Pontiac Trading Co Pty Ltd as trustee for the Karina Surjadi Family Trust v Chief Commissioner of State Revenue

[2024] NSWCATAD 114

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Pontiac Trading Co Pty Ltd as trustee for the Karina Surjadi Family Trust v Chief Commissioner of State Revenue [2024] NSWCATAD 114

Hearing dates:

1 February 2024, last submission received on 25 April 2024.

Date of orders:

01 May 2024

Decision date:

01 May 2024

Jurisdiction:

Administrative and Equal Opportunity Division

Before:

L Andelman, Senior Member

Decision:

(1)   The decision on objection is varied to the extent the interest charged to the Applicant between 13 April 2022 and 20 June 2023 is remitted.

(2)   The Respondent’s decision is otherwise affirmed.

Catchwords:

TAXES AND DUTIES – land tax surcharge – whether a trust is a discretionary trust - s 5D of the Land Tax Act 1956 (NSW) – fixed trust – s3A of the Land Tax Management Act 1956 (NSW) - interpretation of instruments – trustee’s powers.

TAXES AND DUTIES – administration – remission of interest – power to write off.

Legislation Cited:

Administrative Decisions Review Act 1997

Civil and Administrative Tribunal Act 2013

Land Tax Act 1956

Land Tax Management Act 1956

Taxation Administration Act 1996

Cases Cited:

Antegra Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 107

Bagnall v Chief Commissioner of State Revenue [2023] NSWCATAD 341

Byrnes v Kendle [2011] HCA 26; 243 CLR 253

Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19; 56 ATR 82

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

Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 250 CLR 503

Gibb v Federal Commissioner of Taxation [1966] HCA 74; 118 CLR 628

Harmer v Federal Commissioner of Taxation [1991] HCA 51; 173 CLR 264

Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366

Loomes v Chief Commissioner of State Revenue [2014] NSWCATAD 133

Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451

PMT Partners Pty Ltd (in liq) v Australian National Parks and Wildlife Service [1995] HCA 36; 184 CLR 301

Perry Properties Pty Ltd v CCSR (2013) 96 ATR 505

Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; 240 CLR 45

RVO Enterprises Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 64

Saunders v Vautier (1841) 41 ER 482

Sayden Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 111; 83 NSWLR 700

Sir Moses Montefiore Jewish Home v Howell & Co (No 7) Pty Ltd [1984] 2 NSWLR 406

Song v Chief Commissioner of State Revenue [2023] NSWCATAD 301

Texts Cited:

Underhill and Hayton Law Relating to Trusts and Trustees (1995) 15th ed.

Category:

Principal judgment

Parties:

Pontiac Trading Co Pty Ltd as trustee for the Karina Surjadi Family Trust (Applicant)
Chief Commissioner of State Revenue (Respondent)

Representation:

Counsel:
I Young (Applicant)
R Clark (Respondent)

Solicitors:
Small Myers Hughes Lawyers (Applicant)
Crown Solicitor (Respondent)

File Number(s):

2023/00274737

Publication restriction:

Nil

REASONS FOR DECISION

1. Pontiac Trading Co Pty Ltd (“the applicant”) is a Trustee for the Karina Surjadi Family Trust (“the Trust”). On 11 May 2023 the Chief Commissioner of State Revenue (“the Chief Commissioner” or, “the respondent”), issued a Land Tax Assessment Notice for the 2019-2023 tax years for land tax, surcharge land tax and interest in relation to the applicant’s property at Kingsford, New South Wales (“the Property”).The applicant raised an objection to the Land Tax Assessment Notice and on 10 August 2023 the respondent disallowed the objection.

2. The decision that is reviewable pursuant to s 96 of the Taxation Administration Act 1996 (NSW) (“TA Act”) is the original decision by which an assessment was issued to a taxpayer, in this case the Notice of Assessment issued on 11 May 2023.

3. The applicant seeks that the Tribunal set aside the respondent’s determination that surcharge land tax applied in the 2023 year, interest charges assessed in respect of the years 2019 to 2022 be remitted and surcharge land tax assessment for the years 2019 to 2023 be written off.

Relevant Facts

4. The applicant relied on the affidavits of Mr Surjadi who is the sole director of the applicant, Ms Hadisoebrata who is the sole beneficiary of the Trust and Mr Wojtasik, solicitor for the applicant. The respondent relied on material filed pursuant to s58 of the Administrative Decisions Review Act 1997 (NSW) (“ADR Act”). None of the witnesses were required for cross examination and the facts before the Tribunal were uncontested.

5. The Trust was settled as a discretionary trust on 21 July 1997 by means of the Deed of Trust (“the Trust Deed”). The applicant became the owner of the Property on trust for the Trust on 5 September 1997. It was Mr Surjadi’s father who set up and managed the Trust until his death in 1999. Mr Surjadi has managed the Trust since that time. Mr Surjadi was not aware that the terms of the Trust Deed had any relevance to the calculation of land tax.

6. Mr Surjadi first thought of amending the Trust Deed in early 2022 as his accountant informed him that he had received advice from a solicitor that amendments were needed to be made to the Trust Deed to remove foreign beneficiaries.

7. Mr Surjadi engaged solicitors in 2022 to amend the Trust Deed. Mr Surjadi explained to Mr Wojtasik that Ms Hadisoebrata had moved into the Property in February 2022 for ‘good’ (prior to this time, it was a rental property).

8. On 25 March 2022, the Trust Deed was amended by means of a Deed of Variation. The Deed of Variation amended clauses 2.2, 6, 24, the First Schedule item no 5, the Second Schedule, Part A item no 1, 2, and Part B.

9. Items 1 and 2 of Part A and Part B of the Second Schedule deleted all Eligible Beneficiaries apart from Ms Hadisoebrata. Clauses 2.2 and 6 were amended to remove the applicant’s power to accumulate income of the Trust Fund.

10. Clause 24 of the Trust Deed was amended in the following terms:

The Trustee may with the consent in writing of the Appointor Eligible Beneficiary from time to time by supplemental deed revoke add to or vary all or any of the provisions of the Trust Deed…

11. An amended Trust Deed was sent to Revenue NSW on 12 April 2022. Revenue NSW responded on 11 May 2023. Revenue NSW determined that despite the amendments, the trust remained a ‘discretionary trust’ and tax years 2019 to 2023 were reassessed for surcharge land tax because foreign beneficiaries were not excluded in the Trust Deed.

Issues for Determination

12. The first issue for determination is whether the Deed of Variation ‘converted’ the Trust into a fixed trust as submitted by the applicant. If that is so, surcharge land tax would not be levied on the Property in the 2023 tax year. There was no dispute between the parties that, first, prior to the Deed of Variation, the Trust was a discretionary trust and secondly that the terms of the Trust Deed for the 2023 tax year failed to comply with s5D(3)(b) of the LT Act.

13. The second issue is whether interest charges assessed in respect of the years 2019 to 2022 should be remitted and thirdly, whether surcharge land tax assessment for the years 2019 to 2023 should be ‘written off’.

Relevant Legislative Provisions

14. Section 5D of the Land Tax Act 1956 (NSW) (“LT Act”) sets out provisions on surcharge land tax on discretionary trusts in the following terms:

(1) The trustee of a discretionary trust is taken to be a foreign person in that capacity for the purposes of section 5A if the trust does not prevent a foreign person from being a beneficiary of the trust.

(2) If a discretionary trust prevents a foreign person from being a beneficiary of the trust, the trustee is not in that capacity a foreign person for the purposes of section 5A.

(3) A discretionary trust is considered to prevent a foreign person from being a beneficiary of the trust if (and only if) both of the following requirements are satisfied--

(a) no potential beneficiary of the trust is a foreign person (the
"no foreign beneficiary requirement" ),

(b) the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person (the "no amendment requirement" ).

15. Section 3A of the Land Tax Management Act 1956 (NSW) (“LTM Act”) defines a fixed trust:

(1) …

(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,

16. Owner is defined in s 3 of the LTM Act as:

"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,…

(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.

17. Section 25 of the Taxation Administration Act 1996 (“TA Act”) states:

(1) The Chief Commissioner may remit interest.

(2) The Chief Commissioner may issue guidelines setting out how interest must be remitted under this division.

(3) If guidelines are issued, interest must be remitted only in accordance with the guidelines.

(4) The imposition or remission of penalty tax is not relevant to the imposition or remission of interest.

18. Section 110 of the TA Act states:

(1) The Chief Commissioner may write off the whole or any part of any unpaid tax if satisfied that action, or further action, to recover the tax is impracticable or unwarranted.

(2) The writing off of tax does not affect the liability of the taxpayer to pay the tax or the power of the Chief Commissioner to recover it.

(3) This section has effect despite the provisions of the Government Sector Finance Act 2018 or another taxation law.

Submissions

Applicant’s submissions

Whether the trust is a discretionary trust

19. The applicant submitted that the Deed of Variation had the effect that the Trust ceased to be a discretionary trust for the purpose of the LT Act for the 2023 land tax year, which commenced at midnight on 31 December 2022.

20. The applicant relied on the excisions of all beneficiaries from the class of Eligible Beneficiaries apart from Ms Hadisoebrata in the Trust Deed, meaning that “the taker in default” is Ms Hadisoebrata.

21. The applicant also pointed to the exclusion of power to add additional beneficiaries in cls 2.1 and 2.2, removal of the power to accumulate property in cl 6 and requirement for Ms Hadisoebrata’s written consent to make further amendments to the Trust Deed in cl 24.

22. As such, the applicant contended that the Trustee had no discretion as to the appointment of income or capital or the discretion to accumulate income. In circumstances where the Trustee cannot override the entitlement of the sole beneficiary without her approval, Ms Hadisoebrata was entitled to the income and capital of the Trust, which is the Property. Once there is only one beneficiary, a trust cannot be properly characterised as a discretionary trust. The correct position, as submitted by the applicant was that the position of the Trustee is arrested, put into hibernation. The sole beneficiary can tell the Trustee what to do and the manner in which to do it and the “trustee’s raison d’etre ceases to exist”.

23. The applicant submitted that it was not proper to describe the Trust as discretionary following the Deed of Variation because a beneficiary was chosen to distribute amounts to: Kennon v Spry (2008) HCA 56; 238 CLR 366 at [47]. It was submitted that the applicant did not need to establish that the Trust was a fixed trust e.g. hybrid, unit, fixed etc but only establish that it was not, at the relevant time, a discretionary trust. However the applicant also submitted that the Trust was a fixed trust.

24. The applicant submitted that at the time of hearing, the Trust Deed did not provide for residual discretions, for example as to the power of sale, Ms Hadisoebrata could sell down the Property against the wishes of the Trustee as she had absolute discretion to direct the Trustee even if she had no ownership of the Property.

25. Because there was no relevant discretion reposed in the Trust, did not mean that Ms Hadisoebrata needed to have a propriety interest in the Property, for example, the beneficiary cannot control the conduct of the Trustee. Ms Hadisoebrata had all the discretionary powers under her control, and this was sufficient to make the Trust a fixed trust. Reliance was placed on the rule in Saunders v Vautier (1841) 41 ER 482 (“Saunders v Vautier”) as the class of beneficiaries is not fluctuating but is ascertainable.

26. The applicant submitted that following the Deed of Variation, Ms Hadisoebrata was the owner by virtue of her being entitled to land and entitled to direct the Trustee consistent with s3A(2) of the LTM Act. As such, Ms Hadisoebrata was able to intercede, and she was entitled to receive rents and profits from the Property.

27. It was submitted that consistent with ss 3A(2), 3A(3A)-(3B) of the LTM Act, the Trust was, following the Deed of Variation a fixed trust because of the following reasons. First, because Ms Hadisoebrata is the sole beneficiary and default beneficiary and the Trustee has no power to accumulate income, as such, she is presently entitled to income and capital of the Trust.

28. Secondly, the rule in Saunders v Vautier means that she “may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property” within the meaning of s 3A(3B)(a)(ii) of the LTM Act.

29. Thirdly that the Trust Deed does “specifically” provides for that present entitlement to income and capital because she is the sole beneficiary. Fourthly, Ms Hadisoebrata’s entitlement “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” within the meaning of s 3A(3B)(a)(ii) because under the rule in Saunders v Vautier she is absolutely entitled to call for or direct the transfer of the fund. As the Trust deed cannot be amended without her written consent, Ms Hadisoebrata’s rights are operative rights as stated by Gzell J in Sayden Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 111; 83 NSWLR 700 (“Sayden”) at [52] that are necessary and sufficiently specific.

30. The applicant submitted that the assessment of the Trust Deed must be made for the 2023 tax year, as land tax is an annual tax. The relevant question is whether it is a discretionary trust at any one year; ss 7 and 8 of the LTM Act, Perry Properties Pty Limited v CCSR (2013) 96 ATR 505 at [5].

Remission of interest

31. There are no interest charges for the 2023 land tax year. As to the remission of interest charges for the other years, the applicant relied on s 25 of the TA Act and the decision in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19; 56 ATR (“Incise”) and submitted that the Tribunal ought to make the following factual findings:

1. the unpaid tax arose due to the retrospective application of a new law rather than any act or a mission by the applicant;

2. in every year, land tax has been unilaterally assessed by the respondent who has had in his position all relevant information necessary to properly identify the applicant as potentially liable to surcharge land tax;

3. no notice was issued to the applicant advising of the change in law and retrospective application of it; and

4. there was significant delay by the respondent in responding to the applicant’s April 2022 correspondence regarding the status of the Trust for land tax purposes with the position only reached in the 2023 land tax year to the prejudice of the applicant.

32. The applicant relied on the evidence that it brought the Deed of Variation to the attention of the Chief Commissioner in April 2022, that the unpaid taxation and interest was subject to an arrangement and that the applicant’s conduct of not paying taxation was not wilful. The applicant sought a remission of 50% of the interest charges.

Writing off the tax

33. As to writing off the tax, the applicant relied on s 110 of the TA Act and submitted that the recovery of the unpaid tax was impracticable and unwarranted because:

1. neither the Trust, Mr Surjadi nor Ms Hadisoebrata have the financial capacity to pay the unpaid tax;

2. recovery of the unpaid tax in the circumstances would mean pursuing legal proceedings to sell the Property in which Ms Hadisoebrata now lived on the age pension and unable to purchase a new home;

3. the Trust not being an individual is ineligible to apply for review to the Hardship Review Board; and

4. the writing off the unpaid tax of this time does not mean that the respondent cannot recover the unpaid tax at a later time such as when Ms Hadisoebrata no longer lives in the Property.

34. The applicant submitted that the decision in Loomes v Chief Commissioner of State Revenue [2014] NSWCATAD 133 (Loomes) at [48] was wrong and should not be followed, as Ms Hadisoebrata, an age pensioner, could end up without a home. The applicant submitted that the Tribunal ought to find that the recovery of the tax if it was to occur would be unwarranted and impractical.

Respondent’s submissions

Whether the trust is a discretionary trust

35. The respondent submitted that the Trust remained a discretionary trust following the Deed of Variation and that Ms Hadisoebrata did not have any equitable interest in any of the assets of the Trust, including the Property.

36. As such, following the Deed of Variation the Trust did not satisfy s5D(3)(b) of the LT Act because the Trust does not prevent “the terms of the trust [being] capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person”.

37. The respondent joined issue with the applicant that there was no resettlement of the Trust. Neither party contended that absent a resettlement a discretionary trust could not change to a different kind of trust such as a fixed trust.

38. The respondent made the following submissions as to why the Trust remained a discretionary trust following the Deed of Variation. First, that the rule in Saunders v Vautier is irrelevant because the fact that Ms Hadisoebrata has the ability to call for the Trust to be wound up does not establish that she is entitled to a beneficial interest in the property of the Trust. If the trust is discretionary, other beneficiaries are also entitled to invoke the rule: Sir Moses Montefiore Jewish Home v Howell & Co (No 7) Pty Ltd [1984] 2 NSWLR 406 (“Montefiore”) at 411E.

35. The respondent’s submission is that the capacity to invoke the rule in Saunders v Vautier to call for trust funds is not evidence that she has an equitable interest in any trust property as this right exists whether the trust is fixed or discretionary.

36. Secondly, the respondent submitted that the amendments made to the Trust Deed by the Deed of Variation did not support the applicant’s submissions. Specifically:

1. The fact that there were previously multiple Eligible Beneficiary and currently there is only Ms Hadisoebrata does not have the effect that she became a beneficiary with an equitable interest in the Trust property including the Property;

2. The applicant stands possessed of the trust fund upon trust for the beneficiaries with full and absolute discretion to determine what shares and proportions to apply such trust property or not prior to the vesting date – cl 2.1. The Trustee’s power has not been barred in cl 9 and the Third Schedule to the Trust Deed and the applicant continues to have complete and unfettered power to deal with the Trust property. Cl 22 reinforces clauses 5 and 6 that the Trust has always provided that the applicant “may apportion in such manner as the Trustee in the Trustee’s absolute an unfettered discretion sees fit any expenses, charges, deductions or outgoings whatsoever amongst the Trust Fund…”

3. Vesting Date is defined, the Trust exists over time, at the current time Ms Hadisoebrata is the sole beneficiary but that may change and is likely to change in the future and there could be more than one or more beneficiaries;

4. The removal of the applicant’s power of accumulation of income does not mean that income has to be paid. The applicant retains discretion as to what the income is, for example if the Property was collecting a rental income, Ms Hadisoebrata would not have an entitlement to the rent paid by the tenant, but it may be the income subject to management costs of the Trust. This is not a beneficial interest in the Property (Clauses 2.2 and 5).

41. In regard to s3A(3A) and (3B) of the LTM Act, the Chief Commissioner submitted that the expression “trust deed specifically provides” in s3A(3B)(a) means that the trust deed must be “explicit” in its terms of the matters referred to in s3A(3B)(a)(i) and (ii) and reliance cannot be placed on the principle in Saunders v Vautier as such powers exist in respect of any trust.

42. As to s 3A(3B)(a)(i), the respondent submitted that the Trust Deed did not explicitly entitle Ms Hadisoebrata with a present entitlement to the income because the discretions the applicant retains in respect of determining the income of the Trust as set out in clauses 2.1, 5, 9, 22 and the Third Schedule to the Trust Deed.

43. As to s 3A(3B)(a)(ii), the respondent submitted that the applicant retained its complete discretion to deal with the Property as it sees fit and Ms Hadisoebrata has no power to a present entitlement or any entitlement to the Property prior to the vesting date. For a beneficiary to be presently entitled to the capital of the trust would require a provision in the trust deed that a trustee could be required to wind up the trust and distribute the trust property or the net proceeds of the property.

44. The respondent submitted that the applicant could sell the property and the beneficiary, Ms Hadisoebrata could make her children beneficiaries or any other number of possibilities.

Remission of interest

45. In regard to the remission of the interest, the Chief Commissioner submitted that he was not on notice of the Trust, that the applicant did not disclose to the Chief Commissioner the terms of the Trust, the Chief Commissioner was not in a position to issue correct assessments, that the taxpayer accidentally revealed the true situation in 2019 and that there is no obligation on the Chief Commissioner to tell taxpayers what they should do; Bagnall v Chief Commissioner of State Revenue [2023] NSWCATAD 341 at [64]-[68].

46. The Chief Commissioner submitted that there is no principle that interest cannot be applied because taxation applied retrospectively. The interest arises because the Commissioner should have been informed earlier, and that this is the logic of the market interest rate.

47. The respondent agreed with the applicant’s submissions as to the relevant principles but submitted that it is did not agree that the applicant qualified for the criteria set out in Incise.

Writing off tax

48. The Chief Commissioner submitted that the power in section 110 is ‘a purely accounting power’ and that according to the decision in Loomes does not waive or remove the debt [41], [43] and [44]. As such s110 “has nothing to do with extinguishing the debt of the applicant”. Furthermore the applicant’s debt can be recovered as it owns the Property and pursuant to s47 of the LTM Act would be the “first charge”.

49. The Chief Commissioner submitted that the decision in Loomes was well reasoned and ought to be followed by the Tribunal and that it was not up to the Tribunal to decide how the debt is to be enforced.

Consideration

Whether the trust is a discretionary trust

50. The applicant bears the onus to establish all matters necessary to sustain its case in an application for a review; ss 100(3) of the TA Act and s 55 of the ADR Act. The Tribunal is required to determine the correct and preferable decision having regard to the materials before it and the applicable law: s63 of the ADR Act.

51. The principles concerning the construction of contracts apply to the construction of a deed. The meaning of contractual terms is to be determined by what a reasonable person would have understood them to mean. This normally requires the consideration of the text, the surrounding circumstances known to the parties, and the purpose and object of the transaction. Byrnes v Kendle [2011] HCA 26; 243 CLR 253 at [102]; Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; 240 CLR 45 at [10]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22].

52. It is necessary to look first at the “rights, powers and restrictions” in the trust deed and not the “characteristics” of the trust deed. CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53; 224 CLR 98 (“CPT”) [10]. The first step is to ascertain the terms of the trust deed upon which the Property and income of the trust is held. The second step is to “construe the statutory definition to ascertain whether the rights of the taxpayer” fall within the definition. [14]

53. Prior to the Deed of Variation, the Trust Deed included numerous Eligible Beneficiaries and two Default Beneficiaries. The applicant had complete and unfettered power to deal with the Trust Fund in its absolute discretion as if it was the beneficial owner of the Trust Fund as set out in Item No 2 of the First Schedule.

54. The applicant, until the vesting date possessed upon trust for the Eligible Beneficiaries the Trust Fund including any income that was accumulating and had accumulated.

55. The income included capital gain, rental or interest income and income which has an Australian source as defined in cl 3 of the Trust Deed. Clauses 4 to 8 set out the applicant’s powers to distribute income to beneficiaries.

56. Clause 24, the variation of the Trust Deed was amended so that the applicant required the written consent of the Eligible Beneficiary instead of the Appointer. The variation to cl 24 means that there cannot be any future variation of the Trust Deed, including any change to Eligible Beneficiaries without the written consent of the current Eligible Beneficiary, Ms Hadisoebrata.

57. Following the Deed of Variation, all Eligible and Default Beneficiaries apart from Ms Hadisoebrata were removed. The powers of the applicant and the vesting date remained the same. Clauses 2.2 and 6, removed the applicant’s possession of current and future accumulation of income of the Trust Fund and the applicant’s discretion to pay the income.

58. In considering whether the Deed of Variation caused the discretionary fund to be converted into a fixed trust, the Tribunal is to consider the Trust Deed as at the land tax year 2023 as contended by the applicant and not at any time up to the vesting of the Trust Deed as submitted by the respondent. The Tribunal accepts the applicant’s submission that the question is whether the surcharge land tax was payable for the 2023 tax year, and it is the Trust Deed as it stood on 31 December 2022 that is relevant.

59. The key issue is whether the Trust Deed provided that the beneficiary of the Trust, is, first, “presently entitled to the income” and secondly, is presently entitled to the “capital of the trust” within the meaning of s3B of the LTM Act as contended by the applicant.

60. The applicant relied on Sayden where the Court of Appeal dealt with a question of law from a decision of the Appeal Panel of the Administrative Decisions Tribunal as to whether the trustee was liable for land tax on the basis that the trust was a fixed trust or a special trust. In Sayden, the taxpayer amended the trust deed by an addition of a provision which mirrored s3A(3B) of the LTM Act and stated that it was to apply “notwithstanding any other provision in this Deed.”

61. On this basis the Court of Appeal found that the trust was a ‘fixed trust.’ At [15]-[19] Gzell J with whom Meagher JA and Tobias AJA agreed stated:

[15] Present entitlement to income is a well-known concept in taxation law. In Harmer v Federal Commissioner of Taxation [1991] HCA 51; 173 CLR 264 at 271 the High Court said:

"The parties are agreed that the cases establish that a beneficiary is 'presently entitled' to a share of the income of a trust estate if, but only if: (a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment."
(references omitted)

[16] The passage was cited with approval in Commissioner of Taxation v Bamford [2010] HCA 10; 240 CLR 481 at [37].

[17] By contrast, present entitlement to capital is novel. Presumably, it means an interest in the trust property vested in interest and in possession in that there is no other interest in the property that precedes it, together with a present legal right to demand division of the trust property or its proceeds among the beneficiaries.

[18] Any interest of the trustee under its right of indemnity is not relevant in this context because s 3A(3) of the Management Act requires any equitable interest of the trustee to be disregarded.

[19] If a trust deed specifically provides that the beneficiaries are presently entitled to the income subject to payment of the trustee's proper expenses and they 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, the trust satisfies the relevant criteria and by reason of s 3A(3A) of the Management Act, the beneficiaries are taken to be the owners of an equitable estate in the land the subject of the trust and the trust is a fixed trust.

Definition of ‘relevant criteria’ in s3B of the Land Tax Management Act

62. As with any question of statutory construction, the proper construction is to be found in the meaning of statutory text, read in its statutory context in light of its statutory purpose. Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 250 CLR 503 at [39].

63. Section 3A is in Part 1 of the LTM Act. It is a provision which defines ‘special trusts.’ The function of a definition in a statute is to stipulate that when a particular expression or words are used in the substantive part of the statute, they are to be understood in the defined sense or taken to include certain things. Gibb v Federal Commissioner of Taxation [1966] HCA 74; 118 CLR 628 at 635.

64. Section 3A(1) defines a special trust for the purposes of the LTM Act. Relevantly in s3A(1)(c) states that a trust is a “special trust” if it is not a fixed trust. Section 3A(2) states that for the purposes of this section a “fixed trust” is a trust where the equitable estate in all of the land that is subject to the trust is “owned” by a person or persons who are owners of the land for land tax purposes. Section 3A(3) states that any equitable interest of the trustee as trustee of the trust is to be disregarded. Section 3(3A) states that:

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.

65. Section 3A(3B) defines “relevant criteria” for the purpose of this section. The term “relevant criteria” is a label denoting a complex concept set out in section 3A(3B)(a)(i)-(ii) and 3A(3B)(b).

66. Section 3A(3B)(a) states that “the trust deed specifically provides that the beneficiaries of the trust --”. The expression “specifically provides” is not defined. As a general proposition, statutory definitions should be construed according to their natural and ordinary meaning. PMT Partners Pty Ltd (in liq) v Australian National Parks and Wildlife Service [1995] HCA 36; 184 CLR 301 at 310.

67. The applicant submitted that the terms of the Trust Deed are specific and explicit because Ms Hadisoebrata is the sole beneficiary and the Trustee cannot accumulate income, in reference to the First Schedule, the Second Schedule and clauses 2.2, 6 and 24.

68. The respondent submitted that simply because there is a sole beneficiary and the Trustee cannot accumulate income does not mean that the trust deed specifically provides for the matters in in sections 3A(3B)(a)(i)-(ii) and 3A(3B)(b). The Tribunal understood the respondent’s submission to be that the Trust Deed on an objective basis does not provide for the matters in sections 3A(3B)(a)(i)-(ii) and 3A(3B)(b) and that the Trust Deed must explicitly contain terms consistent with sections 3A(3B)(a)(i)-(ii) and 3A(3B)(b).

69. It seems to me that the term ‘specifically provides’ connotes an explicit, particular or definite reference. Section 3A(3B) needs to be read as a whole and sub sec 3A(3B)(b) is of particular importance as it states that the “entitlements”, specifically provided for in the trust deed “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.”

70. It is clear enough that the trust deed must explicitly provide that the “relevant criteria” in the trust deed 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.”

71. Clause 24 of the Trust Deed permits the Trust Deed to be amended where the Trustee has the written consent of the beneficiary. It follows that the beneficiaries’ entitlement to income of the trust and the capital of the trust can be removed, restricted or otherwise affected pursuant to 3A(3B)(b) of the LTM Act, for this reason the Trust is not a fixed trust. However if I am wrong on this point, I go on to consider ss3A(3B)(a)(i) and 3A(3B)(a)(ii) of the LTM Act.

Presently entitled to the income

72. The question is; does Ms Hadisoebrata have a ‘vested and indefeasible interest’ when the interest was derived, that is, in the 2023 tax year. In a practical sense, does Ms Hadisoebrata have a present legal right to demand or receive payment of income. Harmer v Federal Commissioner of Taxation [1991] HCA 51; 173 CLR 264 at 271.

73. Clause 2.1 of the Trust Deed gives the Trustee absolute and unfettered discretion to pay or apply the whole parts of the Trust Fund to or for the benefit to the beneficiaries, currently Ms Hadisoebrata. Clause 2.2 is in similar terms but applies specifically to income previously accumulated. Cl 5 gives discretion to the Trustee to deduct income in such manner as the Trustee thinks fit. Cl 6 gives the Trustee the discretion to pay, apply or set aside income for the benefit of the beneficiary.

74. Clause 7 operates if the Trustee does not exercise its discretion in clauses 5 and 6 in respect to a financial year. Any income not absorbed by the expenses and outgoings shall be allocated against remaining income.

75. As mentioned previously, The Third Schedule sets out the Trustee’s power; the introductory words state:

The Trustee shall have complete and unfettered power to deal with the whole or any part of the Trust Fund and the income there are in any manner that the Trustee in the Trustee’s absolute an unfettered discretion sees fit as if the Trustee were absolute beneficial owner thereof…

76. Clause 5 of the Trust Deed is on its face broader than the terms in section 3B(a)(i) of the LTM Act as it permits the Trustee to deduct income in a manner as the Trustee thinks fit, which is beyond “payments of proper expenses by and of the trustee relating to the administration of the trust”.

77. However, on a plain reading of the Trust Deed as a whole and in particular clauses 2.1, 2.2, 5 - 8 and the Third Schedule, Ms Hadisoebrata is presently entitled to the income of the Trust consistent with s3A(3B)(a)(i) as the Trustee’s powers over the income of the trust extend no further than the Trustee’s lien, consistent with its fiduciary duties and limited to the payment of proposer expenses relating to the administration of the Trust.

Presently entitled to the capital

78. The Trust Fund is defined to include all property acquired by the Trustee. The applicant stands possessed of the trust fund in trust for the beneficiaries with the discretion under clauses 2.1, 6, 6, 9, 22 and Third Schedule of the Trust Deed, without the need for any consent of any beneficiary, to distribute land forming part of the trust fund to any of the beneficiaries. These clauses in the Trust Deed give the applicant extensive powers and discretions to deal with the trust fund of the Trust.

79. The applicant submitted that Ms Hadisoebrata as the sole beneficiary is absolutely entitled to the trust property under the ‘rule’ in Saunders v Vautier as described in Underhill and Hayton Law Relating to Trusts and Trustees (1995) 15^th ed at pg. 710 that a beneficiary is entitled to specific performance of the trust without the wishes of the trustee as the beneficiary, being an equitable proprietor of the trust property is entitled to claim it for herself even if she wants the trustee to manage it for her own particular purposes.

80. The amendments to the Trust Deed have changed the situation in that it is only Ms Hadisoebrata that can invoke the rule in Saunders v Vautier as where prior to the Deed of Variation, Ms Hadisoebrata would have been able to invoke the rule if all the beneficiaries collectively sought to do so.

81. On this basis, I accept the Chief Commissioner’s submission that the rule in Saunders v Vautier is not relevant in determining whether the trust is a discretionary trust or a different type of trust or that Ms Hadisoebrata is presentably entitled to the ‘capital of the trust’ within the meaning of s3B of the LTM Act.

82. The rule in Saunders v Vautier cannot override the stipulations in the Trust Deed as to the rights and entitlements of the Trustee and the beneficiary set out therein as discussed by the High Court in CPT at [42]-[43] and [45].

83. In CPT at [47] the Court quoted with approval “the modern formulation of the rule” as stated in Thomas on Powers (1998) at 176:

Under the rule in Saunders v Vautier, an adult beneficiary (or a number of adult beneficiaries acting together) who has (or between them have) an absolute, vested and indefeasible interest in the capital and income of property may at any time require the transfer of the property to him (or them) and may terminate any accumulation.

84. In CPT, the High Court rejected the notion that unit holders in a unit trust, where each unit conferred an equal interest in all property of the trust from time to time, were the owners of an equitable estate or interest in land for the purposes of the Land Tax Act 1958 (Vic). The Court rejected the proposition that, where property is held on trust, someone other than the trustee must necessarily be the owner of an equitable estate. The Court found that the interests of the taxpayers had to be determined by reference to the trust deed and give the trustee’s right of reimbursement and exoneration, it was not possible to state precisely what was the trust fund in question [37].

85. Pursuant to the stipulations in the Trust Deed, Ms Hadisoebrata does not have a present entitlement to the Property and will not have it until the Trust is vested or dissolved. It is the Trustee that has the full and absolute discretion to deal with the Property. The position of Ms Hadisoebrata as a beneficiary is entirely governed by the various clauses of the Trust Deed. There is no clause in the Trust Deed that entitles Ms Hadisoebrata to the Property, either presently or otherwise. Under clause 2 of the Trust Deed the Trustee stands possessed of the trust fund and the past income thereof in trust for beneficiaries. Clause 2.1 provides:

that the if the trustee has not on or before the vesting date determined which one or more of the eligible beneficiaries shall be entitled to a part or the whole of the trust fund upon the vesting date then such part or the whole thereof shall vest in the person or persons name in Part B of the Second Schedule…

86. There is no clause in the Trust Deed that stipulates that the Trustee will transfer the Property to a beneficiary upon request or direction. Clause 2.1 deals with the transfer of trust fund to beneficiaries.

87. The applicant’s reliance on the decision in Sayden is misplaced as at [38]-[39] the Court of Appeal rejected the Tribunal’s approach of failing to consider the terms of the Trust Deed first and foremost.

88. At [52] Gzell J stated:

As I have said, however, while the expressions in the statute are of general form they do not lack precision. They are operative rather than conclusory and, in my view, the necessary specificity is present in the Deed.

89. The applicant submitted that the word “statute” was erroneous, and it should have referred to the word “deed.” I do not agree. I consider that His Honour was expressing three points in paragraph [52]. First that s3A(3B) is in general form but that it does do not lack precision. Secondly, that s3A(3B) is operative rather than being conclusory, that is, that the Trust Deed must contain terms by which the “relevant criteria” are practically carried out and thirdly that the terms of the trust deed in question had the necessary specify to comply with s3A(3B).

90. Gzell J’s observations in Sayden at [44] and [46] in regard to the winding up the Trust must be understood in light of the facts in Sayden, specifically that in that case the Trust Deed contained a provision which mirrored s3B(a)(i) and (ii) of the LTM Act.

91. Ms Hadisoebrata would be presently entitled to the capital of the Trust if she had a right to require the applicant to wind up the Trust and distribute the trust property or the net proceeds of the trust property, however based on a fair reading of the Trust Deed, Ms Hadisoebrata does not have such a right. The Trust Deed before the Tribunal does not contain any provisions which permits a beneficiary to instigate the termination of the Trust or a right to demand the transfer to them of an asset.

92. The words of the Third Schedule of the Deed while general in expression, make it perfectly clear that the applicant has absolute power to deal with the Property. There is no other provision in the Deed that is inconsistent with Schedule 3. There is no express provision in the Deed that permits Ms Hadisoebrata to ‘demand division of the trust property or its proceeds’ Sayed at [17].

93. Cl 24 of the Deed requires the applicant to gain the written consent of Ms Hadisoebrata to vary the Deed in any way but says nothing about directing the applicant to deal with the trust property.

94. The Tribunal finds that the Trust Deed following the Deed of Variation continued to give absolute power to the applicant to deal with the Property. I am not satisfied that following the Deed of Variation, the Trust Deed became a fixed trust within the meaning of ss 3A(2), 3A(3A)-(3B) of the LTM Act or that Ms Hadisoebrata is the “sole and absolute owner of the trust property” or “has a present entitlement to capital” as submitted by the applicant. The Trust did not satisfy both s3A(3B)(a)(i) and (ii) of the LTM Act.

95. The term “discretionary trust” is a term that has “no fixed meaning and is used to describe particular features of certain express trusts.” Chief of Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at 234 [8]. The Deed of Variation did not change the character of the features of the Trust to such extent that it ceased being able to be described as a discretionary trust. The Trustee continued to have an interest in the Trust Property and had duties consistent with those that existed prior to the Deed of Variation, these duties were consistent with the duties a Trustee holds in a discretionary trust. I reject the applicant’s inherent submission that a trust cannot be described as a discretionary trust simply because there is a single beneficiary. No such authority was referred to for such a proposition.

96. The Trust Deed following the Deed of Variation did not meet the requirements under 5D(3)(b) of the LT Act for the 2023 tax year.

Remission of interest

97. The respondent agreed to remit interest (consisting of market rate and premium rate components) between 13 April 2022 and 20 June 2023, an order to such effect will be made.

98. Section 25 of the TA Act is a discretionary provision, permitting the Chief Commissioner to remit interest to the taxpayer. Both parties agreed that the reference to the four non-cumulative ‘criteria’ set out in Incise were relevant to remission of the premium component of interest. The four criteria are set out in [62]:

(1) all principal tax that is owing and not in dispute has been fully paid;

(2) there has been co-operation by the taxpayer in providing relevant information to the Commissioner so as to enable the Commissioner to issue assessments;

(3) such co-operation by the taxpayer has occurred prior to any investigation being commenced by the Commissioner (voluntary disclosure) or, at the very least, within reasonable time after requests for information have been made by the Commissioner – i.e. the taxpayer has taken reasonable care; and

(4) there has been no wilful default by the taxpayer in not paying tax on time.

99. These four criteria are not exhaustive and other relevant matters may be taken into account: Antegra Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 107 at [178].

100. I note that other matters were raised, not all of them relevant. The other matters included those in paragraph [29] and that the Mr Surjadi, the sole director of the applicant was simply ignorant of the land tax surcharge provisions introduced in 2020 (retrospective from 2017), that his father set up and managed the applicant until 1999 and that he has financial difficulties to pay the tax liability. There was evidence in regard to the age and financial position of the beneficiary. I do not consider this to be relevant evidence for the purpose of section 25 of the TA Act as she is not the ‘taxpayer’.

101. The applicant also submitted that no market or premium component of the interest ought to be paid from the earliest assessment period in 2019 tax year because the imposition of the interest neither compensates the State for the delay in unpaid tax and the tax payer should not be penalised for late payment of a tax liability that did not exist at law as at the date of the assessment, that is, the land tax surcharge is being reassessed retrospectively.

102. Contrary to the applicant’s written submissions, the applicant had not fully paid all of the principal tax that has been assessed and was not in dispute, which is the principal tax for the years 2019 to 2022. In its oral closing submissions the applicant submitted that it has sought to ‘make arrangements’ with the Chief Commissioner to pay the principal tax. I accept the Chief Commissioner’s submission that to ‘make arrangements or enter into an arrangement to pay the tax’ is not equivalent to ‘fully” pay the tax. Furthermore, I was not taken to any specific arrangement reached between the parties for the payment of the principal tax.

103. The applicant also relied on Song v Chief Commissioner of State Revenue [2023] NSWCATAD 301 (Song). In Song the taxpayer had paid all principal tax that had been assessed and was not in dispute at the time the request for the remission of interest was made and the Tribunal found that a partial remission of the premium component of the interest be remitted as the applicant ‘generally’ satisfied ‘the criteria referred to in Incise Technologies’ [107].

104. I accept Mr Surjadi’s evidence that he did not know that land tax could be calculated based on the Trust Deed and believed that land tax was assessed on the value of the land. Ms Hadisoebrata and Mr Surjadi were informed by their accountant of the surcharge land tax obligations in about March 2022. They immediately engaged solicitors to amend the Trust Deed.

105. It was on this basis that a copy of Trust Deed was provided to Revenue NSW. Since that time, the applicant has been cooperative.

106. I do not consider that it is appropriate to remit the market or the premium component of the interest prior to 13 April 2022 because prior to this date it cannot be contended that the applicant provided any information to the Commissioner to issue the correct assessments or provided any other co-operation as the applicant was simply ignorant of its tax liability that resulted from the retrospective amendments to the LT Act in 2020. The applicant’s ignorance of the tax liability is not an exceptional circumstance, even though his father set up the applicant and managed it until his death in 1999; RVO Enterprises Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 64 at [23].

Writing off unpaid tax

107. Section 110 of the TA Act permits the Chief Commissioner and on this application the Tribunal to write off unpaid tax if it is satisfied that recovery of the tax is impractical and unwarranted. The applicant submitted that payment of the tax would cause Ms Hadisoebrata hardship as her son would have to sell the Property and he cannot purchase another home for her, see paragraph [31] above. While these conclusions are highly speculative, even if the Tribunal were to accept that this would follow if the tax were recovered, s110 does not address financial hardship or fairness. As stated in Loomes at [48]:

Section 110 deals with the accounting concept of writing off a debt. In that context, the word "unwarranted" can most reasonably be interpreted as referring to a consideration in an accounting transaction. So viewed, it should be read as denoting the process of deciding whether an account receivable must for practical purposes be categorized as irrecoverable, for example by reason of the long effluxion of time, the disappearance of a debtor or other indications that further recovery efforts would be futile and a waste of resources. The word therefore cannot in this context bear the range of meanings that the applicants advocate, that is, absurd, harsh, unfair or incongruous.

108. The applicant submitted that Loomes is wrong and should not be followed. I do not accept that bold submission. The applicant has not referred to any authority or any persuasive argument why I should disregard this decision. I consider the reasoning to be rational, persuasive and consistent with the well-known principles of statutory interpretation.

109. Additionally it is arguable that s110 does not yet crystalise as there is no evidence before the Tribunal that any action has been taken to recover the tax. Secondly and if I am wrong about that, there is no evidence or material before the Tribunal that would support a finding that the recovery of the tax is “impractical or unwarranted.”

110. I decline to make an order that the whole or any part of the applicant’s unpaid tax be written off.

Conclusion

111. For the foregoing reasons I have reached the conclusion that the applicant failed to discharge the onus it bore and that the assessments for 2019 to 2023 tax years should be affirmed.

112. The Trust Deed for the tax year 2023 is a ‘discretionary trust’ and does not satisfy the requirements of s5D(3)(b) of the LT Act.

113. I do not consider that interest should be remitted prior to 13 April 2022 or that the unpaid tax be written off.

114. I make the following orders:

1. The decision on objection is varied to the extent the interest charged to the Applicant between 13 April 2022 and 20 June 2023 is remitted.

2. The Respondent’s decision is otherwise affirmed.

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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: 01 May 2024