Landfall Pty Ltd v Chief Commissioner of State Revenue

Part A Introduction and preliminary 1The decision in respect of which the Applicant seeks review is an assessment of duty pursuant to the Duties Act 1997 ("the Act") in respect of the Custodian Trust Deed as defined in clause 14 of the Statement of Agreed Facts set out in full (except for its annexures), hereafter in these reasons. 2The Tribunal had before it the documents and supplementary documents lodged pursuant to section 58 of the Administrative Decisions Act 1997; it was furnished with written submissions (referred to as "AS" and "RS" respectively) by the parties and on which it has drawn to some extent for the purposes of these reasons. The Tribunal notes that it has drawn on RS to a greater extent having regard to the manner in which the Respondent dealt with relevant and important decided cases. 3The matter was argued entirely in accordance with a lengthy Statement of Agreed Facts ("SAF") received by the Tribunal on 6 December 2012. SAF includes a number of annexures; the Respondent (who is usually referred to in these reasons as "the Chief Commissioner") noted that he has reservations in respect of annexures C and I to SAF; in this context: (a) Annexure C consists of three letters all dated 29 October 2012; the first is a letter of that date by Annabel Gunns addressed to Stephen Gunns and Annabel Gunns ATF the Gunns Superannuation Fund reading; I acknowledge that on 30 June 2010 I made a concessional contribution of $25000 to the Gunns Superannuation Fund.' The other two letters bear the same date and the same content except that the writer is Stephen Gunns and the amounts referred to are different. The date of the three letters is such that the contention by the Chief Commissioner that they were prepared for the purposes of this hearing is probably correct. (b) Annexure I consists of undated unsigned and unaudited financial statements for the Superannuation Fund in respect of the period 8 June 2010 to 30 June 2010. Those financial statements were criticised by the Chief Commissioner firstly because they are undated unsigned and unaudited, secondly because they too were prepared belatedly and thirdly because they make no mention whatever of the fact that on 30 June 2010 the Superannuation Fund possessed the Promissory Note referred to hereafter in an amount of $520000, The Promissory Note was unquestionably an asset of the Superannuation Fund on 30 June 2010 and should have been reflected. The Applicant contended in reply that the financial statements are not affected, at least as to net amount, having regard to the fact that if the Promissory Note was an asset it was also a liability. The Tribunal considers that the financial statements should properly have made mention of the Promissory Note. As to why the period to which the financial statements relate was selected is not clear. (c) In the result SAF inclusive of its annexures was accepted subject in the case of annexures C and I to weight. The Tribunal doubts whether anything very much turns on such annexures. 4SAF (excluding its annexures) reads in full as follows: 1. Landfall Pty Limited ACN120566387 ("Landfall") is a corporation registered under the Corporations Act 2001 on 5 July 2006. Annabel Jane Gunns ("Annabel") is the sole shareholder and director of Landfall. 2. The Gunns Family Trust No 2 ("Gunns Trust") is a discretionary trust for the benefit of Annabel and her children with Stephen Gunns ("Stephen") established under a Discretionary Trust Deed executed on 20 July 2006 by John David Maitland as settler and Landfall as trustee. A copy of the trust deed for the Gunns Trust is annexed as Annexure "A". 3. On 5 September 2007 the Gunns Trust acquired property situated at 871 Pacific Highway Chatswood 2067, being Folio Identifier 1, 2 and 7/SP17870 ("Property") 4. The Gunns Superannuation Fund ("Superannuation Fund" is a trust established for the purpose of providing superannuation benefits for Annabel and Stephen. The Superannuation Fund was established on 8 June 2010 with Annabel and Stephen (together" Superannuation Trustees") as trustees. A copy of the trust deed and rules for the Superannuation Fund is annexed as Annexure "B". 5. The Superannuation Fund is a complying superannuation fund within the meaning of section 45 of the Superannuation Industry Supervision Act 1991 ("SIS Act") 6. On 30 June 2010 the Superannuation Trustees resolved that the Superannuation Fund would acquire an interest in the Property. That interest in the Property was resolved to be in the form of a life interest in the Property that was to be measured by the joint lives of the two children of Annabel and Stephen , namely William Gunns and Oliver Gunns ("Life Interest") 7. The consideration for the acquisition of the Life Interest was agreed to be $575000 ("Purchase Price"). The Purchase Price to be paid by the Superannuation Fund was to be funded by contributions by Annabel and Stephen as members of the Superannuation Fund in the amount of $520000 and a vendor provided limited recourse loan of $55000. Copies of letters from Annabel and Stephen to the Superannuation Fund acknowledging their making contributions to the Superannuation Fund are annexed as Annexure "C". 8. The Purchase Price to be paid by the Superannuation Fund was determined by applying a life interest factor as published by the Office of State Revenue in South Australia for a male child of 3 years (being a factor of 0.95913) to the market value of the Property being $600000. A copy of the table of life interest factors published by the Office of State Revenue of South Australia is annexed as Annexure "D". 9. On 30 June 2010 the Superannuation Trustees resolved as follows: (a) The Superannuation Fund would acquire the Life Interest for the Purchase Price, (b) The funds for the acquisition were to be: (i) $450000 by way of a non-concessional contribution to the Superannuation Fund by Stephen, (ii) $45000 by way of a concessional contribution to the Superannuation Fund by Stephen, (iii) $25000 by way of a concessional contribution to the Superannuation Fund by Annabel, (iv) $55000 to be borrowed from the Gunns Trust on a limited recourse basis in accordance with section 67A of the SIS Act., 10. A copy of the resolution of the Superannuation Trustees dated 30 June 2012 is annexed as Annexure "E". 11. On 30 June 2010 Landfall resolved to acquire the Life Interest and hold it as bare trustee for the benefit of the Superannuation Fund with funds to be supplied by the Superannuation Fund in a manner which complies with section 67A of the SIS act. A copy of the resolution of the director of Landfall dated 30 June 2010 is annexures as Annexure "F". 12. On 30 June 2010 Landfall in its capacity as trustee for the Gunns Trust, the Superannuation Trustees and Landfall in its capacity as custodian of the Superannuation Fund executed a Deed of Grant of Life Interest whereby the Gunns Trust granted the Life Interest measured by the lives of William Gunns and Oliver Gunns jointly. The Deed of Grant of Life Interest contained terms that provided that: (a) the Gunns Trust grants the Life Interest to Landfall. (b) the Purchase Price is $575000; and (c) The Purchase Price to be paid by the Superannuation Fund to the Gunns Trust on execution of the Deed. 13. A copy of the Deed of Grant of Life Interest is annexed as Annexure "G". 14. On 30 June 2010 Landfall in its capacity as custodian for the Superannuation Fund and the Superannuation Trustees executed a Deed ("Custodian Trust Deed") whereby Landfall was to acquire the Life Interest and hold the Life Interest as custodian of a bare trust for the absolute benefit of the Superannuation Fund. 15. Under the terms of the Custodian Trust Deed: (a) Landfall was to hold the Life Interest as bare trustee so that the Superannuation Fund acquires the equitable interest in the Life Interest, (b) the Superannuation fund received a loan from the Gunns Trust on terms and conditions to be set out in a separate loan agreement, and were to apply the loan to the cost in acquiring the Life Interest; and (c) the Superannuation Fund had a right to acquire the legal ownership of the Life Interest by making one or more payments after acquiring the equitable interest in the Life Interest. 16. The Custodian Trust Deed is included in the Documents Filed Pursuant to section 58 of the Administrative Decisions Tribunal Act 1997 by the Respondent on 13 July 2012 ("Section 58 Documents") at page 9. 17. On 30 June 2010 the Superannuation Trustees and Landfall in its capacity as custodian for the Superannuation Trustees and in its capacity as trustee for the Gunns Trust executed a loan agreement whereby the Gunns Trust lent $55000 to the Superannuation Fund ("Loan Agreement"). 18. The Loan Agreement is included in the Section 58 Documents at page 21 19. The purchase of the Life Interest was represented by the Superannuation Trustees drawing a promissory note made payable to the Gunns Trust for an amount of $520000 ("Promissory Note") and the entry into the Loan Agreement. 20. The Promissory Note was executed on 30 June 2010 by the Superannuation Trustees and provides that the Superannuation Fund promises to pay on demand the sum of $520000 to the Gunns Trust. 21. A copy of the Promissory Note is included in the Section 58 Documents at page 33. 22. Landfall as trustee for the Gunns Trust handed the Promissory Note to Annabel and Stephen as a loan from the Gunns Trust. 23. Annabel and Stephen handed the Promissory Note to the Superannuation Trustees in satisfaction of the contributions made by Annabel and Stephen to the Superannuation Fund. 24. Landfall acquiring the Life Interest as custodian and the entry into the Custodian Deed were in accordance with the requirements set out in section 67A of the SIS Act where a complying superannuation fund undertakes a limited recourse borrowing to assist in the purchase of an asset. 25. On 30 June 2010 Landfall issued a Limited Recourse Borrowing Certificate that certified that the Superannuation Fund is the beneficial owner of the Life Interest subject to the terms and conditions set out in the Custodian Trust Deed. A copy of the Limited Recourse Borrowing Certificate is annexed as Annexure "H". 26. On 30 June 2010 Landfall as trustee for the Gunns Trust and Landfall in its own right executed an LPI Transfer From in relation to the Life Interest with Landfall as trustee for the Gunns Trust as transferor and Landfall in its own right as transferee. ("Transfer Form") A copy of the Transfer Form is included in the Section 58 Documents at page 17. 27. A copy of the unaudited financial statements and reports for the Superannuation Fund for the period 8 June 2010 to 30 June 2010 are annexed as Annexure "I". 28. On 26 August 2011 Munro Lawyers wrote to the Chief Commissioner requesting that the Transfer Form be marked as not subject to stamp duty and that the Custodian Trust Deed be stamped for nominal duty of $50 pursuant so section 55 of the Duties Act. A copy of the letter dated 26 August 2011 is included in the Section 58 Documents at page 16. 29. The Transfer Form was marked "No Duty Payable" by the Office of State Revenue on 30 August 2011. A copy of the stamped Transfer Form is included in the Section 58 Documents at page 17. 30. On 28 September 2011 the Chief Commissioner wrote to Munro Lawyers requesting that in relation to stamping of the Custodian Trust Deed provision of 'documentary evidence to show that the real purchase actually provided the deposit as well as the balance of the purchase money". A copy of the letter dated 28 September 2011 is included in the Section 58 Documents at page 18. 31. On 13 October 2011 Munro Lawyers wrote to the Chief Commissioner providing a copy of the Loan Agreement and the Promissory Note and requesting the return of the stamped Custodian Trust Deed. A copy of the letter dated 13 October 2011 is included in the Section 58 Documents at page 20. 32. On 15 November 2011 the Chief Commissioner wrote to Munro Lawyers advising that the Chief Commissioner assessed duty payable on the Custodian Trust Deed to be $21365 and interest to date on default of that duty of $3105.14 on the basis that the transaction evidenced by the Custodian Trust Deed was not a "purchase" and duty on the declaration of trust was assessable on an ad valorem basis. A copy of the letter dated 15 November 2011 is included in the Section 58 Documents at page 34. 33. On 15 December 2011 Munro Lawyers wrote to the Chief Commissioner objecting to the Chief Commissioner's assessment of 15 November 2011. A copy of the letter dated 15 December 2011 is included in the Section 58 Documents at page 42. 34. On 1 May 2012 the Chief Commissioner wrote to Munro Lawyers advising that the objection of 15 December was disallowed ("Objection Decision")> A copy of the letter dated 1 May 2012 is included in the Section 58 Documents at page 47. 35. On 18 May 2012 Munro Lawyers wrote to the Chief Commissioner seeking particulars of the Objection Decision. A copy of the letter dated 18 May 2012 is included in the Section 58 Documents at page 50. 36. On 21 May 2012 the Chief Commissioner wrote to Munro Lawyers declining the requests for further particulars and to reconsider the Objection Decision and stating that in the Chief Commissioner's opinion there was no utility in the parties meeting to discuss the matter. A copy of the letter dated 21 May 2012 is included in the Section 58 Documents at page 54. 37. On 4 June 2012 the Applicant lodged an application for review of the Objection Decision in the Administrative Decisions Tribunal. 38. On 13 July 2012 the Respondent filed documents pursuant to section 59 of the Administrative Decisions Tribunal and served them on the Applicant. 39. On 16 July 2012 Munro Lawyers wrote to the Respondent stating their view that the documents filed by the Respondent on 13 July 2012 did not comply with section 58. 40. At a Directions Hearing in the matter on 18 July 2012, the Tribunal made the following orders; (a) The Respondent to provide a response to the Applicant's request for particulars of 18 May 2012 and to the Applicant's letter to the Respondent of 16 July 2012 on or before 27 July 2012. (b) The matter to be listed for a Preliminary Conference on 12 September 2012. 41. On 27 July 2012 the Respondent wrote to the Applicant; (a) stating that the documents filed by the Respondent on 13 July 2012 were in compliance with section 58 and that there are no statement of reasons of the Respondent in this matter of statement for reasons for a decision in an internal review in this matter, and (b) stating that the Chief Commissioner is not required to provide a reply to a request for particulars. 42. On 3 September 2012 Munro Lawyers wrote to the Respondent stating the Applicant's view that the Respondent had not provided adequate written reasons for the Objection Decision as required by section 93(2) of the Taxation Administration Act 1996 and requesting a substantive response to the Applicant's request for particulars dated 18 May 2012. 43. On 10 September 2012 the Respondent filed and served Supplementary Documents pursuant to section 58 of the Administrative Decisions Tribunal Act 1997. 44. On 10 September 2012 the Respondent filed and served a supplementary statement of reasons for the Objection Decision. 5Unless the context otherwise requires words and phrases defined in SAF have the same meanings when used in these reasons. It is for this reason that Mrs Annabel Jane Gunns is generally referred to without disrespect as "Annabel" and Mr Stephen Gunns is generally referred to again without disrespect as "Stephen". 6The Promissory Note figures largely in this matter; it is included in the section 58 documents at page 33 ; it reads as follows: Dated 30 June 2010 Landfall Pty Limited ACN 120566387 as trustee for the Gunns Family Trust No 2 c/- 16-18 Findlay Avenue Roseville NSW2069 Dear Sirs In consideration of the purchase from you of a life estate in the property situated at 871 Pacific Highwood 2076 being Folio Identifier 1, 2 and 7/SP17870 by the Gunns Superannuation Fund, Stephen Gunns and Annabel Jane Gunns as trustees for the Gunns Superannuation Fund promises to pay on demand the sum of $520000 to Landfall Pty Limited as trustee of the Gunns Family Trust No 2. This demand may be made by the address or his assigns of this note. Yours faithfully Stephen Gunns and Annabel Jane Gunns as trustees for the Gunns Superannuation Fund 7The sequence of events with respect to the Promissory Note constituted, so the Chief Commissioner contended, a clear and circular round robin. In amplification of the content in this regard of SAF (and see in particular clauses 19 to 23 of SAF) I include with approval clauses 44 to 49 of RS (excluding footnotes although the footnotes have been checked and found to be correct) as follows: 44.The Applicant's submissions do not refer to the sequence of events set out in paragraphs 19, 20, 21, 22, and 23 of the SAF. More particularly, that sequence of events with respect to the Promissory Note discloses a clear, circular, round robin passing of the Promissory Note. 45.That is, by paragraph 20, Stephen and Annabel Gunns in their capacity as trustees of the Superannuation Fund: (a) draw the promissory note; (b) promise to pay $520,000 on demand to Landfall Pty Ltd as trustee of Gunns No 2 Trust; and (c) by implication, hand the promissory note to Landfall Pty Ltd as trustee of Gunns No 2 Trust. 46 Then, by paragraph 22, Landfall Pty Ltd as trustee of Gunns No 2 Trust as the holder of the note: (a) decides to make a loan to Stephen and Annabel Gunn in their personal capacity; (b) handed the Promissory Note to Stephen and Annabel Gunn; and (c ) thereby the effect being, Stephen and Annabel Gunn in their capacity as trustees of the Superannuation Fund as the issuer of the Promissory Note, will pay Stephen and Annabel Gunn in their personal capacity, as the holders of the promissory note $520,000 on demand. 47.Then, by paragraph 23, Stephen and Annabel Gunn in their personal capacity: (a)decide to make a contribution of property to the Superannuation Fund; (b)Stephen and Annabel Gunn in their personal capacity hand the promissory note to themselves acting in their capacity as trustees of the Superannuation Fund; (c)The Promissory Note was handed over as satisfaction "of the contributions made" by Stephen and Annabel Gunn to the Superannuation Fund; and (d) accordingly, Stephen and Annabel Gunn acting in their capacity as trustees of the Superannuation Fund become the holders in due course of their own promissory note, first drawn and handed to Landfall as per paragraph 40 above. 48. The circle or round robin is thus complete. The promissory note is passed; from the Superannuation Fund to Landfall Pty Ltd, from Landfall Pty Ltd to Stephen and Annabel Gunn in their personal capacity as a loan, and then handed back to Stephen and Annabel Gunn as trustees of the Fund as a contribution. 49. On the assumption the draft unexecuted Financial Statements are admissible, it is noted that the accounts do not address much less mention the existence, perhaps even fleeting or transitory, of the Promissory Note. 8Although the loan in the sum of $55000 referred to in clause 17 of SAF was documented in full as to its relevant terms in accordance with the Loan Agreement, the loan transaction in terms whereof the Promissory Note was delivered to Annabel and Stephen was not. Clause 22 of SAF sets out merely that the Promissory Note was handed to Annabel and Stephen as a loan from the Gunns Trust. The Tribunal was not furnished with any evidence whatever as to the terms and conditions in respect of the clause 22 loan; that it was a loan and not a different transaction is set out as a statement of fact in clause 22 of SAF. Nor was the Tribunal furnished, in respect of the loan of $520,000, with any relevant resolution by the Applicant as trustee of the Gunns Trust. The Tribunal considers it surprising that the loan in the sum of $55000 to the Superannuation Fund should have been documented in detail but not the larger loan of $520000 to Annabel and Steven arising from the delivery to them of the Promissory Note. In this context Annexure F to SAF is a resolution of the Applicant dated 30 June 2010 which referred in categorical terms to the loan of $55000 to the Superannuation Fund but there is no mention of the loan of $520000 to Annabel and Stephen, and notwithstanding the fact that the two amounts in aggregate were closely interrelated and required to fund the acquisition of the Life Interest. The fact that there was no evidence of any kind as to the loan in the sum of $520000 must have a bearing on the finding by the Tribunal that all of the transactions in respect of the Promissory Note did indeed constitute a round robin and whereby in respect of the acquisition by the Superannuation Fund of the Life Interest no monetary consideration of any kind either changed hands or for that matter, was intended to change hands. 9In the same context the Loan Agreement, which is referable to the $55000 loan to the Superannuation Fund, is open to question. The loan is in its terms repayable on the Final Repayment Date which, as defined, refers to a date agreed between borrower and lender. The term "Repayment Date" as defined means "monthly in arrears commencing from the Initial Drawdown Date"; however the provisions of the Loan Agreement as set out in clause 5 merely require repayment of the Loan on or before the Final Repayment Date, and so that the relevance of the definition of "Repayment Date" is not clear. The Loan Agreement contains no provision whatever as to what is to occur if the borrower and lender cannot agree as to the date which is the Final Repayment Date. The term "Interest Rate" as defined refers to the "Variable Business Edge Loan Reference Rate as published by Bank West or such other rate as the Lender and Borrower agree in writing." The Loan Agreement makes no provision for the possibility of the Bank West rate no longer being issued and the parties being unable to agree a substitute rate. Regarded overall the Loan Agreement must be categorised as imprecise. 10The Applicant claims that it is entitled to the benefit of section 55(1) (a) of the Act in respect of the Custodian Trust Deed. Section 55 of the Duties Act is set out in full as follows: "Property vested in an apparent purchaser (1) Duty of $50 is chargeable in respect of: (a) a declaration of trust made by an apparent purchaser in respect of identified dutiable property: (i) vested in the apparent purchaser upon trust for the real purchaser who provided the money for the purchase of the dutiable property, or (ii) to be vested in the apparent purchaser upon trust for the real purchaser, if the Chief Commissioner is satisfied that the money for the purchase of the dutiable property has been or will be provided by the real purchaser, or (b) a transfer of dutiable property from an apparent purchaser to the real purchaser if: (i) the dutiable property is property, or part of property, vested in the apparent purchaser upon trust for the real purchaser, and (ii) the real purchaser provided the money for the purchase of the dutiable property and for any improvements made to the dutiable property after the purchase. (1A) For the purposes of subsection (1), money provided by a person other than the real purchaser is taken to have been provided by the real purchaser if the Chief Commissioner is satisfied that the money was provided as a loan and has been or will be repaid by the real purchaser. (1B) This section applies whether or not there has been a change in the legal description of the dutiable property between the purchase of the property by the apparent purchaser and the transfer to the real purchaser. Note: For example, if the dutiable property is land, this section continues to apply if there is a change in the legal description of the dutiable property as a consequence of the subdivision of the land. (2) In this section, "purchase" includes an allotment." 11The transfer ("Transfer") of the Life Interest is contained in the section 58 documents at page 3; the Transfer is endorsed to the effect that no duty is payable. In the Transfer the transferor is described as "Landfall Pty Limited CAN 120566387 as trustee of the Gunns Family Trust No 2" while the transferee is described as "Landfall Pty Limited CAN 120566387 a life interest measured by the lives of William Gunns and Oliver Gunns jointly and Landfall Pty Limited CAN 120566387 as trustee for the Gunns Family Trust No 2 an estate in reversion". The Transfer has not, so the Tribunal was informed from the bar table, been registered. 12The Transfer was correctly endorsed to the effect that was not dutiable in that it did not fall within section 8(1)(a) of the Act and it also, and because it was a grant, did not fall within any of the categories set out in section 8(1) (b) of the Act. 13In respect of the Transfer the Tribunal was referred to a letter by Munro Lawyers addressed to the Office of State Revenue dated 26 August 2011; (page 1 of the section 58 documents); the second third and fourth paragraphs read as follows: This Transfer is in respect of the grant by the registered proprietor (Landfall Pty Ltd as trustee of the Gunns Family Trust No 2) of a life estate for the lives of Stephen Gunns and Annabel Jane Gunns to the Custodian which holds the Property as bare trustee on behalf of the trustee of the Gunns Superannuation Fund ("Super Fund") The trustees of the Super Fund are Stephen Gunns and Annabel Jane Gunns ("SF Trustee") We respectfully submit that this Transfer is not liable for duty as a Dutiable Transaction under the Duties At 1997. The reason for our view is that the grant of a life estate is not a "transfer" as defined for the purposes of the Duties Act We have lodged the Transfer for marking by the OSR solely for the purpose of registering the life estate on title. For the purposes of registering at the Department of Lands the Transfer is required to be marked as exempt. 14Leaving aside the error as to the relevant lives (and because the relevant lives were not those of Stephen and Annabel) the Tribunal was advised, as set out previously, that the Transfer has never been registered. In the same context and while referring to the section 58 documents the Tribunal refers also to page 43 of the section 58 documents and the following extract from a paragraph in a letter by Munro Lawyers to the OSR dated 15 December 2011; First we comment that there is not a Contract for Sale. Rather there is a Deed of Grant of Life Interest for consideration and a Transfer form. 15In relation to section 55(1) (a) of the Act this case raises two issues; one of those issues relates to the question of what is meant by "money" in the provision and whether it extends to the provision of consideration in kind. This issue is referred to as the "money issue" and it is dealt with in Part C below. The other issue relates to the question of what is meant by "purchase" and whether it extends to an acquisition which is not (in accordance with relevant case law) a purchase. This issue, which is referred to as the "purchase issue", is dealt with in Part D below. It is clear having regard to the wording of the section, that in order to succeed the Applicant must do so in relation to both issues; to succeed on one issue but not the other will not suffice. 16Before proceeding to deal with the two issues it is convenient to deal with a contention by the Applicant that section 55 is a remedial provision and as such deserving of a beneficial construction. .