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COMMISSIONER OF STATE REVENUE (Vic) v FAMAJOHN NOMINEES PTY LTD (as trustee)

Judges:
Balmford J

Court:
Supreme Court of Victoria

MEDIA NEUTRAL CITATION: [1999] VSC 383

Judgment date: 14 October 1999

Balmford J

Introduction

1. The applicant (``the Commissioner''), by originating motion filed on 12 April 1999, seeks leave to appeal to this Court under section 148 of the Victorian Civil and Administrative Tribunal Act 1998 (``the VCAT Act'') against part of the decision of the Victorian Civil and Administrative Tribunal (``the Tribunal'') delivered on 16 March 1999 in proceeding number 097020 of 1998. The decision of the Tribunal (``the decision'') was made on the referral, at the request of Famajohn Nominees Pty Ltd (``Famajohn''), of two decisions of the Commissioner made on 15 July 1998 under the Land Tax Act 1958 (``the Act'') disallowing objections lodged by Famajohn on 6 June 1997 against the Commissioner's amended assessments of land tax for the years 1996 and 1997 in respect of land described in the assessments as ``8-10 Stonnington Place, Toorak''. The appeal is against that part of the decision which set aside the decisions of the Commissioner and allowed the objections.

2. Final Orders in the proceeding before the Tribunal were made on 18 August 1999 and the relevant order reads:

``1. That the objections the subject of the reference be allowed and the two amended assessments issued to the applicants be varied by the respondent separately calculating each of the applicants' liability to land tax in respect of each of the former lands No: 8 and No: 10, Stonnington Place, Toorak.''

It is to be assumed that, by virtue of the rates of land tax provided for by section 6 and the Second Schedule of the Act, that decision will have the effect that less tax is payable in respect of the land in question than would otherwise be the case.

3. On 30 April 1999 I ordered by consent of the parties that, subject to any decision of the trial Judge to the contrary, should the trial Judge be of the opinion that leave to appeal should be granted, then the application for leave should be treated as if it were the appeal and determined in accordance with law. This order was made on the basis the respondents did not dispute that the proposed notice of appeal raised questions of law sufficient for the purposes of section 148 of the VCAT Act.

4. The facts in this matter are not in dispute. They appear chiefly from the decision and also from matters which counsel indicated were agreed. On 31 December 1995 and on 31 December 1996, the dates of assessment of land tax for the years 1996 and 1997, Famajohn was registered as the proprietor of the whole of the land described in Certificate of Title Volume 10231 Folio 869 (``the consolidated certificate of title''), known as 8-10 Stonnington Place, Toorak. The consolidated certificate of title was issued on the registration of a plan of consolidation lodged at the Office of Titles on 7 March 1995.

5. Sub-section 8(1) of the Act provides that tax on land shall, in the case of each owner thereof, be assessed on the total unimproved value of all land of which that person is the owner at midnight on 31 December immediately preceding the year for which the tax is assessed. It is not in issue that Famajohn is liable to be assessed for land tax for the years 1996 and 1997 on the land described in the consolidated certificate of title. The question is upon what basis that tax is to be assessed.

6. This question turns on the interpretation of sub-section 52(1) of the Act. That sub-section

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has not been amended since its enactment in the Land Tax (Consolidating) Act 1928, and shows its age in its setting out in one long paragraph. The relevant portion of the provision is set out below, together with section 51 and sub-section 52(2), each provision broken up in a manner intended to assist comprehension, but without any other alteration:

``51 Equitable owners to be liable as if legal owners subject to deduction of any tax paid by legal owner

Subject to the other provisions of this Act,

the owner of any equitable estate or interest in land shall be assessed and liable in respect of tax as if the estate or interest so owned by him was legal,

but there shall be deducted from the said tax so payable by him in respect of that estate or interest the amount of any tax paid in respect thereof by the legal owner of the land.

52 Trustees to be liable as if beneficially entitled

(1) Every person in whom land is vested as a trustee, shall make returns and be assessed and liable in respect of the tax as if he were beneficially entitled to such land,

save that when he is the owner of different lands in severaly in trust for different beneficial owners

who are not, by reason of joint occupation or otherwise, liable to be jointly assessed for tax in respect of the same,

the tax so payable by him shall be separately calculated and assessed in respect of each of those lands;

...

(2) Provided that any trustee who has paid any tax under this section shall be entitled to be repaid the amount he has so paid by the owner of any equitable estate or interest in land who is also liable to pay such tax

and in addition shall have a right to be recouped out of any of the trust property in his hands subject to the same or the like trusts as the land on which the tax is charged.''

7. On 10 September 1989, Famajohn purchased the land then described in Certificate of Title Volume 6683 Folio 462, known as 8 Stonnington Place, Toorak, and also, from a different vendor, the land then described in Certificate of Title Volume 5351 Folio 170, known as 10 Stonnington Place, Toorak. It is convenient to refer to the land formerly comprised in Certificate of Title Volume 6683 Folio 462 as ``Number 8'' and the land formerly described in Certificate of Title Volume 5351 Folio 170 as ``Number 10''.

8. Number 8 was held by Famajohn as a bare trustee for Mr John Claude Fast (``Mr Fast'') from 1991 until 1995, during which period it was let to an arm's length tenant at a market rental. At all material times Number 10 has been held by Famajohn on the trusts of the John Fast Family Trust, which was established on 27 June 1975.

9. Until 1995 the Commissioner treated Number 8 and Number 10 as ``different lands'' for the purposes of section 52 of the Act. The plan of consolidation was registered, as has been said, in 1995, the two previously existing certificates of title being replaced by a single certificate of title. This was done to enable the construction of a house across the previously existing title boundary, which house is now occupied by Mr Fast and his family.

10. By a lease executed on 28 May 1996, Famajohn ``as bare nominee for John Claude Fast'' leased Number 8 to Famajohn ``as trustee of the John Fast Family Trust''. It is to be presumed that ``nominee'' is an error for ``trustee''. The lease is in a normal form, providing for the payment of rent and other matters, and is expressed to be for a term of five years with an automatic renewal for nine further terms of five years each.

11. It has not been suggested that Mr Fast on the one hand, and the beneficiaries of the John Fast Family Trust on the other, are ``by reason of joint occupation or otherwise, liable to be jointly assessed for tax in respect of'' numbers 8 and 10 Stonnington Place, and the applicability of that passage from section 52(1) of the Act need not be considered further.

12. The question is whether Famajohn was, at the relevant times, that is at midnight on each of 31 December 1995 and 31 December 1996, ``the owner of different lands in severaly in trust for different beneficial owners'' in terms of section 52(1) of the Act. I do not understand the position to have changed since 31 December 1996, and it is convenient to use the present tense.

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``The owner''

13. The words ``land'' and ``owner'' are defined as follows in section 3 of the Act:

``(1) In this Act, unless inconsistent with the context or subject-matter-

  • ...
  • `land' includes all land and tenements and all interests therein;
  • ...
  • `owner' in respect of land means, except in Part IIA,-
    • (a) every person entitled to any land for any estate of freehold in possession;
    • (b) every person entitled to any land under any lease or licence from the Crown as to which he has any right either absolute or conditional of acquiring the fee-simple;
    • (c) every settler grantor assignor or transferor of land comprised in any settlement grant assignment transfer or conveyance not made bona fide for valuable consideration;
    • (d) every person entitled as aforesaid to any land subject to any mortgage;
    • (e) every person entitled to any land partly in one and partly in another or others of the foregoing ways-

and includes every person who by virtue of this Act is deemed to be an owner;''

In
Isles v Federal Commissioner of Land Tax (1912) 14 CLR 372 at 376 Griffith CJ said, referring to the Land Tax Assessment Act 1910 (Cth):

``The term `land' is in general used in the Act to designate a portion of the earth's surface...''

That expression was also employed, in respect of section 38(7) of the same Act, by Gavan Duffy and Rich JJ in
Clifford v Deputy Federal Commissioner of Land Tax (NSW) (1915) 19 CLR 593 at 619 where their Honours said:

``... in the phrase `there may be deducted from the unimproved value of the land' the word `land' means a piece of land, not an interest in land. The land mentioned in the sub-section is a piece of the earth's surface.''

14. Famajohn is registered as the proprietor of an estate in fee simple in the whole of the land in the consolidated certificate of title, and I would find some difficulty in concluding that it was not the ``owner'' of the whole of that land for the purposes of the Act. Mr Berglund, for Famajohn, cited the finding of Sully J of the Supreme Court of New South Wales in
Opalfield Pty Ltd v Commr of Land Tax (NSW) 93 ATC 4863; (1993) 26 ATR 578 that a bare trustee was not an ``owner'' within the meaning of a provision in the Land Tax Management Act 1956 (NSW) corresponding to paragraph (a) of the definition of ``owner'' in section 3, cited in paragraph 13 above. However, his Honour's judgment was reversed on appeal on a different ground which rendered it unnecessary for the Court of Appeal to consider the point. In all the circumstances, I do not think it appropriate that I adopt that finding, which is not, of course, binding upon me.

``of different lands''

15. The concept of ``different lands'' in the plural requires that it be possible to define what would be meant, for the purposes of the Act, by ``one land'' or ``a land'' in the singular, expressions which do not appear in the Act, and which were not employed by counsel, but the use of which helps to clarify the issue.

16. The first submission of Mr Merralls, for the Commissioner, was that Famajohn is not ``the owner of different lands''. He referred to the provisions of the Transfer of Land Act 1958 (``the TLA'') and the Subdivision Act 1988 (``the Subdivision Act''). Section 37 of the TLA directs that the Registrar shall not record in the Register notice of any trust. Section 27 of the TLA requires the Registrar of Titles to keep a Register of land under the operation of that Act, the Register consisting of folios, and a folio being a division of the Register relating to one or more parcels of land. Thus a single certificate of title is identified by its own peculiar folio number. Section 97A provides that on registration of a plan of consolidation the Registrar shall create a single folio of the Register and delete any existing folio of the Register with respect to the land. That process occurred in respect of Number 8 and Number 10, as described in paragraphs 7 and 9 above. The provisions of the Subdivision Act relate to the preparation of plans of subdivision and plans of consolidation.

17. The submission of Mr Merralls was that the Act operates in a legal context in which land under the Torrens system is regulated by the

ATC 5081

TLA and the Subdivision Act, and so the Act should be read as adopting the concepts of those Acts, and in particular of the TLA. Thus, in effect, ``land'' for the purposes of the Act must mean, in the case of Torrens system land, ``the land comprised in a single certificate of title''. On that basis, he submitted, Famajohn, as the registered proprietor of the whole of the land in the consolidated certificate of title, is the owner not of ``different lands'', but of one land (although Mr Merralls did not, as I have said, employ this expression).

18. It is difficult to see how the principle put forward for the Commissioner, that in the case of Torrens system land ``one land'' must mean ``the land comprised in one folio of the Register'', could be applied in the common situation where a certificate of title describes the land comprised in several pieces (to use a neutral word) which are capable of being dealt with separately, such as several lots on one plan of subdivision, or several Crown Allotments or Crown Portions. It was not put for the Commissioner that ``one land'' meant ``a piece of land which is capable, without registration of a plan of subdivision or a plan of consolidation, of being the subject of a registrable dealing under the TLA''. That concept, however, would seem to underlie the submission which was put.

19. In support of his contention, Mr Merralls drew attention to provisions of the Act which he described as employing special terms to describe, for the purposes of the Act, part of the land within a single certificate of title. However, that description assumes the correctness of his submission as to the meaning of ``land''. In the following paragraph, the terms to which he referred in this context are underlined.

20. Sub-section 3(1) of the Act defines `` parcel '' in relation to `` land '' as `` lands which are contiguous or which are separated only by a road or railway or other similar area across or around which movement is reasonably possible and which are owned by the same person''.

Sub-section 8(2) provides, in the context of land which is taxable although prima facie exempt, that tax is to be assessed and collected from the owner ``for each year on the unimproved value of each parcel of land of which he is the owner... as if it were the only land owned by the owner''. Section 8(3) provides that ``where portion of a parcel of land ... is occupied separately from... other land in the parcel such portion shall for the purposes of sub-section (2) be regarded as a separate parcel of land ''.

Section 9(1D) employs the term `` portion of any land ''; and section 9(1E) refers to `` parcel of land '' and `` portion of the parcel of land ''.

Each of sub-sections 9(2), (2A), and 10(1) uses the expression `` land or a portion of land '' or some minor variation thereof; and section 98(b) refers to ``any portion of any land or lands ''.

Section 3A refers to land which is `` part of an area of land ''. Sub-section 9(2AB) speaks of `` part only of land '' being used for a certain purpose. Sub-section 10(1B) uses the expression `` land or any part thereof ''; sub- section 45(3) employs the term ``a part of the land ''.

21. Mr Merralls submitted that it was consistent with his primary submission that expressions such as ``parcel'', ``portion'' and ``part'' would be used in the Act when the drafter intended to deal with a lesser area than the whole of the area encompassed by the word ``land'', that is, as he submitted, the whole of the land comprised in a particular certificate of title. However, none of those expressions is employed in such a way as to lead to the conclusion that the whole of the area with which a parcel, portion or part is being compared is to be defined by reference to the land described in a single certificate of title; or by reference to a piece of land which is capable, without registration of a plan of subdivision or a plan of consolidation, of being the subject of a registrable dealing under the TLA (see paragraph 18 above).

22. In any case, while section 97 of the TLA provides that that Act and the Subdivision Act are to be read together, there is no provision requiring the TLA to be read together with the Act. The manner of description of land in the TLA cannot be necessarily imported into the Act. The provisions of the TLA as to the description of land are relevant only to the registration system established by the TLA. I appreciate that it is convenient for those administering the Act to describe land under the Torrens system by reference to folio numbers in the Register at the Office of Titles, and I note from the affidavit that valuations of Torrens system land currently returned by Councils are made by reference to folios of the Register and

ATC 5082

not to any other division of land. However, neither the provisions of the TLA as to the manner of keeping of the Register, nor the practice of Councils in returning valuations, can control the interpretation of the Act.

23. For the reasons given, I do not accept the submission of Mr Merralls that ``[one] land'' means ``the land comprised in one folio of the Register''; nor do I find that ``[one] land'' means ``a piece of land which is capable, without registration of a plan of subdivision or a plan of consolidation, of being the subject of a registrable dealing under the TLA''. Accordingly, I am not satisfied that Famajohn is not ``the owner of different lands''. Number 8 and Number 10 are readily identifiable as different pieces of land, that is, different portions of the earth's surface (see Isles and Clifford as cited in paragraph 13 above) and are so identified for example, in the Agreement of 28 May between Mr Fast, Mrs Fast and Famajohn in both its capacities, to which it is not otherwise necessary to refer in the present context. And, despite the consolidation of the titles and the construction of the house across the boundary, the two different pieces of land have been, and continue to be, held differently, in that they are held on different trusts. That is not to say, necessarily, that they are held ``in trust for different beneficial owners''.

``in severaly''

24. Mr Merralls' next submission was that if Famajohn was the owner of ``different lands'', it was not such an owner ``in severaly in trust for different beneficial owners''. I did not understand him to be suggesting that the different lands are held in common with any other person rather than in severaly, and it is not necessary to consider that issue further. The question is whether the different lands, being Number 8 and Number 10, are held for different beneficial owners.

``in trust for different beneficial owners''

25. It is not in issue that Mr Fast is the beneficial owner of Number 8. As to Number 10, the John Fast Family Trust is what is generally known as a discretionary trust, and is described by the Tribunal in the following terms:

``The John Fast Family Trust was established by a deed of settlement made 27 June 1975 between the settlor, Graham Joseph Smorgon, and Famajohn Nominees Pty Ltd as trustee. The deed is of a kind which is familiar to those concerned with use of discretionary trusts for the purposes of tax minimisation (see Grbich, The Mechanics of Discretionary Trusts , in Grbich, Munn & Reicher, Modern Trusts & Taxation ) and provides, in the usual sort of way for trusts of that kind, for the trustee to pay or apply the income derived in each year to such one or more of the beneficiaries as the trustee determines, or to accumulate it and, as from the Vesting Day, which occurs in 2025, to hold the trust property for such of the beneficiaries and in such proportions as the trustee may determine.... The beneficiaries include Mr Fast and his wife and children and a broad range of other possible objects. The trust as originally constituted is thus one in which no beneficiary has a vested beneficial interest but which is controlled or capable of being controlled by Mr Fast for the benefit of himself and his family.''

26. ``Beneficial owner'' is not defined in the Act, but may for present purposes be equated with the expression ``owner of any equitable estate or interest'' in section 51, set out in paragraph 6 above.

27. Mr Merralls referred me to
Chief Commr of Stamp Duties (NSW) v Buckle & Ors 98 ATC 4097; (1998) 192 CLR 226 in which the High Court, constituted by Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ said at ATC 4099; CLR [8] of the term ``discretionary trust'':

``... The meaning of this term is disclosed by a consideration of usage rather than doctrine, and the usage is descriptive rather than normative.... `[D]iscretionary trust' has no fixed meaning and is used to describe particular features of certain express trusts.''

And at ATC 4103; CLR [37] their Honours said:

``In the present case, under the Deed of Settlement as it stood before the Supplemental Deed, no interests in corpus had vested. The Trust Fund was vested in the trustee, impressed with such trusts as were created by or pursuant to the Deed of Settlement. There was no hiatus or gap as to any outstanding beneficial interest in the Trust Fund. The assets comprising the Trust Fund were not impressed with trusts which gave rise to equitable interests therein which

ATC 5083

were so extensive as to leave the trustee with no more than the bare legal title. The trustee might accurately be described as the owner of those assets, but as subjected to the equitable obligations imposed by the Deed of Settlement. The second and third respondents had no vested interests in corpus but they did enjoy rights to due administration of the trusts of the Deed of Settlement which a court of equity would protect.''

[footnotes omitted]

28. Mr Merralls went on to cite a passage from the sixth edition of Jacobs' Law of Trusts in Australia by Meagher J and Gummow J at [ 2315] under the heading ``Discretionary Trusts'':

``... the modern so-called `discretionary' trust. There, in the place of `beneficiaries' in the traditional sense who between them aggregate beneficial ownership of the trust property, there is a class of persons described in wide terms. This class is in essence the object of a trust power in the trustee to appoint either or both income or corpus and to do so periodically between members selected from the designated class on each such occasion, but reserving in the trustee a discretion as to the quantum of income or corpus appointed to any particular individual and a discretion to declare the exercise of the power on any occasion. In such cases it is difficult to maintain that any particular object of the power has an interest in the trust fund, and, indeed, the widespread use of discretionary trusts as a means of avoiding death duties assumed that there would be no such interest for the purposes of revenue legislation.... However, clearly the objects have the right to due administration of the trust, so that the trust is entirely in their interest.''

29. Mr Merralls submitted, on the basis of those authorities, that there is no ``beneficial owner'' of Number 10. The existence of a trust, he submitted, does not necessarily imply the present existence of a beneficial owner. He referred to charitable trusts, where property is held for purposes, not for owners, and to other arrangements, such as a trust for property to be accumulated and appointed at the end of a given period, so that during the period of accumulation there would be no beneficial owner. There being no beneficial owner or owners of Number 10, it could not be said that Number 8 and Number 10 were held ``in trust for different beneficial owners''. That is clearly the result of applying the plain meaning of section 52 to the facts of this matter.

30. Mr Berglund, in response, did not dispute that there was no beneficial owner of Number 10. He submitted that the question turned on the philosophy behind the Act, which is that it is the person enjoying the benefits and fruits of the land who is to be assessed for tax on that land. Section 52(1) imposes a liability for tax on the trustee, and section 52(2) enables him to recoup that tax from the equitable owner or from any trust property in his hand subject to the like trusts. Section 51 provides for payment of tax by the equitable owner, less the amount of any tax paid by the legal owner, i.e. the trustee. Regard is had to the beneficial interests in order to ascertain the identity of the person enjoying the benefits, because it is that person who should ultimately bear the payment.

31. Mr Berglund submitted that the interpretation placed on the legislation by the Commissioner would have the effect of imposing on the trustee the burden of the aggregate valuation of the land, and the consequent payment of higher tax, while depriving the trustee of the ability to recover that amount from the beneficiaries. However, given that there is no beneficial owner of Number 10, there is, in any case, no beneficiary from whom any tax payable in respect of that land may be recovered. That is a situation which does not appear to have been contemplated in the drafting of the provisions of the Act relating to land held on trust, but it is the situation here. Accordingly, while I accept that it is the philosophy of the Act that the beneficiary bear the ultimate burden of paying the tax, that argument cannot, in this case, be taken further. Whatever may be the effect in other cases, the Court must decide the issue as the matter comes before it.

32. Mr Berglund referred to
Sendall v Federal Commissioner of Land Tax (1911) 12 CLR 653 at 659-660 where Griffith CJ, referring to the similar but not identical provisions of the Land Tax Assessment Act 1910, said:

``For the purpose of the assessment of land the trustee stands in the place of the cestui que trust. He does not incur a different and independent liability. He is liable in the same way as if he were the person

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beneficially entitled: no more and, generally speaking, no less. The contention for the Commissioner, however, is that, where land is held on trust, the trustee is to be taxed in respect of the whole unimproved value of the land whether the beneficiaries are liable to pay tax or not. It would be a very singular result if the trustee should be bound to make an expenditure out of the trust funds for the cestui que trust which he [i.e. the cestui que trust] is declared to be not liable to pay. As I have said, the plain meaning of the section is that the trustee stands in the place of the cestui que trust.''

33. His Honour may be presumed to have been referring to the situation where the trustee holds lands for several beneficiaries and each beneficiary's interest relates only to a single piece of land, the value of which is below the taxable threshold. He found it to be a very singular result for the trustee to be bound, in that situation, to be liable to make an expenditure out of trust funds for land tax in respect of that land for a beneficiary who is not liable to pay tax on that land at all. In the present case, it would seem that a trustee is bound to make an expenditure out of trust funds for land tax in respect of a piece of land in which no beneficiary presently has an interest, and thus there is no beneficiary to bear the ultimate burden of paying the tax. No doubt his Honour would have considered this to be an equally singular result. However, that expenditure may have to be regarded as an incidental expense of the holding of land by a trustee of a discretionary trust.

Conclusion

34. Having considered the matter, I find that Famajohn is the owner of ``different lands'', namely Number 8 and Number 10, but that those lands are not held ``for different beneficial owners''. The application for leave to appeal is granted and the appeal will be upheld. However, I understand that the matter of the orders to be made on the appeal will need to be the subject of further submissions.


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