CASE 22/98

BJ McMahon DP

Administrative Appeals Tribunal

Decision date: 20 November 1998

BJ McMahon (Deputy President)

This application concerns the availability in the year ended 30 June 1995, of losses incurred in 1989 and 1990 to be carried forward under sections 79E and 80 of the Income Tax Assessment Act 1936 (``ITAA''). At the beginning of the 1995 year, an amount of $11,285,876 was recorded by the applicant trustee as the then balance of losses outstanding. During 1994, some uncertainty existed as to whether the respondent would accept the deductibility of these losses. The applicant sought a private ruling from the respondent but was unsuccessful in obtaining one. In order to have the issue determined, the trustee lodged a 1995 return which intentionally disclosed a taxable income by not claiming sufficient losses brought forward to eliminate the whole of the taxable income. The return showed a taxable income of $165,881. No adjustments were made by the respondent to the 1995 income tax return and a deemed assessment therefore issued.

2. The applicant lodged an objection against the deemed assessment but was unsuccessful in obtaining a response within 60 days. As a result of the operation of section 14ZYA of the Taxation Administration Act 1953, the objection was deemed to have been disallowed. This application is brought to the Tribunal to review that deemed objection decision.

3. A superannuation fund known as the [ CDA] Employee Benefits Fund was established with effect from 1 July 1987 by a trust deed dated 11 March 1988. The stated purpose was described in the recitals as follows:


A. The Principal Employer has decided to establish an indefinitely continuing superannuation fund (hereinafter called the `Fund') for the purpose of providing superannuation benefits for those of its Employees and of the Employees of its Associated Employers who, being eligible for membership, become Members of the Fund and for the Dependants thereof.

B. The Principal Employer will act as the first Trustees of the Fund.''

4. On 19 December 1989, the company changed its name to [MP] Pty Limited and on 30 November 1990, the fund changed its name to [M] Group Superannuation Fund. There were two further amendments to the deed on 20 November 1990 and 30 October 1992, neither of which is material to the matters presently under consideration.

5. The fund was designed as a defined benefits fund, those benefits being calculated chiefly with reference to final salary and years of service, and it operated as such until 30 June 1992. By 1993, all the companies in the M Group were experiencing severe financial problems. Administrators were appointed to the

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subsidiaries on 4 November 1993. Receivers were appointed on various dates thereafter. A receiver was appointed in MP Pty Limited on 4 November 1993 and a liquidator was appointed on 26 May 1994.

6. In 1989 and 1990, substantial amounts of contributions were returned to the employer companies, an actuary having certified that the amounts were surplus to the fund's then requirements. By virtue of a section of the ITAA then in force, these repayments resulted in the creation of deductible losses in the fund. The manner of creating the losses has not been questioned in these proceedings, and the Commissioner readily agrees that the losses would be available to be offset against future income of the entity which was in existence at the time the losses were incurred.

7. Very little employer contributions were made by the M companies after 1 July 1992. Employee contributions were made by way of salary sacrifice. In June 1992, the trustees of the fund at that time invested the sum of $400,000 in redeemable preference shares issued by M Corporation Pty Limited. That sum and dividends due were subsequently lost entirely.

8. In November 1993, a major change was made in the superannuation arrangements, not only for former M employees but also for proposed new members. On 1 November 1993, an amending deed was executed with effect from 1 July 1992. The deed was entered into pursuant to a power of amendment contained in the original deed. By the time of its execution the first trustee, MP Pty Limited, had retired in favour of six individuals. The amending deed involved the appointment of a new trustee, namely the present applicant, and the adoption of a complete new set of rules.

9. One of the important changes effected by the deed of amendment was the change in the nature of benefits from defined benefits to accumulations. Evidence was given that one of the reasons for this was related to the complexities associated with the administration of defined benefits funds and the associated problems caused by the introduction of the superannuation guarantee charge from 1 July 1992.

10. Amendments were made to the contribution provisions, accounting provisions and the rules defining the members' benefits, in the course of changing the structure of the fund from a defined benefit to an accumulation fund. A professional management company was appointed as administrator. An administration fee structure was included to accommodate the shift from employee sponsored fund to a fund to be promoted by an administrator. There was a provision allowing employers unrelated to the original employer (M) to join as participating employers in the fund so as to enable employees of that sponsoring employer to become members of the fund.

11. Three classes of members were created. The A class members represented the original M employees who had remained in the fund, even though the M companies had gone out of business. The B class members, broadly speaking, were those who were accommodated by membership between 1 July 1992 and 1 November 1993, when the amending deed was executed. The C class of membership was intended for employees of new participating employers.

12. The amendments permitted the fund to be promoted as a public offer fund, to use the terminology of one witness. The benefits of a ready structure of trusteeship, management and administration could be offered to new participating employers as sponsors who could then ensure membership of the fund for their sponsored employees. Such an arrangement, it was said, offered financial advantages to an employer and members superior to those which the employer could obtain for itself and its employees by the establishment of a new fund. An added advantage would be the availability of past losses of the fund, if the applicant were successful in these proceedings.

13. It is the respondent's contention that those losses should not be available for two reasons. Firstly it is said that the fund which was in existence in the relevant year of income (1995) is not the same fund that existed in 1989 and 1990 when the losses were incurred. The Commissioner concedes that if the amending deed had simply changed the nature of benefits payable to categories A and B members, then this would not affect the continuance of the fund's existence and the continuance of the availability of past losses. It is the Commissioner's contention, however, that this did not occur. He submitted that the net effect of the deed of amendment and the subsequent administration was to transfer assets from one trustee to another under new trusts and thereby to resettle those assets. The effect of the

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resettlement, it was submitted, was to extinguish the original trust and to create a new trust. The Commissioner submitted that the purpose of the original deed was to provide superannuation benefits for employees of the M Group. The purpose of the amending deed, it was submitted, was to make provision for superannuation benefits for unrelated employees. One must go behind the documents as presented, so it was submitted, in order to see the class of persons who can be members.

14. The Commissioner pointed to the fact that membership was now dominated by non-M employees. As at 30 June 1995, there were 28 category A, and 37 category B (that is 65 M employees) and 133 category C members. Changes in membership of this nature, it was submitted, were not brought about by normal triggering events such as death, retirement or retrenchment. It was submitted that a resettlement of such width terminated the original trust fund and created a new fund and that this was evidenced by the change of purposes demonstrated by the new membership structure.

15. Alternatively, the Commissioner submitted that the effect of the amendment deed was to create a new fund which co-existed with the old fund. The fact that the trustee did not recognise this and continued to mix the assets of both funds and to account as if there were only one fund would not, it was submitted, inhibit any finding that a second fund in fact existed. It would be possible, in this alternative submission, to sort out assets belonging to the original fund from members' accounts. If there were, in fact, two funds existing side by side, only the old fund could claim the tax losses as deductions. The Commissioner pointed out that if the losses are available generally to the fund as a whole, then most of the benefits from such offsets would be reaped by the C category members. The first of these members did not come in until the year ended 30 June 1993.

16. Before considering the submissions of both parties, it is necessary to examine parts of the text of the original and the amending deeds. The original deed consists of a short, one-page preamble containing the two recitals quoted above and one operative clause, bringing the fund into existence and appointing MP Pty Limited as the first trustee. The remainder of the deed consists of 73 pages. Part 1, dealing with general provisions, consists of 52 pages, Part 2 dealing with contributions and benefits of category A members, consists of a further 13 pages and Part 3, dealing with contributions and benefits of category B members, consists of one scant page. The category B members contemplated by the original deed were those in respect of whom the employer contributed under the Social Security Act of the United States of America. There does not appear to be any such member admitted. The category B members who were subsequently admitted were former M employees, joining between 1 July 1992 and 30 November 1993.

17. Some of the terms used in Part 1 of the original deed are important. There has always been power to admit an associated employer as a sponsoring employer. The definition does not restrict such an employer to one that is related to the principal employer in the Corporations Law sense. Its terms are as follows:

```Associated Employer' means any person which has been admitted to participation in the Fund as an Associated Employer as provided in the Deed including any person which replaces or succeeds such an Associated Employer as provided in the Deed but not including any person which has ceased to participate in the Fund as an Associated Employer as provided in the Deed.''

18. The arrangements for the admission of associated employers were covered by clause 1.14 as follows:

``The Trustees and the Principal Employer may enter into an agreement in a manner and form acceptable to the Trustees and the Principal Employer with any person which the Principal Employer deems it is desirable and convenient to include in the Fund as an Associated Employer. Subject to any conditions imposed under such agreement or the Deed, such Employees of an Associated Employer as become eligible as provided in such an agreement or the Deed shall be eligible to participate in the Fund.''

19. The machinery and administration clauses are not extraordinary and are what one would expect to see in a superannuation deed executed about that time. Some of the provisions, however, might be regarded in later years as harsh. For example, in making a claim, a member or a dependent of a deceased member, was required to provide evidence within a certain period. In the absence of that

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evidence, the relevant interest was to be forfeited. Clause 1.29.2(b) provided:

``The Trustees may suspend consideration of a person's claim to or payment of the relevant benefit until all required information, evidence and proofs shall become available to their satisfaction and, if any information evidence or proof required in respect of a person does not become available within the period or any extended period specified or provided for in paragraph (b) of Clause 1.29.1, that person shall entirely forfeit any right or interest which that person had or might have otherwise had in or in relation to the relevant benefit.''

20. The deed contained a power of amendment which was more flexible where the amendment was designed to obtain taxation concessions. Other amendments were governed by the terms of paragraph 1.41.1 as follows:

``1.41.1 Powers and Restrictions. Without limiting Clause 1.40, the Principal Employer by deed or by oral or written resolution may amend add to delete or replace all or any of the provisions of the Deed (including this Clause) as the Principal Employer sees fit and any such amendment addition deletion or replacement shall take effect on the date of the deed, instrument or resolution is executed or made or such earlier or later date as is specified therein for that purpose PROVIDED THAT no amendment addition deletion or replacement made pursuant to this Clause 1.41 shall take effect in respect of a Member or Beneficiary without that person's consent (whether given before on or after the date the deed, instrument or resolution is executed or made) UNLESS-

  • (a) the Actuary (whose decision shall be final) determines that such amendment addition deletion or replacement will not substantially prejudice the Accrued Benefit Value of such Member or Beneficiary and will not increase the Member's liability to contribute to the Fund; or
  • (b) at least 80% of the total number of Members and Beneficiaries who the Actuary determines will be substantially prejudiced within the terms of paragraph (a), or whose liability to contribute will be increased, give their consent to such amendment addition deletion or replacement, whether such consent is given before on or after the said date.

1.41.2 Matters to be Considered. Without limited the generality of the powers vested in the Actuary under Clause 1.41.1, in forming an opinion for the purposes of that Clause the Actuary shall-

  • (a) where more than one amendment addition deletion or replacement is effected to the overall effect in respect of a Member or Beneficiary of all such amendments additions deletions and replacements and the extent to which the prejudicial effect of one such amendment addition deletion or replacement is counterbalanced by any additional right, benefit or interest brought about by another or other of such amendments additions deletions or replacements; and
  • (b) in any case, have regard to the ability of an Employer to reduce, suspend and terminate its contributions to the Fund and any other circumstances upon which an Employer's contributions may be terminated.

1.41.3 Obtaining Necessary Consents. In determining whether a person has consented to an amendment, addition, deletion or replacement requiring that person's consent-

  • (a) if that person is notified of that amendment addition deletion or replacement by notice in writing given to that person by the Principal Employer (the `Amendment Notice') either before, on or within 30 days after the date the relevant deed, instrument or resolution is executed or made and that person does not notify the Principal Employer of refusal to consent by notice in writing given to the Principal Employer within 30 days after the Amendment Notice was given as aforesaid, that person is deemed to have consented thereto on the date the relevant deed, instrument or resolution was executed or made; or
  • (b) notwithstanding anything expressed or implied to the contrary in paragraph (a), if all of the Members and Beneficiaries whose consent thereto is required (the `Affected Persons') are notified in writing of an amendment addition deletion or replacement either

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    before, on or within 30 days after the relevant deed, instrument or resolution is executed or made and less than 20% in number of the Affected Persons notify the Principal Employer in writing of their objection thereto within 30 days of that notice being given to them, each and every Affected Person is deemed to have consented thereto on the date the relevant deed, instrument or resolution is or was executed or made.''

21. The deed provided for portability of benefits and empowered trustees to make arrangements with the trustee of any other fund to pay to that fund amounts representing the entitlement of members of the original fund. The benefits set out in Part 2 of the trust deed describe a scheme based on defined benefits and consequences that flowed from that particular structure.

22. The relevant amending deed was entered into on 1 November 1993 with effect from 1 July 1992. The amending deed itself consists of six pages but annexes 48 pages of attached rules. Those rules completely replace the general administrative provisions of the original deed.

23. The recitals to the amending deed set out the stated intentions of the parties, namely MP Pty Limited and the above applicant:

``A. By trust deed dated 11 March 1988 (`Trust Deed') a superannuation fund known as the [M] Group Superannuation Fund (`Fund') was established.

B. The Trust Deed has been amended from time to time.

C. The Trustee will be appointed as trustee by the Original Employer upon execution of this deed. The existing trustees will be removed at the same time.

D. Under rule 1.41.1, the Original Employer may amend, add to, delete or replace all or any of the provisions of the Trust Deed by deed. However, no amendment, addition, deletion or replacement (`amendment') takes effect in relation to any Member or Beneficiary (as defined) without that person's consent unless:

  • (a) the Actuary (as defined) for the Fund certifies that the amendment will not substantially prejudice the Accrued Benefit Value (as defined) of the person and will not increase the Member's liability to contribute to the Fund; or
  • (b) at least 80% of the total number of Members and Beneficiaries who the Actuary determines are substantially prejudiced within the terms of paragraph (a), or whose liability to contribute will be increased, give their consent to the amendment.

E. In response to notices distributed by the Trustee to Members and Beneficiaries, all Members and Beneficiaries have consented to certain of the amendments contained in this deed (`Member Consents').

F. If an Employer fails to make contributions to the Fund, the Trustee may make certain determinations under clause 1.24.4 of the Trust Deed.

G. As at 1 July 1993, the Category A and Category B Employers (`M Employers') were overdue in the payment of their contributions for Category A and Category B Members and the Trustee has determined to:

  • (a) pay 80% of any benefit which becomes payable from the Fund; and
  • (b) pay the remaining 20% of the Benefit when the Trustee determines sufficient funds are available.

H. For the purposes of the amendments proposed under the deed, the Actuary has determined the Accrued Benefit Value of each Category A and Category B Member and Beneficiary as at 30 June 1993 by:

  • (a) in the case of each Category A Member determining the Member's Accrued Benefit Value as at 1 July 1992 and then reducing that amount in accordance with the agreement between the Member, the Trustee and the Original Employer which was entered into for the purpose of immediately funding contributions for Category B Members which the M Employers are overdue in making as at 30 June 1993 (`Funding Agreement');
  • (b) in the case of Category B Members, determining their Accrued Benefit Values as at 1 July 1992 and then increasing them by the total amount of the reductions referred to in paragraph (a) apportioned between the Category B

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    Members on a basis considered appropriate by the Actuary.

I. Following the calculation of the Accrued Benefit Values of Category A and B Members, the Actuary has certified for each Category A and Category B Member, that Member's share of the M Employer's liability to contribute for the period 1 July 1992 to 30 June 1993 (`the M Employers' 1992/93 Funding Liability').''

24. In the operative provisions, the original trust deed was amended by deleting Parts 1, 2 and 3 and by inserting the new rules. The amendment therefore replaced the whole of the original trust deed except for the brief two recitals and operative clause which preceded the original Parts 1, 2 and 3.

25. The deed provided for the allocation to member contribution accounts of category A and B members, the share of each member of the M Employers' 1992/93 funding liability. The rules create the new category of employees and employers, to which I have referred. They make provision for participating employers (as distinct from associated employers under the original deed) to be either the original employer or a category A, B or C employer. Admission of new employers is dealt with in clause 3 as follows:

``3.1 All employers who participated in the Fund immediately before the Revision Date are Participating Employers.

3.2 (a) The Original Employer may admit any employer as a Participating Employer for Category A or B if the employer agrees in a manner approved by the Trustee to be bound by the Rules and the Employer's Application.

  • (b) The Trustee may admit any employer as a Participating Employer for Category C if the employer agrees in a manner approved by the Trustee to be bound by the Rules and by the Employer's Application.''

26. Continuity of membership of previous employees is provided for in clause 4 as follows:

``4.1 All Employees who are admitted to membership from the Revision Date and who are employed by a M Employer as at the date of admission are admitted as Category B Members.

4.2 All other Employees who are admitted to membership from the Revision Date are admitted as Category C Members.''

27. Some differentiation is made in attributing earning rates applied to accounts. In relation to category C members, the rate is calculated so as to disregard the investment performance of the fund in relation to the parcel of redeemable preference shares to which I have referred. On the other hand, the rules provide that the greatest proportions of the contribution fees and asset fees are to be borne by the C class members.

28. The rules provide that the trustee may nevertheless apply any asset of the fund to meet any liability of the fund, including a liability to pay benefits. The rights of members are therefore not confined to any particular asset for satisfaction of their entitlements. These are set out in a schedule to the rules. They are, as I have said, structured to reflect accumulated credits rather than defined benefits.

29. The taxation treatment of losses in trusts is now governed by the Taxation Laws Amendment (Trust Loss and Other Deductions) Act 1998. For many years, there have been provisions in the ITAA setting out compliance tests as to continuity of ownership and continuity of business where past losses of companies are sought to be carried forward. There are no specific statutory provisions relating to the taxation treatment of losses in superannuation funds. An ``exclusive regulative regime'' (from the Explanatory Memorandum) was introduced by Act No. 97 of 1989 to deal with ``taxation of superannuation business and related business''. This is now constituted by Part IX of the ITAA.

30. As a complying fund, Division 3 governs the applicant's liability. It identifies the income to be subject to taxation as the income of an eligible entity as defined. The trustee is made personally liable to pay the tax (sections 278 and 286) and is treated (section 272) as if it were the taxpayer in the calculation of the eligible entity's income. The taxing provisions of Part IX are closely connected with the provisions of statutes governing the prudential regulation of superannuation funds. The Occupational Superannuation Standards Act was substantially amended with effect from 1 July 1994, when its name was changed to the Superannuation Entities (Taxation) Act 1987. Standards are now governed by a separate

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legislative scheme set out in the Superannuation Industry (Supervision) Act 1993 and the Occupational Superannuation Standards Regulations which remain in force as modified by regulations made under the 1993 Act.

31. The effect of compliance with these standards is to oblige the issue of a certificate of compliance. Such a certificate is binding on the respondent and results in favourable tax treatment in contrast with the taxing of non- complying funds.

32. The applicant went to some trouble in its submissions to demonstrate that it was in fact a complying superannuation fund by testing the various definitions in the relevant Acts against the actions of the fund in the relevant years. However, it seems to me that there is no dispute between the parties that at all relevant times prior to and after the deed of amendment, the applicant fund was a complying fund and was an eligible entity within the meaning of Part IX. I cannot, however, agree with the applicant's submission that the consequence of this compliance, and the consequence of the status of the applicant as an eligible entity, is that it was necessarily the same eligible entity throughout the relevant period. Compliance results from approval of periodic returns and reports presented by the relevant fund in respect of any particular year. I see nothing in the legislation which would support such a submission. The fund, however constituted in any particular year, is obliged to meet certain standards if it is to enjoy compliant tax treatment. The fact that it meets those standards does not, in my view, indicate a necessary continuity in its structure. Demonstration of compliance certainly does not meet the objections of the Commissioner. These can be addressed, in my view, only from general considerations.

33. The first question to ask is ``What is a fund?''. The term is not defined in the ITAA nor in the Superannuation Industry (Supervision) Act 1993. The ordinary meaning of the word is given in the New Shorter Oxford Dictionary as ``a stock or sum of money, especially if set apart for a particular purpose'', by the Macquarie Dictionary as ``a stock of money or pecuniary resources'' and by Black's Law Dictionary 1968 as ``a sum of money set apart for a specific purpose or available for the payment of debts or claims''.

34. The classic description of the term ``fund'' in the cases is the statement of Lord Greene MR in
Allchin v Coulthard [1942] 2 KB 228 at 234, where he said, in relation to a fund set aside under the Local Government Act:

``The word `fund' may mean actual cash resources of a particular kind (eg money in a drawer or a bank) or it may be a mere accountancy expression used to describe a particular category which a person uses in making up his accounts. The word `payment out of' when used in connection with the word `fund' in its first meaning connotes actual payment, eg by taking the money out of the drawer or drawing a cheque on the bank. When used in connection with the word `fund' in its second meaning, they connote that for the purposes of the account in which the fund finds a place, the payment is debited to that fund, an operation which of course has no relation to actual method of payment or the particular cash resources out of which the payment is made.''

Windeyer J considered the nature of a superannuation fund in
Scott v FC of T (1966) 14 ATD 333; (1966) 10 AITR 290 (not reported in CLR). The issue involved was whether a particular fund fell within the old description in s 23J of ``a provident, benefit or superannuation fund established for the benefit of employees''. At ATC page 351; AIRT page 312, he said:

``... I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefit (or benefits having monetary value) upon their reaching a prescribed age. In this connexion `fund', I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalized. I do not put this forward as a definition, but rather as a general description.''

35. The content of a fund necessarily is not a static concept. A superannuation fund, in particular, can not usually be visualised as ``money in a drawer''. Monies come and go, income flows in, disbursements flow out, and additions may be made to the capital of the fund. In this case, the relevant fund comprises a stock of money and assets added to from time to time by contributions and earnings from

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investments and is decreased from time to time as monies are applied for the purpose of providing benefits to the members from time to time, who will include members at the time the fund was established and members joining the fund subsequently.

36. A superannuation fund is a particular species of the genus fund. It may also be described as a sub species of the species ``trust''. It is defined in section 10(1) of the Superannuation Industry (Supervision) Act (rather circuitously) to mean ``a fund that is an indefinitely continuing fund and is a provident benefit superannuation or retirement fund or...''. The general nature of a superannuation fund was dealt with in a Canadian decision to which I was referred,
Hockin v Bank of British Columbia (1990) 71 DLR (4th) 11 at 19 and 20, in these words:

``It is important to ascertain the true nature of the trust in this case. It will be obvious from what follows that the process of ascertaining the true nature of the trust entails study of the operative effect of both the Plan and the trust agreement taken together. What we find is not what might be called a classic or standard trust, that is a trust of a certain property or right capable of being subjected to a trust, specified by the settlor, transferred to the trustee, held and administered by the trustee and distributed by the trustee to ascertained or ascertainable beneficiaries, as determined either by the settlor or by the trustee under power of appointment. What we find is not an immutable and completely constituted closed trust for specified beneficiaries, such as may be found in a testamentary document, but rather an accommodating, open trust to provide a range of pension benefits to fluctuating groups of beneficiaries in a range of circumstances.

In the present case, some of these standard attributes of a trust are attenuated or even non-existent. Operatively, the Plan is the dominant document and the trust is ancillary to the plan with the trustee functioning, as will be seen, more akin to a stakeholder than strictly a trustee.

Here, the Bank as settlor does not settle the trust with a specific property but with the Plan. Fundamentally it is a trust, not of property, but for a purpose. Neither is it an executory trust. The settlor's contributions to the trust are not by the direction of the settlor or trustee ascertained or ascertainable but are calculated and certified from time to time by the actuary. The beneficiaries of the trust, that is the members and others claiming through them, come and go and are determined at any given time not by the settlor or the trustee but by the pension committee.''

37. In considering the terms of a superannuation fund trust deed and documents associated with it, certain principles have emerged from the decided cases. It has been recognised that schemes will operate against a constantly changing commercial background and that it is desirable to give a reasonable and practical effect to the scheme in the construction of relevant documents (
Re Courage Group's Pension Schemes Ryan [1987] 1 All ER 528 at 537). The requirements of taxation and superannuation laws and the common practice in the industry, as well as in industries providing superannuation benefits for employees, are proper matters to be taken into consideration (
Mettoy Pension Trustees Ltd v Evans & Ors [1991] 2 All ER 513 at 537-538).

38. Amendments and modifications of the constituent documents of superannuation funds are normal and are in accordance with common practice in the industry. Amendments are required by some superannuation laws and are considered desirable to meet the requirements of other taxation laws. Section 60(1) of the Superannuation Industry (Supervision) Act recognises this fact and limits the extent to which rules may be amended unless certain conditions relating to consents have been met. Regulation 4.05 of the Superannuation Industry (Supervision) Regulations sets out the types of subjects which amendments commonly address. Amendments - even far-reaching amendments - are therefore not only usual but are accepted and expected in the indefinitely continuing life of the fund.

39. Having regard to these principles, one must then ask what is it that points to the continuity of a superannuation fund? Certainly, changes of membership can have no effect. By their very nature, the identity of members (or beneficiaries in trust terms) is constantly changing. New members come, old members retire or die and indeed, new employers undertake obligations to make contributions on

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behalf of new members. The identity of settlors and beneficiaries (in trust terms) is constantly changing. This change alone can not support a contention that a fund that is otherwise required to be an indefinitely continuing fund, is constantly discontinuing and reforming.

40. In my view, the hallmark of continuity lies in the purpose of the fund as pointed out in Hockin. In the present case, the fund was established for the purpose of providing superannuation benefits for employees of companies within the M Group and any other company (called an associated company) invited to sponsor other employees. The fact that companies outside the M Group would not have made a commercial decision to become a party to the scheme prior to the deed of amendment is not material in my view. The fact is that the facility to accept employees outside the M Group was available before the deed of amendment, and continued to be available after the deed of amendment. The manner of inducting new sponsoring employers was modified, but only to accommodate the new scheme of administration. Before the deed of amendment, the purpose of the fund was to provide superannuation benefits to employees of the M Group and to employees of any other associated company. The same purpose has been preserved since the deed of amendment. The fact that there are now more non-M employees who are members than former M employees is not to the point, in my view.

41. The change from a defined benefit fund to an accumulation fund also does not break the continuity. It merely reflects a different manifestation of the same purpose, namely, to provide superannuation benefits for employees. The content of those benefits may change but the purpose remains constant. A narrow view should not be taken (Per Mahoney JA in
Kearns v Hill (1990) 21 NSWLR 107).

42. The submission by the Commissioner that the deed of amendment either substituted a new purpose for the original purpose or added an additional purpose or purposes to the original purpose and thereby effectively terminated or revoked the original trusts so that the original fund ceased to exist cannot, in my view, be supported. The submission was based partly upon a construction of events depending upon a transfer of assets from the old trustees to the new trustee. I do not see this as an interruption of purpose. To transfer the legal estate upon a change of trustee is common place and does not affect the continuation of the trusts upon which the property is to be held by the new trustee and the rights of any beneficiaries to access that property.

43. It was suggested that the deed of amendment may have voided the substratum of the original trust. I do not agree with this submission. The deed of amendment was within power. There was no evidence that the prerequisites to the exercise of that power had not been complied with. It was generally assumed between the parties that the deed validly exercised the power of amendment. In
Lock v Westpac Banking Corporation & Ors (1991) 25 NSWLR 593 at 606-607, Waddell CJ in Eq said:

``In my opinion, what is the substratum is to be determined as a matter of construction of the deed and having regard to the circumstances. If the amendment is as a matter of construction within power, it cannot be an infringement of the substratum.''

44. The power of amendment has been a feature of the original superannuation trust deed since it inception. All members have lived with the knowledge that the terms of the deed could be amended provided the conditions of the amendment clause were met. If that power is exercised validly, there cannot be a destruction of the basis of the trust, let alone a termination. There may be questions raised from time to time whether, in fact, amendments are within the powers granted by the principal deed. Some of the cases referred to by the respondent principally address this problem. There is no issue in the present circumstances, however, that the power was exercised in any way other than as provided for in the original deed. The amendment as such, therefore, could not be said to have terminated the original trust.

45. There was certainly no intention on the part of the parties to the amendment deed to terminate the original trust. This is borne out by an examination of the minutes of the trustee's meetings throughout the years 1992 and 1993 and of the circular issued by the trustees to members, seeking their consent to the amendments. There is nothing on the face of the amending deed indicating an intention to revoke or terminate the fund. Under the general law, a trust may be terminated only by the exercise of reserved powers of termination or revocation,

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or by the court, or by the beneficiaries by requiring transfer of the trust assets. None of these events has occurred. If the amending deed did not cause the fund created by the original deed to cease to exist as an eligible entity, there cannot have been the creation of a new fund to exist with it side by side.

46. The respondent submitted that the changes to the original trust deed constituted a new settlement to such an extent that a new fund, and hence a new eligible entity, was created. Counsel referred to a passage from the judgment of Windeyer J in
Mahoney & Anor v FC of T (1967) 14 ATD 519 at 527; [ 1967-1968] 41 ALJR 232 at 237, as follows:

``... It thus becomes necessary to look carefully and critically at the terms of this trust deed, at which it required and what it permitted - that is to say to see in what ways the trustees might, without breach of the trusts it imposes, apply the trust property. Unless they were confined to applying the fund in ways consonant with it being a provident, benefit or superannuation fund for the benefit of employees, it cannot answer that description. In other words, if they could, keeping within the terms of the trust, apply the fund or any portion thereof to purposes foreign to the true purposes of such a fund, then it would not be such a fund.''

47. In my view, the amending deed does not introduce any purpose foreign to the true purposes of the original fund. At all times, the fund before and after the amending deed had the overriding purpose of providing superannuation benefits for employees of the M Group and of other companies accepted as sponsoring employers. The terms of the amending deed are principally directed to improving the administration of the ongoing fund. The fact that the amending deed revoked the administrative provisions of the original deed, leaving only the shell and substituting a set of new rules is, to my mind, a mere drafting matter. The fact that provisions for administration were contained in a deed rather than in rules in the original fund probably made amendments necessary to adjust to commercial and taxation considerations difficult to achieve. The adoption of administration provisions by way of a set of rules is an improvement. The effect of the amendment is not to be measured in terms of the number of pages revoked and the number of pages replacing the old provisions. The administrative provisions in the new rules are a distinct improvement in a number of areas. The rights of members in relation to further amendments are secured by requiring positive assent rather than default agreement. The harsh provisions relating to proof to support claims have been removed. Provision has been made, by out sourcing the task, for improved day to day administration.

48. The Commissioner placed particular reliance upon his submission that the Deed of Amendment amounted to a resettlement and thus to an extinguishment of the original trust. The concept of resettlement is not recognised as an extinguishing factor in either the ITAA or the Superannuation Industry (Supervision) Act. Prima facie, whether an amendment amounts to a resettlement seems to me to be irrelevant. The creation of resettlements has important consequences under the Victorian Stamps Act. The cases dealing with resettlements have principally arisen from these consequences. It seems to me, however, that the concepts discussed in those cases and relied upon by counsel for the respondent are not of great assistance in determining the present issues. However, even if one were to accept that a resettlement terminated the existence of the original trust and commenced the existence of a second trust, the provisions of the Deed of Amendment under consideration would not, in my view, support such a construction.

49. None of the variations in the amending deed would amount to such a sea change that would be required to constitute a resettlement, as discussed in such cases as
Watchorn v Comptroller of Stamps (Vic) [1969] VR 128 and
Wedge v Acting Comptroller of Stamps (Vic) (1941) 64 CLR 75. In short, no new beneficial interests have been created which represent a substantial departure from the principal features of the original deed.

50. The ambulatory nature of the assets of the fund continues. The purpose for which the trustee is to apply those funds continues, the accrued rights of employees under the original deed are preserved. Although provision is made for the establishment of a new category of membership, this does no more than articulate what was always possible under the original deed. All the assets of the fund are available to meet claims of all members, no matter to which category they belong. The change from a

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defined benefit to an accumulation fund (which is the principal amendment effected by the deed) is no more than a modification made having regard to contemporary experience in the superannuation industry and legislation governing the supervision of superannuation funds and taxation requirements. All of these factors were contemplated in the original deed as justifiable cause for amendment. The amending deed does no more than realise the expectation or possibility recorded in the original deed.

51. In my view, the original fund has not been terminated and therefore continues as the same fund. There is nothing to substantiate the suggestion that somehow, a collateral second fund was created which co-exists with the first fund. This is not borne out by any of the objective evidence, by the documents, by the accounts, by the trustees' minutes or by the actions of members. To hold that there was a second fund somehow created would be to support a fiction. In the light of the general principles of construction, which urge a practical approach to give effect to the terms of superannuation deeds, this would be an permissible course.

52. In my view, the fund in the 1995 year was the same fund that incurred the losses in 1989 and 1990 and, in accordance with the general principles of taxation made applicable by Part IX, is entitled to set off what remains of those earlier losses against the income disclosed in the return for 1995. Accordingly, the decision under review is set aside and the matter is remitted to the respondent with the direction that a new assessment be issued taking those losses into account.

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