These reasons for decision concern an Application for Administrative Review filed by the Applicants under section 96 of the Taxation Administration Act 1996 (TAA). The Application requests the Tribunal to review a decision made by the Respondent (who is also referred to as the Chief Commissioner) under the Land Tax Act Management Act 1956 (the LTMA) in relation to surcharge land tax imposed under the Land Tax Act 1956 (the LTA) on 7 June 2021 [1] (the Decision).
References to:
1. the Section 58 Documents are to the volume of documents filed with the Tribunal under section 58 of the Administrative Decisions Review Act 1997 (ADRA) on 30 May 2022 and reference to a particular numbered tab or page of the Section 58 Documents is to the document identified under that tab number or at that page number in the Section 58 Documents;
2. the Tender Documents are to the documents comprised in the Respondent's Tender Bundle filed with the Tribunal on 25 July 2022, and reference to a particular numbered tab or page of the Tender Documents is to the document identified at that tab or page number in the Tender Documents;
3. the First Applicant or Terrence are to Terrence Picone, as trustee for Patrick Picone Family Trust; and
4. the Second Applicant or Patrick are to Patrick Picone.
This review is conducted under the TAA. Several points should be made at the outset:
1. Section 96 provides for a taxpayer to seek the review of the Chief Commissioner's initial decision if dissatisfied with the outcome of an objection against that decision. In this case, the Applicants appear to express their review applications as being in relation to the disallowance of their objection, rather than the original decision. Since the Respondent has not pressed any objection on this point, and in any event the parties have addressed their arguments to the initial decision, nothing appears to turn on this distinction.
2. Section 99 requires that applications for review be lodged within 60 days after the determination of the relevant objection. The application complies with this requirement.
3. Importantly, the provisions of section 100 of the TAA apply. Notably:
1. Sub-section 100(2) of that Act provides that neither the Applicants nor the Respondent are limited in the present application to the grounds of the objection; and
2. sub-section 100(3) of that Act provides that the Applicants have "… the onus of proving the applicant's case in an application for review", an onus which is discharged by reference to the ordinary civil standard: B&L Linings Pty Ltd v Chief Commissioner of State Revenue (2008) 74 NSWLR 481.
1. The significance of sub-section 100(3) is that the Respondent's decision must stand unless the Applicants can demonstrate, on the balance of probabilities, the deficiencies in it which the Applicants allege. A differently constituted tribunal's reasons in Levitch Design Associates Pty Ltd atf Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215, at [27], outline a method of approach to this exercise, and these reasons respectfully adopt the methodology which they propose.
Section 63(1) of the ADRA requires the Tribunal "to decide what the correct and preferable decision is having regard to the material then before it", and section 63(2) provides that the Tribunal "… may exercise all of the functions that are conferred or imposed by any relevant legislation on the administrator who made the decision".
The parties have provided written evidence and submissions, to which (along with their representatives' respective oral submissions) the Tribunal has had regard. These are referred to below as relevant.
[2]
Legislative background
On 28 June 2016, the State Revenue Legislation Amendment (Budget Measures) Act 2016 received Royal assent. This act established special regimes under the Duties Act 1997 (the Duties Act) and the LTA for the taxation of, respectively, dutiable transactions in respect of, and the ownership of, residential land in New South Wales involving foreign persons, a term which is discussed below. It did so by imposing surcharge purchaser duty in the case of dutiable transactions [2] , and surcharge land tax in that of ownership [3] .
Central to the operation of this regime is the concept of a foreign person, which is defined in section 104J of the Duties Act. This definition is imported into the LTA, and since the commencement of the State Revenue Legislation Amendment (Surcharge) Act 2017 on 5 March 2018 [4] has been adopted by section 2A of the LTA.
The definition of foreign person adopts, subject to modifications, the corresponding definition in section 4 of the Foreign Acquisitions and Takeovers Act 1975 (Cwth) which is as follows:
foreign person means:
(a) an individual not ordinarily resident in Australia; or
(b) a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
(c) a corporation in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or
(d) the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
(e) the trustee of a trust in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or
(f) a foreign government; or
(g) any other person, or any other person that meets the conditions, prescribed by the regulations.
That section defines the expression substantial interest, which is used in the definition of foreign person:
substantial interest: a person holds a substantial interest in an entity, trust or unincorporated limited partnership if:
(a) for an entity or unincorporated limited partnership - the person holds an interest of at least 20% in the entity or partnership; or
(b) for a trust (including a unit trust) - the person, together with any one or more associates, holds a beneficial interest in at least 20% of the income or property of the trust.
Section 18 of that Act sets out certain rules for determining percentages of interests in entities, and relevantly sets out in section 18(3) the rule applicable in the case of discretionary trusts:
Discretionary trusts
(3) For the purposes of this Act, if, under the terms of a trust, a trustee has a power or discretion to distribute the income or property of the trust to one or more beneficiaries, each beneficiary is taken to hold a beneficial interest in the maximum percentage of income or property of the trust that the trustee may distribute to that beneficiary.
Section 104J(2) of the Duties Act modifies the definition of foreign person imported from the Foreign Acquisitions and Takeovers Act 1975 (Cwth) as follows:
(2) The definition of foreign person in the Foreign Acquisitions and Takeovers Act 1975 of the Commonwealth is modified as follows -
(a) an Australian citizen is taken to be ordinarily resident in Australia, whether or not the person is ordinarily resident in Australia under that definition,
(b) a New Zealand citizen who holds a special category visa, within the meaning of section 32 of the Migration Act 1958 of the Commonwealth, at any particular time is taken at that time to be an individual whose continued presence in Australia is not subject to any limitation as to time imposed by law.
Under the State Revenue Legislation Further Amendment Act 2020, a new section 5D was incorporated into the LTA, which provides relevantly as follows:
5D Surcharge land tax - discretionary trusts
(1) The trustee of a discretionary trust is taken to be a foreign person in that capacity for the purposes of section 5A if the trust does not prevent a foreign person from being a beneficiary of the trust.
(2) If a discretionary trust prevents a foreign person from being a beneficiary of the trust, the trustee is not in that capacity a foreign person for the purposes of section 5A.
(3) A discretionary trust is considered to prevent a foreign person from being a beneficiary of the trust if (and only if) both of the following requirements are satisfied -
(a) no potential beneficiary of the trust is a foreign person (the no foreign beneficiary requirement),
(b) the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person (the no amendment requirement).
Note -
Under the transitional arrangements for this section in Schedule 2 to the Principal Act, the no amendment requirement does not apply to a trust that satisfies the no foreign beneficiary requirement immediately before the commencement of this section.
(4) A person is a potential beneficiary of a discretionary trust if the exercise or failure to exercise a discretion under the terms of the trust can result in any property of the trust being distributed to or applied for the benefit of the person.
Note -
A potential beneficiary is not limited to persons named in the trust instrument and extends to the members of any class of persons to whom or for whose benefit trust property can be distributed or applied pursuant to the discretions of the trust.
(5) For the removal of doubt, a person is not a potential beneficiary of a discretionary trust if the terms of the trust prevent any property of the trust from being distributed to or applied for the benefit of the person.
(6) In this section, property includes money, and a reference to the distribution or application of property includes a reference to the payment of money.
The transitional provisions for the State Revenue Legislation Further Amendment Act 2020 are found in Clause 66 of Part 34 of Schedule 2 to the LTMA, and provide relevantly as follows:
Amendments relating to discretionary trusts
(1) Section 5D of the Land Tax Act 1956 applies to the assessment of land tax liability in respect of the 2017 land tax year and subsequent land tax years.
(2) If the trustee of a discretionary trust is liable in that capacity as a foreign person for surcharge land tax in respect of the 2017, 2018, 2019 or 2020 land tax year -
(a) the trustee is exempt from that land tax if the terms of the trust have been amended, before payment of the land tax is due and before midnight on 31 December 2020, so that the trust prevents a foreign person from being a beneficiary, or
(b) if that land tax has been paid, the trustee is entitled to a refund of that land tax if the terms of the trust have been amended, before midnight on 31 December 2020, so that the trust prevents a foreign person from being a beneficiary.
(3) A trust that satisfies the no foreign beneficiary requirement under section 5D of the Land Tax Act 1956 immediately before the commencement of that section is considered for the purposes of that section to prevent a foreign person from being a beneficiary of the trust (without having to satisfy the no amendment requirement under that section).
(4) Despite section 5D of the Land Tax Act 1956, the trustee of an Australian testamentary trust is not in that capacity a foreign person for the purposes of the application of section 5A of that Act to residential land owned by a foreign person if -
(a) liability for land tax is required (under clause 9 of Schedule 1A to this Act) to be assessed as if the deceased had not died and had continued to use and occupy the land as his or her principal place of residence, or
(b) any of the following apply (even if the trust does not prevent a foreign person from being a beneficiary of the trust) -
(i) for a trust arising from a will or codicil - the will or codicil was executed on or before 31 December 2020,
(ii) for a trust arising from the administration of an intestate estate - the deceased died before, or within 2 years after, the commencement of section 5D of the Land Tax Act 1956,
(iii) for a trust resulting from an order of a court varying the application of the provisions of a will or codicil or of the rules governing the distribution of an intestate estate - the order was made on or before 31 December 2020.
(5) The Chief Commissioner may in a particular case extend the date by which payment of surcharge land tax by a trustee is due so that the trustee qualifies for exemption from that surcharge land tax under this clause if the terms of the trust have been amended before midnight on 31 December 2020 (but after the date by which payment would otherwise be due) so that the trust prevents a foreign person from being a beneficiary.
Section 2 of the State Revenue Legislation Further Amendment Act 2020 provides that it commences on the date of assent to that Act. This occurred on 24 June 2020 [5] .
[3]
Background
The decisions under review are all concerned with the Respondent's assessment of the First Applicant for surcharge land tax under section 5A of the LTA.
There is no dispute that in respect of all relevant land tax years the First Applicant:
1. owned (within the meaning of section 3 of the LTMA),
2. land which was residential land (within the meaning of section 2A of the LTA), and
3. did so as trustee for the Patrick Picone Family Trust.
In his written submission, as to which there was no dispute, Terrence set out a brief history of the Patrick Picone Family Trust. This can be summarised as follows:
1. In 1988, Patrick was diagnosed with schizo-affective disorder, and spent six months in a psychiatric facility for treatment.
2. By 2003 it had become apparent to Patrick's family that his mental illness adversely affected his ability to manage his financial affairs, and accordingly a trust was established, the Patrick Picone Family Trust, to protect Patrick's assets. The initial trustees were Terrence and Elizabeth Bishop, his and Patrick's sister. Patrick agreed to participate in the trust arrangement on condition that he retained the ability to change the trustees.
3. In April 2009, Ms Bishop retired as trustee because of continuing conflict between her and Patrick. Terrence remained as the sole trustee.
4. In late 2014, Patrick caused a company to be established to act as trustee of the Patrick Picone Family Trust, and Terrence was replaced by this company as trustee.
5. This change of trustee was not fully formalised, so that Terrence remained at all relevant times the owner of the interests in land held under the Patrick Picone Family Trust for all purposes relevant to land tax.
There was, equally, no dispute that the Patrick Picone Family Trust was at all material times a discretionary trust for purposes of section 5D of the LTA. The correctness of this consensus is apparent from the Deed of Settlement Establishing the Patrick Picone Family Trust dated 19 December 2003, as amended by a deed poll dated 28 April 2009 and a deed of retirement of trustee dated 30 April 2009 (the Trust Instrument):
1. Clause 2 confers on the trustee from time to time a wide discretion to distribute income to any one or more of the Beneficiaries [6] ;
2. Clause 3 confers on the trustee from time to time a wide discretion to distribute capital to any one or more of the Beneficiaries [7] ;
3. Clause 22 prohibits distributions of income or capital, other than authorised remuneration, to the trustee [8] ; and
4. Clause 1 defines the expression "Beneficiary" very widely, to include Patrick, his spouse from time to time, his issue, any spouse from time to time of any of his issue, the trustee in a personal capacity, companies wherever incorporated in which any of the individual beneficiaries holds an interest, as shareholder or director, the trustee of any trust of which an individual beneficiary is also a beneficiary, certain types of charity, and anybody whom the trustee appoints as a beneficiary [9] .
There was moreover no dispute that:
1. Each beneficiary of each of the trusts had a substantial interest in the relevant trust, because of the operation of the definition of foreign person (and its associated interpretative rules) imported into the LTA via the Duties Act from the Foreign Acquisition and Takeovers Act 1975 (Cwth); and
2. If the pool of beneficiaries of the trusts were limited so as to exclude persons who were not Australian citizens then, subject to compliance with the transitional provisions set out in clause 66 of Schedule 2 to the LTMA, the effect of section 104J(2)(a) would be to ensure that none of the trustees were foreign persons for purposes of surcharge land tax.
Nor was there any dispute that:
1. consequent upon the execution on 15 October 2021 by Terrence and Patrick of a Deed of Variation of the Trust Instrument, that instrument was varied in a way which was sufficient to ensure that the trustee was thereafter not to be taken under section 5D of the LTA to be a foreign person for purposes of section 5A of that Act, which imposes surcharge land tax in respect of residential land owned by foreign persons;
2. prior to that amendment, the terms of the Trust were such that the trustee was to be taken under section 5D of the LTA to be a foreign person for purposes of section 5A; or
3. that the relevant amendment took effect at the earliest on 15 October 2021.
[4]
The Applicants' arguments
The Applicants' arguments are that because of the special circumstances relating to the Patrick Picone Family Trust and Patrick himself the Respondent should waive, in whole or part, the surcharge land tax assessed under the Decision.
The special circumstances are as follows:
1. Patrick has had effective control of the Patrick Picone Family Trust since November 2014, even though the steps needed to transfer the trust assets from Terrence to the new trustee company have not been implemented.
2. Patrick's mental illness makes it difficult for him cope successfully with the demands of day-to-day life, and in particular complex issues such as compliance with the transitional provisions applicable to surcharge land tax.
3. Neither Patrick nor Terrence are foreign persons.
4. No income from or assets of the Patrick Picone Family Trust have been distributed to foreign persons.
[5]
The Respondent's arguments
These are as follows:
1. In order to obtain the relief afforded by the transitional provisions set out in Clause 66 of Part 34 of Schedule 2 to the LTMA, it was necessary that the Trust Instrument be amended as required by section 5D of the LTA by 31 December 2020.
2. It was not, and accordingly the trustee of the Patrick Picone Family Trust is subject to surcharge land tax for the land tax years in question.
3. The Respondent has no discretion under the legislation to extend the period for making amendments beyond 31 December 2020.
4. His only discretion is that afforded under clause 66(5) of Schedule 2 to the LTMA to extend the date by which the payment of surcharge land tax by the trustee is due if the terms of the relevant trust have been amended in the appropriate way before midnight on 31 December 2020. Since the amendments were not made by that time, the discretion to defer payment is not enlivened.
5. Without a power to extend the date for making the amendments, the reasons for failing to make the amendments by the requisite time are of no relevance. The personal circumstances of the taxpayer, however difficult, cannot affect that position: Chu v Chief Commissioner of State Revenue [2021] NSWCATAD 238.
6. Questions of general unfairness or natural justice are not relevant to taxation assessments: Commissioner of Taxation v Ryan 92000) 201 CLR 109.
7. That principle has been consistently applied in relation to New South Wales state taxation: Volpatti v Chief Commissioner of State Revenue [2007] NSWADT 222, Gunasti v Chief Commissioner of State Revenue [2012] NSWADT 218, Rajan v Chief Commissioner of State Revenue [2013] NSWADT 125, Hashim v Chief Commissioner of State Revenue [2020] NSWCATAD 67, and Vlahos & ors v Chief Commissioner of State Revenue [2013] NSWADT 215.
[6]
Conclusion
The Tribunal accepts that the history of the Patrick Picone Family Trust, and in particular the imperfect transfer to Patrick of management of the trust, coupled with Patrick's personal circumstances, were significant contributors to producing the situation with which the Tribunal is presented.
However, the situation is entirely analogous to that considered by Senior Member Currie in Chu v Chief Commissioner of State Revenue [2021] NSWCATAD 238, a matter that also concerned the late amendment of a discretionary trust deed and the consequent imposition of surcharge land tax. In that case, the Senior Member observed - with respect, correctly - that "The legal position is quite clear. There is no discretion in the Chief Commissioner to exempt the imposition of surcharge land tax where the statutory criteria are not met ...". The Tribunal accepts as correct and adopts Senior Member Currie's formulation of the position.
So far as the wider question raised by the Applicant, as to the fairness or otherwise of the Decision in the context of Patrick's personal circumstances, the High Court of Australia has made the position quite clear: "Appeals to general notions of 'fairness' or 'justice' do no more than attempt to mask the absence of any foundation in the legislation for the conclusion which is asserted" [10] . There is nothing in the applicable legislation which gives the Respondent any authority to relieve on the basis of fairness or justice from liability to surcharge land tax a taxpayer who has failed to comply with the requirements of Clause 66 of Part 34 of Schedule 2 to the LTMA.
The Tribunal does not for these reasons consider that the Applicant has demonstrated to the standard required that the Decision is incorrect, and consequently it must conclude that the Decision is the correct and preferable one.
[7]
Orders
The Tribunal makes the following order:
1. The Decision under review is confirmed.
Commissioner of State Taxation v Ryan (2000) 201 CLR 109 at 123.
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 01 December 2022