Rakmy Pty Ltd v Commissioner of State Revenue
[2017] VSC 237
•12 May 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST
S CI 2016 4365
| RAKMY PTY LTD (ACN 065 263 872) | Appellant |
| v | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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JUDGE: | CROFT J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27 April 2017 |
DATE OF JUDGMENT: | 12 May 2017 |
CASE MAY BE CITED AS: | Rakmy Pty Ltd v Commissioner of State Revenue |
MEDIUM NEUTRAL CITATION: | [2017] VSC 237 |
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TAXATION – Changes in beneficial ownership of dutiable property – Dutiable property becoming the subject of a different trust – Relevance of dutiable property nevertheless continuing to be held by the same trustee – Costa & Duppe Properties Pty Ltd v Duppe [1986] VR 185 – Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 – CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 – Trust Company of Australia Ltd (as trustee for the Clayton 3 Trust) v Commissioner of State Revenue (2007) 19 VR 111 – Duties Act 2000 s 7(2), (4), ss 8, 12 and 36B.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr A.J. De Wijn | Kevin Davine & Sons |
| For the Respondent | Mr C. Horan QC with Dr C. Button | Solicitor for the Commissioner of State Revenue |
HIS HONOUR:
Introduction
This appeal concerns a change in capacity in which Rakmy Pty Ltd (“Rakmy”), the Appellant, held certain land in Richmond (“the Richmond Property”). Rakmy initially held the Richmond Property as trustee for the Rakmy Investment Trust (“RIT”), a unit trust, and then began holding the Richmond Property as trustee for the Rakmy Superannuation Fund (“RSF”). RSF owned 100% of the units in RIT at the time of the change in the basis upon which Rakmy held the Richmond Property.
Two issues arise for determination in this appeal:
(1)whether the transfer of the Richmond Property from the RIT to the RSF involved a “change in beneficial ownership of dutiable property” within the meaning of sub-s 7(1)(b)(vi) and sub-s 7(4) of the Duties Act 2000 (“the Act”); and
(2)if so, whether the transfer of the Richmond Property is exempt from duty under s 36B of the Act.
Rakmy contends that the ultimate issue in this appeal is whether the change of capacity, as it puts the position, in which Rakmy held the Richmond Property as trustee attracts duty. More particularly, the Appellant submits that, as the RSF owned 100% of the units in the RIT at the time the Appellant commenced holding that property as trustee for the RSF, there was a change of capacity in the holding of this property which did not effect any change to the underlying equitable interests in that land. The Appellant bases its case on two alternative submissions. First, that there was no transfer or deemed transfer of the Richmond Property in respect of which Rakmy was a transferee, meaning that Rakmy is not liable to duty and, secondly, that even if Rakmy is, prima facie, liable to duty, the change of capacity does not attract duty as the exemption from duty under s 36B of the Act, which deals with transfers of property to a unitholder in a unit trust, is, in all the circumstances, applicable.
The Commissioner, on the other hand, contends that the transaction by which the Richmond Property was vested in the Appellant as trustee for the RSF involved a “change in beneficial ownership” of that property within the meaning of sub-s 7(1)(b)(vi) and s 7(4) of the Act. Consequently, the Commissioner says that duty is to be charged as if the transaction were a transfer of the Richmond Property to Rakmy as trustee of the RSF.[1] More particularly, the Commissioner contends that the definitions of “beneficial ownership” and “change in beneficial ownership” which appear in sub-s 7(4) expressly include the movement of dutiable property to, from and between trusts.
[1]Duties Act 2000 ss 8(1), (2).
Moreover, the Commissioner submits that the transfer of the Richmond Property was not exempt under s 36B of the Act because the requirement in s 36B(1)(d) was not satisfied. The dutiable value of the Richmond Property as a proportion of the net assets of the RIT did, the Commissioner says, exceed the proportionate unitholding of Rakmy as trustee of the RSF at the relevant time, namely, when the Richmond Property first became subject to the RIT. At that time, each of Rakmy as trustee for the RSF, Robert King (“King”) and Maree Yann (“Yann”) held one third of the issued units in the RIT. Under the terms of the Rakmy Investment Trust’s Unit Trust Deed (“the RIT Deed”), each unit conferred an equal interest in the trust fund. Additionally, the Commissioner submits that the fact that units held by King and Yann were partly paid did not affect “the proportion of the net assets of [the RIT] represented by the unitholding of the unitholder” at the relevant time.
Factual matters
Although the facts with respect to this appeal are not in dispute and have been set out in the Statement of Agreed Facts agreed between the parties and the documents referred to therein, it is necessary to consider a variety of factual matters and the provisions of those documents in order to appreciate the nature and issues raised by this appeal.
Original acquisition and subsequent transfer of the Richmond Property
From the time of its establishment by the RIT Deed, dated 5 May 1998, until 25 June 2014 — which was immediately prior to the “vesting” of the Richmond Property in Rakmy as trustee for the RSF — King, Yann and Rakmy as trustee for the RSF each held 500,000 ordinary units in the RIT.
When these ordinary units in the RIT were first issued, they were partly paid at $0.0001 per unit.[2] Each of the unitholders subsequently made payments in respect of the units. By 2010, the units held by Rakmy as trustee for the RSF had been fully paid up. King and Yann, on the other hand, appear to have paid amounts in respect of their units progressively — so as at 30 June 2012, the sum of $242,641.33 remained unpaid on King’s units, and $283,086.41 remained unpaid on Yann’s units. By 30 June 2013, the amount outstanding on King’s units had been reduced to $198,686.24, and the amount outstanding on Yann’s units had been reduced to $239,378.35.[3] This meant that by 30 June 2013, King and Yann’s units were partly paid to a substantial extent. King had paid $301,313.76, or about $0.60 per unit, and Yann had paid $260,621.65, or about $0.52 per unit.
[2]The RIT Deed, Schedule.
[3]Documents filed pursuant to r 7.06 Supreme Court (Miscellaneous Civil Procedure) Rules 2008 (“Documents”), Tab 11 (RIT Financial Statements for the year ended 30 June 2013): see Balance Sheet as at 30 June 2013, Equity, and Note 7: Trust Capital.
At some stage between 1 July 2013 and 31 December 2013, each of King and Yann reduced the amount paid in respect of their units so that by 31 December 2013, King and Yann’s units were again only partly paid at $0.0001 per unit — which meant they were paid up to a total of $50 for each of them).[4]
[4]Documents, Tab 12 (RIT Financial Statements for 1 July 2013 to 31 December 2013), Balance Sheet as at 31 December 2013, Equity; Note 7: Trust Capital. See also Statement of Agreed Facts (16 December 2016) [15]. The agreed facts do not indicate the specific date on which the amounts paid towards the issue price of units were repaid to King and Yann, and nor is there any direct evidence of the date of any such repayment. Reasons for Objection at [8] state that King and Yann “redrew” the amounts “in the 2014 year prior to the relevant date”, which may be intended as a reference to the “relevant time” at which the Richmond Property first became subject to the RIT (see s 36B(5) of the Act).
The Commissioner observes that the evidence does not explain the basis upon which this reduction of the amount paid in respect of these units occurred, nor by any mechanism apparent on the face of the RIT Deed.[5] In any event, for the purposes of this appeal, the position remains that which pertained on 31 December 2013, namely, that the King and Yann units were only partly paid to $0.0001 per unit.
[5]The RIT Deed provides for voluntary payments to be made on partly paid units (cl 7.7), but does not provide for unitholders to “redraw” amounts paid in respect of units (other than by a redemption of units). In the RIT Financial Statements for the period from 1 July 2013 to 31 December 2013, the reduction in the amounts paid in respect of King and Yann’s units appear to be recorded in the “Beneficiaries Profit Distribution Summary” under the title “Cancellation of Calls”. While cl 7.3 of the RIT Deed provides that a call may be revoked or postponed by Special Resolution, it is unclear whether this would be capable of covering the “cancellation” of a call where the amount of the call had already been paid by the Unitholder. There is no evidence of the making or revocation of calls by Rakmy as trustee of the RIT, apart from the calls made on King and Yann in 2014.
In any event, during the 1 July to 31 December 2013 period, a contract of sale dated 26 October 2013 was entered into whereby King and Yann agreed to purchase the Richmond Property for $825,000.
On 25 June 2014, after the trustee of the RIT had made calls on King and Yann under cl 7.1 of the RIT Deed for the payment of all amounts remaining unpaid on their units, and those calls were not met by King and Yann, the unitholders of the RIT passed a special resolution that the units held by King and Yann be redeemed by the trustee pursuant to cl 7.5 of the RIT Deed.[6] The redemption was effected by Deed Poll dated 25 June 2014.
[6]There is no direct evidence of what prompted these calls to be made. The special resolutions which authorised the making of the calls and the redemption of the units would presumably have been supported by King and Yann, as a special resolution requires a 75% vote of unitholders (RIT Deed, cl 1.1), and there is no restriction on the voting power attached to partly paid units.
At the same meeting of unitholders of the RIT on 25 June 2014, a special resolution was passed that the Richmond Property “be forthwith vested in RAKMY PTY LTD as Trustee for the Rakmy Self-Managed Superannuation Fund”. The Deed Poll dated 25 June 2014 executed by Rakmy as trustee for the RIT declared that henceforth the Richmond Property was held by Rakmy as trustee for RSF. This transfer of the Richmond Property from the RIT to the RSF was recorded in a Land Tax Trust Form 8 (“Notice of trust acquisition of an interest in land”) and a Duties Act Form 14 (“Statement on change of beneficial ownership in dutiable property”), each of which was dated 25 June 2014.
In summary, the effect of the steps taken on 25 June 2014 was that the Richmond Property ceased to be an asset forming part of the trust fund of the RIT and became an asset forming part of the RSF.
Terms of the RIT and the RSF
As discussed further in the reasons which follow, the terms of the respective deeds governing the RIT and the RSF are significant in the resolution of the issues arising in this appeal.
First, as the Commissioner observes, the two trusts are very different both in their nature and in their terms. The RIT is a unit trust under which wide discretionary powers are conferred on the trustee, whereas the RSF is a superannuation trust containing detailed provisions concerning matters such as the establishment of separate accumulation and pension accounts for different members of the fund, the payment of benefits and pensions, the eligibility of members to receive benefits and pensions, and a different balance of authority between members and the trustee. In the latter respect, the Commissioner notes by way of example that the trustee is compelled to make payments in various circumstances in the Rakmy Superannuation Fund Trust Deed (“the RSF Deed”), for example, cl 102 concerning early retirement.
Secondly, under the terms of the RIT Deed, unitholders did not have a proprietary interest in any particular asset comprising the trust fund.
Thirdly, under the terms of the RIT Deed, the holders of partly paid units had the same rights and interests as the holders of fully paid units. The entitlements of the holders of partly paid units were only “pro-rated” in two situations: namely, where the trustee made a distribution of trust income in a financial year (cl 14.7); and where, after the termination of the trust, the trustee has sold the assets of the trust fund (cl 29.1(b)).
The Commissioner, in his submissions — expressly indicating that without seeking to be comprehensive — made reference to a variety of terms of the RIT Deed said to be relevant:[7]
[7]Respondent’s Outline of Submissions (27 February 2017) [21]; and see below [70], where most of these provisions are set out, and [71]–[78], where the relevance and effect of these provisions (insofar as they are relevant) is discussed in detail in the context of s 36B of the Act.
(a)The “Trust Fund” is broadly defined in cl 1.1 and includes “all other property acquired by the Trustee for the purposes of the Trust”. “Unit” is defined in cl 1.1 to mean “each of the undivided parts or shares of the Trust Fund issued in accordance with clause 3”.
(b)Clause 3 relevantly provides:
Beneficial interest
3.1The beneficial interest in the Trust Fund is divided into Units of One Dollar ($1.00) each held by the persons named in the Schedule and divided into the classes specified in the Schedule.
Equal interest in the Trust Fund
3.2Subject to clauses 14.7 and 29.1(b), each Unit confers on its holder an equal interest in the Trust Fund but does not confer on its holder any interest in any particular part of the Trust Fund.
(c)The Schedule names each of Rakmy as trustee for RSF, King and Yann as the holder of 500,000 ordinary units, paid to $0.0001.
(d)Units may be held “in respect of a trust” (see cl 8.3), including by the trustee (see the definition of “Unitholder” in cl 1.1).
(e)The trustee may issue Units on a partly paid basis (cl 4.3). If authorised by a Special Resolution, the trustee may by written notice call on a Unitholder to pay all or any part of the unpaid issue price within 30 days, in default of which the trustee may be authorised by Special Resolution to redeem the Units (cll 7.1, 7.4, 7.5). The trustee has a paramount lien on each Unit for all money payable to the trustee in relation to the Unit, whether or not called (cl 7.9).
(f)A Unitholder is not entitled to require the transfer to it of any trust property comprised in the Trust Fund or to interfere with or question the trustee’s exercise or non-exercise of its powers and discretions (cl 13.1).
(g)The trustee is required to determine the “Trust Income” each year, but has some discretion in determining what that income is[8] and a discretion to accumulate or distribute the income (cl 14). While distributions of income are generally in proportion to the number of Units held, cl 14.7 provides a formula by which the amounts distributed are adjusted in respect of partly paid units, such that each partly paid Unit only counts as a fraction of one Unit by reference to the paid up amount.
(h)In respect of capital distributions, cl 15.1 provides that “[t]he Unitholders may by Special Resolution resolve that a distribution of capital is to be made to Unitholders and the amount of capital to be distributed in respect of each Unit will be that specified in the resolution”. The RIT Deed does not include any provision pro rating capital distributions to Unitholders whose units are partly paid.
(i)Clause 17 confers a wide range of powers and discretions on the trustee, including the power to buy and sell property forming part of the Trust Fund (cl 17.1(a)–(d)) and to appropriate property and transfer it in specie to a Unitholder (cl 17.1(y)).
(j)Clause 21.7 provides that every Unitholder has one vote for every Unit held, that is, without any adjustment in respect of partly paid Units (see also the definitions of “Ordinary Resolution” and “Special Resolution” in cl 1.1).
(k)Clause 28 provides for the termination of the RIT either on the day prior to the expiry of the perpetuity period (generally 80 years), or on an earlier date by a Special Resolution of Unitholders or by a determination of the trustee.
(l)After the termination of the Trust, the trustee is required by cl 29.1 to sell the Trust Fund and to distribute the proceeds of sale and all undistributed trust income among the Unitholders in proportion to the number of Units held, however for such purposes each partly paid Unit only counts as a fraction of one Unit by reference to the paid up amount.
[8]Eg, the trustee may “add or subtract any other amount which the [t]rustee considers appropriate”: cl 14.1(f).
Legislation
The Act imposes duty on certain transactions concerning dutiable property. The scheme of the Act in this respect, which is contained in Chapter 2, is to impose duty on a range of transactions set out in s 7 of Part 1 of that Chapter and to provide separately for a range of exemptions and concessions from duty in Part 5 of that Chapter (see s 19).
As part of this legislative scheme, s 7(1) of the Act provides that duty is charged on “dutiable transactions”, including:
(a)a transfer of dutiable property; and
(b)the following transactions—
…
(vi)any other transaction that results in a change in beneficial ownership of dutiable property (other than an excluded transaction).
Section 7(4) of the Act provides:
In this Chapter—
beneficial ownership includes, but is not limited to, ownership of dutiable property by a person as trustee of a trust;
change in beneficial ownership includes, but is not limited to—
(a)the creation of dutiable property;
(b)the extinguishment of dutiable property;
(c)a change in equitable interests in dutiable property;
(d)dutiable property becoming the subject of a trust;
(e)dutiable property ceasing to be the subject of a trust.
Section 8(1) of the Act provides that the duty charged on a dutiable transaction referred to in s 7(1)(b) — that is, a dutiable transaction other than a transfer of dutiable property — is to be charged as if the transaction were a transfer of dutiable property. Subsection 8(2) sets out a table which identifies the property which is taken to be the “property transferred”, the person who is taken to be the “transferee”, and the time at which the transfer is taken to have occurred. Relevantly, for a dutiable transaction falling within s 7(1)(b)(vi) (“any other transaction that results in a change in beneficial ownership of dutiable property”), the property transferred is “the property the beneficial ownership of which is changed”, the transferee is “the person who obtains the beneficial ownership or whose beneficial ownership is increased”, and the transfer is deemed to have occurred “when beneficial ownership changes”.
The expression, “dutiable property” is defined in s 10 of Act and includes, relevantly for present purposes: an estate in fee-simple in land in Victoria (s 10(1)(a)(i)); and an “interest” in any fee-simple estate (s 10(1)(ac)). The word “interest” is defined in s 3 of the Act to include an estate or proprietary right.
The liability for duty under the Act arises when a dutiable transaction occurs and that duty is generally payable by the transferee (ss 11 and 12).
Part 5 of Chapter 2 of the Act provides for concessions and exemptions from duty. Of relevance in the present circumstances with respect to this appeal is s 36B, which provides:[9]
[9]The criteria set out in s 36B(2) are not reproduced below, as it is accepted by the Commissioner that those requirements are satisfied in relation to the disputed transaction.
(1)No duty is chargeable under this Chapter in respect of a transfer of dutiable property that is subject to a unit trust scheme (the principal scheme) to a unitholder in the scheme if—
…
(d)the dutiable value of the property transferred as a proportion of the net assets of the principal scheme does not exceed the value of that proportion of the net assets of the principal scheme represented by the unitholding of the unitholder in the principal scheme at the relevant time; and …
…
(3)If a unitholder would be entitled to an exemption from duty under subsection (1) but for subsection (1)(d), the unitholder is entitled to a concession from duty in respect of that proportion of the dutiable value of the dutiable property that does not exceed that proportion of the net assets of the scheme represented by the unitholding of the unitholder in the principal scheme at the relevant time.
…
(5)In this section—
…
relevant time in relation to dutiable property that is subject to the principal scheme, means the time at which the property first became subject to the principal scheme;
Arising out of these provisions are the two issues which are raised in this appeal. Recapping, the first is whether the “vesting” of the Richmond Property in Rakmy as trustee of the RSF was a “dutiable transaction” under s 7(1)(b)(vi) of the Act, and whether duty is payable by Rakmy as trustee of the RSF as the person who is taken to be the transferee of the Richmond Property. The second issue is whether s 36B(1)(d) or s 36B(3) result in Rakmy being entitled either to a full exemption or only to a partial concession from duty. It is not in dispute between the parties that the other requirements specified in s 36B are satisfied.
Dutiable transaction
Although Rakmy’s ownership of the Richmond Property had not been registered on 25 June 2014, Rakmy accepts that it had an equitable interest in fee simple on that day arising from the fact that the contract to purchase the Richmond Property had settled and Rakmy possessed a registrable instrument of transfer. It also accepts that on 25 June 2014 the Richmond Property was dutiable property as defined in s 10 of the Act. In that context, Rakmy observes that s 12 of the Act provides that duty is payable by the transferee, contending that this provision is important in the context of this appeal because Rakmy contends that it was not a transferee. Moreover, Rakmy also observes that it is not controversial in these proceedings that there was no transfer of the Richmond Property to which s 7(1)(a) of the Act would apply, the provision which provides for the charging of duty on “a transfer of dutiable property”. Rather, the Commissioner has assessed duty on the basis that the change in Rakmy’s position as trustee was an “other transaction that result[ed] in a change in beneficial ownership of dutiable property” under s 7(1)(b)(vi) of the Act.
Turning to these provisions, Rakmy makes reference to the judgment of Mandie J in Trust Company of Australia Ltd (as trustee for the Clayton 3 Trust) v Commissioner of State Revenue where his Honour said:[10]
I think that the intent and purpose of s 7(1)(b)(vi) of the Act was to catch transactions in which, although there was no transfer of the estate in fee simple in the land, there was a change in the underlying equitable interests so that, in substance, there was a change of ’ownership’.
[10](2007) 19 VR 111 at 126 [59] (“Trust Company”).
Relying on this statement by Mandie J, Rakmy seeks to distinguish the present position on the basis that there was no change in the underlying equitable interests in the Richmond Property and nothing that could be described as, in substance “a change in ‘ownership’”. It contends that the ultimate “owner”, in substance, of the Richmond Property was the RSF (or its members) and that was the case both before and after the transaction. All that changed, Rakmy says, was that the Richmond Property was removed from the RIT, a unit trust which became superfluous when the RSF became the sole unitholder.
In Trust Company, Mandie J decided that the phrase “beneficial ownership” excluded a person holding land as trustee. In the context of the pure equitable jurisdiction this is, of course, unsurprising, as the very nature of a trust involves the separation of legal and beneficial ownership as between trustee and beneficiary, respectively. In the context of the duties legislation, that decision by Mandie J exposed a possible deficiency in the legislation, as indicated in his Honour’s judgment:[11]
The difficulty is that, by using the term “beneficial ownership”, the section arguably fails to catch transactions in relation to which no “beneficial owner” can be identified and thus arguably fails to catch changes in underlying equitable interests where the beneficiaries, say, of a discretionary trust or of a unit trust, cannot be characterised as beneficial owners of any interest in land held by the trust, or, at least, not as beneficial owners of an estate in fee simple in such land. The Table to s 8 of the Act makes it clear that it is necessary to identify the person who “obtains” the beneficial ownership of the estate in fee simple.
[11](2007) 19 VR 111 at 126 [59] (the passage which follows immediately after the sentence quoted previously from the same paragraph of the judgment of Mandie J in this case).
The circumstances of Trust Company were that there was a contract of sale of land between the trustee of a discretionary trust — as vendor — and the trustee of an unrelated unit trust — as purchaser. The purchase price was paid, but the land was never conveyed to the purchaser. Mandie J accepted that where the parties are not acting as trustees, a contract of sale under which the purchase price has been paid operates to transfer beneficial ownership to the purchaser, even though no change in legal title has been registered. Again, this is a fundamental position in the equitable jurisdiction. In the context of the case before him and the legislation as it then stood, Mandie J also accepted that the purchaser could not be said to have obtained beneficial ownership of the land because it was acting as trustee.[12] This conclusion was reached by Mandie J, though with “some doubt”. Thus, his Honour said: “[n]ot without some doubt, I do not think that the language of the statute can be stretched to capture this transaction despite the evident policy underlying the relevant provision”.[13]
[12]Trust Company (2007) 19 VR 111 at 126 [61].
[13]Trust Company (2007) 19 VR 111 at 126 [61].
In Chief Commissioner of Stamp Duties v ISPT Pty Ltd, Fitzgerald A-JA described equivalent provisions in now repealed NSW legislation[14] as being “materially concerned with a change which involves different persons beneficially owning an estate or interest before and after the relevant transaction”.[15]
[14]Stamp Duties Act 1920 (NSW) Pt 3 Div 3A.
[15](1998) 45 NSWLR 639 at 660.D (“ISPT Pty Ltd”).
In response to the position reached by Mandie J in Trust Company, the legislature made a number of amendments to the Act to “clarify the operation of [s 7(1)(b)(vi)] in accordance with the underlying policy intent”.[16] It would appear that, as Rakmy submits, the “policy intent” was as expressed by Mandie J that the existing legislation subjected to duty transactions which cause a change to the underlying equitable interests so that, in substance, there was a change in “ownership”. This position does appear to be supported by the Second Reading Speech in relation to the Duties Amendment Bill 2008 in which the then Minister for Finance, Mr Holding, said:[17]
[16]Explanatory Memorandum, Duties Amendment Bill 2008, 4.
[17]Victoria, Parliamentary Debates, Legislative Assembly, 4 December 2008, 5030. See also the “Overview of bill” in the statement tabled by the Minister in accordance with the Charter of Human Rights and Responsibilities Act 2006 which is reported in Hansard at the same page.
The broad policy underlying the provisions of the Duties Act 2000 (the act) is that they should be wide enough so that where effective control or ownership of real property is obtained a liability to stamp duty will arise.
Continuing, the Minister said:[18]
It is important to note that the wording of the relevant provisions of the old Stamps Act 1958 (replaced by the Duties Act 2000) demonstrates that it was always contemplated that the provisions should have this breadth.
This does appear to be a reference to ss 64A and 64B of the now repealed Stamps Act 1958, neither of which would have imposed duty on this transaction.
[18]Victoria, Parliamentary Debates, Legislative Assembly, 4 December 2008, 5030–1 (Tim Holding, Minister for Finance).
The amendments introduced included the insertion of two definitions in s 7(4) of the Act, namely, the definition of “beneficial ownership” and the definition of “change in beneficial ownership” which now appear in those provisions.[19] In spite of the reference to “control” in the Second Reading Speech, as set out above, the idea or concept of control did not find its way into the amending legislation.
[19]Duties Amendment Act 2009, s 4(5); and see text of the provisions of s 7(4) of the Act which now contain those amendments as set out above, [22].
Rakmy did concede that it can readily be seen how these new definitions of “beneficial ownership” and “change in beneficial ownership” would overcome the decision in Trust Company. The trustee purchaser would now be considered to have obtained beneficial ownership of the property so that s 7(1)(b)(vi) would apply. Rakmy does contend, though, that the transaction in this case is very different to that in Trust Company. In the present circumstances, it contends that as a result of the new definitions, Rakmy must be taken to have beneficial ownership of the Richmond Property both before and after the change of capacity. That is, it always owned the property as trustee of a trust, first the RIT and then the RSF, and so had beneficial ownership as defined at all times. Rakmy does, however, accept that there was a “change in beneficial ownership” as defined because the Richmond Property ceased to be subject to the RIT; but Rakmy already had beneficial ownership of the Richmond Property and did not obtain or increase it. In this respect, particular reference is made to the provisions of paragraph (e) of the definition of “change in beneficial ownership”. However, as is discussed further in the reasons which follow, the Commissioner contends that this is an unhelpful broad brush analysis because it fails to take into account the incidence of beneficial ownership in the Richmond Property, which changed significantly having regard to the terms of the RSF trust as compared to those of the RIT trust; both of which the Commissioner emphasises are active, rather than passive, trusts.
Rakmy’s submission that there was no relevant “change in beneficial ownership” as that expression is now defined in sub-s 7(4) of the Act because Rakmy did not obtain or increase the extent of that beneficial ownership, is sought to be supported on an analysis of the provisions of s 8 of the Act. Thus, it contends that where one of the dutiable transactions listed in s 7(1)(b) — that is, those that are not transfers — occurs, then s 8 of the Act is relevant. Subsection 8(1) of the Act provides that:
The duty charged by this Chapter on a dutiable transaction referred to in section 7(1)(b) is to be charged as if each such dutiable transaction were a transfer of dutiable property.
Subsection 8(2) of the Act then, Rakmy contends, supports that provision by including a table that sets out the property transferred, the transferee and when the transfer occurs “for the purpose of charging duty under this Chapter”. In relation to a transaction under s 7(1)(b)(vi), the table is as follows:
Column 1
Dutiable transaction
Column 2
Property transferred
Column 3
Transferee
Column 4
When transfer occurs
… … … … any other transaction that results in a change in beneficial ownership of dutiable property the property the beneficial ownership of which is changed the person who obtains the beneficial ownership or whose beneficial ownership is increased when beneficial ownership changes
Rakmy contends that of importance here is the description of the transferee in Column 3 of the table to sub-s 8(2) of the Act: “the person who obtains the beneficial ownership or whose beneficial ownership is increased”. In the present circumstances it is contended that there was no such person in relation to the change of the basis upon which Rakmy held the Richmond Property and that, in any event, Rakmy was not such a person. In the latter respect it is further contended that Rakmy already had, before the transaction, beneficial ownership of the Richmond Property — not in the ordinary sense as explained in Trust Company, but under the expanded definition enacted in response to that case because Rakmy held the property as trustee for RIT. Thus it is said that after the transaction, Rakmy also had beneficial ownership of the Richmond Property, again under the expanded definition as a trustee. But it is contended that Rakmy cannot be said to have obtained or increased its beneficial ownership when it already had beneficial ownership before the transaction. Rakmy’s beneficial ownership, it is said, by reason of it holding the Richmond Property as trustee for RSF is in no sense “larger” or “increased” as compared to its beneficial ownership by reason of holding the property as trustee for RIT. Emphasising the point, Rakmy submits that by reason of the definition in s 7(4) of “beneficial ownership”, Rakmy had full beneficial ownership of the Richmond Property in both those “capacities”. Consequently, it is contended that Rakmy was not a transferee and is not, therefore, liable to duty under s 12 of the Act.
Further in support of its position with respect to the proposition that Rakmy was not a transferee under these provisions, Rakmy contends that neither at general law nor by reference to the provisions of the Act can it be said that there is any basis to treat the company as at least two different persons in its capacities as trustees of different trusts, a position which it says would be necessary as a basis for finding that Rakmy was a transferee for the purposes of these provisions. In spite of this, Rakmy says that this appears to be the basis of the Commissioner’s objection decision:[20]
Contrary to your submissions, there is a transferee in this matter. Pursuant to section 8 of the Act, in circumstances where there is a change in beneficial ownership of dutiable property, the person who obtains beneficial ownership is taken to be the transferee – in this case Rakmy Pty Ltd as trustee for RSF obtained beneficial ownership of the Richmond Property as defined in s 7(4) of the Act and so was deemed to be the transferee by virtue of section 8 of the Act.
[emphasis added]
[20]Documents, Tab 2 (Notice of Determination on Objection to Notice of Assessment 6628212 (8 April 2015)).
Rakmy submits that it is, however, trite law that a trust is neither an entity nor a person.[21] Rather, a trust is a relationship between trustee and beneficiary in respect of property owned by the trustee: [22]
More particularly, a trust exists when the owner of a legal or equitable interest in property is bound by an obligation, recognised by and enforced in equity, to hold that interest for the benefit of others, or for some object or purpose permitted by law.
Similarly, it says, a person, such as Rakmy, is only one person and is not somehow a separate person in each of its capacities as trustee for different trusts. If a trustee ceases to hold an asset as a trustee for one trust and begins holding it as trustee for another, the relationship and the equitable obligations in respect of that asset which are central to the concept of a trust undoubtedly change (or come to an end to be replaced by a new relationship and new obligations) but that neither requires nor implies that the trustee is two separate persons. On the contrary, it recognises that the trustee is only one person but that the relationship and obligations subject to which it holds the asset have changed.
[21]See, eg, J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016) at [1-01]; Aces Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia (2014) 89 NSWLR 209 at 213 [13]–[16] (Leeming JA with whom Beazley P and Macfarlan JA agreed).
[22]J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016) at [1-01].
Moreover, Rakmy submits that where the legislature has intended to treat one person in different capacities as different persons, it has expressly enacted a statutory fiction to that effect. An example, it says, is s 80 of the Act, which deals with how an interest in a landholder can be acquired for the purposes of landholder duty. Section 80 contains the following subsections:
(1)A person acquires an interest in a landholder if the person obtains an interest beneficially, including if the person’s interest increases, in the landholder, regardless of how it is obtained or increased.
…
(3)Without limiting subsection (1), a person is taken to obtain an interest beneficially if the person obtains the interest as trustee of a trust.
(4)A trustee who holds or acquires an interest in a landholder is to be treated as a separate person in respect of each trust of which the trustee is a trustee and the personal capacity of the trustee, if any.
(5)In addition to subsection (1), a person who holds an interest in a landholder acquires an interest in the landholder if the capacity in which the person holds the interest changes.
Subsection 80(3) is essentially equivalent to the s 7(4) inclusion of ownership by a trustee in the concept of “beneficial ownership”. However, and importantly in Rakmy’s submission, there is no equivalent to sub-ss 80(4) and (5) in the provisions relevant in the present matter.
Rakmy observes that the income tax legislation takes a similar approach. It defines “entity” to include a trust, which consists of the trustee in that capacity[23] and then provides that:[24]
[23]Income Tax Assessment Act 1997 (Cth) ss 960-100(1) and (2).
[24]Income Tax Assessment Act 1997 (Cth) s 960-100(3).
A legal person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity.
Example:
In addition to his or her personal capacity, an individual may be:
·sole trustee of one or more trusts; and
·one of a number of trustees of a further trust.
In his or her personal capacity, he or she is one entity. As trustee of each trust, he or she is a different entity. The trustees of the further trust are a different entity again, of which the individual is a member.
Consequently, Rakmy contends that there is no doubt that, for landholder duty purposes or for income tax purposes, a change in the capacity in which a person holds an asset — from trustee of one trust to trustee of another — would amount to a transfer from one person or entity to another, with whatever consequences which might flow from that. However, for the purposes of s 7 of the Act, there are no such statutory fiction created.
The Commissioner, on the other hand, takes a different view of the operation of the provisions of ss 7 and 8 of the Act, emphasising that the concept of a “change in beneficial ownership” is not at large, and is not to be construed only by reference to general principles relating to equitable interests in property. Rather, it is the subject of a specific statutory definition which must be given effect according to its terms. Section 7(4) provides that there will be a “change in beneficial ownership” when dutiable property becomes “the subject of a trust” and when such property ceases to be “the subject of a trust”. Thus, such a “change in beneficial ownership of dutiable property …” attracts the operation of s 7(1)(b)(vi).
Emphasising the importance of attention to the statutory definitions, reference is made by the Commissioner to the High Court consistently emphasising the need to discern legislative intention and purpose by reference to the statutory text only. In this respect, reference is made to the joint judgment of Hayne, Heydon, Crennan and Kiefel JJ in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue:[25]
This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy.
[25](2009) 239 CLR 27 at 46–7 [47] (footnotes omitted). This passage has been approved and applied in many subsequent cases: e.g. Monis v R (2013) 249 CLR 92 at 147 [125]; Newcrest Mining Ltd v Thornton (2012) 248 CLR 555 at 581 [70]; Certain Lloyd’s Underwriters Subscribing to Contract No IH00AAQS v Cross (2013) 248 CLR 378 at 388–90 [23]–[26] (French CJ and Hayne J) (“Certain Lloyd’s Underwriters”); Thiess v Collector of Customs (2014) 250 CLR 664 at 671 [22]; Commissioner of State Revenue v EHL Burgess Properties Pty Ltd (2015) 209 LGERA 314 at 330–1 [56]–[63].
Rakmy concedes that the transaction that took place on 25 June 2014 resulted in a “change in beneficial ownership”, by which the Richmond Property ceased to be subject to the RIT and became the subject of the RSF.[26] Accordingly, the Commissioner contends that the transaction was dutiable under the express terms of ss 7(1)(b)(vi) and 7(4) as a result of a “change in beneficial ownership”. Moreover, the Commissioner says that there is nothing in the terms of s 7 which excludes a transaction that moves dutiable property to, from or between trusts simply because the same legal person is the trustee of both trusts. In such situations, the property can be moved from the transferring trust fund to the receiving trust fund without the need for a transfer that would otherwise fall within the provisions of s 7(1)(a) of the Act. However, the Commissioner submits, and correctly in my view, that the purpose and effect of s 7(1)(b) of the Act is to charge duty on transactions other than those involving a transfer, and to treat those transactions as though they were transfers of dutiable property. In my view, this is made clear by the provisions of s 8(1) of the Act, both in terms of its overall provisions and, particularly, the closing words, “as if each such dutiable transaction were a transfer of dutiable property”.[27]
[26]Appellant’s Submissions (23 January 2017) [20].
[27]See above, [37], where those provisions are set out.
On the other hand, Rakmy argues that it is not liable to duty on that transaction because it was not taken to be the transferee under ss 8(1)(b) and 8(2) on the basis that it had “beneficial ownership” of the Richmond Property both before and after the transaction, though in different capacities, and therefore did not “obtain” or “increase” any such “beneficial ownership”.[28] These submissions by Rakmy do also rest on the contention that s 7(1)(b)(vi) was only intended to catch transactions which effect a “change to the underlying equitable interests” in the dutiable property in question.[29]
[28]Appellant’s Submissions (23 January 2017) [20].
[29]Appellant’s Submissions (23 January 2017) [1], [13], [16]. See also [13] where the terminology of “ultimate ‘owner’, in substance” is employed.
The Commissioner contends that, contrary to Rakmy’s submissions, the terms of s 8(2) of the Act do not present any impediment to giving effect to the express terms of the definitions of “beneficial ownership” and “change in beneficial ownership” as they appear in s 7(4), and nor is it necessary or appropriate to seek to read down those express definitions by reference to the table in s 8(2), which Rakmy seeks to do. Rather, as the Commissioner contends, I am of the view that s 8(2) must be read in the light of the provisions of s 7(1)(b)(vi) and s 7(4), and cannot itself govern or restrict the proper construction of these provisions. Moreover, this follows, in my view, from a reading of the provisions of ss 7 and 8 as a whole, both in terms of substance and structure. This position is also supported by the approach to statutory construction approved by the New South Wales Court of Appeal in Patman v Fletcher’s Fotographics Pty Ltd, where Priestley JA (with whom Samuels and Mahoney JJA agreed) said:[30]
I have already remarked that if s. 4(1) is read on its own then there is some plausibility in the defendant’s contention. Obviously, however, it cannot be read on its own. Moreover, I see no reason why the Act should not be read in the ordinary way in which a document is read, that is, from the beginning onwards. In the ordinary course of reading, s. 4, although of course it must be read with both what precedes it and follows it, must be read after s. 3 and further, in the ordinary course it seems to me that it must be read in the light of s. 3. It is preposterous, in the literal sense, to read s. 4, make assumptions concerning its purpose based on its language, without reference to what has preceded it and then to read s. 3 in the light of the purpose thus discerned in s. 4. A much sounder way of reaching what the draftsman’s purpose was is to read his Act in the sequence in which he wrote it.
This case concerned ss 3 and 4(1) of the Annual Holidays Act 1944 (NSW), but the point is a general one and the subject of the legislation does not detract from the application of this approach to statutory interpretation and construction in the present circumstances.
[30](1984) 6 IR 471 at 474–5.
Returning to the provisions of the Act, s 7(4) provides for a definition of “beneficial ownership” which includes ownership of property “as trustee of a trust”. I accept that this plainly directs attention to the capacity in which a person holds dutiable property.[31] When considered or applied in the light of the definition of “beneficial ownership” in s 7(4), the table in s 8(2) refers to the person who obtains ownership of dutiable property as trustee of the relevant trust. When there is a transfer of dutiable property between two different trusts, there is a person who “obtains the beneficial ownership”, namely ownership of the dutiable property as trustee of the receiving trust. In my view, it follows that the fact that it may be the same legal person who relinquished “beneficial ownership” as trustee of the transferring trust is of no consequence for the purpose of charging duty on the deemed transfer. And in this respect, it must be emphasised that this is a deemed transfer because if there were an actual transfer, then these issues do not arise having regard to the provisions of ss 7(1)(a), 7(2) and 8(1). It is probably convenient at this point to make reference to Rakmy’s submissions in reply where emphasis is again placed on the provision of s 8(2) in support of the argument that any deemed transfer under these provisions requires that Rakmy “obtained” beneficial ownership which indicates that a mere change in its capacity as trustee would not attract the operation of these provisions.[32] However, as I have indicated in these reasons, particularly the conclusions I have reached on these issues,[33] these submissions take matters no further.
[31]Thus, it has generally been accepted that a person acting in one capacity can enter into a contract with himself or herself in a different capacity — subject to principles in relation to conflicts of interest and duty, a person acting as trustee can contract with himself or herself in a personal or individual capacity, or a person acting as a trustee of one trust can contract with himself or herself as trustee for another trust. See Re Australand Holdings Ltd (2005) 219 ALR 728 at 733 [19]–[20]; Gulland v Federal Commissioner of Taxation (1983) 72 FLR 362 at 379–80. Compare Liu v Commissioner of State Revenue [2016] VCAT 87, [49]–[56]. See also Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 229 CLR 545 at 561 [43].
[32]Appellant’s Submissions in Reply (17 March 2017) [1]–[7].
[33]See below, [60]–[62].
In response to the submissions by Rakmy that where the legislature has intended to treat one person in different capacities as different persons, it is expressly enacted as statutory fiction to that effect, the Commissioner readily concedes that several other provisions in the Act use similar words to distinguish between transfers made to a person “absolutely” and those made to a person “as trustee”.[34] However, the Commissioner submits that it is not significant that different provisions of the Act, let alone provisions in different legislation, refer to “capacity” in more explicit terms. Section 80 of the Act, on which Rakmy places some reliance, is part of a suite of provisions dealing with a specific subject matter — the acquisition of interests in certain landholders — which is the subject of a different Chapter of the Act and which is to be read in conjunction with an entirely different charging provision contained in s 77. Moreover, the Commissioner submits that the approach taken by the Commonwealth Parliament in a specific provision of the federal income tax regime can have no bearing on the proper construction of ss 7 and 8 of the Victorian Act. In my view, the Commissioner’s submissions in this respect must be accepted having regard to the materially different contexts in which provisions of this nature relied upon by Rakmy appear. Additionally, and more generally, as the Court of Appeal recently observed in Mould v Commissioner of State Revenue,[35] materials relating to one statutory context are of very limited assistance to the construction of language used in a different statutory context.
[34]See e.g. ss 36(1)(c), 36A(1)(c), 36B(2). There are many other provisions of the Act which refer to property being held “as trustee”, including the definition of “qualified investor” in s 89P(1) which expressly refers to holding units in a unit trust scheme “in any of the following capacities”.
[35][2015] VSCA 285, [57].
The Commissioner also criticizes Rakmy’s argument insofar as it fixes on the notion of “underlying equitable interests”, because at no point does Rakmy identify what this rather nebulous expression means. Similarly, it does not explain the concept of “ultimate ownership”, an expression which it invokes.[36] In my view, there is substance in this criticism, particularly with respect to the notion of “underlying equitable interests”. Although in a different context, the observation of Viscount Radcliffe in Commissioner of Stamp Duties (Qld) v Livingstone[37] that “the terminology of our legal system has not produced a sufficient variety of words to represent the various meanings which can be conveyed by the words ‘interest’ and ‘property’” is apposite in the present context. Moreover, the authors of Equity: Doctrines & Remedies note, commenting on Livingstone, that the concept of an “interest” can be used to refer to an interest in the sense of having a concern in something such as the proper administration of a trust.[38] In other contexts, the word “interest” may be used to refer to something more than a mere personal right and something amounting to an equitable proprietary right.[39]
[36]Appellant’s Submissions (23 January 2017) [13].
[37][1965] AC 694 at 712.F. See also Re Hemming (dec’d); Raymond Saul & Co (a firm) v Holden [2009] Ch 313 at 325 [55] on the word “interest” having many potential meanings.
[38]J Heydon, M Leeming and P Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, 2015) [4-060].
[39]See Danvest Pty Ltd v Commissioner of State Revenue [2017] VSC 125 (Croft J).
It is clear from the authorities to which general reference is made in the preceding paragraph that what is meant by terms such as “property”, “ownership” and “interest” depends on the context in which those terms are employed. Whilst these authorities support this more general proposition, it is, nevertheless, difficult and dangerous to attempt to draw meaningful guidance as to the meaning of such concepts from observations made in different contexts.[40] It follows from what has been said in these cases about whether unitholders have “ownership” of trust assets for the purposes of the Land Tax Act 1958,[41] or a sufficient interest to lodge a caveat,[42] does not shed any light on the ambit of s 7 of the Act or whether the unitholders had any “interest” in trust property beyond a mere personal interest in the proper administration of the trust. It follows, in my view, that Rakmy’s reliance on Costa & Duppe and CPTCustodian in support of more general propositions concerning the nature of the interests of unitholders in RIT is entirely misplaced. As is discussed further in the reasons which follow, the nature of the unitholders’ interests is dependent upon the terms of the particular trust.[43]
[40]See, for example, CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 at 110 [16] (“CPT Custodian”).
[41]CPT Custodian (2005) 224 CLR 98.
[42]Costa & Duppe Properties Pty Ltd v Duppe [1986] VR 1985 (“Costa & Duppe”). In any event, the conclusion in Costa & Duppe was not necessarily endorsed by the High Court in CPT Custodian: (2005) 224 CLR 98 at 110 [16], 114 [32]. The result in Costa & Duppe must now be considered in the light of the decision of the Court of Appeal in Walter v Registrar of Titles [2003] VSCA 122, [15], which concluded that the object of a discretionary trust lacks a caveatable interest in the land. Given the terms of cl 3.1 and cl 3.2 of the RIT Deed (as well as other terms conferring broad powers and discretions on the trustee), it is doubtful that the unitholders held an “interest” in specific trust assets which is more far-reaching than the interest of the object of a discretionary trust.
[43]See below, [65] and [69] and following.
Quite apart from these more general criticisms of its approach, I think it is clear, as the Commissioner submits, that, contrary to accepted principles of statutory construction, Rakmy’s approach to construing ss 7(1)(b)(vi) and 7(4) does not start with the statutory text, having regard to its context and purpose. Rather, Rakmy’s analysis starts with, and is driven by, an asserted purpose underlying the relevant provisions, derived from materials and considerations extrinsic to the Act. This does, in my view, involve the kind of error against which the High Court has repeatedly warned, “of approaching the task of statutory construction by reference to what a judge might regard as desirable policy, imputing that to the legislation and then characterising that as the purpose of the legislation”.[44] In my view, this is clear when regard is had to the approach of Rakmy to its analysis of the nature and consequences of the mischief said to arise from the decision in Trust Company. It is to Rakmy’s approach in this context to which I now turn.
[44]Deal v Father Pius Kodakkathanath (2016) ALJR 946 at 955 [37]; see also Certain Lloyd’s Underwriters (2012) 248 CLR 378 at 390 [26].
Rakmy contends that s 7(4) of the Act should be construed narrowly so that it is confined to addressing the mischief arising from the decision in Trust Company. Although the circumstances of this case have already been referred to briefly, it is helpful to recall and elaborate on those in some respects in the present context. In that case, a trustee of a discretionary trust (CBP) had sold land to the trustee of a unit trust (TCL), but did not deliver an instrument of transfer or the certificate of title to the purchaser. Instead of completing the transfer and becoming the registered proprietor of the property, TCL purchased the shares in CBP — which had, in the meantime, resigned as trustee of the discretionary trust — and thereby obtained effective control of the certificate of title to the land. However, CBP remained the registered proprietor of the legal title at all material times. Although CBP held the property subject to a constructive trust in favour of TCL — as trustee of the unit trust — Mandie J held that there had been no transfer of the legal or equitable estate in fee simple within the meaning of s 7(1)(a) of the Act.[45] Of more significance for present purposes was that Mandie J held that there had been no “change in beneficial ownership” within s 7(1)(b)(vi),[46] because neither CBP nor TCL in their respective capacities as trustee was the beneficial owner of the fee simple estate — and nor were the beneficiaries of the discretionary trust or the unitholders of the unit trust.[47]
[45](2007) 19 VR 111, 119 [39]–[40].
[46](2007) 19 VR 111, 123–4 [54], 126 [60]–[61]; and see above, [31] and [32].
[47]As to the latter, see generally CPT Custodian (2005) 224 CLR 98; Lygon Nominees Pty Ltd v Commissioner of State Revenue (2007) 23 VR 474.
Reference has already been made, in the context of considering Rakmy’s submissions, to the amendment of the provisions of s 7(4) of the Act to insert the definitions of “beneficial ownership” and “change in beneficial ownership” following the Trust Company decision.[48] As discussed previously, the amended definition of “beneficial ownership” makes it clear that a person has “beneficial ownership” of property as trustee, even though the trustee holds not for itself but for the benefit of others and would not be so characterized according to general equitable principles. This amendment demonstrates, the Commissioner contends, that when the Act uses the term “beneficial ownership”, the distinction that the legislature has in mind is no longer the trustee and beneficiary distinction — that is, the distinction according to the general principles of equity.[49] The new definition “change in beneficial ownership” does, the Commissioner contends, make it clear that there can be a “change in beneficial ownership” when dutiable property either becomes or ceases to be the subject of a trust, whether or not there is any “change in equitable interests” in that property.
[48]See above, [34]–[36].
[49]Trust Company (2007) 19 VR 111 at 126 [59].
Whilst it is clear that the amendments to the Act to introduce these new definitions were made in light of the decision in Trust Company, their purpose was identified in the amending legislation as being “to clarify when duty is payable in relation to changes in beneficial ownership”.[50] The particular gap or deficiency identified in Trust Company was addressed by the expanded definition of “beneficial ownership”. In my view, this position is clear and I did not understand this aspect of the effect of the amending legislation to be in controversy between the parties. Rather, the controversy arises with respect to the expanded definition of “change in beneficial ownership”, which was added by the amending legislation. As the Commissioner submits, and I think rightly, the expanded definition of “change in beneficial ownership” was not essential in order to address the mischief arising from Trust Company, or at least went beyond the particular problem which had arisen in that case. It follows, in my view, and as submitted by the Commissioner, that the particular fact situation which arose in Trust Company cannot be treated as a complete guide to the construction of s 7(4) as amended, nor its consequential impact on s 7(1)(b)(vi) and ss 8(1) and (2). It follows that there is no justification for treating the amendments as having been limited to reversing or overcoming the decision in Trust Company on its particular facts. It also follows that the decision in Trust Company cannot permissibly be relied upon as fixing the outer bounds of the amendments made to s 7(4), particularly given the inclusive nature of the amended definitions.
[50]Duties Amendment Act 2009 s 1(b). See also Explanatory Memorandum, Duties Amendment Bill 2008, 3–4; Victoria, Parliamentary Debates, Legislative Assembly, 4 December 2008, 5030–1 (Tim Holding, Minister for Finance) (referring to Trust Company and the “difficulty in identifying the relevant beneficial owner in certain transactions”, including those involving discretionary trusts or unit trusts).
I also accept that it follows, as submitted by the Commissioner, that even if the concept of “underlying” equitable interests had any clear meaning, the suggestion that the movement of property between trusts cannot trigger duty unless there is also a change in “underlying equitable interests” is inconsistent with the definition of “change in beneficial ownership” in s 7(4) of the Act. That definition does set out a number of events, any one of which will constitute a “change in beneficial ownership” — a “change in equitable interests in dutiable property” is covered in paragraph (c), but the other paragraphs of the definition provide separate and additional limbs. It follows, in my view, that the effect of Rakmy’s construction would be to elevate paragraph (c) of the definition to a criterion which must be satisfied in every case where dutiable property is moved to, from or between trusts within paragraphs (d) or (e) of the definition.
There is also the critical consideration, to which reference has been made previously, that notions of “underlying equitable interests” or similar notions are nebulous, to say the least, devoid of context. So, moving to context, in the present circumstances, the terms of the RIT and the RSF are different, and so that the interests to which the Richmond Property was subject were also different before and after the transaction. It follows, in my view, that as submitted by the Commissioner, the central premise of Rakmy’s submissions — that, because Rakmy remained the owner and a trustee, “nothing changed” — should be rejected. As well as the rights and obligations pursuant to which Rakmy held the respective trust funds — and thus the character of the interests under those trusts — being markedly different, the relevant transaction took the Richmond Property from being held as an asset of an investment unit trust in which Rakmy, as trustee of the RSF, held units (but had no proprietary interest in the trust assets),[51] to being an asset of a superannuation trust in which two persons (King and Yann) were interested. When Rakmy as trustee of RSF held units in the RIT, it had no power qua unitholder to demand and require any property forming part of the trust fund to be conveyed to it. When the Richmond Property was transferred to Rakmy as trustee of the RSF, it had the full range of powers in respect of that property specified in the RSF Deed.[52] The suggestion that the RSF or its members were the “owner[s]” of the Richmond Property immediately before the transaction is, consequently, misguided and contrary to authority, as is the suggestion that the RIT can simply be ignored as “superfluous” once the RSF had become the sole unitholder.[53] Moreover, the decision of the New South Wales Court of Appeal in ISPT Pty Ltd[54] was concerned with differently worded provisions. In particular, there was no equivalent to the extended definitions of “beneficial ownership” or “change in beneficial ownership” that appear in s 7(4) of the Act. Further, it must be said the correctness of the decision reached by the majority in ISPT Pty Ltd (Meagher JA and Fitzgerald A-JA, Mason P contra) is questionable in light of the High Court’s subsequent decision in CPT Custodian.[55] The decision in ISPT Pty Ltd was distinguished by the High Court in Halloran v Minister Administering National Parks and Wildlife Act 1974,[56] and it might be said that the analysis of Mason P in dissent in ISPT Pty Ltd is more consistent with the subsequent decisions of the High Court in both Halloran and CPT Custodian.
[51]In a broader sense, the “transaction” might be seen as encompassing the redemption of the units held by King and Yann, prior to which the Richmond Property was held as an asset of a unit trust in which three persons held units. But in any event, the fact that Rakmy as trustee of the RSF had become sole unitholder immediately prior to the transfer does not mean that it had the equitable ownership of the Richmond Property: compare Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 229 CLR 545 at 570 [75].
[52]Note that, in Gartside v Inland Revenue Commissioners [1968] AC 553 at 602, 606, Lord Reid examined the concept of whether or not the object of a trust had an “interest” by reference to the rights enjoyed by that person, including whether that object has the power to demand and a power to receive the property subject to the trust, or at least the income thereof.
[53]Cf Appellant’s Submissions (23 January 2017) [13]. See e.g. Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 229 CLR 545 at 570 [75].
[54](1998) 45 NSWLR 639.
[55]Both Meagher JA and Fitzgerald A-JA proceeded on the basis that Coles Myer Property Investments retained beneficial ownership in the property as the sole unitholder in the ISPT Trust: (1998) 45 NSWLR 639 at 654, 659.
[56](2006) 229 CLR 545 at 556–7 [23].
For these reasons, I accept that the construction for which the Commissioner contends accords with the scheme and purpose of the Act. It cannot be disputed that a transfer of dutiable property between the trustees of two different trusts would give rise to a dutiable transaction that, subject to any applicable exemption, would be charged with duty.[57] It follows that in the light of the extended definitions of “beneficial ownership” and “change in beneficial ownership” in s 7(4), there is no good reason why such a change of trusts should avoid duty simply because the trustee of each trust is the same person. Putting the position more positively or affirmatively, as discussed, I am of the view that the language of these provisions, properly construed, indicates quite clearly that duty is imposed in these circumstances.
[57]A transfer to give effect to a change in trustees of the same trust would usually be exempt from duty under s 33(3) of the Act. Otherwise, a transfer to the trustee of a different trust (i.e. a change in trusts) might potentially attract some other exemption — for example, if the transfer was to a beneficiary of the principal trust as trustee of another trust, subject to the satisfaction of detailed requirements to deal with changes in the beneficiaries of the principal trust between the relevant time (when the property first became subject to the principal trust) and the time of the transfer: see ss 36(1)(c)(ii), 36A(1)(c)(ii), 36B(2)(b), (c), (d), (e).
In support of the construction advocated, the Commissioner provides an example to illustrate its point. For example, if the same person (T) is the trustee of both a discretionary trust for A, B and C, and a unit trust in which A, B and C are unitholders, a transaction by which T distributes property from the discretionary trust to the unit trust would result in a “change in beneficial ownership” within s 7(1)(b)(vi) and (4). There would be a deemed transfer of the property to T as trustee of the unit trust, who would obtain “beneficial ownership” in its capacity as trustee of the unit trust. On Rakmy’s argument, however, this transaction would avoid duty on the basis that T had “beneficial ownership” as trustee both before and after the distribution, so that it could not be regarded as a “transferee”. The question whether there was a change in “underlying equitable interests” (whatever that expression might be taken to mean) would not have any direct bearing on the outcome. Particularly having regard to CPT Custodian, it could not be said that A, B and C as the holders of units in the receiving trust would have “obtained” or “increased” any beneficial ownership in the property. But under Rakmy’s construction, the imposition of duty on the ”change in beneficial ownership” within s 7(1)(b)(vi) and (4) would fail for want of a transferee. It follows that accordingly, Rakmy’s construction would give rise to a significant gap in the coverage of s 7(1)(b)(vi) and (4), meaning that those provisions would not always be effective to cover a situation in which dutiable property is resettled by a trustee of a trust — whether by a distribution or otherwise — so that it is held by the same trustee on another trust, even if the receiving trust has different beneficiaries. As observed by the Commissioner, in such circumstances, it cannot be assumed that duty will be charged at the point of any subsequent transfer to a beneficiary or beneficiaries of the “receiving” trust. For example, if no duty was payable upon the change in trusts, a subsequent transfer by the trustee to a beneficiary or unitholder might still attract an exemption under ss 36A or 36B of the Act, because the “principal trust” or the “principal scheme” for such purposes would be the receiving trust (and not the original trust), and the “relevant time” would be the time when the property first became subject to the receiving trust.
In conclusion with respect to the issue of liability to duty, I am of the view that the construction for which the Commissioner contends both gives effect to the terms of s 7(1)(b)(vi) and (4), and advances the purpose which is evident from those provisions. A change in trusts does result in a “change in beneficial ownership” and is a dutiable transaction for the purposes of the Act, and the question whether duty is payable on that change in trusts is governed by the substantive requirements of the exemptions and concessions set out in Part 5 of Chapter 2. I accept that those requirements are designed to address whether and to what extent there has been any change in the beneficiaries of the principal trust between the relevant time — at which the property first became subject to that trust — and the date of the dutiable transaction. It follows that it is the change in the “underlying” beneficial interests during that period, and not between the moment immediately before and after the relevant transaction, which is relevant for the purpose of determining whether the transaction is exempt or entitled to a concession from duty. In this regard, it may be noted that, by reason of the definition of “excluded transaction” in s 7(4), the issue or redemption of units in a unit trust scheme is not dutiable under s 7(1)(b)(vi). However, in so far as there is any change in unitholding between the relevant time (at which the property became subject to the unit trust scheme) and any subsequent transfer, this will affect the availability of an exemption under s 36B of the Act.
Section 36B
Rakmy relies on s 36B of the Act in the alternative on the basis that it is only relevant if the Court decides that there was a dutiable transaction under s 7(1)(b)(vi), which would be treated as a transfer by s 8(1) and that Rakmy is prima facie liable to duty in respect of that transaction. For the preceding reasons, I am of the view that the transaction is dutiable and, consequently, the manner in which the s 36B exemption ought to be applied is a live issue.
Section 36B of the Act forms part of a suite of provisions that provide exemptions for the transfer of dutiable property from a trustee to a beneficiary of the trust. Section 36B deals with unit trusts, whilst ss 36 and 36A deal with fixed trusts and discretionary trusts, respectively. It is uncontroversial between the parties in these proceedings that s 36B is the relevant section because the RIT was a unit trust scheme as defined in s 3 of the Act. The relevant provisions of s 36B, namely, sub-s (1)(d), have been set out previously.[58] The relevant time is defined as the time at which the property became subject to the unit trust scheme;[59] being 24 January 2014 in this case.
[58]See above, [26].
[59]Duties Act 2000 s 36B(5).
The Commissioner has accepted that in assessing Rakmy, all of the requirements of s 36B(1) were satisfied, except for paragraph (d).[60] Instead, the Commissioner applied sub-s 36B(3) and allowed Rakmy a partial exemption to the extent of one-third. Rakmy contends that paragraph (d) was satisfied so that it is entitled to a full exemption, which means there is no need to apply sub-s 36B(3). Moreover, in considering s 36B(1)(d), Rakmy contends that it should first be recognised that the paragraph as enacted is “nonsensical” and thus contains an obvious error; as enacted it compares a proportion — “the dutiable value of the property as a proportion of the net assets” — to a value — “the value of that proportion …” — which does not make sense. Rakmy contends that the provision should be read as follows:[61]
the dutiable value of the property transferred as a proportion of the net assets of the principal scheme does not exceed the
value of thatproportion of the net assets of the principal scheme represented by the unitholding of the unitholder in the principal scheme at the relevant time;
Rakmy also contends that this reading is consistent with the explanation given in the relevant explanatory memorandum which described the requirement as:[62] “the value of the property transferred does, as a proportion of net trust assets, not exceed the unitholder’s entitlement when the scheme acquired the property”. Rakmy notes that VCAT appears to have applied the paragraph that way in Westella Nominees Pty Ltd v CSR.[63] In any event, as Rakmy submits, the real dispute between the parties is as to the meaning of the words “proportion of the net assets of the principal scheme represented by the unitholding of the unitholder in the principal scheme at the relevant time [ie 24 January 2014]”. The Commissioner’s position taken in his objection decision is that the proportion is one-third, apparently on the basis that one simply looks at the number of units in RIT that RSF owned on 24 January 2014 and ignores the fact that some units were fully paid while others were only partly paid. Rakmy, on the other hand, contends that one must take account of the terms of the trust deed to determine the rights and interests that attached to each unit, having particular regard to the differing rights of fully paid units as compared to partly paid units. On that basis, Rakmy submits, the relevant proportion is 99.98%. As indicated in the reasons which follow, both Rakmy and the Commissioner agree that the terms of the trust deed are critical to determine the rights and interests attaching to each unit, though the position each party derives from those terms is different.
[60]See also Statement of Agreed Facts (16 December 2016) [28].
[61]And see below, [67].
[62]Explanatory Memorandum, State Taxation Legislation (Miscellaneous Amendments) Bill 2006, 5.
[63][2010] VCAT 1786, [28].
The parties do agree, however, that the net asset value of RIT was, immediately before the change of capacity in which Rakmy held the Richmond property, $1,280,822.
The Commissioner agrees that, while the terms of s 36B(1)(d) require comparison between a proportion and a value, it may be applied on the basis that it requires a comparison between the proportion of the net assets of the trust represented by the unitholding at the relevant time — the unitholders’ proportionate entitlement in the trust — and the proportion of the dutiable value of the net assets of the principal scheme represented by the property transferred.[64] Moreover, the Commissioner contends that reading s 36B(1)(d) as requiring a comparison between proportions is also consistent with s 36B(3), which provides a concession or partial exemption for unitholders who cannot satisfy s 36B(1)(d) for “that proportion of the dutiable value of the dutiable property that does not exceed that proportion of the net assets of the scheme represented by the unitholding of the unitholder in the principal scheme at the relevant time”. The Commissioner also agrees that the issue concerns the ascertainment of the “proportion of the net assets” of RIT “represented by” Rakmy’s unitholding as at 24 January 2014. In particular, the Commissioner submits this raises the question whether the proportion of the net assets represented by Rakmy’s unitholding at that time was affected by reason of the fact that the units held by other unitholders were partly paid.
[64]See below, [65].
On the basis of its submissions with respect to s 36B in the context of the transaction, Rakmy says that the first portion referred to in paragraph (d) is, therefore, 64% ($825,000, being the dutiable value of the Richmond Property[65] as a proportion of $1,280,822). It says that if the second proportion is, as it contends, 99.98%, then paragraph (d) would be satisfied; contending that in any event, the paragraph would be satisfied if that proportion is anything above 64%. Moreover, Rakmy submits that while paragraph (b) of s 36B(1) ensures that the exemption is only available if the transfer is to a unitholder that was the unitholder when the relevant asset first became subject to the unit trust, the purpose of paragraph (d) appears to be to ensure that the asset does not represent more, in a proportional sense, than the unitholder’s interest in the trust at that time. In other words, it is said that it inures that if, for example the unitholder “had” 25% of the unit trust at the relevant time, the unitholder can only transfer, exempt from duty 25% of the trust property, even though the unitholder might have increased its unitholding in the meantime. That, Rakmy submits, avoids an exemption being available in full where a unitholder “has” a small percentage of the unit trust when the land is acquired and increases the holding before the land is distributed. In that circumstance, there has been an increase in the unitholder’s interest in the land, so it is appropriate for duty to be payable to the extent of the increase. It is said that the use of the words “had” and “has” in the previous three sentences are references to the phrase used in paragraph (d): “proportion of the net assets of the principal scheme represented by the unitholding”. It is contended by Rakmy that the phrase should be interpreted with that apparent purpose of paragraph (d) in mind; ie that it limits the exemption where a unitholder has increased its interest in, or entitlement to, the net assets of the trust since the relevant time. In this respect, it is also submitted that some guidance might be taken from the relevant explanatory memorandum which explained the requirement in terms of the unitholder’s “entitlement” as follows:[66]
the value of the property transferred does, as a proportion of net trust assets, not exceed the unitholder's entitlement when the scheme acquired the property;
[65]See Statement of Agreed Facts (16 December 2016) [20].
[66]Explanatory Memorandum, State Taxation Legislation (Miscellaneous Amendments) Bill 2006, 5.
It is clear that the proportion of the net assets of the RIT “represented” by Rakmy’s units as at 24 January 2014 must be determined by reference to the terms of the RIT Deed, and there appears to be common ground in this respect.[67] As the High Court made plain in CPT Custodian,[68] one cannot make a priori assumptions about the nature of unit trusts, and reference must be had to the governing deed in order to determine the nature of the interests of unitholders.
[67]See Appellant’s Submissions (23 January 2017) [38] and Respondent’s Outline of Submissions (27 February 2017) [54].
[68](2005) 224 CLR 98 at 109–10 [14]–[16].
The submissions of both the Appellant and the Respondent identify the following provisions of the RIT Deed as provisions of importance:[69]
[69]See also the summary of the RIT Deed provisions, above, [19].
1.INTERPRETATION
Definitions
1.1In this deed and in any certificate issued under this deed:
…
“Trust Fund” means
(a)the sums described as initial contributions in the Schedule;
(b)further cash or other property accepted by the Trustee under this deed;
(c)all investments in which the sums referred to in paragraph (a) and the cash and other property referred to in paragraph (b) are invested from time to time;
(d)the proceeds of the sale, redemption, or repayment, of the investments referred to in paragraph (c);
(e)the proceeds of each borrowing under clause 17.1(i);
(f)all undistributed income; and
(g)all other property acquired by the Trustee for the purposes of the Trust;
…
3.DIVISION OF THE TRUST FUND INTO UNITS
Beneficial interest
3.1The beneficial interest in the Trust Fund is divided into Units of One Dollar ($1.00) each held by the persons named in the Schedule and divided into the classes specified in the Schedule.
Equal interest in Trust Fund
3.2Subject to clauses 14.7 and 29.1(b), each Unit confers on its holder an equal interest in the Trust Fund but does not confer on its holder any interest in any particular part of the Trust Fund.
…
7.CALLS
Making calls
7.1The Trustee, if authorised by a Special Resolution, may by written notice call on a Unitholder to pay all or any part of the unpaid issue price of that Unitholder’s Units.
…
Redemption
7.5If a Unitholder does not pay the full amount of a call within 30 days of the call being made, the Trustee may redeem the Units to which the call is related, if authorised by a Special Resolution.
7.6The redemption price for Units Redeemed under clause 7.5 is the greater of the amount of the issue price of the redeemed Units that has been paid, or the amount fixed by a Special Resolution.
Voluntary payments
7.7A Unitholder may at any time pay the Trustee all or any part of the unpaid issue price of that Unitholder’s Units which payment will count equally with a payment under a call in determining the extent to which the issue price has been paid.
…
14.DETERMINATION AND DISTRIBUTION OF TRUST INCOME
…
Distributions
14.4The Trust Income for a Financial Year remaining after application of clause 14.3 must be distributed to the persons registered as Unitholders at 5 pm on the last day of the Financial Year in proportion to the number of Units which each of them is registered as holding at that time (adjusted in accordance with clause 14.7).
Interim distributions
14.5The Trustee may at any time during a Financial Year resolve to make an interim distribution of the Trust Income for that Year to the registered Unitholders at the time of the resolution in proportion to the number of Units which each of them is registered as holding at that time (adjusted in accordance with clause 14.7);
…
Adjustment for part payment
14.7For the purpose of clauses 14.4 and 14.5, in calculating the number of Units held by a Unitholder:
(a)a fully paid Unit counts as one Unit;
(b)a partly paid Unit counts as a fraction of one Unit calculated as:
Paid up amount
Issue price
where:
“Paid up amount” is the amount of the issue price of the Unit that has been paid as at:
(i)in the case of clause 14.4, 5 pm on the last day of the Financial Year;
(ii)in the case of clause 14.5, 5 pm on the day before the resolution to make the interim distribution is made; and
“Issue price” is the price at which the Unit was issued.
…
15.CAPITAL DISTRIBUTIONS
15.1The Unitholders may by Special Resolution resolve that a distribution of capital is to be made to Unitholders and the amount of capital to be distributed in respect of each Unit will be that specified in the resolution.
15.2The Trustee must distribute capital to Unitholders in accordance with that resolution and clauses 14.8 and 14.9 apply to that distribution as if it were a distribution of Trust Income.
…
29.WINDING UP
Sale and distribution
29.1After the termination of the Trust, the Trustee must:
(a)as soon as practicable, but subject to clause 29.2,
(i)sell, call in, and convert, the Trust Fund into money;
(ii)pay all costs and expenses of the Trust Fund; and
(iii)make provision for all actual, accruing, and contingent, liabilities; and then
(b)distribute the proceeds of that sale and all undistributed Trust Income, less all costs, expenses, and provisions, among the Unitholders in proportion to the number of Units held by each of them and for this purpose in calculating the number of Units held by a Unitholder:
(i)a fully paid Unit counts as one Unit; and
(ii)a partly paid Unit counts as a fraction of one Unit calculated as:
Paid up amount
Issue price
where:
“Paid up amount” is the amount of the issue price of the Unit that has been paid as at the Termination Date; and
“Issue price” is the price at which the Unit was issued.
In relation to these provisions, Rakmy makes reference to Costa & Duppe Properties Pty Ltd v Duppe, where Brooking J held that under a unit trust with, Rakmy says, relevantly similar clauses, each unitholder had an interest in the trust property.[70] As Rakmy submits, that broad conclusion was not disturbed by the High Court in CPT Custodian, though the Court there was only concerned with the relevant statutory definition of “owner” in the Land Tax Act 1958, which “does not speak of ownership of proprietary interests at large, but of entitlement to any estate of freehold in possession”.[71] As conceded by Rakmy, Costa & Duppe does not, however, say anything about the quantum or extent of a unitholder’s interest in the trust assets; only that there is an interest. Another thing that the decision in Costa & Duppe does say, however, as emphasised by the Commissioner, is that the provisions of the particular trust instrument establishing the unit trust are critical in this respect. It is necessary, therefore, to consider the provisions of the unit trust deed and their effect, as s 36B(1)(d) requires a quantitative assessment by focusing attention on the “proportion of the net assets of the principal scheme represented by the unitholding”.
[70]The reference being to the clauses as set out in Costa & Duppe [1986] VR 90 at 92.
[71](2005) 224 CLR 98 at 110 [16].
Clause 3.2 of the RIT Deed provides that, other than as stipulated in cll 14.7 and 29.1, each unit “confers on its holder an equal interest in the trust fund but does not confer on its holder any interest in any particular part of the trust fund”. It follows that whatever interest Rakmy may have had in the assets comprising the trust fund, each of King and Yann had the same interests pursuant to the terms of the RIT Deed, notwithstanding that their units were partly paid. The Commissioner adds in his submissions that it is doubtful that cl 3 of the RIT Deed conferred on unitholders any interest in specific trust assets but, in any event, the relevant point is that the interests of unitholders were equal, whether or not the units were partly paid. In spite of the reference to the decision in Costa & Duppe and the further reference to CPT Custodian, in its submissions, Rakmy does not seek to explore this point further in the present context though perhaps generally in reply[72] and, indeed, in my opinion, it is not necessary to do so, the critical point being that whatever the interests of the unitholders were, they were equal. Under the terms of the RIT Deed, the equal entitlements of the unitholders of partly paid units is qualified in only two circumstances; namely, where cl 14.7 applies or where cl 29.1(b) applies.
[72]See Appellant’s Submissions in Reply (17 March 2017) [8]–[12].
Clause 14 of the RIT Deed deals with income distributions. Clauses 14.4 and 14.5 provide that all income distributions are to be made in proportion to the number of units held by each unitholder. However, cl 14.7 provides that in calculating the number of units held, any partly paid unit is to only be counted as a fraction of one unit commensurate with the extent to which the unit has been paid up. The result of the application of cl 14.7 is that all income distributions must be made in proportion to the amount paid on units by each unitholder and not by reference to a simple count of units. Thus, cl 14.7 provides only for a pro rata adjustment of income distributions. However, as pointed out by the Commissioner in his submissions, the present facts do not concern any distribution of income. Nor do the unitholders have any entitlement to the distribution of income, which the trustee can resolve to accumulate in its absolute discretion. Accordingly, it follows that cl 14.7 provides no foundation for “discounting” King and Yann’s interests in the present circumstances and thereby increasing Rakmy’s proportionate interest at the relevant time for the purposes of applying s 36B(1)(d).
Rakmy also seeks to rely on cl 29.1(b) on the basis that it has an operation and effect similar to that of cl 14.7, except that it deals with the distribution of capital and any undistributed income on a winding up of the trust. Rakmy emphasises that in the same way as cl 14.7 operates, cl 29.1(b) provides that distributions will be made in proportion to the number of units held, but that partly paid units will only be counted as fractions of a unit. Again, it says the result is that distributions on winding up must be made in proportion to the amount paid by each unitholder. The Commissioner’s response to these submissions is similar to that with respect to cl 14.7, emphasising that cl 29.1(b) only applies to distributions of the realised proceeds of sale of the trust fund “[a]fter the termination of the Trust”. Again, as the RIT had not been terminated, the qualification in cl 29.1(b) does not support any general intention to diminish the interest of partly paid unitholders in the trust fund, nor does it suggest that the holder of fully paid units has a proportionately greater interest in the net assets of the trust fund at any time during the life of the trust. It follows, in my view, that, on the contrary, the plain words of cl 3.2 mean that the units held by Rakmy as trustee of the RSF Trust did not “represent” any proportionately greater interest in the assets of RIT than the partly paid units of King and Yann. Rakmy also seeks to draw support from the fact that an interim capital distribution could only be made if authorised by a special resolution, which could be blocked by Rakmy given that such a resolution would require the support of the holders of 75% of the units.[73] However, as the Commissioner contends, the submission by Rakmy highlights that, rather than discounting the voting rights of the holders’ partly paid units, the RIT Deed accords the holders of partly paid units full voting rights, further reflecting the equal interest of partly paid units; a position entirely consistent with the conferral of equal interests of unitholders under the provisions of cl 3.2 of the RIT Deed. Moreover, just as Rakmy could block any special resolution proposed by the holders of partly paid units, so, too, could King and Yann have blocked any special resolution proposed by Rakmy. I also accept that, more fundamentally, nothing can now turn on how voting rights might be exercised, given the precise number of units held by each unitholder.
[73]Appellant’s Submissions (23 January 2017) [44].
The approach advocated by Rakmy would mean, in effect, that the interest in the trust fund provided for in cl 3.2 is to be delimited or “reduced”, the latter being the terminology in Rakmy’s submissions,[74] by reference to cll 14.7 and 29.1(b) of the RIT Deed. In other words, it is said that a unit that is fully paid, such as RSF’s units, confers a greater proportional interest in the fund than a unit that is only partly paid, as King’s and Yann’s were. Thus, it is said that on 24 January 2014, the unitholdings in RIT were as follows:[75]
[74]Appellant’s Submissions (23 January 2017) [43].
[75]Appellant’s Submissions (23 January 2017) [43].
Unitholder Number of units Amount paid up per unit Total amount paid up Percentage right to income and capital under clauses 14.7 and 29.1(b) RSF 500,000 $1.0000 $500,000 99.98% Mr King 500,000 $0.0001 $50 0.01% Ms Yann 500,000 $0.0001 $50 0.01% Thus, Rakmy says that its submissions concentrate on its interest in the assets of the RIT. However, it is contended that s 36B(1)(d) does not, at least explicitly, refer to interests in the trust assets. Instead, it uses the concept of representation — that is, the proportion of the net assets represented by the unitholding. To give effect to the paragraph, it is said, some link must be found between the net assets of the trust and the unitholding which answers the description of “representation”. That, in Rakmy’s submission, is done by looking at each unitholder’s interests in the net assets of the trust — which may well be less than beneficial ownership — not in some abstract sense, but in a substantive sense. That question, it is said, should be answered by asking: who are the net assets of the trust held for, and in what proportions? The trust deed, it is said, answers that question through its own conception of which unitholders have interests in the trust property in the way described in the Rakmy submissions to which reference has been made — resulting in Rakmy having a 99.98% interest. Equally, it is said that it might be appropriate to simply consider which unitholders will be entitled to receive the income and capital of the trust without recourse to concepts of an “interest” in the property. Again, it is submitted that this results in Rakmy’s units representing 99.98% of the RIT’s net assets at the relevant time. Moreover, Rakmy contends that there is no sense in which Rakmy’s unitholding on 24 January 2014 can be said to have represented less than 99.98% of the RIT’s net assets:[76]
[76]Appellant’s Submissions (23 January 2017) [16].
(a) Rakmy had contributed 99.98% of the capital to RIT;
(b) Rakmy had the right to 99.98% of any income distributions;
(c) Rakmy had the right to 99.98% of capital on a winding up (and any proposed capital distributions before a winding up could only be made with its approval); and
(d) Rakmy had a 99.98% interest in the trust property as set out in clause 3.2 and explained above.
Concluding, Rakmy submits that a contrary conclusion can only be reached by artificially ignoring the terms of the RIT’s trust deed and the different entitlements provided by partly paid and fully paid units, an approach which it said the High Court warned against in CPT Custodian, repeating the quote from the High Court judgment: “[t]he first step [is] to ascertain the terms of the trusts upon which the relevant lands were held”.[77] Unfortunately, from Rakmy’s perspective, I am of the opinion that Rakmy’s approach does not involve proper ascertainment of the terms of the RIT Trust and their application in the present circumstances. Rather, in my view, the approach advocated by the Commissioner does so, and it is to this that I now turn.
[77]CPT Custodian (2005) 224 CLR 98 at 109 [14].
In my view, as contended by the Commissioner, the main consequence of units being partly paid is the existence of a “liability” to the trustee for the unpaid amount, which is secured by a lien on each such partly paid unit by reason of the provisions of cll 7.1, 7.4 and 7.7 of the RIT Deed. The “liability” or “debt” is for a fixed amount equal to the unpaid issue price of the units, and bears no direct relationship to the value of the net assets comprising the trust fund nor to any proportion of those assets “represented” by the unitholding.[78] For the preceding reasons, I accept the Commissioner’s submission that, ultimately, Rakmy’s contention that, as the holder of fully paid units, Rakmy had a 99.98% interest in the assets of the RIT “in a substantive sense” is no more than an assertion which finds no support in the RIT Deed.
[78]The consequence for a unitholder in not making a call from the trustee to pay all or part of any unpaid issue price is not strictly properly characterised as a “liability” or “debt” in the ordinary sense as the RIT Deed provides its own remedy for non-payment of a call, namely the possibility of redemption of the relevant units (see cll 7.5 and 7.6).
Focusing, by way of conclusion, on the operation of s 36B(1)(d), the proportion of the net assets represented by the unitholding must be ascertained at a particular time, namely, when the dutiable property first became subject to the unit trust scheme. As at that time, Rakmy held one third of the issued units in RIT. Although the units held by King and Yann were partly paid, they conferred an equal interest in the trust fund. For the purposes of s 36B(1)(d), the proportion of the net assets represented by King and Yann’s units at the relevant time cannot be determined by reference to hypothetical subsequent events such as any possible future distribution of income or the ultimate termination and winding up of the unit trust scheme, by which time their units might be fully paid up or partly paid up to a different amount. The focus of s 36B(1)(d) is on the time at which the dutiable property first became subject to the unit trust scheme. It follows, in my view, that in order to satisfy the requirement in s 36B(1)(d), the property transferred to Rakmy as trustee for the RSF cannot exceed the value of one-third of the net assets of the RIT. On any view, that requirement was not satisfied — particularly as Rakmy does not dispute that the dutiable value of the Richmond Property as a proportion of the net assets of the RIT was at least 64%.[79] However, pursuant to s 36B(3), Rakmy is entitled to a proportionate concession from duty as to one-third of the value of the Richmond Property. As the Commissioner observes, that is the basis upon which Rakmy has been assessed to duty.[80]
[79]Appellant’s Submissions (23 January 2017) [35].
[80]Documents, Tab 2 (Notice of Determination on Objection).
Conclusion
For the preceding reasons, the appeal fails. I reserve the question of costs and will hear the parties further on this issue. Subject to the resolution of the costs issue, the parties are to bring in orders to give effect to these reasons.
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