Appellant v Respondent

Appellant v Respondent - [2005] VSC 484 - VSC 2005 case summary — Zoe

[4]

4 The facts are largely uncontested and are set out in the affidavits and exhibits filed on behalf of the taxpayer.[1]

5 The taxpayer has at all relevant times been an association of employees constituted and registered under the Workplace Relations Act 1996 (Cth) ("the Workplace Act") and its predecessors. It is a body corporate with power to purchase, hold, sell and otherwise deal with real property.[2]

6 The internal constitution of the taxpayer is governed by rules which are registered under the Workplace Act ("the rules"). The members of the taxpayer are attached to relevant State branches. To the extent set out in the rules, each branch is entitled to have full autonomy, representation and control of the industrial interests of its members. The branches maintain separate branch funds and books of account.

7 The branches are not separate legal entities from the taxpayer. The relevant branch in this case is the Victorian branch. It is not and never has been registered under the Trade Unions Act 1958 (Vic) or any other legislation which would operate to confer separate legal personality on it.

8 The Fedsda trust is a unit trust which was set up by the Victorian branch of the taxpayer and what was then the Federated Clerks' Union of Australia, for the purpose of facilitating their acquisition and joint equal ownership of the property.

9 Since 29 November 1976, Fedsda has been the trustee and the taxpayer has been a beneficiary of the Fedsda trust. Since 17 December 1993, the taxpayer has been the sole beneficiary of the trust.

10 On 16 December 1976, Fedsda became the sole registered proprietor of the property. It bought the property in its capacity as trustee of the Fedsda trust. At the time of purchase, Fedsda paid the applicable stamp duty on the transfer. Fedsda remained the sole registered proprietor until the transfer the subject of the present dispute.

11 On 30 September 2002, Fedsda and the taxpayer executed a transfer of the property to the taxpayer. The transfer followed some correspondence between the taxpayer and Fedsda, which will be discussed in detail later in these reasons. The taxpayer paid $5,500,000 to Fedsda.

12 The transfer was to the taxpayer absolutely. The consideration stated on the original transfer was "Entitlement in equity as beneficiary of the Fedsda trust".

13 In order for the transfer to be accepted for registration, the Registrar of Titles sought further information and requested certain amendments to be made.[3] On 20 August 2004 the transfer, as amended, was finally registered. The amended transfer described the consideration as "Entitlement in equity and $5,500,000 being paid by the transferee by way of administrative adjustment between its branches."

14 The taxpayer says that, notwithstanding the correspondence and the payment, there was in fact no sale. It says that the payment occurred for internal administrative purposes only. This argument will be discussed further later in these reasons.

15 In January 2003, the Commissioner issued a notice of assessment to the taxpayer for duty of $275,000, based on a dutiable value of $5,000,000. The assessment was paid in full. The basis of the assessment was that the transfer was not exempt under s.36 because the property was not transferred to the taxpayer qua beneficiary.

16 In February 2003, the solicitors for the taxpayer lodged an objection to the assessment. On 27 October 2003, the Commissioner issued a notice of determination of the objection, upholding the basis of the original assessment and increasing the assessment by $27,500 to $302,500, based on a dutiable value of $5,500,000. This appeal commenced on 17 June 2004.

The exemption

17 At the time of the transfer, s.36 provided that:

[34]

In what capacity did the taxpayer receive the transfer?

46 In the alternative, the taxpayer says that even if s.36 only applies where a transfer is to a beneficiary qua beneficiary, the exemption applies in the present case, because the proper characterisation of the transfer is that it was to the taxpayer qua beneficiary. On the other hand, the Commissioner says the taxpayer received the transfer as a purchaser for consideration.

47 Under the trust deed, only income could be distributed to beneficiaries prior to the vesting day. The trust deed also provided that beneficiaries were not entitled to any particular part of the trust fund and no beneficiary was entitled to the transfer to it of any property comprised in the trust fund[16]. Furthermore, in the present case, the taxpayer did not purport to call for a transfer under the trust deed.

48 Whilst Fedsda had general trustees' powers to sell, transfer and convey property[17], those powers had to be exercised for the purposes of the trust. Such provisions would not have authorised it to simply transfer the property to a beneficiary prior to the vesting day without consideration.

49 The taxpayer then says that, quite apart from the terms of the trust deed itself, a beneficiary has a right to wind up the trust and call for the distribution of the trust assets. In doing so, it relies upon the rule in Saunders v Vautier[18] that one or more adult beneficiaries who 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 them. The taxpayer says that, as sole beneficiary, it already had the entire equitable interest and the right to require Fedsda as trustee to transfer to it the legal title.

50 As the High Court has recently commented in CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings Pty Ltd[19], "the classic nineteenth century formulation by the English courts of the rule in Saunders v Vautier did not give consideration to the significance of the right of the trustee under the general law to reimbursement or exoneration for the discharge of liabilities incurred in the administration of the trust." In that case, having regard to the terms of the particular trust deed, the High Court held that until satisfaction of the trustee's right of reimbursement under the trust deed, it was impossible to say what the trust fund in question was. If it were necessary to decide the matter, in my opinion the same result would follow in this case, having regard to the terms of the Fedsda trust deed.

51 Most importantly for present purposes, whatever rights the taxpayer may have had under the Saunders v Vautier principles, it did not purport to exercise them here. The Fedsda trust has not been wound up and the trust assets distributed. On the contrary, Fedsda has purchased further trust property.

52 On what basis then was the transfer effected? The Commissioner says that the correct legal characterisation of what occurred is that Fedsda sold the property to the taxpayer for $5,500,000. It was a simple sale and purchase for monetary consideration.

53 The taxpayer says that the payment was nothing other than a necessary internal financial adjustment, perceived to be required under the Workplace Act and its rules and made to comply with them, to ensure that the pre-existing distribution of the taxpayer's assets as between its various branches was maintained. The taxpayer relies upon the following matters in support of that conclusion:

[41]

60 This postal vote document supports the Commissioner's contention that this was a sale transaction for which the sum of $5,500,000 was "the agreed consideration". There is nothing in this internal document which suggests that the payment was made purely for internal administrative purposes.

61 Evidence was led as to the taxpayer's internal accounting practices as between its branches and the national body. The Victorian branch is part of the taxpayer, not a separate legal entity from it. All of the real and personal property maintained and accounted for on a branch or national basis are assets of the taxpayer, whether managed by the branch or the national office.

62 Mr de Bruyn's evidence was that if an asset which is administratively allocated to a branch is to be "transferred" from that branch to another branch or the national office, then an internal financial transfer or adjustment is made to the accounts of both. Of course, in such a case there is no transfer of the asset between separate legal entities, no change in legal position, merely an internal accounting adjustment.

63 The taxpayer's own internal practices with regards to the balancing of funds as between the Victorian branch and the national body are a matter for it. They do not alter the correct legal characterisation of the transaction.

64 Although the consideration is described on the transfer form as being "$5,500,000 being paid to the transferee by way of administrative adjustment between its branches", what happened was not merely an internal financial transfer or internal accounting adjustment in the books of the same legal entity, namely the taxpayer. Instead, there was a transfer of the legal ownership of the property from Fedsda to the taxpayer, and the payment of $5,500,000 from the taxpayer to Fedsda. The fact that the assets of the Fedsda trust are recorded in the Victorian branch's consolidated accounts, and are "administratively allocated" to the Victorian branch, does not make them the assets of the taxpayer or of the state branch.

65 Even if, contrary to my earlier findings, the property could have been simply transferred to the taxpayer qua beneficiary, without the payment of any consideration, the current problem could have been avoided by the taxpayer taking the transfer and simply doing an internal accounting adjustment. But that is not what the parties actually did. They chose to make an actual payment of $5,500,000 to Fedsda, which then held the money as trust property.

66 The fact that Mr de Bruyn and other members of the taxpayer's national executive may have thought that what they were doing was only an internal accounting adjustment - one that they thought they were required by the rules or the Workplace Act to perform - does not change the nature of what in fact occurred.

67 The price sought by Fedsda was in truth, in substance and in law consideration which moved the transfer. The transfer was not made to the taxpayer qua beneficiary. It follows that the taxpayer is not able to avail itself of the exemption under s.36 of the Act.

At a glance

Court

Decision date

Before

Source

Judgment (43 paragraphs)

Parties

Cases Cited (1)