(b) For the purposes of s.36A(1)(c)(ii) of the Duties Act, must the applicant have been a beneficiary of the principal trust, or the receiving trust, as at February 2005?

The Commissioner's answer: The receiving trust. There is no dispute that the applicant was not a beneficiary of the receiving trust at that time.

1. On 21 January 2016, Member Dr Glover decided a proceeding of Liu v Commissioner of State Revenue [2016] VCAT 87 (Liu's case). Liu's case was decided in favour of the Commissioner, and its facts are very similar and "on all fours" with the facts in the present proceeding. Mr Niemann, solicitor for the applicant, has submitted that Liu's case was wrongly decided and that I should decide the present proceeding in favour of the applicant. Thus there is an issue as to what extent I should be persuaded by a previous authority of this Tribunal.

1. In Decleah Investments Pty Ltd the Commissioner of State Revenue [2013] VCAT 1002 at paragraph [284] Vice President Judge Jenkins stated as follows:

It is obviously desirable for the Tribunal to be consistent in its decision making. However, in this instance, I do not agree with the interpretation of sub-s.16(3) as expressed in Oakbee, KM Developments and implicitly in Camille. Such departure from prior decisions of the Tribunal is regrettable. However, I am duty bound not to compound an error of law where, in my view, the previous reasoning and statutory interpretation is plainly wrong.

1. In the case of Midas v Commissioner of State Revenue [2010] VCAT 1690 Deputy President McNamara, as he then was, stated at [10]:

As in the case of Hare I should record that it is desirable in the interest of comity and uniformity that a Tribunal should adopt the same principles in deciding various review applications which arise under the same statute. To do otherwise would make the Tribunal's decision a wilderness of single instances rather than what we hope they should be, a manifestation of the rule of law and a manifestation of the principle that like cases needed to be treated alike.

1. In the case of Towie v State of Victoria [2007] VCAT 1489 Deputy President McKenzie at [28] stated as follows:

While the Tribunal is not bound by its previous decisions, the principal of comity and consistency of decision making should apply, and I would only depart from a decision which was clearly in point if I thought it was clearly wrong. In my view, the 2002 Towie case is so clearly correct that the present claim should not reasonably have been made.

1. Thus I take the view, that I will only depart from Liu's case in the present situation, if I find that that case was clearly wrongly decided.

[7] Imposition of Duty on Certain Transactions

(vi) any other transaction that results in a change in beneficial ownership of dutiable property ...

beneficial ownership includes, but is not limited to, ownership of dutiable property by a person as trustee of a trust;

change is beneficial ownership includes, but is not limited to -

(c) a change in equitable interest in dutiable property;

(d) dutiable property becoming the subject of a trust;

(e) dutiable property ceasing to be the subject of a trust.

36A Property passing to beneficiaries of discretionary trusts

(1) No duty is chargeable under this Chapter in respect of a transfer of dutiable property that is subject to a discretionary trust (the principal trust) to a beneficiary of the trust if -

(a) the duty (if any) charged by this Act in respect of the dutiable transaction that resulted in the dutiable property becoming subject to the principal trust has been paid or the Commissioner is satisfied that the duty will be paid, and

(i) was a beneficiary at the relevant time; ... and

(ii) to the beneficiary as trustee of another trust of which all the beneficiaries are relevant beneficiaries; and ...

(c) the Commissioner is satisfied that the transfer is not part of a sale or other arrangement under which there exists any consideration for the transfer ...

(i) was a beneficiary of that trust at the relevant time; ...

relevant time in relation to dutiable property that is subject to the principal trust, means the time at which the property first became subject to the principal trust.

1. Mr Niemann submitted that there was no dutiable transaction pursuant to s.7 of the Act, as the named proprietor was the same before and after the transfer of the property from the principal trust to the receiving trust. Mr Niemann referred to the definition of beneficial ownership in s.7(4) which states as follows:

Beneficial ownership includes, but is not limited to, ownership of dutiable property by a person as trustee of a Trust.

1. Change of beneficial ownership is also defined to include:

Change of beneficial ownership includes, but is not limited to -

(d) dutiable property becoming the subject of a trust;

(e) dutiable property ceasing to be the subject of a trust.

1. Referring to these definitions, Mr Niemann stated:

(a) in relation to the definition in para (d), transfer of a property that is already the subject of a trust being transferred to another trust where the entitled beneficiaries and beneficiaries are the same i.e. whilst the Trust has changed, the beneficiaries of the transfer or trust are the same as the beneficiaries of the Transferee Trust. It is submitted that looking at the whole duties regime, (d) is more appropriate where there is no existing trust declaration over the property, a trust is subsequently declared or created over the property. We note further there is a specific exemption for transfer of dutiable property from a trust to the beneficiary of the trust.

(b) in relation to the definition of para (e), the paragraph does not apply as the property has not ceased to be the subject of the trust and this is more appropriate and it is submitted, intended to cover situations where property was vested in a trust and then transferred elsewhere to a third party who is not a beneficiary as a transferee to a beneficiary specifically exempted under the Act.

1. It is noted, that in November 2008 section 7(4) was amended. That amendment was made in response to the decision in Trust Company of Australia Ltd v Commissioner of State Revenue [2007] 19 VR 111. Mr Young conceded that prior to the amendment the applicant's submission may have succeeded. However, the amendment was made to prevent such a situation. Member Dr Glover in Liu's case at [53] held that the new definitions "override the general law sense of those terms".
2. In the present case, it is clear that subsequent to the statement of 2014, the property was held by the applicant as trustee for the HLC Trust whereas before it was held by the applicant as trustee for the YHC Family Trust. Therefore it necessarily follows that there was a change in beneficial ownership.
3. In Liu's case Member Dr Glover stated as follows:

[54]. For the purposes of the distributions in specie which are the subject of the current applications, this means that the applicant as trustee for the receiving trusts acquired beneficial ownership of dutiable property distributed to those trusts by the applicant as trustee of the principal trust. Dealing by the applicant as trustee of any of the receiving trusts are undertaken in a different capacity from the applicants dealing as trustee of the principal trust...

[56]. ...effective ownership or control of the dutiable property subject to the receiving trust in the present case did not pass from the principal trust to the receiving trust. Certainly the applicant was trustee of both the principal trust and the receiving trust. Now this fact does not detract from the conclusions that dutiable property was owned legally and controlled by the applicant through different trusts and in different capacities before and after the distribution in specie occurred.

1. What the learned member said in Liu's case equally applies in the present situation. What Member Dr Glover said in Liu's case is not clearly wrong, in any case, I agree with the analysis of the learned member in Liu's case and as a result I adopt the same. It therefore follows that the property is dutiable pursuant to s.7 of the Act.

1. "Relevant time" is defined in s.36A(4) as follows:

Relevant time in relation to dutiable property that is subject to the principal trust, means the time at which the property first became subject to the principal trust.

1. Therefore, the relevant time for the purpose of this proceeding is 2005.
2. In Kelly v the Queen [2004] HCA 12, the High Court stated that the relevant statutory definition should be read into the section that is being interpreted. At paragraph [103] McHugh J stated as follows:

"As I earlier pointed out, the function of a definition is not to enact substantive law. It is to provide aid in construing the statute. Nothing is more likely to defeat the intention of the legislation than to give a definition a narrow, literal meaning and then use that meaning to negate the evident policy or purpose of the substantive enactment. There is, of course, always a question of whether the definition is expressly or impliedly excluded. Now once it is clear that the definition applies, the better - I think the only proper - course is to read the words of the definition into the substantive enactment and then construed the substantive enactment - in its extended or confined sense - in its context and bearing in mind the purpose and the mischief that it was designed to overcome. To construe the definition before its text has been inserted into the fabric of the substantive element invites error as to the meaning of the substantive enactment. ...

1. Mr Young in accordance with what the High Court stated in Kelly recast section 36A(c)(ii) as follows:

(c) the transfer is - ...(ii) to the beneficiary as trustee of another trust of which all the beneficiaries are [natural persons who are beneficiaries of that trust as the relevant time].

1. Mr Young stated, that each time that the word 'beneficiaries' was used in that definition he provided they should be referred to as 'beneficiaries' of the receiving trust. He also stated, that the words 'relevant time' in this situation refer to February 2005.
2. Mr Niemann stated that s.36A(1)(c)(ii) should be read in the light of the opening words of s.36A(1), those words read as follows:

No duty is chargeable under this chapter in respect of a transfer of dutiable property that is subject to a discretionary trust (the principal trust) to a beneficiary of the trust if ...

1. Mr Niemann stated, that Kelly's case does not apply to s.36A, in that it only allows the Tribunal to look at the beneficiaries of the receiving trust referred to in s.36A(1)(c)(ii). He stated it "hangs off the opening words of s.36A(1)". He said when the section is read to include those opening words, it refers to two trusts. That is the principal trust and the receiving trust. He further stated that the decision in Liu in this respect was clearly wrong and made "little sense".
2. I disagree with the submission of Mr Niemann. The plain words of s.36A(1)(c)(ii) taking into account the definition of relevant time as I am bound to do by the authority of Kelly's case, means that the beneficiaries where referred to were beneficiaries of the "receiving trust" and the relevant time as referred to in the words of the statute including the definition is February 2005. As the receiving trust was not in existence in 2005, the beneficiaries of the receiving trust cannot come within the exemption.
3. Even if I am wrong in the view I have taken of the above, to accept the interpretation put by Mr Neimann would mean that the learned member in Liu's case was clearly wrong. I do not believe the member was wrong at all let alone clearly wrong.
4. At [15] in Liu's case the learned member stated as follows:

In his answering argument, Mr Horan for the respondent denied that the transfers from the principal trust were made to 'relevant beneficiaries' as the term should be understood. 'That trust' in the defining sense of 'relevant beneficiary' in subsection 36A(3) of the Act referred to the receiving trust rather than the principal trust. On this assumption, the exemption has not been satisfied.

1. In my view, what the learned member has said in paragraph 15 of Liu's case is the correct interpretation.
2. In Mr Niemann's arguments he states four reasons why the decision of the learned member in Liu's case is clearly wrong and should not be followed. The first argument is essentially a policy argument. He states:

At [11a] ... if the beneficiaries are all the same, there seems no basis upon which to limit duty in the way that the decision effects. Indeed other rollover provisions in duty and capital gains tax legislation in my observation and experience do not have limitations on the number of times rollover relief can be used. Further, there the provisions do not contain any expressed limitation on the number of free transfers that can be done ...

(b) this decision (Liu) considers the position of the beneficiaries of the transferee trust only and there is no concern with the continuity of the beneficiaries between the two trusts. ...

1. Mr Niemann then refers to the argument of Mr Horan which I have previously referred to in [15] of the Liu decision and he states that there is nothing that the terms of the exemption should be limited.
2. In my view the interpretation proposed by Mr Niemann is contrary to any reflected policy in the materials that were referred to when the Act that was passed. The words 'natural person' who were beneficiaries of the principal trust.
3. The second reason why Mr Niemann submitted that Liu's case was wrong was because when he referred to the language of s.36A(1)(d) he suggested that because there was a distinction in relation to corporate beneficiaries as opposed to natural persons, as follows:

My explanation of this omission is that it may have been useful if the legislation identified which trust the beneficiaries had to be beneficiaries of at the original transfer time, but no consequences arises from the fact that it does not. He stated 37A(1)(d) (presumably s.36A(1)(d)) only deals with one trust and specifically identifies (unnecessarily) that the shareholder of what I shall call 'the transferee company' must have been beneficiaries of this trust, which can be called 'the transfer or trust' at the original acquisition time. Subparagraph 36A(1)(c)(ii) however deals with two trusts which I have called the transfer or trust and the transferee trust, and does not identify which of these two trusts dealt with here must meet the requirement at the original acquisition time. Such guidance of course would be helpful, whereas where it is given in paragraph 37A(1)(d) that it is unnecessary.

1. The textual argument referred to by Member Glover in Liu's case, is what Parliament more than likely intended to do. At [22] the learned member stated:

...the wording 'the beneficiary as trustee of another trust of which all beneficiaries are relevant beneficiaries in sub paragraph 36A(1)(c)(ii) [emphasis added] contrasts with the wording of the provision for distribution of corporate beneficiaries in the next paragraph 36A(1)(d). That paragraph expressly provides that 'shareholders of the corporation' must be 'beneficiaries of the principal trust'. The words 'natural persons who were beneficiaries of the principal trust' were used where the draft person wish to require that recipients be beneficiaries of the principal trust. The applicant has not explained the omission of this specifically in subparagraph 36A(1)(c)(ii). It cannot be dismissed as accidental.

1. The difference between the language used in subparagraph (c) and (d) of S.36A(1) is important. In my view, that difference in the text of the two subsections, shows that the decision in Liu's case was correct.
2. It does not follow that the comparison and contrast that Mr Niemann has made between 36A(c) and (d) necessarily follows. He is not undertaking an exercise which reflects the true meaning of the statute itself. Thus I come to the conclusion that not only in relation to this point is Member Glover correct but that he is not "clearly wrong".
3. The third reason that Mr Niemann says that the decision in Liu's case is wrong relates to the definition of relevant beneficiary in s.36A(3) of the Act. Relevant beneficiary is defined in s.36A(3) as follows:

beneficiary of a discretionary trust means a person, or a member of a class of person, in whom, by the terms of the trust, the whole or any part of the capital of the trust estate may be vested or remain vested -

(a) in the event of the exercise of a power or discretion in favour of the person (whether or not that power is presently exercisable); or

(b) in the event that a discretion conferred under the trust is not exercised;

discretionary trust means a trust under which the vesting of the whole or any part of the capital of the trust estate -

(a) is required to be determined by a person either in respect of the identity of the beneficiaries or the quantum of interest to be taken, or both; or

(b) will occur in the event that a discretion conferred under the trust is not exercised; or

(c) has occurred but under which the whole or any part of that capital will be divested from the person or persons in whom it is vested if a discretion conferred under the trust is exercised -

but does not include a trust to which a unit trust scheme relates;

(i) was a beneficiary of that trust at the relevant time; or

(ii) became a beneficiary of that trust after the relevant time by reason of -

(A) becoming a spouse or domestic partner of a beneficiary within a class of beneficiary described in the principal trust; or

(B) becoming an adopted child or step child of, or being a lineal descendant of, a beneficiary within a class of beneficiary described in the principal trust; or

(C) being an adopted child, step child or lineal descendant of a person referred to in sub-subparagraph (A); or

(b) a corporation as trustee of a further trust, all the beneficiaries of which are persons referred to in paragraph (a);

relevant time in relation to dutiable property that is subject to the principal trust, means the time at which the property first became subject to the principal trust.

1. At [23] of the Liu decision, Member Glover stated:

Definitions of 'relevant beneficiary' in subsection 36A(3) of the Act operate more consistently if subparagraph 36A(3)(c)(ii) refers to the receiving trust rather than the principal trust. Subparagraph (a) (i) of the definition of 'relevant beneficiary' as a beneficiary of 'that trust at the relevant time' in s.36A(3) would make little sense if the following subparagraph (a) (ii) were to include a natural person who was a beneficiary of another receiving trust within sub paragraph 36A(3)(c)(ii) at the time that the dutiable property became the subject of the principal trust.

1. Mr Niemann stated that paragraph 23 of the Liu decision was not correct. He stated:

Subparagraph a(ii) allows a person to be a relevant beneficiary of a trust after 'relevant time', ... by virtue of being a broadly speaking a spouse or a child of the beneficiary. Thus, such people can be beneficiaries of the transferee trust and section 36A(c)(ii) can still apply to a transfer, even though they were not beneficiaries of the relevant trust (whichever trust that is) at the original acquisition time. Stating that the relevant trust is the transfer or trust has not effect of this simple provision.

1. If one adopts the approach required by the High Court in Kelly's case, to read definitions of 'relevant beneficiary' as inserted into subsection (c)(ii) as being a reference to a principal trust does not make sense. I refer to what I have stated above in relation to the insertion of the words of the definition into s.36A(1)(c)(ii). To do so, would require reference to the second time where a 'beneficiary' is mentioned as being the principal trust which is not what the definition contemplates.
2. Mr Niemann's fourth reason for submitting that the Liu decision is wrong is based on legislative history. He refers to paragraphs 24 and 25 of the Liu decision which read as follows:

Fourthly, the history of s.36A of the Act suggests that 'relevant beneficiary' at the 'relevant time' in subsection 36A(3) of the Act refers to beneficiaries of the receiving trust rather than the principal trust.

[25]. Prior to 2006, the former s.36 of the Act provided an exemption for a transfer to a beneficiary absolutely (not being by way of sale). Where the beneficiary acquired the property as trustee for a second trust, all beneficiaries of the second trust had to be natural persons and the beneficiaries at the time that the property became an asset of the first trust.

1. At paragraph 20 of his submissions, Mr Niemann states as follows:

What is said in paragraph 25 above is without question true. The language of the previous section 36 is very clear and on the point. But thus the legislation has gone from very clear language to language where the question arises as to what is meant. It is our position that one cannot infer an intention that the meaning of the clear language of the appeals section should continue, after its repealed and its replacement with new less clearly written section.

1. It is noted, that there is nothing in the explanatory memorandum or supporting materials to suggest that it was intended that the meaning of section 36 should be altered.
2. In my view, it is the proper approach to construe s.36A in a proper manner using the normal cannons of statutory interpretation. In interpreting s.36A(1)(c)(iii) in the way that Mr Young has suggested, in my view leads to a proper result. In construing the section in this manner, it is evident that as the receiving trust was not in existence in 2005, and given the words of the definition "at the relevant time" their proper meaning, it necessarily follows that unless that as the receiving trust was in existence in 2005, the exemption does not apply to the 2014 transaction.

1. In coming to the conclusion in this proceeding that I have, it is important to note that particular attention has been paid to the text of the relevant sections using the precise words of the text which is the correct approach, to do otherwise is plainly wrong. The applicants arguments basically rely on asserted policies and consequences but very little has in fact been said by Mr Niemann about the text of the section in particular. Having regard to all of the above matters, I have come to the conclusion that the transaction in February 2014 is dutiable and, is not exempt by reason of the provision of s.36A of the Act.