Hildard Pty Ltd ATF Hildard Trust v Chief Commissioner of State Revenue

Material before the Tribunal

1. The Applicant relied upon: 1. The application filed on 30 March 2022 and the documents attached to the application; 2. An email dated 31 May 2022 which contained a mixture of evidence and submissions; 3. An email dated 15 December 2022 attaching submissions and documents; 4. Documents headed "Submission A" and "Submission B" emailed to the Tribunal on 12 April 2023; and 5. Submissions dated 16 May 2023.
2. The Respondent relied upon: 1. Documents under s 58 of the ADR Act filed on 3 May 2022; 2. A Tender Bundle filed on 5 May 2023; 3. An affidavit of Larissa Ann Devlin sworn on 4 May 2023; and 4. Submissions filed on 5 May 2023.

Admission into evidence of the 17 September 2016 Declaration of Trust

1. A preliminary issue arose as to whether a document headed Declaration of Trust dated 17 September 2016 (17 September Declaration of Trust), contained within the s 58 documents, could be admitted into evidence by the Tribunal. The document had been submitted to the Respondent for stamping and assessed to duty but remains unstamped as the stamp duty assessed has not been paid.
2. Section 304 (1) of the Duties Act 1997 (NSW) (Duties Act) (which is set out fully below) provides that an instrument which is chargeable with duty under the Duties Act may not be presented in evidence unless it is duly stamped. However, under s 304(2) of the Duties Act, a court or tribunal may admit into evidence an instrument which is chargeable with duty which has not been stamped if the instrument is, after its admission, transmitted to the Chief Commissioner of State Revenue in accordance with arrangements approved by the court or tribunal. In terms of those arrangements, clause 31.13 of the Uniform Civil Procedure Rules 2005 provides that the "usual undertaking" to be provided in this regard is an undertaking that the party liable to duty will, within a time specified by the court, transmit the instrument to the Chief Commissioner of State Revenue.
3. The Respondent, correctly in my view, submitted that I could allow the 17 September Declaration of Trust into evidence here under s 304(2), where there was no question that the Chief Commissioner was already in possession of the document.
4. On that basis I allowed that document (and two other unstamped documents also in the Respondent's possession) into evidence. I deal below, however, with the use that could be made of the 17 September Declaration of Trust in the proceedings.

Facts

1. By way of background, Mr Graham Catt, who is the sole director and shareholder of the Applicant (and appeared on behalf of the Applicant), says that he first purchased the Property in 1985 and it was his family home from 1986 until 2007. In 2007 he sold the Property as he needed to purchase alternative accommodation to cater for his wife's disability. He says he sold the Property to an acquaintance with an agreement that, if he should ever wish to sell it, Mr Catt would have first option to buy it back. He says his stepson continued to reside in the Property after Mr Catt had sold it. After Mr Catt's wife had passed away, in 2016 Mr Catt was offered the opportunity to re-purchase the Property. At that time, Mr Catt says that he was unable to take out a loan against the Property in his personal capacity due to his age (he was 79 years old at that time), however he was able to take out a loan with a company which would lend to business enterprises and corporate trustees. In order to secure his stepson's inheritance from his maternal grandmother's estate, Mr Catt says that it was decided to purchase the Property in a Trust with Mr Catt's stepson as beneficiary.
2. Hildard Pty Ltd was registered on 7 September 2016.
3. On 15 September 2016 a Deed of Settlement Establishing the Hildard Trust was prepared between Jonathan Bowman as Settlor and Hildard Pty Ltd as Trustee. The copy of that document in the materials before the Tribunal is signed by a (then) director of Hildard Pty Ltd but not by the Settlor. That document is not stamped.
4. That deed provides, amongst other things, that: The Trustees shall stand possessed of the Trust Fund and the income thereof in trust for all or such one or more of the Eligible Beneficiaries and in such shares or proportions as the Trustees shall revocably or irrevocably from time to time before the Closing Date declare.
5. Eligible Beneficiaries are defined as meaning the beneficiaries set out in Annexure A to the Deed. Annexure A is not attached to the copy of the Deed before the Tribunal.
6. Mr Catt says that this document was never fully signed or utilised.
7. Mr Catt says that it was the 17 September 2016 Declaration of Trust which was used as part of the transaction to purchase the Property.
8. That document is signed as a deed by Hildard Pty Ltd.
9. It provides, amongst other things: The Trustee is to acquire the Trust Asset [the Property] as bare trustee for the sole benefit of the beneficiary [Mr Catt's stepson].
10. There is also in the materials before the Tribunal a minute of a meeting of Hildard Pty Ltd on 21 September 2016 which records: Following discussion of several options and advice received IT WAS RESOLVED that the Bare Trust be adopted and forwarded to our Lawyers for settlement of the [Property] on behalf of [Mr Catt's stepson]. His inheritance received and being held for him will provide the funds required at settlement.
11. On 30 September 2016, the Applicant, Hildard Pty Ltd as trustee for the Hildard Trust, entered into a contract to purchase the Property and stamp duty was paid on the contract on 11 October 2016. On 14 October 2016, the transfer of the property was registered.
12. After the Respondent had issued land tax notices of assessment for the 2017 and 2018 land tax years, in 2018, Mr Catt telephoned an officer of the Respondent and advised that the Property had been taxed incorrectly as it was purchased under trust. Mr Catt then provided the Respondent with a copy of the 15 September Trust Deed. The Respondent advised Mr Catt that, having reviewed the trust deed, the Hildard Trust was a discretionary trust and was taxable as a special trust under s 3A of the Land Tax Management Act 1956 (NSW) (LTMA). Mr Catt then wrote to the Respondent advising that he had provided the incorrect document to the Respondent in error. He provided the Respondent with the 17 September 2016 Declaration of Trust and advised the Respondent that it was the 17 September 2016 Declaration of Trust which was used for the purpose of the purchase of the Property.
13. In March 2019, the Respondent advised the Applicant that, as conflicting deeds had been provided, neither of which had been stamped, the Respondent was unable to accept the 17 September Declaration of Trust as the deed for the trust and it would remain classified as a special trust for land tax purposes.
14. In April 2019, the Applicant lodged the 17 September Declaration of Trust with the Respondent for stamping and sought a concession from duty under s 55 of the Duties Act. That concession was not granted and a Duties Notice of Assessment (Duties Assessment) was issued in respect of the 17 September Declaration of Trust in the amount of $47,617.28. The Applicant objected to the Duties Assessment which objection was disallowed. An application to this Tribunal in respect of the Duties Assessment was heard in December 2022 and, in Hildard Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCATAD 5, the Tribunal affirmed the Duties Assessment. An appeal against that decision by the Applicant was withdrawn.
15. The Duties Assessment has not been paid and the 17 September Declaration of Trust remains unstamped. At the hearing Mr Catt said that the Applicant would not provide an undertaking to pay the Duties Assessment as it was not in a position to pay it.

Land Tax Management Act 1956 (NSW) (LTMA)

1. Section 3 of the LTMA defines the "owner" of land relevantly as follows: 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…
2. Section 3 also provides that "person" includes a company.
3. Section 3A of the LTMA defines special trust relevantly as follows: 3A Special trust - meaning (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 2 years after the date of death of the testator, or (f) in relation to any land tax year in which it is a family unit trust, as provided by Schedule 1AA.
4. Section 3B of the LTMA defines "concessional trusts" as follows: 3B Concessional trust - meaning (1) For the purposes of this Act, a trust is a concessional trust if - (a) the trust property includes land, and (b) each person who is a beneficiary of the trust is - (i) a person under the age of 18 years, or (ii) a person in respect of whom a guardianship order is in force under the Guardianship Act 1987, or (iii) a person in the relevant group within the meaning of the Coroners Act 2009.
5. Section 25A of the LTMA provides that the Respondent may classify a trust as a special trust. Relevantly, it provides as follows: 25A Classification of trust as special trust (1) If land is subject to a trust, the Chief Commissioner may classify the trust as a special trust for land tax purposes - (a) on the application of the trustee of the trust, or (b) on the Chief Commissioner's own motion. (2) Without limiting subsection (1) (b), the Chief Commissioner may classify a trust as a special trust in relation to a land tax year if any information required to be provided for that land tax year in relation to the trust, the land that is the subject of the trust or the beneficiaries of the trust is not provided as required under this Act. … (10) The Chief Commissioner may, despite anything to the contrary in this section - … (c) assess or re-assess any land tax liability for land the subject of a trust that is not a fixed trust on the basis of the trust being a special trust, including land tax liability in respect of land tax years that commenced or occurred before the trust was classified as a special trust.
6. Section 10(1)(r) of the LTMA provides that land is exempt from taxation under the principal place of residence exemption as set out in Schedule 1A to the LTMA.
7. Clause 2 of Schedule 1A provides that land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under the LTMA provided that the land is a parcel of residential land or one or more strata lots.
8. Clause 11 of Schedule 1A provides that the principal place of residence exemption does not apply to land owned by companies and trustees. Relevantly, it provides as follows: 11 Exemption does not apply to land owned by companies and trustees (1) Land is not exempt from taxation under the principal place of residence exemption if - (a) the land is owned, or jointly owned, by a company, unless the land is owned or jointly owned by a trustee company acting in its representative capacity or a company acting in its capacity as trustee of a concessional trust, or (b) the owner of the land, or each of the joint owners, who use and occupy the land as a principal place of residence is an owner only by reason of being a trustee, or (c) the land is owned, or jointly owned, by a person who is a trustee acting in the person's capacity as trustee of a special trust. Note - The expression trustee company (as referred to in subclause (1) (a)) is defined in section 3 (1).
9. Section 3(1) of the LTMA defines trustee company as being a trustee company within the meaning of the Trustee Companies Act 1964 (NSW) or the NSW Trustee and Guardian.
10. The Trustee Companies Act in turn defines trustee company as meaning a licensed trustee company within the meaning of Chapter 5D of the Corporations Act 2001 of the Commonwealth. Section 601RAA in Chapter 5D of the Corporations Act defines a licensed trustee company as a company that holds an Australian Financial Services Licence covering the provision of traditional trustee company services.

Land Tax Act 1956 (NSW)(LTA)

1. Section 3AL(2)(b) of the LTA (and Part 2 of Schedule 13 of the LTA) provides for a land tax threshold to apply except in relation to land which is subject to a special trust. The applicable rate of land tax to be levied if land is subject to a special trust is 1.6% of the taxable value of the land.

Duties Act 1997 (NSW)

1. Section 304 of the Duties Act provides that an instrument which is chargeable to duty may not be used in law or equity unless it is duly stamped. Section 304 provides as follows: 304 Receipt of instruments in evidence (1) An instrument that effects a dutiable transaction or is chargeable with duty under this Act is not available for use in law or equity for any purpose and may not be presented in evidence in a court or tribunal exercising civil jurisdiction unless - (a) it is duly stamped, or (b) it is stamped by the Chief Commissioner or in a manner approved by the Chief Commissioner. (2) A court or tribunal may admit in evidence an instrument that effects a dutiable transaction, or is chargeable with duty in accordance with the provisions of this Act, and that does not comply with subsection (1) - (a) if the instrument is after its admission transmitted to the Chief Commissioner in accordance with arrangements approved by the court or tribunal, or (b) if (where the person who produces the instrument is not the person liable to pay the duty) the name and address of the person so liable is forwarded, together with the instrument, to the Chief Commissioner in accordance with arrangements approved by the court or tribunal. (3) A court or tribunal may admit in evidence an unexecuted copy of an instrument that effects a dutiable transaction, or is chargeable with duty in accordance with the provisions of this Act, if the court or tribunal is satisfied that - (a) the instrument of which it is a copy is duly stamped, or is stamped in a manner approved by the Chief Commissioner, or (b) the copy is duly stamped under section 299.

The Parties' submissions

1. The Applicant submits: 1. The Assessment should have been issued to the Hildard Trust, not Hildard Pty Ltd. The Applicant submits that it is the Trust, and not the company, which owned the Property; 2. The Hildard Trust should not have been characterised as a special trust (which does not receive the benefit of the land tax threshold) as, it was a bare trust (which does receive the benefit of the land tax threshold). While in its written submissions the Applicant characterises the Hildard Trust as a "bare" trust, at the hearing the Applicant confirmed that its submission is that the Hildard Trust should be classified as a fixed trust as defined by s3A of the LTMA; and 3. The Property was and is the principal place of residence of Mr Catt and his stepson and should be exempt from land tax. In this regard, the Applicant says that the Property has continually been and remains the family residence and it is unfair to be denied the principal place of residence exemption in the circumstances.
2. The Respondent submits that the Assessment has been issued to the correct entity, the Applicant has not established that the Hildard Trust is a fixed trust and that the principal place of residence exemption cannot apply as the Property is owned by a company.

Assessment

1. It is clear from the material before the Tribunal that Hildard Pty Ltd as trustee for the Hildard Trust entered into the contract to purchase the Property and Hildard Pty Ltd was registered as the owner of the Property on 14 October 2016. The Tribunal understands that it remains the registered proprietor of the Property. As the registered proprietor of the Property, the company has been the "owner" of the Property within the meaning of s 3(1) of the LTMA since 14 October 2016. While the company may have held the Property on trust, it nonetheless remained the owner of the legal estate in the Property. A trust is not a separate legal entity and cannot hold property in its own right. Accordingly, the Assessment was correctly issued to Hildard Pty Ltd as trustee for the Hildard Trust.

Characterisation of the Hildard Trust

1. Section 119 of the TA Act provides that a notice of assessment is prima facie evidence that all particulars of the assessment are correct. Accordingly, the Respondent does not need to establish that the Hildard Trust was properly characterised as a special trust. The Applicant must prove that the Hildard Trust was not a special trust.
2. Pursuant to s 3 A of the LTMA, a trust is a special trust if: 1. The trust property includes land; 2. The trustee of the trust is the owner of the legal estate in the land; 3. The trust is not a fixed trust; and 4. None of subparagraphs (a) - (f) of s 3(4) apply.
3. It is not in dispute, and it is clear from the contract to purchase the Property and the Trustee minute dated 21 September 2016, that the property of the Hildard Trust included land, namely the Property. It is also not in dispute that none of the subparagraphs of s3(4) of the LTMA apply. I have found above that the trustee of the Hildard Trust was the owner of the legal estate in the Property. Accordingly, s3A subs (1), (2) and (4) are satisfied and the Hildard Trust was a special trust, unless it was a fixed trust.
4. Accordingly, to displace the presumption by reason of s 119 of the TA Act that the trust was a special trust, the Applicant must establish that the Hildard Trust was a fixed trust.
5. Section 3A (2) defines a trust as 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 tax purposes, that is by a person or persons who are "entitled to the land for any estate of freehold in possession".

Effect of the 17 September Declaration of Trust

1. In support of the submission that the Hildard Trust met the definition of a fixed trust the Applicant seeks to rely upon the 17 September Declaration of Trust.
2. However, the Respondent submits that, because the document remains unstamped, by virtue of s 304 of the Duties Act, notwithstanding it was admitted into evidence, that instrument has no effect at law or in equity.
3. In Dent v Moore (1919) 26 CLR 316; [1919] HCA 11 in considering s 15 of the Stamp Duties Act 1898 (NSW), a precursor to s 304 of the Duties Act, which provided that "no unstamped instrument shall, except in criminal proceedings, be admissible in evidence, or available or effectual for any purpose whatsoever in law or equity" the High Court held (at 324), in respect of an unstamped instrument: Until that has happened [the duty has been paid] the instrument (except in criminal proceedings) is not "available" and not "effectual" - that is, it has no effect - for any purpose whatsoever at law or in equity… It is in the eye of the law a nullity, except for criminal proceedings and, of course, for the purpose of being stamped.
4. In Ash Street Properties Pty Ltd and Others v Pollnow (1987) 9 NSWLR 80, the Court of Appeal of the Supreme Court of New South Wales considered s 29 of the Stamp Duties Act 1920 (NSW), the immediate pre-cursor to s 304 of the Duties Act, which provided, relevantly "no instrument executed in New South Wales …shall, except in criminal proceedings, be pleaded or given in evidence, or admitted to be good, useful or available in law or equity for any purpose whatsoever, unless it is duly stamped". In that case, Mahoney JA stated, at 84-85: The way in which s 29 operates is set forth in the passage in the judgment of Dent v Moore… The legal effects which otherwise would result from the transaction embodied in the unstamped instrument do not result from it: the section says that they shall not. …But, in my opinion, the purpose of s 29 is, by the imposition of consequences upon non-payment, to induce the parties to an instrument to have it stamped. The method adopted to achieve this purpose is to specify the consequences of non-payment. Those consequences are that the unstamped document is not "good, useful or available in law or equity for any purposes whatsoever" and those consequences are to be understood in the sense explained in Dent v Moore, viz, the transaction is not to have the effects in law or equity which otherwise it would have.
5. In Reliance Financial Services Pty Ltd v Baddock [2002] NSWSC 857 at [46] Young CJ in Eq, considering s 304 of the Duties Act, citing Dent v Moore, said: It is, I must confess, always a matter of great surprise to me that so many unstamped documents are now attempted to be tendered in proceedings involving property rights in this Court. Although s 304 of the Duties Act 1997 is in slightly different terms to its predecessor, it still makes it clear that an instrument is not available for use in law or equity unless it is duly stamped. The mere giving of an undertaking allows the document to be tendered in evidence, but it still does not make it available for use in law or equity. (emphasis added)
6. In Weston and Cussen as liquidators of Karl Suleman Enterprizes Pty Ltd v Metro Apartments Pty Limited and Anor [2002] NSWSC 682, on an interlocutory application, Campbell J expressed some reservations as to whether he would come to the conclusion that the effect of s 304 of the Duties Act was that a court could not make use of a document once it was admitted into evidence. He noted, however, that it would involve substantial research and argument to come to a conclusion on the issue and that it was not appropriate to decide this question of law on the occasion of the interlocutory application before him.
7. It is clear that while Campbell J may have expressed those reservations in Weston, he made no findings in that decision as to the proper construction of s 304 of the Duties Act and that I am, accordingly, bound to follow the decision of Young CJ in Reliance with which, I note, I agree.
8. Even though admitted into evidence under s 304(2) of the Duties Act, the authorities are clear that the effect of s 304(1) of the Duties Act is that the Applicant is not entitled to the benefit of the legal effect of the 17 September Declaration of Trust unless and until it is duly stamped. The 17 September Declaration of Trust is of no effect at law or in equity until that time and the Applicant cannot rely upon it to seek to establish that the Hildard Trust was a fixed trust.

Conclusion on characterisation of the Hildard Trust

1. There is no other evidence before the Tribunal as to the terms of the Hildard Trust and, in any event, the authorities are clear that secondary evidence of an unstamped instrument would also be inadmissible: Davis v Commissioner of Taxation (Cth) (1989) 86 ALR 195 at 219.
2. In the absence of any evidence as to its terms, the precise terms of the trust are unknowable and I cannot be satisfied that the Hildard Trust was a fixed trust. On the evidence before me the Applicant has not discharged its onus of establishing that the Assessment was incorrect in characterising the trust as a special trust.

Principal place of residence

1. The Applicant submits, alternatively, that the Property is and has been at all relevant times the principal place of residence of Mr Catt and his stepson and should be subject to the principal place of residence exemption.
2. However, clause 11 (1) (a) of Schedule 1A of the LTMA provides that the principal place of residence exemption does not apply where land is owned by a company except in certain limited circumstances. This is so even if the land is used and occupied as a residence by the director and shareholder of the company and their families: Matuschka v Chief Commissioner of State Revenue [2007] NSWADT 60 at [15]. The Applicant accepts, in its submissions dated 16 May 2023, that a company is not entitled to the principal place of residence exemption. It submits, however, that the company, Hildard Pty Ltd, was not the owner of the Property and that the owner of the Property was the Hildard Trust. However, as set out at [44] above, it is clear that the company, Hildard Pty Ltd, has been the legal owner of the Property since 14 October 2016.
3. The exceptions to cl 11(1)(a), that is where the company which owns the Property is a trustee company acting in its representative capacity or a company acting in its capacity as trustee of a concessional trust, do not apply. There is no evidence that Hildard Pty Ltd was a licensed trustee company within the meaning of Chapter 5D of the Corporations Act 2001 and it is not in dispute that it was not acting as trustee of a concessional trust.
4. Accordingly the principal place of residence exemption did not apply to the Property.

Unfairness

1. The Applicant submits it is unjust to deny the principal place of residence exemption in the circumstances of this case. The Applicant also notes that the assessments have not been paid because it is not in a financial position to do so.
2. However, the inability of a taxpayer to pay tax which has been assessed is not a consideration that can be taken into account in considering the validity of an assessment: Hashim v Chief Commissioner of State Revenue [2020] NSWCATAD 67 at [82] - [83]. Nor is there any general discretion in the LTMA allowing the Respondent to take into account special circumstances, for example financial constraints, that may apply to a landowner that are not the subject of an exemption under the LTMA: Volpatti v Chief Commissioner of State Revenue [2012] NSWADT 218.
3. Further, there is a well-recognised line of authority to the effect that a taxation assessment cannot legally be challenged on the basis that the assessment leads to an "unjust" result: Commissioner of Taxation v Ryan (2000) 201 CLR 109 at 123; Gunasti v Chief Commissioner of State Revenue [2012] NSWADT 218; Hashim at [82]-[83].

Conclusion

1. It follows that I find that the Applicant has not satisfied its onus of proof to establish that the Hildard Trust was incorrectly characterised as a special trust. I further find that the principal place of residence exemption did not apply to the Property.
2. Accordingly, I propose to make an order confirming the Assessment. I note that, if the assessments for the 2017 to 2020 years had been before me for review, I would have reached the same conclusion with respect to them.

Orders 1. Pursuant to s 41 of the Civil and Administrative Tribunal Act 2013 the time for filing the application is extended to 30 March 2022. 2. The Assessment is confirmed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 September 2023