RRS Holdings Aust Pty Ltd ATF RRS Holdings Trust v Chief Commissioner of State Revenue

NCAT Administrative and Equal Opportunity|2024-09-27|Before: The J

REASONS FOR DECISION

This matter concerns the Land Tax Act 1956 (NSW) (LTA) which imposes surcharge land tax if a "foreign person" may be, but not necessarily is, a beneficiary of a trust where the trust holds residential property.
In this case, a trust known as the RRS Holdings Trust (the Trust) held residential property in NSW (the Property). The Trust was a discretionary trust established under a deed dated 31 March 2016 (Original Trust Deed).
The trustee of the Trust is an Australian company, RRS Holdings Aust Pty Ltd (Trustee). It is the Applicant in these proceedings, acting in that capacity.
The Applicant says it was wrongly assessed to surcharge land tax for the 2021 to 2023 land tax years. The surcharge land tax formed part of Notices of Assessment issued to the Applicant (which also included land tax) in respect of properties owned at Baulkham Hills, Castle Hill, and Lidcombe. The assessments issued on 11 February 2021, 14 June 2022 and 10 January 2023 (the Assessments). The total surcharge land tax payable under those Assessments was $202,829.60. No penalties or interest were imposed. The Applicant objected to the Assessments on 22 November 2023, but the objections were disallowed on 6 March 2024. The Applicant filed its application to the Tribunal on 18 April 2024.
The Applicant says it is not liable for surcharge land tax because it met the requirements of s 5D of the LTA by inserting a new clause 16A into the Trust Deed, pursuant to a Deed Poll of Amendment dated 27 December 2020 (the Deed of Amendment).
The Respondent does not dispute that the Deed of Amendment took effect according to its terms, and with effect from 27 December 2020. However, the Respondent says s 5D(3) was not satisfied, because it did not irrevocably prevent foreign persons from being potential beneficiaries of the Trust.

Relevant Legislative Provisions

Surcharge land tax is charged for the 2017 and subsequent land tax years on residential land owned by "foreign persons" pursuant to s 5A of the LTA.
Section 5D of the LTA was introduced on 24 June 2020 by the State Revenue Legislation Further Amendment Act 2020 (NSW) (Amendment Act). It (relevantly) provides: 5D Surcharge land tax - discretionary trusts (1) The trustee of a discretionary trust is taken to be a foreign person in that capacity for the purposes of section 5A if the trust does not prevent a foreign person from being a beneficiary of the trust. (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.
Section 2A of the LTA defines "foreign person" as having the same meaning as in Chapter 2A of the Duties Act 1997 (NSW) (Duties Act) which, in turn, defines "foreign person" as having the same meaning as in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) (with certain modifications which are not presently relevant).
Section 4 of the FATA defines "foreign person" as meaning: (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 also defines the expression "substantial interest" as follows: 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 the FATA sets out rules for determining percentages of interests in entities; and s 18(3) provides: 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.

Facts

The facts set out below are not relevantly in dispute. They are derived from the materials filed with the Tribunal, including the documents filed by the Respondent pursuant to s 58 of the Administrative Decisions Review Act 1997 (NSW) (ADR Act) and the witness statement of Richard Shalala dated 2 July 2024 filed by the Applicant. Mr Shalala was not required for cross-examination. With an agreed correction to paragraphs 1 and 2 of that witness statement, it was accepted into evidence.

The Original Terms of the Trust

The Trust is a discretionary trust, which was created on 31 March 2016 under the Original Deed.
The Original Deed relevantly provided that the Trustee may apply the income of the Trust (clauses 10 and 11) and the capital of the Trust (clause 12) for the "Beneficiaries".
"Beneficiaries" was defined widely in clause 1 to mean: (a) each Designated Beneficiary; (b) each descendant of each grandparent of each Designated Beneficiary; (c) each descendant of each grandparent of each Spouse of each Designated Beneficiary; (d) each Spouse of each person described in any of clauses 1.4.1(a) to 1.4.1(c) (inclusive); (e) each Child of each person described in clause 1.4.1(d); (f) each trust in which any of the persons described in any of clauses 1.4.1(a) to 1.4.1(e) is a present, contingent or prospective beneficiary; (g) each corporation wherever incorporated in which any of the shares or capital is beneficially owned by any of the persons described in any of clauses 1.4.1(g) to 1.4.1(f); (h) each trust in which any of the trusts described in clause 1.4.1(f) or the corporations described in clause 1.4.1(g) is a present, contingent or prospective beneficiary; (i) each corporation, any of the shares or capital of which is beneficially owned by any of the corporations described in clause 1.4.1(g) or the trusts described in clause 1.4.1(h); (j) each corporation, any of the shares or capital of which is owned by the Trustee; (k) each partnership in which any of the person, trust or corporation described in any of clauses 1.4.1(a) to 1.4.1(j) has an interest (whether as a partner or otherwise), or in lieu of such partnership, each partner in his, her or its capacity as a partner in the partnership. For the avoidance of doubt, a reference to a partnership in this clause 1.4.1(k) includes (but is not limited to) limited partnerships formed pursuant to Part 3 of the Partnership Act 1982 (NSW) or corresponding laws of other jurisdictions; (l) a Charity or Charities the Trustee nominates from time to time; and (m) any person, corporation, association or body to which a deductible gift may be made under Division 30 of the Tax Act. may include any person, corporation, partnership or trust notwithstanding that the person was not born or the corporation, partnership or trust was not in existence at the Commencement Date.
There were also exclusions to the "Beneficiary" definition but they are not relevant to the required analysis.
Mr Shalala was the only "Designated Beneficiary" and was also the "Appointor" under clause 1.
Clause 30 of the Original Deed said (emphasis in original): 30 Variation of Trust Deed Power to vary Subject to clauses 16, 30.2 and 30.3 the Trustee may at any time by deed: Vary any provision of this Deed; and/or Declare any new or other trusts, powers or discretions concerning the Trust Fund or any part of it (including expanding or contracting the class of persons who are Beneficiaries, or removing one class of such persons and replacing it with another). Law against perpetuities The Trustee may not exercise the powers in clause 30.1 to infringe the law against perpetuities (if applicable) nor the law relating to accumulations (if applicable). Restrictions on power The new or other trusts, powers, discretions, alterations or variations may not: Be in favour of, or for the benefit of, the Settlor or result in any benefit to the Settlor (or any child of the Settlor under the age of 18 years); Affect the beneficial entitlement to any amount already set aside for or vested in any Beneficiary unless that Beneficiary consents; Affect the powers of any Appointor then in office unless that person consents.
The power to amend in clause 30 was therefore specifically limited by ("subject to") clause 16.
Clause 16 of the Original Deed provided as follows (italics mine): 16 Successor Trustee not a Beneficiary Subject to clauses 20, 21.2 and 21.3 and notwithstanding clause 30, any person who is or at any time has been a Successor Trustee is absolutely prohibited from being a Beneficiary under this Deed. This clause 16 and clauses 1.18 and 1.24 are not capable of being amended and are irrevocable.
"Successor Trustee" was defined in clause 1 of the Original Deed to mean: any Trustee after any Initial Trustee resigns, is replaced, substituted for or an additional Trustee is or Trustees are appointed

Missing sub-clause references

Despite the above references in clause 30 to "clause 30.1", and in clause 16 to "clauses … 21.2 and 21.3" and "clauses 1.18 and 1.24", these (sub)clauses were not numbered in the Original Deed in evidence before the Tribunal. Indeed, with the exception of subclauses 32.4 to 32.11, and the whole of clause 33, no other (sub)clauses were numbered. (See clause 30 at paragraph 19 above by way of example.) This meant it was necessary to work through the wording and determine the text of the paragraphs that comprised the relevant reference.

The 2020 Deed of Amendment

The Deed of Amendment was executed by Mr Shalala and dated 27 December 2020.
Recital D said "The Trustee has formed the opinion that the amendments hereinafter contained are authorised by clause 30 of the Trust Deed".
Relevantly, clause 2 of the Deed of Amendment ("Variation of Trust") said: The Trustee in exercise of its power contained in the Trust Deed and in exercise of every other power enabling the Trustee in that capacity varies the Trust Deed by: (a) amending clause 1.17 to read as follows: … (b) inserting a new clause 16A after the existing clause 16 in the Trust Deed that reads as follows: 16A FOREIGN PERSONS NOT TO BENEFIT Notwithstanding any other provision of this Deed, any person who falls within the meaning of a 'foreign person' for the purposes of the Foreign Acquisitions and Takeovers Act 1975 (Cth), as modified by section 104J of the Duties Act 1997 (NSW): (a) is not a Beneficiary; and (b) is not entitled to the benefit of any income or capital of the Trust Fund.
There were no amendments made to clause 16 or clause 30 by the Deed of Amendment.

Further evidence of Mr Shalala

In his statement, Mr Shalala deposed to the following (relevant) matters: 1. He is Australian citizen, the sole director of the Trustee, and the Designated Beneficiary of the Trust pursuant to clause 1 of the Original Deed. He is also the "Appointor" under the terms of the Original Deed. 2. Stratum Accountants Pty Ltd provided accounting services to the Trust/Trustee Company from FY 2017 to FY 2021. From FY 2022 to date, another accounting firm has been the accountants. 3. He was unaware of the Amendment Act which came into effect on 24 June 2020. He now understands that this amendment required trust deeds to be amended to irrevocably exclude current and future foreign beneficiaries from receiving trust distributions before 31 December 2020 in order for that trust to avoid paying surcharge land tax under section 5A of the LTA. 4. Stratum Accountants sent a draft of the Deed of Amendment for the Trust to Mr Shalala by email dated 24 December 2020. 5. The email dated 24 December 2020 referred to above was attached to his statement. It requested that Mr Shalala sign the Deed of Amendment for the Trust before 31 December 2020. In the body of the email the accountants stated "the variation is being made to exclude foreign persons from receiving a benefit from the trust to adhere to new Surcharge Stamp Duty and Surcharge Land Tax laws".
Mr Shalala said in in his statement (inter alia): 7. At no time has there ever been a foreign beneficiary to the RRS Trust… 8. In the FYs 2017 to 2023, the RRS Trust did not make or distribute any profit. The trust was operating at a loss…. 9. There have not been any foreign beneficiaries pursuant to the RRS Trust, and even if there were foreign beneficiaries, no distributions were made or were capable of being made during the relevant financial years.

Jurisdiction and task of the Tribunal

The Taxation Administration Act 1996 (NSW) (TA Act) applies in respect of "taxation laws" which are defined in s 4 to include the LTA.
Section 96 of the TA Act provides that a taxpayer may apply to the Tribunal for an administrative review of a decision of the Respondent that has been the subject of an objection. The Tribunal therefore has administrative review jurisdiction to hear and determine this application under s 96 of the TA Act and s 9 of the ADR Act.
The relevant decisions on review are the assessments, and not the objection decisions: see Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184 at [28]; Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378 at [10].
The Tribunal's task is to decide what the correct and preferable decision is having regard to the material before it, including any relevant factual material and any applicable written or unwritten law: ADR Act, s 63.
The Applicant has the onus of proving its case: TA Act, s 100(3). That means it must prove all matters necessary for the Tribunal to answer the statutory questions in its favour: Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [36]. The standard of proof is the balance of probabilities.
Section 101 of the TA Act sets out the powers of the Tribunal in dealing with an application for review and provides that the Tribunal may, amongst other things, confirm or revoke the assessment or other decision to which the application relates, make an assessment or other decision in place of the assessment or decision to which the application relates or remit the matter to the Respondent for determination in accordance with its finding or decision.

Matters not in Issue

The Respondent does not dispute that: 1. the Deed of Amendment was validly executed with effect from 27 December 2020; and 2. the Deed of Amendment met the requirements of s 5D(3)(a) of the LTA.
I therefore find that the Deed of Amendment effected a change to the Original Trust Deed on its terms, and that the requirements of s 5D(3)(a) of the LTA were satisfied.

Submissions of the Applicant

In respect of s5D(3)(b), the Applicant submitted that: 1. clause 16A is "part of" clause 16; 2. it follows that the wording of clause 16 (which restricts any amendment) extends to both clause 16 and clause 16A; and 3. as a result, the requirements of s 5D(3)(b) are satisfied.
Further, having regard to the email from Stratum Accountants, in interpreting the Deed of Amendment regard must be had to the context in which the Deed was prepared and the Trustee's intentions. It relies on the following passage from Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 (Electricity Generation) at [35] (footnotes omitted): Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating.
Here, the Applicant says, there was a change in the land tax regime and the trustee had the power to amend the Trust Deed to avoid surcharge land tax. That context should colour the interpretation of the Deed so that it should be interpreted in a manner such that it would be compliant with the legislation.
In any event, during the relevant years there were no foreign beneficiaries, and no distributions were made or were capable of being made due to the loss position of the Trust.
The Applicant also submitted (written submissions at [17]) that "Revenue NSW accepted that the Deed of Variation for the RMS Acquisitions Trust met the requirements set out in section 5D(3) of the LT Act". As that is a different trust, I find that submission to be irrelevant to the questions before me and is not considered in my reasons below.

Submissions of the Respondent

The Respondent submitted that: 1. Clause 16A is not a subordinate clause to clause 16. Rather, it was merely the insertion of a new clause. There is no reason to read clause 16A with clause 16, and there is a clear difference between the two. Further, the Deed of Amendment specifically said it was a "new clause 16A". 2. Clause 16 was, in any event, not capable of amendment, as was clear from its words. 3. There was also no power under the Original Deed to amend clause 16 (per clause 30.1), and any purported attempt to do so was invalid: per Re Dion Investments Pty Ltd [2014] NSWCA 367 (Re Dion Investments) at [30], [42]-[44] and [51]. 4. The principles of construction do not permit subjective intention of the Applicant, or Mr Shalala, to be taken into account, and the Applicant's reliance on Electricity Generation Corporation is misplaced. 5. The Applicant's contentions about distributions and profits are irrelevant.

Interpretation of the Deed

It is necessary to turn to the terms of the Original Trust Deed, as amended by the Deed of Amendment, to determine whether the requirement in s 5D(3)(b) of the LTA was satisfied.
The meaning of contractual terms is to be determined by what a reasonable person would have understood them to mean. This normally requires the consideration of the text, the surrounding circumstances known to the parties, and the purpose and object of the transaction. Byrnes v Kendle [2011] HCA 26; 243 CLR 253 at [102] ; Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; 240 CLR 45 at [10] ; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22] .
I agree with the principles and approach established by prior decisions, as set out by SM Dunn of this Tribunal in Watertite Investments Pty Ltd ATF Isgrove Trust v Chief Commissioner of State Revenue [2023] NSWCATAD 274, where she stated: Interpretation of the Deed of Variation - consideration 60. The rules for construction of contracts also apply to trusts: Byrnes v Kendle [2011] HCA 26 at [102]. The proper interpretation of a document is not ascertained by extrinsic evidence as to the subjective intentions of its parties, but rather by an objective construction of the words used by the parties. The fundamental rule of interpretation "what did the parties mean to say?": Byrnes v Kendle per Gummow and Hayne JJ at [53]. Contractual construction depends on finding the meaning of the language of the contract - the intention which the parties expressed, not the subjective intentions which they may have had, but did not express: Byrnes v Kendle per Heydon and Crennan JJ at [98]. 61. While I agree that the definition of foreign beneficiary is awkward and it seems that the words "is a foreign person" are unnecessary, it appears quite clear from the words the trustee has used that the definition of foreign beneficiary for the purposes of the new clause 26 of the Trust Deed is limited to natural persons. 62. There is no evidence before the Tribunal of the trustee's intention and even if it could be inferred that the trustee was attempting to comply with s 5D of the LTA, I cannot accept the proposition that, because the trustee was attempting to comply with the conditions of s 5D of the LTA, the deed should be read as though it did comply with that provision even though in its terms it does not. … 65. I also reject the Applicant's submission that the fact that it may have been open to it to seek rectification of the Deed in the Supreme Court can have any bearing on the proper interpretation by this Tribunal of the Deed where no such application has been made. It is not for the Tribunal to second guess what the Supreme Court might have done on any such hypothetical application. Indeed, the suggestion that such an application might be open to the Applicant, supports my view that the interpretation the Applicant presses is, on the face of the document, not open to it.

Can clause 16A be amended?

I find that the Deed of Amendment did not effect a change to the Trust Deed that satisfied the requirements of s5D(3)(b) of the LTA because "new" clause 16A was not "incapable of amendment". It was able to be amended under the general power of amendment in clause 30 because it was not part of clause 16, it contained no words prohibiting its amendment, and it could not be (or be said to be) part of clause 16.
First, I reject the Applicant's submissions that clause 16A is "part of" clause 16: 1. The insertion of clause "16A" behind clause "16" is standard practice for the insertion of a new standalone clause, in order to avoid the need for renumbering and reformatting a deed such as this. 2. Nothing in the text of clause 16A suggests or requires it to be interpreted in a way that requires reference to clause 16. Clause 16A does not rely upon the provisions of clause 16 for its operation, notwithstanding they deal with the same general subject matter (beneficiaries). 3. Clause 2 of the Deed of Amendment said it was "inserting a new clause 16A after the existing clause 16". 4. Clause 2 of the Original Deed (which says that "the headings [throughout the deed] are for convenience only and do not affect the interpretation of this Deed") does not "make it evident that clauses 16 and 16A are meant to be read together" as submitted by the Applicant.
Secondly, it was not possible for clause 16A to be part of clause 16, because clause 16 was unable to be amended: 1. Clause 16 specifically states that it is "not capable of being amended" 2. That prohibition necessarily extends to an amendment by way of the addition of a subclause or any other text as part of Clause 16. 3. The power to amend is not provided by clause 16, but by clause 30, and the wording of clause 30 was clear; there was no power to amend clause 16. I agree with the submissions of the Respondent that this position is reinforced by the comments of Barratt JA in Re Dion Investments at [30], [42]-[44], and at [51] where it was noted that "the power of variation conferred by the trust deed precluded… any amendment" and the "obvious" constraints arising under the scope of the amendment power.
Accordingly, if the Applicant's argument is accepted that clause 16A is part of clause 16, then the amendment through the insertion of clause 16A would be of no effect at all: see Re Cecil Investments [2021] NSWSC 211 at [30]-[33] per Sackar J.

The intention of Mr Shalala

I accept that it was the intention of Mr Shalala, the signatory to the Deed of Amendment and a non-lawyer, to amend the Original Trust Deed so that it complied with s 5D of the LTA.
However, the subjective intention of the parties (here, Mr Shalala) is "irrelevant both to the question of whether a trust exists and to the question of what its terms are": Byrnes v Kendle per Heydon and Crennan JJ at [116]. In other words, his intention cannot cure the legal defect.
The Applicant's reliance on Electricity Generation is misplaced. The analysis undertaken above does not conflict with the proposition from that case which has regard to objective purpose in order to interpret (construe) the actual terms of a contract (and, here, the terms of the Deed), i.e. the words actually used. This is clear from the following recent judicial references to that case: 1. In The J & P Marlow (No 2) Pty Ltd v Hayes & McCabe [2023] NSWCA 117, the Court of Appeal said: 75. Ordinarily, the process of contractual construction is possible by reference to the terms of the contract alone: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [48]. Although, in accordance with the well-known passage in Electricity Generation referred to by the primary judge and extracted at [46] above, the meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean and this will require consideration, inter alia, of the commercial purpose or objects to be secured by the contract, the commercial purpose is to be discerned objectively, with the contract itself supplying the best source for the ascertainment of that objectively determined purpose: Interpretation at [29.230]. 76. One must also be cautious in attributing a particular commercial intent or understanding of commercial common sense to parties to a commercial agreement. As I said in Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd (2019) 101 NSWLR 679; [2019] NSWCA 185 at [58], in a passage cited with approval in XL Insurance Co SE v BNY Trust Company of Australia Ltd [2019] NSWCA 215 at [78]-[79]: "Caution is required when resort is had (as ASC did) to assertions of "commercially unlikely consequences" as a reason for departing from the language parties have in fact used: see, for example, Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137 at [55]; Cushman & Wakefield (NSW) Pty Ltd v Farrell [2017] NSWCA 24 at [71]; Lindsay-Owen v Winton Partners Funds Management Pty Ltd [2017] NSWCA 78 at [20]. "Business commonsense" is also a topic upon which minds may differ, and what a lawyer may surmise to amount to business commonsense may be far removed from the true position, whether because of a general lack of understanding of commerce, or because of an information deficit as to the commercial positions of both parties and their larger commercial concerns. Indeed, as Spigelman CJ observed writing extra-judicially, "when the matter comes to the level of litigation, each party remains convinced that 'a business like' interpretation or 'business commonsense' happens to coincide with its own commercial interests": "From Text to Context: Contemporary Contractual Interpretation" (2007) 81 ALJ 322 at 330." 77. So also, in Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2006] EWCA Civ 1732 at [22], Neuberger LJ (as he then was) observed that: "…the court must be careful before departing from the natural meaning of the provision in the contract merely because it may conflict with its notions of commercial common sense of what the parties may must or should have thought or intended. Judges are not always the most commercially-minded, let alone the most commercially experienced, of people, and should, I think, avoid arrogating to themselves overconfidently the role of arbiter of commercial reasonableness or likelihood. Of course, in many cases, the commercial common sense of a particular interpretation, either because of the peculiar circumstances of the case or because of more general considerations, is clear." 78. It is pointed out by the learned authors of Interpretation by reference to the High Court's decision in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 (Ecosse) that there may be broad divergence in judicial assessments as to what was the commercial purpose of a particular contract or, in that case, lease: see at [29.230]. This was expressly recognised in Maggbury Pty Ltd v Hafele Aust Pty Ltd (2001) 210 CLR 181; [2001] HCA 70 at [43]. 79. Moreover, attributed commercial purpose may not be used by a court to give to the words of a contract a meaning that they cannot reasonably bear: Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520; [1986] HCA 32. As was observed by Lord Mustill in Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 388: "There comes a point at which the court should remind itself that the task is to discover what the parties meant from what they have said, and that to force upon the words a meaning which they cannot fairly bear is to substitute for the bargain actually made one which the court believes could better have been made. This is an illegitimate role for a court." 80. Although in dissent as to the result, the observations of Nettle J in Ecosse at [98] are, to my mind, apposite in the resolution of the current appeal. His Honour observed (omitting footnotes): "Where there is ambiguity which permits of two alternative and semantically not improbable interpretations, construction in accordance with what it may be supposed would be the approach of honest and reasonable businesspersons may assist in choosing one such alternative over the other. But where, as here, the language and surrounding circumstances of a commercial contract present a choice between, on the one hand, a plain, ordinary and commercially not irrational meaning of a clause and, on the other, a meaning which is significantly removed from the natural and ordinary meaning of the terms of the clause, which ill-accords with other provisions of the agreement, and which in the end produces an outcome that is more commercially acceptable from one of the parties' point of view only, the precept runs out of application. Unless the Anglo-Australian objective theory of contract is now to be cast aside, the commercial approach to construction is not a licence to alter the meaning of a term that is "clear and fairly susceptible of one meaning only" to achieve a result that the court may think to be reasonable. The court is not authorised under the guise of construction to make a new contract for the parties at odds with the contract to which they have agreed. Where, as here, all things considered, the words of a clause are fairly susceptible of only one meaning, they must be given that effect." 1. And in David Morgan Investments Pty Ltd v Maggie Beer Holdings Ltd; Maggie Beer Holdings Ltd v David Morgan Investments Pty Ltd [2024] NSWSC 778 (citations omitted), the Supreme Court was construing a Deed and said: 29. A court in interpreting a provision of a document has regard to its words, its context, and the purpose of the document as a whole. The leading modern statement on the importance of context and purpose is found in the reasons of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd: "52 The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose. 53 … 54 Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. 55 However, sometimes, recourse to events, circumstances and things external to the contract is necessary." 31. The question is what a reasonable business person in the position of the parties would have understood the relevant terms to mean; an objective task involving identification of the imputed intention of the parties by reference to the contractual text, construed in the light of its context and purpose. [citing Electricity Generation Corporation] 32. Further, as has also been correctly stated: 56 "… the only relevant meaning is that which the text conveys. This follows from the need to ascertain the intention expressed in the document. Although ... context and purpose are relevant, ultimately the court must attribute meaning to the words actually used."

No mischief?

The Applicant said that over the last decade, foreigners had been trying to circumvent the laws by setting up ownership via a trust arrangement, whereby foreign persons were beneficiaries. The facts relating to this trust were quite distinct and, in the absence of any mischief, the legislation should not apply.
But it does not matter that the Trust did not, in fact, derive a profit or make any distributions of capital or income to any beneficiary in the relevant years. It also does not matter that there was no existing beneficiary identified as a "foreign person" as defined at the relevant dates.
I agree with the Respondent's submissions that the mischief to which the legislation is directed is a potential mischief and not what actually happened, as was explained below by SM Frost in Waverley Investments Pty Ltd atf The Five Oaks Trust v Chief Commissioner of State Revenue [2023] NSWCATAD 255 at [49]-[54] (my emphasis): 49. There is no doubt that the requirements specified in s 5D must be met as at midnight on 31 December in each of the relevant years: so much, at least, is common ground between the parties. 50. It is also common ground that at each of those moments in time no potential beneficiary of the trust was a foreign person. This is because, at each of those moments in time, clause 1.14 of the trust deed excluded and disentitled foreign persons from being beneficiaries of the trust. So the requirement in s 5D(3)(a) is met. 51. It is also clear that the trustee was prohibited, because of the continuing ownership of residential land in New South Wales, from amending the trust deed at any one of those particular moments in time so as to make foreign persons potential beneficiaries. 52. But the requirement in s 5D(3)(b) is put more broadly than that. In my view, the question to ask at midnight on 31 December is whether the terms of the trust can ever be amended to include foreign persons as potential beneficiaries. In context, that is the natural meaning of the words 'the terms of the trust are not capable of amendment'. In this respect there is no relevant difference between the once-only taxing point under the Duties Act, and the annual taxing points under the land tax legislation. 53. There is nothing untoward in the Chief Commissioner's use of the word 'irrevocable': it is simply a convenient shorthand to describe the requirement in the statute. 54. In summary, I accept the Chief Commissioner's submission that the language of the 'no amendment requirement' is the language of capacity and future possibility. The provision looks to what is 'capable' of being done to 'result in' a particular outcome - and it is self-evident that the particular outcome, if it ever occurs, will occur at some point in the future, and necessarily after the relevant taxing point when the question (whether the terms of the trust are capable of amendment) is being addressed. That the particular outcome may occur after the land in NSW has been disposed of is irrelevant. In simple terms, s 5D(3)(a) looks to the position now, while s 5D(3)(b) looks to future possibilities.
This position is consistent with the Respondent's publication CPN 004 v 2 "Foreign surcharges and discretionary trusts" which includes the following statements (refer Examples 1 and 2): The trust has no existing foreign beneficiaries, but future spouses and children of Mark and Peter could be foreign persons. The trustee is taken to be a foreign person. To be exempt from foreign surcharges, the trust must be amended to exclude any foreign beneficiaries and the amendment must be irrevocable. …. Although the trust has no existing foreign beneficiaries and no potential foreign beneficiaries, the trust must still be amended to exclude any future foreign potential beneficiaries and the amendment must be irrevocable.

No discretion

There is no discretion granted to the Tribunal under the legislation to reduce or waive the liability to surcharge land tax; as noted in Feng v Chief Commissioner of State Revenue [2024] NSWCATAD 56 at [49]: The Tribunal has repeatedly emphasised that the factors contributing to an applicant's failure to satisfy a statutory requirement are irrelevant (unless, of course, the statute itself says otherwise): Lawrence v Chief Commissioner of State Revenue [2022] NSWCATAD 266 at [38]; Song v Chief Commissioner of State Revenue [2023] NSWCATAD 301 at [80]. Also, the Tribunal has no overriding discretion to waive tax that is otherwise payable: Chu v Chief Commissioner of State Revenue [2021] NSWCATAD 238 at [30].
Nor are notions of fairness or "justice" applicable when the statutory provision contains no relevant discretion: Commissioner of Taxation v Ryan (2000) 201 CLR 109.
For completeness, as noted in the excerpt from Watertite at paragraph 46 of these reasons, even if it were open for the Applicant to now seek rectification of the Deed in the Supreme Court under s 81 of the Trustee Act NSW 1925 (NSW), it has no bearing on the proper interpretation by this Tribunal of the Deed where no such application has been made.

Conclusion

I find that the "no amendment" requirement in s 5D(3)(b) of the LTA was not satisfied. As at midnight on 31 December 2020, 2021 and 2022, the terms of the Trust were "capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person".
As s 5D(3)(b) was not satisfied, the Applicant was taken to be a foreign person for the purposes of s 5A of the LTA and surcharge land tax was payable by the Applicant for the relevant years as assessed.
The correct and preferable decision is that the Applicant was liable to surcharge land tax issued in respect of the Properties for the 2021, 2022 and 2023 land tax years, and the assessments which issued on 11 February 2021, 14 June 2022 and 10 January 2023 should be confirmed.

Orders

I make the following order: 1. The assessments to surcharge land tax are confirmed.

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

Amendments 03 January 2025 - Coversheet - Spelling of Representatives Name amended 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: 03 January 2025

State Revenue Legislation Further Amendment Act 2020(NSW)

Partnership Act 1982(NSW)

(2019) 101 NSWLR 679

At a glance

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Legislation Cited (7)

Cases Cited (32)