6th States’ Taxation Conference
Dealing With State Taxes
The Taxation Intitute of Australia
National Division
27 July 2006
Hobart
6th states’ taxation conference
Dealing with State Taxes
Written and Presented by:
Ian V Gzell FTIA (Life)
CONTENTS
1 Dealing with state tax cases in New South Wales
1.1 The Revenue List
1.2 Hearing cases
1.3 The ECM Court
2 Keeping up to date
3 Is the concept of beneficial ownership still evolving?
3.1 NSW Clayton contact provisions
3.2 ISPT
3.3 ISPT (No 2)
3.4 Buckle
3.5 CPT
3.6 CPT v ISPT
3.7 Halloran
3.8 Halloran v ISPT
3.9 Other beneficial ownership cases
4 Conclusion
1 Dealing with state tax cases in New South Wales
1.1 The Revenue List
The Courts of the different States and Territories may deal with State Tax cases in different ways. In the Supreme Court of New South Wales, an informal Revenue List has been conducted within the Equity Division. That is soon to be formalised.
What is currently proposed is that any case to which the Commissioner of Taxation or a Second Commissioner of Taxation or a Deputy Commissioner of Taxation, or a Chief Commissioner of State Revenue or a Commissioner of State Revenue, or equivalent office holders in other States or Territories is a party, and any matter in which a Commonwealth Act or a State or Territory Act administered by any of those officers is raised, will be assigned to the Revenue List.
That will include a lot of debt collecting cases that involve the exploration of no new principle of law. It is currently proposed that such cases will be transferred to the Common Law Division or to the Corporations List in the Equity Division.
1.2 Hearing cases
State Tax cases are usually quite short. The taxpayer adduces evidence by way of affidavit and, quite often, the Chief Commissioner of State Revenue does not challenge the taxpayer’s evidence or put on additional evidence. Most cases will be concluded in a day. That has its advantages. I am usually able to assign a case a relatively quick trial date by filling up single days assigned to other cases that have settled.
Pre-trial directions are also relatively simple. I require the parties to exchange and deliver to my Associate a detailed outline of argument and list of authorities so that I am in a position to study the issues in question before going on the bench to hear the case. That shortens proceedings.
1.3 The ECM Court
Almost invariably I deal with pre-trial management by opening what is called an ECM Court. That is, a court in respect of which the use of an electronic case management system is authorised. [1]
While the legislation applies to any hearing of proceedings before an ECM Court other than a hearing conducted for the purpose of receiving oral evidence, the present system is a stand alone one that does not allow for access by the public.
The New South Wales Attorney-General’s Department is in the process of setting up CourtLink as an integrated multi-jurisdictional court administration system including the provision of web based eServices for the users of courts. The system will include both civil and criminal jurisdictions of the Supreme Court, including the Court of Appeal and the Court of Criminal Appeal, the District Court, Local Courts, Coroner’s Court, Children’s Court, Chief Industrial Magistrate’s Court and Sheriff’s Office. When that project is complete, ECM Court proceedings will, unless specifically suppressed, be open to the public. In the meantime the facility is used for non-contentious matters in which it is appropriate to rule that they be determined in the absence of the public.
Where it is appropriate for oral argument to take place, I adjourn the matter from the ECM Court to an open Court. But its use in straightforward pre-trial directions is cost saving. Not only are the parties not required to attend in Court, but also the orders made in the ECM Court can be transmitted electronically to the Registry for the updating of the file. The parties are saved the expense of taking out a formal order and having an articled clerk wait his or her turn in the Registry to lodge the document.
2 Keeping up to date
How does a judge deal with State Taxes? Well, the answer is, in much the same way as State Tax practitioners and State Revenue officials do. One has to keep up to date with legislative changes and judicial decisions. I note that later today those aspects are to be covered.
If an adviser is retained by a taxpayer or by the Revenue, the adviser not only needs to consider whether the proposal falls within or without the taxing legislation, the adviser also needs to anticipate the arguments likely to be raised by the other side if the matter is to be tested in a Court.
In a sense, the judge’s task is an easier one because instead of trying to anticipate the opposition’s submissions, the judge has the advantage of submissions on both sides, and in State Tax matters, both the Revenue and the taxpayer tend to brief counsel of calibre, so that the presentation of alternative arguments is well put.
3 Is the concept of beneficial ownership still evolving?
With the increased use of property-holding trust structures, the concept of changes in beneficial ownership become significant when considering transfers of the underlying property. The concept continues to trouble the Courts with the consequence that it will continue to trouble Revenue officials and State Tax advisers alike. It is worthwhile considering a number of cases that highlight the difficulty.
It used to be thought that all the unit holders for the time being in a unit trust had the entire beneficial interest in the underlying assets making up the fund. See, for example, Aust-Wide Management Ltd v Chief Commissioner of Stamp Duties (NSW) [2] and Comptroller of Stamps v Yellowco Five Pty Ltd[3] and the cases there cited. That position has changed.
3.1 NSW Clayton contact provisions
The now repealed Stamp Duties Act, 1920 (NSW) contained Clayton contract provisions. If a transaction caused or resulted in a change in beneficial ownership of an estate or interest in land, the parties to the transaction, if not effected or evidenced by an instrument chargeable with ad valorem duty, were required to lodge with the Chief Commissioner a statement in respect of the transaction if they would have been liable to pay the ad valorem duty had an instrument been executed. [4] The statement was deemed to be an instrument perfecting the transaction and was chargeable with ad valorem duty. [5]
There were exceptions to this general structure. A change in beneficial ownership did not include a change occurring as the consequence of the issue or redemption of units in a unit trust scheme. [6] A unit trust scheme was any arrangement for the purpose, or having the effect, of providing, for persons having funds available for investment, facilities for the participation by them, as beneficiaries under a trust, in any profits or income arising from the acquisition, holding, management or disposal of any property whatsoever pursuant to that trust. [7]
The Duties Act 1997 (NSW) does not contain the same exemption. It contains a different one. Duty is charged on a transfer of dutiable property. [8] Dutiable property is defined to include land in New South Wales.[9] It is also defined to include an interest in dutiable property, [10] and therefore in land, except to the extent that it arises as a consequence of the ownership of a unit in a unit trust scheme and is not a land use entitlement. [11] A land use entitlement is an entitlement to occupy land in New South Wales conferred through an ownership of shares in a company or units in a unit trust scheme, or a combination of both together with a lease or licence. [12] The Courts will, no doubt, be called upon to determine precisely what that exemption means.
3.2 ISPT
The provisions of the former New South Wales exemption were crucial to the scheme in Chief Commissioner of Stamp Duties v ISTP Pty Ltd. [13] That scheme was developed on the back of a large white envelope which delivered to my hotel room a brief from a Melbourne solicitor who found out that I was holidaying in Melbourne. Changes in beneficial ownership had been devised prior to ISPT, but my instructions were to change the legal title as well and, for the future, to avoid for the land-rich provisions.
You will recall that Coles Myer Property Investments Pty Ltd owned two shopping centres in New South Wales. Identical transactions were carried out to acquire each shopping centre. The trust to acquire the Forster shopping centre was called ISPT Coles Myer (Forster) Property Trust (No 1). ISPT Pty Ltd was appointed trustee. The trust deed provided for the appointment of a nominee for the holding of any investment forming part of the trust fund subject to the prior written approval of the unit holders.
Coles Myer Property Investments acquired units in the Forster No1 Trust by a cheque for $1 in excess of the agreed purchase price for the Forster shopping centre. ISPT then made a written offer as trustee of the Forster No 1 Trust to purchase the shopping centre for the agreed purchase price. The letter stated that Coles Myer Property Investments could accept the offer orally whereupon the full purchase price would be paid and Coles Myer Property Investments would hold the shopping centre as a nominee under the Forster No 1 Trust so long as it remained the registered proprietor. The offer was accepted and ISPT endorsed the cheque back to Coles Myer Property Investments, which gave change of $1.
Thereafter, ISPT as trustee of the Industry Superannuation Property Trust and ISPT Custodians Pty Ltd as trustee of the ISPT Coles Myer (Forster) Property Trust No 2 by cheques purchased an equal number of units in the Forster No 1 Trust which together amounted to the number of units held by Coles Myer Property Investments. Its units were then redeemed by endorsement of the two cheques to it. It then resigned as nominee, ISPT appointed ISPT Nominees Pty Ltd as replacement nominee, and an instrument of transfer of the Forster shopping centre from Coles Myer Property Investments to ISPT Nominees was executed and registered.
The Conveyancing Act 1919 (NSW), s 54A(1) provides, relevantly for present purposes, that no action on a contract for sale of land, or an interest in land, can be brought unless it, or some memorandum or note of it, is in writing. Equity will not, however, allow a statute to be used as a cloak for fraud, [14] so that if a purchaser has unequivocally partly performed the contract, the section will not prevent equitable assistance to the purchaser, even if specific performance is not open.
In addition, the Conveyancing Act 1919 (NSW), s 23C(1) provides that no interest in land can be created or disposed of except by writing. It also provides, however, [15] that the section does not affect the creation or operation of resulting, implied, or constructive trusts.
The Chief Commissioner argued that the offers and the payment of the purchase prices for the two shopping centres led to changes in beneficial ownership because of the general principle, stated in Stern v McArthur [16]that, at that stage, the purchaser is entitled, in equity, to the land and the vendor is a bare trustee, notwithstanding that the contract may not be specifically enforceable in a strict sense. Equity will protect the purchaser.
ISPT argued that equity would not give its aid to ISPT as purchaser, and the principle in Stern did not apply because, to create a constructive trust in favour of ISPT as purchaser, or to merge the trust and sub-trust, would have Coles Myer Property Investments holding on a bare trust for itself, and the law did not recognise such a relationship. Equity will not go through the charade of intervening in such circumstances. It will not lend its aid to a futility. [17] There was no reason to override the statute. No constructive trust of the shopping centres arose in ISPT upon completion of the agreements for purchase.
If, contrary to that view, constructive trusts did arise in favour of ISPT as purchaser, ISPT argued that there was still no change in beneficial ownership, at the stage of the contracts of purchase, because Coles Myer Property Investments owned the property before the contracts of purchase and held both the legal interest and the only equitable interest after the contacts had been performed. No change in beneficial ownership occurred, therefore, until the issue of the new units and, subsequently, upon the redemption of the units of Coles Myer Property Investments and both transactions fell within the exemptions for changes in beneficial ownership occurring as a consequence of the issue, and then the redemption, of units in a unit trust scheme.
A majority of the Court of Appeal rejected the Chief Commissioner’s submissions. Since, before the transactions in question, Coles Myer Property Investments owned the shopping centres, and after the transactions of purchase it owned the entire beneficial interests, there was no change. Meagher JA put it this way: [18]
“… The legal estate resided in Coles Myer Property Investments both before and after steps (5) and (6). Either s 23C and s 54A of the Conveyancing Act 1919, applied to nullify the ordinary effect of those two steps, or they did not. If they did, the beneficial interest remained with Coles Myer Property Investments. If they did not, the beneficial interest also remained in Coles Myer Property Investments, in its capacity as sole unit holder in ISPT. In neither event is there any change of beneficial interest. On this basis the appellant’s submission must fail.”
Fitzgerald A-JA noted [19] that the Chief Commissioner did not provide authority to support his proposition that a sole beneficiary of a trust that was entitled to specific performance of a contract to purchase property derived beneficial ownership of the property through the trustee in the sense that, for an instant, beneficial ownership was vested in the trustee as it passed from vendor to beneficiary. His Honour went on to say:
“The beneficial estate or interest in the Forster Shopping Village which passed to ISPT was the concatenation of rights, enforceable in equity against Coles Myer Property Investments both as vendor and sole unit holder, which ISPT obtained in respect of the property under the contract of sale and purchase and the trust deed with respect to the Forster No 1 Trust. Nothing else passed to ISPT, or to or from Coles Myer Property Investments.”
In his dissenting judgement, Mason P took the view that a change in beneficial ownership occurred when Coles Myer Property Investments became a nominee, in order to perfect the intention of the parties that the entire equitable interest in the Forster shopping centre should be brought into the Forster No 1 Trust. His Honour said: [20]
“Accordingly, I hold that a change in beneficial interest in the land occurred at step (6) when Coles Myer Property Investments received the agreed purchase price and accepted the role as nominee for ISPT. In order to effectuate the intentions of the parties, which was to bring the entire equitable interest in the land into the Forster No 1 Trust, ISPT received the property subject to the equitable obligations of an active sub-trustee. An equitable interest is capable of being made the subject of a (sub) trust, and it is axiomatic that the creation of a trust creates an equitable estate…This was a change in beneficial ownership sufficient to engage s 44(1).”
Mason P dealt with an alternative argument of the Chief Commissioner that ISPT’s indemnity rights with respect to trust expenses gave it a beneficial interest in the shopping centres. His Honour observed that if termination of a trust was sought by all beneficiaries in accordance with the rule in Saunders v Vautier,[21] the trustee, at that stage, would have a right in the nature of a lien for the recoupment of any trust expenses actually incurred at that point in time, that right being superior, or prior, to that of the beneficiaries to receive the trust assets.
His Honour rejected the alternative argument, however, [22] on the basis that a trustee’s right of indemnity arises at the time when a liability is incurred, as it is at that stage that the lien over the trust assets arises. That had not happened. As Fitzgerald A-JA observed, [23] at 659 the Chief Commissioner did not dispute the primary judge’s conclusions that no event giving rise to an entitlement under the indemnities had arisen, so that ISPT’s indemnity rights had not been activated.
3.3 ISPT (No 2)
As you know, the Chief Commissioner tried again in ISPT Nominees Pty Ltd v Chief Commissioner of State Revenue [24] in which he sought to exact duty on the instrument of transfer. It was held exempt under the repealed Act Stamp Duties Act, 1920 (NSW), s 73(2A) as a conveyance made for nominal consideration in consequence of the appointment of a new trustee.
3.4 Buckle
The High Court had visited the question of a trustee’s right of indemnity in Chief Commissioner of Stamp Duties (NSW) v Buckle. [26] The repealed Act provided that a conveyance of property made without consideration in money or money’s worth was to be charged with ad valorem duty on the greater of the unencumbered value of the property or the amount or value of all encumbrances subject to which the property was conveyed. [27] In one aspect of its judgment, the High Court considered whether a trustee’s indemnity fell within the provision.
It was held that, although a trustee had a beneficial interest in the trust property to the extent of the right of reimbursement or exoneration for the discharge of liabilities incurred in administering a trust, that interest did not encumber the beneficiaries’ interests. The Court said [28] that the term “trust assets” may be used to identify those held by a trustee upon the terms of the trust, but, in respect of such assets, there exist the respective proprietary rights, in order of priority, of the trustee and the beneficiaries. The trustee’s right to exoneration or recoupment “takes priority” over the rights in, or in reference to, the assets of beneficiaries or others who stand in that situation. [29]
3.5 CPT
The High Court has recently revisited the indemnity question in CPT Custodian Pty Ltd v Commissioner of State Revenue. [30]
This is one of the cases to be discussed in a later session and I will try not to impose too heavily on that discussion.
The Victorian Commissioner of State Revenue assessed land tax against the unit holders in a number of unit trusts that held shopping centres. The taxpayers held 100% of the units in some trusts and less than 100% in others. A curiosity of the case is that the Commissioner chose to assess the unit holders rather than the legal owner of the lands, the trustees. Early in the address of Mr Merralls QC, who appeared for the Commissioner, this exchange took place with the Chief Justice: [31]
“Gleeson CJ: Mr Merralls, if the legal owner is liable to pay land tax, and then if somebody else is made liable, you get an entitlement to deduct the tax paid by the legal owner….
Mr Merralls: Yes.
Gleeson CJ: Why does this dispute matter?
Mr Merralls: Why does it matter?
Gleeson CJ: Yes. Why is not the legal owner always there liable to pay the tax in these cases, for example?
Mr Merralls: The tax ultimately is borne by the beneficial owner, because the legal owner has a right to obtain repayment….
Gleeson CJ: Yes, I am just wondering what difference it makes to the revenue, unless there is an insolvency somewhere.
Mr Merralls: The provisions are primarily for ease of collection, in that it is easier, I think, to target the legal owner in some cases, than the beneficial owners, and probably is….”
The answer lies in amalgamation. If a beneficiary was an owner, all other land of which the beneficiary was owner was subject to tax as well. [32]
The question was whether the unit holders were “owners” of the land under portion of the definition, [33] that included every person entitled to any land for any estate of freehold in possession.
The High Court rejected as dogma the proposition that where ownership is vested in a trustee, equitable ownership must necessarily be vested in someone else, because it is an essential attribute of a trust that it confers upon individuals a complex of beneficial legal relations that may be called ownership. The Court approved what Griffith CJ had said in Glenn v Federal Commissioner of Land Tax: [34]
“The respondent’s argument is based on the assumption that whenever the legal estate in land is vested in a trustee there must be some person other than the trustee entitled to it in equity for an estate of freehold in possession, so that the only question to be answered is who is the owner of that equitable estate. In my opinion, there is a prior inquiry, namely, whether there is any such person. If there is not, the trustee is entitled to the whole estate in possession, both legal and equitable.”
Their Honours referred to what Meagher JA had said in ISPT in the quotation set out above, that if the provisions of the Conveyancing Act 1919 (NSW) did not nullify the arrangement, the beneficial interest was in Coles Myer Property Investments, in its capacity as sole unit holder in ISPT. Their Honours said that that observation might be at odds with what was said in Glenn to the extent that they went beyond construction of the particular New South Wales stamp duty legislation. But they found it unnecessary to pursue that question. Does that statement indicate that if ISPT had gone to the High Court, the decision might have been reversed? I think not, for reasons I will develop.
A critical consideration of the Court was the interest held by a unit holder under the trust deed in question. Thus the Court distinguished Charles v Federal Commissioner of Taxation [35] in which the High Court held that a unit under the trust deed there in question conferred a proprietary interest in all the property that, for the time being, was subject to the terms of the trust. The deed in that case divided the beneficial interest in the trust fund into units and the trustees were bound to make half yearly distributions to unit holders, in proportion to their respective number of units, of the cash produce that had been received by the trustee.
In CPT, by contrast, the fund was vested in the trustee upon trust for the unit holders. Both the trustee and the manager, in which the management of the fund was vested exclusively, were entitled to fees in significant amounts to be paid out of the fund, and also to monthly reimbursements from the fund of their costs, charges and expenses. The beneficial interest in the fund was divided into units each said to confer an equal interest in all property for the time being held by the trustee upon the trust of the deed but excluding that part of the fund credited to a distribution account for distribution to unit holders. But no unit conferred any interest in any particular part of the trust fund, or any investment, and each unit had only such interest in the trust fund as a whole as was conferred on a unit under the provisions of the deed. The unit holders were not entitled to require the transfer of any property comprised in the fund, although it was provided by the deed that, by agreement with the manager, distributions in specie might be made upon determination of the fund. A unit holder was not entitled to lodge a caveat claiming an estate or interest in any investment being realty, and unit holders were bound by the terms of the deed as if parties to it. The deed contemplated that all units might be held beneficially by a single unit holder. There was provision for distribution to unit holders of periodic income entitlements and for the realisation of the fund upon its determination and distribution of the proceeds among unit holders. There was a mechanism for the manager to repurchase units for cancellation or resale.
The Court approved the decision of Nettle J at first instance that the entitlements of the unit holders in those terms did not make them an owner for land tax purposes.[36]
As to the argument that a unit holder with 100% of the units was an owner, the High Court pointed out that while the trust deed contemplated that all issued units might be held beneficially by a single unit holder, the trust deed was not drawn to provide a single right of a cumulative nature, and the trusts were drawn in terms conferring individual rights attaching to each unit.
Furthermore, their Honours concluded that the rule in Saunders v Vautier [37] did not apply to constitute the single unit holder the owner of the trust fund. Their Honours accepted, as the modern formulation of that rule, the statement in Thomas on Powers:[38]
“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.”
Their Honours pointed out, [39] that the trust deed before them contained a covenant by the manager to ensure that there were, at all times, sufficient readily realisable assets of the trust available for the trustee to raise the fees to which the manager and the trustee were entitled, such that the unit holders were not the persons in whose favour, alone, the trust property might be applied by the trustee under the deed. Furthermore, the unsatisfied trustee’s right of indemnity was expressed as an actual liability in the accounts of the trust, so that until satisfaction of the rights of reimbursement or exoneration, it was impossible to say what the trust fund in question was. [40] And, finally, their Honours said that it was one thing to say that a Court of equity would not enforce a trust for accumulations in which no person had an interest but the legatee, and another to determine for statutory purposes that there is a presently subsisting interest in all of the trust assets at midnight on 31 December immediately preceding the year of assessment, because of what could thereafter be done in exercise of a power of termination of the trust, but at that date had not been done. Their Honours said: [41] “Equity often regards as done that which ought to be done, but not necessarily that which merely could be done.”
3.6 CPT v ISPT
There are a number of reasons why I think the approach of the High Court in CPT is not inconsistent with the approach of the Court of Appeal of New South Wales in ISPT.
First, while CPT was concerned with ownership, ISPT was concerned with a change in ownership. There may be a change in ownership constituted by an interest less than full ownership. One has to be careful not to uncritically translate statements in one context into the other.
Secondly, in CPT there was no ownership, not only because the beneficiaries had no interest in any specific asset in the trust fund, but also because of the specific provisions of the trust deed that gave rights to the trustee and manager, including the rights to substantial remuneration and the rights to reimbursement or exoneration for trust expenses. The lack of an interest in any specific underlying asset would not exclude ownership if the beneficiary or beneficiaries were otherwise entitled to rely upon the principle in Saunders v Vautier [42] and terminate the accumulation. Apart from a specific indemnity against all losses, costs, damages or expenses incurred by the trustee in performing any of its duties, or exercising any of its powers, or as a result of the exercise or non-exercise of any discretion in relation to the trust, [43] there were no such rights in ISPT.
Thirdly, the trustee’s rights did not change in ISPT. They remained exactly the same before and after the oral acceptance of the written offer by Coles Myer Property Investments, the payment of the purchase price, and Coles Myer Property Investments’ assumption of the role of bare trustee.
Finally, there was no challenge to the finding of the judge at first instance in ISPT that the occasion for a call by the trustee on its indemnity had not arisen.
3.7 Halloran
And that brings me to another case to be discussed in the update session, Halloran v Minister Administering National Parks and Wildlife Act 1974. [44]
A critical difference between ISPT and Halloran was that in ISPT, Coles Myer Property Investments held the full legal title to the land and was the only unit holder in Property Trust (No 1) when ISPT made its written offer to purchase the land. In Halloran, Sealark only held an equitable interest in the land when Pacinette as trustee offered to purchase that interest in consideration for the allotment of further A class units in the trust.
The High Court held there was a change in beneficial ownership that was not defeated by the Conveyancing Act 1919 (NSW), s 23C(1) requirement for writing for the transfer of an equitable interest in land, either because of the exception of a constructive trust in s 23C(2) or because to use the statute in the circumstances would constitute it an instrument of fraud. The promise of consideration created the constructive trust or use of the statute as an instrument of fraud, regardless of the form of that consideration. Hence, the promised consideration in the form of an allotment of A class units did not enliven the exception under the Stamp Duties Act, 1920 (NSW), s 44(2)(d) for a change in beneficial ownership occurring as the consequence of the issue or redemption of units in a unit trust scheme.
The case foundered because, there being a change in beneficial ownership outside the exception in the Stamp Duties Act, 1920 (NSW), s 44(2)(d), the appellant was denied the right to prove that change and, thereby, its entitlement to compensation for resumption of the land, because s 29(3) provided that no instrument in respect of a transaction to which s 44(1) applied could, except in criminal proceedings, be given in evidence.
3.8 Halloran v ISPT
Passing references were made to ISPT in the course of the judgment in Halloran. The Court referred to the fact that Mason P had described the provisions as an anti-avoidance measure designed to strike at a broad sweep of tax avoidance schemes some of which had been described in the Second Reading Speech. [45] While Mason P dissented in ISPT, the statement is non-contentious and is not suggestive of a difference of view about the result in ISPT.
The Court pointed out three things about ISPT.[46] First, as Barrett J concluded in the second ISPT case, [47]the Court of Appeal decision in the earlier case only bound him so far as it concluded that the transaction did not fall within the Stamp Duties Act, 1920 (NSW), s 44(1) and that there was no majority view on questions respecting formalities for the creation of trusts and the characteristics of sub-trusts. Secondly, ISPT involved consideration of unit trust deeds before the decision in CPT. Thirdly, the success of the avoidance scheme implemented in ISPT depended on a matter of timing. As Mason P pointed out, it was critical to the taxpayer’s argument based on s 44(2)(d) that no change in beneficial ownership occurred until the issue of new units and the subsequent redemption of units. Again, while reference is confined to the dissenting judgment in ISPT, none of the statements contains the suggestion that ISPT was wrongly decided.
Then there is the reference to the respondent’s submission [48] that it was difficult to discern any ratio decidendi in the majority reasons in ISPT, that there were material differences between ISPT and Halloran, that the Minister reserved the State’s position as to the incidence of stamp duty upon transactions which differed from ISPT, and if there had been a direct passage of beneficial ownership from Sealark to Pacinette, the Stamp Duties Act, 1920 (NSW), s 29(3) would bar the admission of documentary evidence to prove the transaction in compensation proceedings. Again, that recitation does not contain a threat that ISPT might have been decided differently had it been the subject of an appeal to the High Court.
With respect to the circumstance that the use of the bill of exchange was not strictly in accordance with the plan, the Court concluded [49] that it was drawn by Pacinette on Sealark, accepted by Sealark, and payable to Pacinette as trustee, and the bill was indorsed by Pacinette as trustee to Sealark. The Court then mentioned [50] that Mason P properly emphasised in ISPT that equity does not work to defeat the lawful intention of parties; its preference of substance to form and its regard for what ought to be done as having been done are indications of the contrary inclination. Again, those observations are non-contentious and do not suggest a preference for the dissenting judgment of Mason P in ISPT to that of the majority.
But there is one portion of the judgment that may cast doubt on the efficacy of ISPT. The Court said: [51]
“However, it no doubt is true that Sealark would hold all the issued A Class units in the Pacinette Property Trust. Would the fact that Sealark was sole unit holder of those units have the consequence, as the appellants submitted, that the “beneficial ownership” of the equitable interest in the land had not changed because that interest was still to be found, by reason of the issue of the units, in the hands of Sealark? The answer must be that there had been a change. Consistently with the reasoning in CPT Custodian Pty Ltd v Commissioner of State Revenue and with the terms of the Pacinette Trust Deed, to which reference has been made earlier in these reasons, Sealark would not have any interest in any particular part of the Trust Fund or in any investment thereof.”
While it is true that the High Court had, in CPT, commented on the provision in the trust deed there in question that no unit conferred any interest in any particular part of the trust fund, or any investment, but only such interest in the trust fund as a whole as was conferred on a unit, and a like provision appeared in the trust deed in ISPT,[52] that was not, in my view, the basis for the judgment in CPT. It turned, as indicated earlier in this paper, upon the gloss placed by the Court upon the modern formulation of the rule in Saunders v Vautier [53] because of the interests that had accrued to the manager and trustee for their remuneration and their entitlement to indemnity expressed as an actual liability in the relevant accounts of the trust. If Sealark held no interest in underlying assets of the trust but could otherwise terminate the accumulation, what change in beneficial ownership occurred?
If the ratio decidendi of CPT is that a trustee’s entitlement to reimbursement and exoneration means that there is a change in beneficial ownership, ISPT is unaffected because, as already indicated, no occasion had risen to enliven those rights. If, on the other hand, the rationale of CPT is as indicated by the majority in Halloran, then ISPT was doomed if the High Court had considered it after its decision in CPT.
3.9 Other beneficial ownership cases
The question when a change in beneficial ownership occurs is not limited to an analysis of State Taxes. It can arise in many contexts. In Bluebottle UK Ltd & Ors v Deputy Commissioner of Taxation & Anor, [54] one of the issues I had to consider was when under an equitable assignment of future property the entitlement arose in the assignee. Virgin Blue Holdings Ltd had resolved to pay a dividend on 15 December 2005. On 12 December 2005, the Commissioner of Taxation issued notices under the Income Tax Assessment Act 1936 (Cth), s 255 requiring Virgin Blue to pay to him, when required by him, tax said to be due and payable by two non-resident shareholders. The next day, the shareholders executed deeds of assignment of their right, title and interest to receive the dividends to another non-resident to whom s 255 would not apply. On 14 December 2005, the Commissioner notified Virgin Blue that the amounts specified in his notices were required to be paid to him.
One of the arguments raised by the Commissioner was that there was a nanosecond on 15 December 2005 when the legal entitlement to the dividends vested in the two shareholders in order that their assignments could take effect. I formed the view that there was no moment in time at which legal title to the dividends vested in the shareholders free from the equitable interests of the assignee.
I took the view that there are many authorities on equitable assignments of future property that establish that once the property comes into existence, the equitable title to it arises without any further step and eo instanti in the assignee, and the assignor holds as bare trustee. [55]
In Abby National Building Society v Cann,[56] the House of Lords held that where a purchaser relied on a financial institution loan for completion of his purchase, the transactions of acquiring the legal estate and granting a charge were one indivisible transaction, at least where there had been a prior agreement to grant the charge on the legal estate when obtained. There was no scintilla temporis during which the legal estate vested in the purchaser free of the charge and an estoppel affecting the purchaser could be “fed” by the acquisition of the legal estate so as to become binding on, and take priority over the interest of, the chargee.
4 Conclusion
I wish to acknowledge the research work done by my tipstaff, Sophie Hunt. Her assembly and analysis of the cases was of invaluable assistance to me in writing this paper.
If the paper has done anything, it has established that issues relating to beneficial ownership will continue to trouble State Tax advisers, Revenue officials and the Courts.
Lightman J delivered the Withers' annual lecture entitled The trustees' duty to provide information to beneficiaries in October 2003. That lecture has nothing to do with my subject, except what Sir Gavin said in conclusion. I adopt his every word:
“I should however add a word of caution to those who hear or read this lecture. A judge who expresses his view of the law without the assistance of counsel’s argument is like a mariner who sails dangerous straits without a pilot. He has no such warning as he is accustomed to receiving from that source of shoals or other navigational hazards. Not merely may it be unsafe to rely on what I say without such assistance, but it should not be assumed that, if ever an issue such as is touched on in this lecture comes before me in my judicial capacity, possessed with that assistance even I shall take the same view.”
END NOTES
[1] Electronic Transactions Act 2000, s 14A, s 14B, s 14C, s 14I; Electronic Transactions (ECM Courts) Order 2005, cl 4; Uniform Civil Procedure Rules 2005, r 3.9(1); Civil Procedure Act 2005, s 71
[2] 92 ATC 4,740 at 4,746-4,747. The decision was reversed on appeal on different grounds: Aust-Wide Management Ltd v Chief Commissioner of Stamp Duties (NSW) 96 ATC 4,774
[3] [1993] 2 VR 529 at 532, 535, 542
[4] Stamp Duties Act, 1920 (NSW), s 44A(1)
[5] Stamp Duties Act, 1920 (NSW), s 44A(5)
[6] Stamp Duties Act, 1920 (NSW), s 44(2)(d)
[7] Stamp Duties Act, 1920 (NSW), s 3(3)
[8] Duties Act 1997 (NSW), s 8(1)(a)
[9] Duties Act 1997 (NSW), s 11(1)(a)
[10] Duties Act 1997 (NSW), s 11(1)(l)
[11] Duties Act 1997 (NSW), s 11(1)(l)(i)
[12] Dictionary
[13] (1998) 45 NSWLR 639
[14] McBride v Sandland (1918) 25 CLR 69 at 77-78; J C Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282
[15] Conveyancing Act 1919 (NSW), s 23C(2)
[16] (1988) 165 CLR 489 at 523
[17] Corin v Patton (1989-1990) 169 CLR 540 at 579
[18] Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 at 654
[19] Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 at 660
[20] Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 at 652
[21] (1841) 4 Beav 115 (49 ER 282); affirmed at (1841) Cr & Ph 240 (41 ER 482)
[22] Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 at 653
[23] Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 at 659
[24] (2003) 59 NSWLR 196
[25] Stamp Duties Act, 1920 (NSW), s 73(2A)
[26] (1998) 192 CLR 226
[27] Stamp Duties Act, 1920 (NSW), s 66
[28] Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 246-247
[29] Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 at 335
[30] (2005) 79 ALJR 1724
[31] CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA Trans 388
[32] Land Tax Act 1958 (Vic), s 8(1)
[33] Land Tax Act 1958 (Vic), s 3
[34] (1915) 20 CLR 490 at 497
[35] (1954) 90 CLR 598
[36] CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 79 ALJR 1724 at [28], [36]
[37] (1841) 4 Beav 115 (49 ER 282); affirmed at (1841) Cr & Ph 240 (41 ER 482)
[38] Sweet & Maxwell, London, 1998, at 176
[39] CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 79 ALJR 1724 at [49]
[40] CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 79 ALJR 1724 at [51]
[41] CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 79 ALJR 1724 at [52]
[42] (1841) 4 Beav 115 (49 ER 282); affirmed at (1841) Cr & Ph 240 (41 ER 482)
[43] ISPT Ltd v Chief Commissioner of Stamp Duties (NSW) 98 ATC 4,084 at 4,094-4,095
[44] (2006) 80 ALJR 519
[45] Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 80 ALJR 519 at [19]
[46] Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 80 ALJR 519 at [23]
[47] ISPT Nominees Pty Ltd v Chief Commissioner of State Revenue (2003) 59 NSWLR 196
[48] Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 80 ALJR 519 at [25]
[49] Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 80 ALJR 519 at [64]
[50] Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 80 ALJR 519 at [65]
[51] Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 80 ALJR 519 at [75]
[52] ISPT Ltd v Chief Commissioner of Stamp Duties (NSW) 98 ATC 4,084 at 4,087
[53] (1841) 4 Beav 115 (49 ER 282); affirmed at (1841) Cr & Ph 240 (41 ER 482)
[54] [2006] NSWSC 706
[55] Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 27, Norman v Federal Commissioner of Taxation (1962-1963) 109 CLR 9 at 24-25, Booth v Federal Commissioner of Taxation (1987) 164 CLR 159 at 165-166, Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 at 450
[56] [1991] AC 56
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