Lock v Commissioner of Taxation

The Willowbank Fund 6 The Willowbank Fund was established in similar circumstances, with the same trustees, employer sponsor and employee members as the Lock Fund No 2. On 9 May 1996 the applicants' solicitors wrote a letter headed "Lock: Taxation Advice" to the applicants' accountants in the following terms: "It is proposed that Mr Lock sell a property which is owned by him to the trustee of a unit trust ('the trust') with a new superannuation fund (which is to be established after the property has been acquired by the trustee of the Trust) ('the fund') ultimately owning all of the issued units. The transaction would proceed on the same basis as the transaction which occurred in the 1994‑1995 financial year of which you are familiar. … You have sought our advice as to whether the provisions of section 66 of the Superannuation (Industries) Supervision Act 1993 ('the Act') would be breached if the assets of the existing superannuation funds ('the existing funds') (which includes units in a unit trust of which the principal asset is a property formally owned by Mr Lock but which was acquired by the trustee of the unit trust prior to that superannuation fund being established) are rolled over to the fund. Section 66(1) of the Act states that the trustee or investment manager of a regulated superannuation fund must not intentionally acquire an asset from a member of the fund. In order for the section to be breached, Mr Lock would need to be, at the time the asset was acquired from him, a member of the fund. This would not be the case with the proposed acquisition nor was it the case with any of the assets which are to be rolled over. Therefore we do not believe that the provisions of the Act would be breached if the assets of the existing funds were rolled over to the fund. Prior to rolling over the assets of the existing funds the stamp duty and capital gains tax consequences will need to be considered. …" 7 The steps which were implemented were: · By deed dated 25 June 1996 the Willowbank Unit Trust ("the Willowbank Trust") was established. Lock Investments Pty Ltd was trustee. · On 25 June 1996 Lock Investments Pty Ltd as trustee of the Family Trust subscribed for 10 units of $1.00 each in the Willowbank Trust. · On 26 June 1996 the Willowbank Trust acquired the land at Lot 10, Spencer Road, Woodend, Victoria ("the Woodend land") from the applicants and Mrs Lock's brother for $220,000 which was not paid on that date. The Willowbank Trust thereby became indebted to the applicants and to Mrs Lock's brother for the purchase price of $220,000. · On 26 June 1996 the Family Trust subscribed for 230,387 units in the Willowbank Trust. It paid $10,387 in cash and assumed liability for the $220,000 debt owing to the applicants and Mrs Lock's brother. At this point the Family Trust owned all the 230,397 units in the Willowbank Trust. · On 27 June 1996 the Willowbank Fund was established with the applicants as trustees. Gisborne Plumbing Pty Ltd was the employer sponsor and the applicants were the only employee members. · On 27 June 1996 the applicants transferred their member benefits totalling $134,571 from the Lock Fund No 2 to the Willowbank Fund. Gisborne Plumbing Pty Ltd paid employer contributions of $150,000 into the Willowbank Fund on behalf of the applicants as members of the Fund. · On 27 June 1996 the Willowbank Fund subscribed for 230,397 units in the Willowbank Trust paying $230,397 cash. · On 27 June 1996 the Willowbank Trust redeemed all the units held by the Family Trust which received $230,397 on such redemption. · On 28 June 1996 the applicants gave APRA a notice of election pursuant to s 19(4) of the Act, that the Act apply in relation to the Willowbank Fund. Thereupon the Willowbank Fund became a regulated superannuation fund within s 19(1) of the Act. · On 1 July 1996 the Family Trust paid to the applicants and to Mrs Lock's brother $220,000 in discharge of the debt owing to them. · On 1 May 1998 the auditor of the Willowbank Fund provided a report to APRA pursuant to s 129 of the Act in which he stated that he had formed the opinion that the sequence of events may have breached s 66(3) of the Act.

The relevant legislation 8 The relevant years in dispute are the years of income ended 30 June 1995 and 30 June 1996. Amendments were made to s 42 of the Act by the Superannuation Industry (Supervision) Amendment Act 1997 (Cth) ("the Amendment Act"), inserting into the Act, inter alia, ss 42(1AA) and (1AB) which have an impact on the relevant years of income. 9 The relevant provisions of the Act as amended are: Section 19 "19(1) A regulated superannuation fund is a superannuation fund in respect of which subsections (2) to (4) have been complied with. … (2) The superannuation fund must have a trustee. … (3) Either of the following must apply: (a) the trustee of the fund must be a constitutional corporation pursuant to a requirement contained in the governing rules; (b) the governing rules must provide that the sole or primary purpose of the fund is the provision of old‑age pensions. … (4) The trustee or trustees must have given to APRA, or such other body or person as is specified in the regulations, a written notice that is: (a) in the approved form; and (b) signed by the trustee or each trustee; electing that this Act is to apply in relation to the fund. …" Section 40 "40(1) The Regulator may give a written notice to the trustee of an entity stating: (a) whether the entity is or is not a complying superannuation fund; or (b) whether the entity is or is not a complying approved deposit fund; or (c) whether the entity is or is not a pooled superannuation trust; as the case may be, in relation to a year of income specified in the notice. … (2) If the Regulator gives a notice to the trustee of an entity stating that: (a) the entity is not a complying superannuation fund; or (b) the entity is not a complying approved deposit fund; or (c) the entity is not a pooled superannuation trust; as the case may be, in relation to a year of income, the notice must set out the reasons why the Regulator so stated. … (3) When the APRA gives a notice under this section, APRA must give particulars of the notice to the Commissioner of Taxation. …" Section 42 "42(1) An entity is a complying superannuation fund in relation to a year of income for the purposes of this Division if: (a) either: (i) the entity was a resident regulated superannuation fund at all times during the year of income when the entity was in existence; or (ii) the entity was a resident regulated superannuation fund at all times during the year of income when the entity was in existence other than a time, before it became a resident regulated superannuation fund, when the entity was a resident approved deposit fund; and (b) either of the following conditions is satisfied: (i) the trustee did not contravene this Act or the regulations in relation to the entity in respect of the year of income; (ii) both: (A) the trustee contravened this Act or the regulations in relation to the entity in respect of the year of income on one or more occasions; and (B) the entity did not fail the culpability test set out in subsection (1A) in relation to any of those contraventions. … 42(1AA) An entity is also a complying superannuation fund in relation to the 1994‑1995 year of income or a later year of income if: (a) the entity: (i) is a superannuation fund that came into existence during the year of income; or (ii) was a resident approved deposit fund that became a superannuation fund during the year of income; and (b) the entity complied with subsections 19(2) to (4): (i) within 60 days after the day on which it came into existence or became a superannuation fund, as the case may be; or (ii) within such further period, if any, as APRA (whether before or after the end of the period of 60 days) allows; and (c) either of the following conditions is satisfied: (i) the trustee did not contravene this Act or the regulations in relation to the entity in respect of the whole of the period (the pre‑lodgment period) that began when the entity came into existence or became a superannuation fund, as the case may be, and ended when the entity complied with subsections 19(2) to (4); (ii) the trustee contravened this Act or the regulations in relation to the entity in respect of the pre‑lodgment period on one or more occasions but the trustee satisfies APRA that, because of special circumstances that existed in relation to the fund during the pre‑lodgment period, it would be reasonable for the fund to be treated as if it had satisfied this Act and the regulations; and (d) the entity was a resident regulated superannuation fund at all times during the part of the year of income occurring after the end of the pre‑lodgment period; and (da) the entity was not a self managed superannuation fund at any time during the year of income; and (e) either of the conditions stated in paragraph (1)(b) is satisfied in relation to the entity in respect of the part of the year of income occurring after the end of the pre‑lodgment period. 42(1AB) In determining for the purpose of paragraph (1AA)(c) whether this Act or the regulations were contravened in respect of the entity in respect of the pre‑lodgment period, this Act and the regulations are taken to have applied in relation to the entity in respect of that period as if the entity were a resident regulated superannuation fund during that period. 42(1AC) An entity is also a complying superannuation fund in relation to the 1994‑95 year of income or a later year of income if: …" Section 66 "66(1) Subject to subsection (2), the trustee or an investment manager of a regulated superannuation fund must not intentionally acquire an asset from a related party of the fund. … (3) A person must not enter into, commence to carry out, or carry out a scheme if the person entered into, commenced to carry out, or carried out the scheme or any part of the scheme with the intention that: (a) the scheme would result, or be likely to result, in the acquisition of an asset by the trustee or an investment manager of a regulated superannuation fund, where the asset is acquired from a person who has a connection (either direct or indirect through one or more interposed companies, partnerships or trusts) with a related party of the fund; and (b) that acquisition would avoid the application of subsection (1) to the fund. … (5) In this section: … scheme means (a) … (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise." 10 Section 42 was modified, pursuant to s 333 of the Act, by Temporary Modification Declaration No 21 ("the Temporary Modification Declaration") which relevantly provided that: "the Act is to have effect, in relation to superannuation entities, and their trustees, as if it were modified by omitting paragraph 42(1)(a) and substituting:

'(a) one of the following conditions is satisfied: (i) at all times during the year of income when the entity was in existence, the entity was a resident regulated superannuation fund; (ii) at all times during the year of income when the entity was in existence, the entity was a resident approved deposit fund during the first part of the year of income and a resident regulated superannuation fund during the remaining part of the year of income; (iii) if the year of income is the 1994‑95 year of income: (A) the entity: (I) came into existence during the year of income; or (II) was a resident approved deposit fund that became a superannuation fund during the year of income; and (B) the entity complied with subsections 19(2) to (4) before 1 July 1995; and (C) the entity was a resident regulated superannuation fund at all times during the part of the year of income occurring after the entity complied with subsections 19(2) to (4) when the entity was in existence; (iv) if the year of income is the 1994‑95 year of income or the 1995‑96 year of income: (A) the entity: (I) came into existence during the 1994‑95 year of income; or (II) was a resident approved deposit fund that became a superannuation fund during the 1994‑95 year of income; and (B) the entity complied with subsections 19(2) to (4): (I) after 30 June 1995; and (II) within 60 days after the entity came into existence or became a superannuation fund (as the case requires); and (C) the entity was a resident regulated superannuation fund at all times during the parts of the 1994‑95 and 1995‑96 years of income occurring after the entity complied with subsections 19(2) to (4) when the entity was in existence; (v) if the year of income is the 1995‑96 year of income: (A) the entity: (I) came into existence during the year of income; or (II) was a resident approved deposit fund that became a superannuation fund during the year of income; and (B) the entity complied with subsections 19(2) to (4) within 60 days after the entity came into existence or became a superannuation fund (as the case requires); and (C) the entity was a resident regulated superannuation fund at all times during the part of the year of income occurring after the entity complied with subsections 19(2) to (4) when the entity was in existence.' This declaration has no effect after 30 June 1996."

The Tribunal's decision 11 By two notices dated 13 August 1999, APRA notified the applicants pursuant to s 40 of the Act that the Lock Fund No 2 and the Willowbank Fund ("the Funds") were not complying superannuation funds in relation to the 1994‑1995 year of income and the 1995‑1996 year of income respectively on the grounds that the Funds had contravened s 66(3) of the Act. The decisions to give the notices were confirmed by a delegate of APRA on 1 November 1999. On 1 December 1999 the applicants applied to the Tribunal for review of APRA's decisions. 12 On 3 July 2001 the Tribunal found that the relevant transactions constituted a scheme to which s 66(3) of the Act applied and that as a result the applicants had contravened the Act. The Tribunal also found that the Funds did not satisfy the requirements of a complying superannuation fund set out in s 42(1)(b) "and/or" s 42(1AA)(c)(i) of the Act, and that the Funds were not complying superannuation funds. The Tribunal therefore affirmed APRA's decisions. 13 The Tribunal found that s 42(1AA) applied retrospectively to the years of income ended 30 June 1995 and 30 June 1996 and that even if it was wrong in this conclusion, it was satisfied that the Temporary Modification Declaration had the same effect of disqualifying a fund from being a complying superannuation fund if there was a contravention of the Act after the fund came into existence but prior to compliance with ss 19(2) to (4). 14 The Tribunal then considered the issue whether the transactions involving the Funds resulted in a contravention of s 66(3) of the Act. The Tribunal found, on the evidence, that the purpose and intent of the various transactions was to use superannuation fund money to acquire real estate formerly owned by the applicants in their personal capacity. The Tribunal made the following critical finding at [11]: "It can be assumed that the legal advisers were aware of the difficulties created by subsections 66(1) in such a transaction. It is clear that the documentation and order of transactions were designed to have the real estate acquired by a unit trust prior to the establishment of a new superannuation fund and to have such new superannuation fund subscribe for units in the unit trust with funds transferred from pre‑existing superannuation funds. It can be assumed that the arrangements were done in such a way so that the asset acquired by the fund would be a different asset to that formerly owned by Mr and Mrs L. I am satisfied that the series of transactions were designed and planned in advance and clearly constitute a scheme. I am satisfied, also, that the scheme was entered into and carried out with the intention that the beneficial ownership of the relevant land be transferred from Mr and Mrs L as members of the fund, to the superannuation funds in a manner which would avoid the application of section 66(1)." 15 The Tribunal was satisfied that the scheme was one to which s 66(3) applied. The Tribunal reasoned at [12]: "As the sole unit holder of the unit trust, the superannuation fund, at any time, may resolve to wind up the unit trust and to have distributed to it the asset of the trust in specie. It has the full equitable interest in the land and the capacity to call for it to be transferred. Under subsection 66(5), a 'scheme' means any arrangement 'whether or not enforceable, or intended to be enforceable, by legal proceedings'. It is clear that the intention and the practical result was to have the superannuation funds acquire assets from Mr and Mrs L in a manner which hoped to avoid the application of subsection 66(1)."

The appeal 16 The applicants' grounds of appeal raised two general issues, the first being the determination of which subsection of s 42 of the Act applied to the Funds in the relevant years of income, and the second being whether a contravention of s 66(3) of the Act occurred. The grounds may be summarised as follows: · The Tribunal treated s 42(1AA) as the operative provision in determining whether the Funds were complying funds for the relevant years rather than treating it as an additional provision to s 42(1) as modified which the Funds could, in the alternative, satisfy in order to be complying superannuation funds. · If the Funds had to satisfy s 42(1AA), s 42(1AB) did not apply to the 1994‑1995 and 1995‑1996 years of income but only applied prospectively from 1 July 1996. · The Funds satisfied the conditions in s 42(1AA) as they applied to the 1994‑1995 and 1995‑1996 years of income respectively, with the consequence that they were also complying superannuation funds under s 42(1AA) of the Act in respect of the 1994‑1995 and 1995‑1996 years of income. · As all the transactions said to give rise to a contravention of s 66 of the Act occurred before the Funds became regulated superannuation funds, the transactions did not result in the applicants as trustees of the Funds contravening s 66(3) of the Act. · The applicants as trustees of the Funds did not acquire any assets from a person who had a connection with a related party of the Funds. · The applicants as trustees of the Funds did not participate in a scheme with the intention of avoiding s 66(1) of the Act, that is with an intention of the type contemplated by s 66(3)(a) and (b). · The Tribunal failed to give consideration to, or apply, par (b) of s 66(3) of the Act. 17 It was not in issue that each of the Funds was established for the primary purpose of providing old‑age pensions. Each Fund therefore satisfied s 19(3)(b) of the Act.

Which subsection of s 42 of the Act applies to the 1994‑1995 and 1995‑1996 years of income?

18 The determination of which subsection of s 42 applies to the Lock Fund No 2 in respect of the 1994‑1995 year of income and to the Willowbank Fund in respect of the 1995‑1996 year of income so as to make them complying superannuation funds is important because it can have a consequence in determining the point of time at which consideration is given to the question whether the applicants as trustees contravened s 66(3) of the Act. The effect of s 42(1AA)(c) and s 42(1AB) (to which I refer later in these reasons) is to require consideration of whether the applicants contravened the Act at an earlier point of time than the time at which the Funds became regulated.

· s 42(1) as modified by the Temporary Modification Declaration applied to the Lock Fund No 2 in respect of the 1994‑1995 year of income and the applicants did not contravene the Act because they acquired the units in the Property Trust before the Lock Fund No 2 became a regulated superannuation fund and not after that point of time. · s 42(1AA) was the applicable provision for the purpose of considering whether the Willowbank Fund was a complying superannuation fund for the 1995‑1996 year of income and there was no contravention of s 66(3) of the Act because the Fund was not a regulated fund at the time it subscribed for units in the Willowbank Trust. · if s 42(1AA) did apply to the Lock Fund No 2 in respect of the 1994‑1995 year of income, and they accepted that s 42(1AA) applied to the Willowbank Fund in respect of the 1995‑1996 year of income, the Funds met the requirements of s 42(1AA). · s 42(1AB) was not a provision in the nature of a concession and did not in its terms apply to the 1994‑1995 and 1995‑1996 years of income. It ought therefore to be construed as applying from the date it was expressed to be effective, that is, from 1 July 1996. It followed that there was no contravention of s 66(3) of the Act because that subsection applies to the acquisition of an asset by a trustee of a regulated superannuation fund, and the Lock Fund No 2 and the Willowbank Fund were not regulated superannuation funds when they acquired units in the Property Trust and the Willowbank Trust respectively.

20 The Commissioner submitted that ss 42(1AA) and 42(1AB) were the relevant provisions to apply in respect of both the Lock Fund No 2 and the Willowbank Fund for the 1994‑1995 and 1995‑1996 years of income. It followed that the applicants contravened s 66(3) of the Act and therefore the Funds were not complying funds for the relevant years of income.

21 Section 42(1AA) disqualifies a fund from being a complying superannuation fund if there has been a contravention of the Act after the fund came into existence but prior to it becoming a regulated superannuation fund. Section 42(1AB) was also inserted in the Act by the 1997 Amendment Act. The effect of s 42(1AB) is that for the purpose of determining whether the Act or regulations were not contravened before a fund became a regulated superannuation fund, a fund is taken to be a regulated superannuation fund from the date it comes into existence.

22 Section 42(1) as originally enacted was enabling in the sense that it contained the conditions which had to be satisfied before a superannuation fund was entitled to say that it was a complying superannuation fund in relation to a year of income. The Temporary Modification Declaration broadened the circumstances under which a superannuation fund could satisfy the conditions for being a complying superannuation fund in relation to a year of income as it provided for further situations occurring during the 1994‑1995 and 1995‑1996 years of income which would entitle the superannuation fund to claim that it was a complying superannuation fund.

23 Section 42(1AA) (par [9] above), inserted in the Act by the Amendment Act, provided further scope for a superannuation fund, which would not otherwise satisfy the conditions in s 42(1) of the Act as modified, nevertheless to be able to become a complying superannuation fund for the years of income of 1994‑1995 and 1995‑1996. Although the Amendment Act provided that s 42(1AA) was to be taken to have commenced on 1 July 1996, it is apparent from its terms that it was to have a retrospective effect and apply to the 1994‑1995 and 1995‑1996 years of income. Its opening words say so explicitly. It therefore provided a further window of opportunity for superannuation funds to become complying funds, in addition to the opportunity which had been provided under s 42(1) as modified by the Temporary Modification Declaration which ceased to have effect after 30 June 1996.

24 I do not consider that s 42(1AA) was intended to operate so as to preclude a superannuation fund which might otherwise come within its provisions from claiming to satisfy the conditions in s 42(1) with or without modification. Section 42, as amended by the Amendment Act, set out a number of sets of conditions in s 42(1AA) and s 42(1AC) which, if satisfied, would entitle a superannuation fund to claim to be a complying superannuation fund. No provision in s 42 is paramount over any other provision and I do not consider that the subsections introduced by the Amendment Act were intended to be more restrictive than the provisions existing prior to their insertion in the Act. Rather the opposite was the position. The amendments were intended to expand existing opportunities to claim complying fund status, not to limit them.

25 This is made clear in the Explanatory Memorandum to the Superannuation Industry (Supervision) Amendment Bill 1997. The Memorandum states:

"In particular, the Bill will amend the SIS Act to: · allow the trustee of a superannuation fund 60 days, or such further period as the Insurance and Superannuation Commissioner (the Commissioner) allows, from the date the fund came into existence to elect that the fund become regulated under the SIS Act; · allow the trustee of a superannuation fund 28 days, or such further period as the Commissioner allows, to rectify an invalid election to be regulated under the SIS Act, from the date of a notice from the Commissioner or the date the trustee finds out about the invalid election; · provide the Commissioner with a discretion to extend the time limit for the trustee of a superannuation fund established prior to the commencement of the SIS Act to elect that the fund be regulated under the SIS Act; and · allow a superannuation fund whose trustee has not elected that the fund be regulated under the SIS Act to be treated as a regulated superannuation fund where the trustee of the fund had previously notified the Commissioner that it intended not to elect because it was in the process of winding up the fund. By addressing or overcoming technical and administrative rigidities in the SIS Act as outlined above, the amendments will enable superannuation funds who would otherwise be deprived of concessional taxation treatment in certain income years to obtain access to such treatment, without compromising the security of members' benefits or fund compliance with the retirement income purpose of superannuation. In effect, the amendments permanently reinstate certain arrangements set out in a number of Temporary Modification Declarations, made pursuant to section 333 of the SIS Act, that were in place up until 30 June 1996. It is intended that the amendments will take effect retrospectively from 1 July 1996 to ensure that a superannuation fund's eligibility for concessional taxation treatment in the period prior to the amendments is not jeopardised."

26 In explaining the insertion of ss 42(1AA)‑(1AD) in the Act, the Explanatory Memorandum stated:

"The additional subsections inserted into section 42 extend the circumstances where an entity may be taken to be a complying superannuation fund, in particular, by conferring a discretion on the Insurance and Superannuation Commissioner (the Commissioner) to extend the time within which the lodgement of an election must be made with the Commission and to enable trustees to rectify invalid elections." In short, the amendments were not intended to deprive funds of prior opportunities to claim complying fund status; rather they were intended to expand those opportunities. 27 It is also significant that both s 42(1AA) and s 42(1AC) provide that an entity is "also" a complying superannuation fund in certain circumstances. The use of the term "also" in both subsections supports the proposition that s 42(1AA) provides a further gateway or opportunity in addition to, but not in derogation of, s 42(1) whether modified or otherwise. The structure of s 42 after the 1997 amendments was to provide a range of opportunities from which a fund could apply the set of conditions best suited to its claim to be a complying superannuation fund in relation to a year of income.

28 However, if s 42(1AA) has application in relation to the years of income 1994‑1995 or 1995‑1996, it must be considered and construed in conjunction with s 42(1AB). The applicants submitted that s 42(1AB) was not, in its terms, a concession like s 42(1AA) and that it did not apply retrospectively to the 1994‑1995 year of income or later years.

29 I do not accept that s 42(1AB) should be construed so as to have operation only from 1 July 1996, the date it became effective. Section 42(1AB) is a qualification of s 42(1AA). It explains the manner in which subpar (c) of s 42(1AA) is to operate and, to that extent, is to be construed as explaining the circumstances under which the further window of opportunity provided is to apply.

30 The applicants submitted that there was nothing in s 42(1AB) which demonstrated that it was intended to operate prior to the date s 42(1AA) commenced, namely 1 July 1996. I reject this submission. I accept that a statutory provision is not to be given retrospective operation unless the provision contains clear words to that effect. I consider that it is clear from the terms of s 42(1AB) that it is to operate in circumstances where recourse is had to s 42(1AA)(c) for the purpose of determining if the condition in s 42(1AA)(c) has been satisfied. Such recourse can be had for the 1994‑1995 and 1995‑1996 years of income as well as years after 1 July 1996.

31 In conclusion, I consider that s 42(1) as modified by the Temporary Modification Declaration is the relevant section to apply in determining whether the Lock Fund No 2 is a complying superannuation fund in relation to the 1994‑1995 year of income. The Lock Fund No 2 satisfies the conditions set out in subpar (iii) of s 42(1)(a) as modified. It came into existence during the year of income, it complied with subs 19(2)‑(4) before 1 July 1995 and it was a resident regulated superannuation fund from the time it complied with subs 19(2)‑(4) up to the end of the 1994‑1995 year of income. I put on one side for later consideration whether the Fund satisfies the requirement in s 42(1)(b)(i), that is, whether there has been a contravention of the Act by the trustees in respect of the relevant year of income.

32 It is not necessary to consider whether a similar conclusion can be reached in respect of the Willowbank Fund in relation to the 1995‑1996 year by reference to s 42(1)(a) as modified because the applicants submitted that s 42(1AA) was the applicable provision for that fund for that year. Therefore I will treat s 42(1AA) as the relevant provision for the Willowbank Fund for the 1995‑1996 year of income, although I note that a different conclusion may have been reached had there been arguments put before me to the contrary. Having regard to the conclusion I have reached in relation to the application of s 66(3) to the Funds, there is no difference in the result for the Willowbank Fund whether it is to be considered by reference to s 42(1)(a) as modified or by reference to s 42(1AA).

Did the applicants, as trustees of the Funds, contravene s 66(3) of the Act?

33 The Commissioner contended that each Fund was part of a scheme implemented by the applicants with the intention that the applicants, as trustees of a regulated superannuation fund, would acquire or be likely to acquire an asset from a member of the Fund in a manner which would avoid the prohibition in s 66(1) of the Act on trustees of regulated superannuation funds intentionally acquiring assets from related parties of the fund.

34 The applicants made submissions which raised the following issues for consideration:

· did the transactions relating to the purchase of the Riddells Creek land by the Property Trust and the purchase of the Woodend land by the Willowbank Trust and the acquisition of units in the Property Trust and the Willowbank Trust by the applicants as trustees of the Funds amount to an acquisition by the applicants, as trustees of regulated superannuation funds, of an asset from a related party of the Funds? · were the transactions which took place prior to the Funds becoming regulated superannuation funds subject to the provisions of s 66(3) of the Act? and · were the transactions carried out with the requisite intention of avoiding the prohibition in s 66(1) of the Act?

Did the trustees of the Funds acquire an asset from a related party of the Funds? 35 The applicants submitted that as trustees of the Funds, they never acquired any asset from themselves individually as members of the Funds; rather what the Funds acquired was units in the Property Trust and the Willowbank Trust respectively. The applicants contended that ownership of units in the Property Trust and the Willowbank Trust did not entitle them to obtain a transfer or distribution of the two properties owned by the Funds, namely the Riddells Creek land and the Woodend land. These units were never owned by the applicants as members of the Funds; what the applicants had owned in their personal capacity was land. 36 The Commissioner contended that the acquisition of the units in the Property Trust and the Willowbank Trust was an acquisition of the real estate sold to the Trusts. The Commissioner further submitted that the effect of the redemption of the units held by the Family Trust made the applicants, as trustees, the sole unit holder in the Trusts with the result that they acquired an indefeasible right to have the Riddells Creek land and the Woodend land transferred to them. 37 The following clauses in the trust deed constituting the Property Trust are relevant to the consideration of this issue: "1.20 'Unit' means one of the undivided parts or shares in the Trust Fund having the characteristics provided in this Deed and wherever the context so admits includes the initial Units and the new Units referred to herein; … 6.1 THE beneficial interest in the Trust Fund as originally constituted and as existing from time to time shall be vested in the Unit Holders for the time being; … 6.3 EACH Unit shall entitle the registered holder thereof together with the registered holders of all other Units to the beneficial interest in the Trust Fund as an entirety but subject thereto shall not entitle a Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof and no Unit Holder shall be entitled to the transfer to him of any property comprised in the Trust Fund other than in accordance with the provisions hereinafter contained. … 13.1 ANY Unit Holder may at any time during the continuance of this Trust by a notice in writing request the Trustee to repurchase all or any of the Units held by him. … 13.2 THE Trustee may in its discretion elect to repurchase the Units specified in the notice given to it pursuant to sub‑clause 13.1 and if the Trustee elects to repurchase such Units then the Unit Holder who has requested the Trustee to repurchase his Units shall hand the relevant Unit Certificate to the Trustee and the following procedure shall apply … 26.1 THIS Trust shall commence on the date hereof and shall terminate on the date which is the first to occur of: 26.1.1 The date which is seventy‑nine years from the date of this Deed. 26.1.2 If at any time the Trustee determines that it is in the interests of the Unit Holders for this Trust to be wound up then the date determined by the Trustee as the date on which this Trust is to be wound up; 26.1.3 If it is resolved by an ordinary resolution of the Unit Holders that this Trust is to be wound up then the date specified in such resolution as the date after such resolution is passed on which this Trust is to be wound up. … 26.2 UPON the termination of this Trust the Trustee shall stand possessed of the Trust Fund in trust for the Unit Holders and shall proceed as follows: … 26.3 SUBJECT to the power of the Trustee to distribute the investments and assets of the Trust Fund as provided in sub‑clause 26.5 the Trustee shall unless otherwise authorised by a special resolution of the Unit Holders as soon as practicable sell, call in and convert into money all the investments and assets constituting the Trust Fund. Any Unit Holder may purchase any such investments and assets. 26.4 THE Trustee shall pay out the debts and liabilities relating to this Trust. 26.5 THE Trustee shall as soon as is practicable distribute in specie or in cash the investment assets of the Trust Fund to the Unit Holders in proportion to their holdings until the assets of the Trust Fund have been completely distributed PROVIDED ALWAYS that the Trustee shall retain full provision for all costs, disbursements, commissions, brokerage, fees, expenses, claims and advertising costs and demands incurred or expected by the Trustee in the liquidation of the Trust Fund." 38 There are similar provisions contained in the Willlowbank Trust deed: "1.1 'Unit' means an undivided part or share in the Trust Fund and 'Units' has a corresponding meaning … 2.3 Ending of Trust 2.3.1 The Trust will automatically end on the Vesting Day unless ended earlier under clause 2.3.2. 2.3.2 The Trust may be terminated at any time before the Vesting Day if the Unitholders so determine by a Special Resolution and such termination will take effect at the expiration of 30 days from the date of the resolution or such other date as may be specified in the resolution. 2.4 Consequences on Ending of Trust 2.4.1 Upon the ending of the Trust the Trustee will, subject to the provisions of this deed: (a) carry out any reasonable directions given by Unitholders holding a majority in number of the Units; (b) sell all investments of the Trust Fund by public auction, tender, private treaty or otherwise as it thinks fit, in which case: (i) all investments will be sold to the highest bidder; (ii) any Unitholder may bid at any such public auction; (c) distribute cash available in the Trust Fund to Unitholders in proportion to Units held until the proceeds of sale of the assets of the Trust Fund have been fully distributed PROVIDED that the Trustee will make full provision for all costs, charges, expenses, claims and demands incurred or expected by the Trustee in the liquidation of the Trust Fund. … 3.2 Entitlement of Unitholders 3.2.1 The Unitholders will be beneficially entitled to the Trust Fund in proportion to the Units registered in their names and all such Units will be of equal value but no Unitholder will be entitled to any individual security or investment forming part of the Trust Fund. …" 39 Clause 6.3 of the Property Trust deed provides that a unit entitles a holder, together with all other holders, to the beneficial interest in the whole of the trust fund, but does not entitle a unit holder to any particular investment comprised in the trust fund and that no unit holder shall be entitled to the transfer of any property in the trust fund, (cl 3.2.1 of the Willowbank Trust deed is in similar terms). 40 There are a number of authorities to the effect that such provisions mean no more than that a unit holder cannot claim to have any particular asset transferred to him otherwise than in accordance with the trust deed: Costa & Duppe Properties v Duppe [1986] VR 90 at 96; Karingal 2 Holdings Pty Ltd v Commissioner of State Revenue (2002) 51 ATR 190 at 198 and the cases there cited. In any event, cl 6.3 is qualified by the expression "other than in accordance with the provisions hereinafter contained". Those provisions include: · cl 26.1.3 which enables the applicants as the holders of all the units in the trust to resolve at any time to wind up the trust. · cl 26.5 which is couched in mandatory terms and requires the trustees on termination of the trust to distribute in specie or in cash the investment assets of the trust fund to the unit holders in proportion to their holdings. Similar provisions, cl 2.3.2 and cl 2.4.1, are found in the Willowbank Trust deed. Although cl 2.4.1(b) requires the trustee to sell the investments of the trust fund, cl 2.4.1(a) enables the applicants as the only unit holders to give a direction that the Woodend property be transferred to them. The consequence is that the applicants as the only unit holders have an indefeasible right to acquire the two pieces of land or the proceeds of their sale if sold on termination of the Trust. 41 I therefore accept the Commissioner's submission that the acquisition by the applicants, as trustees, of the units in the unit trusts conferred on them an entitlement to the land held by the Trusts. 42 I am satisfied that the applicants as trustees "acquired" the Riddells Creek land and the Woodend land, (putting on one side for the moment the persons from whom the land was acquired). In the context in which it appears in ss 66(1) and (3), the expression "acquire" means "obtain" or "gain" or "receive" and "acquisition" has a corresponding meaning. The expression "acquire" is a word of common usage and does not have a technical meaning. The Oxford English Dictionary, 2nd ed (1989), defines "acquire" as meaning: "1 To gain, obtain, or get as one's own, to gain the ownership of (by one's own exertions or qualities). 2 To receive or get as one's own (without reference to the manner), to come into possession of." A similar definition is found in The Macquarie Dictionary: see also Australian Securities and Investments Commission v Yandal Gold Pty Ltd (1999) 32 ACSR 317 at 338‑339; on appeal Edensor Nominees Pty Ltd v Australian Securities and Investments Commission (2002) 190 ALR 516 at 532; Aberfoyle Ltd v Western Metals Ltd (1998) 84 FCR 113 at 144. 43 The matter can be approached from another direction by considering what are the rights which, as a matter of principle, attach to the ownership of units in a unit trust. The primary consideration should be directed to the terms of the deed constituting the trust and creating the units. There are a number of decisions which support the proposition that the ownership of units in a unit trust, depending upon the terms of the trust deed, gives the unit holder a beneficial interest in property forming the assets of the trust fund. 44 In Charles v Federal Commissioner of Taxation (1953) 90 CLR 598 the High Court had before it a unit trust deed which provided that the trust fund was to be retained by the trustee for the unit holders. The High Court said at 609: "…a unit held under this trust deed is fundamentally different from a share in a company. A share confers upon the holder no legal or equitable interest in the assets of the company; it is a separate piece of property; and if a portion of the company's assets is distributed among the shareholders the question whether it comes to them as income or as capital depends upon whether the corpus of their property (their shares) remains intact despite the distribution: Inland Revenue Commissioners v. Reid's Trustees [(1949) AC 373]. But a unit under the trust deed before us confers a proprietary interest in all the property which for the time being is subject to the trust of the deed: Baker v. Archer‑Shee [(1927) AC 844]." (see also Trevisan v Commissioner of Taxation (1991) 101 ALR 26 at 29; Costa & Duppe Properties Pty Ltd v Duppe (supra) at 96.) 45 In Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639, the New South Wales Court of Appeal considered a clause in a unit trust deed in similar terms to cl 6.3 of the Property Trust deed and cl 3.2.1 of the Willowbank Unit Trust deed. It provided: "3.1 The beneficial interest in the Fund … is divided into equal units. 3.2 A unit shall not confer any interest in any particular investment, asset, property or cash comprising the assets of the Trust, but only a beneficial interest in the Fund as a whole. Each Unit of the same class shall confer on the unit holder an equal entitlement and be of equal value at all times." Fitzgerald AJA said at 659‑660: "I am of opinion that the trust deed of the Forster No 1 Trust entitles a sole unit holder to the full beneficial ownership of the trust fund and its constituent assets, subject only to any rights of the trustee with respect to those assets at the particular time. It follows, of course, that ISPT as trustee of the Forster No 1 Trust would not ordinarily be the beneficial owner of the Forster Shopping Village when there is only one unit holder, and would have no estate or beneficial interest in the fund or the assets comprising the fund beyond any estate or interest derived from rights as trustee under the trust deed or the general law: … The matter can be emphasised by pointing out that a sole unit holder could direct the trustee not to require a conveyance, to appoint another nominee and perhaps to resign as trustee in favour of another, and could set an immediate vesting date and require a conveyance of the property to itself. The trustee's rights under the deed for the Forster No 1 Trust are substantially under the effective control of a sole unit holder." His Honour's reference to any rights of the trustee was a reference to the trustee's right of indemnity and right to costs. 46 The applicants relied on MSP Nominees Pty Limited v Commissioner of Stamps (South Australia) (1999) 198 CLR 494 ("MSP Nominees")to support their submission that they, as trustees, acquired no interest in the land previously owned by them in their individual capacities. 47 The issue before the High Court in MSP Nominees arose in the context of a redemption of units in a unit trust. The question was whether that redemption constituted or evidenced a surrender of a beneficial interest in property and was therefore dutiable as a transfer under s 71 of the Stamp Duties Act 1923 (SA). There were initially three holders of units in the unit trust. The trust deed empowered the trustee, at its discretion, to redeem any units of a unit holder at a price of not more than the value of the quotient derived by dividing the value of the trust fund by the number of issued units. The trustee was then empowered to appropriate any part of the trust fund towards satisfaction of any liability on the redemption of such units or in satisfaction of any unit holder's interest in the trust fund. The trustee redeemed the units of two of the unit holders and appropriated to them the value of the units calculated as a proportion of the trust fund and then cancelled the redeemed units as required by the trust deed. 48 The Commissioner of Stamps assessed the unit register to ad valorem stamp duty on the basis that each redemption of units was a transfer of a beneficial interest in property subject to a trust within s 71(15) of the Stamp Duties Act and that the register evidenced or recorded that transfer. The High Court held that the entry in the register of the cancellation of the units following their redemption did not evidence or record the surrender or renunciation of a beneficial interest or a potential beneficial interest in property. 49 Clause 4 of the deed before the High Court provided for the beneficial interest in the trust fund to be divided into units of equal value and that no unit holder was to have an interest in the trust fund other than in its entirety, nor was any unit holder entitled to interfere in the exercise of the right of the trustee as owner of the trust fund. Except as provided by cl 11 of the deed, no unit holder was entitled to require the transfer to him of any of the investments of the trust fund or of any property comprised in the trust fund. 50 The trust deed provided three mechanisms for distributions from the trust fund. First, cl 11 provided that as soon as practicable after the vesting date the trustee was obliged to convert the trust fund into money and to divide the proceeds among unit holders in proportion to the number of units which they held. The trustee was empowered, in its discretion, to transfer to any unit holder any assets of the trust fund in specie in satisfaction or part satisfaction of its entitlement upon termination of the trust. Secondly, cl 37 provided that at any time before the vesting date the trustee, with the consent of at least 75% of the unit holders, might raise any sums from the capital of the trust fund and pay it to unit holders in proportion to the units held. Thirdly, the trust deed (in cls 34‑35) allowed redemptions for unit holders to occur before the vesting date if so requested, but such redemptions were in the trustee's absolute discretion. 51 The High Court noted at 502: "Clause 4 denied any entitlement to Unit Holders to require a distribution, other than pursuant to cl 11. Of the methods for distributions specified in the Trust Deed, only the first, that in cl 11 for distributions after the Vesting Date, conferred upon Unit Holders rights not dependent upon or preconditioned by a requirement of consent by the Trustee or the exercise of a power vested in the Trustee. Accordingly, any scope for the operation of the rule in Saunders v Vautier [(1841) 4 Beav 115 [49 ER 282]] was limited. However, all three methods of distribution, including that provided by cl 34, sharedasignificant characteristic. Within the charter of rights and obligations established by the Trust Deed, they were the only means for the working out and effectuation of the rights or interests of the Unit Holders in respect of the Trust Fund." 52 The High Court concluded that the effect of the redemptions was that there was not a receipt or acquisition by the remaining unit holder of any beneficial interest held by the unit holders who had obtained the redemption of their units. The court said at 509: "The use of terms such as 'beneficial interest' is apt to mislead when applied to beneficiaries' interests in a discretionary trust As effected by cl 4 of the Trust Deed, the Unit Holders were denied any specific interest in any item of property held in the Trust Fund. Rather, the rights enjoyed by Budget and Galaxy as Unit Holders were, upon favourable exercise by the Trustee of its discretion conferred by cl 34, transmuted by the redemption process into the entitlement to the price arrived at by the valuation for which cl 36 provided." [footnotes omitted]. 53 The decision in MSP Nominees can be distinguished for present purposes having regard to the provisions of the Property Trust deed and the Willowbank Trust deed. In MSP Nominees,of the methods of distribution of the trust fund allowed by the trust, only the first was not dependent upon the trustee exercising its discretion, but that method of distribution could only occur after the vesting date. The second and third methods of distribution depended upon the trustee exercising its discretion in favour of distribution. In short, the unit holders could not require or compel a distribution before the vesting date. 54 However under the Property Trust deed, the denial to a unit holder of a transfer of property in the trust fund in cl 6.3 (par [37] above) is expressed to be "other than in accordance with the provisions hereinafter contained". Those provisions included cl 26.1.3 and cl 26.5 (par [37] above) which gave the applicants, as the only unit holders, the right to acquire the Riddells Creek land which right was indefeasible and was not dependent upon the trustees exercising their discretion in the unit holders' favour. Accordingly the barrier erected against the unit holders obtaining a transfer of property in MSP Nominees, namely the exercise of discretion by the trustee, is not in existence in the present unit trust deed under consideration. 55 A similar conclusion can be reached in relation to the Willowbank Trust. Although cl 3.2.1 of the Willowbank Trust deed which denies unit holders any individual security or investment forming part of the trust fund does not qualify that provision as being "other than in accordance with the provisions hereunder contained", the deed does contain provisions similar to cl 26.1.3 and cl 26.5 of the Property Trust deed. I refer to cl 2.3.2 and cl 2.4.1 (par [38] above). Although cl 2.4.1(b) requires the trustee to sell the investments of the trust fund, cl 2.4.1(a) enables the applicants as the only unit holders to give a direction that the Woodend property be transferred to them. 56 After I reserved my decision the judgment in Karingal 2 Holdings Pty Ltd v Commissioner of State Revenue (supra) was handed down. Both parties relied upon the reasoning of Nettle J and filed further written submissions. The decision arose in the context of the imposition of land tax on an "owner" of land pursuant to the provisions of the Land Tax Act 1985 (Vic). The expression "owner" in respect of land was defined to mean every person entitled to any land for any estate of freehold in possession. Section 51 of the Land Tax Act subjected to assessment "the owner of any equitable estate or interest in land". 57 The principal issue before the court was whether a company that held units in the land holding unit trust was liable to be assessed, pursuant to s 51 of the Land Tax Act, as an owner of an equitable estate or interest in the land. 58 Nettle J addressed the question whether unit holders in a trust had an equitable estate or interest in the land the subject of the trust. His Honour noted that for some years the weight of authority had been that the holder of a unit in a unit trust had an equitable proprietary interest in all the property which was for the time being subject to the trust deed, citing Charles v Federal Commissioner of Taxation (supra) at 609; Read v The Commonwealth (1988) 167 CLR 57 at 61‑62; Costa & Duppe Properties Pty Ltd v Duppe (supra) at 92; HAJ Ford, Unit Trusts (1960) 23 MLR 129; HAJ Ford, "Public Unit Trusts", Ch 15 in RP Austin and R Vann (ed) The Law of Public Company Finance, 1986. 59 Nettle J also noted at 198 that there was a body of authority to the effect that: " a unit holder has a proprietary interest in each of the assets which comprise the entirety of the trust fund and that provisions in unit trust deeds to the effect that a unit holder is not entitled to any particular asset in the trust fund or to an interest in any particular asset are to be construed in context as meaning no more than that the unit holder is not entitled to have the exclusive use or ownership of any particular asset", citing, inter alia, Costa & Duppe Properties Pty Ltd v Duppe (supra) at 96; and Trevisan v Commissioner of Taxation (supra). 60 Nettle J referred in some detail to the reasoning in Costa & Duppe Properties Pty Ltd v Duppe (supra), Suncorp Insurance & Finance v Commissioner of Stamp Duties [1998] 2 Qd R 285 at 293 and Chief Commissioner of Stamp Duties v ISPT Pty Ltd (supra) and said at 200: "Judged according to that body of authority, each of the trust deeds in the appeals before me does confer on unit holders an equitable estate or interest in each of the assets of the trusts." 61 Nettle J then considered the submission that the decision of the High Court in MSP Nominees produced a different outcome in the case of the trust deeds before him which provided in terms that units did not confer any interest in any particular part of the trust fund or did not confer any interest in a particular asset. His Honour rejected the submission that, following MSP Nominees, the true view was that where there were provisions in a unit trust deed which gave the trustee a discretion as to distributions and which, in terms, denied the existence of any particular interest in particular assets, the provision which denied the existence of an interest in particular assets was to be given effect notwithstanding it might appear to contradict another provision of the trust deed that each unit holder had an interest in the totality of the fund. In particular, his Honour did not see that there was any inconsistency between MSP Nominees and the earlier authorities on the nature of the unit holders' interest in underlying assets. Further, his Honour did not read the High Court in the passage cited at par [51] above as denying that unit holders had any interest in the trust assets. His Honour noted that the High Court held that the effect of the trust deed was that unit holders were denied "any specific interest" in any item of property held in the trust fund and that "The adjective specific was plainly chosen with care". His Honour concluded that the High Court meant that the effect of the clause was to deny the existence of the specific interest but not any interest. 62 As Nettle J said at 203: "But where, as in MSP and here, the trust deed divides the beneficial interest in the fund into units and specifically confers on each unit holder an interest in the trust fund as a whole, the fact that certain of the unit entitlements, and perhaps even most of the unit entitlements, are discretionary in one sense or another, cannot mean that the trust is to be characterised as a discretionary trust in the sense that deprives the unit holders of the interest for which the deed expressly provides; and the High Court did not say otherwise." His Honour continued at 203: "What then was intended by the High Court to be conveyed by the description of the trusts in MSP as discretionary and by use of the expression 'specific interest in any item of property'? In my view, no more than that cl. 4 operated to deny a unit holder the right to have any item of property appropriated to his or her share or transferred to him or to her otherwise than in accordance with the deed." 63 I agree, with respect, with Nettle J's reasoning and conclusions. In my opinion, the reasoning in Karingal 2 Holdings Pty Ltd v Commissioner of State Revenue (supra) supports the conclusion that the acquisition by the applicants, as trustees of all the units in the Property Trust and the Willowbank Trust, was an acquisition of an equitable interest in the land which formed the assets of those trusts.

Does s 66(3) apply to the transactions, or is its operation excluded because the transactions took place prior to the Funds becoming regulated superannuation funds? 64 The applicants submitted that all the transactions said to give rise to a contravention of s 66 of the Act occurred before the Funds became regulated superannuation funds, the relevant date for the Lock Fund No 2 being 30 June 1995 and the relevant date for the Willowbank Fund being 28 June 1996. The applicants submitted further that there was no acquisition at any relevant time from a member of the Funds and that there was no acquisition of an asset which was ever owned by a member of the Funds. 65 The expression "scheme" is defined in s 66(5) of the Act in very broad terms and, for present purposes, means "any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise". It was not in issue that the applicants had undertaken a course of action or course of conduct as a result of which an asset was acquired. What was in issue was the nature of the asset, the identity of the person from whom it was acquired, the intention of that person and the time at or date upon which the asset was acquired. In each case the Fund purchased units in a trust owning real estate which was under the effective control of the applicants, who were also trustees of each Fund. Accordingly there was a course of action or a course of conduct in which the trustees of each Fund participated which resulted in the acquisition of an asset. 66 There was an issue between the parties as to whether in each case the asset acquired was units in the trust or the underlying real estate. The applicants put the case on the basis that the issue which arose was whether the actual acquisition of the units in the trust avoided the application of s 66(1) of the Act. However, that enquiry fails to take account of the proscription against not only entering into or commencing to carry out a scheme, but also carrying out any part of the scheme with the intention that the acquisition would avoid the application of s 66(1) of the Act. The applicants' response to this proposition was that reference to "that acquisition" in subpar (b) of s 66(3) limited its application. Although "that acquisition" refers to an acquisition by the trustee of a regulated superannuation fund, s 66(3) proscribes conduct by persons other than the trustee. 67 In the case of s 42(1)(b) and s 42(1AA)(c) of the Act which apply to the Lock Fund No 2 and the Willowbank Fund respectively, it is a contravention by "the trustee" which must be established in order to disentitle a fund from being a complying superannuation fund in relation to the relevant year of income. 68 In the sequences of steps under consideration there were a number of steps in which there was participation by persons other than the trustees of the Funds. The applicants submitted that they, as individuals, were not acting as trustees of the Funds in all of the steps in the sequences which occurred. It was said that the only action they undertook as trustees of the Funds was the acquisition of the units in the Property Trust and the Willowbank Trust. 69 The applicants submitted that the Tribunal failed to recognise this factor when it said at [11]: "The second issue is whether transactions involving the two funds resulted in a contravention of section 66 of the SIS Act and, more particularly, whether pursuant to subsection 66[(3)], it was a scheme entered into or carried out with the intention that it would result in the acquisition of an asset by the trustee from a person who has a connection with a member or relative of the member of the fund." It was said that formulating the provisions of s 66(3) in this way ignored subpar (b) which provides that the acquisition of the asset by the trustee "would avoid the application of subsection (1) to the fund". 70 The applicants submitted further that the Tribunal glossed over subpar (b) of s 66(3) when the Tribunal reasoned at [11]: "I am satisfied that the series of transactions were designed and planned in advance and clearly constitute a scheme. I am satisfied, also, that the scheme was entered into and carried out with the intention that the beneficial ownership of the relevant land be transferred from Mr and Mrs L, as members of the fund, to the superannuation funds in a manner which would avoid the application of subsection 66(1)." 71 The applicants submitted that there could never have been a contravention of s 66(1) of the Act because there was never a time at which the Funds could have acquired an asset from Mr and Mrs Lock as members because there was no time at which Mr and Mrs Lock were both members of the Funds and owned the assets which it is said that the Funds had acquired. In short, it was said that the applicants, as trustees, were never in a position where they could acquire the assets which it is said they acquired from a member of the Funds. 72 The applicants submitted that even if they, as trustees, carried out steps which fell within s 66(3), those steps did not occur at a time when each Fund was a regulated superannuation fund with the result that at the time of the acquisition of the units the application of s 66(1) was not avoided as at that point of time each Fund had not become a regulated superannuation fund. They submitted that s 66(3) is expressed to apply to acquisitions by trustees of regulated superannuation funds only, hence any action taken by the applicants prior to the Funds becoming regulated superannuation funds was not taken by them as trustees of regulated superannuation funds. Accordingly s 66(3) had no application to those actions. 73 The Commissioner submitted that whether the applicants were members of the Funds at the time they sold the land was not the relevant inquiry. The acquisition of the land had to be looked at as part of the entire scheme entered into by the applicants and was to be assessed not as an isolated transaction but as part of the entire course of conduct commencing with the purchase of the land from the applicants and concluding with the payment of the debt representing the purchase price to the applicants. 74 The applicants' submission that at the time they sold the pieces of land they were not members or trustees of the respective Funds must be considered by reference to the scheme as a whole. Section 66(3) does not focus on particular transactions at particular points of time but rather contemplates consideration of a continuum, a sequence of events, a course of action, a course of conduct. The proscription in s 66(3) is against a person entering into, commencing to carry out, or carrying out, a scheme with the intention that the scheme would result or be likely to result in the acquisition specified in subpar (a) of s 66(3). One does not look at the scheme only at the time the applicants became trustees of each of the Funds or only at the time at which the Funds were respectively constituted. Rather one looks at past, current and prospective acts, circumstances and conduct to determine whether there is a conjoining or coincidence of the relevant intention and an aspect or integer of the scheme at any particular point or points of time with the result that it can be established that there is an acquisition from a relevant person which would avoid the application of s 66(1) to the fund. The proscription is not only against entering into a scheme or commencing to carry it out; it also extends to carrying out a scheme or any part of it. 75 Thus a person who does not have any role in the entering into, or the commencement, of the carrying out of a scheme will be brought within s 66(3) if at a later point of the scheme the person participates in the carrying out of the scheme or any part of it, with the relevant intention contemplated by subpars (a) and (b) of s 66(3). 76 It is therefore not to point that at the time they sold the pieces of land the applicants were not members or trustees of the respective Funds. At that time the relevant schemes had been entered into and commenced to be carried out, albeit without the involvement or participation of the applicants as trustees but the schemes were yet to be completed. The participation of the applicants as trustees in the carrying out of the relevant schemes commenced at the point of time the Funds subscribed for units in the Property Trust and the Willowbank Trust. In order to put those acquisitions of the units in context, it is necessary to look at the overall schemes as implemented in accordance with the solicitors' letters to the accountants (pars [4] and [6] above). 77 When subpars (a) and (b) of s 66(3) are analysed in this way it is apparent that the assets acquired by the trustee, namely the units in the Property Trust and the Willowbank Trust, were acquired in such a way that the acquisition of the units would avoid the application of s 66(1) to the Funds as s 66(1) has no application because no asset is acquired from a member of the Funds. The applicants, as trustees, acquired an interest in the underlying real property (as I have found earlier), but they did not acquire that interest from "a member of the fund". The persons who became members of the Funds disposed of their interest in the Riddells Creek land and the Woodend land before the two Funds respectively came into existence and such interest as the applicants acquired as trustees were acquired on their subscription for units in each Trust. Thus the applicants as trustees did not acquire an asset from a member of the Funds.

Were the transactions carried out with the requisite intention of avoiding the prohibition in s 66(1) of the Act? 78 The fact that the applicants as trustees did not acquire an asset from a member of the Funds is not the end of the matter. 79 The applicants accepted that they, as trustees, had an intention to acquire assets but submitted that such intention was not to avoid the application of s 66(1). It was said that the applicants as trustees could not have had the relevant proscribed intention at the commencement of the scheme as each Fund did not exist at the time each scheme commenced. 80 The evidence before the Tribunal was that the purpose and intention of the various transactions and the participants in them was to "use superannuation moneys to acquire real estate formerly owned by [the applicants]", albeit not as trustees of the Funds. The applicants, as trustees, carried out part of the scheme which resulted, or was likely to result, in their acquisition of an asset acquired from themselves in their personal capacity. The acquisition of the asset which the applicants as trustees in fact acquired in each case avoided the application of s 66(1) of the Act for the reasons referred to above. The Tribunal found (par [14] above) that the scheme was carried out, as well as being entered into, with an intention that the acquisition made would avoid the application of s 66(1). There was evidence before the Tribunal from which it was open to the Tribunal to make that finding, with which I agree. 81 Contrary to the submissions of the applicants, the Tribunal did not fail to recognise that it was a contravention of s 66(3) by the applicants, as trustees, which had to be established and it did not gloss over subpar (b) of s 66(3) in the passage referred to in par [15] above. It is not to the point that the applicants parted with the land before they became members of the Funds. The point is whether they, as trustees, carried out part of the scheme with the intention contemplated by s 66(3)(a) and (b). 82 The breadth of scope of a provision similar to s 66(3) was explained in Australian Prudential Regulation Authority v Holloway (2000) 104 FCR 521. Mansfield J was called upon to consider the provisions in Pt 8 of the Act relating to in‑house asset rules as they applied to regulated superannuation funds. Section 85 was in similar terms to s 66(3) albeit relating to schemes resulting in an artificial reduction in the market value ratio of a fund's in‑house assets. Section 85(4) defined "scheme" in the same terms as s 66(5). Mansfield J referred to the words "any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise" comprising part of the definition of "scheme" in s 85(4)(b) and said at 549: "It is, furthermore, difficult to conceive of any boundaries fixed by that series of words. They encompass prospective acts as well as historical or contemporaneous acts. They encompass the taking of a single act, or a series of acts. They intersect and overlap in their meaning. It is difficult to see how each of those words can be given a separate and meaningful ambit of operation: cf Griffith CJ in Commonwealth v Baume (1905) 2 CLR 405 at 414. The introductory word 'any' is apparently intended to indicate that each of those words should be given as wide a meaning as possible: Victorian Chamber of Manufactures v Commonwealth (Prices Regulations) (1943) 67 CLR 335 at 346 per Williams J." 83 When one looks at the solicitors' letters and the sequence of events which followed each of them in which the applicants as trustees participated by subscribing for units in the Property Trust and the Willowbank Trust it is apparent that the intention of the participants in the sequence of events properly described as a scheme for the purposes of s 66(3), and the effect sought to be achieved by the participants, was the acquisition by the Lock Fund No 2 and the Willowbank Fund of the two pieces of land in circumstances where s 66(1) was not contravened. 84 The applicants submitted that what s 66(3) proscribed was an intention that the consequences in both subpar (a) and (b) occur. It was said that, even if the evidence established an intention on the part of the trustees of the Funds to acquire an asset from a related party, there was no evidence that the trustees intended to avoid the operation of s 66(1) of the Act. A positive intention to avoid was required and this was not made out. 85 The Commissioner submitted that the intention contemplated by s 66(3) was one intention to enter into a scheme that would, or would be likely to, result in the acquisition of an asset by the trustee of a regulated superannuation fund from a member of the fund or a relative thereof in a manner designed to avoid the operation of s 66(1). The Commissioner submitted that such an intention was evidenced by the applicants' written outlines of evidence. In relation to the Lock Fund No 2, the Commissioner referred to the statement by Mr Lock that: " it was proposed that it may be possible to transfer the investment in the Riddells Creek property to the fund. Although I cannot specifically recall signing the documents in relation to the transfer of the property to the Lock Property Trust (the property trust) or the acquisition of units in the property trust by the fund, my recollection and understanding is that the Riddells Creek property was owned by the Fund."

and by Mrs Lock that: "I was aware that the [Riddell Creek land] was acquired by the fund." Similar statements in relation to the Woodend property were also relied upon.

86 Evidence such as this, taken with the two letters from the applicants' solicitors to the applicants' accountants, evinces an intention by all participants in the scheme that all the steps set out in the letters were to be completed as one scheme or course of conduct commencing with the sale of the Riddells Creek property and the Woodend property respectively and concluding with the repayment of the debt for the purchase price of the properties to the applicants in their personal capacity and the elections by the applicants as trustees that the Funds be regulated superannuation funds. There was therefore evidence from which it was open to the Tribunal to make the findings it did as to the intention of those persons, including the applicants as trustees, who carried out the schemes.

87 The proscription in s 66(3) is against, inter alia, a person carrying out any part of scheme, that is a course of action or course of conduct, with the intention proscribed by subpar (a) and subpar (b) of s 66(3). Both limbs contemplate firstly an intention that the scheme "would result or be likely to result" in an acquisition of a particular type and secondly an intention that that acquisition "would avoid" the application of s 66(1) to the relevant fund. That is to say a contravention of s 66(3) by a trustee of a superannuation fund can occur without a trustee of a regulated superannuation fund having intentionally acquired an asset from a member of that fund. If a trustee of a superannuation fund carries out part of a scheme with the intention that the scheme would result or would be likely to result, thereafter, in an acquisition proscribed by subpar (a) of s 66(3) and that such acquisition would avoid the situation of a trustee of a regulated superannuation fund intentionally acquiring an asset from a member of the fund, then the trustee has contravened s 66(3) even though s 66(1) has not applied, that is even though a trustee of a regulated superannuation fund has not acquired an asset from a member of the fund.

88 Put shortly, s 66(3) will be contravened by a trustee if the trustee carries out part of a scheme with the intention contemplated by s 66(3)(a) and (b) at a time when the superannuation fund of which the trustee is trustee is not a regulated fund. Section 66(3) does not require the relevant superannuation fund to be regulated in order for a trustee to contravene its provisions. Indeed s 66(3) requires an intention that the circumstances contemplated by s 66(1) not occur.

Did the Lock Fund No 2 and the Willowbank Fund meet the requirements of the relevant subsections of s 42?

89 The applicants submitted, and I have found, that s 42(1) as modified by the Temporary Modification Declaration applied to the Lock Fund No 2 in respect of the 1994‑1995 year of income.

90 The applicants argued that they did not contravene the Act because they acquired the units in the Property Trust before the Lock Fund No 2 became a regulated superannuation fund and not after that point of time. The applicants therefore submitted that the Lock Fund No 2 satisfied the requirements in s 42(1)(a) as modified and in s 42(1)(b) as there was no contravention of the Act or regulations in the 1994‑1995 year of income. The Lock Fund No 2 became regulated on 30 June 1995, and after that date the fund did not acquire any assets. Hence ss 66(1) and 66(3) of the Act had no application because it could not operate on transactions undertaken prior to the Lock Fund No 2 becoming regulated.

91 I have already found that the Lock Fund No 2 satisfied the requirements in s 42(1)(a)(iii) as modified, but that it did not satisfy the requirement of s 42(1)(b) as the trustees contravened the Act in the 1994‑1995 year of income by participating in a scheme contrary to s 66(3). Therefore the Lock Fund No 2 did not meet the applicable provision in s 42 and so was not a complying superannuation fund within the meaning of the Act.

92 The applicants submitted that s 42(1AA) was the applicable provision for the purpose of considering whether the Willowbank Fund was a complying superannuation fund for the 1995‑1996 year of income.

93 The applicants argued that the Willowbank Fund was not a regulated fund at the time it subscribed for units in the Willowbank Trust and therefore there was no contravention of s 66(3) of the Act. They submitted that this was so because s 42(1AB), which would otherwise have deemed the Fund a regulated superannuation fund from the time it came into existence, did not apply to the 1995-1996 year of income. However, for the reasons given above, I have found that s 42(1AB) did have retrospective effect so as to apply to the 1995‑1996 year of income and accordingly the applicants' submission that the Willowbank Fund was not a regulated superannuation fund when it acquired units in the Willowbank Trust cannot be sustained.

94 Thus the Willowbank Fund fails to meet the requirements of s 42(1AA)(c)(i) because there has been a contravention of the Act in the relevant period and no relevant exemptions for contravening conduct are applicable. 95 The result would be the same even if the applicable provision for the Lock Fund No 2 was s 42(1AA) and the applicable provision for the Willowbank Fund was s 42(1). 96 The consequence of the applicants contravening the Act is that in the case of both the Lock Fund No 2 and the Willowbank Fund neither the condition in s 42(1)(b)(i) nor the condition in s 42(1AA)(c)(i) was satisfied. The Tribunal found that the applicants, as trustees, did not satisfy s 42(1)(b) and/or s 42(1AA)(c)(i) of the Act and I am satisfied that it was correct in so finding. It was not suggested that the exemptions in s 42(1)(b)(ii) or s 42(1AA)(c)(ii) had any relevant application.

Conclusion 97 Insofar as s 42(1)(b)(i) applied in each case, the applicants as trustees contravened s 66(3) in respect of the 1994‑1995 and 1995‑1996 years of income respectively because they carried out part of a scheme which comprised the course of conduct found in the sequence of steps set out in par [5] and [7] above during the respective year of income. That scheme or course of conduct commenced with the establishment of the Property Trust and the Willowbank Trust and concluded with each Fund becoming a regulated superannuation fund within s 19(1) of the Act. The end result of each scheme was that the applicants, as trustees, did not acquire an asset from a member of the relevant fund. The application of s 66(1) to each Fund was thereby avoided. But in each case the applicants, as trustees, carried out part of the scheme, by subscribing for units in the Property Trust and the Willowbank Trust, with the intention during the respective year of income that the scheme would result, or would be likely to result, in an acquisition of the type referred to in s 66(3)(a) and with the intention during the respective year of income that that acquisition would avoid the application of s 66(1). They intended not to contravene s 66(1) and they succeeded in that respect as by virtue of the scheme, the acquisition of the asset in the case of each Fund avoided the application of s 66(1). 98 Insofar as s 42(1AA)(c)(i) applied in each case, the same analysis applies to establish what was the relevant contravention of s 66(3). However the contravention is rendered more stark by the application of s 42(1AB) which deems a superannuation fund to be a resident regulated superannuation fund from the time it came into existence notwithstanding that it was not until a later date that the trustees of the fund gave APRA a notice of election in accordancewiths 19(4). Section 42(1AB)advancesthepointoftime at whichasuperannuationfund is to be considered as a regulated superannuation fund for the purpose of determining whether the trustee of the fund contravened the Act during the period commencing with the establishment of the fund and concluding with the trustee giving APRA a notice of election in accordance with s 19(4). 99 I have found that s 42(1AB) applies in respect of the conduct of a trustee in relation to the 1994‑1995 and the 1995‑1996 years of income with the result that the applicants' submission that the steps taken by the applicants as trustees did not occur at a time when each Fund was a regulated superannuation fund cannot be sustained. 100 In each case the appeal should be dismissed with costs. I certify that the preceding one hundred (100) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg.

Counsel for the Applicants: Ms H Symon SC and Mr R Moore

Solicitor for the Applicants: Harwood Andrews Lawyers

Counsel for the Respondent: Ms J Batrouney SC and Mr C M Sievers

Solicitor for the Respondent: Australian Government Solicitor