Even in the case of a trust solely for A, it is always open to A to sell his interest with the result that the trust property must thereafter be held for the purchaser, not A. How then, it was said, could exemption (18) be called into play when in no case can a change in the beneficial ownership be excluded altogether? In my opinion, the answer lies in the terms of the trust document. Exemption (18), relating as it does to stamp duty, requires that the court look primarily to the document — in this case the transfer to the trustee. But exemption (18) requires that the court look also to the terms upon which the property is then “to be held”, and, as I have said, that takes one directly to the terms of the trust instrument. If, according to those terms, the property is to be held for the transferor, then that is an end to the matter. It is the obligation of the trustee which requires examination and that can be determined only according to the terms of the trust document. The difficulty for the respondent in this case is that the trust deed, when examined, makes provision for the issue of further units and thus for the dispersion of the beneficial ownership among others than the transferor.
Two further points were made, however, on behalf of the respondent. First, it was said to be significant that, under this trust deed, no further units could be issued without the prior written consent of Mr Mapperson, as the then unit holder. In other words, there could be no change in the beneficial ownership without his prior consent. To my mind, the analogy is then with a transfer by A to a trustee upon trust for A and such other persons as A may from time to time appoint. In such a case it could not be said that the property was nonetheless to be held thereafter for A and without any change in the beneficial ownership. It does not signify, for such purposes, that the power to appoint lies with A himself.
Secondly, it was contended that, by virtue of Saunders v Vautier(1841) 4 Beav 115, affd Cr & Ph 240, Mr Mapperson could himself terminate this trust by calling for the property forthwith. It is unnecessary to examine the argument to see if it be correct; for even if it be correct, the fact that Mr Mapperson may terminate the trust does not affect the terms on which the property is to be held, so long as the trust exists. The only relevant circumstances are those attending the execution of the relevant instrument and at that time and in the circumstances as they then stood the real property, when transferred to the trustee, was to be held by the trustee on the trusts declared in this deed. It does not signify that Mr Mapperson has it within his power to bring the trust to an end; for it is the obligation of the trustee that matters, upon receiving the real property to be held on trust. The fate of the property if the trust were ended seems to me irrelevant to the operation of exemption (18).
[36]Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529 at 543, 544.
As the Appellants emphasise the importance of beneficial ownership, the Commissioner says it is the aspect of these reasons that concerns the possibility for changes in beneficial ownership that is most relevant to this case.[37] The reasoning contemplates that any change in beneficial ownership, howsoever effected, will mean that the exemption cannot apply. In the present case, the transferor had a discretion to produce a change in the beneficial ownership by directing a sale (whether of the whole property, or of subdivided parts of it). It could only be said that the property was to be held without any change in beneficial ownership for so long as the transferor did not exercise that discretion.
[37]Commissioner’s Outline of Submissions (13 July 2018), [27]; cf Submissions for the Applicants (30 May 2018), [41].
That position is confirmed by reference to s 35(1)(c) of the Duties Act, as understood in White Rock.[38] If the trustee subdivided the property and then sold some of it, s 35(1)(c) could not operate, as there would have been a change in beneficial ownership.[39]
[38]White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77, [94]–[100].
[39]Submissions for the Applicants (30 May 2018), [39] is directly contrary to the decision of the Court of Appeal in White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77, [83(d)], [100].
The statement by JD Phillips J in Yellowco Five that “[t]he fate of the property if the trust were ended seems to me irrelevant to the operation of exemption (18)” is apt to be misunderstood.[40] That sentence does not mean that the exemption is unconcerned with how and in what circumstances the trust might terminate.[41] Rather, as JD Phillips J said in the preceding sentence: “it is the obligation of the trustee that matters, upon receiving the real property to be held on trust.”[42] So, where the fate of the property is to be purchased by a third party, pursuant to a trust for sale, the trust for sale is most certainly relevant to the application of the exemption. That point was established in the reasons of Batt JA in Victoria Gardens.[43] Moreover, JD Phillips J also makes it clear in this passage that the power of the beneficiary to terminate the trust by virtue of Saunders v Vautier[44] is similarly irrelevant. The availability of this power was relied upon by the Appellants in support of submissions with respect to provisions of the Deeds of Trust relied upon by the Commissioner as indicating the trustees were more than “bare” trustees. As JD Phillips J explains, the existence or otherwise of this power does not affect the operation, or otherwise, of the exemption.
[40]Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529 at 544.
[41]Cf Submissions for the Applicants (30 May 2018), [5], [37], [44], [63].
[42][1993] 2 VR 529 at 544.
[43](2000) 46 ATR 61 at 77 [38].
[44](1841) 4 Beav 115; 49 ER 282 affirmed Cr & Ph 240; 41 ER 482.
In Victoria Gardens, three landowners transferred their interests to a joint venture for the development and sale of the land according to the terms of the joint venture. In rejecting the availability of the exemption in that case, Batt JA said:[45]
… I have come to the conclusion that, for two basic reasons, none of the transfers falls within the exemption.
First, whilst the transfers, although not to a nominee, are to Victoria Gardens as a trustee, the real property transferred by them is not “to be held” as trustee of the respective transferors, but rather is to be developed and sold or otherwise disposed of, or at least possibly sold or otherwise disposed of (for it might be retained or leased). The exemption does not require the trustee to hold the real property perpetually, for it contemplates at least the possibility of re-transfer either when the trust has run its pre-ordained course or at the request of the transferor. But it does, as it seems to me, require that the trust be one to hold the real property on trust for the transferor. As Yellowco Five shows, the exemption is very limited. To my mind, especially if the first limb of the exemption is read as a composite expression, these transfers for massive development and realisation purposes are simply not of the type which the exemption is designed to encompass. As I have said, the trust here is not a trust for sale, but it is immediate and binding, there being no outstanding legal interest or intervening equitable estate; and I should have thought that a trust for sale, as defined, is not within the exemption since it was a trust, not to hold, but to sell.
[emphasis added; citations omitted]
[45]Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd (2000) 46 ATR 61 at 77 [37]–[38].
In the third significant authority, White Rock, the Court of Appeal considered and applied Yellowco and Victoria Gardens and, concluding the discussion of s 35(1)(a), said:[46]
Fullagar J and Tadgell J in Yellowco,[47] and Batt JA in Victoria Gardens[48] stressed that Exemption 18 had a very limited scope. Similarly, s 35(1)(a) of the Act has a very limited scope. …
[46]White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77, [108].
[47]See White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77, [75]–[76].
[48]See White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77, [79].
In my view, clauses 6(g)–(h) of the Deeds of Trust make plain that the trustees’ obligations in the present case go further than simply to hold property for the respective transferors. The trustees’ obligations extend to the development of the land, and the sale of some or all of the trust property when directed to do so. The decision in Yellowco Five shows that the exemption is concerned with possibilities. One possibility in the present cases (which in fact occurred) is that the trustee would subdivide, develop and sell some or all of the land.[49] That possibility denies the exemption, both because the trustees’ obligations extend beyond holding the land and because the terms of the trust contemplate changes in the beneficial ownership of some or all of the property during the subsistence of the trust.
[49]As the Commissioner noted in his submissions, many of the activities and transactions referred to in cll 6(g)-(h) could only be done in relation to the entire interest in the land, as opposed to the 50% interest of each beneficiary as a tenant in common. Further, the exercise of such powers at the direction or with the consent of the beneficiaries would preclude the re-transfer to each of the beneficiaries of the property that was the subject of the transfer. After those activities or transactions, it would be difficult to think of a case where the transferor could “obtain relief [in a court of equity] declaring its interest to be in the land originally transferred by it or giving effect to an interest so defined”: compare Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd (2000) 46 ATR 61 at 77–8 [39].
Moreover, it is not necessarily appropriate to approach the construction or application of s 35(1)(a) of the Duties Act, or its predecessor legislative provisions, by reference to concepts of “bare trusts” (notwithstanding any such references in some extrinsic materials). This is not a term employed by the statutory text. Nevertheless, the Appellants’ assertions that they were “bare trustees” is open to serious doubt, in light of their powers and duties under the trust deeds in relation to the “Trust Fund”, which includes the subject land and any income or other proceeds of that land. The “usually accepted meaning” of a “bare” trust in modern times is a trust under which the trustee has no duty to perform “except to convey [the trust property] upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party”.[50] If a trustee has active duties that go beyond merely “guarding the property, prior to conveyance to the beneficiary”, it is not an apt use of language to describe the trustee as a “bare” trustee.[51]
[50]Herdegen v Federal Commissioner of Taxation (1988) 20 ATR 24 at 32–3.
[51]Herdegen v Federal Commissioner of Taxation (1988) 20 ATR 24 at 33.
Here, the trustee has obligations to develop, subdivide and sell (cll 6(g)–(h)), when directed by the beneficiaries. The trust deeds also expressly contemplate the transfer by sale of interests to persons other than the transferor (cl 3).[52] Those matters mean it cannot be said that the property was transferred “to be held” solely as trustee or nominee of the transferor, without any change in the beneficial ownership of the property.
[52]Transfers back to the transferor necessarily stand in a different position from transfers to third parties for two reasons: first, because of s 35(1)(c) of the Duties Act; and secondly, because in such cases there is no change in beneficial ownership.
It has been established by existing authority that it is not sufficient to satisfy s 35(1)(a) of the Duties Act that the transfer does not involve any immediate change in beneficial ownership (i.e. that the beneficial ownership of the property is the same immediately before and immediately after the transfer). Rather, s 35(1)(a) (and its predecessor provisions) contain a separate and additional requirement that the property must be transferred “to be held solely as trustee or nominee for the transferor”,[53] and this requirement entails an “element of futurity” which looks at how the property is to be held thereafter (or how the trustee holds the land for the future). Additionally, insofar as the transfer involves a new trust (at least where the trustee has duties and obligations beyond the conveyance of the property to or at the direction of the beneficiary or beneficiaries), it is arguable, the Commissioner contends, that this does involve a “change in beneficial ownership” for the purposes of the Duties Act. In this respect, the Commissioner makes reference to the definitions in s 7(4) of “beneficial ownership” and “change in beneficial ownership” (particularly para (d)). The Appellants, on the other hand, argue against such a position; generally, as already indicated, and with respect to these definitions including on the basis that these are deeming provisions which must be read down to maintain conformity with the other provisions and the structure of the Duties Act. In any event, for the reasons I have set out with respect to the present proceedings, particularly having regard to the critical authorities, this is not a matter on which it is necessary to express my view.
[53]In addition to Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529, see e.g. White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77, [95].
Immediately before the transfers, each of the Fox brothers had a 50% equitable interest in the land as a tenant in common (as a beneficiary of the administered estate of their mother). Immediately after the transfers, each of the Fox brothers was the beneficiary of a new trust comprising a trust fund that included a 50% legal interest in the land (which was transferred to the trustee by the executors at the direction of each of the brothers), together with income and proceeds from that land and any other investments which might be made from time to time. Each of the Appellants was the proprietor of a 50% interest in the land, upon which were “impressed” the equitable interests of each of the brothers under the trusts.[54] In such circumstances, it may no longer be strictly correct to describe the brothers as the “beneficial owners” of the subject land.[55] As indicated, this was not, in my view, a “bare” trust in which the trustee had no active duties or obligations to perform. The land became part of a “trust fund” the composition of which could change as the land was developed and progressively sold. It is implicit in the arrangements that the two trustees (MD Commercial Pty Ltd and AJ Commercial Pty Ltd)—and therefore the two beneficiaries—would be required to act together in exercising many of the powers conferred by the trust deeds, particularly in relation to the contemplated subdivision, development and sale of the land.
[54]DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 at 474; Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 242 [37].
[55]It may be noted that, where ownership of property is vested in a trustee, it is not essential that equitable ownership must necessarily be vested in someone else: CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 at 112 [25], referring to Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490 at 497.
Conclusions
For the preceding reasons, leave to appeal is granted, but the appeal is dismissed. I reserve the question of costs and will hear the parties on this issue and the final form of orders to give effect to these reasons.
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