Plaintiffs v Defendant

Supreme Court of Victoria|2008-12-19|Before: Mandie J

TAXATION - Duties Act 2000 - land rich provisions - transfer of units in unit trust that was a land rich landholder to trustee of discretionary trust in July 2005 - whether the transferee or any other person "beneficially obtained" an interest in the landholder within the meaning of s.77(1) of the Duties Act as then in force - whether the transferee or any other person came to have a "beneficial entitlement" to a distribution of property from the landholder on a notional winding up within the meaning of s.76(1) of the Duties Act as then in force.

**1 The plaintiffs claim restitution of the sum of $110,609 paid to the defendant, the Commissioner of State Revenue, allegedly by mistake. The parties agree that the question that will decide the case and the only question for determination is the meaning of the words "beneficial" and "beneficially" contained in s.76(1) and 77(1) respectively of the Duties Act 2000, as in force in July 2005 ("the Duties Act").

2 The second plaintiff ("Heeni") was at all relevant times the trustee of the Keith Rowland Trust No.1 ("the Keith Trust") and the Derek Rowland Trust No.1 ("the Derek Trust"). By a "unit transfer certificate" dated 5 July 2005, Heeni, in its capacity as trustee for the Derek Trust, and in consideration of the sum of $931,402.13 paid by Heeni, in its capacity as trustee for the Keith Trust, transferred certain property to Heeni in its latter capacity. The property transferred was 20 units in the Rowland Egg Trust No. 1 ("the Unit Trust"). Thus, before the transaction, Heeni held the units in the Unit Trust as trustee for the Derek Trust and, after the transaction, Heeni held the units in the Unit Trust as trustee for the Keith Trust.

3 The Commissioner assessed this transaction for duty under the "land rich provisions" contained in Chapter 3 of the Duties Act and the plaintiffs paid the sum now sought to be recovered.

4 Under Chapter 3 of the Duties Act, a liability for duty arises when a "relevant acquisition" is made.[1] A person makes a relevant acquisition if the person acquires an interest in a land rich landholder that is of itself a "significant interest"[2] in the landholder.[3] It is common ground that the Unit Trust was a "landholder"[4] and was "land rich"[5] within the meaning of s.71 of the Duties Act and that 20 units in the Unit Trust constituted a significant interest in that trust.

5 Section 71(1) of the Duties Act provided that a "landholder," for the purposes of Part 2 of Chapter 3, was either a private unit trust scheme[6] or a wholesale unit trust scheme or a private company.[7]

6 Section 76 of the Duties Act provided:**

"(1) A person has an "interest" in a landholder if the person has a beneficial entitlement ..., whether directly or through another person, to a distribution of property from the landholder on a winding up of the landholder or otherwise.

(2) A person who, by virtue of sub-section (1), has an interest in a landholder has a "significant interest" in the landholder if the person, in the event of a distribution of all the property of the landholder immediately after the interest was acquired, would be entitled to -

(a) in the case of a private unit trust scheme - 20% or more of the property distributed; or

(b) in the case of a landholder other than a private unit trust scheme - 50% or more of the property distributed.

(3) In this section -

"person" includes a landholder;

"winding up" of a landholder that is a unit trust scheme means the vesting of the trust property in the beneficiaries."

**7 It is common ground that Heeni had an "entitlement" within the meaning of s.76(1) of the Duties Act both before and after the transaction. The only question is whether that entitlement was a "beneficial" entitlement. The plaintiffs say that it was not a beneficial entitlement but the Commissioner says that it was.

8 Section 77(1) of the Duties Act provided:**

"(1) A person acquires an interest in a land rich landholder if the person obtains an interest beneficially, including if the person's interest increases, in the landholder regardless of how it is obtained or increased."

**9 In addition, s.3(1) of the Duties Act provided that "entitled," in Chapter 3, meant "beneficially entitled."

10 It is common ground that, as a result of the transaction, Heeni "acquired" the said interest in the Unit Trust, the latter being a land rich landholder. The only question is whether Heeni obtained that interest "beneficially." The plaintiffs say that it did not obtain the interest beneficially but the Commissioner says that it did.

11 Section 82 of the Duties Act provided that a number of persons were jointly and severally liable to pay the duty chargable, including the person who made the relevant transaction and the landholder or, if the landholder was a unit trust scheme, the trustee of the landholder.**

**12 The land rich provisions were introduced into the Stamps Act 1958 by the Taxation Acts Amendment Act 1987.[8] The Explanatory Memorandum described the purpose of the amendments as being "to close a significant loophole whereby conveyance duty is avoided through the use of company shares and private unit trusts." In s.75(1) of the Stamps Act 1958 (as so amended) "entitled" was defined to mean "beneficially entitled."

13 When the Duties Act 2000 was first enacted, the words "beneficial" and "beneficially" did not appear in Chapter 3, although s.3(1) of the Act provided that "entitled," in Chapter 3, meant "beneficially entitled."

14 The State Taxation Acts (Tax Reform) Act 2004 substituted new Parts 1 and 2 of Chapter 3 of the Duties Act 2000. These amendments in 2004 introduced the expression "beneficial entitlement" in s.76(1) and the expression "obtained an interest beneficially" in s.77(1).

15 The question raised here has subsequently been foreclosed because, since the date of the transaction involved in the present proceeding, the Duties Act has been further amended by the State Taxation Acts Amendment Acts 2007 which repealed the definition of "entitled" in s.3(1), deleted the word "beneficial" in s.76(1) and inserted the following provision after s.77(2):**

"(2AA) Without limiting subsection (1), a person is taken to obtain an interest beneficially if the person obtains the interest as trustee of a trust."

16 The parties each addressed the question whether these amendments in 2007 provided any guidance as to the construction problem in the present case or the intention of Parliament in relation thereto. The plaintiffs said that the nature of the amendments confirmed that their submissions as to the meaning of the legislation before the amendments were correct. The Commissioner disputed this and further pointed to the second reading speech in which it was said that the amendments provided "clarification" on issues relating to the land rich provisions and that the amendment sought to "clarify the intended application of the provisions to trustees." I do not derive any assistance from the 2007 amendments. I think that they merely confirm the existence of the very issues that arise for determination in this proceeding.

**17 The first plaintiff is the trustee of the Unit Trust which was established by trust deed dated 17 November 1978. There were 60 initial units and Heeni was the holder of all of them in three different capacities: 20 units in its capacity as trustee of the Keith Trust, 20 units in its capacity as trustee of the Derek Trust, and 20 units in its capacity as trustee of the Leonard Rowland Trust No. 1.

18 The trust deed of the Unit Trust contained, inter alia, the following provisions:**

"7(a) 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.

...

8(a) 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....

10(c) No notice of any trust express or implied or constructive need be entered in the register and the person from time to time entered in the register as the Unit Holder shall be the only person recognised by the Trustee as entitled to the Units registered in his name or to exercise the rights and privileges of the registered holder thereof pursuant to this Deed. No person need be recognised by the Trustee as holding any Unit upon any trust and the Trustee shall not be bound by or compelled in any way to recognise (even when having notice thereof) any equitable contingent future or partial interest in any Unit or any interest therein or ... any other rights in respect of any Unit, except an absolute right to the entirety thereof in the Unit Holder....

17(a) ... the Trust created by these presents shall commence on the date hereof and shall terminate on the Vesting Day[9] unless it has been terminated prior to that date under the provisions of this Deed.

...

Upon the termination of the Trust ... the Trustee shall stand possessed of the Trust Fund in trust for Unit Holders and shall proceed as follows: -

...

(b) ... the Trustee shall from time to time and as soon as is practicable distribute in specie or in cash the assets of the Trust Fund to the Unit Holders proportionate to their [holdings] ... until the assets of the Trust Fund have been completely distributed ...

...

The Trustee may at any time ... revoke add to or vary all or any of the trusts or powers or discretions hereinbefore declared ... but ... so that such new or other trusts powers discretions revocations additions or variation -

...

(c) shall not affect the beneficial entitlement to any amount set aside for any Unit Holder prior to the revocation addition or variation ..."

**19 The Keith Trust was established by trust deed dated 16 November 1978 and Heeni was named as trustee thereof. The Keith Trust is a "discretionary trust." The Specified Beneficiaries are the children born and to be born of Keith Rowland. The General Beneficiaries are widely defined and include the Specified Beneficiaries, relatives of the Specified Beneficiaries, eligible trusts and corporations as defined and any charity together with Keith Rowland and his spouse or widow. The trustee is expressly excluded[10] from the class of General Beneficiaries and expressly excluded[11] from the possession and enjoyment of the Trust Fund and the income thereof.

20 The trust deed of the Keith Trust further provided[12] that, as from the Vesting Day[13] the trustee should stand possessed of the Trust Fund and the income thereof in trust for such of the beneficiaries in such interests and in such proportions as the trustee by instrument in writing might appoint and, insofar as not so disposed of, for such of the Specified Beneficiaries as were living on the Vesting Day as tenants in common in equal shares, and so forth.**

**21 The plaintiffs submitted that, because Heeni as trustee of the Keith Trust acquired the units in the Unit Trust in its capacity as such trustee, it did not obtain an interest "beneficially" in the Unit Trust within the meaning of s.76(1) of the Duties Act and did not become "beneficially" entitled to a distribution of the property of the Unit Trust upon any winding up of the Unit Trust within the meaning of s. 76(1) and (3) of the Duties Act.

22 The plaintiffs further submitted that neither the objects of the Keith Trust nor the "takers in default" under the trust deed of the Keith Trust, would acquire any "beneficial" entitlement to a distribution of the property of the Unit Trust on a winding up of the Unit Trust within the meaning of s.76(1) and (3) of the Duties Act because the objects of the Keith Trust, and the takers in default, did not have any proprietary interest in the property of the Keith Trust or any "beneficial" entitlement to a distribution of that property.

23 The plaintiffs contrasted the position of the objects of a discretionary trust under s.76 of the Duties Act with the position created by s.75 of the Duties Act under Division 1 of Chapter 3. Section 75(1) provided that a person or member of a class of persons in whose favour, by the terms of a discretionary trust,[14] capital the subject of the trust may be applied, in the event of the exercise of a power or discretion or of the non-exercise of a discretion, was for the purposes of that section a "beneficiary" of the trust. Section 75(2) provided that a beneficiary of a discretionary trust was taken to own or to be otherwise entitled to the property the subject of the trust, except to the extent (if any) determined by the Commissioner. The purpose of these deeming provisions was to attribute landholdings to the objects of a discretionary trust where that trust was the holder of land[15]. The plaintiffs said that a similar approach was not taken by the legislation in relation to the acquisition of an interest in a land rich landholder by the trustee of a discretionary trust.

24 The plaintiffs further submitted that the Keith Trust was not itself a legal person nor was it deemed by the Act to be a person capable of making an acquisition for the purposes of the land rich provisions.

25 The plaintiffs relied upon the general proposition, supported by authority and further supported by the terms of the trust deeds, that a trustee holds not for his own benefit but for the benefit of others and that the words "beneficial" and "beneficially" were therefore inapposite in the circumstances of this case.

26 Accordingly, the plaintiff submitted that there was no basis for the Commissioner to retain the payment of duty.

27 The Commissioner's primary submission was that Heeni had a "beneficial entitlement" within the meaning of s.76(1) of the Duties Act because, as a unit holder, it was a beneficiary of the Unit Trust. The relevant beneficial entitlement was that of participating in the distribution of the property of the Unit Trust on a notional winding up of the Unit Trust and that entitlement flowed from the terms of the Unit Trust deed. The Commissioner submitted that the obligations of Heeni to hold such distributed property on the terms of the Keith Trust arose on or subsequent to the distribution and were quite separate to Heeni's antecedent beneficial entitlement to the distribution itself.

28 The Commissioner explained this submission by saying that the relevant "beneficial entitlement" was a participatory, and not dispository, entitlement. On a trust termination, it was an entitlement to receive its proportion of trust property by participating in the distribution with all other Unit Holders.

29 This argument was supported by reference to the emphasis in s.86 of the Duties Act upon participation in a distribution of the property of a landholder pursuant to the constitution of the landholder, for the purposes of calculating the relevant entitlement, and also by reference to the Explanatory Memorandum to the State Taxation Acts (Tax Reform) Act 2004 which referred, in relation to s.76(1), to a "beneficial entitlement to participate in a distribution of property in the event of the winding-up of the landholder."

30 It was submitted that the word "beneficial" in s.76(1) was to be construed in the sense that focused on a Unit Holder's right to obtain the property due on distribution and not on any subsequent obligations of the Unit Holder or constraints upon that Unit Holder's "ownership" of the property obtained upon distribution.

31 In response, the plaintiffs submitted it was not correct to separate or isolate the act of receiving a notional distribution of the assets of the Unit Trust from the obligations of a recipient who was a trustee, which became annexed to the distributed assets immediately upon receipt.

32 In aid of these arguments, the Commissioner also pointed to s.85 of the Duties Act whereby it was provided that acquisitions of an interest in a landholder by a receiver or trustee in bankruptcy or a liquidator or an executor or administrator of the estate of a deceased person were exempt acquisitions. It was argued that these exemptions would have been unnecessary if a trustee was incapable of being beneficially entitled to a distribution on a winding up.

33 The Commissioner further submitted, by reference to the terms of the Unit Trust deed (in particular those provisions set out in para [18] above), that Heeni had, at any given time during the life of the Unit Trust, a "beneficial interest" in the assets of the Unit Trust which amounted to an equitable proprietary interest in all of the tru[16] property.16 The Commissioner submitted that, if that were so, then Heeni had a beneficial entitlement of the same nature on a notional winding up of the Unit Trust. I will say at once that the authorities cited in support of this submission do not in my opinion bear upon the present problem. Read v The Commonwealth [17] Australia17 was a case about the definition of income in the Social Security Act 1947 (Cth). It involved a unit trust deed the terms and effect of which, as the major[18]y judgment18 recognised, was to give a unit holder a beneficial interest in the assets of the trust. The unit holder in that case was not a trustee and the judgment was simply describing the rights of the unit holder as against the trust. Kent v SS "Maria Luisa&#8[19] (No. 2)19 was a case about the ownership of a vessel which was the property of a unit trust. [20]e majority20 referred to the body of authority which established that a unit holder of a typical unit trust had an equitable proprietary interest in all of the property the subject of the trust. It was not a case about the meaning of "beneficial," it did not decide that the holder of such an equitable proprietary interest held the same beneficially and it did not involve the position of a unit holder that was a trustee.

34 The Commissioner submitted, in the alternative, that, if Heeni did not have such a beneficial entitlement, the "Keith beneficiaries" had the requisite beneficial entitlement. It was submitted that this was so because the Keith beneficiaries were entitled "through" Heeni to a distribution of the property of the Unit Trust on its winding up. Reference was made to the expression in s.76(1) "directly or through another person." Alternatively, it was submitted that the Keith beneficiaries and Heeni collectively had the requisite beneficial entitlement and that Heeni's "co-entitlement" in this respect was represented by its right of indemnity from the assets of the Keith Trust.

35 The Commissioner said that the mischief addressed by the land rich provisions was the avoidance of duty on transactions that had the underlying effect of transferring land. A construction which promoted that purpose was to be preferred over one that did not.[21]**

**36 The Commissioner's principal argument emphasised Heeni's entitlement, on a winding up or termination of the Unit Trust, to participate in the distribution of the assets of the Unit Trust. By focusing on Heeni's said entitlement under the express terms of the Unit Trust deed and Heeni's rights as a Unit Holder vis-à-vis the trustee of the Unit Trust, the Commissioner was able to advance a plausible submission that such entitlement was a "beneficial" entitlement. But the Commissioner's submission concentrated almost entirely, if not entirely, on s.76(1) of the Duties Act and made only passing reference to s.77(1) thereof. The latter section provides that a person acquires an interest in a land rich landholder if the person obtains an interest beneficially. The interest must be obtained beneficially.

37 How can it be said, if such an interest is obtained by a trustee of a trust established by a deed containing the provisions that are contained in the deed in the present case, that the interest is obtained "beneficially"? In that regard, it should be noted that ss.76 and 77 appear to impose a double requirement. An "interest" is defined by s. 76(1) in terms of a notional beneficial entitlement but the interest, as so defined, is required to be obtained "beneficially" by s.77(1). So that, even if the Commissioner's submissions about the meaning of s.76(1) are correct, the provisions of s.77(1) must also be satisfied.

38 What then is the meaning of "beneficially" in s.77(1) of the Duties Act?

39 In Wilcox v Smith,[22] the Succession Act in force at the time of the death of the plaintiff's grandfather applied, inter alia, to "[e]very past or future disposition of property by reason whereof any person has or shall become beneficially entitled to any property, or the income thereof, upon the death of any person dying after the time appointed for the commencement of the Act ..." In that context, Sir R. T. Kindersley V-C said[23] that ""beneficially" means of course for his own benefit, in contradistinction to being entitled as a trustee" and that there was no contention about that.

40 In White v Commissioner of Stamp Duties,[24] Gibbs J (as he then was) was concerned with the Succession and Probate Duties Acts 1892-1963 (Qld) which contained a similar provision (s.4) to that dealt with in Wilcox v Smith. Gibbs J said:[25]**

"The words "beneficially entitled" when used in s.10C must have been intended to bear the same meaning as that which had already become well established as the meaning of the same words in s.4. " 'Beneficially' means of course for his own benefit, in contra-distinction to being entitled as a trustee." (Wilcox v Smith ..)."

41 To like effect, in relation to the concept of "beneficial ownership," Lord Diplock said in Ayerst (Inspector of Taxes) v C. & K. (Construction) Ltd[26] that a person was not a beneficial owner of property who "could not enjoy the fruits of it himself or dispose of it for his own benefit." And, as was colourfully stated by Meagher JA in Chief Commissioner of Stamp Duties v ISPT Pty Ltd:[27]

_"_Another proposition which was advanced by the appellant was that when a trustee acquires land for his trust, there is a moment, a nanosecond, when the beneficial interest in the land belongs to the trustee and not his beneficiary. Not surprisingly, no authority was quoted in favour of so farouche a proposition."

**42 In my opinion, when s.77(1) of the Duties Act speaks of a person obtaining an interest "beneficially," the legislature intended to import that well-recognised concept of obtaining the relevant benefit for himself or itself and not for the benefit of others. Indeed, it is difficult to identify any alternative construction that gives the word "beneficially" any work to do. If the interest is obtained by a trustee, it is not obtained for the benefit of the trustee but for the benefit of others. It is therefore not obtained "beneficially" and the trustee has not thereby "acquired" an interest within the meaning of s.77(1). Accordingly, Heeni did not acquire an interest within the meaning of ss. 77 and 79 of the Duties Act.

43 If the foregoing is correct, it does not matter whether the Commissioner's submissions as to the meaning of beneficial entitlement in s.76(1) are correct or not. On the other hand, I think it is more likely that the legislature would have intended the meaning to be the same in each provision and that a trustee who is entitled to participate in a distribution on a notional winding up does not have a "beneficial" entitlement within the meaning of s.76(1).

44 There is another reason why I think that the Commissioner's submission about s.76(1) is incorrect. The essence of that submission was, as stated both in the Commissioner's written submissions and in oral argument, that "Heeni has a beneficial entitlement of the kind required by s.76(1) because Heeni is a unit holder and thus beneficiary of the Unit Trust." In other words, Heeni had a "beneficial" entitlement because it was a "beneficiary." This submission was buttressed by a reference to the concept of the "beneficial entitlement" of a Unit Holder vis-à-vis the trustee under the express terms of the Unit Trust deed. What this submission overlooks is that a landholder under s.76 is not necessarily a unit trust scheme and may be a private company. If the landholder is a private company limited by shares, the shareholders will normally be the persons entitled to participate in any distribution on a notional winding up. What would be the difference between the "entitlement" of a shareholder to a distribution of property from the private company landholder and a "beneficial entitlement" of a shareholder to such a distribution? If there is no difference, the word "beneficial" is redundant. However, one would expect there to be a difference and the obvious distinction would be between a shareholder entitled to a distribution for the shareholder's own benefit and a shareholder entitled to a distribution for the benefit of others.

45 A shareholder is not, of course, a "beneficiary" of the private company of which it is a member, so that the argument advanced by the Commissioner drawing on the verbal connection between "beneficial entitlement" and "beneficiary" is revealed, in my view, to be fallacious because it cannot apply to all of the circumstances in which s.77(1) is intended to operate.

46 It seems to me, therefore, that Heeni, as trustee of the Keith Trust, did not come to have a beneficial entitlement on a notional termination of the Unit Trust within the meaning of s.77(1) of the Duties Act.

47 I reject the Commissioner's alternative submission that the "Keith beneficiaries" had the requisite beneficial entitlement under s.76(1) of the Duties Act. The plaintiffs said that this submission was "faintly argued" but perhaps it is better described as "not fully argued."

48 The so-called "Keith beneficiaries" cannot be identified at the time of the supposed acquisition in July 2005. There were at that time in existence simply objects of the discretionary trust who or which might or might not take an interest under the discretionary trust in due course. They cannot be described as persons having a beneficial entitlement to a distribution on a notional winding up either directly or through the trustee.[28] As regards the "takers in default," i.e. "such of the Specified Beneficiaries as were living on the Vesting Day,"[29] in July 2005 they did not have a beneficial entitlement and could not obtain any interest beneficially. Their interest was not vested but merely contingent.[30]

49 For the foregoing reasons, the plaintiffs are entitled to repayment of the sum claimed and to judgment accordingly.**

[2] See s.76(2) of the Duties Act set out in para [5] below.

[6] Section 3(1) of the Duties Act defined a "unit trust scheme" to mean "any arrangements made for the purpose, or having the effect, of providing, for persons having funds available for investment, facilities for participation by them, as beneficiaries under a trust, in any profits, income or distribution of assets arising from the acquisition, holding, management or disposal of any property whatever pursuant to the trust" and "private unit trust scheme" was defined to mean a unit trust scheme that was not a public unit trust scheme or a wholesale unit trust scheme (as defined).

[7] Section 3(1) of the Duties Act defined as a "private company" to mean a corporation not limited by shares or whose shares were not listed for quotation on the Australian Stock Exchange or any exchange of the World Federation of Exchanges.

[9] The Vesting Day is defined as the first to occur of the following dates: 30 June 2050, such earlier date as the Trustee may with the approval of a Special Resolution appoint or the date of the expiration of the perpetuity period (80 years).

[10] See cl.1(7)(d) and 1(8) of the trust deed.

[13] 30 June 2056 or otherwise as provided by the trust deed.

[14] "Discretionary trust" is defined by s.3(1) of the Duties Act.

[15] The Explanatory Memorandum to the State Taxation (Tax Reform) Bill 2004, which introduced s.75, stated that: "If the landholder were a beneficiary under a discretionary trust, it would have no present entitlement to any trust property. The section deems a beneficiary to hold all the property the subject of the discretionary trust."

[16] Citing Read v Commonwealth of Australia [1988] HCA 26; (1988) 167 CLR 57, 61 per Mason CJ, Deane and Gaudron JJ; Kent v SS "Maria Luisa" (No.2) [2003] FCAFC 93; (2003) 130 FCR 12 at [58] per Tamberlin and Hely JJ.

[18] [1988] HCA 26; (1988) 167 CLR 57, 61 per Mason CJ, Deane and Gaudron JJ.

[20] [2003] FCAFC 93; (2003) 130 FCR 12, at [58] per Tamberlin and Hely JJ.

[21] Referring to 35(a) of the Interpretation of Legislation Act 1984 and citing CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, 408, Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 and Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297.

[22] [1857] EngR 627; (1857) Drew 40; 62 ER 16.

[23] (1857) Drew 40, 51; [1857] EngR 627; 62 ER 16, 20.

[26] [1976] AC 167, 177 - 178.

[28] Cf. Re Goldsworthy, deceased [1969] VicRp 107; [1969] VR 843, 848 - 9 per Smith J.

[29] See para [20] above.

[30] Cf. Chief Commissioner of Stamp Duties for New South Wales v Buckle [1998] HCA 4; (1998) 192 CLR 226, 237 at [21].

Social Security Act 1947(Cth)

Acts Amendment Act 1987

State Taxation Acts (Tax Reform) Act 2004

Legislation Act 1984

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