The Victorian Supreme Court has granted taxpayers leave to appeal but then dismissed that appeal in a matter concerning exemption from duty of transfers of land under s 35(1)(a) of the Duties Act 2000 (Vic).
Under the will of their deceased mother, two sons were entitled to the residue of their mothers estate, which included land and a house in Pakenham. They each incorporated a company, and directed the executors of the estate to transfer their 50% undivided share in this land to their respective companies, to be held on trust, for their benefit, pursuant to trust deeds that were designed to ensure that the companies were not more than ‘bare trustees’ so that the transfer of land, from the executors to the companies, were exempt from Duty under s35(1)(a) of the Duties Act. These deeds empowered the trustee to hold the land for the beneficiary and also, where a direction was given by the beneficiary, obliged the trustee to develop, subdivide and sell the land to third parties.
The Commissioner, however, assessed each of these 2 transfers of land, on the basis that the exemption in s35(1)(a) did not apply. .
Section 35 of the Duties Act contains a series of transfer duty exemptions in respect of transfers to and from a ‘trustee or nominee’. The relevant provisions are as follows:
35 Transfers to and from a trustee or nominee
(1) No duty is chargeable under this Chapter in respect of—
(a) a transfer of dutiable property that is made by the transferor to a trustee or nominee to be held solely as trustee or nominee of the transferor, without any change in the beneficial ownership of the property; or
(b) …
(2) A reference in subsection (1) to a change in beneficial ownership of dutiable property does not include a reference to the creation of a trustee’s right of indemnity from the property.
(3) This section applies whether or not there has been a change in the legal description of the dutiable property.
VCAT had earlier decided that the transfers were not exempt from duty under s 35(1)(a) of the Duties Act, affirming the decision of the Commissioner to disallow the objection to the assessment ([2018] VCAT 333).The Taxpayers’ appeals challenged the correctness of the VCAT decision.
The Commissioner contended that:
- under the terms of each of the Deeds of Trust, the property transferred to the taxpayers was not relevantly “to be held solely as trustee or nominee of the transferor, without any change in the beneficial ownership of the property” as required by s35(1)(a).
- this conclusion is established by existing authority: Comptroller of Stamps v Yellowco Five Pty Ltd [1993] VicRp 90; [1993] 2 VR 529; Comr of State Revenue v Victoria Gardens Developments Ptd Ltd [2000] VSCA 233; (2000) 46 ATR 61, and White Rock Properties Pty Ltd v Comr of State Revenue [2015] VSCA 77
- insofar as the taxpayers’ submissions seek to revisit central aspects of the reasoning in those cases, the Court must apply the reasoning in those decisions.
The taxpayers contended that:
- transfers to the trustees were transfers to “bare trustees” in circumstances where the transfer did not change the beneficial ownership of the subject land.
- contended that the present circumstances are distinguishable from the circumstances found to be critical in those cases and, accordingly, the exemption from duty applies.
The Court held that VCAT’s decision was “clearly mandated by the authorities; with particular reference to Yellowco Five, Victoria Gardens and White Rock“. In the case before it, the Court said the trustee had obligations to develop, subdivide and sell (clauses 6(g)-(h) of the Deeds of Trust), when directed by the beneficiaries.
After noting that judges in each of these three cases had observed that the exemption has very limited application, the Court observed:
34 There is one core case that is clearly within the scope of the exemption: where a transferor transfers land to a trustee or nominee to be held on trust solely for the transferor, in circumstances where the terms of the trust make plain that the persons for whom the trustee holds the land cannot be altered or expanded and do not authorise any change in beneficial ownership whilst the trustee holds the property, and where the terms of the trust do not impose on the trustee any active duties or powers to develop or to sell the land. The cases have not recognised any other category of case where the exemption applies.
The Court noted that the trust deeds also expressly contemplated the transfer by sale of interests to persons other than the transferor (cl 3). The Court said those matters “mean it cannot be said that the property was transferred ‘to be held’ solely as trustee or nominee of the transferor, without any change in the beneficial ownership of the property”.
It appears to me, however, that the problem with clause 3 is not that it contemplates a transfer to a third party (because this can only be done on the beneficiary’s say so). Rather, it may be that the problem was that the language used in this clause, was that the Trustee appointed the beneficiary as it’s ‘Attorney’ (irrevocably) for the purpose of (inter alia) a transfer to a purchaser. This suggests that the Trustee did have the beneficial interest, if, to ensure it sold the property, to the person the beneficiary wanted, it had to give the beneficiary an irrevocable power of attorney.
Otherwise it is difficult see how the trust deeds did more than create a ‘bare trust’ where the trustee had no powers to deal with the property, other than at the beneficiary’s direction.
It might have been better for the taxpayers, to establish that the relevant deeds did no more than create a bare trust, having regard to cl2(a)&(b) of the trust deeds [para 17 of the reasons], which stated as follows:
(a) The trustee “holds its interest in the Property in trust for the Beneficiary and will transfer and deal with its interest in the Property and any income and all other rights which may accrue by virtue thereof (collectively referred to herein as ‘the Trust Fund’) in such manner as the Beneficiary may from time to time direct”
(b) The Trustee, “[s]o long as the Property shall remain registered in the name of the Trustee, the Trustee will, at all times, act in accordance with the directions of the Beneficiary”
Certainly, the trust deeds went on to give the trustees a wide range of other express powers, in cl.6 of the deeds (to effect a development and sale of the property). However, each of these powers was expressed to be: “at the direction of or with the written consent of the Beneficiary”. Again, it is difficult to see how that is actually equipping the trustee with powers that it can exercise, other than by the direction of the Beneficiary.
Nonetheless, the Court concluded that the authorities established that the taxpayers must fail in their appeal.
(MD Commercial Pty Ltd & AJ Commercial Pty Ltd v Comr of State Revenue [2018] VSC 560, Victorian Supreme Court, Croft J, 2 October 2018.)
FJM 20.10.18
CPD questions (answers available)
- Was the issue in this case, whether 2 transfers of a 50% undivided share, in land, held by executors, to companies nominated to each of the sons of the deceased (as the joint holders of the residue of their mother’s estate) were exempt from duty, on the terms on which they held for the respective son/beneficiary?
- Did the relevant exemption (in s35(1)(a)) require the transfer of dutiable property that is made by the transferor to a trustee or nominee to be held solely as trustee or nominee of the transferor, without any change in the beneficial ownership of the property?
- Did the relevant trust deeds effectively constrain the taxpayer companies to not act without their respective Beneficiary’s direction or written consent?
- Did the Commissioner rely on the cases of Yellowco; Victoria Gardens and White Rock?
- Were the transfers exempt from duty?
- Why?
