A taxpayer has been unsuccessful before the Qld Civil and Administrative Tribunal in arguing that there was a “constructive trust” in relation to 3 properties.
The taxpayer had purchased 3 residential properties for each of his 3 children to live in. There were agreements between the children and their parents that they would pay their parents rent and upon the death of both parents, as specified in mutual wills, the property would be left to the respective child.
The Commissioner assessed land tax on the aggregate value of the 3 properties as at 30 June 2013 and 30 June 2014, respectively. The taxpayer objected arguing that he was the trustee of each property for his respective child and that land tax (if any) should be assessed separately in respect of each property. The Commissioner contended that there was no “constructive trust” as argued by the taxpayer and that the taxpayer, as “owner” of the land, was liable to land tax on an aggregate basis.
The Tribunal affirmed the Commissioner’s decision holding that the taxpayer was the “owner” of the properties and it was not convinced that there was a “constructive trust”. Therefore, s20(1) of the Land Tax Act 2010 (Qld) to assess separately trust land did not apply.
(Harrison v Comr of State Revenue [2016] QCAT 150, Qld Civil and Administrative Tribunal, Barlow M, 28 April 2016. The decision was publicly released on 6 July 2016.)
[LTN 129, 7/7/16]
Land Tax Act 2010 (Qld) – s20(1)
20 Separate assessment of trust land
(1) The liability for land tax of a taxpayer who is a trustee of a trust must be separately assessed on the taxable land that is subject to the trust, as if that land were the only land owned by the taxpayer as a trustee.
[2016] QCAT 150 – extract relating to the issue of whether the parents were trustees
[37] In Giumelli v Giumelli, the plurality said the following:
[2] In submissions to this Court, the term “constructive trust” was used to identify the nature of the equitable remedy granted by the Full Court. Care is required in the use of the term “constructive” in this context. Professor Scott has pointed out:
“It is sometimes said that when there are sufficient grounds for imposing a constructive trust, the court ‘constructs a trust’. The expression is, of course, absurd. The word ‘constructive’ is derived from the verb ‘construe’, not from the verb ‘construct’ … The court construes the circumstances in the sense that it explains or interprets them; it does not construct them.”
[3] A constructive trust of this nature is a remedial response to the claim to equitable intervention made out by the plaintiff. It obliges the holder of the legal title to surrender the property in question, thereby bringing about a determination of the rights and titles of the parties.
[38] In my opinion, this passage succinctly sets out the principles that apply to the circumstances of this case. If there is a trust, it arises from the circumstances under which it would be inequitable for Mr Harrison to rely on his legal ownership of the properties to deny that the children have an interest, proprietary in nature, in their respective properties. For Mr Harrison to succeed in this application, the nature of that interest must be such that a court would if necessary construe the circumstances as having given rise to a trust in each child’s favour. The interest created by that trust would be a current beneficial interest in the fee simple of the relevant property, although that interest cannot (absent express agreement between all relevant parties) be converted into a legal interest until the death of the survivor of Mr and Mrs Harrison or pursuant to the options to purchase the properties. In the meantime, each child has a contractual obligation to pay “rent” to Mr Harrison (and, if he pre-deceases her, later to Mrs Harrison).
[39] Has a constructive trust arisen in each case? In my opinion it has not been clearly demonstrated on the evidence before me. There is clear evidence of promises to the children that they may occupy the properties as their family homes during the lives of Mr and Mrs Harrison, without having to buy them or to pay interest on the loans obtained by Mr Harrison to buy them, or to pay the usual costs of ownership such as rates; and that ultimately they will become the legal owners of the properties. There is clear evidence that each child has acted on those promises by moving into the relevant house and using it as the family home. Although there is no direct evidence, I can readily infer that each child has arranged his or her financial and family affairs on the basis of and in reliance on the promises. However, there is no evidence from the children (nor from Mr Harrison) of what they have done in this respect (other than moving in and paying rent) nor whether they have suffered any detriment as a result. Mr Harrison said in submissions that they have also paid or contributed toward costs of maintenance and repair of, and improvements to, the houses, but again there is no evidence of this.
[40] I do not consider that the option to purchase the land that has been granted to each child necessarily negates the existence of a constructive trust. That agreement is in effect an appendage to the agreement under which, if there is a trust, the child has a beneficial interest in the land, but is only entitled to the legal interest upon the death of the survivor of Mr and Mrs Harrison. In effect, the child can bring forward legal ownership to the time that he or she wishes to acquire a different family home, but only on the basis that he or she pay for that ownership. Acquisition of legal title (temporarily) on that basis would put an end to any existing trust.
[41] If there were sufficient evidence of the children’s respective circumstances and of detriment caused to them by their reliance on the arrangements, a court in equity may regard the circumstances as giving rise to a constructive trust in favour of each child in the relevant property. They may be difficult to describe, but the court may recognise the circumstances giving rise to a constructive trust (or elephant) when it sees them.
[42] However, in the absence of that evidence, most of the arrangements between Mr and Mrs Harrison and their children are indications that Mr Harrison is the outright owner of the properties and simply lets them to his children with an option to purchase in certain circumstances. He is the registered owner of the fee simple of each property. He pays all the usual expenses of ownership. He receives rent for each property. He declares that rent and deducts expenses, presently making losses that, for income tax purposes, are set off against his other sources of income. He has granted each child an option to purchase the property in which that child lives. He has purported to bequeath each property under his will – to Mrs Harrison or to each child if he survives her. In all these respects, Mr Harrison’s circumstances indicate his absolute ownership of the properties and therefore pass the “duck test”.
[43] In the course of my consideration of this case, I have vacillated between opposite conclusions. Although I have found the line difficult to draw, I have concluded that Mr Harrison has not, on this occasion, demonstrated by evidence that he holds the legal fee simple in the properties on trust for his respective children, each of whom has a beneficial interest in his or her house under a constructive trust arising from the circumstances. Therefore, Mr Harrison has not satisfied me that he is a trustee of each property by operation of law.
[44] In saying this, I do not suggest that, on sufficient evidence, Mr Harrison could not persuade the Commissioner or the tribunal to the contrary if he were to object to any later assessments of land tax on the properties. Nor do I gainsay the possibility of a future express declaration of trust by Mr Harrison, with consequential changes to his and Mrs Harrison’s wills, which may affect his future liability to land tax on the three properties. I simply hold that, on this occasion, he has not met the onus of proving his case. [f/note 13: The onus is placed on him by s 73 of the Taxation Administration Act.]