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AUSSIEGOLFA PTY LTD (TRUSTEE) v FC of T

Members: Besanko J
Moshinsky J

Steward J

Tribunal:
Full Federal Court, Melbourne

MEDIA NEUTRAL CITATION: [2018] FCAFC 122

Decision date: 10 August 2018

Steward J

184. I have read the reasons for decision of Moshinsky J and respectfully agree with the conclusions his Honour has reached and with the orders his Honour has proposed. I also generally agree with his Honour ' s reasons for decision. Because of the importance of the issues raised in this appeal, I wish to express some additional reasons for determining the appeals before this Court. For that purpose, I gratefully adopt his Honour ' s findings of fact and defined terms.

Section 71 of the SIS Act

185. The issue for determination concerning s 71 of the SIS Act is whether the subscription for units by Aussiegolfa in what has been called the Burwood Sub-Fund constituted an investment in a related trust. That will be so, if it can be said that Aussiegolfa, and the related unit holders, had a " fixed entitlement " to more than 50% of the capital or income of " the trust " for the purposes of s 70E(2)(a) of the SIS Act.

" Trust " for the purposes of s 70E

186. The answer to the foregoing question turns upon whether it can be said of the Burwood SubFund that it is a separate " trust " for the purposes of that provision. Aussiegolfa contends that it is not a separate " trust " but merely a sub-fund of a much larger trust known as the DomaCom Fund. The Commissioner disagrees and contends that the Burwood Sub-Fund is a separate fixed trust of the kind considered by the High Court in
Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 .

187. The SIS Act does not define what is a " trust " . I agree with Moshinsky J that the word " trust " should be assessed here by reference to the general law conception of a trust.

188. Putting aside for one moment the statutory context of the SIS Act, there is an immediate difficulty with the question posed here. A trust is not an entity which might or might not have distinct parts. As Moshinsky J has observed, it is a relationship governing the basis upon which property is held. Mayo J said in Re Scott [1948] SASR 193 at 196:

No definition of a " trust " seems to have been accepted as comprehensive and exact. The word is sometimes applied to the trust premises, sometimes to the duties related thereto, sometimes to both. Strictly, it refers, I think, to the duty or the aggregate

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accumulation of obligations that rest upon a person described as a trustee. The responsibilities are in relation to property held by him, or under his control. That property he will be compelled by a court in its equitable jurisdiction to administer in the manner lawfully prescribed by the trust instrument, or where there be no specific provision written or oral, or to the extent that such provision is invalid or lacking, in accordance with equitable principles.

189. More recently, in
Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2018] UKPC 7; 2 WLR 1465 , in advice given by the Judicial Committee of the Privy Council, Lord Hodge, with whom Lords Sumption and Carnwath agreed, cited Re Scott and said at [89]:

The editors of Lewin on Trusts (19th ed, para 1-001) cite, as a useful starting point in the absence of any single really satisfactory common law definition of a trust, that used in the Convention on the Law Applicable to Trusts and on Their Recognition 1985, of which this is an extract:

" the term ' trust ' refers to the legal relationship created - inter vivos or on death - by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose. " (Article 2.)

190. On this basis, the question for determination might be whether the Custodian of the DomaCom Fund held the Burwood Property as part of the same relationship or " aggregate accumulation of obligations " , to use the language of Mayo J, in which it held other property the subject of the Constitution for the DomaCom Fund. Answering that question in the affirmative might preclude the Burwood Sub-Fund from being a separate and distinct trust for the purposes of s 70E(2)(a) of the SIS Act.

191. Turning to statutory context, there are three provisions of the SIS Act which may bear upon the nature of a " trust " for the purposes of s 70E, and a determination of when a sub-fund may constitute a separate and distinct trust. First, there is the definition of " entity " in s 10(1) of the SIS Act, which provides:

entity means any of the following:

  • (a) an individual;
  • (b) a body corporate;
  • (c) a partnership;
  • (d) a trust.

In my view, this provision does not alter the essential proposition that a trust is a relationship over identified property. Rather, it means that where there is a reference in the SIS Act to an " entity " there is also a reference to a relationship of that kind.

192. Secondly, there is the definition of " widely held unit trust " in s 71(1A) of the SIS Act. Section 71(1)(h) excludes investments in these types of trust from being an investment in an in-house asset. The provision is set out in the reasons of Moshinsky J. The definition is a statutory recognition that property or properties may be held as part of a singular relationship with multiple beneficiaries.

193. The third provision which may be relevant is s 69A of the SIS Act which is also set out in the reasons of Moshinsky J. Section 69A does not expressly apply to the word " trust " in s 70E(2)(a). It addresses the situation of the investing superannuation fund and not the trust in which funds are invested. Nonetheless, contextually, s 69A arguably demonstrates a recognition, for the purposes of the SIS Act, of the concept of a " sub-fund " which may exist within a singular relationship of trust, and not constitute a separate and distinct trust. Section 69A, when satisfied, treats, as a statutory fiction, each subfund as a separate regulated superannuation fund. Inferentially, but for s 69A, a sub-fund which:

  • (a) had separately identifiable assets and beneficiaries; and
  • (b) beneficiaries whose interests were determined by reference only to the conditions governing that sub-fund,

might not have been treated by the SIS Act as a separate and distinct regulated superannuation fund. On one view, and arguably, as a matter of statutory context, the same might be said of a sub-fund of a " trust " for the purposes of s 70E(2)(a). One should, however, be careful not to overstate the significance of s 69A. Neither the provision, nor the SIS Act, defines what a subfund is. Presumably, the term refers to some form of segregation of property or income, or

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both, from other property or income of a trust, for a particular purpose, or reserved or set aside for a particular beneficiary or beneficiaries.

194. Next, statutory purpose is relevant in construing the word " trust " as it appears in s 70E(2)(a). In the Explanatory Memorandum to the Superannuation Legislation Amendment Bill (No. 4) 1999, which introduced the new in-house asset provisions to the SIS Act, including ss 70E and 71, the following is said under the heading " Policy Objective " at 5:

The primary policy objective is to ensure that the investment practices of superannuation funds are consistent with the Government ' s retirement incomes policy. That is, superannuation savings should be invested prudently, consistent with the SIS requirements, for the purpose of providing retirement income and not for providing current day benefits.

Limiting the exposure of a regulated superannuation fund to " in-house assets " both promotes prudent investment and avoids a distribution or conferral of " current day benefits " to fund members or their associates.

195. The importance of considering legislative context and purpose is illustrated by the decision of Menzies J in
Truesdale v Federal Commissioner of Taxation (1970) 120 CLR 353 , which concerned the payment of money to an existing trust with instructions that the money was to be applied subject to that trust. The question for determination was whether the payment " created a trust " for the purposes of s 102 of the Income Tax Assessment Act 1936 (Cth). Technically, and subject to statutory language, context and purpose, every disposition of property to a trust creates a separate trust. As Kiefel J (as her Honour then was) said in
Kennon v Spry (2008) 238 CLR 366 at [229] :

There appears to be no reason why each disposition of property to the Trust, from the time of the parties ' marriage, cannot be viewed as a separate trust created at that time, albeit on the terms of the Trust.

(Citations omitted.)

See also:
Atwill v Commissioner of Stamp Duties (1970) 72 SR (NSW) 415 at 426 per Mason JA.

196. In Truesdale , Menzies J did not adopt this approach. His Honour decided that the payment did not create a new trust because of the applicable statutory scheme.

197. Here, statutory purpose does not require the conclusion that each disposition of property to an existing trust constitutes the creation of a new trust for the purposes of s 70E(2)(a). That is especially so given the complexity of modern managed investment schemes which may receive a continuous flow of subscriptions.

198. Turning to the decided cases, previous authorities have considered in different statutory contexts the question of when a sub-fund can constitute a distinct settlement or trust. In
Roome v Edwards [1982] AC 279 , the issue for determination by the House of Lords was whether the creation, in 1955, of a new fund by exercise of a power conferred by a settlement in 1944, was a separate " settlement " for the purposes of s 25(1) of the Finance Act 1965 (UK). Lord Wilberforce said that it did not and at 292-293 said:

There are a number of obvious indicia which may help to show whether a settlement, or a settlement separate from another settlement, exists. One might expect to find separate and defined property; separate trusts; and separate trustees. One might also expect to find a separate disposition bringing the separate settlement in existence. These indicia may be helpful, but they are not decisive. For example, a single disposition, e.g., a will with a single set of trustees, may create what are clearly separate settlements, relating to different properties, in favour of different beneficiaries, and conversely separate trusts may arise in what is clearly a single settlement, e.g. when the settled property is divided into shares. There are so many possible combinations of fact that even where these indicia or some of them are present, the answer may be doubtful, and may depend upon an appreciation of them as a whole.

Since " settlement " and " trusts " are legal terms, which are also used by business men or laymen in a business or practical sense, I think that the question whether a particular set of facts amounts to a settlement should be approached by asking what a person, with

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knowledge of the legal context of the word under established doctrine and applying this knowledge in a practical and common-sense manner to the facts under examination, would conclude. To take two fairly typical cases. Many settlements contain powers to appoint a part or a proportion of the trust property to beneficiaries: some may also confer power to appoint separate trustees of the property so appointed, or such power may be conferred by law: see Trustee Act 1925, section 37. It is established doctrine that the trusts declared by a document exercising a special power of appointment are to be read into the original settlement: see Muir (or Williams) v. Muir [1943] A.C. 468. If such a power is exercised, whether or not separate trustees are appointed, I do not think that it would be natural for such a person as I have presupposed to say that a separate settlement had been created: still less so if it were found that provisions of the original settlement continued to apply to the appointed fund, or that the appointed fund were liable, in certain events, to fall back into the rest of the settled property. On the other hand, there may be a power to appoint and appropriate a part or portion of the trust property to beneficiaries and to settle it for their benefit. If such a power is exercised, the natural conclusion might be that a separate settlement was created, all the more so if a complete new set of trusts were declared as to the appropriated property, and it if could be said that the trusts of the original settlement ceased to apply to it. There can be many variations on these cases each of which will have to be judged on its facts.

In my view, concordantly with Lord Wilberforce ' s speech, asking whether the provisions of the original settlement continue to apply to the sub-fund, or whether the fund was liable in certain cases to " fall back into the rest of the settled property " , will be relevant considerations in determining whether, for the purposes of s 70E, a sub-fund is a separate trust.

199. More recently, in
Swires v Renton [1991] STC 490 , Hoffmann J (as his Lordship then was) said at 500:

The cases show there is no single litmus test for deciding that question. The paradigm case for the creation of a new settlement would involve the segregation of assets, the appointment of new trustees, the creation of fresh trusts which exhaust the beneficial interest in the assets and administrative powers which make further reference to the original settlement redundant... The absence of one or more of those features is not necessarily inconsistent with a resettlement. It seems to me that the question is one of construction of the settlement using the approach recommended by Lord Wilberforce and looking at the documents in the light of surrounding circumstances. Putting the same thing another way, it is a matter of endeavouring to ascertain the intentions of the parties.

200. Again, concordantly with this passage, asking whether there has been an appointment of new trustees, the creation of fresh trusts which exhaust the beneficial interest in the assets, and the creation of administrative powers which make further reference to the original settlement redundant, will be relevant in determining whether, for the purposes of s 70E, a sub-fund is a separate trust.

201. In Australia, in
Oswal v Federal Commissioner of Taxation (2013) 233 FCR 110 , Roome v Edwards was distinguished. In that case, the trustee of an existing family trust resolved to appoint a part of the corpus of the trust for the absolute benefit of certain existing beneficiaries. Edmonds J decided, amongst other things, that this was a declaration and settlement of trust for the purposes of CGT event E1 of the Income Tax Assessment Act 1997 (Cth). His Honour said at [37]:

In the context of the issue under consideration in the present case, it needs to be understood that there was never any issue in Roome v Edwards that the appointment of the 1955 fund became subject to trusts which were distinct and different from the trusts of the main fund, the only question being whether a new " settlement " was created for the purpose of s 25(1) of the Finance Act 1965 (UK). That is a very different question to the one with which we are here concerned, namely, whether a trust

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was created over an asset, and for that reason, what his Lordship had to say in the passage from his speech extracted in [33] above, does not assist the applicants ' case contended for in [25] above. Its relevance to the question of whether any trust so created, was created by " settlement " is another matter, and is considered below in the context of my analysis of whether CGT event E1 happened in consequence of the appointment and declaration, if any, made by the 13 March 2007 resolution.

Having regard to the terms of the resolution in Oswal , Edmonds J decided that a new trust had been declared. At [54], his Honour concluded:

I am therefore of the view that the resolution of 13 March 2007 is a " declaration " of trust within the ordinary conception of a declaration of trust. As such it is difficult to see why it does not create a trust over the assets the subject of the declaration and not merely, as the applicants contended, a separate fund of them.

202. In addressing Roome v Edwards , his Honour emphasised that the issue confronting him was to be judged on the facts. As Edmonds J said at [60]:

Moreover, I do not think anything said by Lord Wilberforce in Roome v Edwards mitigates against that view. Indeed, what his Lordship said in the third last and second last sentences of the passage extracted in [33] above, supports the view. As his Lordship said in the very last sentence of the extract, each case " will have to be judged on its facts " .

203. The concept of a trust as a single continuing but changing relationship was considered by this Court in
Federal Commissioner of Taxation v Commercial Nominees of Australia Ltd (1999) 43 ATR 42; [1999] FCA 1455 . In that case, significant amendments had been made to a deed which had established a complying superannuation fund. The fund had carry forward tax losses. The Commissioner contended that the changes had either extinguished the trust, replacing it with a new trust, or had effected a resettlement of the original trust, and that, as a result, the losses could not be used thereafter. The changes included a new trustee, a new category of beneficiaries, changing the fund from a defined benefit to an accumulated benefit fund, the appointment of an administrator with a fee structure, and the promotion of membership to the public. Lee, Emmett and Gyles JJ rejected the Commissioner ' s submission. At [52], the Court said:

The trust obligations of the trustee and the corresponding rights of the beneficiaries may vary from time to time, in accordance with law. Similarly, the property that is the subject of such obligations and rights will not be static. Parts of the property might be distributed so as to cease to be subject to trust obligations. Further property may accrue as income or by further settlement so as to become subject to obligations where previously that additional property was not.

At [54], the Court observed:

" Superannuation fund " , as that term is defined in the SIS Act and the ITAA 1936, contemplates a continuing regime regulating the manner in which a fund may be added to and the manner in which payments may be made from it. So long as one can identify a continuity of that regime, that will be sufficient.

The Court concluded at [56]:

So long as any amendment of the trust obligations relating to such trust property is made in accordance with any power conferred by the instrument creating the obligations, and continuity of the property that is the subject of trust obligation is established, there will be identity of the " taxpayer " for the purposes of s 278 and ss 79E(3) and 80(2), notwithstanding any amendment of the trust obligation and any change in the property itself.

204. The decision was upheld on appeal to the High Court: (2001) 47 ATR 220; [2001] HCA 33. At [32] the High Court made the following observation about the nature of a superannuation fund:

The nature of an eligible entity is such that changes in the incidents of the trust relationship established at its creation are not only possible, but in some respects probable. In the case of an indefinitely continuing superannuation fund, operating

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under the regulatory scheme in the SIS Act, the trustee might change from time to time. The trust property would almost certainly be in a constant state of change, as contributions were received and employee benefits were paid. The identity of the persons entitled to benefit under the trust would be likely to change over time, as new members came into the scheme and others left. The nature of the benefits provided by the scheme might alter over the years, in response to industrial or market pressures, or regulatory requirements. In the case of a public offer superannuation fund, there would be likely to be substantial changes of membership over time, as new participating employers brought their employees in.

205. In my view, the same or similar observations may be made about the Constitution in this case. The Constitution, by its terms, facilitates investment in real property by members of the public. Within the framework of that Constitution one would expect churn in the composition of its beneficiaries, and in the property administered. One might also expect amendments to be made to the Constitution from time to time. Importantly, Constitutions of this type may authorise the creation of sub-funds in favour of a beneficiary or beneficiaries, as well as the issue of different classes of units. All of these changes or features are potentially consistent with the presence of a singular continuing relationship of trust. Whether that is so depends, however, upon the particular terms of the Constitution in question.

206. I derive the following general propositions from the foregoing survey of statutory language, context and purpose, as well as from the authorities:

  • (a) first, that the word " trust " in s 70E(2)(a) is apt to refer to a singular continuing relationship of trust with the possibility of multiple and changing beneficiaries, in respect of multiple and changing items of property;
  • (b) secondly, that within that singular relationship there may be created sub-funds which may not constitute separate and distinct trusts;
  • (c) thirdly, the creation of a sub-fund would probably constitute a new or separate relationship of trust where there was, to use the language of Hoffmann J, a segregation of assets, the appointment of a new trustee, and the exhaustion, by the terms of the sub-fund, of the beneficial interest in the property of the fund;
  • (d) fourthly, the creation of a sub-fund would probably not constitute a separate and distinct relationship of trust where the fund remained subject to the provisions of the original settlement and its property remained available, whether contingently or otherwise, to be deployed for the trust ' s original purposes, or to use the language of Lord Wilberforce, to " fall back into the rest of the settled property " ;
  • (e) fifthly, a key consideration would be whether the other beneficiaries, who were not members of the new sub-fund, could be said to enjoy, whether contingently or otherwise, an equitable interest in, or equitable rights over, the assets or income of the sub-fund. Conversely, it will be relevant to determine whether the members of the sub-fund had, whether contingently or otherwise, an equitable interest in, or equitable rights over, the other assets or income of the original trust. Asking such questions will assist in determining whether the terms of issue of the sub-fund had segregated the sub-fund from the original trust;
  • (f) finally, the question as to whether a given sub-fund is a separate trust turns upon a close analysis of the terms governing that sub-fund. Those terms will reveal the intentions of the parties. Each case will, as Edmonds J has emphasised, need to be judged on its particular facts.

The contentions of the parties

207. The contentions of the parties are summarised in the reasons of Moshinsky J which I respectfully adopt.

208. A critical feature of Aussiegolfa ' s case is that it accepted that what is called the Burwood SubFund was constituted by the issue of a distinct class of units and that the unit holders in that sub-fund had a fixed entitlement to the income of that fund. However,

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it was otherwise unable to identify any document, such as a determination or resolution made by the Responsible Entity, which contained the " terms of issue " of that sub-fund for the purposes of cl 3.4 of the Constitution (as in force in 2015).

209. The Court was invited by Aussiegolfa to assume, effectively, that the class of units comprising the Burwood Sub-Fund was issued on terms pursuant to cl 3.4(a) that complied with cl 3.4(c) of the Constitution. In my view, and with respect, this is not sufficient information to enable me to determine whether the Burwood Sub-Fund was, or was not, a distinct and separate trust. In particular, it did not permit me to know whether the unit holders in the Burwood Sub-Fund had any rights or interests against the other assets or income of the DomaCom Fund or whether the beneficiaries of the other sub-funds had interests or rights against the assets or income comprising the Burwood Sub-Fund.

210. In contrast to Aussiegolfa, the Commissioner did identify documents which he submitted recorded the rights, obligations and restrictions of the unit holders in the Burwood Sub-Fund. These he contended could be found in the June 2015 Product Disclosure Statement, the Supplementary Product Disclosure Statement, and the application form completed by Aussiegolfa to subscribe initially to the cash pool in the DomaCom Fund. In the Commissioner ' s submission, these documents created the relevant " terms of issue " for the purposes of cl 3.4(a), or, at least, represented secondary evidence of those rights, obligations and restrictions.

211. I agree with Moshinsky J that these documents do not constitute the " terms of issue " of the Burwood Sub-Fund. The Commissioner ' s contention that these documents contained enforceable rights and obligations rested, in part on the language used in these documents, and on the fact that in the application form Aussiegolfa acknowledged as follows:

I/We acknowledge that I/we am/are bound by the relevant provisions of the Constitution provisions, terms and conditions contained in and related to a right, power or authority, discretion or obligation in the relevant Constitution (as amended from time to time) and the PDS.

In my view, that acknowledgement should be read as referring to " relevant provisions " in the " PDS " or June 2015 Product Disclosure Statement, if any . That is, if that document contained provisions which were intended to create legal relations then they probably became enforceable by reason of this acknowledgement. But the acknowledgement could not have the effect of turning nonpromissory statements into statements with contractual force.

212. The June 2015 Product Disclosure Statement and Supplementary Product Disclosure Statement are documents mandated by the Corporations Act which compel the disclosure of information to proposed investors. Their function and purpose is not to be a source of contractual terms, but to convey a description of a proposed investment. As the Explanatory Memorandum to the Financial Services Reform Bill 2001, which introduced the provisions concerning product disclosure in Div 2 of Pt 7.9 of the Corporations Act , states at [14.28]:

Division 2 of proposed Part 7.9 deals with point of sale disclosure in relation to all financial products other than securities (as defined in proposed section 761A). The broad objective of point of sale disclosure obligations is to provide consumers with sufficient information to make informed decisions in relation to the acquisition of financial products, including the ability to compare a range of products.

213. The June 2015 Product Disclosure Statement here contains, for that purpose, a series of questions and answers concerning key issues that bear upon a decision to invest. Some of the language used in some of the sentences is self-evidently intended to be a dissemination of information and no more. Other sentences, on one view, appear to have been drafted as representations or promises that would be made if a person were to make an investment. But the June 2015 Product Disclosure Statement itself makes clear that the legal force of such promises or representations was to be derived from the Constitution of the DomaCom Fund. Under the heading " Material Contract " the following representation is made:

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The DomaCom Fund is governed by a Constitution dated 13 December 2013.

214. The conclusion that the June 2015 Product Disclosure Statement is not a source of contractual terms is supported by authority. In
Gunns Finance Pty Ltd (Receivers and Managers Appointed) (in Liquidation) v Sithiravel [2016] NSWSC 1543 , it was contended that statements made in a product disclosure statement contained the terms of a contract. The claim was rejected by Robb J who said at [176], [177] and [179]:

176. Mr Sithiravel submitted, at par 76, that he applied for the products and services offered by Gunns Plantations on the basis of what was contained in the PDSs, and that appears to be the basis of his claim that the PDSs contained terms of the contract. He relied upon a number of statements in the Woodlots Project 2006 PDS (court book p 145) concerning " Key Features " of the project that: " Growers are offered a unique investment opportunity allowing the flexibility of three planting options " and " Growers are offered the opportunity to acquire a Forestry Right over Woodlots... " (emphasis added in both cases) as signifying that the PDSs were offers capable of acceptance. He said that these offers were " akin to the offer to the world at large in the contract case which sticks in all law students ' minds
Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 " .

177. There is no place in the analysis of the effect of the PDSs for the principles governing unilateral contracts, where the offeror makes an offer to a class which is capable of acceptance by the doing of an act identified in the offer.

…

179. While the statements relied upon do make various assertions about the nature of the project and the rights of investors, those statements are expressed in descriptive rather than promissory language. They plainly constitute representations, but they do not appear to be independent sources of contractual obligations.

215. I respectfully agree with Robb J ' s analysis of the effect of a product disclosure statement. I also respectfully agree with Buss JA, who rejected a similar argument about contractual intent, this time made with respect to an information memorandum, in
Emu Brewery Mezzanine Limited (in liquidation) v Australian Securities and Investments Commission (2006) 32 WAR 204 . At [90], his Honour said:

In my opinion, the statements in the information memorandum relied on by the respondent were not intended, objectively, to have contractual force. Some of the statements are imprecise and lack detail, and others are merely explanatory or descriptive. The absence of precision and detail is more consistent with the statements as a whole being intended, objectively, to be representations. No doubt, the sole or dominant purpose of the statements was to induce potential investors to invest in the promissory note issue. However, even if the investors were induced to invest in reliance on the statements, that circumstance would not, in itself, be sufficient to support a conclusion that the statements were intended, objectively, to be promissory. In my opinion, the statements were not, either individually or collectively, the subject matter of an assurance. They conveyed representations, but did not constitute enforceable promises.

216. That reasoning applies here to the June 2015 Product Disclosure Statement and the Supplementary Product Disclosure Statement: see also, to similar effect,
Huntley Management Ltd v Timbercorp Securities Ltd (2010) 187 FCR 151 at [41] and [42] per Rares J.

217. However, I otherwise accept, in the particular circumstances of this case, the Commissioner ' s contention that the June 2015 Product Disclosure Statement and the Supplementary Product Disclosure Statement are secondary evidence of the " terms of issue " of the class of units comprising the Burwood Sub-Fund. Drawing on various statements contained in those documents, and from the affidavits filed by Aussiegolfa deposing to what, as a matter of fact, had occurred in relation to the issue of those units, senior counsel for the Commissioner contended that the class of units comprising the

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Burwood Sub-Fund was issued subject to the following five features:
  • (a) the first is that it is only the Burwood Sub-Fund unit holders who are entitled to the distributable income from the Burwood Property that is the subject of that sub-fund trust;
  • (b) the second is that it is only the Burwood Sub-Fund unit holders who are entitled to the capital of the Burwood Sub-Fund;
  • (c) the third is that the Burwood Sub-Fund unit holders are entitled to terminate the Burwood Sub-Fund and require the capital to be distributed to them;
  • (d) the fourth is that the rights associated with the units held by the Burwood Sub-Fund unit holders do not entitle them to any income or capital from any other source other than from the Burwood Property; and
  • (e) the fifth is that there is no other member of the DomaCom Fund, apart from the unit holders in the Burwood Sub-Fund, who can have an entitlement to the income or capital of that sub-fund.

218. This identification of the " terms of issue " should be accepted in the absence of any resolution or determination of such terms made by the Responsible Entity in accordance with cl 3.4(a) of the Constitution.

Disposition

219. The issue is whether the Burwood Sub-Fund was created as a distinct and separate relationship of trust over the property of that fund by reason of its terms of issue. In my view, the terms governing the Burwood Sub-Fund, as described by senior counsel for the Commissioner, evinced an intention to create a distinct trust very much separate from any other sub-funds or trusts created by the DomaCom Constitution. It was a pivotal commercial attribute of the arrangement here that the Burwood investors pool their resources to purchase a particular property they had chosen, and then be only exposed to the financial performance of that property and no other. As the letter to investors, contained in the June 2015 Product Disclosure Statement, explained:

The DomaCom Fund provides Investors with a unique opportunity to obtain exposure to specific property investments without having to either purchase a whole property or surrender investment decisions to an investment manager.

As a DomaCom Fund Investor, investors have the opportunity to invest indirectly in specific properties that investors have chosen themselves with relatively small investment amounts. Through the DomaCom Fund Investors can build a diversified portfolio of small property investments with control over the investment and diversification decision.

An Investor can simulate an investment in a property of their choice by acquiring units in a Sub-Fund.

… .

The value of an investment in a Sub-Fund will go up and down in accordance with the fluctuating value of the Underlying Property.

220. The particular terms of issue of the class of units here, as identified above by senior counsel for the Commissioner, lead to the conclusion that the property of the Burwood Sub-Fund is not impressed with a relationship of trust that extends beyond the sub-fund itself. The terms ensure that the Burwood Sub-Fund unit holders, and no one else, have the right to the income and capital of the fund, can bring the fund to an end by early termination, and are not exposed to the risk that the income and property of the fund can be diminished by the performance of other sub-funds, save in the limited sense I discuss below. The terms of issue also ensure that the Burwood Sub-Fund unit holders have no rights or interest in the assets or income of any other sub-fund. These terms thus delimit how an investor can " simulate an investment in a property " , to use the language of the letter set out above. It follows that the terms fully " exhaust the beneficial interest " in the assets of the Burwood Sub-Fund, to use the language of Hoffmann J in Swires v Renton . They also do not permit the Burwood Property to " fall back into the rest of the settled property " of the DomaCom Fund, to use the language of Lord Wilberforce in Roome v Edwards . These propositions, in my opinion, are decisive considerations.

221. It is true that the Burwood Sub-Fund remains subject to other provisions of the

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Constitution of the DomaCom Fund together with any other sub-funds. It is also true that the quantum of the return to be enjoyed by unit holders is, in part, affected by the performance of the other sub-funds by reason of the formula for calculating the management fee payable in cl 15.1. There is also potential for generalised expenditure to be allocated to a sub-fund and for the Responsible Entity ' s right of indemnity in cl 18.1 to be available in respect of such expenditure (when that clause is read with cl 3.4(c)(iv)). In this sense, the Burwood Sub-Fund is connected with other sub-funds (if any), and remains, on one view, a creature of the DomaCom Constitution. However, the burdens of paying fees and expenses are, I consider, like any other external burden on a trust estate. Their existence cannot affect the true characterisation of the sub-fund which flows from the five essential terms identified by senior counsel for the Commissioner. Because the commingling of assets or income for the purposes of either quantifying rights to income or property, or for the purposes of discharging liabilities, is antithetical to the fundamental purpose of the establishment of the Burwood Sub-Fund, it follows that it is a separate trust. It subsists for that purpose in confederation with any other trusts or sub-funds established by the DomaCom Constitution.

222. I otherwise adopt and agree with Moshinsky J ' s reasons concerning this issue, including, in particular, his Honour ' s analysis of the changes made to the DomaCom Constitution after 2015.

223. For these reasons, the Custodian of the DomaCom Fund held the Burwood Property as part of a separate relationship or " aggregate accumulation of obligations " and thus as a separate trust for the purposes of s 70E(2)(a) of the SIS Act.

224. The foregoing conclusion concerns the Burwood Sub-Fund. Whether other sub-funds of the DomaCom Fund do, or do not, constitute separate trusts would depend upon their particular terms of issue.

Section 71(4) of the SIS Act

225. I agree with Moshinsky J, that the appeal from the Tribunal in relation to the exercise of power under s 71(4) of the SIS Act must fail. That is because of the conclusion reached that the units acquired by Aussiegolfa were in-house assets.

226. Section 71(4) is an unusual section because the criteria for its application are not expressed. The legislative scheme appears to be that there exists in s 71(1) positive criteria for determining what is an in-house asset, which is then juxtaposed against a power, in s 71(4), to undo the application of that criteria in particular cases. The power to undo the application of s 71(1) is seemingly unlimited.

227. A provision cast in such terms, raises the possibility that it is an unconstitutional delegation of legislative power: cf
Giris Pty Ltd v Federal Commissioner of Taxation (1969) 119 CLR 365 . I need not decide that issue because of the finding that the investment here is an in-house asset. As it happens, both parties accepted that one criteria for application which may be implied from the terms of the provision is that it permits the Commissioner to decide that an asset, which is not an in-house asset pursuant to s 71(1), should nonetheless be treated as an in-house asset if an application of the criteria in s 71(1), as a matter of substance , shows that it should be so treated. It is not desirable for me to determine whether the language, statutory context and statutory purpose support that construction of the provision. And as the matter was not argued before the Court, it is also not desirable for me to say anything further about this construction of s 71(4).

Section 62 of the SIS Act

228. Section 62 of the SIS Act is set out in the reasons of Moshinsky J.

229. The judge below found at [31] of the Federal Court Reasons, as a fact, that " a purpose of Aussiegolfa in acquiring the units in the DomaCom Fund was to provide accommodation to a relative of [Mr] Benson " . That relative was the daughter of Mr Benson. Mr Benson was the sole director of Aussiegolfa, and the sole member of the Benson Fund. It will be recalled that Aussiegolfa is the trustee of that Fund. Mr Benson was also the Victorian State Manager of the DomaCom Fund. The basis for the judge ' s finding would appear, in part, to be an email sent in 2017, described by the primary judge in these terms: " [o]n 3 April 2017 Mr Benson (as DomaCom ' s Victorian State

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manager) informed DomaCom ' s client services manager in an email that Mr Benson and some family members were using the Burwood Property to test ' the related party use of residential property within ' self-managed superannuation funds. " The primary judge reasoned at [30]:

That statement bears upon an evaluation of the facts to determine whether the Benson Fund was maintained solely for the purposes contemplated by s 62(1) or also for the not incidental, but independent and collateral, purpose of providing housing for Ms Benson. An available inference from the evidence, including the frankly candid statement by Mr Benson, is that an investment in units in the DomaCom Fund was for the collateral purpose of the superannuation fund being used to provide accommodation to a person related to the superannuation fund.

The other basis for the judge ' s conclusion below was the fact that there was a lease to the daughter. This was said to be inconsistent with the " high standard " set by s 62 of the SIS Act: at [31] of the Federal Court Reasons.

230. I disagree with these conclusions.

231. I commence with the following legal propositions concerning s 62:

  • (a) First, s 62 requires a fund to be maintained solely for a series of core and ancillary purposes. It is a question of fact for consideration in each year of income whether a fund is or is not so maintained. In this proceeding, the finding made below was an inference made by the judge from objective material. This is not a case where the primary judge ' s finding depended upon an evaluation of the credit of any witness.
  • (b) Secondly, the purpose here is that of Aussiegolfa and not that of Mr Benson, save in his capacity as a director and controller of that entity. In
    Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355 , Gibbs CJ (as his Honour then was) said at 370:

    … in deciding whether what was done was an operation of business, it is relevant to consider the purpose with which the taxpayer acted, and, since the taxpayer is a company, the purposes of those who control it are its purposes. In
    Ruhamah Property Co. Ltd. v Federal Commissioner of Taxation [(1928) 41 CLR 148] the majority of the Court regarded as important, if not decisive, the purposes with which the shareholders and directors of the company acted, although Isaacs J., who dissented, thought it erroneous to consider a company merely as machinery for carrying out individual purposes [(1928) 41 CLR, at pp 160, 162, 166]. However, in my opinion Isaacs J. took too rigid a view of the effect of
    Salomon v Salomon & Co. [[1897] AC 22] if he thought that in determining the purpose with which a company acted it was not permissible to have regard to the intentions of the directors who controlled it.

  • (c) Thirdly, the subjective motivation of a controlling director is not to be confused with the purpose of the corporation he or she may control.
  • (d) Fourthly, purpose in the context of s 62 looks to the object of acts of maintenance of a fund on a yearly basis. If those acts have the sole object of achieving the core purposes and/or ancillary purposes, the provision is satisfied: see
    Raymor Contractors Pty Ltd v Federal Commissioner of Taxation (1991) 21 ATR 1410 per Davies J at 1412 and Hill J at 1423.
  • (e) Fifthly, the word " solely " may not add much to the statutory scheme. As Gibbs ACJ (as his Honour then was) observed in
    Ryde Municipal Council v Macquarie University (1978) 139 CLR 633 at 644 : " [t]he word ' solely ' may do no more than add emphasis, or perhaps precision " .
  • (f) Sixthly, there is no necessary dichotomy between the maintenance of a fund for core and/or ancillary purposes and the receipt by a related person or entity of a benefit. In some cases, the conferral of a benefit may reveal the presence of a purpose which is collateral to the core and ancillary purposes defined by s 62. Investing directly in rental property which is leased to a relative for a peppercorn rent would justify an inference that there existed a collateral purpose. But if

    ATC 20875

    the rent paid is market value, and if the property otherwise constitutes a prudent investment, the personality of the tenant may not justify a similar inference. In such a case, the income and the assets of the fund are enhanced, or at least preserved, and the capacity of the fund to provide benefits to members in the future is not affected. Whether such an investment might otherwise be an in-house asset would require separate consideration.
  • (g) The decision of the High Court in
    Driclad Pty Limited v Commissioner of Taxation (Cth) (1968) 121 CLR 45 , supports the foregoing conclusion. As Moshinsky J has explained, that case relevantly concerned an application of the former s 23(j) of the Income Tax and Social Services Contribution Assessment Act 1936 (Cth) which exempted from tax the income of a fund established exclusively for the benefit of employees: see
    Compton v Commissioner of Taxation (Cth) (1966) 116 CLR 233 . The fund in question lent money to, and invested in shares in, employer companies which had contributed to that fund for the benefit of their employees. The existence of these investments did not preclude satisfaction of s 23(j).
  • (h) Seventhly, I do not think that it is necessarily of assistance to describe the criteria in s 62 as imposing a " strict standard " or a " high standard " . The provision does not adopt such language. There is a danger that such descriptions can unduly influence the construction of a provision or its application to the facts.

232. To determine the existence of the collateral purpose found by the primary judge, attention should be drawn to certain aspects of the evidence. Mr Benson swore an affidavit in which he deposed that the decision to invest in property through the DomaCom Fund was made in February 2015. His evidence was as follows:

In February 2015, my mother, brother, sister and I met at a family dinner at my mother ' s house. Jointly, we resolved to make residential property investments in the Melbourne area, particularly in student accommodation and other " relatively low-cost, relatively high-return " opportunities. My brother and sister set up their own self-managed superannuation funds shortly after the meeting.

Because I had started work with the DomaCom Fund in the month before my February 2015 family meeting, I was well aware that fractional real property investment could be undertaken through the DomaCom structure.

In March 2015, my family and I inspected a prospective studio apartment investment in a student accommodation complex located at Unit 1, 390 Burwood Highway, Burwood Victoria ( the Burwood Property ).

Several features of the Burwood Property made it a suitable joint investment for members of my family if undertaken through the DomaCom Fund, including the ability to move unit investments around our family group.

…

Details of a proposed fractional investment in the Burwood Property to be made through Sub-Fund DMC0114AU of the DomaCom Fund are set out in a Supplementary Product Disclosure Statement dated 17 July 2015, a copy of which is annexed marked " [CAB-5] " . The Supplementary Product Disclosure Statement provides that the Burwood Property as the asset underlying the proposed Sub-Fund DMC0 114AU would be acquired for the DomaCom Fund at a price of $104,000. This price was equal to a July 2015 valuation of the property plus acquisition costs of $4,886 amounting in total to approximately $109,000. Anticipated rental return was stated to be $847 per month net, less rates, insurance and other lessor ' s outgoings. This represented an annual rental return of approximately 6.5% on the sum invested.

On 31 March 2015, as a director of Aussiegolfa Pty Ltd on behalf of the [Benson Family Superannuation Fund (the " BFSF " )]. I completed and forwarded to the DomaCom Fund, an application for units in Sub-Fund DMC0114AU. … The BFSF paid $28,080 for 28,080 $1.00 units in the Sub-Fund on or about 2 April 2015. Initially, the BFSF initially invested

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$20,000. A further $8,080 was invested shortly after.

DomaCom completed due diligence, contract review and valuation procedures in respect of the Burwood Property in July 2015. The property was sold by Peter Tyrikos to Perpetual Corp Trust Ltd (ACF) DomaCom Sub Fund on 21 July 2015 with settlement completed on 18 August 2015 for $104,000 (exclusive of ancillary costs).

233. At this point in the evidence, namely mid-2015, it could not be inferred that there existed a collateral purpose of conferring a benefit on a relative of Mr Benson. There was no plan at that stage to lease the Burwood Property to the daughter. Nor is there any reason to doubt that the investment was otherwise prudent, and was well suited to the provision of membership benefits in the future.

234. The property was initially leased to a student unknown to Mr Benson from 8 January 2016 until 23 January 2017. She paid a monthly rental of $869. It was not suggested that this was anything other than an arm ' s length sum. A second tenant, unknown to Mr Benson, leased the premises from 20 February 2017 until 15 February 2018. He paid the same rent. At this point in the evidence, again, it could not be inferred that there existed a collateral purpose of conferring a benefit on a relative of Mr Benson.

235. On 3 April 2017, the email, referred to above, was sent internally within DomaCom, by Mr Benson in his capacity as DomaCom ' s Victorian State Manager. It was not sent by Aussiegolfa.

236. Mr Benson ' s daughter became the third tenant in February 2018. She contracted to pay the same rent of $869. She is a student. The property is conveniently located for the purpose of her travelling to University. There is nothing to suggest, and it was not suggested, that there is something about the daughter that rendered her an unsuitable tenant. Throughout all this time, DomaCom, acting through agents, and not Aussiegolfa or Mr Benson, was responsible for letting out the Burwood Property. As Mr Laidlaw, the Executive Director and Chief Operating Officer of DomaCom, said in his affidavit:

After Christopher Benson contacted DomaCom to propose the acquisition of the property known as Unit 1, 390 Burwood Highway, Burwood ( Burwood Property ), he had no involvement in the decisions or process regarding the acquisition of the property. DomaCom followed the same procedures in relation to this property as with any other property acquired for the DomaCom Fund. I know this as a result of having reviewed the DomaCom file with respect to the purchase of the Burwood Property. I can confirm that the " on-boarding " process was handled by DomaCom ' s Head of Property, who followed the same due diligence process as with the other 43 properties acquired to date for the DomaCom Fund.

237. At this final point in the narrative, in my opinion, it could not be inferred that there existed a collateral purpose of conferring a benefit on a relative of Mr Benson. The Benson Fund continued to be maintained for core and ancillary purposes, as defined. It remained invested in a suitable property from which it continued to receive an appropriate return for the purposes of funding the provision of membership benefits into the future. In the circumstances of this case, the personality of the tenant is irrelevant to the Fund ' s ability to meet its core and ancillary purposes, as defined by s 62 of the SIS Act.

238. In these circumstances, I disagree with the finding made by the primary judge below at [31] that " a purpose of Aussiegolfa in acquiring the units in the DomaCom Fund was to provide accommodation to a relative of [Mr] Benson " for the following four reasons.

239. First, that finding was not open on the evidence that in 2015 the Benson family had made a decision to invest in " student accommodation and other ' relatively low-cost, relatively high-return ' opportunities " through a DomaCom sub-fund with a return of approximately 6.5%. The decision to lease the Burwood Property to the daughter was not made until 2017. That decision could not explain the purpose of acquiring the units in 2015. The explanation given by Mr Benson for investing, set out above, makes no reference to leasing the property to his daughter as a

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reason for subscribing for units in the Burwood Sub-Fund.

240. Secondly, upon the Custodian, on behalf of the Responsible Entity, entering into a lease in 2018 with the daughter, it could said that a purpose of the Responsible Entity was to supply accommodation to a relative of Mr Benson. That purpose, however, was a purpose of that entity, and not that of Aussiegolfa as trustee of the Benson Fund.

241. Thirdly, I am also not persuaded that " benefits " , in the sense that the word is used in the Explanatory Memorandum to the Superannuation Legislation Amendment Bill (No. 4) 1999, supra , were conferred on the daughter. Of course, in one sense, she obviously got a benefit in the form of student accommodation. Whenever a person purchases property or services it can be said that he or she obtains a benefit. But the SIS Act, and in particular s 62, is not concerned with that type of benefit. When a fund is established to invest for the purposes of providing superannuation benefits for its members in the future, the concern is with the protection of that fund from dissipation so that the fund fulfils its function and purpose. Thus, when a benefit is conferred which imperils a fund so exclusively dedicated, the presence of a collateral purpose is likely to exist. Generally speaking, this is the type of benefit with which s 62 is concerned. Here, the continued payment by the daughter of market rent did not diminish or threaten the capacity of the Benson Fund to provide superannuation benefits to its members in the future. It continued to receive the same return from this investment.

242. Finally, it is not clear to me whether Mr Benson was or was not cross-examined about his, or Aussiegolfa ' s purpose, concerning the lease of the Burwood Property to his daughter (the transcript was not before us). In those circumstances, it may perhaps be doubted whether the email sent by Mr Benson can be attributed to Aussiegolfa as an expression of its corporate intent. It is true that Mr Benson was a director of that entity and probably controlled it. But the email comprised an internal DomaCom Fund communication written, it would appear, by Mr Benson in his capacity as an employee of that Fund.


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