GTN Developments Pty Ltd v Chief Commissioner of State Revenue [2006] WASAT 125 | Case summary

REASONS FOR DECISION 1 This is an application for review of an assessment ("the assessment") made by the Respondent ("the Commissioner"), shown in a Notice of Assessment dated 11 April 2006, issued to the Applicant under the Land Tax Management Act 1956 ("the Act") in respect to the 2006 land tax year. 2 The application was made 30 days more than the 60 day period within which the application to the Tribunal was prima facie required to be made under s 99(1) of the Taxation Administration Act 1996 ("TAA"). However, the Commissioner did not oppose the application out of time and, at a directions hearing, the Tribunal allowed the Applicant to make the application after such 60 day period (s 99(1) of the TAA). 3 The assessment treated the unit trust for which the Applicant acts as trustee ("the Trust"), as a special trust within the meaning of the Act, and as such, the lower land tax rate threshold was not applied. The assessment was for $34,595. 4 The Applicant's case is that the Trust is not a special trust and accordingly, the benefit of the lower land tax rate threshold should be applied and the assessment should be reduced by $5,984. 5 At the hearing, the Tribunal had before it, documents lodged pursuant to s 58 of the ADT Act and written submissions on behalf of each of the parties. The Tribunal also heard oral submissions on behalf of each of the parties. 6 The Applicant's submissions at the hearing included an additional Notice of Assessment issued by the Commissioner to the Applicant, in the amount of $35,762.30 in respect to the 2007 land tax year. The Tribunal informed the Applicant at the hearing that, as the Tribunal only has jurisdiction to review a decision of the Commissioner that has been the subject of an objection and, since there is no evidence before the Tribunal of any objection in respect to the 2007 land tax year assessment having been lodged, the review in this case is limited to the 2006 land tax year assessment only (s 96 of the TAA and s 8 and s 55 of the Administrative Decisions Tribunal Act 1997 ("ADT Act")). 7 With the consent of the parties, at the hearing, the Tribunal ordered that: (1) the Applicant file and serve within 14 days of the hearing: (a) a submission on interpretation of Clause 37(f) of the deed of trust which established the Trust ("the Trust Deed"); and (b) a certified copy of the Trust register since establishment of the Trust ("Trust Register"); (2) the Commissioner file and serve within 14 days of the hearing, submissions on Commonwealth Managed Investments Limited v Commissioner of State Revenue [2006] WASAT 125 ("CMI case"); (3) the Applicant file and serve within 21 days of the hearing, submissions on the CMI Case. 8 Each of the parties complied with the orders made at the hearing and accordingly, the Tribunal also had before it, in making its decision, the certified copy of the Trust Register and the submissions of the respective parties, referred to in those orders. Legislation 9 Section 3A of the Act defines "special trust" for the purposes of the Act. Section 3A was amended by the State Revenue Legislation Amendment (Tax Concessions) Act 2006 ("SRLATCA") with effect from the date of assent to the SRLATCA, on 2 November 2006. This occurred after the Notice of Assessment (dated 11 April 2006) the subject of this application had issued and after the disallowance by the Commissioner (on 21 September 2006), of the Applicant's objection to the assessment in the Notice of Assessment. However, Clause 41 of Part 20 of Schedule 2 of the Act is applicable to this matter. 10 Clause 41 of Part 20 of Schedule 2 of the Act is a transitional provision consequent on the enactment of the SRLATCA and provides as follows: "41 Amendments relating to trusts (1) The trust amendments apply as if those amendments had commenced on 31 December 2005. (2) Liability for land tax in respect of the land tax year commencing on 1 January 2006 and subsequent land tax years is to be assessed or reassessed accordingly. (3) Anything done or omitted to be done before the date of assent to the State Revenue Legislation Amendment (Tax Concessions) Act 2006 that would have been validly done or omitted to be done if the trust amendments had been in force at the time that it was done or omitted to be done is taken to have been validly done or omitted to be done. (4) In this clause, the "trust amendments" means the amendments made to section 3A by the State Revenue Legislation Amendment (Tax Concessions) Act 2006, and the provisions of Schedule 1AA, as inserted by that Act." 11 Accordingly, under Clause 41 of Part 20 of Schedule 2 of the Act, the version of s 3A of the Act as amended by the SRLATCA (being the current version in the Act) is applicable to the 2006 land tax year and must be applied in this matter. This was not disputed by the parties. 12 Since the current version of s 3A of the Act was not then in existence, the Applicant's objection to the assessment made in May 2006 was based on the immediately prior version of s 3A. This does not preclude the Applicant from relying on the correct (current) version of s 3A in this matter, since under s 100(2) of the TAA, the Applicant's case on an application for review is not limited to the grounds of the objection. 13 The version of s 3A of the Act, as amended by the SRLATCA (being the current version) applicable in this matter, provides as follows: "(1) For the purposes of this Act, a trust is a "special trust" if: (a) the trust property includes land, and (b) the trustee of the trust is the owner of the legal estate in the land, and (c) the trust is not a fixed trust. (2) For the purposes of this section, a trust is a "fixed trust" if the equitable estate in all of the land that is the subject of the trust is owned by a person or persons who are owners of the land for land tax purposes (disregarding section 25 (3)). (3) For the purpose of determining whether a trust is a fixed trust under this section, any equitable interest of the trustee as trustee of the trust is to be disregarded. (3A) If a trust satisfies the relevant criteria, the persons who are beneficiaries of the trust under the trust deed are taken to be owners of an equitable estate in the land that is the subject of the trust and, accordingly, the trust is taken to be a fixed trust. (3B) For the purposes of this section, the "relevant criteria" are as follows: (a) the trust deed specifically provides that the beneficiaries of the trust: (i) are presently entitled to the income of the trust, subject only to payment of proper expenses by and of the trustee relating to the administration of the trust, and (ii) are presently entitled to the capital of the trust, and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property, (b) the entitlements referred to in paragraph (a) cannot be removed, restricted or otherwise affected by the exercise of any discretion, or by a failure to exercise any discretion, conferred on a person by the trust deed. (4) A trust is not a "special trust": (a) if the trust is solely a charitable trust, or (b) if clause 9 of Schedule 1A applies in respect of the land that is the subject of the trust, or (c) if the trust is a concessional trust, or (d) in relation to any land tax year in which it is a superannuation trust, or (e) if the trust is established by will, but only during the period ending on the expiration of 12 months after the date of death of the testator, or such further period as may be approved by the Chief Commissioner in a particular case, or (f) in relation to any land tax year in which it is a family unit trust, as provided by Schedule 1AA. (5) For the purposes of this section, a trust is a "superannuation trust" in relation to a land tax year if: …… (6) Despite anything to the contrary in this section, a trust is taken to be a special trust in relation to a land tax year if the trust is classified as a special trust in respect of that land tax year under section 25A, and the classification has effect in respect of that land tax year. (7) In this section: "Commonwealth Act" means the Superannuation Industry (Supervision) Act 1993 of the Commonwealth." 14 Section 25(3) of the Act (which was not amended by the SRLATCA) provides that s 25 (which deems the owner of any equitable estate or interest in land to be liable in respect of land tax as if he or she were the legal owner of the estate or interest) does not apply to land the subject of a fixed trust. 15 Section 3(1) of the Act (which was not amended by the SRLATCA) defines "owned" and "owner" as follows: "In this Act, unless the context or subject-matter otherwise indicates or requires: "Owned" and similar expressions have a meaning corresponding with that of owner. "Owner" includes: (a) in relation to land, every person who jointly or severally, whether at law or in equity: (i) is entitled to the land for any estate of freehold in possession, or (ii) is entitled to receive, or is in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise, (b) (Repealed) (c) in relation to any leasehold estate in land, whether legal or equitable (other than under any lease to which section 21C or 21D applies), a person, or a person who is a member of a class or description of persons, prescribed for the purposes of this paragraph, and (d) a person who, by virtue of this Act, is deemed to be the owner." 16 Under s 25A of the Act (which was not amended by the SRLATCA), the Commissioner may classify a trust as a special trust for land tax purposes, on the application of the trustee of the trust, or, on the Commissioner's own motion. The Trust Deed 17 The terms of the Trust Deed, in the context of the circumstances of this matter as at 31 December 2005, effectively determine the outcome of this application. Accordingly, an examination of all of the terms of the Trust Deed as a whole is required. Below is a relevant condensed version of the 32 pages which comprise the Trust Deed, including provisions relied upon by the parties in their respective submissions. 18 The Trust Deed was made on 5 September 2003, between 5 individuals ("the Original Unit Holders") and the Applicant (as Trustee). 19 Recital B of the Trust Deed provides that an initial sum of $30,000 was or would be paid to the Applicant, as trustee, to initially form the "Trust Fund", defined in the Trust Deed as, the initial sum and all monies paid to or assets transferred to and accepted by the trustee upon the issue of units in the Trust and any accumulations of income and all accretions to the Trust Fund and the investments and property from time to time representing the monies assets and accumulations which become subject to the Trust. 20 Clause 1(a) defines "Unit" to mean "an undivided share in the Trust Fund having the characteristics provided under the terms of this Deed". 21 Clause 2 of the Deed provides that: "The perpetuity period in relation to all dispositions made by this Deed shall be the period to the "Vesting Date". The "Vesting Date" is defined as the first to occur of the 79th anniversary of the signing of the Trust Deed and such earlier date as the Trustee may appoint with the consent of the Unit Holders. Clause 42 of the Trust Deed provides that for the purposes of the Deed, the consent of the Unit Holders to any act or thing shall be conclusively deemed to have been given on production of a consent in writing executed by or on behalf of all of the Unit Holders or, the consent was given by a special resolution of the Unit Holders. Under Clause 41(o) of the Trust Deed, "a special resolution may be passed by a meeting of Unit Holders if due notice has been given and 75% or more of the then registered Units entitled to vote exercise their votes in favour of such resolution" (emphasis added). 22 Clause 4 of the Trust Deed provides inter alia that "All income payable in accordance with the provisions of this Deed to Unit Holders shall be payable to them separately and income received by the Trustee shall not be received or be construed as received by or on behalf of the Unit Holders jointly or otherwise". 23 Clause 6 of the Trust Deed provides that the Applicant (the Trustee) "shall stand possessed of the Trust Fund and of the income of that fund (including any business of whatever nature carried on by the Trustee) for the benefit of the Unit Holders in proportion to the number of Units respectively held by them of each class of Unit and the respective rights of each class of Unit (emphasis added). The Trustee acknowledges that the Unit Holders are and shall be beneficially entitled to all assets of whatever nature of the Trust Fund in accordance with the respective rights of each class of Unit (emphasis added) and in proportion to the number of Units respectively held by them of each class of Unit". 24 Clauses 7 to 10 of the Trust Deed fall under the heading "Administration of the Trust", however, Clause 1(d) of the Trust Deed provides that "The headings contained in this Deed shall not affect the construction of these provisions". 25 Clauses 7 to 10(a) of the Trust Deed provide as follows: "7(a) The beneficial interest in the Trust Fund as originally constituted and as existing from time to time shall be vested in the Unit Holders. (b) Each person who becomes registered as a Unit Holder shall be deemed to have agreed to become a party to this Deed and any supplemental deed and shall be entitled to the benefit of and shall be bound by the terms of this Deed and of any supplemental deed. 8. Each Unit shall entitle the registered holder thereof together with the registered holders of all other Units to the beneficial interest in the Trust Fund as an entirety but subject thereto shall not entitle (emphasis added) a Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof and no Unit Holder nor any combination of Unit Holders shall be entitled to the transfer of any assets or property comprised in the Trust Fund (emphasis added) and save as hereinafter provided, no Unit Holder shall be entitled to interfere with or question the exercise or non-exercise by the Trustee of any discretion in relation to the Trustee's ownership of such assets or property or in relation to the conduct of any business carried on by the Trustee. 9. The Trust Fund as originally constituted shall be divided into Ordinary Units at the value set out in Item 5A of the First Schedule which shall be held by the Original Unit Holders whose names and addresses and the number of Units to be held by each are set out in Item 2 of the First Schedule. The Trustee shall not be required to cause the Trust Fund to merge with any other trust fund and subject to the powers which it may exercise under the provisions of this Deed the Trustee shall keep the subject matter of this trust entirely separate and distinct from any other trust fund. 10(a) The Trustee shall have power from time to time to issue additional Units of the same class as already issued or of any other class in such manner and at such price and with such rights as set out in the Third Schedule or otherwise as the Trustee shall think fit provided that no Units shall be issued unless the terms and conditions of the issue are approved by the unanimous vote of all the Unit Holders or alternatively unless the issue is approved by a Special Resolution of the Unit Holders at a meeting of Unit Holders generally (emphasis added) and made in accordance with the following provisions: (i)…; (ii)…; (iii)…; (iv)...". 26 Paragraph (i) of Clause 10(a) provides that the Trustee may satisfy any (emphasis added) payment due to be made to the Unit Holders by the issue of additional Units to such Unit Holders. Paragraph (ii) of Clause 10(a) gives existing Unit Holders a right of first refusal to the issue of new units, in proportion as nearly as may be to their existing unit holdings and without involving fractions, however, under paragraph (iv) of Clause 10(a), the Trustee may "dispose of new units which (by reason of the ratio which the new Units bears to Units held by persons entitled to an offer of the new Units)) cannot, in the opinion of the trustee, be conveniently offered under sub-clause (ii)". 27 Item 2 of the First Schedule identifies the Original Unit Holders as respectively holding the following number of (Ordinary) units in the Trust: (1) 2 individuals, TPD and CFD, as joint tenants, 10,000 units; (2) 1 individual LST, 10,000 units (3) 1 individual SAB, 5,000 units (4) 1 individual PAW, 5,000 units 28 Clause 41 of the Trust Deed deals with meetings of the Unit Holders. Clause 41(b) provides that subject to the consent of the Unit Holders (refer Clause 42 abovementioned), not less than 7 days' notice be given for every meeting. Clause 41(h) provides that a quorum for a meeting is the Unit Holders holding not less than 75% of all registered units entitled to vote at the meeting. Under Clause 41(f), joint registered Unit Holders (such as the 2 individuals, TPD and CFD referred to in Item 2 of the First Schedule) are only entitled to vote as one in respect of their units jointly held. As already mentioned, Clause 41(o) defines a "special resolution" by reference to 75% or more of the then registered Units entitled to vote, exercising their votes in favour of a resolution. 29 The Third Schedule of the Trust Deed lists 9 classes of Units, namely, Ordinary Units and Classes A to H. Ordinary Units are listed first and are described as follows: "These Units shall entitle the holders to receive such part of the net income and net capital gains of the Trust for any Accounting Period as the Trustee does not appoint or allocate to any other class of Unit and in proportion to the number of Units held by each of them and shall entitle the holders to the whole of any distribution of the Trust Fund not arising from income or capital gains other than any part which the Trustee appoints or allocates to any other class of Unit in proportion to the number of Units held by each of them the holders shall have the right to vote at meetings of Unit Holders generally and of Ordinary Unit Holders only" (emphasis added). 30 "Accounting Period" is defined in Clause 1(a) of the Trust Deed as "the period from the date hereof to the next ensuing 30th June and thereafter each period of twelve (12) months ending on the 30th June each year and if the date of termination of the Trust is not on the 30th June in any year then the last accounting period shall be the period commencing on the 1st July immediately preceding the date of termination of the Trust and terminating on the date of termination of the Trust. 31 The other 7 classes of Units listed in the Third Schedule are described as being entitled, either to net income and net capital gains of the Trust for any Accounting Period, or, to such part of the Trust Fund not arising from income or capital gains or, any earlier distribution of capital, as the Trustee appoints, allocates or determines. Differing voting rights attach to these respective different classes of units. 32 Clauses 20(b), 20 (d) and 20 (f) of the Trust Deed provide as follows: "(b) The Trust may be terminated at any time before the Vesting Date if so resolved by a special resolution of the Unit Holders and such termination shall take effect from a date to be named in the special resolution. (d)When the Trust is terminated the Trustee shall sell call in and convert into money or cause to be sold, called in and converted into money the investments and property constituting the Trust Fund, and within the period of six (6) months (or later if approved by the Unit Holders but not later than the expiration of the perpetuity period) from the giving of the next notices to the Unit Holders provided for in the next sub-clause, divide the proceeds less all proper costs and disbursements, commissions, brokerage fees and other outgoings and all proper provision for liabilities among the Unit Holders in proportion to the number of Units of each class held by them and the respective rights of each class of units….provided however that the Trustee may in its discretion at the request of any Unit Holder transfer to such Unit Holder any assets of the Trust Fund in specie in satisfaction or part satisfaction of the entitlement of the Unit Holder. (e) The Trustee shall as soon as practicable after the termination of the Trust give to each Unit Holder not less than one (1) month's notice of the impending distribution. (f) The Trustee may postpone the sale and conversion of any part of the investments and any property of the Trust Fund for such time as they think desirable in the interests of the Unit Holders and shall not be responsible for any loss attributable to such postponement." 33 Clause 19(b) permits the Trustee, in its absolute discretion, to transfer assets of equivalent value to a Unit Holder whose units are being cancelled. A cancellation of Units occurs under Clause 19, where a Unit Holder has applied to the Trustee for the surrender and cancellation of Units of that Unit Holder and such cancellation has the unanimous approval of the other Unit Holders. 34 Similarly again, Clause 35(n) of the Trust Deed empowers the Trustee to appropriate any part or parts of the Trust Fund in or towards satisfaction of the interest of any person in the Trust Fund or, in or towards satisfaction of any sum which the Trustee may determine to pay or apply to or for the benefit of any Unit Holder pursuant to Clause 23 (as referred to hereunder). 35 The following are extracts from Clauses 22 and 23 of the Trust Deed relating to income of the Trust: (1) Clause 22(b) provides that " The Trustee shall pay out of the gross income of the Trust Fund all costs disbursements commissions fees taxes (including land tax, income tax and GST) management charges and other outgoings in respect to the investment and administration of the Trust Fund. (2) Clause 23(a) provides that "The Trustee may (emphasis added) at any time before the expiration of each Accounting Period until the Vesting Date determine with respect to all or any part or parts of the net income of the Trust Fund for such Accounting Period to do all or any of the following:- (i) to pay apply or set aside the same for Unit Holders in proportion to the number of Units of which they are respectively registered as the holders at the time of such determination and the rights of the various classes of Units then in existence; (ii) to accumulate the same; or (iii) to pay apply or set aside the same for such charitable purposes as the Trustee (with the consent of the Unit Holders) may think fit. As previously noted, under Clause 42 of the Trust Deed, the consent of the Unit Holders to any act or thing is conclusively deemed to have been given on production of a consent in writing executed by or on behalf of all of the Unit Holders or, if the consent was given by a special resolution of the Unit Holders (refer to Clause 41(o) abovementioned). (3) Clause 23(d) provides that "Notwithstanding the foregoing the Trustee shall be entitled to (emphasis added) make an interim distribution of income as such time or times as the Trustee shall determine during an Accounting Period, such interim distributions to be made among the Unit Holders in proportion to the number of Units of which they are respectively registered at the time and the rights of the various classes of Units then in existence". (4) Clause 23(e) provides that "The Trustee shall (emphasis added) hold so much of the net income of the Trust Fund for each Accounting Period as shall not be subject of a determination effectively made at or prior to the end of such Accounting Period pursuant to the foregoing provisions of this Clause in trust (emphasis added) for the Unit Holders in proportion to their respective interests on the last day of such Accounting Period". (5) Clause 23(f) provides that "Any amount set aside for any Unit Holder and any amount held by the Trustee in trust for any Unit Holder pursuant to the foregoing provisions shall not form part of the Trust Fund but upon such setting aside or becoming subject to such trust (as the case may be) shall be thenceforth held by the Trustee as a separate trust fund on trust for such person absolutely (emphasis added) with power on the trustee pending payment over thereof to such person to invest or apply or deal with such fund or any resulting income therefrom or any part thereof in a similar manner to that provided for the Trustee in relation to the Trust Fund. 36 There are no similar provisions to Clauses 22 and 23 of the Trust Deed relating to capital of the Trust, except that Clause 25 provides that the Trustee may in its discretion treat capital gains which are taxable in the same way as income, or, may treat them as accruals to capital of the Trust Fund. 37 Clause 29 of the Trust Deed provides that the Trustee is entitled to be indemnified out of the assets of the Fund, against liabilities incurred by the Trustee in connection with the Trust. Clause 38(a) provides that the Trustee is entitled to be paid such remuneration as may be determined by a special resolution of the Unit Holders (again, refer to Clause 41(o) abovementioned). Clause 38(c) of the Trust Deed charges the Trust Fund with the Trustee's remuneration (if any) and payments of all liabilities of the Trust properly incurred by the Trustee and provides that such remuneration and payments shall be paid in priority to any claim by any Unit Holder. 38 Clause 30 empowers the Trustee to appoint managers and agents and decide the remuneration to be allowed and paid. 39 Clause 33 provides that the Trustee shall have the sole and absolute discretion in the exercise of all rights appertaining to shares and other investments comprised in the Trust Fund and "no Unit Holder shall save as herein expressly provided have any right with respect to the Trust Fund to attend meetings of shareholders or to vote or take part in or consent to any corporate or shareholder's motion or save as expressly provided by this Deed to interfere with or question the exercise or non-exercise by the Trustee of the rights and powers of the Trustee as the owners of the Investments of the Trust Fund". Clause 1(a) defines "Investment" as any one of the assets and investments forming for the time being a constituent part of the Trust Fund including the assets and goodwill of any business carried on by the Trustee". 40 Clause 35(x) provides that the Trustee may in its absolute discretion, with the consent of the Unit Holders (refer again to Clause 42 abovementioned) at any time or times before the Vesting Date by any irrevocable deed or deeds appoint that the whole or any part of the Trust Fund be held upon the trusts and subject to the powers and provisions of any other trust in favour or for the benefit of all or one or more exclusively of the others or other of the Unit Holders registered at the time of such appointment and upon any such appointment being made the Trustee may transfer to the trustee of the other trust, the property comprised in the appointment. 41 Clause 37(e) provides that the Trustee may in its absolute discretion at any time and from time to time pay or transfer any investments or money appropriated to a share to which any person is or becomes absolutely entitled to such person absolutely (emphasis added). 42 Clause 37(f) provides that the Trustee may in its absolute discretion allow any Unit Holder to occupy have custody of or use any immovable property or chattels of the Trust Fund on such terms and conditions as the Trustee thinks fit. 43 It was not disputed and it is accepted by the Tribunal that: (1) The Trust Deed has not been amended since it was made; and (2) The number and class of units on issue in the Trust and the respective holders of the units in the Trust have remained unchanged since the Trust was established, that is, there have always been and remain, 30,000 Ordinary Units on issue in the Trust, registered in favour of the Original Unit Holders in their respective unit holdings listed in Item 2 of the First Schedule of the Trust Deed. 44 The certified copy of the Unit Register before the Tribunal reflected the last preceding sub-paragraph. The certified copy of the Unit Register showed Ordinary Units at $1 each, but only showed $2 per unit holding as having been paid for each of the 4 lots of unit holdings, instead of full value (as contemplated by Recital B and Item 5 of the First Schedule of the Trust Deed). Nothing appears to turn on this. Submissions 45 The Applicant submitted that: (1) the Trust is a "fixed trust" under s 3A(2) of the Act, because the equitable estate in all of the land that is the subject of the Trust is owned by the Original Unit Holders as Unit Holders in the Trust ("the Unit Holders") who are owners of the land for land tax purposes (disregarding s 25(3) of the Act); and (2) in the alternative, or, in addition, the Trust satisfies the "relevant criteria" in s 3A(3B) of the Act, and the Unit Holders are deemed to be the owners of an equitable estate in the land that is the subject of the Trust and accordingly, the Trust is taken to be a "fixed trust" under s 3A(3A) of the Act. 46 The Applicant conceded that none of the exclusions in s 3A(4) of the Act were applicable. 47 The Commissioner submitted that: (1) the Trust is not a "fixed trust" under s 3A(2) of the Act, because the Unit Holders are not owners of the land that is the subject of the trust for land tax purposes (disregarding s 25(3) of the Act); and (2) the Trust does not satisfy the "relevant criteria" in s 3A(3B) of the Act, and accordingly, the Trust is not taken to be a "fixed trust" under s 3A(3A) of the Act. 48 The Commissioner acknowledged that the Commissioner did not make or purport to make any classification of the Trust as a special trust under s 25A on or before the date of the assessment. 49 The arguments of each of the parties in favour of their respective submissions, (some of which are mentioned hereunder) have all been considered in the making of the Tribunal's decision, the reasons for which follow. Decision 50 The question of whether the Trust is a special trust within the meaning of s 3A of the Act, must be determined as at midnight on 31 December 2005, being the relevant time in respect to which land tax for the 2006 year is required to be charged (s 8 of the Act). 51 As already mentioned, the amendments effected by the SRLATCA to s 3A of the Act apply as if those amendments had commenced on 31 December 2005. Accordingly, the version of s 3A of the Act as amended by the SRLATCA (being the current version) is the version of that section applicable in this matter, as at midnight on 31 December 2005. 52 If, as at 31 December 2005, the Trust is a fixed trust as referred to in s 3A(2) of the Act, or, taken to be a fixed trust under s 3A(3A) of the Act, the Trust is not a special trust as defined in s 3A of the Act, since the Commissioner did not make or purport to make any classification of the Trust as a special trust under s 25A on or before the date of the assessment. Equally, if as at 31 December 2005, the Trust is neither a fixed trust as referred to in s 3A(2) of the Act, nor, taken to be a fixed trust under s 3A(3A) of the Act, the Trust is a special trust as defined in s 3A of the Act, since it is not disputed that none of the exclusions in s 3A(4) of the Act apply. Section 3A(2) of the Act 53 Whether the Trust is a "fixed trust" under s 3A(2) of the Act as at 31 December 2005, depends on whether the equitable estate in all of the land that is the subject of the Trust was owned by a person or persons who are owners of the land for land tax purposes (disregarding s 25(3) of the Act) as at that date. 54 There is a circularity in the use of the expressions "owned" and "owners" in s 3A(2), when the s 3(1) defined meanings of those expressions are applied. That is, to be a fixed trust under s 3A(2), the equitable estate in the land must be "owned" (as defined by a meaning corresponding to "owner") by a person or persons who are "owners" (as defined) of the land for land tax purposes. If a person or persons are equitable owners (as defined) by necessity, they must be "owners" (as defined) for land tax purposes, since, equitable "owner" (as defined) is a subset of owner (as defined). In the scheme of the Act, this circularity appears to be deliberate. That is, the issue for s 3A(2) is simply whether there is or are equitable owners (as defined) of the land the subject of the Trust. 55 Was there or were there equitable owners (as defined) of the land the subject of the Trust as at 31 December 2005? 56 It was not submitted by the Applicant that the Applicant was the equitable owner (as defined) of the land the subject of the trust. Even if such a submission had been made, it is unlikely to have succeeded since, even if it is possible in any circumstances, for a trustee to be regarded as the equitable owner of trust property (held on trust by the trustee), to apply such an approach in the context of s 3A(2) of the Act would render the special trust provisions of the Act redundant which could not have been intended. Section 3A(3) of the Act also prevents such a submission from being sustainable. 57 It was submitted by the Applicant that the Unit Holders were (and are) the equitable owners (as defined) of the land the subject of the Trust. For this to be accepted, as at 31 December 2005, the Unit Holders must have been jointly or severally, in equity: (i) entitled to the land for any estate of freehold in possession, or (ii) entitled to receive, or in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise (s 3(1)(a) of the Act definition of "owner"). 58 Under s 3A(3), for the purpose of determining whether a trust is a fixed trust under s3A, any equitable interest of the trustee as trustee of the trust is to be disregarded. This is different to the legislation the subject of CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings Pty Ltd [2005] HCA 53 ("the CPT Case"). The Land Tax Act 1958 (Victoria) the subject of the CPT Case did not include any equivalent to s3A(3) of the Act. As submitted by the Applicant, the Land Tax Act 1958 (Victoria) the subject of the CPT Case was also different to the Act in that the definition of "owner" in did not refer to or include reference to an owner "in equity". Although the CPT Case and the CMI Case which applied the CPT Case in the context of the Stamp Act 1921 (WA), have differences to this matter, as submitted by the Commissioner, those cases emphasise the need to consider the terms of the trust deed under consideration in order to identify the nature of the interest held by unit holders. 59 Were the Unit Holders jointly or severally, in equity, entitled to the land the subject of the Trust for any estate of freehold in possession as at 31 December 2005? 60 In my view, based on the terms of the Trust Deed, the Unit Holders were not jointly or severally, in equity, entitled to the land the subject of the Trust for any estate of freehold in possession as at 31 December 2005, for the following reasons: (1) The Applicant submitted that Clause 6 of the Trust Deed gives the Unit Holders beneficial entitlement to the assets (including the land) of the Trust. Clause 6 provides that the Trustee shall stand possessed of the Trust Fund and of the income of the Trust Fund for the benefit of the Unit Holders "in proportion to the number of Units respectively held by them of each class of Unit and the respective rights of each class of Unit " (emphasis added). Clause 6 further provides: "The Trustee acknowledges that the Unit Holders are and shall be beneficially entitled to all assets of whatever nature of the Trust Fund in accordance with the respective rights of each class of Unit (emphasis added) and in proportion to the number of Units respectively held by them of each class of Unit". (2) In order to apprehend Clause 6 in the context of no other units or classes of units having been issued in the Trust, other than the Ordinary Units created and continuously held by the Original Unit Holders since establishment of the Trust, it is necessary to look to the rights of "Ordinary Units" under the Trust Deed. (3) "Ordinary Units" are not defined in the Trust Deed. Clause 9 of the Trust Deed provides that the Trust Fund as originally constituted shall be divided into Ordinary Units but doesn't state anything about the rights of Ordinary Units. Clause 10(a) of the Trust Deed provides that the Trustee has power to issue additional Units of the same class as already issued or of any other class in such manner and at such price and with such rights as set out in the Third Schedule or otherwise as the Trustee shall think fit, subject to the proviso in that Clause. (4) I find that it is to be inferred from Clauses 6, 9 and 10(a) of the Trust Deed, that the rights of Ordinary Units under the Trust Deed are as set out in the Third Schedule of the Trust Deed, as supplemented by other provisions of the Trust Deed. (5) The Third Schedule of the Trust Deed provides that Ordinary Units entitle the holders to: (i) receive such part of the net income and net capital gains of the Trust for any Accounting Period as the Trustee does not appoint or allocate to any other class of Unit and in proportion to the number of Units held by each of them (comment: the land the subject of the Trust is neither "net income" nor "net capital gains" of the Trust); (ii) the whole of any distribution of the Trust Fund not arising from income or capital gains other than any part which the Trustee appoints or allocates to any other class of Unit in proportion to the number of Units held by each of them; and (iii) vote at meetings of Unit Holders generally and of Ordinary Unit Holders. (6) Nothing in the Trust Deed entitles the Unit Holders to the land (forming part of the Trust Fund) of the Trust otherwise than where the Applicant (Trustee) resolves, in its discretion, to make a "distribution" of the land of the Trust (as contemplated by the Third Schedule of the Trust Deed), such as under Clause 19(b) or Clause 20(d) or Clause 35(n) of the Trust Deed, or, with the consent of the Unit Holders (refer to Clause 41 of the Trust Deed), the Trustee appoints the land on fixed trust for specified Unit Holders under Clause 35(x) of the Trust Deed. There was no evidence of any resolution by the Trustee for a distribution of the land of the Trust to the Unit Holders as at 31 December 2005 nor was there any evidence of any fixed trust in respect to the land having been made by the Applicant under Clause 35(x) of the Trust Deed in favour of the Unit Holders. Accordingly, the Unit Holders were not entitled in equity to the land for any estate of freehold in possession as at 31 December 2005. (7) The Applicant relied on Clause 20(d) of the Trust Deed which confers on the Unit Holders, an entitlement to the net proceeds on sale of the assets (i.e. including land) of the Trust, on termination of the Trust. However, as at 31 December 2005, the prospective entitlement of the Unit Holders to the net proceeds on sale of the assets of the Trust under Clause 20(d) did not represent an interest in the land of the Trust but a personal right to due administration of the Trust, similar to the right of a beneficiary under an un-administered deceased estate (Commissioner of Stamp Duties v Livingston [1965] AC 694 at 707-708). (8) Clause 8 of the Trust Deed provides that "Each Unit shall entitle the registered holder thereof together with the registered holders of all other Units to the beneficial interest in the Trust Fund as an entirety but subject thereto shall not entitle a Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof and no Unit Holder nor any combination of Unit Holders shall be entitled to the transfer of any assets or property comprised in the Trust Fund and save as hereinafter provided, no Unit Holder shall be entitled to interfere with or question the exercise or non-exercise by the Trustee of any discretion in relation to the Trustee's ownership of such assets or property" (emphasis added). The Applicant submitted that the words "but subject thereto" in Clause 8 qualify the words which follow and that under Clause 8, the Unit Holders are entitled to the land for an estate of freehold in possession. However, the qualification made by the words "but subject thereto" in Clause 8, is only a qualification in respect to the opening words of that Clause that "Each Unit shall entitle the registered holder thereof together with the registered holders of all other Units to the beneficial interest in the Trust Fund as an entirety". In the context of the all of the terms of the Trust Deed and in particular, the provisions of Clause 6 and the Third Schedule and Clauses 19, 20, 31, 33 and 35 of the Trust Deed, I find that as at 31 December 2005, the "beneficial interest" in the Trust Fund referred to in 8 of the Trust Deed (and in Clause 7(a) of the Trust Deed) was not a proprietary interest in the land of the Trust, but, like the interest of a beneficiary under an un-administered deceased estate, is only a right to due administration of the Trust (Commissioner of Stamp Duties v Livingston [1965] AC 694 at 707-708). (9) The provisions of Clause 8 of the Trust Deed which follow the words "but subject thereto" conflict with the Applicant's claim that the Unit Holders were jointly or severally, in equity, "entitled" to the land the subject of the Trust for an estate of freehold in possession as at 31 December 2005. Clause 33 of the Trust Deed is similarly in conflict with this claim of the Applicant's. (10) The Applicant's submission that Clause 8 is an administrative provision is not accepted since the Clause relates to rights of Unit Holders. The fact that Clause 8 appears under a heading "Administration of the Trust" is of no consequence, given that Clause 1(d) of the Trust Deed provides that "The headings contained in this Deed shall not affect the construction of these provisions". (11) Justice Gzell made an obiter comment (at 50) in a stamp duty case, CPT Manager Ltd v Chief Commissioner of State Revenue [2006] NSWSC 1286 that: "There is nothing in CPT nor in the later decision of the High Court in Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 80 ALJR 519 to suggest that the holder of a unit in a unit trust lacks an equitable interest in the trust property". However, in the context of the all of the terms of the Trust Deed in this matter and in particular, the provisions of Clause 6 and the Third Schedule and Clauses 19, 20, 31, 33 and 35 of the Trust Deed, as already mentioned, I find that as at 31 December 2005, the Unit Holders did not have a proprietary interest in the land of the Trust but a right similar to the right of a beneficiary under an un-administered deceased estate, to due administration of the Trust (Commissioner of Stamp Duties v Livingston [1965] AC 694 at 707-708). (12) The Applicant relied on Clause 25 of the Trust Deed, however, that Clause only gives the Applicant (as Trustee) a discretion to treat capital gains which are taxable in the same way as income and does not relate to capital of the Trust generally, and in particular, does not relate to land of the Trust. (13) Notwithstanding that Clause 1(a) of the Trust Deed defines "Unit" as "an undivided share in the Trust Fund having the characteristics provided under the terms of this Deed", in light of the characteristics of the Units as provided under the terms of the Trust Deed, I find that as at 31 December 2005, Units in the Trust did not vest any proprietary interest in the Trust Fund (including the land of the Trust), in the Unit Holders. 61 Were the Unit Holders jointly or severally, in equity, entitled to receive, or in receipt of, or if the land were let to a tenant, entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise, as at 31 December 2005? 62 The rents of the Trust are income, not capital of the Trust. Profits of the land may be income or capital of the Trust. For the purposes of the following comments, rents of the land of the Trust and profits of the land of the Trust which are not capital of the Trust and are jointly and severally referred to as "income" of the Trust and profits of the land of the Trust which are capital of the Trust are referred to as "capital" of the Trust. 63 In my view, based on the terms of the Trust Deed, as at 31 December 2005, the Unit Holders were not jointly or severally, in equity, entitled to receive, or in receipt of, or if the land were let to a tenant, entitled to receive, the income or capital of the Trust, for the following reasons: (1) As aforementioned, the rights of the Unit Holders, as Ordinary Unit Holders (with no other classes of units having been issued in the Trust) under the Third Schedule of the Trust Deed, relevantly were, an entitlement to: (i) the net income and net capital gains of the Trust for any Accounting Period (comment: the net income and net capital gains of the Trust for any Accounting Period are not known until the expiry of the Accounting Period. Accordingly, the net income and net capital gains of the Trust for the Accounting Period in which 31 December 2005 occurred could not be determined until the expiry of that Accounting Period, on 30 June 2006. As such, the Ordinary Unit Holders were not "entitled" to net income and net capital gains of the Trust under the Third Schedule of the Trust Deed as at 31 December 2005); and (ii) the whole of any distribution of the Trust Fund not arising from income or capital gains other than any part which the Trustee appoints or allocates to any other class of Unit in proportion to the number of Units held by each of them. (2) Clause 23(e) of the Trust Deed entitles the Unit Holders to such of the net income of the Trust at the end of an Accounting Period as has not already been the subject of a determination. Unless the Applicant (Trustee) resolves in its discretion to make an interim distribution of income of the Trust under Clause 23(d) of the Trust Deed, nothing in the Trust Deed entitles the Unit Holders to the income of the Trust as at 31 December 2005. There was no evidence of any resolution for an interim distribution of the income of the Trust as at 31 December 2005, to the Unit Holders. Accordingly, I find that the Unit Holders were not entitled in equity to the income of the Trust as at 31 December 2005. (3) The provisions of Clause 4 of the Trust Deed quoted above conflict with the Applicant's claim that the Unit Holders were jointly or severally, in equity, entitled to the income of the Trust as at 31 December 2005, in the circumstance of no resolution for an interim distribution of the income of the Trust as at 31 December 2005 having been made. (4) Clauses 7(a) and 8 of the Trust Deed do not relate to "income" of the Trust. The "Trust Fund" as defined in the Trust Deed does not refer to income of the Trust Fund other than, accumulations of income and Clause 6 of the Trust Deed refers to the Trust Fund and income of the Trust, indicating that the definition of "Trust Fund" does not include income generally (i.e. non-accumulated). Accordingly, Clauses 7(a) and 8 of the Trust Deed can not support the Applicant's case in the context of the income of the Trust. Even if the Trust Fund where referred to in Clauses 7(a) and 8 does include income of the Trust, in my view, as aforementioned, as at 31 December 2005, Clauses 7(a) and 8 did not confer any proprietary interest in the income or the capital of the Trust. (5) The reasons abovementioned in relation to land the subject of the Trust, apply equally to capital of the Trust generally. Section 3A(3A) of the Act 64 Whether the Trust is a "fixed trust" under s 3A(3A) of the Act as at 31 December 2005, depends on whether the Trust Deed satisfies the "relevant criteria" in s 3A(3B) of the Act as at that date. This requires that: (a) the Trust Deed specifically provide that the beneficiaries of the trust: (i) are presently entitled to the income of the trust, subject only to payment of proper expenses by and of the trustee relating to the administration of the trust; and (ii) are presently entitled to the capital of the trust, and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property; and (b) the entitlements referred to in paragraph (a) cannot be removed, restricted or otherwise affected by the exercise of any discretion, or by a failure to exercise any discretion, conferred on a person by the trust deed. 65 If the Trust Deed specifically provides each of the matters referred to in s 3A(3B)(a)(i) and s 3A(3B)(a)(ii) as at 31 December 2005, s 3A(3B)(b) must be considered in order to determine whether the relevant criteria are satisfied. If, on the other hand, the Trust Deed does not specifically provide each of the matters referred to in s 3A(3B)(a)(i) and s 3A(3B)(a)(ii) of the Act as at 31 December 2005, it can not satisfy the relevant criteria and s 3A(3B)(b) need not be considered. 66 In my view, for the reasons which follow, the Trust Deed does not specifically provide the matters referred to in s 3A(3B)(a)(i) and s 3A(3B)(a)(i) of the Act and accordingly, the Trust Deed did not satisfy the relevant criteria as at 31 December 2005. As such, it is unnecessary to consider s 3A(3B)(b) in the context of this matter. 67 The full Federal Court decision in Pearson v Commissioner of Taxation [2006] FCAFC 111 ("Pearson's Case") referred to in the submissions of the Commissioner, elucidated principles relevant to determining whether a unit holder is "presently entitled" to net income of a unit trust for income tax purposes. The concept of "presently entitled" is not defined in the Act or in the Interpretation Act 1987 and does not have a meaning at general law outside the one developed in the context of Commonwealth income tax legislation. With the expression "presently entitled" not having defined in the Act, I find it reasonable to infer that the NSW legislature intended that the income tax approach to the meaning of "presently entitled" be applied to that expression where it is used in the Act. 68 Pearson's Case dealt with the question of whether a unit holder (Jancy Pty Ltd, in its capacity as trustee of the Jancy Trust) of units in two unit trusts (the CFNUT and the CFGUT) was "presently entitled" to net income of the two unit trusts, for income tax purposes under the Income Tax Assessment Act 1936 (Cth). The decision was made after the High Court decision in CPT Custodian Pty Limited (previously trading as Sandhurst Nominees (Vic) Ltd) v Commissioner of State Revenue (2005) 221 ALR 196 and considered that High Court decision. Mr Justice Edmonds, with whom Justices Dowsett and Allsop agreed, held as follows in Pearson's Case: "14 A beneficiary is 'presently entitled' to a share of the income of the trust estate if, but only if: (a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment: Harmer & Ors v Commissioner of Taxation (1991) 173 CLR 264 at 271 citing, inter alia , Whiting , supra, at 215 - 216, 219 - 220; Taylor v Federal Commissioner of Taxation (1970) 119 CLR 444 at 450 - 452; Totledge Pty Ltd v Federal Commissioner of Taxation (1980) 31 ALR 657 at 661, 664; Federal Commissioner of Taxation v Totledge Pty Ltd (1982) 60 FLR 149 at 159 - 161. 15 Nothing was said in CPT Custodian to cast doubt on the principle as expressed in [14] supra. That is not surprising because CPT Custodian was not concerned with the question of whether the beneficiary unit holder was 'presently entitled' to income of a trust estate for the purpose of Division 6 of Part III of the ITAA. 16 In my view, the learned primary judge was correct in concluding that, having regard to the provisions of the trust deed pursuant to which the CFNUT is constituted, in particular cll 7(1), 34(1) and 34(6), Jancy, in its capacity as trustee of the Jancy Trust, was presently entitled to the whole of the net income of the CFNUT for the relevant years of income. Jancy's interest in the net income of the CFNUT was, by virtue of those specified clauses, vested in interest and possession, as Jancy had a present legal right to demand and receive payment of that net income. Arguably that is the effect of cl 34(1) operating alone, but the provisions of cl 34(6) make it clear that if, for some reason, the quantum of the net income which is paid or applied pursuant to cl 34(1) does not extend to the whole of the net income of the relevant accounting period, cl 34(6) makes Jancy absolutely entitled to the difference. None of the observations from CPT Custodian relied on by the appellant for a contrary result affect this conclusion. 17 It follows, in my view, that the s 95 net income of the CFNUT for each of the relevant years of income is to be included in the s 95 net income of the Jancy Trust for each respective relevant year of income and, by virtue and to the extent of the distribution resolutions of Jancy for each of those relevant years of income, in the assessable income of the appellant for those years. 18 The position in relation to the CFGUT in respect of the 1992 tax year is, arguably not as clear. … 22 Putting considerations of fairness to one side, even if such notional reconstructed accounts disclosed a net income for the accounting period ended 30 June 1992, there was no resolution of the trustee of the CFGUT prior to, or even after, 30 June 1992 resolving to distribute that net income to the unitholders. In my view, having regard to the terms of cl 22 of the CFGUT trust deed, that is fatal to a conclusion that Jancy was presently entitled to the net income of the CFGUT for the year ending 30 June 1992, for the reasons referred to below. 23 First, 'present entitlement' in terms of Division 6 of Part III of the ITAA has to be determined by the end of the year of income to which the income relates, in the sense of its year of derivation. That explains the introductory words of cl 22(1) of the CFGUT trust deed: 'During the month of June in the year 1985 and in the month of June in every following year ...'. Absent a decision of the trustee prior to or at the end of June in any year pursuant to cl 22(1) of the CFGUT trust deed, there does not appear to be any other provision of the CFGUT trust deed which would, in terms of the principles articulated in [14] supra, make Jancy 'presently entitled' to the net income of the CFGUT for the year ended 30 June 1992. The comparison with the self-executing provisions of cll 34(1) and 34(5) of the CFNUT trust deed are self-evident. 24 Second, the fact that the undistributed income is not carried to some General Reserve pursuant to cl 22(5) because there is no such reserve or because none is created for this purpose, is not adverse to this conclusion because even if the undistributed net income does not become 'part of the Fund' pursuant to cl 22(5), irrespective of how it is treated in the financial accounts of the CFGUT, either as undistributed income or as corpus of the fund, the unitholders of the CFGUT have no present, i.e. as at 30 June 1992, legal right to demand and receive payment of such undistributed net income. Indeed, having regard to the terms of the CFGUT trust deed, nor do they have any future legal right to demand and receive payment of such undistributed net income, although, even if there was such a future right, that would not seem to be relevant to the issue of 'present entitlement' in the present case, save perhaps for the operation of s95A(2) of the ITAA which, correctly in my view, was not relied upon by the Commissioner. 25 Third, the learned judge's analysis of the authorities he referred to and relied upon for his conclusion that the appellant was presently entitled to the net income of the CFGUT for the year ended 30 June 1992 does not, with respect, pay sufficient regard to the differences between the terms of the instruments under consideration in those cases and the relevant terms of the CFGUT trust deed. In my view, if the unitholders in the CFGUT were not presently entitled to the net income of the CFGUT of a year of income pursuant to a decision of the trustee under cl 22(1) of the CFGUT trust deed, they were not otherwise presently entitled to such net income. 26 Fourth, insofar as the respondent relies upon Jancy's 100 per cent ownership of the units in the CFGUT to assert that Jancy was presently entitled to the net income of the CFGUT for the year ended 30 June 1992 because Jancy could bring the trust to an end in reliance on the rule in Saunders v Vautier, in the face of what was said in CPT Custodian, that proposition, in respect of modern day unit trusts, cannot be accepted as a proposition of general application. Ultimately it will depend upon the terms of the constituent document and the circumstances of the particular case. 27 For the foregoing reasons, I am of the view that Jancy, in its capacity as trustee of the Jancy Trust, was not presently entitled to the net income of the CFGUT for the year ended 30 June 1992 with the result that the s 95 net income of the CFGUT for the year ended 30 June 1992 was not included in the s 95 net income of the Jancy Trust for the year ended 30 June 1992 nor, as to 50 per cent, in the assessable income of the appellant for the year ended 30 June 1992." 69 There are similarities between the trust deed which governed the CFNUT in Pearson's Case and the Trust Deed in this matter, in particular: (1) similar to Clause 7(a) of the Trust Deed, Clause 7(1) of the CFNUT trust deed provided that: "The beneficial interest in the Trust Fund as originally constituted and as existing from time to time shall be vested in the Unit Holders for the time being"; and (2) similar to Clause 23(e) of the Trust Deed, Clause 34(6) of the CFNUT trust deed provided that: "The Trustee shall hold so much of the net income of the Trust Fund for each Accounting Period as shall not be the subject of a determination effectively made at or prior to the end of such Accounting Period pursuant to the foregoing provisions of this Paragraph in trust for the Holders of Units in proportion to the number of Units of which they are respectively registered on the last day of such Accounting Period". 70 In Pearson's Case (at 16), the Full Federal Court found that having regard to the provisions of the CFNUT trust deed, in particular, Clauses 7(1), 34(1) and 34(6), Jancy Pty Ltd, in its capacity as trustee of the Jancy Trust, was presently entitled to the whole of the net income of the CFNUT for the relevant years of income. 71 On the other hand, in Pearson's Case (at 27), the Full Federal Court held that Jancy Pty Ltd, in its capacity as trustee of the Jancy Trust, was not presently entitled to net income of the CFGUT for the relevant year of income. This was notwithstanding that Clause 8 of the CFGUT trust deed provided that: "The beneficial interest in the Fund as originally constituted by the payment of ten dollars by the Settlor to the Trustee shall be divided into 100 units….". (Pearson v Commissioner of Taxation [2005] FCA 250 at 43(v)), This highlights that it was the combination of Clauses 7(1), 34(1) and 34(6) of the CFNUT trust deed and the circumstances of that case that enabled the Full Federal Court to reach its conclusion in respect to the net income of the CFNUT and not Clause 7(1) of the CFNUT trust deed alone (which is similar to Clause 7(a) of the Trust Deed in this matter). 72 However, despite the similarities aforementioned, between the Trust Deed in this matter and the CFNUT trust deed in Pearson's Case, there is an important distinction between the two cases. 73 The time for determining liability to income tax under the Income Tax Assessment Act 1936 (Cth) coincided with the end of an Accounting Period as defined in Clause 1(12) the CFNUT trust deed (Pearson v Commissioner of Taxation [2005] FCA 250 at 38(ii)). 74 On the other hand, in this case, the time for determining land tax liability under the Act is 31 December 2005 which does not coincide with the end of an Accounting Period (as defined in the Trust Deed). 75 The Accounting Period (as defined in the Trust Deed) in which 31 December 2005 occurred, did not end until 30 June 2006 and it was not until that date that the Unit Holders became "presently entitled" to the "net income" of the Trust, on the authority of Pearson's Case. 76 Applying the principles of "presently entitled" enunciated in Pearson's Case to this case, I find that the Unit Holders were not presently entitled to the income or the capital of the Trust as at 31 December 2005, because the Unit Holders: (1) did not have an interest in the income or capital of the Trust vested in interest and in possession as at that date (refer to the reasons in respect to s 3A(2) of the Act abovementioned); and (2) did not have a present legal right to demand and receive payment of the income or capital of the Trust as at that date (refer to the reasons mentioned in respect to s 3A(2) of the Act abovementioned). 77 As at 31 December 2005, the Trust Deed did not specifically provide that the Unit Holders were presently entitled to the income (subject only to payment of proper expenses by and of the trustee relating to the administration of the trust) and capital of the Trust. 78 In addition, the Trust Deed did not specifically provide that the Unit Holders could require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property as required by 3A(3B)(a)(ii) of the Act. Clause 20(b) of the Trust Deed provides that the Trust may be terminated at any time "if so resolved by a special resolution of the Unit Holders". This means that such of the Unit Holders as together hold 75% of the Ordinary Units may require the trustee to wind up the Trust. In the circumstance of the Ordinary Unit Holdings of this case, as at 31 December 2005, none of the Unit Holders individually had the power to make a special resolution and each of the Unit Holders was capable of being excluded from (and not forming a part of) a special resolution (refer to Clauses 9 and 41(f) of the Trust Deed). For this reason, the Trust Deed does not specifically provide that the Unit Holders (i.e. all of them) may require the trustee to wind up the Trust. Further Transitional Provision 79 Although not addressed by either of the parties, it is appropriate to mention a further issue in this case, to the extent that it could have potential implications for the assessment. That further issue is Clause 42 of Part 20 of Schedule 2 of the Act. 80 Clause 42 of Part 20 of Schedule 2 of the Act is a further transitional provision introduced to the Act, consequent to the enactment of the SRLATCA and provides as follows: "42 Restructuring of unit trust for land tax purposes - concession (1) This clause applies in respect of a unit trust (within the meaning of Schedule 1AA) if: (a) an instrument is executed on or after 6 June 2006 and before 1 January 2008 that effects a variation to a trust deed for a unit trust, and (b) before the instrument is executed, unit holders in the unit trust have fixed entitlements under the trust, and (c) the purpose of the variation is to enable the unit trust to satisfy the relevant criteria (within the meaning of section 3A) and, accordingly, to be treated as a fixed trust under that section, and (d) the variation does not directly or indirectly result in a change in the proportion of any income or capital to which a unit holder is entitled under the trust. (2) Any land tax payable in respect of the land the subject of the unit trust is to be assessed or reassessed as if the variation to the trust deed took effect on 31 December 2005. (3) Unit holders in a unit trust have "fixed entitlements" under the trust if: (a) the unit holders are entitled to a fixed proportion of the income or capital distributions of the trust (if any are made) based on the number or class of units owned by them, and (b) the entitlements referred to in paragraph (a) cannot be removed, restricted or otherwise affected by the exercise of a discretion, or by a failure to exercise a discretion, conferred on any person under the trust. (4) Anything done or omitted to be done on or after 6 June 2006 and before the date of assent to the State Revenue Legislation Amendment (Tax Concessions) Act 2006 that would have been validly done or omitted to be done if this clause had been in force at the time that it was done or omitted to be done is taken to have been validly done or omitted to be done." 81 In my view, the Trust is a unit trust (within the meaning of Schedule 1AA of the Act) and, whilst ever the only Units on issue in the Trust are Ordinary Units, the unit holders are entitled to a fixed proportion of the income and capital distributions of the Trust (if any are made) based on the number or class of units owned by them (thereby satisfying paragraph 3(a) of Clause 42). However, those entitlements may not satisfy paragraph 3(b) of Clause 42 if it is argued that the Unit Holders in the Trust do not have "fixed entitlements" as defined, on the grounds that the entitlements of Unit Holders can be affected by the exercise of a discretion conferred on a person under the Trust, namely, the discretion conferred on the Applicant (Trustee), with the approval of a special resolution of the Unit Holders, to issue further Units in the Trust under Clause 10(a) of the Trust Deed. If further Units in the Trust are issued otherwise than pro rata to the existing Unit Holders, the proportionate entitlement of the Unit Holders to the income and capital distributions of the Trust will necessarily be affected and in some cases, may be restricted. (Cancellations of Units require the approval all Unit Holders, namely, the Unit Holder applying for cancellation and all other Unit Holders (under Clause 19 of the Trust Deed) and as such, unlike the issue of further Units, there should be no argument of "discretion" in this context.) 82 However, if the argument of a "discretion" in respect to the issue of new Units is sustainable, it could be open for the Trust Deed to be amended to remove such discretion, for example, by removing the power of the Trustee to issue new units other than pro rata to the existing Unit Holders, or, with the unanimous approval of all of the existing Unit Holders. If that amendment were to occur, Clause 42 of Part 10 of Schedule 2 of the TAA could then be available to the Trust Deed, on the basis that before an instrument of variation referred to in Clause 42(1)(a) is executed, unit holders in the unit trust have fixed entitlements (as defined) under the Trust. 83 If this were to be the case, and: (1) after the amendment to the Trust Deed removing the discretion abovementioned and before 1 January 2008, an instrument is executed, effecting a variation to the Trust Deed, to enable the Unit Trust to satisfy the relevant criteria (as defined in s 3A of the Act) and be treated as a fixed trust under that section, then (2) so long as the variation does not directly or indirectly result in a change in the proportion of any income or capital to which a unit holder is entitled under the Unit Trust, (3) Clause 42 of Part 20 of Schedule 2 should apply. 84 In the above circumstances, subject to the Commissioner being satisfied that the instrument of variation of the Trust executed to enable the Unit Trust to satisfy the relevant criteria (as defined in s 3A of the Act) and accordingly be treated as a fixed trust under that section, actually satisfies Clause 42 of Part 20 of Schedule 2 of the Act, the Commissioner would be required to: (1) make a reassessment of the Applicant's liability for land tax for the 2006 land tax year (and also, for the 2007 land tax year) as if the Trust had been a fixed trust and not a special trust since 31 December 2005; and (2) refund to the Applicant under s 18 of the TAA, the $5,984 overpayment of land tax for the 2006 land tax year (and also, the amount of any overpayment of land tax for the 2007 land tax year). 85 In my view, material amendments would need to be made to the Trust Deed to enable the Trust Deed to satisfy the relevant criteria (as defined in s 3A of the Act) however, it is noted that the SRLATCA also introduced a new s 284B to the Duties Act 1997 which provides that duty is not chargeable in respect of an instrument executed on or after 6 June 2006 and before 1 January 2008 that effects a variation to a trust deed for a unit trust (within the meaning of Schedule 1AA to the Act) in circumstances described in that section which parallel the circumstances described in Clause 42(1) of Part 20 of Schedule 2 of the Act. Conclusion 86 For the foregoing reasons, the Applicant has not established that assessment was incorrect. 87 The correct and preferable decision is to affirm the assessment. Order 88 The assessment is affirmed.

GTN Developments Pty Ltd v Chief Commissioner of State Revenue

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Judgment (8 paragraphs)

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Cases Cited (10)