B S H Holdings Pty Ltd v Commissioner of State Revenue [2000] VSC 302

5. The facts are not in dispute. On 5 March 1980, Alexander Friedman and Hannah Friedman purchased a property in East St Kilda as their matrimonial home. They had four children. Their marriage failed and they were divorced by a decree granted in October 1998. On 27 January 1999, solely due to the breakdown of the marriage, the Friedmans jointly settled a trust to hold the land called the B.S.H. Investment Trust. The appellant was and remains the trustee. Subject to various conditions that are not now relevant, cl 5.3.1 and cl 5.3.2 of the trust deed authorised the appellant to pay apply or allocate any part of the net income of the trust fund for a defined accounting period to or for all or any of the Beneficiaries (defined to mean the Friedmans and their four children), to accumulate any part of the net income, and also:

"5.3.3 to pay apply or allocate any part of it (including income arising or derived from an identified asset or source) to or for such charitable purposes as the Trustee deems appropriate".

9. Clause 6.1 of the deed provided for appointment of capital and net income on certain terms upon the vesting of the trust. Clause 6.2 provided that in default of and subject to any such appointment the trustee would hold the trust fund and the net income arising from it "upon trust for such charitable objects or purposes as the Trustee may in its absolute discretion determine."

12. On 4 February 1999, the Friedmans executed a transfer of the property to the appellant. The consideration was stated to be the breakdown of the marriage. On 11 August 1999, the appellant's solicitors lodged the transfer with the Commissioner with a request that it be marked non-dutiable on the basis that the transfer fell within exemption 27, which exempts from duty:

"Any instrument for the conveyance of real property where the [Commissioner of State Revenue] is satisfied that -

(a) the instrument for the conveyance is made solely to convey the real property to a trustee under an instrument of settlement;

(b) the instrument of settlement is made by reason of the breakdown of the marriage of the settlor;

(c) the transferor under the instrument for the conveyance is or was a party to the marriage; and

(d) no person other than a party to the marriage or a child of a party or of both parties to the marriage is a beneficiary under the instrument of settlement."

19. On 21 September 1999, the appellant received a notice of assessment of duty in respect of the transfer. On 28 October 1999, the appellant lodged an objection against the assessment. On 29 December 1999, the Commissioner disallowed the objection, essentially for the reason that para (d) of exemption 27 was not satisfied because a person other than the Friedmans or their children could benefit under the terms of the trust deed. On 17 February 2000, the appellant requested the Commissioner that its objection be treated as an appeal to this Court under s.33B of the Act, and the matter came before me accordingly.

22. It remains to mention two further facts which are common ground. No distribution has been made by the trustee pursuant to cl 5.3.3 and the trust continues in existence.

25. The respondent accepts that the facts satisfy para's (a)-(c) of exemption 27. The issue is whether para (d) is satisfied. In submitting that it was not satisfied counsel for the respondent relied upon cl 5.3.3. He also referred to cl 6.2 but essentially his submissions were based upon the former clause.

28. It was common ground between counsel that cl 5.3.3 had established a valid trust for charitable purposes. It was also common ground that there was no prior decision on the issue of construction raised in this case.

31. From these areas of common ground the parties' submissions diverged. For the appellant it was submitted, essentially, that the expression of para (d) of exemption 27 does not prevent its application to the case of a charitable trust. For, it was submitted, in such a case there is no "person" who is a "beneficiary". That is for the fundamental reason that a charitable trust is a trust for a purpose and not for a person. A charitable trust does not have a beneficiary. Counsel referred to the well-known judgment of Dixon and Evatt JJ in Attorney-General for New South Wales v Perpetual Trustee Company (Limited) [1940] HCA 12; (1940) 63 CLR 209 at 222 where their Honours said:

"A charitable trust is a trust for a purpose, not for a person. The objects of ordinary trusts are individuals, either named or answering a description, whether presently or at some future time. To dispose of property for the fulfilment of ends considered beneficial to the community is an entirely different thing from creating equitable estates and interests and limiting them to beneficiaries. In this fundamental distinction sufficient reason may be found for many of the differences in treatment of charitable and ordinary trusts."

See too Meagher & Gummow, Jacobs' Law of Trusts in Australia, 1997, 6th Ed, at [1005].

36. Concentrating on this difference between a trust for charitable purposes and the ordinary trust for a person, the appellant's counsel submitted that the trust in cl 5.3.3 was not for a "person" and that no person "is a beneficiary". He submitted that these elements of the exemption could not be satisfied in the case of a trust for charitable purposes. A person who receives funds on an exercise of power under cl 5.3.3 has received a benefit and might be said to be a beneficiary. Counsel submitted that while to use the word "beneficiary" in that context may be understandable, such use would be inexact in that it would be legally inaccurate to state that that person "is a beneficiary under the instrument of settlement". Properly understood the trust was and remains one for a purpose and not for a person. It was inappropriate, counsel submitted, when there is no "person" or "beneficiary" with rights in equity against the trustee or the trust, to consider that an unidentifiable person who might one day be a recipient as the result of an exercise of power under the trust for charitable purposes, and who has no interest in the trust estate and to whom the trustee has no obligation, "is a beneficiary" within the meaning of that expression in the exemption.

39. The submissions of the respondent's counsel were put as succinctly as those of the appellant. He first submitted that the drafter of exemption 27 had not used the word "beneficiary" in a technical sense. The word "beneficiary" had not been used in a limited way so as to refer only to persons who had an interest in the trust estate or to whom the trustee had an obligation. Rather the word should be understood in a broad way as comprehending benefit for the public. It was pointed out that although an ordinary member of the public could not apply to the Court in relation to the administration of the trust with a view to the public benefit, the Attorney-General could do so, and, further, that any distribution would be for the benefit of persons in the community. How else other than as a beneficiary, counsel asked, might an actual or potential recipient of benefit under the trust be referred to? He submitted that there is no reason why Parliament should be understood to have intended a narrow meaning to be given to the word beneficiary. The fact that a member of the public might benefit meant that there was a person who "is" a beneficiary, the word "person" referring to either "the public" in general or to a member of the public who in the future might benefit under the trust.

42. Counsel then put an alternative argument. This stressed the nature of the provision in question which is an exemption from liability, and the purpose of the exemption. The purpose is to enable families in a situation of marriage breakdown to reorganise their affairs and save stamp duty. They must however act within the requirements of the exemption and it is confined to settlements under which the beneficiaries are limited to the parties to the marriage or their children. It was not the intention or purpose of the exemption to save a conveyance of real estate from stamp duty when the settlement allowed for other persons to receive a benefit. In this respect the second reading speech of the Treasurer in introducing the exemption in 1983 was relied upon.

45. I can say at once that I do not consider anything in that part of the Treasurer's speech as decisive in this regard. He did not mention para (d), let alone say anything concerning its meaning or intended operation. Apart from that, the beneficial purpose of saving parties from stamp duty in transferring property on divorce is obvious.

48. I note that in written submissions filed by the respondent reference was made to two decisions of the Victorian Administrative Appeals Tribunal and its successor the Victorian Civil and Administrative Tribunal in which the word "beneficiary" in exemption 10 has been held to apply to an object under a discretionary trust; Ralara v Comptroller of Stamps (1992) 92 ATC 2108 and Hendy v Commissioner of State Revenue (unreported, 3 September 1999, Mr Gibson). In their oral submissions neither counsel referred to them as bearing upon the decision in this case, indeed it was indicated they did not.

51. Having considered the submissions, both oral and written, I have concluded that the expression of para (d) does not preclude the application of the exemption to the present situation. I find support for that conclusion in the following.

54. To commence, the relevant words are used in a taxing statute which deals, as it must, with property of one form or another and interests in such property. For its effective operation the Act depends upon a correct understanding of legal principles and definitions concerning property, and its ownership and interests therein, and accurate and correct language to impose, or exempt, stamp duty where that is intended. It could not have been suggested that Parliament was unaware of the concept and existence of trusts and trusts for charitable purposes. A mere glance at the Act indicates an awareness of such concepts in the exemptions to Heading VI itself; see exemptions 4, 10, 11, 16, 17 and 18. It would be a significant contrast indeed if one were to concede the obvious precision and legal correctness of language elsewhere used and to ascribe to Parliament the intention, just a few paragraphs later in exemption 27, that the expression "is a beneficiary" includes a trust for charitable purposes when, by definition, such a trust does not have a beneficiary.

57. The respondent pointed to the family farm exemption in s 71(1)(b)(ii) and, in particular, to the reference therein to a trustee under a fixed trust, the beneficiaries of which are, inter alia, limited to a charitable institution. It was submitted that that reference, in contrast to the absence of any such specific reference in exemption 27 strongly suggests that Parliament intended that exemption 27 not apply where the settlement allowed the trustee to distribute income or corpus to a "charitable institution", to use the expression in s 71(1)(b). I do not find this submission persuasive. Putting aside the point made by the appellant's counsel that s 71 was enacted subsequently to exemption 27, we are dealing with two different provisions each of which, in my view, is clear in its terms.

60. Although the expression in question is found in an exempting provision, the exemption is, relevantly, an essential part of the operation of a taxing statute. It is a well accepted approach to the construction of such statues that they be interpreted strictly although consistently with the purpose of the statute. As I have said, the nature of the legislation provides a reason why it is to be supposed that Parliament intended the language adopted to carry its technical and understood meaning in light of well known doctrines such as those concerning trusts for charitable purposes. I should say however that the conclusion I have reached on the issue of construction does not turn upon any particular strictness in the reading of exemption 27 either in regard to its own terms or as understood in the Act read as a whole. The conclusion follows from the ordinary and natural meaning of the words used in the context of well recognised legal principles concerning trusts for charitable purposes.

63. If I had considered the words of the exemption were ambiguous and that it truly was doubtful whether they comprehended a person or the public who or which might in the future benefit from a distribution under the charitable trust, a well established line of authority would have fallen for consideration. It is sufficient in this respect to refer to the judgments of Barton and Higgins JJ in Burt v Commissioner of Taxation [1912] HCA 74; (1912) 15 CLR 469, at 482 and 487 respectively where their Honours referred to the principle of construction that an exception to a provision imposing taxation should "favour those whose claims are based upon the exceptions" (per Barton J at 482). See too the authorities referred to in Pearce & Geddes, Statutory Interpretation in Australia, 1996, 4th Ed, at [9.32]. It is pertinent to mention that a few times in his submissions counsel for the respondent referred to the fact that the issue concerned an exempting provision. I understood him to do so as part of his alternative submission that had regard to the purpose of the exemption. I did not understand him to call into question the principle of construction referred to above. Indeed I did not understand him, or the appellant's counsel, to refer to it. In the event I do not need to base my decision on the application of that principle of construction. Notwithstanding, some further remarks concerning the exemption are pertinent.

66. The respondent's alternative submission concentrated on the purpose of exemption 27, namely, to save from stamp duty instruments for the conveyance of land to a trustee under a settlement made by reason of a breakdown of the settlors' marriage in the factual premises stated in para's (a)-(d) of the exemption. In particular, counsel emphasised the requirement in para (d) that only the parties to the marriage and their children be a beneficiary under the settlement. All that is understandable. What is not so readily understandable is why Parliament would not have intended para (d) to include a trust for a charitable purpose. What purpose would that have served? The fact is that the Act contains provisions which exempt from duty instruments where the person benefiting is a charity or a charitable institution in the legal sense. I have already referred to the several earlier exemptions in Heading VI which refer to a trust and charitable purposes. If para (d) was construed as the respondent submits it should be, the benefit of exemption 27 would be denied to the appellant simply because the settlement included a power to distribute to a charitable purpose. There would seem to be an incongruity in the conclusion that Parliament intended the presence of a gift to charity to deny operation to an exempting provision otherwise applicable on the facts, when other provisions in the legislation, in particular several of the earlier exemptions in Heading VI itself, used that very fact as the criterion for excepting an instrument from duty. There is no incongruity if on its proper construction para (d) does not operate to exclude exemption 27 in a situation such as presently under consideration. For the reasons I have given I am of the view that it does not.

69. The appeal will be allowed and the assessment set aside. I will otherwise hear counsel on the appropriate orders.