"Trust" for the purposes of s 70E
186 The answer to the foregoing question turns upon whether it can be said of the Burwood Sub-Fund that it is a separate "trust" for the purposes of that provision. Aussiegolfa contends that it is not a separate "trust" but merely a sub-fund of a much larger trust known as the DomaCom Fund. The Commissioner disagrees and contends that the Burwood Sub-Fund is a separate fixed trust of the kind considered by the High Court in Charles v Federal Commissioner of Taxation (1954) 90 CLR 598.
187 The SIS Act does not define what is a "trust". I agree with Moshinsky J that the word "trust" should be assessed here by reference to the general law conception of a trust.
188 Putting aside for one moment the statutory context of the SIS Act, there is an immediate difficulty with the question posed here. A trust is not an entity which might or might not have distinct parts. As Moshinsky J has observed, it is a relationship governing the basis upon which property is held. Mayo J said in Re Scott [1948] SASR 193 at 196:
No definition of a "trust" seems to have been accepted as comprehensive and exact. The word is sometimes applied to the trust premises, sometimes to the duties related thereto, sometimes to both. Strictly, it refers, I think, to the duty or the aggregate accumulation of obligations that rest upon a person described as a trustee. The responsibilities are in relation to property held by him, or under his control. That property he will be compelled by a court in its equitable jurisdiction to administer in the manner lawfully prescribed by the trust instrument, or where there be no specific provision written or oral, or to the extent that such provision is invalid or lacking, in accordance with equitable principles.
189 More recently, in Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2018] UKPC 7; 2 WLR 1465, in advice given by the Judicial Committee of the Privy Council, Lord Hodge, with whom Lords Sumption and Carnwath agreed, cited Re Scott and said at [89]:
The editors of Lewin on Trusts (19th ed, para 1-001) cite, as a useful starting point in the absence of any single really satisfactory common law definition of a trust, that used in the Convention on the Law Applicable to Trusts and on Their Recognition 1985, of which this is an extract:
"the term 'trust' refers to the legal relationship created - inter vivos or on death - by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose." (Article 2.)
190 On this basis, the question for determination might be whether the Custodian of the DomaCom Fund held the Burwood Property as part of the same relationship or "aggregate accumulation of obligations", to use the language of Mayo J, in which it held other property the subject of the Constitution for the DomaCom Fund. Answering that question in the affirmative might preclude the Burwood Sub-Fund from being a separate and distinct trust for the purposes of s 70E(2)(a) of the SIS Act.
191 Turning to statutory context, there are three provisions of the SIS Act which may bear upon the nature of a "trust" for the purposes of s 70E, and a determination of when a sub-fund may constitute a separate and distinct trust. First, there is the definition of "entity" in s 10(1) of the SIS Act, which provides:
entity means any of the following:
(a) an individual;
(b) a body corporate;
(c) a partnership;
(d) a trust.
In my view, this provision does not alter the essential proposition that a trust is a relationship over identified property. Rather, it means that where there is a reference in the SIS Act to an "entity" there is also a reference to a relationship of that kind.
192 Secondly, there is the definition of "widely held unit trust" in s 71(1A) of the SIS Act. Section 71(1)(h) excludes investments in these types of trust from being an investment in an in-house asset. The provision is set out in the reasons of Moshinsky J. The definition is a statutory recognition that property or properties may be held as part of a singular relationship with multiple beneficiaries.
193 The third provision which may be relevant is s 69A of the SIS Act which is also set out in the reasons of Moshinsky J. Section 69A does not expressly apply to the word "trust" in s 70E(2)(a). It addresses the situation of the investing superannuation fund and not the trust in which funds are invested. Nonetheless, contextually, s 69A arguably demonstrates a recognition, for the purposes of the SIS Act, of the concept of a "sub-fund" which may exist within a singular relationship of trust, and not constitute a separate and distinct trust. Section 69A, when satisfied, treats, as a statutory fiction, each sub-fund as a separate regulated superannuation fund. Inferentially, but for s 69A, a sub-fund which:
(a) had separately identifiable assets and beneficiaries; and
(b) beneficiaries whose interests were determined by reference only to the conditions governing that sub-fund,
might not have been treated by the SIS Act as a separate and distinct regulated superannuation fund. On one view, and arguably, as a matter of statutory context, the same might be said of a sub-fund of a "trust" for the purposes of s 70E(2)(a). One should, however, be careful not to overstate the significance of s 69A. Neither the provision, nor the SIS Act, defines what a sub-fund is. Presumably, the term refers to some form of segregation of property or income, or both, from other property or income of a trust, for a particular purpose, or reserved or set aside for a particular beneficiary or beneficiaries.
194 Next, statutory purpose is relevant in construing the word "trust" as it appears in s 70E(2)(a). In the Explanatory Memorandum to the Superannuation Legislation Amendment Bill (No. 4) 1999, which introduced the new in-house asset provisions to the SIS Act, including ss 70E and 71, the following is said under the heading "Policy Objective" at 5:
The primary policy objective is to ensure that the investment practices of superannuation funds are consistent with the Government's retirement incomes policy. That is, superannuation savings should be invested prudently, consistent with the SIS requirements, for the purpose of providing retirement income and not for providing current day benefits.
Limiting the exposure of a regulated superannuation fund to "in-house assets" both promotes prudent investment and avoids a distribution or conferral of "current day benefits" to fund members or their associates.
195 The importance of considering legislative context and purpose is illustrated by the decision of Menzies J in Truesdale v Federal Commissioner of Taxation (1970) 120 CLR 353, which concerned the payment of money to an existing trust with instructions that the money was to be applied subject to that trust. The question for determination was whether the payment "created a trust" for the purposes of s 102 of the Income Tax Assessment Act 1936 (Cth). Technically, and subject to statutory language, context and purpose, every disposition of property to a trust creates a separate trust. As Kiefel J (as her Honour then was) said in Kennon v Spry (2008) 238 CLR 366 at [229]:
There appears to be no reason why each disposition of property to the Trust, from the time of the parties' marriage, cannot be viewed as a separate trust created at that time, albeit on the terms of the Trust.
(Citations omitted.)
See also: Atwill v Commissioner of Stamp Duties (1970) 72 SR (NSW) 415 at 426 per Mason JA.
196 In Truesdale, Menzies J did not adopt this approach. His Honour decided that the payment did not create a new trust because of the applicable statutory scheme.
197 Here, statutory purpose does not require the conclusion that each disposition of property to an existing trust constitutes the creation of a new trust for the purposes of s 70E(2)(a). That is especially so given the complexity of modern managed investment schemes which may receive a continuous flow of subscriptions.
198 Turning to the decided cases, previous authorities have considered in different statutory contexts the question of when a sub-fund can constitute a distinct settlement or trust. In Roome v Edwards [1982] AC 279, the issue for determination by the House of Lords was whether the creation, in 1955, of a new fund by exercise of a power conferred by a settlement in 1944, was a separate "settlement" for the purposes of s 25(1) of the Finance Act 1965 (UK). Lord Wilberforce said that it did not and at 292-293 said:
There are a number of obvious indicia which may help to show whether a settlement, or a settlement separate from another settlement, exists. One might expect to find separate and defined property; separate trusts; and separate trustees. One might also expect to find a separate disposition bringing the separate settlement in existence. These indicia may be helpful, but they are not decisive. For example, a single disposition, e.g., a will with a single set of trustees, may create what are clearly separate settlements, relating to different properties, in favour of different beneficiaries, and conversely separate trusts may arise in what is clearly a single settlement, e.g. when the settled property is divided into shares. There are so many possible combinations of fact that even where these indicia or some of them are present, the answer may be doubtful, and may depend upon an appreciation of them as a whole.
Since "settlement" and "trusts" are legal terms, which are also used by business men or laymen in a business or practical sense, I think that the question whether a particular set of facts amounts to a settlement should be approached by asking what a person, with knowledge of the legal context of the word under established doctrine and applying this knowledge in a practical and common-sense manner to the facts under examination, would conclude. To take two fairly typical cases. Many settlements contain powers to appoint a part or a proportion of the trust property to beneficiaries: some may also confer power to appoint separate trustees of the property so appointed, or such power may be conferred by law: see Trustee Act 1925, section 37. It is established doctrine that the trusts declared by a document exercising a special power of appointment are to be read into the original settlement: see Muir (or Williams) v. Muir [1943] A.C. 468. If such a power is exercised, whether or not separate trustees are appointed, I do not think that it would be natural for such a person as I have presupposed to say that a separate settlement had been created: still less so if it were found that provisions of the original settlement continued to apply to the appointed fund, or that the appointed fund were liable, in certain events, to fall back into the rest of the settled property. On the other hand, there may be a power to appoint and appropriate a part or portion of the trust property to beneficiaries and to settle it for their benefit. If such a power is exercised, the natural conclusion might be that a separate settlement was created, all the more so if a complete new set of trusts were declared as to the appropriated property, and it if could be said that the trusts of the original settlement ceased to apply to it. There can be many variations on these cases each of which will have to be judged on its facts.
In my view, concordantly with Lord Wilberforce's speech, asking whether the provisions of the original settlement continue to apply to the sub-fund, or whether the fund was liable in certain cases to "fall back into the rest of the settled property", will be relevant considerations in determining whether, for the purposes of s 70E, a sub-fund is a separate trust.
199 More recently, in Swires v Renton [1991] STC 490, Hoffmann J (as his Lordship then was) said at 500:
The cases show there is no single litmus test for deciding that question. The paradigm case for the creation of a new settlement would involve the segregation of assets, the appointment of new trustees, the creation of fresh trusts which exhaust the beneficial interest in the assets and administrative powers which make further reference to the original settlement redundant ... The absence of one or more of those features is not necessarily inconsistent with a resettlement. It seems to me that the question is one of construction of the settlement using the approach recommended by Lord Wilberforce and looking at the documents in the light of surrounding circumstances. Putting the same thing another way, it is a matter of endeavouring to ascertain the intentions of the parties.
200 Again, concordantly with this passage, asking whether there has been an appointment of new trustees, the creation of fresh trusts which exhaust the beneficial interest in the assets, and the creation of administrative powers which make further reference to the original settlement redundant, will be relevant in determining whether, for the purposes of s 70E, a sub-fund is a separate trust.
201 In Australia, in Oswal v Federal Commissioner of Taxation (2013) 233 FCR 110, Roome v Edwards was distinguished. In that case, the trustee of an existing family trust resolved to appoint a part of the corpus of the trust for the absolute benefit of certain existing beneficiaries. Edmonds J decided, amongst other things, that this was a declaration and settlement of trust for the purposes of CGT event E1 of the Income Tax Assessment Act 1997 (Cth). His Honour said at [37]:
In the context of the issue under consideration in the present case, it needs to be understood that there was never any issue in Roome v Edwards that the appointment of the 1955 fund became subject to trusts which were distinct and different from the trusts of the main fund, the only question being whether a new "settlement" was created for the purpose of s 25(1) of the Finance Act 1965 (UK). That is a very different question to the one with which we are here concerned, namely, whether a trust was created over an asset, and for that reason, what his Lordship had to say in the passage from his speech extracted in [33] above, does not assist the applicants' case contended for in [25] above. Its relevance to the question of whether any trust so created, was created by "settlement" is another matter, and is considered below in the context of my analysis of whether CGT event E1 happened in consequence of the appointment and declaration, if any, made by the 13 March 2007 resolution.
Having regard to the terms of the resolution in Oswal, Edmonds J decided that a new trust had been declared. At [54], his Honour concluded:
I am therefore of the view that the resolution of 13 March 2007 is a "declaration" of trust within the ordinary conception of a declaration of trust. As such it is difficult to see why it does not create a trust over the assets the subject of the declaration and not merely, as the applicants contended, a separate fund of them.
202 In addressing Roome v Edwards, his Honour emphasised that the issue confronting him was to be judged on the facts. As Edmonds J said at [60]:
Moreover, I do not think anything said by Lord Wilberforce in Roome v Edwards mitigates against that view. Indeed, what his Lordship said in the third last and second last sentences of the passage extracted in [33] above, supports the view. As his Lordship said in the very last sentence of the extract, each case "will have to be judged on its facts".
203 The concept of a trust as a single continuing but changing relationship was considered by this Court in Federal Commissioner of Taxation v Commercial Nominees of Australia Ltd (1999) 43 ATR 42; [1999] FCA 1455. In that case, significant amendments had been made to a deed which had established a complying superannuation fund. The fund had carry forward tax losses. The Commissioner contended that the changes had either extinguished the trust, replacing it with a new trust, or had effected a resettlement of the original trust, and that, as a result, the losses could not be used thereafter. The changes included a new trustee, a new category of beneficiaries, changing the fund from a defined benefit to an accumulated benefit fund, the appointment of an administrator with a fee structure, and the promotion of membership to the public. Lee, Emmett and Gyles JJ rejected the Commissioner's submission. At [52], the Court said:
The trust obligations of the trustee and the corresponding rights of the beneficiaries may vary from time to time, in accordance with law. Similarly, the property that is the subject of such obligations and rights will not be static. Parts of the property might be distributed so as to cease to be subject to trust obligations. Further property may accrue as income or by further settlement so as to become subject to obligations where previously that additional property was not.
At [54], the Court observed:
"Superannuation fund", as that term is defined in the SIS Act and the ITAA 1936, contemplates a continuing regime regulating the manner in which a fund may be added to and the manner in which payments may be made from it. So long as one can identify a continuity of that regime, that will be sufficient.
The Court concluded at [56]:
So long as any amendment of the trust obligations relating to such trust property is made in accordance with any power conferred by the instrument creating the obligations, and continuity of the property that is the subject of trust obligation is established, there will be identity of the "taxpayer" for the purposes of s 278 and ss 79E(3) and 80(2), notwithstanding any amendment of the trust obligation and any change in the property itself.
204 The decision was upheld on appeal to the High Court: (2001) 47 ATR 220; [2001] HCA 33. At [32] the High Court made the following observation about the nature of a superannuation fund:
The nature of an eligible entity is such that changes in the incidents of the trust relationship established at its creation are not only possible, but in some respects probable. In the case of an indefinitely continuing superannuation fund, operating under the regulatory scheme in the SIS Act, the trustee might change from time to time. The trust property would almost certainly be in a constant state of change, as contributions were received and employee benefits were paid. The identity of the persons entitled to benefit under the trust would be likely to change over time, as new members came into the scheme and others left. The nature of the benefits provided by the scheme might alter over the years, in response to industrial or market pressures, or regulatory requirements. In the case of a public offer superannuation fund, there would be likely to be substantial changes of membership over time, as new participating employers brought their employees in.
205 In my view, the same or similar observations may be made about the Constitution in this case. The Constitution, by its terms, facilitates investment in real property by members of the public. Within the framework of that Constitution one would expect churn in the composition of its beneficiaries, and in the property administered. One might also expect amendments to be made to the Constitution from time to time. Importantly, Constitutions of this type may authorise the creation of sub-funds in favour of a beneficiary or beneficiaries, as well as the issue of different classes of units. All of these changes or features are potentially consistent with the presence of a singular continuing relationship of trust. Whether that is so depends, however, upon the particular terms of the Constitution in question.
206 I derive the following general propositions from the foregoing survey of statutory language, context and purpose, as well as from the authorities:
(a) first, that the word "trust" in s 70E(2)(a) is apt to refer to a singular continuing relationship of trust with the possibility of multiple and changing beneficiaries, in respect of multiple and changing items of property;
(b) secondly, that within that singular relationship there may be created sub-funds which may not constitute separate and distinct trusts;
(c) thirdly, the creation of a sub-fund would probably constitute a new or separate relationship of trust where there was, to use the language of Hoffmann J, a segregation of assets, the appointment of a new trustee, and the exhaustion, by the terms of the sub-fund, of the beneficial interest in the property of the fund;
(d) fourthly, the creation of a sub-fund would probably not constitute a separate and distinct relationship of trust where the fund remained subject to the provisions of the original settlement and its property remained available, whether contingently or otherwise, to be deployed for the trust's original purposes, or to use the language of Lord Wilberforce, to "fall back into the rest of the settled property";
(e) fifthly, a key consideration would be whether the other beneficiaries, who were not members of the new sub-fund, could be said to enjoy, whether contingently or otherwise, an equitable interest in, or equitable rights over, the assets or income of the sub-fund. Conversely, it will be relevant to determine whether the members of the sub-fund had, whether contingently or otherwise, an equitable interest in, or equitable rights over, the other assets or income of the original trust. Asking such questions will assist in determining whether the terms of issue of the sub-fund had segregated the sub-fund from the original trust;
(f) finally, the question as to whether a given sub-fund is a separate trust turns upon a close analysis of the terms governing that sub-fund. Those terms will reveal the intentions of the parties. Each case will, as Edmonds J has emphasised, need to be judged on its particular facts.