Trust Company of Australia Ltd v Commissioner of State Revenue
[2006] VSC 64
•5 April 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
VICTORIAN TAXATION APPEALS
No. 9049 of 2004
No. 9050 of 2004
| TRUST COMPANY OF AUSTRALIA LIMITED (ACN 004 027 749) | Appellant |
| v | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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JUDGE: | HANSEN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 October 2005 | |
DATE OF JUDGMENT: | 5 April 2006 | |
CASE MAY BE CITED AS: | Trust Company of Australia Ltd v Commissioner of State Revenue | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 64 | |
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DUTY – Exemption – No duty chargeable in respect of a transfer of dutiable property to a special trustee because of the retirement of a trustee or the appointment of a new trustee – Subscription and redemption agreement by which old trustee retired and new trustee appointed – Transfer of land to new trustee – Old and new trustees were trustees of unit trust – Change of beneficial ownership – Whether transferee a special trustee – Whether transfer “because of” the retirement of a trustee or the appointment of a new trustee – Duties Act 2000, s 33(2).
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr B J Shaw QC and Mr P Fox | Blake Dawson Waldron |
| For the Respondent | Mr R R Boaden | Solicitor for the Commissioner of State Revenue |
HIS HONOUR:
Introduction
There are two proceedings before the Court. Each proceeding is an appeal by the Trust Company of Australia Ltd (“the appellant”) against the disallowance by the Commissioner of State Revenue (“the Commissioner”) of an objection to the assessment to duty of a transfer of real property to the appellant as trustee of a unit trust. In proceeding 9049 of 2004 the real property transferred is land at 456 Lonsdale Street Melbourne upon which stands an office building (“the Lonsdale Street property”). The duty assessed to be payable on this transfer was $1,579,923.97, including penalties and interest. In proceeding 9050 of 2004 the real property transferred is land at 461 Bourke Street Melbourne upon which also stands an office building (“the Bourke Street property”). The duty assessed to be payable on that transfer was $2,373,855.57, including penalties and interest.
At the time of the relevant transfers, s 33(2) of the Duties Act 2000 provided for an exemption from duty in the following terms, namely that “No duty is chargeable under this Chapter in respect of a transfer of dutiable property to a special trustee because of the retirement of a trustee or the appointment of a new trustee”[1]. In each case the issue arises whether s 33(2) applied to exempt the transfer from duty. Put simply, the appellant contends that both transfers fall within the terms of the exemption and, accordingly, that no duty is chargeable thereon. The Commissioner contends that the exemption does not apply because the relevant transfers were made not merely because of a change of trustee but as part of, and because of, transactions of wider import which effected a change of beneficial ownership in the properties.
[1]Section 33(2) has since been amended, with effect from 13 June 2002. As amended, it provides that “No duty is chargeable under this Chapter in respect of a transfer of dutiable property to a special trustee solely because of the retirement of a trustee or the appointment of a new trustee.“ (emphasis added) However, the two transfers in this case were executed before the amendment took effect.
The appellant’s objections to the assessments having been disallowed by the Commissioner, and the appellant having requested the Commissioner to treat its objections as an appeal, the Commissioner has caused the objections to be brought before the Court accordingly pursuant to s 106 of the Taxation Administration Act 1997.
Facts
In each proceeding, there is an agreed statement of facts and an affidavit by James Peter Weaver, an officer of Macquarie Bank Limited. The affidavit in proceeding 9049 of 2004 deposed to relevant facts and exhibited relevant documents for both cases. The Commissioner did not file an affidavit. Although the transactions in each proceeding are broadly similar, I set out the agreed facts of each transaction separately, omitting only some procedural or formal matters.
The facts agreed (including the footnotes thereto) in proceeding 9049 of 2004 are as follows:
“1.On 22 December 2000 the Counsel House Trust (‘Counsel House Trust’) was established by deed of trust made between Counsel House Pty Ltd as trustee (‘Counsel House’) and the original unit holders (‘Counsel House Unit Holders’) set out below:
Name of first unit holder No. of units % of units Red C Pty Ltd as trustee for the RDC Unit Trust 55 units 27.5 Smith Manor Pty Ltd 90 units 45 Tremaine Corporation Pty Ltd as trustee for the Tremaine Corporation Trust
55 units
27.5
(Refer to document 6, Order 7.06 documents; Exhibit JPW11, paragraphs 23 – 24 of James Weaver affidavit sworn 8 March 2005.)
2.Immediately before the redemption of outstanding units and the allotment of new units in the Counsel House Trust to the Macquarie Direct Property No 9 Trust and the Macquarie Investment Property No 9 Trust (“the Unit Transactions”), the unit holders were the Counsel House Unit Holders. (Refer to paragraph 24 of James Weaver’s affidavit sworn 8 March 2005).
3.On or about 2 May 2001 Counsel House was registered as sole proprietor of the land and improvements at 456 Lonsdale Street, Melbourne more particularly described in Certificate of Title volume 8945 folio 212 (‘Lonsdale Street Property’).
(Refer to paragraphs 25 of James Weaver affidavit 8 March 2005.)
4.Immediately before the Unit Transactions, Counsel House was registered as sole proprietor of the Lonsdale Street Property more particularly described in Certificate of Title volume 8945 folio 212, which it held as trustee of the Counsel House Trust. (Refer to paragraph 25 of James Weaver’s affidavit sworn 8 March 2005).
5.On 5 January 2002 the Counsel House Unit Holders, Counsel House and Macquarie Direct Property Management Limited (‘MDPML’) entered into a Subscription and Redemption Agreement (‘Counsel House Unit Agreement’). (Refer to Exhibit JPW12 to James Weaver’s affidavit sworn 8 March 2005) MDPML entered into the Counsel House Unit Agreement in its own capacity and on behalf of Macquarie Direct Property No. 9 (‘MDP No. 9 Trust’) and the Macquarie Investment Property No. 9 (‘MIP No. 9 Trust’). At this time, both the MDP No. 9 Trust and the MIP No. 9 Trust were unit trusts yet to be formed. The Counsel House Unit Agreement provided as follows:
(a)the price per unit for units to be issued was $21,750,000 (for the Lonsdale Street Property) adjusted to take into account current assets (other than the Lonsdale Street Property) and liabilities as at Completion in accordance with Completion Accounts, divided by the number of new units to be issued (clause 1.1, “Issue Price”).
(b)“Completion was defined in clause 1.1 of the Gemfield Agreement as meaning “completion of the redemption of the Units and issue of the New Units”. [clause 1.1, “Completion”].;
(c)the allotment of new units in the Counsel House Trust to the MDP No. 9 Trust and the MIP No. 9 Trust in return for payment of the subscription monies on the Completion Date at an issue price of $21,750,000 (as adjusted) divided by the number of units to be issued (clause 1.1, 2.1(a) and 4.4);
(d)the redemption and cancellation of the units in the Counsel House Trust held by the Counsel House Unit Holders in return for payment of the redemption monies on the Completion Date (clause 2.1(b) and 4.5);
(e)on the day before Completion, execution by Counsel House as trustee of the Counsel House Trust and by a new trustee (to be nominated by MDPML) of a Deed of Retirement and Appointment to effect the retirement of Counsel House as trustee of the Counsel House Trust and the appointment of the New Trustee, a transfer of the Lonsdale Street Property and a statutory declaration (clauses 4.6(a), (b) and paragraph 27 of James Weaver’s affidavit sworn 8 March 2005);
(f)if the Counsel House Unit Agreement was terminated following appointment of the New Trustee, the parties to the Counsel House Agreement must procure that the New Trustee retired and Counsel House was re-appointed as trustee of the Counsel House Trust (clause 4.6(c)); and
(g)the Counsel House Unit Agreement contained the entire agreement between the parties about its subject matter, subject to the Deed of Appointment (that is, the Counsel House Appointment Deed, refer below) (clause 20.5).
(Refer to document 7, Order 7.06 documents; Exhibit JPW12, paragraph 27 of James Weaver’s affidavit sworn 8 March 2005.)
6.On 14 January 2002 the MDP No. 9 Trust was constituted by a trust deed declared by MDPML as manager. The MDP No 9 Trust was formed to raise monies by public subscription. Public subscriptions for units in the MDP No 9 Trust were raised in or about February and March 2002 and before the Completion Date for the Counsel House Agreement. (Refer to document 10, Order 7.06 documents; Exhibit JPW16, paragraph 34 of James Weaver’s affidavit 8 March 2005.)
7.On 19 March 2002 the MIP No. 9 Trust was constituted by a deed of trust declared by MDPML as manager and Trust Company of Australia Limited (‘TCA’) as trustee. The MIP No 9 Trust was formed to raise monies by public subscription. Public subscriptions for units in the MIP No 9 Trust were raised in or about February and March 2002 and before the Completion Date for the Counsel House Agreement. (Refer to document 1, Order 7.06 documents; Exhibit JPW17, paragraph 35 of James Weaver’s affidavit sworn 8 March 2005.)
8.On 25 March 2002 Counsel House, TCA and the Counsel House Unit Holders executed a Deed of Appointment (‘Counsel House Appointment Deed’). Under the Counsel House Appointment Deed, Counsel House retired as trustee of the Counsel House Trust and TCA was appointed as the new trustee from the Effective Date (defined to mean the date of the Counsel House Appointment Deed) (Refer to document 8(ii), Order 7.06 documents; Exhibit JPW13, paragraph 28 of James Weaver’s affidavit sworn 8 March 2005.)
9.On 25 March 2002, following the appointment of TCA as trustee of the Counsel House Trust, Counsel House as transferor and TCA as transferee executed a transfer of land instrument (‘Transfer’) relating to the Lonsdale Street Property (being the land described in Certificate of Title Volume 8945, Folio 212). The consideration stated on the Transfer was “pursuant to deed dated 25 March 2002 between Counsel House Pty Limited ACN 095 445 800 Trust Company of Australia Limited ACN 004 027 749…, Red C Pty Limited ACN 092 179 734, Smith Manor Pty Limited ACN 095 439 428 and Tremaine Corporation Pty Limited ACN 065 126 954 (Refer to document 9, Order 7.06 documents; Exhibit JPW14, paragraph 35 of James Weaver’s affidavit sworn 8 March 2005.)
10.Under cover of letter dated 26 March 2002, Blake Dawson Waldron (“BDW”) lodged the following documents:-
(i)the Deed of Retirement and Appointment;
(ii)the transfer of land; and
(iii)the statutory declaration
with a request that the transfer be stamped (Refer to document 16, Order 7.06 documents; Paragraph 43 of James Weaver’s affidavit sworn 8 March 2005.)
11.The statutory declaration dated 25 March 2002, declared by Leon Francis Lachal, a (then) current director of Counsel House (the retiring trustee) declared (inter alia) that:-
“3.No consideration was paid by the New Trustee to the Retiring Trustee for the Transfer, as the transfer was solely in consequence of a change of trustee.
4.There are no agreements between the Retiring Trustee and the New Trustee in relation to the Property other than the Deed of Appointment dated 25 March 2002 between the Retiring Trustee, the New Trustee and the unit holders of the Trust (“Deed of Appointment”).
5.The terms of the Trust under which the New Trustee will be holding the Property are in all respects the same as the terms of the Trust under which the Retiring Trustee held the Property.
6.At the time of the retirement of the Retiring Trustee and the appointment of the New Trustee as new trustee, the unit holders of the Trust were: Red C Pty Limited, Smith Manor Pty Limited and Tremaine Corporation Pty Limited.
7.At the time of the appointment of the New Trustee, upon execution of the Deed of Appointment, the unit holders were the same as referred above.
8.Ad valorem duty was paid when the Property was transferred to the Retiring Trustee in its capacity as trustee of the Trust.”
(Refer to Document 5, Order 7.06 Documents, JPW23, James Weaver’s affidavit dated 8 March 2005; Exhibit JPW23, paragraph 43 of James Weaver’s affidavit sworn 8 March 2005.)
12.TCA is and was at all material times a company incorporated pursuant to the laws of Victoria carrying on the business of a trustee company. It is, and was at the time of execution of the transfer the subject of the Assessment, a trustee company within the meaning of section 6 of the Trustee Companies Act 1984. In addition, TCA was, and is, one of the companies listed in schedule 2 to that Act as a trustee company, and no declaration had been made suspending or revoking its authority to act as a trustee company pursuant to section 8 of that Act. (Refer to paragraph 7 and Exhibit 1 of James Weaver’s affidavit sworn on 8 March 2005.)
13.On 26 March 2002 the Transfer was stamped by the State Revenue Office (‘SRO’) not chargeable with duty pursuant to section 33(3) of the Duties Act 2000 (‘Act’). (Refer to Exhibit JPW14, paragraph 44 of James Weaver’s affidavit sworn 8 March 2005.)
14.On or about 28 March 2002[2] MDPML executed Applications for New Units in the Counsel House Trust on behalf of the MDP No. 9 Trust and the MIP No. 9 Trust. On or about 28 March 2002, Counsel House issued the following units pursuant to these applications:
[2]The Applications for New Units are undated. The date of execution is based on information in paragraphs 28 and 29 of the opinion of A J Myers and P Fox.
(a)MDP No. 9 Trust - 10,750,000 units were issued to Bond Street Custodians Ltd (‘Bond Street’) as custodian for MDPML[3]; and
[3]MDPML became the responsible entity of MDP No. 9 Trust under a written constitution.
(b)MIP No. 9 Trust - 10,750,000 units were allotted to TCA as the trustee of the MIP No. 9 Trust.
(Refer to documents 13 and 14, Order 7.06 documents; Paragraphs 30-31 of James Weaver’s affidavit sworn 8 March 2005.)
15.On or about 28 March 2002 the units held by the Counsel House Unit Holders were redeemed. (Refer to paragraph 33 of James Weaver’s affidavit sworn 8 March 2005.)
16.On 28 March 2002 TCA (as trustee of the Counsel House Trust), MDPML, Bond Street (as custodian for MDPML) and TCA (as trustee of MIP No. 9 Trust) executed a Deed of Appointment under which TCA retired as trustee of the Counsel House Trust and MDPML was appointed as the new trustee (Refer to document 12, Order 7.06 documents; Exhibit JPW18, paragraph 36 of James Weaver’s affidavit sworn 8 March 2005.)
17.On 22 April 2002 TCA was registered as the sole proprietor of the Lonsdale Street Property. (Refer to Exhibit JPW14)
18.On 17 July 2002 the SRO notified TCA that it had been selected for an investigation into its compliance with the Act in relation to the purchase of the Lonsdale Street Property (Refer to document 17, Order 7.06 documents).
19.TCA provided a valuation (dated 20 December 2001) prepared by Landmark White (prepared for Macquarie Direct Property Management Ltd) to the SRO. The valuation valued the “unencumbered freehold interest subject to existing tenancies” at $21,900,000.
20.By letter dated 23 July 2003 the SRO notified TCA of the results of the investigation which determined that TCA did not comply with Chapter 2 of the Act in relation to the Transfer. In addition, section 33 of the Act did not apply to exempt the Transfer from duty because of a substantive change in the beneficial interest of the Counsel House Trust. As a result of the investigation the SRO issued Assessment A141945 (‘Assessment’) to TCA. The dutiable transaction effected by the Transfer was assessed as follows:
Duty (dutiable value of the dutiable property of $21,750,000) $1,196,250 Penalty tax (25% of unpaid duty) $299,062 Interest penalties (12.96% pa of unpaid duty) from 08/11/01 – 30/06/02 $2,973.25 Interest penalties (12.84% pa of unpaid duty) from 01/07/02 – 10/01/03 $81,638.72[4] Total
$1,579,923.97
[4]Total interest: $84,611.91
(Refer to document 1, Order 7.06 documents, Exhibit JPW24, paragraph 45 of James Weaver affidavit sworn 8 March 2005.)
The Assessment has been partly paid to the extent of $239,250. [Balance of $578,050 not apportioned to the Bourke Street Property].
21.By letter dated 11 September 2003 BDW lodged a valid objection to the Assessment. The grounds of the objection are broadly as follows:
(a)that section 33(2) of the Act applied to exempt from duty the transfer of the property at 456 Lonsdale Street, Melbourne (executed before 13 June 2002) from Counsel House to TCA who was a special trustee because of the retirement of a trustee or the appointment of a new trustee; and
(b)without limiting the above, the application of section 33(2) of the Act was not precluded by a “substantive change in the beneficial interest of Counsel House Unit Trust” as stated in the Counsel House Assessment; nor was there any new trust created.
(Refer to document 1, Order 7.06 documents; Exhibit JPW25, paragraph 46 of James Weaver’s affidavit sworn 8 March 2005.)
22.By Notice of Determination dated 23 April 2004, the Commissioner of State Revenue disallowed the Objection (Refer document 2, Order 7.05 documents; Exhibit JPW26, paragraph 47 of James Weaver’s affidavit sworn 8 March 2005.)
23.By letter dated 17 June 2004, TCA requested the Commissioner of State Revenue to treat the objection as an appeal and set it down for hearing at the Supreme Court (Refer to document 3, Order 7.05 documents; Exhibit JPW30, paragraph 51 of James Weaver’s affidavit sworn 8 March 2005.)
[Then followed paras 24 – 34 which it is unnecessary to refer to save for paragraph 29 to the extent set out and paras 30 – 32.]
29.On 25 February 2005, the Supreme Court listed the matter for directions and made the following Orders:-
“1.On or by 4.00pm 9 March 2005, the Appellant file and serve:
(a)Particulars of the new grounds of objection, by way of affidavit;
(b)Any material in support of the grounds of objection; and
(c)An affidavit as referred to in Rule 7.07 of Order 7, Chapter II of the Supreme Court (Miscellaneous Civil Proceedings) Rules 1998.
…”
30.By letter dated 25 February 2005, BDW at paragraphs 4 and 5, suggested:-
“4 If the Commissioner agrees, it appears to us to be appropriate for the parties to stipulate in the Statement of Agreed Facts that the value of each of the bare legal estates is only a nominal amount. 5. That stipulation would be without prejudice to any contention by the Commissioner that what was transferred was not the bare legal estate but some greater or other interest.”
31.By letter dated 3 March 2005, the Commissioner of State Revenue advised that:-
“Commissioner had proceeded in these matters by accepting the valuations submitted…The Commissioner does not accept that a bare legal estate has been transferred. The Commissioner is prepared to proceed as in paragraph 4 of your letter.”
32.By Summons dated 9 March 2005, in accordance with the Orders made on 25 February 2005, BDW itemised in their summons the additional grounds of objection as follows:-
“1.Pursuant to section 109 of the Taxation Administration Act 1997 (Vic), the Appellant have leave to amend its Notice of Objection dated 11 September 2003 and consequently its grounds of appeal as follows:
‘3AAlternatively to paragraph 3, section 33(3) of the Duties Act applied to exempt from duty the transfer of the Property, because, if there was transfer of dutiable property to a person other than a special trustee (which is denied), the Commissioner should have been satisfied that the transfer was made solely:
(a)because of the retirement of a trustee or the appointment of a new trustee, or other change in trustee; and
(b)in order to vest the property in the trustees for the time being entitled to hold it.’
‘3BFurther and alternatively to paragraphs 3 and 3A, if the transfer of the Property was not exempt by operation of section 33(2) or section 33(3) (which is denied), the duty assessed ought to have been nil, or a nominal amount because the dutiable value of the dutiable property transferred (being the bare legal estate) was itself nil or a purely nominal amount.’”
The facts agreed (including footnotes thereto) in proceeding 9050 of 2004 are as follows:
“1.On 18 October 1996 the Gemfield Falls Unit Trust (‘Gemfield Trust’) was established by deed of trust made between Gemfield Falls Pty Ltd as trustee (‘Gemfield Falls’) and the first unit holders (‘Gemfield Unit Holders’) set out below:
Name of first unit holder No. of units % of units Mango Bay Enterprises Inc 100 units 50 Goldengate Properties Pty Ltd 55 units 27.5 Killara Quest Pty Ltd
45 units
22.5
(Refer to document 7, Order 7.06 documents; Exhibit JPW2, paragraphs 8-9 of James Weaver’s affidavit sworn 8 March 2005)
2.Immediately before the redemption of the outstanding units and the allotment of new units in the Gemfield Trust to the BM Direct Property Trust and the BM Investment trust (the “Unit Transactions”) the trustee of the Gemfield Trust was Gemfield Falls and the unit holders were Mango Bay Enterprises Inc (holding 100 units, being 50%), Goldengate Properties Pty Ltd (holding 55 units, being 27.5%) and Killara Quest Pty Ltd (holding 45 units, being 22.5%) (together called the Gemfield Unit Holders). (Refer to paragraph 9 of the James Weaver’s affidavit sworn 8 March 2005).
3.On 7 February 1997 Gemfield Falls was registered as sole proprietor of the land and improvements at 461 Bourke Street, Melbourne more particularly described in Certificate of Title volume 9727 Folio 752 (‘the ‘Bourke Street property’). (Refer to paragraph 10 of James Weaver’s affidavit sworn 8 March 2005).
4.Immediately before the Unit Transactions, Gemfield Falls was registered as sole proprietor of the Bourke Street Property more particularly described in Certificate of Title volume 9727 folio 752, which it held on trust as trustee of the Gemfield Trust. (Refer to paragraph 10 of James Weaver’s affidavit sworn 8 March 2005).
5.On 24 May 2001 the BM Direct Property Trust was constituted by a trust deed declared by MDPML as manager and TCA as trustee of that trust. The BM Direct Property Trust was formed to raise monies by public subscription. Public subscriptions for units in the BM Direct Property Trust were raised in or about July 2001 (Refer to paragraph 18 of James Weaver’s affidavit sworn 8 March 2005). Exhibit JPW7 is a copy of the constitution of the BM Direct Property Trust.
6.On 30 May 2001 the Gemfield Unit Holders, Gemfield Falls and Macquarie Direct Property Management Limited (‘MDPML’) entered into a Unit Subscription and Redemption Agreement (‘Gemfield Unit Agreement’). MDPML entered into the Gemfield Unit Agreement in its own capacity and on behalf of the BM Direct Property Trust (‘BM Property Trust’) (Refer to document 11, Order 7.06 documents; Exhibit ‘JPW7’ of James Weaver’s affidavit sworn on 8 March 2005) and the BM Investment Trust (‘BM Investment Trust’) (Refer to document 12, Order 7.06 documents; Exhibit ‘JPW8’ of James Weaver’s affidavit sworn on 8 March 2005). The Gemfield Unit Agreement provided as follows:
(a)the price per unit for units to be issued was $30,800,000 (for the Bourke Street Property) adjusted to take into account the current assets (other than the Bourke Street Property) and liabilities as at Completion, calculated in accordance with the Completion Accounts, divided by the number of new units to be issued (clause 1.1, “Issue Price”);
(b)the allotment of new units in the Gemfield Trust to the BM Property Trust and the BM Investment Trust in return for payment of the subscription monies on the Completion Date at an issue price of $152,520.75 per unit (clause 2.1(a) and 4.7(a));
(c)the redemption and cancellation of the units in the Gemfield Trust held by the Gemfield Unit Holders in return for payment of the redemption monies on the Completion Date at a redemption amount of $152,520.75 per unit (clause 2.1(b) and 4.7(b));
(d)the execution by Gemfield Falls and by a new trustee nominated by MDPML of a Deed of Appointment to effect the retirement of Gemfield Falls as trustee of the Gemfield Trust and the appointment of the New Trustee (to be nominated by MDPML) (clause 3 and 4.5);
(e)in Clause 4.2:
i.that Completion was conditional on MDPML on behalf of the appellants for the Units being able to raise debt or equity to fund the subscription for the new units to be issued to BM Property Trust and BM Investment Trust on terms satisfactory to MDPML [clause 4.2(a)];
ii.in the event the condition was not satisfied on or before 1 August 2001, either party might by written notice terminate the Gemfield Agreement, in which event the vendors should return the deposit [clause 4.2(b)]; and
iii.the condition should cease to be a condition precedent where either MDPML notified the vendors that the condition had been satisfied, or MDPML determined that the condition should cease to be a condition precedent in its absolute discretion [clause 4.2(c)].
(f)the Gemfield Unit Agreement contained the entire agreement between the parties about its subject matter, subject to the Deed of Appointment (that is, the Gemfield Appointment Deed, refer below) (clause 20.5).
(Refer to document 8, Order 7.06 documents; Exhibit JPW3, paragraph 12 of James Weaver’s affidavit sworn on 8 March 2005)
7.On 27 July 2001 the BM Investment Trust was constituted by a trust deed declared by MDPML as manager and TCA as trustee of the Trust. (Refer to document 12, Order 7.06 documents; Exhibit JPW8, paragraph 19 of James Weaver’s affidavit sworn on 8 March 2005).
8.On 10 August 2001 the following units were issued in the BM Investment Trust:
(a)15,400,000 ordinary $1 units to Bond Street Custodians Ltd (‘Bond Street’) as custodian for BM Property Trust (recorded in Unit Certificate No 2); and
(b)1 ordinary $1 unit to Pacific Rim Operations Limited (a sibling entity of MDPML) (recorded in Unit Certificate No 3).
(Refer to documents 22 and 21 respectively, Order 7.06 documents; Paragraph 20 of James Weaver’s affidavit sworn on 8 March 2005)
9.On or about 10 August 2001[5] MDPML executed Applications for New Units in the Gemfield Trust on behalf of BM Property Trust and the BM Investment Trust. On 10 August 2001, Gemfield Falls issued the following units pursuant to these Applications:
[5]The Applications for New Units are undated. The Application and Allotment Journal however indicates that the Applications were received on 10 August 2001.
(a)BM Property Trust (Unit Certificate No 5) - 100 units to Bond Street as sub-custodian for TCA[6]. The amount paid per unit was $152,520.75; and
[6]TCA acted as custodian for MDPML which became the responsible entity of the BM Property Trust under a written constitution.
(Refer to document 16A, Order 7.06 documents)
(b)BM Investment Trust (Unit Certificate No 4) - 100 units to TCA as the trustee of the BM Investment Trust. The amount paid per unit was $152,520.75.
(Refer to document 17A, Order 7.06 documents; Paragraphs 13-14 of James Weaver’s affidavit sworn on 8 March 2005)
10.On or about 10 August 2001 each Gemfield Unit Holder executed a Redemption Notice addressed to Gemfield Falls in respect of the units held by each of them in the Gemfield Trust. On 10 August 2001 the Gemfield Unit Holders’ units were redeemed[7] (Refer to Exhibit JPW4, paragraph 15 of James Weaver’s affidavit sworn on 8 March 2005).
[7]The Redemption Notices were undated. The date of redemption was based on information contained in the reconstructed Gemfield Trust Unit Register (Redemption Journal and Register of Members).
11.On 10 August 2001 Gemfield Falls, Trust Company of Australia Limited (‘TCA’) and the Gemfield Unit Holders executed a Deed of Appointment (‘Gemfield Appointment Deed’). Under the Gemfield Appointment Deed, Gemfield Falls retired as trustee of the Gemfield Trust and TCA was appointed as the new trustee from the Effective Date (defined as the date of Completion under the Gemfield Unit Agreement). The retiring trustee covenanted in the deed to do all things necessary to vest the trust fund in the new trustee. (Refer to document 9, Order 7.06 documents; Exhibit JPW5, paragraph 16 of James Weaver’s affidavit sworn on 8 March 2005).
12.On or about 10 August 2001, following the appointment of TCA as trustee of the Gemfield Trust, Gemfield Falls (pursuant to clause 5.1 of the Gemfield Appointment Deed) as transferor and TCA as transferee executed a transfer of land instrument (‘Transfer’) relating to the Bourke Street Property (being the land and improvements described in Certificate of Title 9727 Folio 752). The consideration stated on the Transfer was “pursuant to deed of appointment and retirement of trustee dated 10 August 2001 …”. (Refer to document 10, Order 7.06 documents; Exhibit JPW6, paragraphs 11 and 17 of James Weaver’s affidavit sworn on 8 March 2005).
13. On 18 September 2001, Michael John Britton declared as follows:-
“…
2.The transfer of the property identified by Title Volume 9727 Folio 752 (“Property”) was made to TCA, being a ‘special trustee’ within the meaning of section 33(1) of the Duties Act 2000 (Vic), because of the retirement of Gemfield Falls Pty Limited (“Retiring Trustee”) as trustee of the Trust and the appointment of TCA as new trustee of the Trust.
3.No consideration was paid by TCA to the Retiring Trustee for the transfer, as the transfer was solely in consequence of a change of trustee.
4.There are no agreements between the Retiring Trustee and TCA in relation to the Property other than the Deed of Appointment dated 10 August 2001 between the Retiring Trustee, TCA and the unit holders of the Trust (listed in paragraph 6 below).
5.The terms of the Trust under which TCA will be holding the Property are in all respects the same as the terms of the trust under which the Retiring Trustee held the Property.
6.At the time of the retirement of the Retiring Trustee, the unit holders of the Trust were: Mango Bay Enterprises Inc, Killara Quest Pty Limited and Goldengate Properties Pty Limited.
7.At the time of the appointment of TCA, upon execution of the Deed of Appointment referred to in paragraph 4 above, the unit holders of the Trust were the same as referred to in paragraph 6 above…”
14.A statutory declaration dated 5 October 2001 was executed by Clement Lee (then company secretary of Gemfield Falls), by which Mr Lee declared as follows:-
“…
2.On 10 August 2001 the Retiring Trustee executed a transfer (“Transfer”) of the property identified by Title Volume 9727 Folio 752 (“Property”) in favour of Trust Company of Australia Limited (“TCA”) upon retirement of the Retiring Trustee as trustee of the Trust and the appointment of TCA as new trustee of the Trust.
3.The Transfer of the Property was executed pursuant to and in consideration of Deed of Appointment dated 10 August 2001 between the Retiring Trustee, TCA and the unit holders of the Trust referred to in paragraph 6 below (“Deed of Appointment”).
4.The only instruments executed between the Retiring Trustee and TCA in relation to the Property was the Deed of Appointment and the Transfer.
5.To the best of my knowledge and belief, the terms of the Trust under which TCA will be holding the Property are in all respects the same as the terms of the Trust under which the Retiring Trustee held the Property.
6.At the time of the retirement of the Retiring Trustee and the appointment of TCA as new trustee, the unit holders of the Trust were: Mango Bay Enterprises Inc, Killara Quest Pty Limited and Goldengate Properties Pty Limited.
7.Ad valorem duty was paid when the Property was transferred to the Retiring Trustee in its capacity as trustee of the Trust...”
(Refer to document 5, Order 7.06 documents; Exhibit JPW19, paragraph 38 of James Weaver’s affidavit sworn on 8 March 2005)
15.On 11 October 2001 the Transfer was stamped by the State Revenue Office (‘SRO’) not chargeable with duty pursuant to section 33(2) of the Duties Act 2000 (‘Act’). (Refer to Exhibit JPW6, paragraph 39 of James Weaver’s affidavit sworn on 8 March 2005) On 12 October 2001 TCA was registered as the sole proprietor of the Bourke Street Property. (Refer to Exhibit JPW9, paragraph 21 of James Weaver’s affidavit sworn on 8 March 2005)
16.TCA is and was at all material times a company incorporated pursuant to the laws of Victoria carrying on the business of a trustee company. It is, and was at the time of execution of the transfer the subject of the Assessment, a trustee company within the meaning of section 6 of the Trustee Companies Act 1984. In addition, TCA was, and is, one of the companies listed in schedule 2 to that Act as a trustee company, and no declaration had been made suspending or revoking its authority to act as a trustee company pursuant to section 8 of that Act. (Refer to Exhibit JPW1, paragraph 7 of James Weaver's affidavit sworn on 8 March 2005).
17.On 9 July 2002 the SRO notified TCA that it had been selected for an investigation into its compliance with the Act in relation to the Transfer and the Gemfield Unit Agreement (Refer to document 38, Order 7.06 documents).
18.Amongst the additional material provided by BDW was a valuation of 461 Bourke Street, Melbourne dated 1 May 2001, prepared by Colliers Jardine which valued the ‘freehold estate in fee simple’ in the sum of $32,000,000 (Refer to document 28, Order 7.06 documents).
19.By letter dated 23 July 2003 the SRO notified TCA of the results of the investigation, which determined that TCA did not comply with Chapter 2 of the Act in relation to the Transfer. In addition, section 33 of the Act did not apply to exempt the Transfer from duty because of a substantive change in the beneficial interest of the Gemfield Trust. As a result of the investigation the SRO issued Assessment A141946 (‘Assessment’) to TCA. The dutiable transaction effected by the Transfer was assessed as follows:
Duty (dutiable value of the dutiable property of $30,800,000) $1,694,000 Penalty tax (25% of unpaid duty) $423,500 Interest penalties (12.96% pa of unpaid duty) from 08/11/01 – 30/06/02 $140,747.73 Interest penalties (12.84% pa of unpaid duty) from 01/07/02 – 10/01/03 $115,607.84[8]
Total
$2,373,855.57
[8] Total interest: $256,355.57
The Assessment has been partly paid to the extent of $338,800.
(Refer to document 1, Order 7.06 documents; Exhibit JPW20, paragraph 40 of James Weaver’s affidavit sworn on 8 March 2005)
20.By letter dated 11 September 2003 BDW lodged a valid objection to the Assessment. The grounds of the objection are broadly as follows:
(a)that section 33(2) of the Act applied to exempt from duty the transfer of the Bourke Street Property (executed before 13 June 2002) from Gemfield Falls to TCA who was a special trustee because of the retirement of a trustee or the appointment of a new trustee; and
(b)without limiting the above, the application of section 33(2) of the Act was not precluded by a “substantive change in the beneficial interest of Gemfield Falls Unit Trust” as stated in the Assessment; nor was there any new trust created.
(Refer to document 1, Order 7.05 documents; Exhibit JPW21, paragraph 41 of James Weaver’s affidavit sworn on 8 March 2005)
21.By Notice of Determination dated 22 April 2004, the Commissioner, by his delegate, disallowed the Objection (Refer to document 2, Order 7.05 documents; Exhibit JPW22, paragraph 42 of James Weaver’s affidavit sworn on 8 March 2005).
22.By letter dated 17 June 2004, TCA requested the Commissioner of State Revenue to treat the objection as an appeal and set it down for hearing at the Supreme Court (Refer to document 3, Order 7.05 documents; Exhibit JPW31, paragraph 51 of James Weaver’s affidavit sworn on 8 March 2005).
[Then followed paras 23 – 33 which it is unnecessary to refer to both because of the nature of the matters raised and the repetition of paras 29 and 30 – 32 in the agreed facts in proceeding 9049 of 2004.]
It will be noted that there is a difference in the facts in the two cases in that in the case of the Counsel House Trust, the transfer of property to the appellant was executed before the issue and redemption of units, whereas in the case of the Gemfield Trust, the transfer was executed after the issue and redemption of units. Neither counsel suggested that anything turned on these differences, or that a different result should obtain between the two cases.
Legislation
As originally enacted, s 33 of the Duties Act 2000 provided as follows:
“(1) In this section –
“new trustee” means a trustee appointed in substitution for a trustee or trustees or a trustee appointed in addition to a trustee or trustees;
“special trustee” means –
(a) a trustee company within the meaning of the Trustee Companies Act 1984;
(b) …
(c) …
(2)No duty is chargeable under this Chapter in respect of a transfer of dutiable property to a special trustee because of the retirement of a trustee or the appointment of a new trustee.
(3)No duty is chargeable under this Chapter in respect of a transfer of dutiable property to a person other than a special trustee only because of the retirement of a trustee or the appointment of a new trustee, if the Commissioner is satisfied that, as the case may be –
(a)none of the continuing trustees remaining after the retirement of a trustee is or can become a beneficiary under the trust; and
(b)none of the trustees of the trust after the appointment of a new trustee is or can become a beneficiary under the trust; and
(c)the transfer is not part of a scheme for conferring an interest, in relation to the trust property, on a new trustee or any other person, whether as a beneficiary or otherwise, to the detriment of the beneficial interest or potential beneficial interest of any person.
(4)…
(5)…”
Both parties referred to the legislative history of section 33. In short, the Duties (Amendment) Act 2001 amended s 33(3) as of 1 July 2001 so as to provide that:
“(3)No duty is chargeable under this Chapter in respect of a transfer of dutiable property to a person other than a special trustee if the Commissioner is satisfied that the transfer is made solely -
(a)because of the retirement of a trustee or the appointment of a new trustee, or other change in trustees; and
(b)in order to vest the property in the trustees for the time being entitled to hold it.”
Section 33(2), however, remained in its original form. Subsequently, the State Taxation Legislation (Further Amendment) Act 2002 amended s 33(2), as of 13 June 2002, so as to provide that “No duty is chargeable under this Chapter in respect of a transfer of dutiable property to a special trustee solely because of the retirement of a trustee or the appointment of a new trustee” (emphasis added). In effect the legislature placed a special trustee in the same position as persons other than special trustees, by requiring that the transfer be “solely because of” the retirement or appointment of a trustee. The amended s 33(2), however, only applies to transfers executed on or after 13 June 2002. The transfers in the present case were executed before 13 June 2002. Thus, in summary, the relevant legislation in this case is s 33(2) in its original form and s 33(3) in its amended form.
Amendment of grounds of objection
Reference was made in the agreed statement of facts to the appellant seeking leave to amend its grounds of objection. It seemed that leave had not been granted although counsel were a little confused as to this. In any event, leave not being opposed, and the additional grounds having been properly raised in each case, I will grant leave to rely on the additional grounds. For the present it is sufficient to say of them that they are alternative grounds that will only arise if the appellant fails to establish that the exemption in s 33(2) was applicable. Further, they were inspired by a decision of the Victorian Civil and Administrative Tribunal in Challenger Property Nominees Pty Ltd v Commissioner of State Revenue[9], an appeal from which has been heard by another judge and on which judgment is reserved.
[9][2004] VCAT 2434; (2004) 58 ATR 146.
A threshold question
It is convenient to begin with a threshold question raised by the Commissioner, namely whether the appellant was a “special trustee” within the meaning of s 33(2). If the appellant was a “special trustee” within the meaning of the sub-section, then s 33(2) is the only relevant provision for the purposes of this case and it will be unnecessary to deal with the arguments concerning s 33(3)[10]. If, however, the appellant was not a “special trustee” within the meaning of s 33(2), it will be necessary to consider whether the appellant nevertheless qualified for the exemption under s 33(3).
[10]That is because s 33(3) only applies to a transfer of dutiable property to “a person other than a special trustee”.
In a written submission, the Commissioner stated that although the appellant came within the definition of special trustee in s 33(1), the appellant “does not come within the meaning of a ‘special trustee’, as envisaged by s 33(2), and it is not enough to gain the exemption … just to be able to say that the transferee is a trustee company within the meaning of the Trustee Companies Act 1984”. The submission referred to some of the powers granted to trustee companies under that Act[11], and argued[12]:
“In short, the Trustee Companies Act is based on the expectation that trustee companies would act as professional and active trustees of deceased estates and trust estates. If these activities are recognized as the customary activities of a trustee company, then it can be seen that in these present cases [the appellant] has not been acting as a traditional trustee. Its involvement in these two sets of transactions has been merely to lend its name and status to one step in each of those carefully orchestrated steps … for the exemption to be available the transfer must be to a special trustee qua special trustee, that is, acting as an active trustee or co-trustee, not just acting in the sense of lending its name and status to help construct a transaction in a special guise.”
[11]For example, the power to act as executor or administrator (s 9), obtain probate (s 10) or letters of administration (s 11), prepare wills (s 20A) and the power to be appointed as trustee (s 14).
[12]Commissioner’s Outline, para 4(f).
As it transpired, counsel for the Commissioner spent barely any time on this point. He noted that it seemed strange that there was a “lower threshold” for a special trustee to claim the exemption - in that it was sufficient that the transfer was merely “because of the retirement of a trustee” whereas a person other than a special trustee had to show that the transfer was “solely” because of the retirement – but apart from these passing remarks, counsel simply relied on the written submission.
Although he formally pressed the point, counsel frankly conceded that it did not go far enough to create an ambiguity in the legislation. He then went to the point that he described as being central to the case, which was the construction of s 33(2). Notwithstanding counsel’s manifest lack of conviction in the argument, if the Commissioner is correct on this point, the appellant, being a person other than a special trustee, could not rely on s 33(2) and would have to rely on s 33(3) to gain the exemption from duty. It is thus crucial to determine the issue.
Counsel for the appellant responded to the Commissioner’s argument by submitting that the relevant transfers were to a “special trustee” within the meaning of s 33(2) and, as a result, s 33(3) was not relevant to the present case. He noted that it was common ground that the appellant was a trustee company within the meaning of the Trustee Companies Act 1984, and thus a “special trustee” within the meaning of s 33(1), and that the reference to “special trustee” in s 33(2) followed on immediately from the definition of “special trustee” in s 33(1). There was no reason to read down the meaning of “special trustee” in s 33(2) as suggested by the Commissioner.
Counsel then said that even if “special trustee” were read down as proposed by the Commissioner, the relevant transfers would still qualify for the exemption because they were transfers to someone who can act as a trustee pursuant to s 14 of the Trustee Companies Act 1984. Further, even if the Commissioner were right that the trustee must act as an active trustee or co-trustee, by becoming trustee of the two unit trusts, the appellant undertook all the obligations of a trustee under the two trust deeds.
I do not consider it necessary to further elaborate on the submissions of counsel for the appellant as it is clear that the transfers in each case were transfers to a special trustee, as that term is used in s 33(2). The language of the whole section is clear. There is a precise definition of special trustee in s 33(1) and it was conceded that the appellant was a “special trustee” within that definition. There is no reason to construe the expression in s 33(2) to mean something less than the defined meaning in 33(1). Indeed, there would be little point in defining the term in sub-s (1) if that term were to bear a different meaning in the very next sub-section. I also note the frank concession of counsel for the Commissioner that there is no ambiguity in the legislation. I agree that that is so, and add that to read s 33(2) in the way contended for by the Commissioner would create rather than remove ambiguity.
It follows that the transfers in question were transfers to a special trustee within the meaning of s 33(2). That being so, s 33(3) is irrelevant to this case because it only applies to a transfer to a person other than a special trustee. It is unnecessary to say anything further about s 33(3) except insofar as it may assist in construing s 33(2).
The issues
The main issue for determination is whether the transfers to the appellant were “because of the retirement of a trustee or the appointment of a new trustee” within the meaning of s 33(2). If they were, duty is not chargeable on the transfers and the appellant must succeed. If the transfers were not, it will be necessary to consider the appellant’s alternative submission, that the duty payable is nil or a nominal amount because the dutiable value of the property transferred, being the bare legal estate, was nil or a nominal amount. I now turn to the parties’ submissions as to the application of s 33(2).
Submissions
Appellant
Counsel submitted that the language of s 33(2) was clear and that the exemption should apply because in each case there was a transfer of dutiable property to a special trustee because of the retirement of a trustee or the appointment of a new trustee.
Counsel referred to the deed of appointment in the Gemfield Trust case, which recites, among other things, that the parties to the deed, being the retiring trustee, the original Gemfield Unit Holders and the appellant as new trustee, entered into the deed “to record the terms of the retirement of the retiring trustee and the appointment of the new trustee as trustee of the trust”[13]. The vesting clause (5.1) in effect obliged the retiring trustee to do all things necessary to vest the trust fund in the new trustee. The Bourke Street property was an asset of the trust fund.
[13]Exhibit JPW-5, Recital F.
Counsel then referred to the transfer of land document itself which stated the consideration as being pursuant to the deed of appointment. In short, on the face of the deed the transfer was because of the retirement and appointment of trustees effected by the deed.
Counsel also emphasised that the relevant transactions were not sales of land. Although there was a change in beneficial ownership of the two properties, that occurred by reason of the redemption and issue of units in the trusts pursuant to the subscription and redemption agreements. The transfers themselves did not effect any change in the beneficial ownership of the properties. And, while transactions involving a change in the beneficial ownership of land held in a unit trust may be dutiable in certain circumstances under other provisions in the Duties Act 2000[14], that was not the issue here. There was nothing in s 33(2) to indicate that the availability of the exemption was dependent on whether there had been a transaction effecting a change in beneficial ownership of the land which had not been brought to duty under other provisions of the Act.
[14]The appellant’s written reply referred to Chapter 2, Parts 1 to 4A, and Chapter 3 of the Act. As to Chapter 2, I note that s 7(2A) (with effect from 8 February 2003) provides, among other things, that redemption and allotment of units in a unit trust scheme that results in a change in beneficial ownership of dutiable property is a dutiable transaction if it is part of a scheme or arrangement that, in the Commissioner’s opinion, was made with a collateral purpose of reducing the duty otherwise chargeable under this Chapter. As to Chapter 3, I note that Divisions 2 and 3 (ss 76 – 84) (with effect from 13 May 2004) deal with duty chargeable on a “relevant acquisition” which includes the acquisition of specified beneficial interests in land through a unit trust.
As to the construction of s 33(2), counsel emphasised the significance of the absence of the word “solely” from the sub-section. He noted that s 33(2) was left in its original form at the very time when s 33(3) was amended to include the word “solely”. Then, after the execution of the transfers, s 33(2) itself was amended to include the word “solely”. He referred to Grain Elevators Board (Vic.) v Dunmunkle Corporation[15] where Dixon J said that “although the provision was passed too late to apply to the present case, I think that it may be considered on the question of interpretation. It would be a strange result if we were to interpret the prior legislation as giving a wider exemption than that conferred by the provision so that the express exemption it makes would prove unnecessary …”[16]. Counsel submitted that on its plain words, and in light of the amendments referred to, s 33(2) should not be read as requiring the transfer to be “solely because of” the retirement of a trustee. To read s 33(2) as though it contained the word “solely”, as proposed by the Commissioner, would be to commit the very error which Dixon J cautioned against in Dunmunkle.
[15](1946) 73 CLR 70.
[16]At 86.
Counsel also referred to my decision in Perpetual Trustee Co Limited v Commissioner of State Revenue[17] in which I considered the meaning of Exemption 23 in Schedule 3 to the Stamps Act 1958, which applied where the Comptroller of Stamps was satisfied that an instrument for the conveyance of real property was made “solely in consequence of the appointment or retirement of any trustee or other change in trustees…”. Counsel referred to a passage where I observed[18] that:
“The object is to protect the revenue when an instrument of transfer is the consequence of another factor or factors. The use of the word “solely” indicates the extent of the legislature’s concern in that regard. If the word “solely” had not been used, the question would merely have been whether the transfers were a consequence of the change of trustee in the sense of it being sequential or following on from it. It would not matter if the transfers were also a consequence of another factor or factors.”
[17](2000) 44 ATR 273; [2000] VSC 177
[18]At 287.
Counsel submitted that given the word “solely” did not appear in the present case, it was sufficient to gain the benefit of the exemption if the retirement or appointment of a trustee was a cause of the transfers. It did not have to be the sole cause. Even if the purpose of the retirement and appointment of trustees and the subsequent transfers was to effect a change in the beneficial ownership of the properties, that did not change the fact that the transfers were because of the retirement and appointment of trustees.
Counsel also responded to an argument raised in the Commissioner’s written submission, namely that s 33(2) did not apply because the transactions created new trusts. He submitted that although the unit holders had changed - which was in any event permitted by the terms of the trust deeds - the trusts themselves had not changed. Even if new trusts had been created, there was nothing in the terms of s 33(2) to prevent it from applying to the new trusts.
Commissioner
Counsel for the Commissioner characterised the issue for determination as being whether the transfers were made because a new trustee was appointed. This, he said, was a robust question of fact which the appellant had answered by indulging in a degree of semantics in order to divert attention from that very simple question. Counsel acknowledged that, although in his written submission the Commissioner regarded the transactions as being in essence a sale, that was not the issue. Rather, the Court had to stand back and ask whether, on an objective consideration of the materials before the Commissioner, the transfers were made because of the appointment of a new trustee.
Counsel referred to the Unit Subscription and Redemption Agreement for the Gemfield Unit Trust[19] which he characterised as being an agreement whereby “all of the people who hold units in the trust agree to redeem them in return for which they receive quite a lot of money. The trustee agrees to issue new units and the new unit holders agree to pay for those units, and the money which they pay for their new units is what gives the trustee the money to redeem the units of the outgoing unit holders” (emphasis added)[20].
[19]Exhibit JPW-3.
[20]Transcript 21.
Counsel pointed out that in this deed, dated 30 May 2001, the outgoing unit holders were described as “vendors”. In contrast the (later) Counsel House appointment deed did not refer to “vendors” but instead used the term “unit holders”. Counsel submitted that the use of the term “vendors” in the earlier agreement betrayed the reality of the transactions, namely the sale of commercial premises.
To support this argument, counsel referred to numerous provisions of the Gemfield deed. The trust property was defined as 461 Bourke Street[21]. “Vendors’ works” was defined as various scheduled repairs to be undertaken by and at the cost of the vendors. Clause 4.5(b), entitled “Obligations of delivery on the Trustee and Vendors”, provided that on the “Completion Date”, the Trustee must deliver and the Vendors must ensure the Trustee delivers to the New Trustee a copy of all trust deeds, all trust records, books of account, Certificate of Title for the property, the originals of tenancy agreements and duly signed notices addressed to each of the tenants advising them of the sale[22]. By clause 5, entitled “Completion Accounts and Final Accounts”, the vendors warranted that the completion accounts would show a true and fair view of the financial position and assets and liabilities of the trust. It was specifically provided that “the [Bourke Street] Property will be included at $30,800,000 in such Completion Accounts”. Counsel referred to the actual completion account itself, annexed to the agreement, which showed net assets of $30,800,000 being the value of the building, plant and equipment. Counsel then referred to a rent guarantee in clause 7.1 and property warranties in Schedule 13. The warranties included that the property be free of encumbrances, there be no incomplete tenancy agreements, no maintenance agreements of a specified nature, and no leases, licences or other rights other than the tenancy agreements specified in the agreement.
[21]This was the only asset of the trust, apart from some fixtures.
[22]There were numerous other things required to be delivered. I have merely listed those items to which counsel specifically referred.
Counsel then referred to one of the definitions of the word “sell” given by the shorter Oxford Dictionary, namely “to hand over for money”. Here, he said, the property had been handed over for money, namely the $30,800,000 paid by the incoming unit holders to acquire the new units which was used to redeem the existing units. In short, the reality of the transactions was that they effected sales of the commercial buildings.
Counsel reiterated that the transfers were not made because of the retirement of a trustee or the appointment of a new trustee but rather because the beneficial interest in the properties had been sold and the transfer of title to the appellant was the step taken to complete that sale. Although the transfer was effected because the trustee retired, to say that the transfers took place because of the change in trustee was to fasten sole and exclusive attention on the last step in the transactions. That approach ignored the fact that it was the change of beneficial ownership which led to the retirement and appointment of trustees and the transfer of trust property to the new trustees. That was the real explanation of the transfer of the property.
The point was illustrated by the following example. Assume that all the shares in X Co. Ltd are purchased by a takeover consortium which then elects a new board of directors. It is true that power is passed from the old board to the new board because the new board are the incoming directors, but they are so because they have been put there by the new owners of the company. It is true, but superficial and inadequate, to say that they are there because the old board has been voted out and they have been voted in[23].
[23]Commissioner’s Outline, para 5(q).
In response to a question by me, counsel said that he did not submit that the expression “because of” required the identification of a single cause. However, the cause relied on by the taxpayer must be “a complete explanation”. If it is not you must look for the complete agenda which leads to the transfer taking place. When you do that you look beyond the mere exiting of a trustee and a new trustee coming in and realise that the beneficial ownership was changing as part of the process. In that circumstance, it cannot be said that the transfer is simply because one trustee has gone and another trustee has come in[24].
[24]Transcript 29-30.
Counsel then relied on the written submission which contained several arguments as to the correct approach to interpreting an exemption provision in tax legislation; relevantly, that exemptions are “intrinsically unfair” and will only be granted “where there is some good reason for this”. He referred to the fact that s 33 is entitled “Change in trustees”, and that the definition of “new trustee” refers to a trustee appointed in substitution of or in addition to existing trustees, and suggested that the section was intended to apply where a trustee retired, or was released but not where the underlying beneficial ownership of property changed. As soon as one went further than simply moving one of the title holders, and not just because the trustee has to go, but because there are underlying transactions, you fail to comply with s 33(2).
Counsel then submitted that the parliamentary intention behind s 33(2) was that the exemption was available only when there is a “mere change in trustees” and the change in beneficial interest in the present case meant that the transfers were “because of other matters as well as the mere replacement or addition of a trustee”.
Decision
Regardless of the ways in which the issue was argued, the starting point is the language of the exemption provision itself, as it stood at the time of the transfers: “No duty is chargeable … in respect of a transfer of dutiable property to a special trustee because of the retirement of a trustee or the appointment of a new trustee (emphasis added)”.
The critical question is the meaning and application of the expression “because of” as it appears in the exemption. The Concise Oxford Dictionary defines “because of” as meaning “by reason of”. So defined, the expression “because of” is reduced to its bare bones, so to speak. To seek to clarify the expression by language of my own would involve the risk of placing a judicial gloss or qualification on the expression. Further, to go beyond this definition with further definition would be to go around in circles or at least, hopefully, in a circle that would return one to the beginning, but also with the risk I have mentioned. I merely observe that “because of” is an expression of causation; if event Y occurred “because of” event X, it follows that event X caused event Y.
In submitting that the transfers were “because of the retirement of a trustee”, counsel for the appellant focused on the form of the transactions. I do not say this by way of criticism but rather to recognise that he focused on the formal way in which the transfers followed on from the deeds of appointment and the vesting clause, such that the transfers could be said to be “because of” the retirement and appointment of trustees.
In stark contrast, counsel for the Commissioner focused on what he said was the substance of the transactions, namely that they were sales effecting a change in beneficial ownership of the properties. This focus on substance was apparent in his reliance on the outgoing unit holders being described in the deed as “vendors”, the nature of the obligations in the deed, and the submission that the properties had been “handed over for money”. And although he agreed that there had been no sale in the technical sense, he stated that the retiring trustee had obtained from the incoming unit holders the money used to redeem the outgoing unit holders’ units.
The difficulty for the Commissioner is that while counsel correctly acknowledged that the issue was not whether there had been sales, he nevertheless conducted his case as though the fact of sales was an end in itself. But given the common ground that sales had not occurred in the technical sense, although the transactions had brought about a change in the beneficial ownership in the properties, the characterisation of the transactions as sales did not answer the question. The real question was whether the appellant was correct in contending that the exemption in s 33(2) could still apply to a transfer arising from transactions by which the beneficial ownership of property had changed.
As to this, I accept the appellant’s submission, relying on Perpetual, that even if the underlying purpose of the transactions was to effect a change in the beneficial ownership of the properties, absent the word “solely” in s 33(2), it did not matter that the transfers were “because of” other factors, provided that the transfers were also “because of” the retirement or appointment of a trustee, in the sense that the retirement or appointment of trustees was a cause of the transfers. In Perpetual, the exemption was available if the transfer was “solely in consequence of the appointment or retirement of any trustee or other change in trustees…”. On the facts in that case, the exemption was not made out, as the transfer was made in consequence of other factors in addition to the change of trustee[25]. As I observed there however, without the word “solely”, it would have been enough that the transfer was in consequence of the change in trustees even if it was a consequence of another or other factors as well. I do not consider that to be a statement of principle but rather a statement of commonsense flowing from the language of the relevant exemption provision.
[25](2000) 44 ATR 273 at 289, [62].
Similarly, in the present case it is plain on the face of s 33(2) that the exemption applies if the transfers were “because of” the retirement of a trustee or the appointment of a new trustee, even though the transfers were also “because of” other factors. To read the exemption in s 33(2) as though it contained the word “solely” is unnecessary, productive of ambiguity and would deprive the subsequent amendment of effect.
That still leaves the question of whether the exemption in s 33(2) was satisfied on the agreed facts. In submitting that it was not, the Commissioner attempted to distinguish between the literal fact that the transfers were effected because of the retirement of the trustee, and the “real explanation” of the transfers, namely the change of beneficial ownership. Thus, the Commissioner accepted that the transfers were “because of” the retirement and appointment of trustees, yet he submitted that s 33(2) required more than this, namely that the factor relied on by the taxpayer as being the cause of the transfers be “real” and a “complete explanation”. If the reasons for the transfer went beyond a “mere change in trustees” the exemption did not apply.
I reject the Commissioner’s argument. Despite his statements to the contrary, I consider that counsel’s interpretation of s 33(2) has the effect of reading the exemption as though it contained the word “solely”. I am strengthened in that conclusion by the fact that counsel could not explain the operation of s 33(2) as he sought it to be applied, without ultimately falling back on reference to the exemption being available only where a “mere change of trustees” had occurred. I accept that the words ‘because of’ imply causation and are limiting. However, on the agreed facts, I consider that the transfers were made because of the retirement and appointment of trustees.
For these reasons, in each case the appeal will be allowed and the relevant assessment set aside. I will hear counsel on the terms of the orders and as to costs.
In these circumstances it is unnecessary to deal with the appellant’s alternative submission that the dutiable value of the property transferred, being the “bare legal estate”, was nominal. The Commissioner accepts that the value of the “bare legal estate” is nominal but submits that the estate transferred was the fee simple interest. The appellant’s submission relies on the decision in Challenger, the correctness of which will be passed on in the pending judgment on appeal. In the circumstances it is not merely unnecessary to deal with the appellant’s alternative submission, it is preferable not to do so.
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