"QX97E" and Australian Prudential Regulation Authority - [2000] AATA 781

DECISION AND REASONS FOR DECISION [2000] AATA 781

ADMINISTRATIVE APPEALS TRIBUNAL )

) No Q1997/850

GENERAL ADMINISTRATIVE DIVISION          )
           Re      QX97E
  Applicant
           And    AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
  Respondent

DECISION

Tribunal Mr K L Beddoe (Senior Member)

Date5 September 2000
PlaceBrisbane

Decision The decision of the Commissioner is set aside and the matter remitted to the respondent Authority with a direction that section 121C(5) of the Income Tax Assessment Act 1936 has no operation on the facts of this case.

Decision No. (Sgd) K L Beddoe
Senior Member
CATCHWORDS
SUPERANNUATION : Annual returns – Whether superannuation conditions of fund satisfied – Whether a creditor or unsatisfied vendor

Occupational Superannuation Standards Act 1987 – s5, s7, s12, s13, s16
Superannuation Entities (Taxation) Act 1987
Superannuation Entities (Excluded Funds) Act 1987
Income Tax Assessment Act 1936 – s23F, s23FB, s26AAB, s121C
Land Title Act 1994 (Qld) – s191

Prime Wheat Association v Commissioner of Stamp Duties [1996] 42 NSWLR 505
Heitzmann v Gowenlock [1891] 7 TLR 611
Re Peruss Pty Ltd [1980] 2 NSWLR 443
Rabone v Deane & anor (1915) 20 CLR 636

REASONS FOR DECISION

Mr K L Beddoe (Senior Member)

By a decision dated 24 October 1994 the Insurance and Superannuation Commissioner ("the Commissioner") decided to refuse to exercise the mitigating discretion in section 13 of the Occupational Superannuation Standards Act 1987 ("the Act") (renamed the Superannuation Entities (Taxation) Act 1987) by Act No. 84/1993 effective 1 July 1994 and since renamed the Superannuation Entities (Excluded Funds) Act 1987 from 1 July 1998 by Act No. 54 of 1998) in relation to the applicants annual returns for the years ended 30 June 1988 ("1998 return") and 30 June 1989 ("1989 return").
The applicant, through solicitors, subsequently sought reconsideration of those decisions on 10 March 1997 (T11) pursuant to section 16 of the Act and was subsequently granted an extension of time to do so (T14 & T16).
By letter dated 15 July 1997 the Commissioner notified decisions confirming the decisions not to exercise the discretion under section 13 of the Act. The applicant sought review of those decisions (T1).
Sub-section 12(3) of the Act applies in circumstances where an annual return etc has been lodged with the Commissioner within the requirements of section 12(1) for the Commissioner to give notice, to the trustees of the superannuation fund which lodged the annual return, as to whether the Commissioner is satisfied that the Fund satisfied the superannuation conditions (s5 of the Act). In particular, by force of section 5, the Commissioner must be satisfied that section 121C of the Income Tax Assessment Act 1936, as in force immediately before its repeal by Act No. 138 of 1987 with effect from 18 December 1987, would not have applied to reduce or deny the exemption from income tax under section 23F or section 23FB as in force immediately before 18 December 1987.
Section 121C of the Income Tax Assessment Act 1936 ("ITA") relevantly read as follows:
121C(1)         [Definitions] In this section, unless the contrary intention appears –
"agreement" means any agreement, arrangement or understanding whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings;
"associate" has the same meaning in relation to a person as that expression has in relation to a person in section 26AAB;
"employee", in relation to a company, includes a director of the company;
"in-house asset", in relation to a superannuation fund, means an asset of the fund that consists of a loan to, or an investment in, an employer sponsor of the fund or an associate of an employer sponsor of the fund, but, in a case where an employer sponsor of the fund is a life insurance company and the contributions made by the employer sponsor are in respect of an employee, or dependants of an employee, of the employer sponsor, does not include an asset consisting of a life policy on the life of that employee;
"investment" means any mode of application of money for the purpose of gaining interest, income or profit;
"life assurance company" means –
(a)a company registered under section 19 of the Life Insurance Act 1945; or
(b)a public authority constituted by a law of a State or Territory, being a public authority that carries on life business within the meaning of that expression in sub-section 4(1) of the Life Insurance Act 1945;
"life policy" has the same meaning as in sub-section 4(1) of the Life Insurance Act 1945;
"superannuation fund" means a provident, benefit, superannuation or retirement fund to which section 23F or 23FB applies in relation to the year of income.
121C(2)         [Employer sponsor of fund] Where an employee has, or dependants of an employee have, a right to receive benefits from a superannuation fund –
(a)       an employer of the employee;
(b)a company in which an employer of the employee has a controlling interest; and
(c)if an employer of the employee is a company – a person who is connected with that company,
who contributes to the fund in respect of the employee or dependants of the employee shall be taken, for the purpose of this section, to be an employer sponsor of the fund.
121C(3)         [Person connected with employer company] For the purposes of paragraph (2)(c), a person is connected with a company that is an employer of an employee if, and only if –
(a)       the person has a controlling interest in the employer;
(b)the person is a company in which a controlling interest is held by a person who also has a controlling interest in the employer; or
(c)       the person is a beneficial owner of shares in the employer.
121C(4)         [Funds established after 11.3.1985] The investment income of a superannuation fund derived during the year of income, being a superannuation fund that was established after 11 March 1985, is not exempt from income tax by virtue of section 23F or 23FB unless, at all times during the year of income, the cost of the in-house assets of the fund did not exceed 10% of the cost of all the assets of the fund.
121C(5)         [Funds established prior to 12.3.1985] The investment income of a superannuation fund derived during the year of income, being a superannuation fund that was established before 12 March 1985, is not exempt from income tax by virtue of section 23F or 23FB unless, at all times during the year of income, the cost of the in-house assets of the fund did not exceed –
(a)in the case of the year of income commencing on 1 July 1994 or a preceding year of income –
(i)the cost of the in-house assets of the fund as at 11 March 1985; or
(ii)10% of the cost of all the assets of the fund,
whichever is the greater, and
(b)       in any other case – 10% of the cost of all the assets of the fund.
121C(6)         [Cost of in-house assets] Where the cost of the in-house assets of a superannuation fund as at 11 March 1985 exceeded 70% of the cost of all the assets of the fund, the cost of the in-house assets of the fund as at 11 March 1985 shall be deemed, for the purposes of sub-paragraph (5)(a)(i), to be equal to 70% of the cost of all the assets of the fund as at 11 March 1985.
121C(7)         [Non-compliance with maximum levels of in-house assets] For the purposes of this section, the Commissioner shall disregard any failure of the assets of a superannuation fund to comply with the maximum levels of in-house assets specified in sub-section (4) or (5) if the Commissioner is satisfied –
(a)that the trustee of the fund made a genuine and bona fide attempt to ensure that the in-house assets of that fund did not exceed, at any time during that year of income, the levels so specified; or
(b)       that the failure was by reason of a temporary delay in investment,
and that, in all the circumstances, it would be reasonable to disregard that failure.
121C(8)         [Scope of section] This section does not apply, in relation to a year of income, to a superannuation fund where –
(a)the terms and conditions applicable to the fund did not, at any time during that year of income, make provision for benefits for residents; and
(b)no deductions have been allowed or are allowable in the assessment of the taxable income of any taxpayer in respect of contributions made to the fund during that year of income.
121C(9)         [Investment income arising from certain assets] For the purposes of this section, where, in relation to a year of income, the investment income of a superannuation fund consists of, or includes, a portion of the income arising from certain assets –
(a)       those assets shall be deemed to be assets of the fund; and
(b)the cost of those assets shall, in relation to any time during that year of income, be such amount as, in the opinion of the Commissioner, is reasonable in the circumstances.
121C(10)[Commissioner's discretion to determine cost of asset] Where –
(a)a particular asset of a superannuation fund was acquired without consideration or for consideration other than the value of the asset when it was acquired; or
(b)the whole or a part of the consideration for which a particular asset of a superannuation fund was acquired was other than money,
the cost of that asset shall, for the purposes of this section, be such amount as, in the opinion of the Commissioner, is reasonable in the circumstances.
121C(11)        [Indirect loans to employer sponsor or associate] Where –
(a)but for this sub-section, an asset of a superannuation fund consists of a loan, or investment, other than an in-house asset;
(b)that loan or investment was made as the result of the entering into or carrying out of an agreement; and
(c)any of the persons who entered into or carried out the agreement did so for the purpose, or for purposes that included the purpose, of achieving the result that a loan or investment would be made to or in, or to or in an associate of, an employer sponsor of the fund,
the asset is an in-house asset of the fund for the purposes of this section.
121C(12)        [Loan to person having financial link with employer sponsor] Where –
(a)an asset of a superannuation fund consists of a loan to, or investment in, a person other than –
(i)        an employer sponsor of the fund; or
(ii)       an associate of an employer sponsor of the fund;
(b)the person has a financial link with an employer sponsor of the fund or an associate of an employer sponsor of the fund; and
(c)       sub-section (11) does not apply in relation to the asset,
the cost of the in-house assets of the fund shall be deemed, for the purposes of this section, to be increased by such amount (if any) as, in the opinion of the Commissioner, is reasonable in the circumstances.
121C(13)        [Meaning of "financial link with"] For the purposes of sub-section (12) and this sub-section –
(a)a person has a financial link with a second person if an asset of the first-mentioned person consists of a loan to, or an investment in, the second person; and
(b)a person has a financial link with a second person if the first-mentioned person has a financial link with a third person who has a financial link with the second person (including a financial link with the second person by another application or other applications of this paragraph).

"Associate" is defined by section 26AAB and adapted by reference for the purposes of section 121C.
Section 13 of the Act is a mitigating section which vests a discretion in the Commissioner to treat a fund as satisfying the superannuation fund conditions, notwithstanding actual non-compliance, if the Commissioner is satisfied special circumstances existed during the year of income so that it would be reasonable that the fund be treated as complying with the superannuation fund conditions.
At the hearing Mr Milani appeared for the applicant and Mr Sullivan represented the respondent. The documents lodged in the Tribunal pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 were before the Tribunal as the T documents and further documents were tendered and marked as exhibits. Oral evidence was given by the person who is the controlling mind of the trustee company and by the trustees' public accountant. Following the hearing the parties made further written submissions to the Tribunal. All of this material has been taken into account for the purpose of this review.
Because of section 18 of the Act (since repealed) and section 16 of the ITA these reasons for decision have been prepared so as not to enable the identification of the applicant and its associated persons. To meet these requirements the findings of fact adopt hypothetical names and descriptions. My associate will provide the parties with an explanation if such is required.
I make the following findings of fact.
While the application for review has been made in the name of the Superannuation Fund it is clear that the correct applicants are the trustees of the fund. Those trustees are individuals who are wife (W) and husband (H), the latter of whom gave evidence and is the controlling mind of the associated persons. I will return to the question of who are the associated persons below.
The Superannuation Fund was established by deed of trust dated 24 June 1980 executed by a company, which was both the trustee of a Family Trust and the employer sponsor, and which I will call Trustee Pty Ltd.
The Superannuation Fund trust deed was subsequently amended but nothing turns on the amendments to the deed.
Membership of the Superannuation Fund in the relevant years was four persons, two of whom were the trustees with two related persons.
By a deed of trust made on 14 June 1984 an unrelated person as settlor established a unit trust which I will call "the Unit Trust". The trust deed provides for corpus units and income units. The trustee was directed by the deed to hold the fund upon trust for the corpus unit holders as tenants in common and the net income to be held upon trust for the income unit holders. All corpus units were to be of equal value so that the fund was beneficially owned according to the proportion of corpus units held by each beneficiary. Corpus units holders were not entitled to the transfer of any property in the fund. The trustee was invested with power to borrow moneys for the purposes of the trust with power to mortgage or charge the fund or part of the fund in favour of the lender.
The deed provided for the units in the Unit Trust to be registered as follows:
Corpus Unit holders:
              H  45 units
              W  45 units
H & W as trustees of
superannuation fund  10 units
Income Unit holders:
              H   5 units
              W   5 units
H & W as trustees of
superannuation fund  90 units

Trustee Pty Ltd as trustee of the Family Trust carried on a business at premises which included premises I will describe as 41 Fish Lane and 10 Fable Lane. The business had a number of employees who had been admitted as members of the Superannuation Fund.
In 1989 and 1990 the trustees of the Superannuation Fund lodged annual returns with the Commissioner. Those returns declared that the fund did not comply with investment superannuation fund conditions (T4 and T5). The return form explains the investment requirements as follows:
"Investments should be directed towards achieving maximum returns to members consistent with the sound management of fund assets and consequently the standards require that they be at arms length;
Investments should be consistent with the Government's 'in-house' asset restriction; and
From 11 June 1986, superannuation funds should not borrow except to obtain temporary finance and there is a requirement for the phasing down in respect of borrowings before 11 June 1986."

These criteria were expanded in the 1989 return form as to availability of benefits. The negative response was explained in the return as "did not comply with in-house restriction levels". Further explanation was that interest was charged on in-house loans at 17.5% for the year ended 30 June 1988 but because of severe cashflow problems the interest was accrued rather than paid. It was said, in effect, that the situation would be rectified by 30 June 1989.
The 1989 return was lodged with the Commissioner in March 1990. Notwithstanding the statement on the 1988 return the 1989 return also reported non-compliance for the same reasons as given on the 1988 return and again requested exercised of the discretion.
In September 1992 the Commissioner made a requisition for additional information on the Trustee of the Superannuation Fund. In May 1993 the trustees responded through their accountant. The in-house assets were identified as two loans made to the Family Trust and the Unit Trust respectively. Those loans were said to be 46% of the total cost of assets of the fund for the 1988 year and 49% in respect of the 1989 year. The information provided showed that loans had been made by the fund on an increasing basis from 1985 and then reduced in the 1991 and 1992 years.
As already noted in October 1994 the Commissioner, by a delegate, refused to exercise the discretion under section 13(1) of the Act in respect of the 1988 and 1989 years of income.
In the 1987 year the business conducted by Trustee Pty Ltd for the Family Trust had a negative taxable income and was, I accept, experiencing severe liquidity problems. The fund on the other hand had a positive taxable income.
The accounts of the Superannuation Fund for the years of income ended 30 June 1988 and 30 June 1989 show the following assets and in particular shown an increase in unsecured loans to associate:
         11 March 1985 $        y/e 30 June 1987 $      y/e 30 June 1988 $      y/e 30 June 1989 $
Current Assets
         Cash at Bank    Debtors                  3,189       12,008                4,162             -                  1,251             -
Investments    Land & Buildings        Units in Trust    Unsecured loans                  to associate             73,793        123,951           100        81,293            288,000           100       112,839                288,000           100       115,839

(cents have been ignored)

Freehold land and buildings were revalued in the 1988 year by increasing the value by $164,048. Unsecured loans are comprised exclusively of amounts described as loans to the Unit Trust and the Family Trust.

At 30 June 1988 the Family Trust was insolvent according to its balance sheet but traded out of insolvency in the 1989 year with net trust funds at 30 June 1989 being $16,974.
The directors of Trustee Pty Ltd which is the trustee of the Family Trust are H and W who are also the directors of Unit Trustee Pty Ltd which is the trustee of the Unit Trust. H and W are also the trustees of the Superannuation Fund.
H and W are beneficiaries of the Family Trust, the Unit Trust and the Superannuation Fund.
At the hearing it became apparent that serious errors may have occurred in the preparation of annual accounts for the Superannuation Fund and the Unit Trust. It therefore became necessary to investigate transactions from 1985 to determine the correct treatment of these transactions.
At the hearing it was the applicant's case that its annual returns for superannuation and taxation purposes were incorrect. That came about because, it is asserted, expenditure was incorrectly characterised in the accounts of the Superannuation Fund and the Unit Trust. I was told that the applicant is lodging amended income tax returns for the years of income ended 30 June 1983 to 1992. Copies of those amended returns have not been put before the Tribunal, nor do I consider it necessary to do so.

It is my finding that 41 Fish Lane and 10 Fable Lane are properties which abut and in 1983 were unimproved properties owned by H and W. The properties were sold by H and W to the Superannuation Fund with a view to the Fund constructing improvements on the properties. However the Superannuation Fund did not have funds sufficient to finance construction of the improvements and would have had to borrow moneys to finance the construction.
This situation was overcome by transferring the subject properties to the Unit Trust with construction to be financed by the Superannuation Fund as it was able to do so.
Throughout this period the adjoining property which I describe as 43 Fish Lane continued to be owned by the Superannuation Fund. That property was in an improved state and was the premises in which the trustee of the Family Trust carried on the business as the employer sponsor.
A comparison of balance sheets of the Superannuation Fund reveal the following information in relation to Freehold Land and Buildings held for the Superannuation fund:
1984     1985     1986     1987     1988     1989
At cost    $106,433       $125,827            -
At market value                -              -             -        $123,951       $288,000       $288,000

The Schedule in Exhibit 1 suggests different amounts but I am unable to reconcile these figures. Each of those amounts refers to 43 Fish Lane and after 1984 does not refer to the properties 41 Fish Lane and 10 Fable Lane. Those latter properties were sold out of the Superannuation Fund to the trustee of the T Unit Trust in August 1984.

However, the trustees of the Superannuation Fund had previously committed to building extensions on 41 Fish Lane and 10 Fable Lane. The work had begun in 1983 and continued until June 1984. The cost of that work was incurred in the first instance by the Trustee of the Family Trust which then invoiced the Superannuation Fund a total of $57,553 covered by nine separate invoices issued to the Fund from September 1983 to June 1984 (Exhibits A and 1). Some payments totalling $5,740 were made direct to contractors from the Superannuation Fund (Exhibit A).
Adopting a value of $18,000 as the selling price of the unimproved land the Superannuation Fund had incurred $81,293 for the land and improvements. That amount is not reciprocated in the accounts of the Unit Trust which took the land and improvements into its accounts at $75,553, the difference being the amount of $5,740 not charged by the Trustee of the Family Trust being the total of amounts paid direct by the Superannuation Fund.
In essence the funds of the Superannuation Fund were used to finance the development of real property that was then transferred from the Superannuation Fund to the Unit Trust. While it may have been reasonable for the Superannuation Fund to have been allotted units in the Unit Trust this was not done and the applicant's case has been conducted on the basis that it is an unsatisfied vendor. The amount owing by the Unit Trust is said by the applicant to be $81,293.
While the annual returns were apparently lodged on the basis of loans to the Trustee of the Family Trust I am satisfied this is not the fact of the matter. In so far as the returns acknowledged an asset of $81,293 owned by the applicant that amount is to be understood, on the applicant's case as unpaid consideration for transfer of the subject properties from the Superannuation Fund to the Unit Trust.
That the situation of the Superannuation Fund is confused was made evident by the oral evidence of H who said that the Unit Trust is part of the Superannuation Fund. That apparently refers to the fact of the fund holding units in the Unit Trust. He also described the money owing by the Unit Trust to the fund as a loan – a characterisation denied by the applicant's submissions.
The $57,553 paid to Trustee Pty Ltd of the Family Trust was reimbursement of building extension costs paid by the Family Trust on behalf of the Superannuation Fund. That amount included $20,500 paid out by the applicants on 17 April 1985 as reimbursement to the Family Trust.
On that day an amount of $7,500 was also paid by the applicants as trustees of the Superannuation Fund to themselves for their own use. That was said to be, and I accept, a repayment in part of a loan from the applicants on their own account to the Superannuation Fund.
The Applicant's Submissions
The balance of the loans to the Unit Trust and the employer sponsor did not increase after 11 March 1985. The $73,793 was money committed by the Superannuation Fund to the building extension. It was asserted that the building extension was owned by the Superannuation Fund on land owned by the Unit Trust. In a subsequent written submission the applicant asserted that the Superannuation Fund was an unpaid vendor so that the amount owing by the Unit Trust was not a loan and by force of the definition not an in-house asset. In relation to the $7,500 paid to H and W that was a repayment of an existing loan.
To support the applicants' contention that it is an unsatisfied vendor in relation to the two properties they rely on the following court decisions:
(a)Prime Wheat Association v Commissioner of Stamp Duties [1996] 42 NSWLR 505 @ 515 and 515
(b)Heitzmann v Gowenlock [1891] 7 TLR 611 @ 612
(c)Re Peruss Pty Ltd [1980] 2 NSWLR 443 @ 447-8
(d)Rabone v Deane & anor (1915) 20 CLR 636 @ 640.

The Respondent's Submissions

The trustees are associated persons because they are also directors and shareholders of the trustee of the Unit Trust. The payment made by the Superannuation Fund to the trustee of the Unit Trust on 17 April 1985 in an amount of $20,500 increased the in-house assets after 11 March 1985 thereby exceeding the limit imposed by section 121C(5). The applicant's submissions, as I understand them depend upon the claimed reimbursement payments to the Family Trust being correctly characterised as loans to the Unit Trust.
The respondent's submissions, not unreasonably, take issue with the variable story related on behalf of the applicants. The respondent pointed out inconsistencies in the applicants' position as originally recorded in the Fund's accounts and the accounts of associated persons and the positions represented from time to time after the respondent refused to exercise the discretion as sought by the applicants.
Adopting the applicant's figures the respondent says that the loan to the Unit Trust at 11 March 1985 was $60,793 being the adjusted balance of $81,293 at 30 June 1985 less $20,500 paid by the Superannuation Fund on 17 April 1985 to the Family Trust thereby increasing the loan by the Superannuation Fund to the Unit Trust by the $20,500.
The respondent says:
(a)At 30 June 1988 the cost of total assets of the Fund was $241,054.00. Total in-house assets were $84,386.00, which was 35% of the cost of the Fund's total assets and well in excess of the 10% limit imposed by the relevant provision. A superannuation fund was entitled to have a level of in-house assets in excess of 10% of the cost of total assets provided that it was not in excess of the cost of in-house assets prior to 11 March 1985. Thus a superannuation fund would not contravene the relevant provision if it maintained the absolute level of in-house assets it held as at 11 March 1985. The Fund, however, had in-house assets of only $61,793.04 as at 11 March 1985 and had significantly breached the provision.
(b)At 30 June 1989 the cost of total assets of the Fund was $241,142.00. Total in-house assets were $87,386.00, which was 36% of the cost of the Fund's total assets and well in excess of the 10% limit imposed by the relevant provision. Again, as the Fund had in-house assets of only $61,793.04 as at 11 March 1985, this was a significant breach of the provision.

Consideration

To say that the waters have been muddied in this case would be, with respect, to understate the situation. Notwithstanding the varying characterisations applied by the accountants in relation to the Fund's transactions I am required to consider the substance of the transactions rather than rely on varying characterisations of the transactions over the years.
I am satisfied that the substance of the matter is really quite straight forward. It was intended by the applicant trustees that the Superannuation Fund would own the freehold premises on which the trustee of the Family Trust carried on business.
For that purpose the properties I have described as 41 and 43 Fish Lane with the abutting property I have described as 10 Fable Lane were transferred to the Fund. Number 43 had improvements constructed on the property. It was proposed to construct improvements on the other properties.
Finance sufficient to construct the improvements was not immediately available in the Superannuation Fund so that if the Fund remained the owner it would need to borrow money in the short term. I infer that the trustees understood, in effect, that the operating standards pursuant to section 7 of the Act (Part 2 of the Regulations) had the effect of preventing the trustees from mortgaging or otherwise charging the assets of the Fund. It was therefore decided to transfer 41 Fish Lane and 10 Fable Lane to the Unit Trust. The construction of the improvements proceeded on the basis that the Family Trust paid the contractors for the construction work on land now owned by the Unit Trust. The Family Trust was, surprisingly, reimbursed by the Superannuation Fund rather than the Unit Trust.
While there seems to have been some confusion it is clear to me that ownership of the improvements, being fixtures, is with the Unit Trust and not the Superannuation Fund. That seems to be a somewhat unusual result and hardly a result that can be said to protect the members of the Superannuation Fund. In particular, section 191 of the Land Title Act 1994 (Qld) would appear to have the effect of denying to the Superannuation Fund a lien over the subject properties because of the Unit Trust's failure to pay the purchase price for the two properties (whatever that might be).
As to whether the trustee of the Unit Trust is an "associated person" in relation to the applicant trustees it clearly is on the ordinary meaning of associated person. The applicants are directors and shareholders of the trustee of the Unit Trust (and beneficiaries of the trust).
I am required however to determine the issue as to who is an associate in accordance with section 121C(1) of the ITA which adopts by reference the same meaning in relation to a person as that expression has in relation to a person in section 26AAB of the ITA. The relevant provision is section 26AAB(14) and in particular paragraph (a) and (c) of the definition of associate apply to make the applicants associates of Unit Trustee Pty Ltd. This is because the applicants as trustees of a trust estate (the Superannuation Fund) are also persons who are capable of benefiting under the trust both directly and indirectly as beneficiaries of the Unit Trust in which the Superannuation Fund holds units.
It follows in my view that the applicant trustees are associates of Unit Trust Pty Ltd. They are the link which in turn makes Unit Trust Pty Ltd an associate of Trustee Pty Ltd which is the employer sponsor.
The contentious issue is whether the amounts said to be owing by the Unit Trust to the Superannuation Fund are in-house assets. Section 121C(1) of the ITA relevantly defines an in-house asset in relation to a superannuation fund to mean an asset of the superannuation fund that consists of a loan to, or investment in, an employer sponsor of the fund or an associate of an employer sponsor of the fund.
The applicants paid moneys to Trustee Pty Ltd as trustee of the Family Trust to reimburse it for building costs in relation to properties transferred to the Unit Trust. It seems to be reasonable to infer that the applicant trustees paid these moneys away because they were under an obligation to reimburse Trustee Pty Ltd. That obligation must have been to the effect that the Superannuation Fund would pay for improvements on the subject land previously held by the Superannuation Fund. It also seems reasonable to infer that the trustee's did not intend to deplete the assets of the Superannuation Fund to the advantage of the Unit Trust so that it can be inferred that the consideration for transfer of the properties to the Unit Trust included that the funds paid out by the Superannuation Fund to Trustee Pty Ltd would in turn be reimbursed to the Superannuation Fund by the Unit Trust. There is nothing before me to suggest that the applicant trustees had any intention of depleting the Superannuation Fund although it may be that they lacked a comprehension of the effect of the transfer of the two freehold properties to the Unit Trust.
I am satisfied that the applicant trustees did not make a loan or an investment to or in the Unit Trust when they made the payments to Trustee Pty Ltd as trustee for the Family Trust by way of reimbursement for building costs.
It may well be that the applicant trustees can rely on an equitable charge over the two properties not involving any transfer of legal or equitable title or creating an equitable lien. Presumably as trustees they have made some formal or informal arrangement to protect the assets of the fund. If they have I do not know what those arrangements are. There does not appear to be any instruments in writing.
I am satisfied however that the applicants are creditors of the Unit Trust as unpaid vendors but I am not satisfied that it is correct to say that the fund thereby has an asset that consists of a loan.
In Rabone v Deane (supra) the issue was whether there had been a transaction in the course of a business of money lending. Shares in a company were transferred on the understanding that payment was deferred for ten years at interest and the shares remained registered in the vendor's name. At 20 CLR 640 Griffith CJ said:
"It was simply a case of a security taken by an unpaid vendor for the price of the goods sold. Mrs Neale was not satisfied to take the security of the shares alone but asked for and received security over certain land of the defendant. This makes it all the clearer that the case was one of a security taken by an unpaid vendor."

The Court did not accept the proposition that there was a lending of money.

That case was relied upon by the Court of Appeal of New South Wales in Prime Wheat Association v Chief Commissioner of Stamp Duties (supra). This was an appeal from Dunford J at first instance. The issue was whether a share sale agreement attracted liability for stamp duty as a security for a loan. At 512 Gleeson CJ said:
"Here there was no advance of money. There was, as required by the language of the definition of advance, financial accommodation, but that is not sufficient. An agreement for sale which allows credit to a purchaser does not, on that account alone, involve an advance of money: Rabone v Deane (1915) 20 CLR 636 at 640. Dunford J said that what was involved was an advance "because the transfer of title without waiting for the actual receipt of the full purchase price constituted a form of "financial accommodation". However, it did not constitute a form of financial accommodation that involved an advance of money; what was involved was a granting of time to pay. Ultimately, there was a debt, but no loan."

A similar view was expressed by Kearney J in Re Peruss Pty Ltd (supra) where his Honour described a sale on credit as "the antithesis of a transaction of loan coupled with the sale of goods for case" (at page 448).
The substance of the matter is that the subject land was sold to the Unit Trust on or about 14 August 1984. The Fund subsequently reimbursed the trustee of the Family Trust for building costs paid by the trustee but the Fund has not been paid by the Unit Trust for those costs reimbursed by the Fund to the Family Trust. Notwithstanding characterisations by accountants which suggest that there were loans in existence I am not satisfied that the relationships are more than that of unpaid creditor or as Mr Milani prefers that of unpaid vendor.
It follows in my view that the amounts owing to the Superannuation Fund by the Unit Trust were not in-house assets as defined so that section 121C(5) has no operation on the facts of this case.
The decision of the Commissioner will be set aside and the matter remitted to the respondent Authority with a direction that section 121C(5) of the ITA has no operation on the facts of this case.
I certify that the 65 preceding paragraphs are a true copy of the reasons for the decision herein of Mr K L Beddoe (Senior Member)
Signed:
  T G Lowther
   Associate
Dates of Hearing  24 August 1998 & 12 November 1999
Date of Decision  5 September 2000
Solicitor for the Applicant         Deacon & Milani
Solicitor for the Respondent    An officer of APRA