Australian Unity Retirement v Chief Commissioner of State Revenue [2010] NSWSC 752 | Case summary

2009/290821 AUSTRALIAN UNITY RETIREMENT DEVELOPMENT MANAGEMENT PTY LTD v CHIEF COMMISSIONER OF STATE REVENUE JUDGMENT Introduction 1 Australian Unity Nominees Pty Ltd (AUN) was the registered proprietor of land at Port Macquarie in New South Wales as trustee of the Australian Unity Sienna Grange Development Trust. 2 In 2009 it appointed the plaintiff, Australian Unity Retirement Development Management Pty Ltd (AURDM) as trustee of the Trust and retired as trustee. AUN and AURDM then executed a transfer of the Land for no consideration. 3 The defendant, the Chief Commissioner of State Revenue, assessed the transfer to duty of $279,223 under the Duties Act 1997 based on a dutiable value of $5,340,591, being the unencumbered value of the freehold estate in the Land. Issues 4 Two issues arise: whether the transfer is exempt from ad valorem duty under s 281 of the Duties Act and, if not, whether the dutiable value of the Land should take into account the interest of the beneficiary under the Trust. The reconstruction exemption 5 Section 281 of the Duties Act, as it stood at the date of execution of the transfer, was in the following terms: "(1) Duty under this Act is not chargeable on a dutiable transaction approved by the Chief Commissioner in accordance with guidelines approved by the Treasurer by which dutiable property is transferred by, or agreed to be transferred by, or vests in, a corporation that is a member of a group of corporations to another corporation that is a member of the same group. (2) Duty under this Act is not chargeable on an application to register a motor vehicle approved by the Chief Commissioner in accordance with guidelines approved by the Treasurer by a corporation that is a member of a group of corporations if, immediately before the application was made, the motor vehicle was registered in the name of another corporation that is a member of the same group. (3) The approval of the Chief Commissioner may be given to such extent as may be determined by the Chief Commissioner and in accordance with such conditions as may be so determined. (4) In this section, corporation includes a unit trust scheme." 6 The Trust was a unit trust and not a discretionary one. AUN held the fund on trust for the unit holders. The beneficial interest in the Trust was divided into units. Each unit conferred on its registered holder an equal undivided interest in the fund and assets as a whole, but did not confer any interest in any particular part of the fund or in any asset, but only such interest in the fund and assets as a whole subject to the liabilities. Unit holders were entitled to distributable income in proportion to the number of units held by them and likewise with respect to any return of capital. 7 The Trust was a unit trust scheme. That term is defined in the Dictionary to the Duties Act as follows: " unit trust scheme means any arrangements made 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, income or distribution of assets arising from the acquisition, holding, management or disposal of any property whatever pursuant to the trust." 8 AUN and AURDM were within the same corporate structure. AUN was a wholly owned subsidiary of Australian Unity Ltd (AUL). AURDM was a wholly owned subsidiary of Australian Unity Retirement Living Services Ltd (AURLS) and AURLS was a wholly owned subsidiary of AUL. 9 Thus AUL was the holding company of AUN and was the holding company of AURLS, which was the holding company of AURDM. 10 Those relationships conform to the guidelines approved by the Treasurer for the composition of a corporate group in Duty Ruling DUT 026. First, AURDM was a subsidiary of AUL. Paragraph 14 contains the following definition: "s ubsidiary means a corporation in which at least 90% of the issued shares, or at least 90% of the units, are owned, other than as trustee, and over which voting control is held, by a parent corporation, or by one or more subsidiaries of a parent corporation, or by a parent corporation and one or more subsidiaries of that corporation." 11 Since all the shares in AURDM are held by AURLS and it is a subsidiary of AUL, AURDM is a subsidiary of AUL. 12 Secondly, DUT 026, par 12 was in the following terms: "In these guidelines corporate group means a parent corporation and a subsidiary of that parent corporation and includes stapled corporations. However, a subsidiary that is trustee of a unit trust scheme is not a member of a corporate group unless one or more members of the corporate group directly own, other than as trustee, at least 90% of the units and have voting control over the unit trust scheme." 13 Since all the units in the Trust were held by AURLS, it answers the requirement for membership of the corporate group. 14 In Sportscorp Australia Pty Ltd v Chief Commissioner of State Revenue [2004] NSWSC 1029; (2004) 213 ALR 795 at 808 [72] I had said: "In my view, the rationale for s 281(1) of the Duties Act 1997 was to avoid the imposition of duty upon transactions within a corporate group where the ultimate beneficial ownership of the assets remained unchanged ." 15 Usually, a transfer of dutiable property upon the retirement of a trustee and the appointment of a new one is subject to $50 duty under section 54(3) of the Duties Act. 16 In its form at the date of execution of the transfer of the Land it provided as follows: "Duty of $50 is chargeable in respect of a transfer of dutiable property to a person other than a special trustee as a consequence of the retirement of a trustee or the appointment of a new trustee, if the Chief 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. If the Chief Commissioner is not so satisfied, the transfer is chargeable with the same duty as a transfer to a beneficiary under and in conformity with the trusts subject to which the property is held, unless subsection (3A) applies." 17 AURDM was not a special trustee and the Duties Act, s 54(3A) did not apply. 18 Under the trust deed of the Trust, the trustee and its associates were entitled, without any liability to account to any unit holder, to hold units in the Trust. The transfer of the Land to AURDM did not, therefore, satisfy the Chief Commissioner in terms of the Duties Act, s 54(3)(b) that none of the trustees after appointment could become a beneficiary under the Trust. 19 The Chief Commissioner raised two arguments as to the non-application to AURDM of the Duties Act, s 281. First, that the effect of s 281(4) was to limit the reconstruction exemption to transfers of property from one unit trust scheme to another unit trust scheme where both were members of the same group. Secondly, that s 54(3) constituted a code with respect to transfers of property upon a change of trustees and general provisions will not abrogate special provisions, generalia specialibus non derogant. 20 Dr Robertson, who appeared for the Chief Commissioner, submitted that the Duties Act, s 281(4) was critical because it expanded what would otherwise be the application of the provision to transfers of property wholly owned by companies as such and not subject to any trust obligations. It was submitted that this was so because one would think that a corporate trustee would be wholly irrelevant to a reconstruction. 21 That is not so. The 1985 income tax reforms made public unit trusts that were trading trusts liable to income tax at the same rate as for a company (Income Tax Assessment Act 1936 (Cth), s 102S). Since the change did not apply to trusts holding passive investments, stapled securities came to be listed on stock exchanges. Passive investments were held by a unit trust with corporate trustee within a group of companies, the units in which were stapled to shares in a company within the group carrying on business. Prior to the introduction of the Duties Act, s 281(4) there may well have been a need to involve a trustee of a unit trust in a corporate reconstruction before any of the units were offered to the public. 22 The Duties Act, s 281(4) was introduced with effect from 1 January 1999 by the State Revenue Legislation (Miscellaneous Amendments) Act 1998. Prior to that date s 281 was in the following terms: "(1) Duty under this Act is not chargeable on a transfer of, or an agreement to transfer, dutiable property approved by the Chief Commissioner in accordance with guidelines approved by the Treasurer by which the property is transferred, or agreed to be transferred, by a corporation that is a member of a group of corporations to another corporation that is a member of the same group. (2) Duty under this Act is not chargeable on an application to register a motor vehicle approved by the Chief Commissioner in accordance with guidelines approved by the Treasurer by a corporation that is a member of the group of corporations if, immediately before the application was made, the motor vehicle was registered in the name of another corporation that is a member of the same group. (3) The approval of the Chief Commissioner may be given to such extent as may be determined by the Chief Commissioner and in accordance with such conditions as may be so determined." 23 There is nothing to suggest that the Parliament considered the introduction of the Duties Act, s 281(4) to be critical. The explanatory note that accompanied the bill treated the amendments to s 281 as clarifying in nature: "Schedule 2[33]-[35] and [39] (the definition of public hospital ) clarify the circumstances in which charitable institutions, public hospitals and corporate reconstructions are exempt from payment of duty." 24 Dr Robertson submitted that because of the Duties Act, s 281(4) where a unit trust scheme was involved the reconstruction exemption was limited to a transfer of property from one unit trust scheme to another unit trust scheme where both were members of the same group. In disallowing AURDM's objection the Chief Commissioner explained this assertion thus: "The effect of sec.281(4) of the Act (when read with the guidelines approved by the Treasurer) is that for the purposes of the application of the exemption conferred by sec.281(1) any unit trust scheme the units of which are at least 90% owned by the parent corporation is to be treated as both a 'corporation' and a 'subsidiary'. In other words the unit trust scheme viewed as a whole - and not its trustee (and whomever that person may be) - is treated as the relevant member of the 'corporate group' as if it were a separate legal entity…. Such a unit trust scheme can (through its trustee) therefore be a party to a transfer (whether as transferor or transferee) which is exempted from duty under the section, as long as the other party to the transfer (whether it be a company or another unit trust scheme) is also a member of the same corporate group. It follows that the exemption cannot apply to a transfer such as that in the present case, which gave effect to a change in the trustee of the unit trust scheme itself. In the context of sec.281 as a whole (and, in particular, having regard to sec.281(4) and the guidelines), such a transfer is wholly within the unit trust scheme which is to be treated as a single, indivisible member of the corporate group; it is not (as is required by sec.281(1) and para 1(a) of the guidelines) to another member of the same corporate group." 25 I do not construe the Duties Act, s 281(4) in that fashion. It clarifies that a member of a corporate group that is a trustee of a unit trust may obtain the exemption in s 281(1). It does not require the conclusion that a unit trust scheme is to be treated as if it were a separate legal entity. 26 The guidelines approved by the Treasurer do not treat a unit trust scheme in this fashion. Paragraph 2 of the DUT 026 is in the following terms: "Despite paragraph (1), these guidelines do not apply to a transaction if the property the subject of the transaction was immediately before the transaction, or immediately after the transaction, held by a corporation: (a) as trustee of a discretionary trust, or (b) as trustee for any person who is not a member of the corporate group." 27 This presupposes that a member of a corporate group as trustee of a unit trust, the units in which are held by another member of that corporate group, comes within the guidelines. And does so as a trustee and not as a unit trust scheme including trustee treated as if it were a legal entity. 28 This is made manifest by DUT 026 par 12, which speaks of a subsidiary that is trustee of a unit trust scheme. It does not regard a unit trust scheme including its trustee as the relevant member of a corporate group as if it were a separate legal entity. 29 In my view, therefore, the Duties Act, s 281 is not limited to a transfer from one unit trust scheme to another unit trust scheme where both are members of the same group. A transfer by a corporate trustee, not being the trustee of a discretionary trust, to a corporate beneficiary where both trustee and beneficiary are members of the same group would be entitled to exemption under the Duties Act, s 281. That accords with the rationale of the provision I identified in Sportscorp, to avoid the imposition of duty upon transactions within a corporate group where the ultimate beneficial ownership of the assets remains unchanged. 30 There does not seem to be any good reason why the exemption should not apply, as in the instant circumstances, to a transfer on change of trustee between two members of the same corporate group where the beneficiary is also a member of the corporate group. In such a case the requirements of s 281 and DUT 026 are satisfied and there is no change in ultimate beneficial ownership. 31 The Chief Commissioner argues, however, that the Duties Act, s 54(3) is a code and AURDM fails to satisfy its requirements. 32 But as Mr Richmond SC, who appeared for AURDM, pointed out, not only is the Duties Act, s 54(3) a concession and not a provision imposing duty as a code, but also the Chief Commissioner's submission fails to take account of the concluding paragraph of the provision that directs attention to other provisions of the legislation if he is not satisfied with any of the matters in the foregoing paragraphs. 33 What that concluding paragraph does, in Mr Richmond's submission, is to create a legal fiction either that the transfer to the new trustee is to be treated as if the new trustee were a beneficiary, or the transfer is to be treated not as a transfer from old to new trustee, but as a transfer to a beneficiary. Under either construction attention must then be directed to other provisions of the Act including s 281. 34 And that gives rise to a secondary argument by Mr Richmond. If on either hypothesis the transfer from AUN to AURDM is to be treated as if AURDM were a beneficiary, it is not to be treated as part of a unit trust scheme and the Chief Commissioner's argument that the unit trust scheme, including the trustee, is to be treated as if it were a separate legal entity fails. 35 I accept those submissions. It follows, in my view, that the transfer of the Land from AUN to AURDM was a corporate reconstruction transaction in terms of the Duties Act, s 281(2) and the Chief Commissioner should have approved it under the guidelines in DUT 026 in terms of s 281(1) and his assessment should be set aside. 36 In those circumstances it is unnecessary for me to deal with the second issue, whether the dutiable value of the Land should take into account the interest of the beneficiary under the Trust and I refrain from doing so. 37 Under the Taxation Administration Act 1996, s 101(1)(a) I revoke the assessment. Under s 101(1)(d) I remit the matter to the Chief Commissioner for determination in accordance with my decision. And under s 101(1)(e) I order the Chief Commissioner to pay the plaintiff's costs.

Australian Unity Retirement v Chief Commissioner of State Revenue

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