Sahab Holdings Pty Ltd ATF Kanjian Family Trust v Chief Commissioner of State Revenue (Rd)

[2010] NSWADTAP 4

Appeal Panel - Internal

CITATION:	Sahab Holdings Pty Ltd ATF Kanjian Family Trust v Chief Commissioner of State Revenue (RD) [2010] NSWADTAP 4
PARTIES:	APPELLANT Sahab Holdings Pty Ltd ATF Kanjian Family Trust RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	099048
HEARING DATES:	9 December 2009
SUBMISSIONS CLOSED:	9 December 2009
DATE OF DECISION:	27 January 2010
BEFORE:	O'Connor K - DCJ (President); Verick A - Judicial Member; Blake C - Non-Judicial Member
CATCHWORDS:	REVENUE – Land Tax – Whether concessional rate applicable if owner a fixed trust – whether trust is an owner in equity ‘entitled to an estate of freehold in possession’ – scrutiny of terms of trust deed – not a fixed trust – full rate applicable – Appeal dismissed – Land Tax Management Act 1956, ss 3, 3A
DECISION UNDER APPEAL:	Sahab Holdings Pty Ltd ATF The Kanjian Family Trust v Chief Commissioner of State Revenue [2009] NSWADT 205
FILE NUMBER UNDER APPEAL:	096020
DATE OF DECISION UNDER APPEAL:	08/03/2009
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Land Tax Management Act 1956
CASES CITED:	CPT Custodians Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 Glenn v Federal Commissioner of Land Tax (1916) 21 CLR 422 GTN Developments Pty Ltd v Chief Commissioner of State Revenue [2007] NSWADT 168 Kent v The Vessel “Maria Luisa” (2003) 130 FCR 12 Sahab Holdings Pty Ltd ATF The Kanjian Family Trust v Chief Commissioner of State Revenue [2009] NSWADT 205 Saunders v Vautier (1841) 4 Beav 115; 49 ER 282
REPRESENTATION:	APPELLANT K Kanjian, solicitor RESPONDENT M Robertson, counsel / E Essey, Crown Solicitor's Office
ORDERS:	Appeal dismissed

1 Under the Land Tax Management Act 1956 (LTMA) tax is payable by the owner upon the taxable value of any land owned in the State as at midnight on 31 December of the year immediately preceding the year for which the land tax is payable. Some categories of land are exempt from tax, and concessional rates apply in some circumstances. This case concerns a dispute over whether the full or concessional rate applies to the subject land.

2 The Chief Commissioner of State Revenue (the Commissioner) assessed as liable to land tax at the full rate for the land tax year 2007 a parcel of land. The land was purchased by the appellant (Sahab Holdings Pty Ltd) as trustee of the Kanjian Family Trust (KFT). Mr Ken Kanjian, a solicitor and director of the appellant, appeared for the appellant at the hearing. He said that the intention in establishing the KFT trust was to provide a mechanism for the management of the Kanjian family’s superannuation needs. He said that the subject land was purchased for the benefit of his mother’s superannuation fund.

3 The purchase price of $945,000 was paid by the appellant from trust funds supplied through the purchase of 950,000 units in KFT by Kanjian Holdings No 1 Pty Ltd (KH1) as trustee of the Vasir Superannuation Fund (Mr Kanjian’s mother’s superannuation fund). KH1 was the sole unit holder of the Kanjian Family Trust at the relevant time.

4 We were informed that the Commissioner treats trusts owning land as ‘special trusts’ under s 3A, and thus not entitled to any concessions except in cases where the taxpayer, who has the onus in this matter, satisfies the Commissioner that the trust belongs to one of the categories of trust to which the concessional rate applies. In this case the trustee and appellant, Sahab Holdings Pty Ltd, contends that the trust falls into one of the categories entitled to a concession, that of a ‘fixed trust’ (see s 3A(1)(c)). Consequently, the threshold provisions should be taken into account in assessing the amount of its liability to tax.

5 A ‘fixed trust’ is one where ‘the equitable estate in all of the land that is the subject of the trust is owned by a person or persons who are owners of the land for land tax purposes’ (s 3(2)). The definition of ‘owner’ (and ‘owned) is a wide one. It extends beyond owners of the freehold or legal estate, and includes a person who ‘in equity … is entitled to the land for an estate of freehold in possession’ (s 3). In this case the appellant asserted that the beneficiary and sole unit holder of the trust, KH1, fell within this description. The Commissioner examined the terms of the trust deed, and rejected the objection. The appellant applied to the Tribunal for review of the objection decision. The Tribunal affirmed the Commissioner’s decision: Sahab Holdings Pty Ltd ATF The Kanjian Family Trust v Chief Commissioner of State Revenue [2009] NSWADT 205.

The Appeal

6 Parties to Tribunal decisions in respect of reviewable administrative decisions (as here) may appeal, as of right, in relation to a ‘question of law’, and, may seek leave to extend the appeal to the merits of the decision: Administrative Decisions Tribunal Act 1997, ss 112, 113.

7 The issue on appeal and before the Tribunal was whether, as at 31 December 2007, the sole unit holder, KH1, was entitled to the land for an estate of freehold in possession. The questions of law which the appellant submitted on appeal were the proper construction of s 3 in relation to the definition of ‘owner’ and the operation of s 3A to determine whether KFT was a special trust or a fixed trust on the relevant date.

8 The Commissioner provided the Appeal Panel with a folder containing the material filed with the Commissioner, as well as the transcript of the hearing before the Tribunal, submissions, and case authorities. With the agreement of the Commissioner, the appellant supplemented the folder in certain respects.

9 The background material reveals that the appellant has, in the course of its dealings with the Commissioner, pressed two other constructions of the trust. At first the appellant argued that it was entitled to an exemption on the ground that the trust was a ‘family unit trust’ (Schedule 1AA). The trust deed had been drafted so as to take advantage of those provisions. Mr Kanjian subsequently withdrew that submission. He then submitted that the trust was a ‘deemed fixed trust’ within the meaning of s 3A(3A) and (3B). He later abandoned that argument. While it is referred to in the Tribunal’s reasons at [26] in a way which might suggest that it remained a live contention before the Tribunal, Mr Kanjian indicated that he had not pressed the argument before the Tribunal below, and did not press it now.

Relevant Law and Authorities

10 Land tax law recognises the possibility of there being more than one ‘owner’ of a single parcel of land. There may be an owner at law and an owner in equity. (Other provisions in the LTMA ensure that where land tax is imposed it is only paid once.)

11 The definition under notice in this case has a long history in tax law. The leading cases in Australia of what is meant by the words ‘in equity … is entitled to the land for an estate of freehold in possession’ go back to the High Court decision in Glenn v Federal Commissioner of Land Tax (1916) 21 CLR 422 (‘Glenn’). The case-law was authoritatively re-examined by the High Court in CPT Custodians Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 (hereafter ‘CPT’). There appears to be no dispute between the parties as to the Tribunal failing to have regard to the relevant case-law.

12 In a number of the leading cases, a person assessed by the administrator as liable for land tax as an ‘owner’ in equity in the statutory sense has sought to negate that conclusion, so as to avoid any liability. This case is a little different. Here the taxpayer wishes to have a positive finding that it is an ‘owner’ in equity in the statutory sense, so as to reduce a liability.

13 We have reviewed the authorities to which the parties have referred. In our view the following principles emerge:

(1) the term ‘estate of freehold in possession’ refers to an estate of which some person has a present right of enjoyment, as distinct from a right of future enjoyment

(2) it is not material that the person has no immediate right of occupation (the land may, for example, be leased, or be the subject of a life tenancy)

(3) it does not follow that because there is a legal estate of the freehold vested in a trustee that there must necessarily be an equitable estate of the freehold vested in the beneficiary or beneficiaries of the trust – the mere presence of rights protectible by a court of equity does not necessarily mean that those rights will be seen as amounting to a right to freehold in possession

(4) the question of whether beneficiaries under a trust have a right to a freehold in possession as distinct from some lesser type of equitable interest depends on the terms of the trust, which, ordinarily, will be found recorded in writing in a formal instrument such as a will or a deed of trust

(5) it is necessary, therefore, to examine the terms of the trust deed, and the rights, powers and restrictions for which it provides

(6) in the case of a unit trust, the fact that the unit holder has a 100% interest in the assets of the fund is not conclusive as to whether the unit trust holder is an owner in the relevant sense; the terms of the trust as a whole must be examined

(7) finally, in a statutory scheme of the present kind where liability is fixed on a specified date (here, midnight, 31 December 2007), the question is whether there is a presently subsisting interest in the land at that date.

Tribunal Reasons

14 The Tribunal undertook an analysis of the terms of the trust. It concluded that its terms were such that KH1 was not an owner in equity in the statutory sense. It said:

‘27 The applicant’s representative provided a reasoned dissection of the Deed to disclose, in accordance with that reasoning, that the sole unit holder in KFT was the “owner” of the property within the definition in Section 3(1) LTMA. He referred particularly to CPA [sic, meaning CPT] and Glenn and noted that the Deed provided that no-one could take in priority to the sole beneficiary of the Trust. The Deed is clear and unambiguous as to when the distribution of capital could be applied prior to the distribution date. This is set out in Clause 10.3(b). Clauses 10.1, 10.2, 10.3, 10.4 and 10.5 provide the Trustee with certain discretions. The rights of the sole beneficiary are determinable on 30 June each year and are prospective in nature. The sole beneficiary was not, as at 30 [sic] December 2007 presently entitled to the income or capital of the Trust or to require that the Trust be wound up and distribution of trust property.’

Submissions

15 The appellant’s principal ground is set out in its written submissions, as follows:

‘78 In the case of KFT, the appellant submits that as at 31 December 2007:

(a) there was no other person or entity having a right to the trust fund ranking in priority to KH1;

(b) the KFT deed conferred a beneficial interest in the trust fund on KH1 which could readily have fructified into a vested equitable estate of freehold property the subject of KFT;

(c) there were no provisions in the KFT deed precluding the fructification in KH1 of this equitable estate.’

16 Mr Kanjian accepted that in making the above submission he had made the ‘assumption’ that ‘an equitable estate of freehold in possession with respect to the property was in fact vested in KH1 as at 31 December 2007’. The written submissions asserted that this conclusion ‘flows’ from:

‘(a) the specific wording of the KFT deed and, in particular, the wording of clauses 2.3 and 3.1 which according to their natural and ordinary meaning had the effect at all relevant times of vesting an equitable interest in the property in KH1;

(b) the fact that KH1 was at 31 December 2007 the sole unit holder and also the only party funding KFT. Thus in equity, the appellant as at 31 December 2007 held the property on a resulting trust to the use and benefit of KH1 elevating the equitable interest in property referred to in clause 3.1 of the KFT deed to an equitable freehold estate.’

17 At the appeal hearing, Mr Kanjian referred to the simple object of the trust – to provide a tax-effective superannuation facility for his mother. In his submission, the real question here, and as in Glenn, was whether ‘in the eye of a Court of equity’ the unit holder had on 31 December 2007 under the provisions of the trust deed the present right to the present enjoyment of the land. He noted that this was a simple trust structure, unlike the situation in CPT. There the trust was a commercial trust holding an array of real estate, mainly land upon which was built retail shopping centres. The submissions referred to the clauses of the trust deed in CPT. He contended that those clauses were ‘preclusive’ of vesting in a way that was not found in the KFT trust deed.

18 In particular, Mr Kanjian submitted that in CPT the trust deed did not confer any interest in any particular part of the fund or any investment on the unit holders. The unit holders merely had only such interest in the trust fund as a whole as was conferred on a unit by the provisions of the trust deed. There was a specific clause in the deed which said that unit holders were absolutely prohibited from requiring the transfer of any property comprising the trust fund, save as provided for in the trust deed.

19 Mr Kanjian also saw as distinguishable the situations in GTN Developments Pty Ltd v Chief Commissioner of State Revenue [2007] NSWADT 168 and Kent v The Vessel “Maria Luisa” (2003) 130 FCR 12, to which reference was made in the Commissioner’s submissions and in the reasons of the Tribunal. They also involved, in his submission, ‘preclusive clauses’ expressly prohibiting unit holders from having an equitable estate in the trust property.

20 In contrast, he submitted that the KFT trust deed did not have any similar ‘preclusive clauses’. Mr Kanjian noted that the trust deed specifically provided in clause 3.1 that the beneficial interest in the trust fund was vested in the unit holders and that the beneficial interest under clause 3.2 was fixed and could not be ‘removed, restricted or otherwise affected by the exercise of discretion, or by the failure to exercise discretion, conferred on any person under the Trust’.

21 He further submitted the rule in Saunders v Vautier (1841) 4 Beav 115; 49 ER 282 also assisted in establishing the existence as at 31 December 2007 of the entitlement of KH1 to the land for an equitable estate of freehold in possession.

22 The Commissioner’s case was quite simply put by his counsel, Mr Robertson. He submitted that, on the contrary, there were no specific provisions in the trust deed that recognised that the unit holder(s) had any direct beneficial interest in the land. Mr Robertson also referred to the other restrictions noted by the Tribunal at para [27] of its reasons.

Conclusions

23 As the High Court observed in CPT at [52] about disputes concerning a statutory definition of the present kind, ‘[w]hat is at stake here is the operation of statutory criteria upon general law concepts of equitable ownership’.

24 At [14] the Court stated that the first step is to ascertain the terms of the trusts on which the relevant lands were held; and the second step is to construe the statutory definition to ascertain whether the rights of the taxpayers under those trusts fell within the definition.

25 To that end, it is plain that the fundamental task is one of construction of the terms of the trust. In our view, the Tribunal below engaged in that task. In our view, the Tribunal’s reasons at [27] when read in conjunction with its account of the Commissioner’s submissions, demonstrate that it concluded that the rights, powers and restrictions of the deed were such that it could not be said that the sole unit holder (KH1) had, on the statutory date, a subsisting equitable right to an estate of freehold in possession.

26 In our opinion clause 3.1 merely confers on a unit holder beneficial interest in the trust fund (emphasis added). Dealings with the trust fund are subject to various other clauses. For example, distribution of income to unit holders and distribution of capital prior to termination are governed by the provisions set out in clause 10, which, as correctly observed by the Tribunal, ‘provide the Trustee with certain discretions’. The trustee is indemnified out of the trust fund under clause 17 in respect of proper liabilities incurred by the trustee ‘relating to the execution of any powers, duties, authorities or discretions vested in it by virtue of’ the deed.

27 Clause 4 gives the trustee power to create and issue additional units (in this matter up 19 further unit holders). The trustee is also able to under clause 7 redeem all or any units without being requested to do so by the unit holder. The unit holder is only entitled to an amount of money on redemption of units after deducting moneys owing by the unit holder to the trustee on any account.

28 On termination, the trustee is required under clause 22 to ‘sell, convert into money the investments and property constituting the trust fund’ and after payment of all debts and liabilities in relation to the Trust pay the unit holders the remainder, less all proper costs, disbursements, fees and other outgoings and less all proper provisions for future liability, in proportion to the number of units held as at the termination date.

29 The critical component of the statutory definition is a requirement for a present right to beneficial or present enjoyment, as was noted by the High Court in CPT at [26]:

‘In Glenn , Griffith CJ construed the statutory expression “estate in possession” as denoting “an estate of which some person has the present right of enjoyment, saying that land tax being an annual tax, “the ‘owner’ of the land is the person who is in the present enjoyment of the fruits which presumably afford the fund from which it is to be paid”. Where a trust for accumulation was in operation, those who thereafter were to take the trust estate were not entitled to an “estate of freehold in possession” and were not “owners”.’

30 The conclusion suggested by the appellant ignores the cautionary warning given by the High Court in CPT. At [16] the Court warned that:

‘… the holder of a unit “in a unit trust” has “a proprietary interest in each of the assets which comprise the entirety of the trust fund”, and answering it in the affirmative, did not immediately assist in construing the definition of “owner” in the Act. That definition does not speak of ownership of proprietary interests at large, but of entitlement to any estate of freehold in possession.’

31 In CPT the Court referred to the provisions of the relevant deed which merely conferred on each unit holder only such interest in the trust fund as a whole that each unit was entitled to and no unit conferred any interest in any particular part of the trust fund or any investment. In CPT the Court held that where the terms of the trust deny a unit holder an interest in any specific item of property held in the trust fund and confer on the trustee powers and discretions as to the exercise of any distribution of income or capital to a unit holder, a unit holder’s entitlement does not amount to land for an estate of freehold in possession.

32 We think that the cumulative effect of the clauses of the KFT deed referred to above is the same as was the case in CPT.

33 In CPT, the High Court referred at [37] to the following remarks made by the trial judge which the High Court noted as being ‘in point and conclusive’:

‘It may well be that the income of the fund as finally constituted and distributed will include all the rents and profits generated by a particular parcel of land within the fund. But it is distinctly possible that it will not. Each of the deeds gives power to the trustee to provide out of the receipts for future and contingent liabilities; to apply receipts in the purchase of any property or business; to invest receipts in authorised investments and to deal with and transpose such investments; and the only right of the unit holder is to a proportionate share of the income of the fund for the year.’

34 The deed in this matter makes similar provision for the application of income and capital subject to ‘future and contingent liabilities’. We also note that the Trustee is under clause 20 of the deed allowed to invest ‘as if the Trustee was the absolute owner of the trust fund and acting in its personal capacity’.

35 In making the above statement, the trial judge also observed that it would be different in ‘the case of a simple trust’ which allowed the trustee to apply part of the income in defined ways. The appellant placed some reliance on this part of the statement. But as observed by the trial judge, that is not the case when dealing with ‘a complex unit trust’ of the kind with which was before the Court in CPT and the unit trust that we are concerned with in this matter.

36 The approach suggested by the appellant, to treat the unit trust as a mere ‘bare’ trust, ignores the provisions governing the unit trust. There is no provision in the trust deed that allows the trustee to treat the land in question separately from the trust fund. The trustee cannot be taken to hold the land as a mere trustee because various clauses in the deed require the trustee to treat the land as part of the trust fund and there is no special provision in the deed to treat the land as an independent asset of KFT.

37 Some reliance was placed by the appellant on the rule in Saunders v Vautier. In CPT the High Court at [47] quoted with approval ‘the modern formulation’ of the rule as stated in Thomas on Powers (1998) at p 176 –

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

38 The High Court expressed the view that ‘that approach to the rule in Saunders v Vautier would not meet the case of the Deed considered in this litigation’ because ‘the unit holders were not the persons in whose favour alone the trust property might be applied by the trustee of the Deed’. In particular, the court referred to expenses and fees payable to the trustee before any distribution.

39 A similar situation arises in this matter. Under clause 17 of the deed the trustee (acting in good faith) ‘is entitled to be indemnified out of the trust fund in respect of all liabilities’ and the clause sets out various outgoings and expenses that the trustee is entitled to be indemnified. There is, therefore, no scope for the rule in Saunders v Vautier to apply in this matter.

40 The appeal is dismissed.