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[2025] NSWSC 192
General information, not legal advice.
Supreme Court of NSW
2025-03-12
Hmelnitsky J
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Medium Neutral Citation: Hixson Pty Limited v Chief Commissioner of State Revenue [2025] NSWSC 192
Hearing dates: 18 February 2025
Date of orders: 12 March 2025
Decision date: 12 March 2025
Jurisdiction: Equity - Revenue List
Before: Hmelnitsky J
Decision: Summons dismissed with costs
Catchwords: TAXES AND DUTIES – Land Tax – Surcharge land tax – Foreign person – Whether the exemption for historical testamentary trusts to surcharge land tax under clause 66(4) of Schedule 2 of the Land Tax Management Act 1956 (NSW) affects whether a subsidiary of the trust is a foreign person
Legislation Cited: Duties Act 1997 (NSW), s 104J
Foreign Acquisitions and Takeovers Act 1975 (Cth) ss 4, 11, 17, 18(3), 17, 19
Land Tax Act 1956 (NSW), ss 1, 2A, 5A, 5D
Land Tax Management Act 1956 (NSW), Sch 2 cl 66
State Revenue Legislation Amendment (Budget Measures) Act 2016 (No 32) (NSW), Schs 2-3
State Revenue Legislation Further Amendment Act 2020 (No 14) (NSW), Sch 2
State Revenue Legislation Further Amendment Bill 2019 (NSW), Sch 3
Cases Cited: Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross (2012) 248 CLR 378; [2012] HCA 56
Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297; [1981] HCA 26
Perpetual Trustee Company Ltd v Fairlie-Cunninghame (1993) 32 NSWLR 377
SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34
Wills v NSW Trustee [2022] NSWSC 1098
Texts Cited: Perry Herzfeld and Thomas Prince, Interpretation, (3rd ed, 2024, Lawbook Co)
Category: Principal judgment
Parties: Hixson Pty Ltd (Plaintiff)
Chief Commissioner of State Revenue (Defendant)
Representation: Counsel:
B J Sullivan SC/M J Hirschhorn (Plaintiff)
E Bishop SC/K S Lord (Defendant)
Solicitors:
Minter Ellison (Plaintiff)
Crown Solicitor’s Office (Defendant)
File Number(s): 2024/121869
Publication restriction: Nil
In order to describe the issue in dispute even at a high level of generality, it is necessary to note the immediately relevant provisions of the Land Tax Act and the Land Tax Management Act 1956 (NSW) (the LTMA).
Section 5A of the Land Tax Act levies surcharge land tax in respect of residential land owned by a ‘foreign person’. That Act employs the definition of ‘foreign person’ used in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the Takeovers Act), as modified by s 104J of the Duties Act 1997 (NSW). The Takeovers Act determines whether an entity is a foreign person by reference to, among other things, whether another person who is not ordinarily resident in Australia has a substantial interest in the entity. The Takeovers Act treats a potential beneficiary of a discretionary trust as having a substantial interest in the trust. As such, both the trustee of a discretionary trust and any entity owned by the trustee in that capacity will ordinarily be treated as a foreign person under the Takeovers Act where there is a potential beneficiary who is not an Australian resident.
From the time it was introduced in 2017, s 5A caused grief and uncertainty in its application to trustees of discretionary trusts where there were potential foreign beneficiaries.
In 2020, s 5D of the Land Tax Act was introduced to clarify the position. Section 5D(1) provides:
5D Surcharge land tax—discretionary trusts
(1) The trustee of a discretionary trust is taken to be a foreign person in that capacity for the purposes of section 5A if the trust does not prevent a foreign person from being a beneficiary of the trust.
Section 5D(2) provides that if a discretionary trust ‘prevents a foreign person from being a beneficiary’, the trustee is not in that capacity a foreign person for the purposes of section 5A. Section 5D(3) then deems a discretionary trust to be one that prevents a foreign person from being a beneficiary if (and only if) two requirements are satisfied, namely where (a) no potential beneficiary is a foreign person and (b) the trust is incapable of being amended in a manner that would result in a foreign person being a potential beneficiary.
In the present case, surcharge land tax was assessed to the plaintiff on the basis that it was a foreign person at midnight on the 31 December preceding each year of assessment. The reason the plaintiff was considered to be a foreign person was that it was ultimately owned by the trustees of the Lady Mary Fairfax Trust, which is a discretionary testamentary trust which had at least one non-resident general beneficiary at each relevant date.
The plaintiff objected on the basis of clause 66(4) of Schedule 2 to the LTMA. That clause was introduced at the same time as s 5D. It provides as follows:
(4) Despite section 5D of the Land Tax Act 1956, the trustee of an Australian testamentary trust is not in that capacity a foreign person for the purposes of the application of section 5A of that Act to residential land owned by a foreign person if—
(a) liability for land tax is required (under clause 9 of Schedule 1A to this Act) to be assessed as if the deceased had not died and had continued to use and occupy the land as his or her principal place of residence, or
(b) any of the following apply (even if the trust does not prevent a foreign person from being a beneficiary of the trust)—
(i) for a trust arising from a will or codicil—the will or codicil was executed on or before 31 December 2020,
(ii) for a trust arising from the administration of an intestate estate—the deceased died before, or within 2 years after, the commencement of section 5D of the Land Tax Act 1956,
(iii) for a trust resulting from an order of a court varying the application of the provisions of a will or codicil or of the rules governing the distribution of an intestate estate—the order was made on or before 31 December 2020.
The effect of clause 66(4) is to exempt the trustees of the Lady Mary Fairfax Trust from surcharge land tax in respect of residential land owned by them in that capacity. The presence of foreign beneficiaries means that but for clause 66(4), s 5D of the Land Tax Act would deem the trustees to be foreign persons for the purposes of s 5A and, as such, they would be liable under s 5A to surcharge land tax in respect of that land. There is no doubt that the trustees would not have been liable for surcharge land tax if they, and not the plaintiff, had been the owners of the Catherine Field and Oran Park land at the relevant times.
However, the trustees were not the owners of the land. The land was owned by the plaintiff, which was owned indirectly by the trustees through another company. The question for determination is whether clause 66(4) has the same effect in relation to the plaintiff as it has for its ultimate owners, the trustees. Does the circumstance that the trustees are ‘not in that capacity a foreign person for the purposes of the application of section 5A of [the Land Tax Act] to residential land owned by a foreign person…’ mean that the plaintiff is also not a foreign person for the purposes of the application of s 5A to it?
The plaintiff was incorporated in Australia. At all times since 3 April 2012, its shares have been wholly owned by Alsim Pty Ltd (Alsim). Alsim was also incorporated in Australia.
The shares in Alsim were owned by the late Lady Fairfax from 18 February 2000 until her death on 17 September 2017, whereupon they formed part of her residuary estate.
Lady Fairfax left her entire residuary estate, including the shares in Alsim, upon the terms of a testamentary trust which were set out in Schedule A of her Will dated 16 July 1999, a codicil dated 25 October 1999 and a second codicil dated 14 April 2003. The terms of the testamentary trust, being the Lady Mary Fairfax Trust to which I have already referred, are incapable of amendment.
Probate of the Will was granted on 3 January 2018. There were four executors. Once they completed their executorial duties on 16 May 2018, they became the trustees of the Lady Mary Fairfax Trust and each has continued in that role. Clause 19 of the terms of the trust requires that there be seven trustees and, as such, three more trustees were appointed on 16 May 2018 pursuant to a Deed of Appointment.
Since it was enlivened, the trustees have held various assets, including all of the shares in Alsim (which, through its ownership of the plaintiff, owned the Catherine Field and Oran Park land), and other residential land which they owned directly. The land at Catherine Field and Oran Park is residential land within the meaning of both the Land Tax Act and the LTMA.
At the time of her death, Lady Fairfax was an Australian citizen and ordinarily resident in Australia. So too were each of the seven trustees during the relevant period.
The trust is discretionary, both as to capital and income. The terms of the trust identify a number of discretionary objects, namely 21 living persons and two Australian charitable institutions, all of whom are described as ‘general beneficiaries’.
As at each of the relevant taxing dates, one of the general beneficiaries was an individual who was not an Australian citizen and was not ordinarily resident in Australia. That beneficiary was therefore a foreign person for the purposes of the Land Tax Act, the LTMA and the Takeovers Act on those dates.
Another individual general beneficiary was not an Australian citizen, and was therefore a foreign person, for the purposes of the 2019 assessment only.
Other than the two individual general beneficiaries just mentioned, all of the other individual beneficiaries were Australian citizens and were not foreign residents at any relevant point in time.
In about 2004, Lady Fairfax suffered a cognitive impairment that rendered her unable to manage her business and personal affairs. From that time onwards, the four persons who later became the executors of Lady Fairfax’s estate, and later also trustees of the Lady Mary Fairfax Trust, managed her business and personal affairs under a Power of Attorney dated 16 July 1999.
The plaintiff submits that there does not seem to be any real dispute that Lady Fairfax also lacked testamentary capacity from about 2004. However, although most facts were agreed, this was not one of them. Nor am I able to determine based on the evidence that Lady Fairfax lacked testamentary capacity. The evidence refers only in a general way to her inability to manage her business and personal affairs. As was pointed out in Perpetual Trustee Company Ltd v Fairlie-Cunninghame (1993) 32 NSWLR 377, which was subsequently cited by Lindsay J in Wills v NSW Trustee [2022] NSWSC 1098 at [2], there is a significant difference between a person’s capacity to manage their financial affairs and their capacity to make a will.
The residential land giving rise to this dispute, namely the Catherine Field and Oran Park land, was acquired by the plaintiff between 2012 and 2014. It was subdivided and became part of a residential development called Catherine Park Estate. The total land acquired was 111.105 hectares.
During the period between 31 December 2015 and 31 December 2022, there were a total of 928 settlements of sales of residential lots by the plaintiff.
The notices of assessment to which I have referred included amounts of land tax as well as the surcharge land tax now in dispute. However, these proceedings relate only to the imposition of surcharge land tax.
Surcharge land tax was introduced by the State Revenue Legislation Amendment *(*Budget Measures) Act 2016 (No 32) (NSW) which introduced s 5A of the Land Tax Act and made various other consequential amendments.
As at 31 December 2018, subsections 5A(1) to (3) were as follows:
5A Levy of surcharge land tax on residential land owned by foreign persons—2017 and subsequent land tax years
(1) Land tax is payable under this section in respect of residential land owned by a foreign person (surcharge land tax).
(2) In respect of the taxable value of all the residential land owned by the foreign person at midnight on 31 December in any year (commencing with 2016), surcharge land tax is to be charged, levied, collected and paid under the provisions of the Principal Act and in the manner prescribed under that Act for the period of 12 months commencing on 1 January in the next succeeding year at the rate of:
(a) in the case of all residential land owned by the foreign person at midnight on 31 December 2016—0.75% of that taxable value as assessed under the Principal Act, and
(b) in the case of all residential land owned by the foreign person at midnight on 31 December in any other year (commencing with 2017)—2% of that taxable value as assessed under the Principal Act.
(3) Surcharge land tax is payable in addition to any land tax payable in respect of the residential land under the other provisions of this Act, and is so payable even if no land tax is payable under those other provisions.
The reference to the Principal Act is to the LTMA. Section 1 of the Land Tax Act provides that it ‘shall be read and construed with’ the LTMA.
The expression ‘foreign person’ is defined in s 2A of the Land Tax Act to have the same meaning as in Chapter 2A of the Duties Act. In turn, s 104J(1) of the Duties Act defines the term to mean ‘a person who is a foreign person within the meaning of the Foreign Acquisition and Takeovers Act 1975 of the Commonwealth, as modified by this section.’
The dictionary in s 4 of the Takeovers Act defines foreign person as follows:
foreign person means:
(a) an individual not ordinarily resident in Australia; or
(b) a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
(c) a corporation in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or
(d) the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
(e) the trustee of a trust in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or
(f) a foreign government; or
(g) any other person, or any other person that meets the conditions, prescribed by the regulations.
Note: In certain circumstances, an associate of a foreign person may be taken to be a foreign person even if the associate is not a foreign person (see subsection 54(7)).
For individuals with Australian citizenship, s 104J(2)(a) of the Duties Act modifies the Takeovers Act definition so that an Australian citizen is taken to be ordinarily resident in Australia, regardless of whether that person is ‘ordinarily resident’ in Australia within the meaning of the Takeovers Act.
For the purposes of the Takeovers Act, a person has a ‘substantial interest’ in a company if the person holds an interest of at least 20%: s 4. A person has a ‘substantial interest’ in a trust where a person, together with that person’s associates, holds a beneficial interest in at least 20% of the income or property of the trust. Similar provisions apply in respect of persons holding an ‘aggregate substantial interest’ in an entity or trust, but this requires the relevant persons to have aggregate interests of at least 40% in the relevant entity or trust. The terms ‘interest’ and ‘aggregate interest’ of a specified percentage in an entity are defined in s 17 of the Takeovers Act.
Section 11 of the Takeovers Act provides:
11 Meaning of interest in a trust
A person holds or acquires an interest in a trust if:
(a) the person holds or acquires a beneficial interest in the income or property of the trust; or
(b) the person holds or acquires an interest in a unit in a unit trust.
18 Rules relating to determining percentages of interests in entities
Discretionary trusts
(3) For the purposes of this Act, if, under the terms of a trust, a trustee has a power or discretion to distribute the income or property of the trust to one or more beneficiaries, each beneficiary is taken to hold a beneficial interest in the maximum percentage of income or property of the trust that the trustee may distribute to that beneficiary.
19 Tracing of substantial interests in corporations, trusts and unincorporated limited partnerships
Tracing—general
(1) Subsection (2) applies (subject to subsection (3)) if:
(a) a person holds a substantial interest in:
(i) a corporation (the higher party); or
(ii) a trust (a trustee of which is a higher party); or
(iii) an unincorporated limited partnership (a general partner of which is a higher party);
including because of one or more applications of this section; and
(b) the higher party:
(i) is in a position to control all or any of the voting power or potential voting power in a corporation or unincorporated limited partnership (the lower party); or
(ii) holds interests in all or any of the shares in a corporation (the lower party); or
(iii) holds an interest in a trust or unincorporated limited partnership (the lower party), other than the partnership mentioned in subparagraph (a)(iii) (if that subparagraph applies).
(2) For the purposes of this Act:
(a) if subparagraph (1)(b)(i) applies—the person is taken to be in a position to control the voting power or potential voting power in the lower party that the higher party is in a position to control; or
(b) if subparagraph (1)(b)(ii) applies—the person is taken to hold the interests in the shares in the lower party that the higher party holds; or
(c) if subparagraph (1)(b)(iii) applies—the person is taken to hold the interest in the lower party that the higher party holds.
Tracing—effect of intermediate unincorporated limited partnerships
(2A) Subsection (2B) applies (subject to subsection (3)) if:
(a) a person holds a substantial interest in an unincorporated limited partnership (the higher partnership); and
(b) there are one or more unincorporated limited partnerships (each of which is an intermediate partnership in relation to the higher partnership) that are general partners of:
(i) the higher partnership; or
(ii) another intermediate partnership in relation to the higher partnership (because of one or more applications of this paragraph); and
(c) a general partner (the intermediate partner) of any of those intermediate partnerships:
(i) is in a position to control all or any of the voting power or potential voting power in a corporation or another unincorporated limited partnership (the lower party), including because of the operation of paragraph (2)(a); or
(ii) holds interests in the shares of a corporation (the lower party), including because of the operation of paragraph (2)(b); or
(iii) holds an interest in a trust or another unincorporated limited partnership (the lower party), including because of the operation of paragraph (2)(c).
(2B) For the purposes of this Act:
(a) if subparagraph (2A)(c)(i) applies—the person is taken to be in a position to control the voting power or potential voting power in the lower party that the intermediate partner is in a position to control; or
(b) if subparagraph (2A)(c)(ii) applies—the person is taken to hold the interests in the shares in the lower party that the intermediate partner holds; or
(c) if subparagraph (2A)(c)(iii) applies—the person is taken to hold the interest in the lower party that the intermediate partner holds.
Section does not apply for certain purposes
(3) This section does not apply for the purpose of:
(a) determining under any of the following whether a foreign person acquires a direct interest in an Australian entity or Australian business that is an agribusiness:
(i) paragraph 40(2)(a) (meaning of significant action—entities);
(ii) paragraph 41(2)(a) (meaning of significant action—businesses);
(iii) paragraph 47(2)(a) (meaning of notifiable action—general); or
(b) determining under paragraph 47(2)(b) (meaning of notifiable action—general) whether a foreign person acquires a substantial interest in an Australian entity.
The effect of section 19 is that foreign residents who are potential beneficiaries of a discretionary trust, like the Lady Mary Fairfax Trust, are deemed to control 100% of the interests in lower entities controlled by the trust, like the plaintiff.
There is no dispute between the parties that prior to the 2020 amendments to the Land Tax Act and the LTMA the plaintiff was a foreign person within the meaning of the Takeovers Act and, therefore, also a foreign person for the purpose of both Ch 2A of the Duties Act and s 5A of the Land Tax Act.
Amendments were made to the surcharge land tax provisions by the State Revenue Legislation Further Amendment Act 2020 (No 14) (NSW) (Amendment Act) which commenced on 24 June 2020 and which applied retrospectively to assessments in respect of the 2017 land tax year and subsequent years.
Section 5D is relevantly as follows:
5D Surcharge land tax—discretionary trusts
(1) The trustee of a discretionary trust is taken to be a foreign person in that capacity for the purposes of section 5A if the trust does not prevent a foreign person from being a beneficiary of the trust.
(2) If a discretionary trust prevents a foreign person from being a beneficiary of the trust, the trustee is not in that capacity a foreign person for the purposes of section 5A.
(3) A discretionary trust is considered to prevent a foreign person from being a beneficiary of the trust if (and only if) both of the following requirements are satisfied—
(a) no potential beneficiary of the trust is a foreign person (the no foreign beneficiary requirement),
(b) the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person (the no amendment requirement).
Note.
Under the transitional arrangements for this section in Schedule 2 to the Principal Act, the no amendment requirement does not apply to a trust that satisfies the no foreign beneficiary requirement immediately before the commencement of this section.
(4) A person is a potential beneficiary of a discretionary trust if the exercise or failure to exercise a discretion under the terms of the trust can result in any property of the trust being distributed to or applied for the benefit of the person.
Note.
A potential beneficiary is not limited to persons named in the trust instrument and extends to the members of any class of persons to whom or for whose benefit trust property can be distributed or applied pursuant to the discretions of the trust.
(5) For the removal of doubt, a person is not a potential beneficiary of a discretionary trust if the terms of the trust prevent any property of the trust from being distributed to or applied for the benefit of the person.
(6) In this section, property includes money, and a reference to the distribution or application of property includes a reference to the payment of money.
The two requirements in subsection (3) are different from similar provisions in the Takeovers Act. In particular, the ‘no foreign beneficiary requirement’ in s 5D is not subject to a substantial interest test and there is no equivalent to the ‘no amendment requirement’ in the Takeovers Act.
Schedule 3 of the Amendment Act amended the LTMA by inserting clause 66 into Schedule 2. Clause 66 provides as follows:
66 Amendments relating to discretionary trusts
(1) Section 5D of the Land Tax Act 1956 applies to the assessment of land tax liability in respect of the 2017 land tax year and subsequent land tax years.
(2) If the trustee of a discretionary trust is liable in that capacity as a foreign person for surcharge land tax in respect of the 2017, 2018, 2019 or 2020 land tax year—
(a) the trustee is exempt from that land tax if the terms of the trust have been amended, before payment of the land tax is due and before midnight on 31 December 2020, so that the trust prevents a foreign person from being a beneficiary, or
(b) if that land tax has been paid, the trustee is entitled to a refund of that land tax if the terms of the trust have been amended, before midnight on 31 December 2020, so that the trust prevents a foreign person from being a beneficiary.
(3) A trust that satisfies the no foreign beneficiary requirement under section 5D of the Land Tax Act 1956 immediately before the commencement of that section is considered for the purposes of that section to prevent a foreign person from being a beneficiary of the trust (without having to satisfy the no amendment requirement under that section).
(4) Despite section 5D of the Land Tax Act 1956, the trustee of an Australian testamentary trust is not in that capacity a foreign person for the purposes of the application of section 5A of that Act to residential land owned by a foreign person if—
(a) liability for land tax is required (under clause 9 of Schedule 1A to this Act) to be assessed as if the deceased had not died and had continued to use and occupy the land as his or her principal place of residence, or
(b) any of the following apply (even if the trust does not prevent a foreign person from being a beneficiary of the trust)—
(i) for a trust arising from a will or codicil—the will or codicil was executed on or before 31 December 2020,
(ii) for a trust arising from the administration of an intestate estate—the deceased died before, or within 2 years after, the commencement of section 5D of the Land Tax Act 1956,
(iii) for a trust resulting from an order of a court varying the application of the provisions of a will or codicil or of the rules governing the distribution of an intestate estate—the order was made on or before 31 December 2020.
(5) The Chief Commissioner may in a particular case extend the date by which payment of surcharge land tax by a trustee is due so that the trustee qualifies for exemption from that surcharge land tax under this clause if the terms of the trust have been amended before midnight on 31 December 2020 (but after the date by which payment would otherwise be due) so that the trust prevents a foreign person from being a beneficiary.
(6) In this clause—
Australian testamentary trust means a discretionary trust arising from a will or codicil or the administration of an intestate estate (or as a result of an order of a court varying the application of the provisions of a will or codicil or of the rules governing the distribution of an intestate estate) where the deceased was not a foreign person immediately before his or her death.
(7) Expressions in this clause have the same meanings as in section 5D of the Land Tax Act 1956.
Leaving aside the question of whether clause 66 has the consequence for the plaintiff that is now in dispute, it is possible to make some general observations about how the 2020 amendments operate.
So far as discretionary trusts generally are concerned, the provisions provide a series of grace periods and concessions. Clause 66(2) allowed a grace period for trustees of discretionary trusts by providing that they would either be exempt or entitled to a refund if, before midnight on 31 December 2020, the terms of the trust were amended to prevent a foreign person from being a beneficiary. In that way, despite the retrospective operation of s 5D, trustees of discretionary trusts would not be liable for earlier periods provided they acted within the grace period.
Those trusts that had been amended prior to the commencement of s 5D so as to satisfy the ‘no foreign beneficiary requirement’ but not the ‘no amendment requirement’, no doubt in circumstances where there was uncertainty as to precisely what was required to avoid the operation of s 5A as originally enacted, were granted a concession. In those cases, the trust was taken to prevent a foreign person from being a beneficiary for the purposes of s 5D.
Trustees of Australian testamentary trusts were given the benefit of paragraph (4), the effect of which was generally to exclude them from the operation of s 5D where the trust was already in existence or where it arose from a will or codicil executed before 31 December 2020 (para (i)), or from a death in the case of an intestate estate (para (ii)) or a court order (para (iii)), in each case where the relevant event occurred before specific dates.
So, for example, where a testamentary trust arose from a will or codicil executed on or before 31 December 2020 (cl 66(4)(b)(i)), the trustee would not be taken to be a foreign person, despite s 5D. The trustee of such a testamentary trust would thereby escape the deeming effect of s 5D for all years including prior years, even though the trust neither excluded foreign beneficiaries nor precluded amendment.
The Lady Mary Fairfax Trust is a trust of the kind referred to in cl 66(4)(b)(i). It arose from a will and codicils executed many years prior to the introduction of surcharge land tax.
The plaintiff contends that the effect of cl 66(4) in these circumstances is to modify the operation of the deeming rules in the Takeovers Act in relation to it, with the result that it should also be taken not to be a foreign person for the purposes of the Land Tax Act. The plaintiff submits that the expression ‘foreign person’ does not have a uniform meaning in all circumstances.
The plaintiff relies on two particular matters in support of this argument. The first is the introductory language of cl 66(4), which makes two references to ‘a foreign person’. The plaintiff submits that the first such reference must be to the trustee mentioned in that sentence. However, it submits that the second reference can be understood as a reference to either the trustee or another entity, such as the plaintiff, whose liability depends on whether the trustee is a foreign person.
The second matter concerns what the plaintiff contends to be the evident statutory purpose of cl 66(4), which was to recognise the particular difficulties associated with testamentary trusts and to give them, essentially, the same relief as was provided in relation to discretionary trusts by cll 66(2) and (3). The particular difficulties were that wills and codicils already executed would not be easy to change and that the terms of testamentary trusts already in existence were, in any event, usually impossible to change.
The plaintiff submits that the result for which the defendant contends gives rise to some remarkable outcomes, particularly when the position of general discretionary trusts is compared with the position of testamentary trusts. The plaintiff submits that where the terms of a discretionary trust were modified within the grace period to exclude foreign beneficiaries, neither the trustee nor any subsidiary would be treated as a foreign person for the purposes of the application of s 5A. However, it submits that on the defendant’s construction the position in relation to testamentary trusts is very different, even though the trust meets the description of cl 66(4). In such cases, the subsidiaries will continue to be treated as foreign persons even though the trustees are not.
Lastly, the plaintiff points to the harshness of the outcome here. It submits that there was nothing that it could have done to avoid liability to surcharge land tax. Lady Fairfax died long before the 2020 amendments and her Will and codicils were executed many years prior to the introduction of surcharge land tax.
“The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected.”
These principles apply equally to the task of identifying the meaning of savings or transitional provisions in an amending statute. It is important to recognise the function of such provisions, which is to make special provision for the application of the amending statute to the circumstances existing at the time when the provisions came into force: Perry Herzfeld and Thomas Prince, Interpretation, (3rd ed, 2024, Lawbook Co) at [11.210].
In my view, both the language of cl 66(4) and its immediate statutory context make clear that it was intended to modify the way in which s 5D operates in relation to the trustee of a testamentary trust. In each of the circumstances described in paragraphs (a) and (b) of clause 66(4), the trustee of a testamentary trust is taken not to be a foreign person, despite the fact that s 5D would otherwise have deemed them to be a foreign person. It was not intended to and does not affect the question of whether a person other than a trustee of a testamentary trust is taken to be a foreign person. Clause 66(4) does not operate either in relation to trustees or anyone else by altering the meaning of the expression ‘foreign person’ in the Land Tax Act or the LTMA, except in so far as it deems a trustee of a testamentary trust to not be a foreign person.
These conclusory propositions can be explained, at least in the first instance, by reference to the general scheme for the imposition of surcharge land tax on a person in the position of the plaintiff.
Section 5A imposes liability for surcharge land tax in relation to residential land owned by a foreign person. Whether or not a person is a foreign person within the meaning of that section is a matter to be ascertained in the manner laid down by the statute. In that respect, the expression is given the meaning in Chapter 2A of the Duties Act which in turn adopts the meaning of that expression in the Takeovers Act*,* with some modification. As can be seen from paragraphs [31]-[36] above, the question of whether a person is a foreign person within the meaning of the Takeovers Act does not depend on whether any person is a foreign person within the meaning of the Land Tax Act, the LTMA or the Duties Act.
However, since the introduction of s 5D, the question of whether a trustee of a discretionary trust, including a discretionary testamentary trust, is a foreign person is determined in a different way. I note in passing that the expressions ‘discretionary trust’ and ‘testamentary trust’ are not defined, but there can be no question that the Lady Mary Fairfax Trust meets both descriptions. Since its introduction, s 5D(1) has the result that a trustee of such a trust is taken to be a foreign person except where s 5D(2) deems them not to be a foreign person. In each case, the deeming is specifically ‘for the purposes of section 5A.’ That is, the deeming is for the purpose of determining whether the trustee has a liability under s 5A.
The operation of s 5D is in turn affected by cl 66. Because of the plaintiff’s submission that there should be parity in the relief afforded in relation to both kinds of discretionary trust, it is relevant to note precisely how cl 66(2) and (3) operate.
So far as cl 66(2) is concerned, it provides that the trustee of a discretionary trust who is liable in that capacity in respect of the 2017 to 2020 land tax years, is either exempt from tax or is entitled to a refund, but only where the terms of the trust were changed during the grace period to ensure that the trust prevents a foreign person from being a beneficiary. It is important here to notice that cl 66(2) does not affect the statutory deeming for which s 5D otherwise provides. It only grants an exemption or provides for a refund.
Cl 66(3) deals with the position of the trustee of a discretionary trust which had satisfied the no foreign beneficiary requirement prior to the commencement of s 5D but had not satisfied the no amendment requirement. This was, in fact, a common state of affairs because of the uncertainty about what was required to comply with s 5A. In these cases, the trust is taken to have complied with the requirement to prevent foreign beneficiaries. In other words, the trustee will be taken by s 5D(2) to not be a foreign person for the purposes of s 5A.
Pausing here, it can be seen that the question of whether the trustee of a discretionary trust is a foreign person does not involve any consideration of the Takeovers Act at all, either for the purposes of s 5D itself or for the purposes of the savings and transitional provisions. Where they apply, s 5D and cl 66(3) effectively deem a trustee to be – or not to be – a foreign person for the purposes of s 5A quite apart from the Takeovers Act. Clause 66(2) merely provides for exemptions and refunds. It does not alter the way s 5D applies to a trustee, even retrospectively.
It can also be seen that neither cl 66(2) nor cl 66(3) has anything to say about the position of subsidiaries. Whether or not a company owned by a trustee of a discretionary trust is a foreign person might, factually, depend on whether the terms of the trust were altered to bring the trustees within the scope of cll 66(2) or (3), but the question in respect of the subsidiary company will still depend on the outcome of the Takeovers Act test.
In the case of testamentary trusts falling within the scope of cl 66(4), the operation of s 5D is also affected. The trustee of such a trust, who would otherwise be taken to be a foreign person by s 5D (that is, who would be taken to be a foreign person without reference to the Takeovers Act), will instead be taken not to be a foreign person. I will say more about the language of this provision shortly.
It is also relevant to notice that the ‘relief’ provided by cll 66(3) and(4) is the same. Where those provisions apply, the trustee is deemed not to be a foreign person despite s 5D.
My description of the operation of cl 66(4) involves a rejection of the plaintiff’s central contention, which is that cl 66(4) alters the conclusion to which the Takeovers Act provisions lead as to whether a person other than a trustee is a foreign person. As I have sought to show, the Land Tax Act generally imposes surcharge land tax through s 5A by reference to whether a landowner is a foreign person within the meaning of the Takeovers Act. The 2020 provisions, on the other hand, specifically alter the conclusion that might otherwise be reached in relation to a landowner by effectively deeming a trustee either to be, or not to be, a foreign person despite the Takeovers Act. So much is clear from the language of s 5D. I do not see anything in the language of cl 66 to suggest that the grace periods and exemptions for which it provides were intended to do anything more than affect the way in which s 5D otherwise applies to a person who owns land, and to provide certain exemptions and refunds for trustees of discretionary trusts which were brought into line with s 5D(2) within the grace period.
In particular, I do not regard the second reference in cl 66(4) to ‘residential land owned by a person’ to be a reference to a potential taxpayer other than the trustee whose status as a foreign person would otherwise be affected by s 5D. The point of the provision is to alter the operation of s 5D, as its opening clause says (‘Despite section 5D...’). In the case of persons other than trustees, liability to surcharge land tax has nothing to do with s 5D and cl 66(4) has nothing to say about them. The phrase ‘…for the purposes of the application of section 5A of that Act to residential land owned by a foreign person…’ is a reference to and a description of the application of s 5A in accordance with the very terms of that section. It is not, in my view, a reference to any particular person, least of all to a person other than the trustee mentioned earlier in that section.
Despite section 5D of the Land Tax Act 1956, the trustee of an Australian testamentary trust is not in that capacity a foreign person for the purposes of the application of section 5A of that Act to residential land owned by a foreign person if-
(a) liability for land tax is required (under clause 9 of Schedule 1A to this Act) to be assessed as if the deceased had not died and had continued to use and occupy the land as his or her principal place of resident, or
(b) the deceased died before, or within 2 years after, the commencement of section 5D of the Land Tax Act 1956 (even if the trust does not prevent a foreign person from being a beneficiary of the trust).
Schedule 2 – Amendment of Land Tax Act 1956 No 27
Schedule 2 (proposed section 5D) makes special provision for the liability for surcharge land tax of foreign trustees when the trust is a discretionary trust. A trustee of a discretionary trust is taken to be a foreign person (and so is liable for surcharge land tax as the owner of residential land) if the terms of the trust do not prevent a foreign person from being a beneficiary. If the terms of the trust prevent a foreign person from being a beneficiary, the trustee is not a foreign person for surcharge land tax purposes.
Schedule 3 – Amendment of Land Tax Management Act 1956 No 26
Schedule 3 (amendment of Schedule 2) provides for the following transitional arrangements for proposed section 5D of the Land Tax Act 1956-
(a) surcharge land tax exemptions and refunds if the terms of the discretionary trust have been amended before the end of 2019 to prevent a foreign person from being a beneficiary.
(b) the trustee of a discretionary trust arising under a will where the deceased died within 2 years after the commencement of proposed section 5D of the Land Tax Act 1956 will not be a foreign person if the deceased was not a foreign person.
“Many trust deeds have now been amended and no surcharge duty incurred as a result. With this in mind, the Government considers that the end of 2019 allows sufficient time for any remaining trustees and their advisers to make necessary changes to trust deeds. As I mentioned previously, relief from surcharge liability will be contingent on the trust deed being amended to prevent a foreign person from being a beneficiary of the trust. This requirement has two elements: First, that no potential beneficiary of the trust is a foreign person—the no foreign beneficiary requirement; and, second, that the terms of the trust are not capable of being amended so as to allow for a foreign person to be a potential beneficiary under the trust—the no amendment requirement.
The first element essentially speaks for itself. The deed must not allow for property to be distributed to a foreign person. The second element is an important anti-avoidance measure to ensure that a deed cannot simply be amended to avoid surcharge and then be re-amended for the purposes of distributing income or assets to foreign persons. The terms of the trust deed preventing a foreign person from being a beneficiary under the trust must be irrevocable. When this legislation commences, some trust deeds will meet the no foreign beneficiary requirement already and the transitional provision specifies that such deeds will not need to be amended to meet the no amendment requirement. However, from commencement, an existing trust that does have potential foreign beneficiaries, or a new trust, will need to meet both requirements to ensure that a trustee is not deemed to be foreign person.
I will now discuss briefly discretionary trusts created under a will. Discretionary testamentary trusts can give rise to the same issues that I have just outlined. However, because such trusts are established under a will, the trustee generally has no legal capacity to amend the deed after the deceased has died. The transitional clause therefore provides that where the deceased dies before, or within two years after, the commencement of the new section 104JA, and the deceased was not a foreign person at death, the trustee of a discretionary trust will not be a foreign trustee, even though the trust does not prevent a foreign person from being a beneficiary under the trust. These discretionary trust amendments to the Duties Act are reflected in and adapted, as required, to land tax surcharge as detailed in schedules 2 and 3.”
“However, as the bill is being debated now, I move that this deadline be extended to 31 December 2020. This will provide trustees of affected trusts with further time to consider whether amendments to their trust deeds are necessary. The second amendment to the bill at paragraph 5, surcharge purchaser duty—exemption for Australian testamentary trusts and paragraph 14, surcharge land tax—exemption for Australian testamentary trusts relates to discretionary trusts created under a will called ‘testamentary trusts’. Currently, the bill's transitional provisions provide a grace period of two years for making any necessary amendments to such trusts. Where the settlor of the trust has died before or within two years of the bill's commencement, the trustee will not be liable for surcharge taxes even if the deed does not prevent a foreign person from being a beneficiary.
However, following discussions with the Law Society of New South Wales, the Government acknowledges the significant number of affected wills that may need to be revised. In addition, in some cases wills may not be capable of amendment, such as where the testator lacks capacity. As such, the Government proposes that this transitional provision be replaced. The replacement provision includes a grandfathering clause—or grandmothering clause—whereby wills or codicils executed on or before 31 December 2020 will not be liable for surcharge even if they do not prevent a foreign person from being a beneficiary. Thirdly, as members know, the bill also makes consequential changes to the First Home Buyers Assistance Scheme as outlined in paragraphs 8 to 10 on the amendment sheet. Those changes address an anomaly created by the annual indexation of transfer duty thresholds introduced in the 2019‑20 budget.”
The plaintiff particularly relied on the proposition that cl 66(4) was intended to grandfather the position of a testamentary trust. The plaintiff also relied on these secondary materials in support of the submission that Parliament intended cl 66(4) to provide the same relief in relation to testamentary trusts as cll 66(2) and (3) provide in relation to discretionary trusts.
I am unable to accept these submissions about the purpose of the 2020 amendments.
In Cooper Brookes *(*Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297; [1981] HCA 26, Gibbs CJ said at 304:
“It is an elementary and fundamental principle that the object of the court, in interpreting a statute, “is to see what is the intention expressed by the words used”: River Wear Commissioners v. Adamson. It is only by considering the meaning of the words used by the legislature that the court can ascertain its intention. And it is not unduly pedantic to begin with the assumption that words mean what they say: cf. Cody v. J. H. Nelson Pty. Ltd. Of course, no part of a statute can be considered in isolation from its context—the whole must be considered. If, when the section in question is read as part of the whole instrument, its meaning is clear and unambiguous, generally speaking “nothing remains but to give effect to the unqualified, words”: Metropolitan Gas Co. v. Federated Gas Employees' Industrial Union.”
“[25] Determination of the purpose of a statute or of particular provisions in a statute may be based upon an express statement of purpose in the statute itself, inference from its text and structure and, where appropriate, reference to extrinsic materials. The purpose of a statute resides in its text and structure. Determination of a statutory purpose neither permits nor requires some search for what those who promoted or passed the legislation may have had in mind when it was enacted. It is important in this respect, as in others, to recognise that to speak of legislative “intention” is to use a metaphor. Use of that metaphor must not mislead. “[T]he duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have” (emphasis added). And as the plurality went on to say in Project Blue Sky: ‘Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning.’
To similar effect, the majority in Lacey v Attorney-General (Qld) said:
‘Ascertainment of legislative intention is asserted as a statement of compliance with the rules of construction, common law and statutory, which have been applied to reach the preferred results and which are known to parliamentary drafters and the courts.’
The search for legal meaning involves application of the processes of statutory construction. The identification of statutory purpose and legislative intention is the product of those processes, not the discovery of some subjective purpose or intention.
[26] A second and not unrelated danger that must be avoided in identifying a statute's purpose is the making of some a priori assumption about its purpose. The purpose of legislation must be derived from what the legislation says, and not from any assumption about the desired or desirable reach or operation of the relevant provisions. As Spigelman CJ, writing extra-curially, correctly said:
‘Real issues of judicial legitimacy can be raised by judges determining the purpose or purposes of Parliamentary legislation. It is all too easy for the identification of purpose to be driven by what the particular judge regards as the desirable result in a specific case.’ (emphasis added)
And as the plurality said in Australian Education Union v Department of Education and Children's Services:
‘In construing a statute it is not for a court to construct its own idea of a desirable policy, impute it to the legislature, and then characterise it as a statutory purpose.’”
I also note what their Honours said at [41] about the illegitimacy of a process of reasoning that first identifies a legislative purpose ‘not apparent from the text of the relevant provisions’.
In the present case, the purpose of the 2020 amendments cannot reliably be ascertained from a consideration of what was said in Parliament. That is especially so where, as I have sought to explain, the purpose is otherwise quite apparent from their text and context.
In any event, I do not read the minister’s speech as going nearly as far as the plaintiff submits. The minister did not say that the amendments were intended to affect the liability to surcharge land tax of any person other than a trustee. Such references as he did make to the question of liability made clear that he was referring to the liability of trustees only. Likewise, the explanatory note to the 2019 Bill explicitly described the amendments as affecting the liability of trustees.
I do not consider that the minister’s description of cl 66(4) as a grandfathering clause sheds much light on the present question. The concept of a grandfathering clause is well understood. It typically takes the form of a provision that pickles the way the law applies to certain circumstances as at a certain date, despite amendments that would otherwise cause the law to apply differently to those circumstances after that date.
However, that does not seem to be a terribly apt description of how cl 66(4) operates, even on the plaintiff’s view of it. By the time the 2020 amendments came into effect, trustees of discretionary trusts with potential foreign beneficiaries had been treated as foreign persons because of the extensive reach of s 5A for about three years. The point of cl 66(4) was not to preserve the then-existing operation of s 5A, it was rather to exempt trustees from both the past and future operation of s 5A provided the trust was within the scope of its terms. That is something that does not involve the preservation of any pre-existing operation of the Land Tax Act.
Attempts to reason from the proposition that cl 66(4) is a grandfathering clause involves a process of reasoning of the kind criticised by French CJ and Hayne J in Certain Lloyd’s Underwriters. So too does the attempt to construe cl 66(4) as conferring the same ‘relief’ as provided by cll 66(2) and (3). As I have sought to explain, all three provisions operate in different ways. None of them operates to alter the way the Land Tax Act applies to a subsidiary. The most that can be said is that if a discretionary trust was altered in order to bring it within the description of either cll 66(2) or (3), then those altered facts would have consequences for the question of whether a company owned by the trustee was a foreign person within the meaning of the Takeovers Act.
The far safer approach to construing the 2020 amendments is to be guided by the language and context of the provisions themselves. When those matters are considered in the light of the state of the law immediately prior to the introduction of those amendments, it is apparent that cl 66(4) was intended to do no more and no less than operate according to its terms, namely by altering the operation of s 5A and the (new) s 5D as those provisions applied to trustees.
I accept that cl 66 as a whole and paragraph (4) in particular are beneficial provisions that were intended to provide a generous concession in the face of both the then-existing as well as the proposed operation of the Land Tax Act. However, the concession was directed to trustees. It was the operation of the Act in relation to the liability of landowning trustees that was the subject of s 5D.
The plaintiff submits that the defendant’s construction of cl 66(4) involves a very harsh outcome. It submits that there was practically nothing that could have been done to avoid the imposition of surcharge land tax given that the terms of the Lady Mary Fairfax Trust could not have been altered to avoid it.
As a general proposition, there was undoubtedly real unfairness in the application of the surcharge land tax provisions to trustees prior to the introduction of the 2020 amendments. Much – perhaps most – of that unfairness was addressed by the 2020 amendments by providing retrospective exemptions and refunds and by providing certainty about when, precisely, a trustee will be taken to be a foreign person. There is probably also some unfairness in the way the savings and transitional provisions operate even if only because they apply by reference to specific deadlines that some persons may have been unable to meet because of circumstances beyond their control.
The specific proposition that there was unfairness to the plaintiff is a more difficult one to accept. It necessarily involves the idea that two of the late Lady Fairfax’s living relatives would have been excluded from the class of general beneficiaries of her testamentary trust, if only they could have been. The evidence does not allow me to form a view as to the likelihood of that ever occurring.
I do not however find it necessary to reach a conclusion about that matter because the result, whether in relation to the plaintiff or any other person, is not one that is illogical or unfair to such a degree that it causes me to doubt my construction of cl 66(4).
The conclusion I have reached is that the plaintiff was a foreign person within the meaning of s 5A of the Land Tax Act as at 31 December in each of the 2018 to 2022 years. This has the consequence that the notices of assessment for the 2019 to 2023 years are not excessive to the extent they notify the plaintiff’s liability to surcharge land tax.
The summons will be dismissed with costs.
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Hixson Pty Limited
Chief Commissioner of State Revenue [2025] NSWSC 192
(2012) 248 CLR 378
(1981) 147 CLR 297
(1993) 32 NSWLR 377
(2017) 262 CLR 362