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

Moshinsky J

Introduction

2. Aussiegolfa Pty Ltd ( Aussiegolfa ) is the trustee of a self-managed superannuation fund known as the Benson Family Superannuation Fund (the Benson Fund ). Mr Christopher Benson is the sole member of the Benson Fund. The issues raised by these proceedings relate to an investment by Aussiegolfa (in its capacity as trustee of the Benson Fund) in a managed investment scheme known as the DomaCom Fund (the DomaCom Fund ).

3. In July and August 2015, Aussiegolfa acquired units of a particular class in the DomaCom Fund. The class of units was associated with the acquisition, by the responsible entity of the DomaCom Fund, of a property in Burwood, Victoria (the Burwood Property ). The units of this class were referred to in contemporaneous documents as units in the " Burwood Sub-Fund " , being a sub-fund of the DomaCom Fund (the Burwood Sub-Fund ). The units of the class were held: as to 25 per cent by Aussiegolfa; as to 50 per cent by Mr Benson ' s mother; and as to 25 per cent by a superannuation fund of Mr Benson ' s sister and her husband.

4. The custodian of the DomaCom Fund entered into an exclusive leasing and managing authority with Student Housing Australia Pty Ltd ( Student Housing Australia ) for the

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leasing of the Burwood Property. The first two tenants of the property were persons unknown, and unrelated, to Mr Benson, or to the Benson Fund. In April 2017, Student Housing Australia agreed to lease the apartment to Mr Benson ' s daughter ( Ms Benson ), with the lease commencing in February 2018 at the same monthly rental as had been paid by the first two tenants.

5. The Benson Fund was at the relevant times eligible for concessional tax treatment under Div 295 of the Income Tax Assessment Act 1997 (Cth) provided it was a " complying superannuation fund " . The requirements for a complying superannuation fund were set out in the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act ). The requirements relevantly included:

6. Aussiegolfa ' s units in the DomaCom Fund (or the Burwood Sub-Fund) constituted 7.83 per cent of its assets (that is, the assets of the Benson Fund). The in-house asset rules effectively limited investments in in-house assets to a maximum of five per cent of the market value of all assets in the fund. Thus, an issue arose as to whether Aussiegolfa ' s units constituted an " in-house asset " . The expression " in-house asset " was defined in s 71(1) of the SIS Act as meaning (among other things) " an investment in a related trust of the fund " , but did not include " an investment in a widely held unit trust " .

7. Further, s 71(4) of the SIS Act provided that, if an asset of a fund consisted of an investment " other than an in-house asset " , the regulator (who was the Commissioner of Taxation (the Commissioner )) could make a determination that the asset was to be treated " as if the asset were … an investment in … a specified … related trust of the fund " . In the present case, on 3 July 2017, the Commissioner made a determination that the units held by Aussiegolfa in the Burwood Sub-Fund were to be treated as an investment in a related trust of the Benson Fund (the Determination ).

8. The sole purpose test, in brief terms, required the trustee to ensure that the fund was maintained solely for one or more of certain prescribed purposes.

9. Aussiegolfa commenced a proceeding in the Federal Court of Australia seeking declaratory relief (the Federal Court proceeding ). In broad terms, Aussiegolfa sought declarations to the effect that: its units in the DomaCom Fund did not constitute an in-house asset; and the leasing of the Burwood Property to Mr Benson ' s daughter would not cause Aussiegolfa to breach the sole purpose test.

10. Aussiegolfa also commenced a proceeding in the Administrative Appeals Tribunal (the Tribunal ) by which it sought review of the Determination (the Tribunal proceeding ). The Tribunal proceeding was heard immediately after the hearing of the Federal Court proceeding, and the evidence in the Federal Court proceeding was evidence also in the Tribunal proceeding. The Tribunal was constituted by the judge who heard the Federal Court proceeding, sitting as a Deputy President of the Tribunal.

11. In the Federal Court proceeding, the primary judge decided that the units held by Aussiegolfa in the DomaCom Fund (or the Burwood Sub-Fund) did constitute an in-house asset; and that leasing the Burwood Property to Mr Benson ' s daughter would cause Aussiegolfa to breach the sole purpose test. His Honour therefore declined to make the declarations sought by Aussiegolfa and dismissed the proceeding.

12. In the Tribunal proceeding, the Tribunal set aside the Determination on the basis that the units held by Aussiegolfa had been found to be an in-house asset; accordingly, the condition for exercising the power in s 71(4) (namely, that the asset was not an in-house asset) was absent.

13. Aussiegolfa appeals to this Court from the judgment of the primary judge in the Federal Court proceeding (the Federal Court Appeal ).

14. The Commissioner ' appeals ' on a question of law under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) from the decision of the Tribunal (the AAT Appeal ). The AAT Appeal, which is in the original jurisdiction of the Court, is effectively contingent on Aussiegolfa succeeding on the

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in-house asset issues in the Federal Court Appeal. The two appeals were heard together.

15. The issues raised by the Federal Court Appeal can be summarised as follows:

16. For the reasons that follow, I have concluded that:

17. It follows that the Federal Court Appeal is to be allowed in part. In circumstances where the AAT Appeal is effectively contingent on Aussiegolfa succeeding on the in-house asset issues in the Federal Court Appeal, it follows from the rejection of the grounds of appeal relating to those issues that the AAT Appeal is to be dismissed.

Background facts

18. The following statement of the background facts is substantially based on the reasons of the primary judge in the Federal Court proceeding:
Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation [2017] FCA 1525 (the Federal Court Reasons ). In addition, I have drawn on some of the documents in the Appeal Book.

The Benson Fund

19. On 20 November 2011, the Benson Fund was established as a self-managed superannuation fund within the meaning of s 17A(2) of the SIS Act. Mr Benson was the sole member of the Benson Fund. Since January 2015, he has been employed as the Victorian State Manager of DomaCom Australia Ltd ( DomaCom ).

20. On 15 February 2013, the Commissioner issued a notice under s 40 of the SIS Act to the Benson Fund (this being one of the requirements to be a complying superannuation fund - see SIS Act, s 45). Apart from the issues raised by these proceedings, there is no dispute that the Benson Fund was a complying superannuation fund.

The DomaCom Fund

21. The DomaCom Fund is governed by a Constitution (the Constitution ). The Appeal Book contains copies of the Constitution with various dates, including 27 November 2013 and 13 December 2013. As discussed below, the version dated 13 December 2013 was in effect in 2015. The Constitution was declared by Perpetual Trust Services Ltd as responsible entity (the Responsible Entity ). The DomaCom Fund is a registered managed investment scheme under Ch 5C of the Corporations Act 2001 (Cth).

22. The investment manager of the DomaCom Fund is DomaCom. DomaCom holds an Australian Financial Services Licence.

23. The custodian of the DomaCom Fund is Perpetual Corporate Trust Ltd (the Custodian ).

February to July 2015

24. In February 2015, Mr Benson and his mother, brother and sister resolved at a family meeting to invest in residential property in student accommodation and other relatively low cost, relatively high return opportunities. Mr Benson ' s mother is a self-funded retiree living in Melbourne. Mr Benson ' s brother and sister set up their own self-managed superannuation funds shortly after the February meeting.

25. On 4 March 2015, the Responsible Entity issued a product disclosure statement. This document is referred to in

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Aussiegolfa ' s application for units. It is not necessary to refer to this document in detail.

26. In March 2015, Mr Benson and members of his family inspected the Burwood Property, being a studio apartment in a student accommodation complex. They decided to invest in the property through the DomaCom Fund by Mr Benson ' s mother acquiring 50 per cent of the units in a sub-fund of the DomaCom Fund, and Mr Benson and his sister (through their respective superannuation funds) each agreeing to purchase 25 per cent of the units in the sub-fund. Mr Benson ' s brother decided not to participate in the acquisition of any units.

27. On 31 March 2015, Aussiegolfa completed and forwarded an application to invest in the DomaCom Fund. The application was for a minimum investment of $20,000 to establish an account in the DomaCom Fund and acknowledged that Mr Benson had received a product disclosure statement and that, if the application for Aussiegolfa to become an investor were accepted, the investment would be " subject to the terms and conditions of the Constitution and Product Disclosure Statement " , as amended from time to time.

28. On or about 2 April 2015, Aussiegolfa paid $20,000 and, shortly thereafter, Aussiegolfa paid an additional $8,080, for the acquisition of 28,080 $1 units in a sub-fund. The $28,080 paid by Aussiegolfa was held by the Responsible Entity in a cash pool (the Cash Pool ) pending acquisition by the Responsible Entity of the Burwood Property.

29. On 24 June 2015, the Responsible Entity issued a product disclosure statement (the June 2015 Product Disclosure Statement ). Extracts from this document are set out below.

30. On 17 July 2015, the Responsible Entity issued a supplementary product disclosure statement, dealing specifically with a proposed sub-fund that planned to invest in the Burwood Property (the Supplementary Product Disclosure Statement ). Extracts from this document are set out below.

31. In July 2015, DomaCom completed due diligence, contract review and valuation procedures in respect of the Burwood Property.

The acquisition of the units - July and August 2015

32. On 21 July 2015, the Custodian entered into a contract to purchase the Burwood Property for $104,000. The settlement date was 18 August 2015.

33. Upon entry into the contract to purchase the Burwood Property and payment of the initial deposit, the Burwood Sub-Fund (being a sub-fund numbered DMC0114AU) was established within the DomaCom Fund, and a class of units unique to the sub-fund was created.

34. Ross Laidlaw, the director and Chief Operating Officer of DomaCom, gave evidence below that a new sub-fund was created with the issue of a new and unique class of units as soon as a binding contract to purchase the property was entered into and the initial deposit paid. The Responsible Entity did not pass a resolution to amend the Constitution to create the new units; the new class of units was created by the DomaCom system. An Asia Pacific Investment Register or APIR code was then allocated to the units. APIR codes are standard identifiers for products in the financial services industry.

35. On 23 July 2015 and 17 August 2015, funds held for Aussiegolfa in the Cash Pool were applied towards the acquisition of units in the Burwood Sub-Fund. DomaCom provided various statements in relation to the Benson Fund, including a periodic statement and transaction history for the period from 1 July 2015 to 30 June 2016. That statement showed the creation of units on 23 July 2015 and 17 August 2015. Aussiegolfa acquired in total 25 per cent of the units in the Burwood Sub-Fund. Mr Benson ' s mother acquired 50 per cent of the units in the Burwood Sub-Fund, and the superannuation fund of Mr Benson ' s sister and her husband acquired 25 per cent.

36. The application that had been made on 31 March 2015 appears to have been taken as sufficient for the creation of the Burwood Sub-Fund and for the allocation of units to Aussiegolfa pursuant to the Constitution.

37. On 17 August 2015, the Custodian entered into an exclusive leasing and managing authority with Student Housing Australia for the leasing of the Burwood Property.

38. On 18 August 2015, settlement of the purchase of the Burwood Property took place.

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August 2015 to July 2017

39. The first two student tenants for the Burwood Property found by Student Housing Australia were persons unknown, and unrelated, to Mr Benson or to the Benson Fund. The first tenant agreed to pay a monthly rental of $869 for the premises from 8 January 2016 to 23 January 2017. The second tenant also agreed to pay a monthly rent of $869 for the premises for the period from 20 February 2017 until 15 February 2018.

40. On 3 April 2017, Mr Benson (as DomaCom ' s Victorian State 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.

41. On 11 April 2017, Mr Benson submitted a completed application form to Student Housing Australia on behalf of his daughter to lease the Burwood Property from 20 February 2018 at a monthly rent of $869. Mr Benson was identified in the application as the parental guarantor guaranteeing his daughter ' s obligations under the proposed lease.

42. Also on 11 April 2017, Student Housing Australia wrote to Ms Benson congratulating her on securing the tenancy of the Burwood Property at the rent that had been proposed in the application. At about the same time, Ms Benson signed a standard form Residential Tenancy Agreement for the property providing for rental for the period 20 February 2018 until 19 February 2019 at the monthly rent of $869.

43. The primary judge found, at [8] of the Federal Court Reasons, that the selection of Ms Benson as the tenant of the Burwood Property was explained, in part, by the desire of Mr Benson and DomaCom to test the ability for residential properties held by self-managed superannuation funds to be used by related parties.

44. As at 21 April 2017, Aussiegolfa ' s units in the DomaCom Fund (or the Burwood Sub-Fund) represented 7.83 per cent of the assets of the Benson Fund.

45. In May 2017, Aussiegolfa commenced the Federal Court proceeding.

46. On 3 July 2017, the Commissioner made the Determination, being a determination under s 71(4) of the SIS Act that the units held by Aussiegolfa as trustee for the Benson Fund in the Burwood Sub-Fund were to be treated as an investment in a related trust of the Benson Fund.

47. I now set out the key relevant provisions of: the Constitution as it stood in 2015; the June 2015 Product Disclosure Statement; the Supplementary Product Disclosure Statement; and the Constitution as at May 2017. I refer to both the Constitution as at 2015 and the Constitution as at May 2017, as there is an issue whether the relevant version is the former or the latter or both.

The Constitution as at 2015

48. At the hearing of the appeals, both parties proceeded on the basis that the copy of the Constitution (dated 13 December 2013) at AB, Pt C, tab 89.4 represented the Constitution as it stood during 2015 (the Commissioner ' s outline of submissions in the Federal Court Appeal, fn 16; T9). I note that the Appeal Book (at Pt C, tab 89.5) contains a Supplemental Constitution dated 31 January 2014, which contains some amendments, but these do not appear to be material for present purposes. I note also that the primary judge stated, at [12] of the Federal Court Reasons, that the Constitution had been altered between the time of Aussiegolfa ' s application for units (31 March 2015) and the time when the units were acquired (July and August 2015). However, on the hearing of the appeals, neither party referred to any material changes having been made during 2015. The amended joint chronology does not refer to any such changes.

49. The only party to the Constitution was the Responsible Entity. The recital stated that the Constitution was declared by the Responsible Entity to be the constitution for a trust to be known as the DomaCom Fund.

50. The word " Assets " was defined in cl 1.1 as meaning " cash, investments, rights, income and other property of the Fund or a Class from time to time " .

51. The word " Class " was defined as meaning " a class of Units as determined by the Responsible Entity under clause 3.4 " . It should

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be noted that the Constitution did not refer to sub-funds, but to classes of units.

52. The word " Fund " was defined as meaning " the trust constituted by this Constitution and known as the DomaCom Fund " .

53. The expression " Relevant Class " was defined as meaning " a Class of Units " . The definitions in cl 1.1 also included:

Relevant Liabilities means the Liabilities referable to the Relevant Class. Where Liabilities are referable to more than one Relevant Class, then for the purposes of the definition of Relevant Liabilities, such amount of the Liabilities will be included as the Responsible Entity determines is properly referable to the Relevant Class.

Relevant Scheme Assets means the Assets referable to the Relevant Class. Where an Asset is referable to more than one Relevant Class, then for the purposes of the definition of Relevant Scheme Assets, such amount of the Asset will be included as the Responsible Entity determines is properly referable to the Relevant Class.

54. " Unit " was defined as meaning " a unit in the Fund created under this Constitution " .

55. Clause 2.1 stated that, as from the Commencement Date (being the date of commencement of the Fund), Perpetual Trust Services Ltd was, and had agreed to act as, the responsible entity of the Fund.

56. Clause 2.2 was in the following terms:

Declaration of Trust

  • (a) The Assets shall vest in the Responsible Entity on the Commencement Date and the Responsible Entity declares that it shall hold:
    • (i) the money held in the Wholesale Cash Pool on trust for the Wholesale Cash Holders; and
    • (ii) the money held in the Retail Cash Pool on trust for the Retail Cash Holders; and
    • (iii) each Asset that is acquired on behalf of a Class of Unit Holders, on trust for Unit Holders in that Class ; and
    • (iv) any other Assets that are not held on trust pursuant to clause 2.2(a)(ii) on trust for the Members generally,

    in accordance with the terms of this Constitution.

  • (b) The Responsible Entity shall clearly identify the Assets as property of the Fund and hold the Assets separately from the assets of the Responsible Entity and any other managed investment scheme to the extent required by the Corporations Act.

(Emphasis added.)

57. Clause 3.1 was as follows:

Interests and Units

  • (a) The beneficial interest in the Fund is divided into:
    • (i) interests in the Cash Pool based on each Cash Holder ' s proportionate interest in the Cash Pool; and
    • (ii) Units.
  • (b) Subject to the rights attaching to a Class of Units, each Unit confers on the Unit Holder a beneficial interest in the Assets as an entirety and does not confer an interest in a particular Asset.

58. Clause 3.4 was in the following terms:

Classes

  • (a) Subject to section 601FC(1)(d) of the Corporations Act, the Responsible Entity may create different Classes of Units in the Fund with such rights, obligations and restrictions attaching to the Units of such Classes as it determines . If the Responsible Entity so determines in relation to a particular Class, the terms of issue of those Units in that Class may:
    • (i) eliminate, reduce or enhance any of the rights or obligations which would otherwise be carried by such Units; and
    • (ii) provide for conversion of Units from one Class to another Class and, if the Responsible Entity so determines, change the number of Units on such a conversion.

    For the avoidance of doubt, each Cash Pool is a separate Class of interest in the Fund.

  • (b) The Responsible Entity in making any determination of a variable properly referable to a Class under this Constitution must ensure that:

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      (i) any variable which relates only to a particular Class, and does not relate to other Classes, is solely referrable to the Class to which it relates; and
    • (ii) any variable that relates to more than one Class is apportioned between those Classes either:
      • (A) in the same proportions as the aggregate value of Units on issue in each Class as at the most recent Valuation Time bears to the aggregate value of Units in all Classes to which the variable relates on issue at the most recent Valuation Time; or
      • (B) if the methodology referred to in clause 3.4(b)(ii)(A) would result in the Responsible Entity breaching its obligation to treat Unit Holders who hold different Classes fairly in contravention of section 601FC(1)(d) of the Corporations Act, then the Responsible Entity must apportion the relevant variable that relates to more than one Class in a manner that treats Unit Holders in different Classes fairly.
  • (c) Notwithstanding the generality of this clause 3, the Responsible Entity must only issue Classes of Units in the following circumstances:
    • (i) the Relevant Scheme Assets for each Class comprise a particular Property and all proceeds and income received by the Responsible Entity in respect of, or relating to, that Property ;
    • (ii) the Relevant Liabilities are attributed to a Class such that they can only be met from Relevant Scheme Assets ;
    • (iii) Relevant Scheme Assets for a Class are not encumbered in relation to Relevant Liabilities of another Class ; and
    • (iv) the Responsible Entity is not entitled to be indemnified out of the Relevant Scheme Assets of a Class in relation to Relevant Liabilities of another Class .
  • (d) Within 7 days of the first issue of Units in a Class, the Responsible Entity must notify ASIC of the establishment of that Class.

(Emphasis added.)

In the present case, although there is no document to this effect, it is clear that, on or about 23 July 2015, the Responsible Entity created a class of units associated with the Burwood Property, pursuant to cl 3.4(a). These units were referred to in the contemporaneous documents as units in the Burwood Sub-Fund. One of the issues discussed during the hearing of the appeals was whether the Responsible Entity also made a determination, pursuant to cl 3.4(a), as to the " rights, obligations and restrictions " attaching to this class of units. This issue is discussed later in these reasons.

59. Clause 3.6 was as follows:

Rights attaching to Units

  • (a) A Unit Holder holds a Unit subject to the rights and obligations attaching to that Unit.
  • (b) Each Unit Holder agrees not to:
    • (i) interfere with or question the rights, powers, authority, discretion or obligations of the Responsible Entity under this Constitution;
    • (ii) exercise any right, power or privilege in respect of an Asset;
    • (iii) lodge a caveat in respect of any Asset; or
    • (iv) require that any Asset be transferred to the Unit Holder or any other person.
  • (c) A Unit Holder may not create any mortgage, charge, pledge, lien, encumbrance, arrangement for the retention of title or any other Security Interest over a Unit without the consent of the Responsible Entity.

60. Clause 4 dealt with the application procedure. Clause 4.1 provided that the Responsible Entity could at any time offer: (a) a Cash Holder the right to deposit money in the Cash Pool in anticipation of subscribing for units; and (b) units for subscription or sale, and could invite persons to make offers to apply for or buy units. Clause 4.3 relevantly provided that each application for an interest in the Cash Pool or units would, unless the Responsible Entity approved otherwise, " conform with the form and content requirements of any relevant disclosure document " .

61.

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Clause 5 dealt with the application price for units in a class. In relation to a " subsequent issue " of units, that is, an issue after the initial issue, there was a formula for the issue price. It was provided that the references to " Net Asset Value " , " Transaction Charge " and the " number of Units on issue " were variables to be determined by the Responsible Entity in respect of the relevant class in accordance with cl 3.4.

62. Clause 8 dealt with the withdrawal price of units. A formula was set out for calculating the withdrawal price. It was provided that, for the purposes of the formula, where there was more than one class on issue, " Net Asset Value " , " Transaction Charge " and the " number of Units on issue " were variables to be determined by the Responsible Entity in respect of the relevant class in accordance with cl 3.4.

63. Clause 11 dealt with valuation of assets. Clause 11.2 provided that the Responsible Entity could determine the " Net Asset Value " of a class at any time. It also provided that the Responsible Entity was required to determine the " Net Asset Value " of a class in certain circumstances, as there set out.

64. Clause 12 dealt with income and distributions. Clause 12.4 provided that the Responsible Entity was required to determine the " Net Income " of each class for each financial year. Clause 12.5 dealt with the method of calculation of the " Net Income " for each class to the extent that no determination was made under cl 12.4. Clause 12.6 provided that, " [s]ubject to the rights, restrictions and obligations attaching to any particular Unit or Class " , unit holders were entitled in the proportions set out in cl 12.7 to the " Net Income " for the financial year. Clause 12.7(c) was in the following terms:

Subject to the rights, obligations and restrictions attaching to any particular Unit or a Class, each Unit Holder ' s Distribution Entitlement for a Financial Year shall be determined in accordance with the following formula:

  • A x B
  • C
  • Where:
  • A is the amount determined by the Responsible Entity in accordance with clauses 12.4 and 12.5 to be distributable for each Class for the relevant Financial Year;
  • B is the aggregate of the number of Units of each Class held by the Unit Holder at 5.00 p.m. on the Distribution Calculation Date; and
  • C is the aggregate of the total number of Units of each Class on issue at 5.00 p.m. on the Distribution Calculation Date.

Two observations may be made about this clause. The first is that the distribution entitlement was expressed to be " [s]ubject to the rights, obligations and restrictions attaching to any particular Unit or a Class " . The second is that, if the formula operated, the net income distributable to a unit holder was derived from the amount determined to be distributable for each class.

65. Clause 12.11 was in the following terms:

Capital distributions

The Responsible Entity may, at any time, distribute the capital referable to a particular Class to the Unit Holders. Subject to the rights, obligations and restrictions attaching to any particular Unit or Class, a Unit Holder is entitled to that proportion of the capital to be distributed as is equal to the number of Units of a Class held by that Unit Holder on a date determined by the Responsible Entity divided by the number of Units of the same Class on issue on that date. A distribution under this clause may be in cash or of Assets.

66. Clause 12.13 was as follows:

Categories and source of income

The Responsible Entity may keep separate accounts for each Class of different categories or sources of income, or deductions or credits for tax purposes, and may allocate income, deductions or credits from a particular category or source to particular Unit Holders of a particular Class. The Responsible Entity must allocate income and expenses referable to a particular Class to that Class and must allocate all other income and expenses on a fair and reasonable basis across all Classes.

67.

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Clause 12.19 (classes) provided that, for the avoidance of doubt, the rights of a unit holder under cl 12 were " subject to the rights, restrictions and obligations attaching to any particular Unit or the Class " .

68. Clause 13.2 set out specific powers of the Responsible Entity. These included the power to " create different Classes with different rights and entitlements " .

69. Clause 15 dealt with remuneration and expenses of the Responsible Entity. Clause 15.1 provided that, subject to the Corporations Act and cl 15.9, the Responsible Entity was entitled to deduct from the " Assets of the Fund " , a management fee determined by the Responsible Entity and notified to unit holders up to certain maximum percentage amounts. Clause 15.2(a) provided that, subject to cl 15.1, the Responsible Entity could determine different fees for different classes. Clause 15.2(b) provided:

If the Responsible Entity determines that different Management Fees are payable with respect to different Classes, then for the purpose of calculating Management Fees for a Class pursuant to clause 15.1, the Responsible Entity may allocate Assets and Liabilities of the Fund to specific Classes and the term " Gross Asset Value " in clause 15.1, is taken to mean the " Gross Asset Value " of Assets attributed to the specific Class. Management Fees for different Classes will be charged against the Assets of that Class.

70. Clause 15.9 was as follows:

Class Expenses

Subject to the Corporations Act, where more than one Class is on issue and the Responsible Entity may make a determination that an Expense, or part of an Expense, is to be a Class Expense in relation to a Class, but if no determination is made under this clause, then:

  • (a) in respect of fees of the Responsible Entity which are charged to a particular Class, the GST on those fees and the corresponding reduced input credit or input credit (as the case may be) that arises in connection with a fee payable or supply in respect of a Class, is to be referable to that Class; and
  • (b) any other Expenses under this clause 15 is to be referable to all Units on an equal basis.

71. Clause 18.1 was as follows:

Responsible Entity ' s indemnity

In addition to any indemnity available to the Responsible Entity under the law or this Constitution, but subject to the Corporations Act, the Responsible Entity has a right to be fully indemnified out of the Assets, in respect of all Expenses, Liabilities, costs and any other matters in connection with the Fund and against all actions, proceedings, costs, claims and demands brought against the Responsible Entity in its capacity as responsible entity of the Fund in respect of any matter or thing done or omitted ( Indemnified Matter ) except:

  • (a) in the case of the Responsible Entity ' s own fraud, negligence or wilful default; and
  • (b) in respect of the overhead expenses of the Responsible Entity.

72. Under cl 18.3, the Responsible Entity could pay out of " the Assets " any amount for which it would be entitled to be indemnified under cl 18.1.

73. Clause 21.2 provided that, subject to the Corporations Act and any other approval required by law, the Responsible Entity could by deed replace or amend the Constitution.

74. Clause 23 dealt with termination. Under cl 23(a), the Fund terminated on the earlier of certain specified events, one of which was the day 80 years less one day from the commencement of the Fund. Clause 23(b) was as follows:

A Class of Units terminates on the earlier of:

  • (i) the date determined by the Responsible Entity as the date on which the Class of Units is to be terminated, being a date at least 30 days after the date of the provision of notice of such termination to all Unit Holders in that Class;
  • (ii) termination of the Fund under clause 23(a);
  • (iii) the date determined by a resolution of Unit Holders of that Class passed by at least 75% of all Unit Holders in that Class;
  • (iv) subject to clause 23(c), the term set out in the Initial Disclosure Document for the

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    Class ( Initial Term ) (which must not exceed 15 years from the date of the first issue of Units in that Class), unless the term is extended by an ordinary resolution of Unit Holders of that Class (present in person or by proxy);
  • (v) when the Unit Holders of a Class:
    • (A) approve the change of the trustee of a Class from the Responsible Entity to another entity; or
    • (B) pass an extraordinary resolution (as defined in the Corporations Act) to change the custodian;
  • (vi) the date determined by the Responsible Entity as the date on which the Class of Units is to be terminated, being a date at least 30 days after the date of the provision of notice of such termination to all Unit Holders in that Class.

75. Clause 24 dealt with termination and winding up. Clause 24.1 was as follows:

Realisation of Assets

  • (a) On the termination and winding up of the Fund, the Responsible Entity shall:
    • (i) not issue further interests in the Cash Pool and will pay to the Cash Holders the balance of the Cash Holders ' beneficial interest in the Cash Pool (after payment of all Liabilities and expenses attributable to the Cash Holders);
    • (ii) not issue or redeem Units in the Fund; and
    • (iii) sell and realise the Assets and, subject to clauses 24.2(c), 24.3 and 24.5, distribute to the Unit Holders the amount calculated in accordance with clause 24.2(a).
  • (b) On the termination and winding up of a Class of Units, the Responsible Entity shall:
    • (i) not issue or redeem Units in that Class; and
    • (ii) sell and realise the Asset held for that Class and, subject to clauses 24.2(c), 24.3 and 24.5, distribute to the Unit Holders the amount calculated in accordance with clause 24.2(a).

76. Clause 24.2(a) was as follows:

Subject to the terms of issue of any Unit or Class (as set out in this Constitution), the net proceeds of realisation, after making allowance for all Liabilities (actual and anticipated) of the Fund (in the case of the termination of the fund) or a Class (in the case of a termination of a Class of Units) and meeting the expenses (including anticipated expenses) of the termination, shall be distributed pro rata by the Responsible Entity to Unit Holders in the relevant Class according to the number of Units they hold less the value of any Assets transferred to or to be transferred to that Unit Holder under clause 24.2(b). The Responsible Entity may distribute proceeds of realisation in instalments.

77. Clause 29 provided that the " Constitution binds the Responsible Entity and each present and future Cash Holder or Unit Holder … in accordance with its terms (as amended from time to time) as if each of them had been a party to this Constitution " .

78. Clause 30 provided that, except as required by the Corporations Act , all obligations of the Responsible Entity that could otherwise be implied or imposed by law or equity were expressly excluded to the extent permitted by law.

The June 2015 Product Disclosure Statement

79. The June 2015 Product Disclosure Statement was issued on 24 June 2015. Under the heading " Important Notice & Disclaimer " on the first page, it stated that the document related to an offer of interests in the DomaCom Fund consisting of interests in the Cash Pool and units in sub-funds to be established in the DomaCom Fund. It stated that a supplementary product disclosure statement would be issued with details in respect of each underlying property. Further down that page, it was stated that:

None of the Responsible Entity, DomaCom or any of their directors, advisers, agents or associates in any way guarantee the performance of the DomaCom Fund, any return of capital or any particular rate of return on an investment in the DomaCom Fund and, to the maximum extent permitted by law, they each deny liability for any loss or damage suffered by any person investing in the DomaCom Fund. Investors should note that the DomaCom Fund includes a number of Sub-Funds. The assets of one

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Sub-Fund are not available to satisfy liabilities in another Sub-Fund .

(Emphasis added.)

80. Section 2 of the document was headed " Overview of the DomaCom Fund " . This set out a series of questions and answers. Alongside the question, " What is the DomaCom Fund? " it was stated:

The DomaCom Fund is designed to simulate investment in direct property. The DomaCom Fund facilitates investment in a fractional interest in a property, being the Underlying Property held by a Sub-Fund.

DomaCom will place the details for each property on the DomaCom Website and an investor that wishes to invest in that property will be issued units in a Sub-Fund which will acquire and hold the Underlying Property on behalf of the Unit Holders, provided sufficient capital is raised to purchase that Underlying Property.

In order to invest in a Sub-Fund an Investor must first open an account in the Cash Pool by depositing a minimum of $2,500. Once an Investor has chosen the property in which they wish to invest, they can participate in a Book Build to indicate their interest in investing in the identified property. If sufficient interest is generated and if DomaCom is subsequently successful in purchasing the property, a Sub-Fund is created and the Investor ' s funds are transferred from the Cash Pool to the Sub-Fund to acquire and hold the Underlying Property.

81. In response to the question, " How does investing in a Sub-Fund differ from other forms of property investment? " , it was stated:

Investing in a Sub-Fund allows an Investor to:

  • • choose the Underlying Property in which they seek to invest; and
  • • acquire a beneficial interest in the Underlying Property held by the Sub-Fund .

(Emphasis added.)

82. In section 4, which concerned management of the DomaCom Fund, it was stated that the legal relationship between an investor and the Responsible Entity was subject to " the terms of this PDS (including any relevant Supplementary PDS), the Application Form and the Constitution, as well as applicable laws including but not limited to the common law, trust law and relevant legislation " .

83. Section 6 was headed " What can I expect as a Unit Holder in a Sub-Fund? " . It was stated that the product disclosure statement provided " detailed information on the operation of the DomaCom Fund, the risks of investing and an Investor ' s rights and obligations as an Investor in the DomaCom Fund " . In response to the question, " Is an Investor in a Sub-Fund a direct investor in the Underlying Property? " , it was stated in part as follows:

No. Even though an investment in a Sub-Fund simulates an investment directly in the Underlying Property, it is important to note that it is a simulation only and investors have not invested directly in an Underlying Property. Investors acquire a beneficial interest in an Underlying Property by holding Units in a Sub-Fund that holds the Underlying Property which entitles investors to receive a share of the Net Income earned in relation to the Underlying Property and, ultimately, the proceeds of sale of the Underlying Property on termination of the Sub-Fund . This is similar to, but not the same as, a direct investment in a share of the Underlying Property.

(Emphasis added.)

84. It was also stated, in section 6.4, that the " DomaCom Fund will distribute 100% of the Net Income it receives in respect of an Underlying Property as distributions to Sub-Fund Unit Holders " . In section 6.7, it was stated that each " Underlying Property will be held for the ultimate benefit of the Unit Holders in the relevant Sub-Fund " .

The Supplementary Product Disclosure Statement

85. The Supplementary Product Disclosure Statement was issued on 17 July 2015. On the front page, it stated that investors in the DomaCom Fund were invited to participate in a proposed sub-fund that planned to invest in the Burwood Property. The first page of the document stated in part as follows:

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None of the Responsible Entity, DomaCom Ltd ( DomaCom ) or any of their directors, advisers, agents or associates in any way guarantee the performance of the Sub-Fund, any return of capital or any particular rate of return on an investment in the Sub-Fund and, to the maximum extent permitted by law, they each deny liability for any loss or damage suffered by any person investing in the Sub-Fund. Investors should note that the DomaCom Fund consists of a number of Sub-Funds. Each Sub-Fund is a separate trust and the assets of one Sub-Fund are not available to satisfy liabilities in another Sub-Fund .

This SPDS sets out information regarding the [Burwood Property] Sub-Fund, a proposed Sub-Fund of the DomaCom Fund.

The proposed Sub-Fund will only invest in a single real estate asset (referred to in this SPDS as the Underlying Property ). If the capital raising program for the Underlying Property is unsuccessful, all of the Investors with an Active Bid do not accept the offer under this SPDS or the DomaCom Fund fails to purchase the Underlying Property, the Sub-Fund will not be created and an Investor ' s Quarantined Funds will be released after expenses are deducted. An Investor has the opportunity to elect to participate in this proposed Sub-Fund and (if the Sub-Fund is created) obtain exposure only to the Underlying Property described in this SPDS. An investment in this Sub-Fund will not provide exposure to any other real estate investments in the DomaCom Fund.

(Emphasis in italics added.)

The Constitution as at May 2017

86. It is convenient now to refer to the Constitution as it stood as at May 2017. This document was annexure " RAL-1 " to Mr Laidlaw ' s affidavit of 11 May 2017. A copy of the document is at AB, Pt C, tab 90.5. The document is a consolidated version of the Constitution, incorporating various amendments that had been made over time to the Constitution.

87. The definition of " Assets " in cl 1.1 of the Constitution had been amended from the 2015 version of the Constitution. The definition as at May 2017 provided that Assets meant " cash, investments, rights, income and other property of the Fund " - the words " or a Class from time to time " had been omitted.

88. The definitions of " Class " , " Fund " , " Relevant Class " , " Relevant Liabilities " , " Relevant Scheme Assets " and " Unit " were in substantially the same terms.

89. Clause 2.1 was in substantially the same terms. Clause 2.2, however, was in different terms. The clause as at May 2017 was as follows:

Declaration of Trust

  • (a) The Assets shall vest in the Responsible Entity on the Commencement Date and the Responsible Entity declares that it shall hold the Assets on Trust for the Members in accordance with the terms of this Constitution.
  • (b) The Responsible Entity shall clearly identify the Assets as property of the Fund and hold the Assets separately from the assets of the Responsible Entity and any other managed investment scheme to the extent required by the Corporations Act.

The clause no longer stated that the Responsible Entity declared that it held " each Asset that is acquired on behalf of a Class of Unit Holders, on trust for Unit Holders in that Class " .

90. Clause 3.1 of the Constitution as at 2015 (dealing with interests and units) was now numbered cl 4.1. It was in substantially the same terms.

91. The subject matter of cl 3.4 of the Constitution as at 2015 was now dealt with, in slightly different terms, in cl 4.4. Clause 4.4 of the Constitution as at May 2017 was in the following terms:

Classes

  • (a) Subject to this Constitution and the Corporations Act, the Responsible Entity may create different Classes of Units in the Fund. If the Responsible Entity so determines in relation to a particular Class, the terms of issue of those Units in that Class may :
    • (i) have different rights, obligations and restrictions ; and
    • (ii) provide for conversion of Units from one Class to another Class and, if the

      ATC 20838

      Responsible Entity so determines, change the number of Units on such a conversion.
  • For the avoidance of doubt, each Cash Pool is a separate Class of interest in the Fund.
  • (b) The Responsible Entity in making any determination of a variable properly referable to a Class under this Constitution must ensure that:
    • (i) any variable which relates only to a particular Class, and does not relate to other Classes, is solely referrable to the Class to which it relates; and
    • (ii) any variable that relates to more than one Class is apportioned between those Classes either:
      • (A) in the same proportions as the aggregate value of Units on issue in each Class as at the most recent Valuation Time bears to the aggregate value of Units in all Classes to which the variable relates on issue at the most recent Valuation Time; or
      • (B) if the methodology referred to in clause 4.4(b)(ii)(A) would result in the Responsible Entity breaching its obligation to treat Unit Holders who hold different Classes fairly in contravention of section 601FC((1)(d) of the Corporations Act, then the Responsible Entity must apportion the relevant variable that relates to more than one Class in a manner that treats Unit Holders in different Classes fairly.
  • (c) Notwithstanding the generality of this clause 4, the Responsible Entity must only issue Classes of Units in the following circumstances:
    • (i) the Relevant Scheme Assets for each Class comprise specific Assets and all proceeds and income received by the Responsible Entity in respect of, or relating to, those Assets;
    • (ii) the Relevant Liabilities are attributed to a Class such that they can only be met from Relevant Scheme Assets;
    • (iii) Relevant Scheme Assets for a Class are not encumbered in relation to Relevant Liabilities of another Class ; and
    • (iv) the Responsible Entity is not entitled to be indemnified out of the Relevant Scheme Assets of a Class in relation to Relevant Liabilities of another Class .
  • (d) Within 7 days of the first issue of Units in a Class, the Responsible Entity must notify ASIC of the establishment of that Class.

(Emphasis added.)

It may be observed that cl 4.4(c) was very similar to cl 3.4(c) of the Constitution as at 2015.

92. Clause 3.6 of the Constitution as at 2015 (rights attaching to units) was now numbered 4.6. It was in substantially the same terms.

93. Clause 4.12 of the Constitution as at May 2017, which did not have an equivalent in the Constitution as at 2015, stated as follows:

For the avoidance of doubt, the Assets vested in the Responsible Entity under this Constitution give rise to a single trust, and notwithstanding any other clause in this Constitution including clauses 2.2, 4.1 and 24, no Unit or Class of Units gives rise to a distinct trust.

94. The clauses dealing with the application procedure (cl 4 of the Constitution as at 2015; cl 5 of the Constitution as at May 2017), the application price (cl 5 of the Constitution as at 2015; cl 6 of the Constitution as at May 2017), the withdrawal price of units (cl 8 of the Constitution as at 2015; cl 9 of the Constitution as at May 2017) and the valuation of assets (cl 11 of the Constitution as at 2015; cl 12 of the Constitution as at May 2017) were (for present purposes) in substantially the same terms in both versions of the Constitution.

95. The topic of income and distributions (cl 12 of the Constitution as at 2015) was now dealt with in cl 13. Clauses 13.1 to 13.4 were in different terms to the corresponding clauses in the Constitution as at 2015 (including cl 12.7, set out above). The distribution entitlement of a unit holder was now dealt with in cl 13.4. This clause set out a formula that was not referable to a class of units (unlike cl 12.7(c) of the earlier version). The clause was expressed to be " [s]ubject to the rights, obligations and

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restrictions attaching to any particular Unit or a Class " .

96. The clauses dealing with capital distributions (cl 12.11 of the 2015 version; cl 13.9 of the May 2017 version) and categories and sources of income (cl 12.13 of the 2015 version; cl 13.12 of the May 2017 version) were in substantially the same terms. Clause 12.19 of the Constitution as at 2015 (classes) did not appear in the May 2017 version of the Constitution.

97. The topic of the Responsible Entity ' s remuneration and expenses (cl 15 of the 2015 version) was dealt with in cl 16 of the May 2017 version. Clause 16.2(a) of the May 2017 version provided that, subject to cl 16.1, the Responsible Entity could determine different fees for different classes. Clause 16.2(b) was in substantially the same terms as cl 15.2(b), which has been set out above.

98. There do not appear to be any material differences between clauses 13.2, 15.9, 18.1, 18.3, 21.2, 23(a), 23(b), 24.1, 24.2(a), 29 and 30 of the 2015 version of the Constitution and the corresponding clauses of the Constitution as at May 2017.

Key legislative provisions

99. The key legislative provisions for the purposes of the issues raised by the appeals are contained in the SIS Act. The relevant date for most of the issues is the date when the primary judge gave judgment in the Federal Court proceeding (14 December 2017). I set out the provisions as they stood at that date. There does not appear to be any material difference for present purposes between the relevant provisions as at that date and those provisions as in force during the 2015-16 and 2016-17 years of income.

100. The first two issues raised by the Federal Court Appeal concern the in-house asset rules. Part 8 of the SIS Act was headed " In-house asset rules applying to regulated superannuation funds " . (The Benson Fund was a regulated superannuation fund.) The object of the Part, as set out in s 69, was to set out rules about the level of the in-house assets of regulated superannuation funds.

101. Section 84(1) of the SIS Act relevantly provided that each trustee of a regulated superannuation fund was required to take all reasonable steps to ensure that the provisions of Div 3 of Pt 8 were complied with. Division 3 included s 82, which provided as follows:

  • (1) This section applies to a regulated superannuation fund.
  • (2) If the market value ratio of the fund ' s in-house assets as at the end of:
    • (a) the fund ' s 2000-2001 year of income; or
    • (b) a later year of income;

    exceeds 5%, the trustee of the fund, or, if the fund has a group of individual trustees, the trustees of the fund, must prepare a written plan.

  • (3) The plan must specify the amount (the excess amount ) worked out using the formula:

  • (4) The plan must set out the steps which the trustee proposes, or, if the fund has a group of individual trustees, the trustees propose, to take in order to ensure that:
    • (a) one or more of the fund ' s in-house assets held at the end of that year of income are disposed of during the next following year of income; and
    • (b) the value of the assets so disposed of is equal to or more than the excess amount.
  • (5) The plan must be prepared before the end of the next following year of income.
  • (6) Each trustee of the fund must ensure that the steps in the plan are carried out.

As noted above, Aussiegolfa ' s units in the DomaCom Fund (or the Burwood Sub-Fund) represented 7.83 per cent of the assets of the Benson Fund. Accordingly, if the investment constituted an in-house asset, the requirements of s 82 were engaged.

102. The expression " in-house asset " was defined in s 71 of the SIS Act. Section 71(1) relevantly provided as follows:

For the purposes of this Part, an in-house asset of a superannuation fund is an asset of the fund that is a loan to, or an investment in, a related party of the fund, an investment in a related trust of the fund ,

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or an asset of the fund subject to a lease or lease arrangement between a trustee of the fund and a related party of the fund, but does not include: …

(h) an investment in a widely held unit trust …

(Emphasis added.)

103. The expression " related trust " was defined in s 10(1) as follows:

related trust , of a superannuation fund, means a trust that a member or a standard employer-sponsor of the fund controls (within the meaning of section 70E), other than an excluded instalment trust of the fund.

104. Section 70E, referred to in that definition, relevantly provided as follows:

Control of trust

  • (2) For the purposes of sections 70B, 70C and 70D, an entity controls a trust if:
    • (a) a group in relation to the entity has a fixed entitlement to more than 50% of the capital or income of the trust; or
    • (b) the trustee of the trust, or a majority of the trustees of the trust, is accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of a group in relation to the entity (whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed companies, partnerships or trusts); or
    • (c) a group in relation to the entity is able to remove or appoint the trustee, or a majority of the trustees, of the trust.

    Group in relation to an entity

  • (3) For the purposes of subsection (2):

    group , in relation to an entity, means:

    • (a) the entity acting alone; or
    • (b) a Part 8 associate of the entity acting alone; or
    • (c) the entity and one or more Part 8 associates of the entity acting together; or
    • (d) 2 or more Part 8 associates of the entity acting together.

It is accepted that the Benson Fund, together with Mr Benson ' s mother and the superannuation fund of Mr Benson ' s sister and her husband, had a fixed entitlement to 100 per cent of the distributable income and capital of the Burwood Sub-Fund (Aussiegolfa ' s outline of submissions in the Federal Court Appeal, [12]). Mr Benson ' s mother and Aussiegolfa were both " Part 8 Associates " of Mr Benson within the meaning of s 70B. It follows that, if there was a distinct trust associated with the class of units known as the Burwood Sub-Fund units, then: a group in relation to Mr Benson had a fixed entitlement to more than 50 per cent of the capital or income of the trust; Mr Benson therefore controlled the trust within the meaning of s 70E(2)(a); and the trust was a " related trust " of the Benson Fund within the definition of that expression in s 10(1).

105. As set out above, one of the exceptions to the meaning of " in-house asset " was an investment in a widely held unit trust. This concept was defined in s 71(1A) as follows:

For the purposes of paragraph (1)(h), a trust is a widely held unit trust if:

  • (a) it is a unit trust in which entities have fixed entitlements to all of the income and capital of the trust; and
  • (b) it is not a trust in which fewer than 20 entities between them have:
    • (i) fixed entitlements to 75% or more of the income of the trust; or
    • (ii) fixed entitlements to 75% or more of the capital of the trust.

For this purpose, an entity and the Part 8 associates of the entity are taken to be a single entity.

106. A further relevant provision is s 71(4). This provided as follows:

If:

  • (a) apart from this subsection, an asset of a fund consists of a loan, an investment, or an asset subject to a lease or lease arrangement, other than an in house asset; and
  • (b) the Regulator, by written notice given to a trustee of the fund, determines that the asset is to be treated, with effect from the day on which the notice is given, as if the asset were a loan to, an investment in, or an asset subject to a lease or lease arrangement

    ATC 20841

    with, a specified related party or related trust of the fund, including a person taken to be a standard employer-sponsor of the fund under section 70A;

then, despite paragraphs (1)(a) to (j), the asset is taken, for the purposes of this Part, to be a loan to or an investment in the related party or related trust, or an asset subject to a lease or lease agreement between a trustee of the fund and the related party.

107. Although not relied upon by either party, I note by way of context and for completeness that s 69A, headed " Sub-funds to be treated as funds " , provided as follows:

A sub-fund within a regulated superannuation fund is taken for the purposes of this Part to be a regulated superannuation fund if the sub-fund satisfies the following conditions:

  • (a) the sub-fund has separately identifiable assets and separately identifiable beneficiaries; and
  • (b) the interest of each beneficiary of the sub-fund is determined by reference only to the conditions governing that sub-fund.

108. I turn now to the legislative provisions relating to the sole purpose test. These are relevant to the third issue raised by the Federal Court Appeal. Part 7 of the SIS Act was headed " Provisions applying only to regulated superannuation funds " . The object of that Part, as set out in s 61, was to set out special rules that apply only to regulated superannuation funds. Section 62, headed " Sole purpose test " , was in the following terms:

  • (1) Each trustee of a regulated superannuation fund must ensure that the fund is maintained solely:
    • (a) for one or more of the following purposes (the core purposes) :
      • (i) the provision of benefits for each member of the fund on or after the member ' s retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged (whether the member ' s retirement occurred before, or occurred after, the member joined the fund);
      • (ii) the provision of benefits for each member of the fund on or after the member ' s attainment of an age not less than the age specified in the regulations;
      • (iii) the provision of benefits for each member of the fund on or after whichever is the earlier of:
        • (A) the member ' s retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged; or
        • (B) the member ' s attainment of an age not less than the age prescribed for the purposes of subparagraph (ii);
      • (iv) the provision of benefits in respect of each member of the fund on or after the member ' s death, if:
        • (A) the death occurred before the member ' s retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged; and
        • (B) the benefits are provided to the member ' s legal personal representative, to any or all of the member ' s dependants, or to both;
      • (v) the provision of benefits in respect of each member of the fund on or after the member ' s death, if:
        • (A) the death occurred before the member attained the age prescribed for the purposes of subparagraph (ii); and
        • (B) the benefits are provided to the member ' s legal personal representative, to any or all of the member ' s dependants, or to both; or
    • (b) for one or more of the core purposes and for one or more of the following purposes (the ancillary purposes ):
      • (i) the provision of benefits for each member of the fund on or after the termination of the member ' s employment with an employer who had, or any of whose associates

        ATC 20842

        had, at any time, contributed to the fund in relation to the member;
      • (ii) the provision of benefits for each member of the fund on or after the member ' s cessation of work, if the work was for gain or reward in any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged and the cessation is on account of ill-health (whether physical or mental);
      • (iii) the provision of benefits in respect of each member of the fund on or after the member ' s death, if:
        • (A) the death occurred after the member ' s retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged (whether the member ' s retirement occurred before, or occurred after, the member joined the fund); and
        • (B) the benefits are provided to the member ' s legal personal representative, to any or all of the member ' s dependants, or to both;
      • (iv) the provision of benefits in respect of each member of the fund on or after the member ' s death, if:
        • (A) the death occurred after the member attained the age prescribed for the purposes of subparagraph (a)(ii); and
        • (B) the benefits are provided to the member ' s legal personal representative, to any or all of the member ' s dependants, or to both;
      • (v) the provision of such other benefits as the Regulator approves in writing.
  • (1A) Subsection (1) does not imply that a trustee of a regulated superannuation fund is required to maintain the fund so that the same kind of benefits will be provided:
    • (a) to each member of the fund; or
    • (b) in respect of each member of the fund.
  • (2) Subsection (1) is a civil penalty provision as defined by section 193, and Part 21 therefore provides for civil and criminal consequences of contravening, or of being involved in a contravention of, that subsection.
  • (3) An approval given by the Regulator for the purposes of subsection (1) may be expressed to relate to:
    • (a) a specified fund; or
    • (b) a specified class of funds.

The Federal Court Reasons

109. The primary judge outlined the factual background at [1]-[18] of the Federal Court Reasons. This part of his Honour ' s reasons has been substantially reproduced above.

110. His Honour noted, at [12], that there was some uncertainty about which versions of the Constitution and of the product disclosure statement governed the rights in question. Noting the evidence of Mr Laidlaw to the effect that the units representing the Burwood Sub-Fund did not exist until after acquisition of the Burwood Property, which occurred between July and August 2015, the primary judge considered the relevant terms of the Constitution to be those that were operative as at July 2015 and the relevant product disclosure statement to be the June 2015 Product Disclosure Statement. However, perhaps because of the conflicting dates in the footers of the documents or because of the way the material was presented, his Honour then referred to provisions of the Constitution as it stood in May 2017 as if this was the version of the Constitution as at July 2015.

111. At [19] of the Federal Court Reasons, the primary judge referred to the relevant provisions of the SIS Act concerning in-house assets. His Honour identified, at [20], the question whether the units were an investment in a " related trust " of the Benson Fund. His Honour noted that Aussiegolfa accepted that the other holders of the units in the Burwood Sub-Fund, namely Mr Benson ' s mother and his sister ' s superannuation fund, were Part 8 associates for the purposes of s 70E of the SIS Act. Thus, his Honour said, there was a group within the meaning of s 70E in relation to Aussiegolfa. His Honour noted Aussiegolfa ' s submissions that the group did not

ATC 20843

have fixed entitlements to more than 50 per cent of the capital or income of the DomaCom Fund because Aussiegolfa, together with Mr Benson ' s mother and his sister ' s superannuation fund, held less than one per cent of the units in the DomaCom Fund. His Honour noted that the same was not true, however, if the relevant trust was the Burwood Sub-Fund rather than the DomaCom Fund.

112. The primary judge held, at [21], that, despite a number of provisions of the Constitution that were consistent with the DomaCom Fund being a single trust, " the Constitution created the Burwood Sub-Fund as a separate trust in respect of which a group in relation to the Benson Fund had a fixed entitlement to more than 50 per cent of the capital or income of the trust " . His Honour ' s reasons for this conclusion, at [21]-[22], were as follows (noting that the references to clauses of the Constitution are to the Constitution as at May 2017):

21. … Clause 5.3 of the Constitution required the application by each member of the group, including Aussiegolfa, for an interest in units in conformity with the relevant disclosure documents. Clause 5.1 permitted the responsible entity to invite applications, and both the product disclosure statement dated 24 June 2015 and the supplementary product disclosure statement dated 17 July 2015 were invitations to participate in a proposed SubFund with plans to invest in the Burwood property. The supplementary product disclosure statement specifically stated, as previously mentioned, that each SubFund was " a separate trust " with the assets of one SubFund not being available to satisfy liabilities in another SubFund. Even putting that statement aside, however, the terms of the Constitution, consistently with the product disclosure statement and the supplementary product disclosure statement (which were both contemplated by the Constitution), require the conclusion that a trust was created in respect of the Burwood property held by the responsible entity through DomaCom.

22. Clause 4.1 expressly divided the " beneficial interest " in the DomaCom Fund as between interests in the Cash Pool and units (whatever else may have been intended by clause 4.12). Part of the beneficial interest in the fund was, thus, divided into units such that the responsible entity had separate fiduciary duties to the unit holders of the Burwood SubFund. Clause 4.4 permitted the responsible entity to create different classes of units with distinctly different rights, obligations and restrictions and, for the avoidance of doubt, it was made clear that each Cash Pool was a separate class of interest in the fund. The units issued by the responsible entity could only be issued in respect of specific assets and all proceeds and income received by the responsible entity in respect of those assets were to be dealt with as the relevant scheme assets for the class comprising those assets. Each subfund related to an identifiable item of property which was held by the trustee on trust pursuant to the specific terms of the Constitution referable to that asset. The income and distributions of the fund were governed by clause 13 of the Constitution which provided that the whole of the net income in respect of each subfund is received by the holders of the units referrable to the subfund in accordance with a formula. The responsible entity may have trust obligations to other beneficiaries in respect of other property but it owes no fiduciary duties to the other beneficiaries in respect of the Burwood property which it holds for the benefit of the unit holders of the Burwood SubFund. The rights and entitlements of the units in the Burwood SubFund constitutes 100% of the distributable income from the Burwood property. The unit holders of the Burwood subfund are entitled to 100% of the capital relating to the Burwood property and no other member of DomaCom has an entitlement to the income or capital in relation to the Burwood property. Although clause 19.1 provided that the responsible entity had a general entitlement to indemnity, clause 4.4(c)(iv) provided that the responsible entity was not entitled to be indemnified out of the relevant scheme assets of a class in relation to relevant liabilities of another class.

113.

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The primary judge held, at [23], that the " conclusion that the Burwood Sub-Fund is a separate trust carries the consequence that it is not a widely held unit trust within the meaning of s 71(1)(h) " .

114. Accordingly, the primary judge concluded that Aussiegolfa ' s units in the DomaCom Fund (or the Burwood Sub-Fund) constituted an in-house asset.

115. The primary judge then considered the issue relating to the sole purpose test. His Honour stated, at [29], that it was a question of fact whether the sole purpose test would continue to be satisfied upon the grant of a lease to Ms Benson, referring to
Randwick Corporation v Rutledge (1959) 102 CLR 54 at 94 ;
Ryde Municipal Council v Macquarie University (1978) 139 CLR 633 at 644-645 ; and
News Limited v South Sydney District Rugby League Football Club Limited (2003) 215 CLR 563 at [18] .

116. His Honour concluded that entry into the lease with Ms Benson would cause Aussiegolfa to breach the sole purpose test. His Honour reasoned as follows at [30]-[31]:

30. A factual difficulty for Aussiegolfa in the present case about whether the leasing to Ms Benson causes Aussiegolfa to breach the sole purpose test arises from the candidly frank statement by Mr Benson that the use of the Burwood property by a lease to his daughter was to test " the related party use of residential property " within self-[managed] superannuation funds. 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 .

31. Even without the inference from Mr Benson ' s statement, however, the facts do not support the conclusion that the leasing to Ms Benson would not cause Aussiegolfa to breach the sole purpose test. A high standard was adopted by s 62 of the SIS Act as an important pillar to ensure that self-managed superannuation funds achieve the objectives of providing retirement benefits and not current day use or benefits. A collateral purpose of providing housing for a relative is not amongst the core purposes, or the ancillary purposes, in s 62 and is inconsistent with the underlying objective of not providing present benefit or use to members of a self-managed superannuation fund or to relatives of the members. In Case 43/95
[1995] 95 ATC 374 the Administrative Appeals Tribunal said at [24]:

24. In addition to the above, it may be that there are isolated incidents which, viewed in the overall context of the way in which a superannuation fund is being maintained, are so incidental, remote or insignificant, that they cannot, having regard to the objects sought to be achieved by the Act, be regarded as constituting a breach of the sole purpose test. Such incidents will be rare. The legislature, by adopting the " sole purpose " test, has expressly determined that a strict standard of compliance should be adhered to. Under the Act, the test requires more than the presence of a dominant or principal purpose in the maintenance of a superannuation fund - it requires an exclusivity of purpose commensurate with that purpose being the " sole purpose " . In the instant case, in the absence of other relevant factors, the fact that Mr A and his friend were enabled as the result of the investment by the fund, after paying the annual subscription fee, to play golf could by itself be regarded as so incidental or remote as to not amount to an infringement of the test. However, given that there were other relevant factors surrounding the way in which that asset was maintained and viewed in the context of the findings reached by the tribunal with respect to other investments made by the fund - in the units in Mr A ' s family trust and in the Sorrento property

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- a circumstance which in isolation may be insignificant or remote becomes more significant. Having regard to the totality of the way in which the three nominated assets - the shares in Z Pty Ltd, the Swiss chalet and the Sorrento property - were maintained, the tribunal is satisfied that Mr A had a second purpose, namely to make the assets available for his use and the use of his family and friends so that it could not be said that the " sole purpose " in the maintenance of the assets was for the benefit of the members of the fund. The fact that other assets of the fund may not have been utilised for a purpose other than a purpose to give benefits to the members has been considered by the tribunal but does not affect its decision.

The facts in that case are plainly not the same as those in this proceeding, however, its reasoning is apt and broadly applicable. There may be circumstances in which a lease to a related party would not breach the sole purpose test but the evidence in this case is that the purpose of the investment by Aussiegolfa in student housing accommodation through DomaCom was, in part, to provide housing to Mr Benson ' s daughter. The Commissioner relied upon a number of other facts for that conclusion which were unpersuasive (such as the fact that Mr Benson was providing a guarantee and might be called upon to provide economic support to his daughter), but in this case it is sufficient that a purpose of the investment by Aussiegolfa in DomaCom was to provide accommodation to a relative of Mr Benson . The conclusion that the sole purpose test would be breached by the lease to Ms Benson is not also required by the fact that Mr Benson gave a parental guarantee, or was the person who forwarded the application for his daughter to the agent, but is required by the fact that a purpose of Aussiegolfa in acquiring the units in the DomaCom Fund was to provide accommodation to a relative of [Mr] Benson .

(Emphasis added.)

117. It followed that his Honour declined to make the declarations sought by Aussiegolfa and dismissed the proceeding.

The AAT Reasons

118. As noted above, the proceeding in the Tribunal was an application by Aussiegolfa for review of the Determination. The Tribunal outlined the background facts and legislative provisions at [1]-[14] of its reasons (the AAT Reasons ).

119. After setting out s 71(4) of the SIS Act, the Tribunal concluded, at [15], that " the objective condition that needs to exist before a determination can be made under s 71(4)(b) is absent because the reasons and conclusions in the Federal Court proceedings would also lead the Tribunal to decide that the investment by Aussiegolfa in DomaCom was in units which are assets that consist of an in-house asset " . It followed that the Determination was to be set aside.

120. However, the Tribunal also went on to indicate that, if Aussiegolfa ' s units did not constitute an in-house asset, the Tribunal would have affirmed the Determination. The Tribunal stated at [15]-[16]:

15. … It is desirable, however, to say that the Commissioner ' s determination would have been affirmed if the asset had been found to have consisted of an investment other than an in-house asset. That is because the investment would be in substance, and in practical effect, the same as an in-house asset and within the purpose sought to be achieved by limiting investments in in-house assets to 5%, even though it might in legal form not be an in-house asset.

16. The primary policy objective of the superannuation investment rules was described in the explanatory memorandum accompanying the 1999 amendments as follows:

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, consistently with the SIS requirements, for the purpose of providing

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retirement income and not for providing current day benefits.

The practical effect and substance of the investment by Aussiegolfa in DomaCom was to provide current day benefits to a party related to the Benson Fund. 100% of the income and capital of the Burwood Sub-Fund is held and applied by the responsible entity for the sole benefit of Aussiegolfa, and the other Part 8 associates. The unit holders control the duration of the Burwood Sub-Fund and have the power to terminate it or extend it. No other members of the DomaCom Fund have any rights or entitlements in relation to the capital or income of the Burwood Sub-Fund. The rights and entitlements attached to the units of the Burwood Sub-Fund do not confer upon Aussiegolfa and the other Part 8 associates any entitlement to income or capital that is not part of the Burwood Sub-Fund. The use of the Burwood property by Ms Benson would have resulted in the asset being an in-house asset if leased directly by Aussiegolfa. The investment by Aussiegolfa in the units in the Burwood Sub-Fund effectively exposes the assets of the Burwood Sub-Fund to the same risks that the in-house asset rules were designed to limit and allow indirectly the assets of the Benson Fund to be accessed for present day use.

The Federal Court Appeal

121. Aussiegolfa ' s amended notice of appeal contains twenty grounds, but Aussiegolfa does not press grounds 7, 10, 15 and 16. The remaining grounds of appeal are as follows:

The Burwood Sub-Fund is not an " in-house asset "

  • 1. The trial judge misconstrued the DomaCom Fund ' s Constitution in holding that an investment by the Appellant ( Aussiegolfa ) in units in the DomaCom Fund linked to the Burwood Sub-Fund was an investment in a related trust and therefore an in-house asset within s-s s 71(1) and 70E(2) of the Superannuation Industry (Supervision) Act 1993 ( SISA ).
  • 2. In particular, the trial judge erred by treating the investment in the DomaCom Fund as though it were instead an investment in a separate trust consisting of the Burwood Sub-Fund, the unitholders in which were confined to Aussiegolfa, Mr Benson ' s mother, and his sister ' s superannuation fund.
  • 3. The trial judge ought to have found that, by reason of various provisions in the Constitution, in particular the cl 1.1 definitions of " Assets " , " Fund " , " Unit " , Unit Holder, and " Unit Holding " ; cl 2.1 (responsible entity); paras 2.2(a) and (b) (declaration of trust), cl 2.3 (name of fund); paras 4.1(a) and (b) (interests and units); cl 4.10 (perpetuity period); cl 4.12 (confirming DomaCom Fund is a single trust); cl 19.1 (trustee ' s right of indemnity), and cl 25.1 (termination) Aussiegolfa ' s investment was in the DomaCom Fund, not in a separate trust constituted by the Burwood Sub-Fund.
  • 4. The trial judge erred by disregarding evidence that DomaCom Fund is treated as a single managed investment scheme under the Corporations Act 2001, and prepares financial reports and tax returns on the basis that it is a single entity.
  • 5. The trial judge erred by treating the terms of the Product Disclosure Statement ( PDS ) and Supplementary Product Disclosure Statement ( SPDS ) as relevant to determining whether Aussiegolfa ' s investment is in a trust consisting of the Burwood Sub-Fund but failing to indicate which of those terms (if any) were incorporated into the constitution of the DomaCom Fund and the Burwood Sub-Trust or were relevant to construing the Constitution.
  • 6. The trial judge took irrelevant considerations into account to the extent that his Honour relied on the PDS and SPDS in identifying or construing the terms of the DomaCom Fund.
  • …
  • 8. The trial judge erred in law in finding that the unit holders of each sub-fund had exclusive rights to the actual income and capital of the asset held in their sub-fund.
  • 9. The trial judge ought to have found that the scheme of the Constitution was to give unit holders the right to a return on their investment equal to the net income and

    ATC 20847

    capital produced by the asset in their sub-fund.
  • …
  • 11. The trial judge erred in finding that Aussiegolfa had invested in a separate trust constituted by the Burwood Sub-Fund; therefore its investment in the DomaCom Fund was not an investment in a widely held unit trust for the purposes of s 71(1)(h) of SISA.
  • 12. The trial judge ought to have found that Aussiegolfa ' s investment was in the DomaCom Fund, and was therefore an investment in a widely held unit trust for the purposes of s 71(1)(h) of SISA

The " sole purpose test " will not be breached

  • 13. The trial judge erred by treating DomaCom Fund ' s purpose of leasing the Burwood property to Mr Benson ' s daughter to test " the related party use of residential property " as affecting adversely the compliance by the Benson Family Superannuation Fund (the BFSF ) with s 62 of SISA.
  • 14. The trial judge ought to have found that DomaCom Fund ' s purpose for leasing the Burwood property to Ms Benson did not affect the purpose for which Aussiegolfa maintained its investment in DomaCom Fund or at least that, provided DomaCom Fund ensured that the Burwood property produced an arm ' s length return, DomaCom Fund ' s purpose was consistent with the BFSF satisfying the sole purpose test in s 62 of SISA.
  • …
  • 17. The trial judge erred in law and misconstrued SISA when his Honour held that Aussiegolfa would breach s 62 of SISA if the DomaCom Fund leased a residential property to Ms Benson.
  • 18. The trial judge should have found that because the BFSF would provide no financial benefits to a member or to a member ' s Part 8 associates, and because the lease to Ms Benson was on arm ' s length terms, there was no breach of the sole purpose test in s 62.
  • 19. Alternatively to 18, the trial judge ought to have found that the leasing of a residential property by the DomaCom Fund to Ms Benson was at the most incidental to the purposes for which the BFSF was maintained within the sense described by Gibbs A-CJ in
    Ryde Municipal Council v Macquarie University (1978) 139 CLR 633 at pp644-645.
  • 20. Further to 17, 18 and 19 above, if the trial judge ' s construction of s 62 were correct it would lead to a breach of s 62 whenever a superannuation fund leases " business real property " as defined in s 66(5) to a related party of the fund in accordance with s 71(1)(g) of SISA, or whenever a superannuation fund acquires listed securities or business real property from a related party in accordance with s 66(2).

122. These appeal grounds essentially raise the three issues summarised at [15] above, namely the Related Trust Issue, the Widely Held Trust Issue and the Sole Purpose Issue.

123. The Commissioner relies on a notice of contention by which he contends, in summary, that, if, contrary to the Commissioner ' s primary contentions, the Full Court finds that the primary judge erred in holding that, apart from s 71(4) of the SIS Act, Aussiegolfa ' s units constituted an investment in a related trust of the Benson Fund and did not constitute an investment in a widely held trust, then by reason of s 71(4) and the Determination, the units in the Burwood Sub-Fund are taken to be an investment in a related trust of the Benson Fund. Accordingly, it is contended that the appeal should be dismissed.

The AAT Appeal

124. The Commissioner ' s notice of appeal sets out two questions of law as follows:

125.

ATC 20848

The Commissioner relies on one ground in his notice of appeal. This states that, in the Federal Court Appeal, Aussiegolfa contends that the primary judge erred in finding that Aussiegolfa ' s units constituted an investment in a related trust of the Benson Fund and did not constitute an investment in a widely held unit trust. It is then stated that if, contrary to the contentions of the Commissioner, Aussiegolfa ' s units did not constitute an investment in a related trust of the Benson Fund and/or did constitute an investment in a widely held unit trust, then the Tribunal ought to have affirmed the Determination. It is thus apparent that the Commissioner ' s appeal in respect of the Tribunal decision is contingent on Aussiegolfa succeeding on the in-house asset issues in the Federal Court Appeal.

126. Aussiegolfa relies on a notice of contention. It contends that the decision of the Tribunal should be affirmed on grounds other than those relied on by the Tribunal. Aussiegolfa contends that, if Aussiegolfa ' s units did not constitute an in-house asset, the Tribunal should have found that the Commissioner should not have made the Determination. Aussiegolfa challenges [15]-[16] of the AAT Reasons.

The Related Trust Issue

127. I now turn to consider the issues raised by the Federal Court Appeal. The first issue, referred to as the Related Trust Issue, is whether the primary judge erred in concluding that the units held by Aussiegolfa in the DomaCom Fund (or the Burwood Sub-Fund) constituted an investment in a " related trust " of the Benson Fund for the purposes of Pt 8 of the SIS Act. This issue is raised by grounds 1-6, 8 and 9 of the amended notice of appeal. It is convenient to deal with these grounds together.

Aussiegolfa ' s submissions

128. Aussiegolfa submits that the Burwood Sub-Fund was not a separate trust; accordingly, it was not a " related trust " of the Benson Fund for the purposes of the in-house asset rules. In its submissions generally, Aussiegolfa relies on the Constitution as at May 2017, on the basis that the declarations it sought related to this version of the Constitution.

129. Aussiegolfa submits that the statement in the Supplementary Product Disclosure Statement that the Burwood Sub-Fund was a " separate trust " was incorrect and non-binding. It is submitted that it is not clear what significance the primary judge attributed to this statement - whether he regarded it as introducing a contractual term or whether he considered it to be relevant in construing the Constitution. Aussiegolfa submits that: the product disclosure statements largely consisted of disclosures required by the Corporations Act , marketing material and various explanations; most of the statements in these documents were incapable of forming part of the contract between the DomaCom Fund and Aussiegolfa, because they were not promissory in nature (see
Gunns Finance Pty Ltd (Receivers and Managers Appointed) (in Liquidation) v Sithiravel [2016] NSWSC 1543 at [179] and [182]) ; the statement that each sub-fund was a separate trust is an example of this; the statement was purely descriptive, not contractual in nature, incorrect and in any event did not override the Constitution.

130. Aussiegolfa submits that: the primary judge erred in construing the Constitution as conferring on unitholders in the Burwood Sub-Fund direct and exclusive proprietary rights in the Burwood Property and its income; rather, the Constitution entitled Aussiegolfa to distributions equivalent to the income produced by the investment and, ultimately, to the sale proceeds; but the source of those distributions was the general assets of the DomaCom Fund.

131. Aussiegolfa makes the following submissions in relation to [22] of the Federal Court Reasons:

132. Aussiegolfa submits that the primary judge overlooked provisions in the Constitution (as at May 2017) that created the DomaCom Fund as a single trust: see the definition of " Fund " ; cl 4.1(b); cl 4.12; and cl 24 (providing for a single perpetuity period). It is submitted that the primary judge also overlooked other relevant matters, namely: the DomaCom Fund was administered as a single trust; the Responsible Entity issued annual audited financial statements for the DomaCom Fund; the DomaCom Fund lodged a single tax return; and the DomaCom Fund was a registered managed investment scheme under Ch 5C of the Corporations Act (noting that s 601FC(1)(d) provides that the responsible entity is required to treat members who hold interests in the same class equally and members who hold interests of different classes fairly).

The Commissioner ' s submissions

133. The Commissioner submits that the relevant assets for the purposes of applying s 71(1) of the SIS Act are the units in the Burwood Sub-Fund held by Aussiegolfa. The Commissioner submits that: those units are units in a trust that was created over the Burwood Property; and the Burwood Property is held by the Responsible Entity (through the Custodian) on trust for the holders of the Burwood Sub-Fund units. The Commissioner relies on the following five propositions (some of which overlap) in support of those submissions:

134. In making these submissions, the Commissioner relies on the Constitution and the product disclosure statements. The Commissioner submits that the Burwood Sub-Fund was created, and the units in that sub-fund were issued, under the Constitution as at 2015, and following the publication by the Responsible Entity of the June 2015 Product Disclosure Statement and the Supplementary Product Disclosure Statement. The Commissioner relies on the product disclosure statements as constituting a determination by the Responsible Entity of the rights and obligations attaching to the Burwood Sub-Fund units. In the alternative, the Commissioner relies on those documents as secondary evidence of such a determination.

135. In his submissions generally, the Commissioner refers to both the Constitution as at 2015 and the Constitution as at May 2017. The Commissioner submits that in order to ascertain the rights and obligations attaching to the Burwood Sub-Fund units, one starts with the Constitution as at 2015, the June 2015 Product Disclosure Statement and the Supplementary Product Disclosure Statement; and it is then necessary to consider whether there has been a change in the rights and obligations since that time.

Consideration

ATC 20851

136. The relevant assets for the purposes of applying s 71(1) of the SIS Act were the units held by Aussiegolfa in the DomaCom Fund (or the Burwood Sub-Fund). These were units of a particular class, being a class associated with the Burwood Property. The units of this class were referred to in contemporaneous documents as units in the Burwood Sub-Fund. However, it is important to keep in mind that the Constitution did not refer to sub-funds, but to classes of units.

137. The question whether the units held by Aussiegolfa constituted an investment in a " related trust " of the Benson Fund within the meaning of s 71(1) turns on whether there was a separate trust associated with the class of units known as the Burwood Sub-Fund units: see [104] above. If there was a distinct trust associated with that class of units, then Aussiegolfa ' s units constituted an investment in a related trust of the Benson Fund. If there was not a distinct trust associated with the class of units, then Aussiegolfa ' s units did not constitute an investment in a related trust of the Benson Fund. The question whether there was a distinct trust is to be assessed by reference to the general law conception of a trust. This is because the issue raised by the statute is whether the asset is an investment in a " related trust " and it may be assumed that the legislature intended to use the word " trust " , being a legal term, in its general law sense: see
Attorney-General (NSW) v Brewery Employ é s Union of New South Wales (1908) 6 CLR 469 at 531 ; Pearce DC and Geddes RS, Statutory Interpretation in Australia (8th ed, LexisNexis Butterworths, 2014) at [4.13]. Neither party suggested that the word has a special meaning when used in s 71(1).

138. In considering these matters, it is useful to refer to some definitions or descriptions of a " trust " . In Jacobs ' Law of Trusts in Australia (8th ed, LexisNexis Butterworths, 2016), the learned authors refer to the difficulty of defining a trust and state that, if a definition is demanded, then a trust may be defined as " the whole relationship which arises between the parties in respect of the property the subject of the trust, and the obligation of the trustee to the beneficiary and the interest of the beneficiary in the property may be regarded as results flowing from the existence of that relationship " (at [1-03]). In Scott AW, Fratcher WF and Ascher ML, Scott and Ascher on Trusts (5th ed, Aspen Publishers, 2006), the learned authors write, in relation to the definition of a trust, that it is " probably impossible to define any legal term perfectly, so as to include everything that the term includes and to exclude everything else. There are always borderline cases. Most legal definitions are, in the final analysis, distinctions of degree, and words rarely capture them precisely " (at § 2.1.3). It is noted that, notwithstanding these limitations, each of the Restatements of Trusts has attempted to define, or at least describe, an express trust. The definition of an express trust in the Third Restatement was " a fiduciary relationship with respect to property, arising from a manifestation of intention to create that relationship and subjecting the person who holds title to the property to duties to deal with it for the benefit of charity or for one or more persons, at least one of whom is not the sole trustee " : American Law Institute, Restatement (Third) of Trusts (2003) § 2. The authors of Scott and Ascher on Trusts note that, in this definition or description, the following characteristics stand out:

[1] a trust is a relationship; (2) it is a relationship of a fiduciary character; (3) it is a relationship with respect to property, not one involving merely personal duties; (4) it subjects the person who holds title to the property to duties to deal with it for the benefit of charity or one or more persons, at least one of whom is not the sole trustee; and (5) it arises as a result of a manifestation of an intention to create the relationship.

The authors state that it is " the combination of these characteristics that well describes the notion of the trust as it has developed in Anglo-American law " (at § 2.1.3). See also Tucker L, Le Poidevin N and Brightwell J, Lewin on Trusts (19th ed, Sweet & Maxwell, 2015), [1-001]-[1-004].

139. In the particular context of a unit trust, as the High Court said in
CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98 at [15] , " a priori assumptions as to the nature of unit trusts under

ATC 20852

the general law and principles of equity would not assist and would be apt to mislead. All depends, as Tamberlin and Hely JJ put it in
Kent v SS Maria Luisa [No 2] [(2003) 130 FCR 12 at[60]] upon the terms of the particular trust " . The High Court also stated that, in the absence of an applicable statutory definition, the term " unit trust " " does not have a constant, fixed normative meaning " . See also
ElecNet (Aust) Pty Ltd v Commissioner of Taxation (Cth) (2016) 259 CLR 73 at [48]-[49 ] per Kiefel, Gageler, Keane and Gordon JJ, at [85]-[89] per Nettle J.

140. As these definitions or descriptions indicate, a trust is a relationship with respect to property. This requires certainty as to (among other things) the property bound by
the trust: Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 277 per Gummow J, citing
Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246 at 283-285 and Scott AW and Fratcher WF, Scott on Trusts (4th ed, Little, Brown, 1987) at § 76, 77. See also Heydon JD and Leeming MJ, Jacobs ' Law of Trusts in Australia (8th ed, LexisNexis Butterworths, 2016) at [1-06].

141. In considering whether a trust has been established, a relevant enquiry is whether there was an intention to create a trust. In
Byrnes v Kendle (2011) 243 CLR 253 , Heydon and Crennan JJ said (at [105]) that the " authorities establish that in relation to trusts, as in relation to contracts, the search for ' intention ' is only a search for the intention as revealed in the words the parties used, amplified by facts known to both parties " , referring to (among other cases) S
mith v Lucas (1881) 18 Ch D 531 at 542 ;
Commissioners of Inland Revenue v Raphael [1935] AC 96 at 142-143 ;
Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 189-190 ; and
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 121 .

142. It needs to be borne in mind, in drawing on the principles discussed above, that in the present case there is no issue that a trust was created; the question is whether a distinct trust associated with the Burwood Sub-Fund units was created. Nevertheless, the above principles offer some assistance.

143. It is convenient to start by looking at the position as at July 2015, when the Burwood Sub-Fund units were created and the units in that class were issued to unit holders (Aussiegolfa, Mr Benson ' s mother and the superannuation fund of Mr Benson ' s sister and her husband), and then consider whether the position was different under the Constitution as at May 2017.

144. A threshold issue is whether regard may be had and, if so, in what way, to the relevant product disclosure statements (namely, the June 2015 Product Disclosure Statement and the Supplementary Product Disclosure Statement). In circumstances where many of the provisions of the Constitution were expressed to be subject to the rights attaching to a class of units, and the Responsible Entity had the power to create different classes of units " with such rights, obligations and restrictions … as it determines " (cl 3.4(a) of the Constitution as at 2015; see also cl 13.2), it is necessary to consider whether any such determination was made with respect to the Burwood Sub-Fund units. No document has been produced which is, in terms, a determination by the Responsible Entity of rights, obligations and restrictions attaching to the Burwood Sub-Fund units. Nevertheless, given the statements in the product disclosure statements, which include statements as to rights attaching to classes in general and the Burwood Sub-Fund units in particular, the question arises whether there has, in fact, been such a determination. I do not accept the Commissioner ' s submission that the June 2015 Product Disclosure Statement or the Supplementary Product Disclosure Statement, or both of those documents, constituted such a determination or determinations. They are not expressed in the language of a determination, and they are documents prepared for other purposes, in particular to fulfil the disclosure requirements of the Corporations Act . I do, however, accept the Commissioner ' s alternative submission that the product disclosure statements constitute secondary evidence of the making of a determination as to the " rights, obligations and restrictions " attaching to the Burwood Sub-Fund units. The Corporations Act contains detailed requirements as to the content of product disclosure statements (see, eg, ss 1013C, 1013D, 1014A, 1014F). In the context of these provisions, it may be inferred, in the absence of evidence to the contrary, that

ATC 20853

statements in the product disclosure statements as to the rights attaching to the classes of units in general, and the Burwood Sub-Fund units in particular, reflected (and thus constitute secondary evidence of) the making of a determination by the Responsible Entity of the " rights, obligations and restrictions " attaching to the Burwood Sub-Fund units. I would therefore reject Aussiegolfa ' s submission that certain statements contained in the product disclosure statements can be put to one side as being " incorrect " .

145. When the provisions of the Constitution as at 2015 are considered as a whole, they allowed for, indeed facilitated, the creation of a distinct trust associated with a particular class of units. Importantly:

146. It is true that a number of the provisions of the Constitution suggested that a single trust was established. These included the definition of " Fund " , the default position under cl 3.1(b), and the single provision addressed to the perpetuity period. However, significantly, cl 3.1(b) was expressed to be " [s]ubject to the rights attaching to a Class of Units " and the Constitution provided that the Responsible Entity could determine the rights, obligations and restrictions attaching to the units of a class. It is also true that the DomaCom Fund operated as a single managed investment scheme under the Corporations Act and that there was a single responsible entity, investment manager and custodian. Nevertheless, the provisions of the Constitution referred to above demonstrate that the Constitution allowed for, and indeed facilitated, the creation of a distinct trust in connection with each class of units - a distinct relationship between the Responsible Entity and the holders of units of each class with respect to the property referable to the class.

147. While the Constitution allowed for the creation of a distinct trust with respect to each

ATC 20854

class of units, it is still necessary to consider whether or not, with respect to a particular class of units, a distinct class was created. That is because many of the provisions of the Constitution were expressed to be subject to the rights, obligations and restrictions attaching to a class of units. In the case of the Burwood Sub-Fund units, the June 2015 Product Disclosure Statement and the Supplementary Product Disclosure Statement point decisively in favour of the view that a distinct trust was created with respect to the Burwood Sub-Fund units. In particular:

148. Aussiegolfa submits that the provisions of the Constitution conferred an entitlement to an equivalent amount of income, rather than to the income itself. However, on one view at least, the rights as reflected in the June 2015 Product Disclosure Statement went further and conferred an entitlement to a share of the income derived from the relevant property. Further, even if Aussiegolfa ' s analysis is correct, and holders of units in the Burwood Sub-Fund were entitled to an equivalent amount of income as the income derived from the Burwood Property, this is but one factor to be considered in determining whether there was an intention to create, and the creation of, a distinct trust.

149. When the provisions of the Constitution are considered together with the statements in the June 2015 Product Disclosure Statement and the Supplementary Product Disclosure Statement, one is left with the clear and unmistakable impression that there was an intention to create a distinct trust in association with the Burwood Sub-Fund units and that this intention was effective. Treating the product disclosure statements as secondary evidence of a determination by the Responsible Entity, the rights attaching to the Burwood Sub-Fund units were such as to create a trust relationship between the Responsible Entity and the unit holders of that class with respect to the relevant property (namely, the Burwood Property). The class of units which the Responsible Entity created, namely the Burwood Sub-Fund units, comprised a particular class of units with specific rights and entitlements to income and capital relating solely and exclusively to the Burwood Property.

150. It is true that the Responsible Entity ' s right of indemnity was expressed (in cl 18.1) as a right to be fully indemnified out of " the Assets " in respect of " all Expenses, Liabilities, costs and any other matters in connection with the Fund " . But regard must also be had to cl 3.4(c)(iv), which provided that the Responsible Entity was only to issue classes of units in circumstances where (among other things) " the Responsible Entity is not entitled to be indemnified out of the Relevant Scheme Assets of a Class in relation to Relevant Liabilities of another Class " . In light of that provision, the right of indemnity conferred by cl 18.1

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is not necessarily antithetical to the existence of a distinct trust with respect to a class of units.

151. Having regard to the above matters, and considering the matter as at the time of the creation of the class of units known as the Burwood Sub-Fund units, in my view a distinct trust associated with that class was established.

152. I turn now to consider whether the position changed as a result of amendments made to the Constitution between 2015 and May 2017. Many of the provisions discussed above were not amended or were not substantially amended. The principal amendments of present relevance were as follows:

153. Many of these amendments appear to be directed at improving the argument that the Constitution established only a single trust, namely the DomaCom Fund, and not a distinct trust associated with each class of units. However, even if the position is assessed by reference to the Constitution as at May 2017, I consider that there was a distinct trust associated with the Burwood Sub-Fund units. As has been noted, many of the provisions of the Constitution as at 2015 remained unchanged. Further, many of the relevant provisions of the Constitution remained subject to the rights, obligations and restrictions attaching to a class of units, and the Responsible Entity retained the power to create different classes of units with " different rights, obligations and restrictions " (cl 4.4(a) of the Constitution as at May 2017). Thus, whether one is considering the position under the Constitution as at 2015 or the Constitution as at May 2017, it is necessary to have regard to any determination of such rights, obligations and restrictions. For the reasons discussed above, the product disclosure statements constitute secondary evidence of such a determination in respect of the Burwood Sub-Fund units. Taking these matters into account, I do not consider the position to be materially different as at May 2017.

154. Aussiegolfa relies heavily on cl 4.1(b) of the Constitution as at May 2017, which provided that " [s]ubject to the rights attaching to a Class of Units, each Unit confers on the Unit Holder a beneficial interest in the Assets as an entirety and does not confer an interest in a particular Asset " . (In the Constitution as at 2015, the corresponding clause was expressed in the same terms, but numbered cl 3.1(b).) The difficulty with Aussiegolfa ' s reliance on this clause is that the clause is expressed to be " [s]ubject to the rights attaching to a Class of Units " . It is therefore necessary to consider whether a determination was made as to the rights attaching to the Burwood Sub-Fund units and, if so, the content of those rights. This takes one to the product disclosure statements, which, for the reasons given above, constitute secondary evidence of such a determination.

155. Aussiegolfa also relies on cl 4.12 of the Constitution as at May 2017. But, as was accepted by senior counsel for Aussiegolfa in oral submissions (T16), the meaning and effect of the Constitution is an objective matter for the Court to determine. For this reason, only limited weight is to be given to cl 4.12, and I do not consider it to affect the overall analysis.

156. For these reasons, I consider that the primary judge was correct to conclude that there was a distinct trust associated with the Burwood Sub-Fund units. It follows that the primary judge was correct to conclude that the units held by Aussiegolfa in the DomaCom Fund (or the Burwood Sub-Fund) constituted an investment in a " related trust " of the Benson Fund for the purposes of Pt 8 of the SIS Act.

The Widely Held Trust Issue

157. I now turn to consider the Widely Held Trust Issue, which is raised by grounds 11 and

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12 of the amended notice of appeal. As set out above, an investment in a widely held unit trust is an exception to the basic definition of an in-house asset: s 71(1)(h) of the SIS Act. The expression " widely held unit trust " is defined in s 71(1A), which is set out at [105] above. Both parties proceeded on the basis that the question whether the units held by Aussiegolfa constituted an investment in a widely held unit trust turned on the same issue as discussed above, namely whether there was a distinct trust associated with the Burwood Sub-Fund units. It follows from the conclusion I have reached above, namely that there was a distinct trust, that the units held by Aussiegolfa did not constitute an investment in a widely held unit trust. The primary judge was correct to so hold.

158. In light of the conclusions I have reached in relation to the Related Trust Issue and the Widely Held Trust Issue, it is unnecessary to consider the Commissioner ' s notice of contention in the Federal Court Appeal.

The Sole Purpose Issue

159. The Sole Purpose Issue, which is raised by grounds 13, 14 and 17-20 of the amended notice of appeal, is whether the primary judge erred in concluding that the leasing of the Burwood Property to Mr Benson ' s daughter would cause Aussiegolfa to breach the sole purpose test. The question is expressed in a prospective way because, at the time that the primary judge gave judgment, the lease to Ms Benson of the Burwood Property had not yet commenced. It is convenient to continue to express the issue in that way.

160. The sole purpose test, which is contained in s 62 of the SIS Act, has been set out in [108] above. In broad terms, it required the trustee of a regulated superannuation fund to ensure that the fund was maintained solely: (a) for one or more of the core purposes; or (b) for one or more of the core purposes and one or more of the ancillary purposes. The core purposes are matters such as: the provision of benefits for each member of the fund on or after the member ' s retirement; and the provision of benefits for each member on or after the member ' s attainment of an age specified in the regulations. The ancillary purposes include matters such as: the provision of benefits for each member on or after the member ' s cessation of employment on account of ill health; and the provision of benefits in respect of each member of the fund on or after the member ' s death, if the death occurred after the member attained the prescribed age and the benefits are provided to the member ' s legal personal representative or dependants. The Benson Fund was a regulated superannuation fund.

Aussiegolfa ' s submissions

161. Aussiegolfa ' s submissions can be summarised as follows:

The Commissioner ' s submissions

162. The Commissioner ' s submissions can be summarised as follows:

Consideration

163. The primary judge ' s findings as to purpose, at [30]-[31] of the Federal Court Reasons, were expressed in terms of Aussiegolfa ' s investment in the DomaCom Fund and its acquisition of units in the DomaCom Fund. In particular, at [31], his Honour said that " a purpose of the investment by Aussiegolfa in DomaCom was to provide accommodation to a relative of Mr Benson " . His Honour also stated in that paragraph that " a purpose of Aussiegolfa in acquiring the units in the DomaCom Fund was to provide accommodation to a relative of [Mr] Benson " . See also [30]. However, there was no evidence to support the proposition that this was a purpose of Aussiegolfa ' s original investment in the DomaCom Fund (in 2015). The proposal that the Burwood Property would be leased to Ms Benson emerged only in April 2017. It may be that his Honour was intending to refer to Aussiegolfa ' s purpose in maintaining its investment in the DomaCom Fund, rather than its purpose in investing in the first place. However, this is difficult to square with the express reference to a purpose of Aussiegolfa " in acquiring the units " in the DomaCom Fund. Insofar as his Honour found that a purpose of Aussiegolfa in acquiring the units in the DomaCom Fund was to provide accommodation to a relative of Mr Benson, that finding cannot stand. In relation to appellate review of primary fact finding, see
Robinson Helicopter Company Inc v McDermott (2016) 331 ALR 550 at [43] and the cases there cited. See also
Warren v Coombes (1979) 142 CLR 531 and
Aldi Foods Pty Ltd v Moroccanoil Israel Ltd [2018] FCAFC 93 at [2]-[10], [45]-[54] and [169].

164. In light of this error, it is necessary to consider afresh whether the Benson Fund would be maintained other than for the core purposes, or the core purposes and the ancillary purposes, referred to in s 62 upon the leasing of the Burwood Property to Ms Benson. This question is to be determined on the basis of the facts and matters referred to in the Federal Court Reasons. It was not suggested that the Court

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needed to refer to additional materials in order to determine the issue.

165. Prior to the enactment of s 62 of the SIS Act, a number of earlier provisions in effect required a superannuation fund to be established and applied for particular purposes in order to qualify for concessional tax treatment. Other provisions, pertaining to the deductibility of employer contributions to funds for employees, required the payment to be made for particular purposes. In
Driclad Pty Limited v Commissioner of Taxation (Cth) (1968) 121 CLR 45 , the High Court considered ss 23(j) and 66 of the Income Tax and Social Services Contribution Assessment Act 1936 (Cth). Section 23(j) relevantly provided that the following income was exempt income: " the incomes of the following funds, provided that the particular fund is being applied for the purpose for which it was established - (i) a provident, benefit or superannuation fund established for the benefit of employees " . Section 66 provided, in brief summary, that where a taxpayer, " for the purpose of making provision for individual personal benefits, pensions or retiring allowances " for employees, set aside or paid a sum to a fund from which such benefits, pensions or allowances were to be provided, an amount ascertained in accordance with the provision was an allowable deduction. At first instance in the High Court, Taylor J held (at 61-62), in relation to the " A " section of the fund, that the evidence (which included loans by the trustees to the companies) did not indicate that the fund was being used for the benefit of the contributing companies or that it was not being applied for the purpose for which it had been established. Taylor J considered it to be " erroneous to say that the evidence reveals that the trustees were not applying the fund for the purpose for which it was established but, rather, for the benefit of the companies concerned " . Taylor J continued (at 62):

I do not say that if it could be shown that the trustees, in exercising their powers of investment, were applying the fund in derogation of, or, so as to defeat, the rights of employees in the fund as constituted, the conclusion would not follow that the fund was not being applied for the purpose for which it was established. But there is nothing to suggest that this was so in this case.

166. On appeal, Barwick CJ and Kitto J (at 65), with whom McTiernan and Menzies JJ agreed, agreed with Taylor J ' s conclusions in relation to the " A " section of the fund. Barwick CJ and Kitto J also made observations (at 67-68) pertaining to the ' purpose ' requirements of ss 23(j) and 66 in the context of the " B " section of the fund. Their Honours referred to
Compton v Commissioner of Taxation (Cth) (1966) 116 CLR 233 as establishing that, if a fund was not exclusively for the benefit of employees, then it did not fall within s 23(j). Their Honours continued:

Turning to s 66 we find in that section a very precise requirement that the payments allowed as deductions must be for the purpose of making provision for individual personal benefits of employees and for that purpose only. If, therefore, it were the case that the payments were simply made to the trustees of a fund, and, that the fund had been established from which such benefits are to be provided and for another purpose as well, eg, to return to the company as loans payments made by the company to trustees, we ourselves would think that the income of the fund would not be within s 23(j) nor would payments to the fund be allowable deductions under s 66. So, for instance, if a deed were to contain a clause requiring the trustees to lend to taxpayers the payments made by them to the trustees as and when made, and to do so at favourable rates of interest, we would think that much could be said against treating such a deed as constituting a fund falling within either s 23(j) or s 66.

In this case, evidence has shown that the bulk of the moneys in the hands of the trustees were lent to the taxpayers making the payments, but, although the deed permits this, it does not require it, and attention was not directed to the question whether or not there was, towards the end of a financial year, an arrangement whereby payments were made to avoid tax liability and moneys which would otherwise have had to be found to meet that liability were paid to trustees for the benefit of employees and also for return

ATC 20860

to the companies as loans, with the advantage of the payments being, by the terms of the deed, ultimately secured to the shareholders of the companies.

In circumstances that were proved, however, we think that the income of the whole fund, both " A " section and " B " section, was exempt income under s 23(j) and the payments by the companies to the trustees of the fund - " A " section and " B " section - were allowable deductions under s 66.

167. In the first paragraph quoted above, Barwick CJ and Kitto J referred by way of example to a trust deed that required the trustees to lend to the taxpayers the payments made by them as and when made " and to do so at favourable rates of interest " . In that situation, the fund would not be constituted so as to fall within either s 23(j) or 66. On the facts of the case, which included loans by the trustees to the taxpayers of amounts paid by them, and in the absence of evidence of an arrangement as described, their Honours considered the income of the fund to be exempt income under s 23(j) and the payments to be allowable deductions under s 66. The implication is that the loans to the taxpayers making the payments did not, in and of themselves, preclude a conclusion that the fund was being applied for the purpose for which it was established, being a provident, benefit or superannuation fund for the benefit of employees, or the payments by the taxpayers satisfying the purpose requirement in s 66.

168. In 1987, the Occupational Superannuation Standards Act 1987 was enacted. That Act contained, in s 3(1), a definition of " superannuation fund " expressed in terms of sole purpose. " Superannuation fund " was defined as meaning a fund that (among other things):

  • (b) is maintained solely for either or both of the following purposes:
    • (i) the provision of benefits for each member of the fund in the event of the retirement of the member from any business, trade, profession, vocation, calling, occupation or employment in which the member is engaged;
    • (ii) the provision of benefits for dependants of each member of the fund in the event of the death of the member;
  • or for either or both of those purposes and for such ancillary purposes as the [Insurance and Superannuation] Commissioner approves.

It is apparent that, although forming part of a definition rather than an obligation imposed upon the trustee, this definition contained the architecture of the current sole purpose test.

169. By 1992, the definition of " superannuation fund " in the Occupational Superannuation Standards Act 1987 had been expanded: see the joint report of the Australian Law Reform Commission and the Companies and Securities Advisory Committee, Collective Investments: Superannuation , Report No 59 (1992) at [2.1]. The report, which was influential in the formulation of the SIS Act, proceeded on the basis of that definition of superannuation fund: see, eg, [9.24].

170. In 1993, the SIS Act was enacted, containing a sole purpose test, being an obligation imposed on the trustee of a regulated superannuation fund, in s 62. The section has been amended a number of times since the enactment of the Act, but not in ways that are material for present purposes.

171. A number of decisions of this Court have considered provisions concerning the deductibility of employer contributions to funds for employees, in particular
Raymor Contractors Pty Ltd v Federal Commissioner of Taxation (1991) 21 ATR 1410 (Davies, Wilcox and Hill JJ) and
Cameron Brae Pty Ltd v Commissioner of Taxation (2007) 161 FCR 468 (Stone, Allsop and Jessup JJ).

172. Raymor was centrally concerned with s 82AAC of the Income Tax Assessment Act 1936 . Section 82AAC provided in summary that, where a taxpayer " for the purpose of making provision for superannuation benefits " for an eligible employee, set apart or paid an amount to a fund from which the benefits were to be provided, the amount was, subject to certain conditions and exceptions, an allowable deduction. Davies J, with whom Wilcox J agreed, said (at 1412) that the " word ' purpose ' has a meaning which is readily understood. It refers to the end in view " . His Honour also stated:

In s 82AAC(1), the word " purpose " required that the sum set apart or paid in the

ATC 20861

year of income effected a contribution towards superannuation benefits for or for a dependant of an eligible employee. The term did not look primarily to the subjective factors actuating the setting aside or payment of the sum claimed. Thus, in the ordinary case, it was sufficient to found a deduction that a superannuation fund had been established solely for the provision of superannuation benefits for employees and their dependants, that the fund had been maintained for that purpose, that a sum appropriate, having regard to the provisions of s 82AAE and 82AAM, had been set aside or paid into the fund for the fund ' s purposes and that the rights of the employees and dependants to receive benefits from the fund were fully secured. If such were the case, it was not pertinent that the sum was set apart and paid into the fund not out of beneficence but out of a duty imposed by law or by an industrial award and not of consequence that the employer had taken into account in establishing and maintaining the fund that incidental benefits such as taxation benefits or the borrowing of sums from the fund at a low rate of interest could be obtained.

173. Hill J said (at 1423):

There is a fundamental distinction between purpose and motive just as there is ambiguity in the concept of purpose. However as Lord Wright observed in
Crofter Hand Woven Harris Tweed Co v Veitch [1942] AC 435 at 469 , the words:

" motive " , " object " , " purpose " are in application to practical matters difficult strictly to define or distinguish

This difficulty arises in part because " motive " is often used colloquially as meaning " purpose " and because in some cases at least a finding of motivation may lead inexorably to a finding of purpose.

174. His Honour stated that the word " purpose " appeared in various contexts in the Income Tax Assessment Act 1936. In relation to s 82AAC, his Honour stated (at 1423-1424):

In the context of s 82AA, purpose is the object which the taxpayer has in view or in mind. There may be a fine distinction between purpose and intention but it is not necessary to explore that distinction, cf
Plimmer v IRC (NZ) (1957) 7 AITR 286 ; 11 ATD 480 at 483-484. Generally speaking a person will be said to intend the natural and probable consequences of his acts and likewise his purpose may be inferred from them. In the present case the taxpayer ' s purpose in making the payments in each year of income may be inferred from the objective evidence that in the years of income in question benefits were continually being forfeited and only one person was in fact paid out, that person being a director of the appellant. Coupled with the fact that virtually the whole of the contributions were lent back to the contributing companies these facts suggest that the appellant ' s purpose was not to benefit those persons who were members of the fund; or certainly that that was not the sole or dominant purpose in making the contributions in the years in question. …

It is not necessary in this case to determine whether the reference to purpose in s 82AAC is a reference to the sole purpose, or a reference to the dominant or principal purpose. There is however much to be said for the view that the section is concerned with sole purpose, cf Compton , supra, at (CLR) 248 and 252.

175. Cameron Brae was concerned with s 82AAE of the Income Tax Assessment Act 1936 , which provided that a deduction was allowable " in respect of an amount paid by a taxpayer as a contribution to a non-complying superannuation fund … for the purpose of making provision for superannuation benefits for an eligible employee " . The appellant paid $500,000 as a contribution to a fund, and claimed a deduction. Stone J and Allsop J (as his Honour then was) held that the payment was not made for the purpose of making provision for superannuation benefits of an eligible employee, because it did not provide for individual personal benefits for any existing employees of the appellant (at [39]-[49], [54]); cf Jessup J at [112]-[121].

176. Although the cases discussed above concerned other provisions, they usefully discuss the concept of " purpose " in a similar statutory context. (As noted by Gleeson CJ in
News Limited v South Sydney District Rugby League Football Club Limited (2003) 215 CLR 563 at [18] , the appropriate description or characterisation of the end sought to be accomplished (purpose), as distinct from the reason for seeking that end (motive), may depend upon the legislative or other context in which the task is undertaken.) Consistently with the approach taken in the above cases, the word " purpose " in s 62 of the SIS Act is concerned with the way in which the fund is being maintained; the term does not look primarily to the subjective factors actuating the trustee. Further, the statutory context in which s 62 appears does not suggest that a fund will not be treated as being maintained solely for the core purposes, or the core purposes and the ancillary purposes, simply because the trustee enters into a transaction with a related party. The statutory context includes s 66(2) of the SIS Act, which, as noted above, creates an exception to s 66(1) for the acquisition of a listed security acquired at market value and the acquisition of an asset that is " business real property " of the related party acquired at market value. The statutory context also includes s 71(1)(g), which, as noted above, exempts from the in-house asset test real property subject to a lease between the trustee of a regulated superannuation fund and a related party of the fund if the property is business real property of the fund throughout the term of the lease. Another provision forming part of the context is s 109, which relates to investments of a superannuation entity. Section 109(1) provides:

A trustee or investment manager of a superannuation entity must not invest in that capacity unless:

  • (a) the trustee or investment manager, as the case may be, and the other party to the relevant transaction are dealing with each other at arm ' s length in respect of the transaction; or
  • (b) both:
    • (i) the trustee or investment manager, as the case may be, and the other party to the relevant transaction are not dealing with each other at arm ' s length in respect of the transaction; and
    • (ii) the terms and conditions of the transaction are no more favourable to the other party than those which it is reasonable to expect would apply if the trustee or investment manager, as the case may be, were dealing with the other party at arm ' s length in the same circumstances.

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It may be observed that this provision does not preclude non-arm ' s length transactions in the context of the investments of a superannuation entity, but rather requires the terms and conditions of the transaction to be no more favourable to the other party than those which it is reasonable to expect would apply in an arm ' s length transaction.

177. Applying the principles discussed above to the present case, in my view the Benson Fund would not be maintained for a purpose other than the core purposes and the ancillary purposes set out in s 62 upon the leasing of the Burwood Property to Ms Benson. Importantly, in the present case, although the Burwood Property, being the underlying property associated with the Burwood Sub-Fund units held by Aussiegolfa, would be leased to the daughter of the sole member of the Benson Fund, the lease would be at market rent. In these circumstances, there does not appear to be any financial or other non-incidental benefit to be obtained by Ms Benson by leasing this property rather than another; nor does there appear to be any financial or other non-incidental benefit to be obtained by Mr Benson by the property being leased to his daughter rather than another tenant. It is true that Ms Benson would obtain a benefit in the sense that she obtains accommodation. But in circumstances where this is obtained at market rent, it does not appear to be a relevant benefit for present purposes. If and to the extent that there may be some comfort or convenience - from the perspective of Ms Benson or Mr Benson or both - from the arrangement, I would regard these matters as merely incidental benefits in the circumstances of the present case (including, in particular, the fact that the lease was at market rent). I do not consider the fact that Mr Benson submitted the application for lease on Ms Benson ' s behalf, or agreed to act as guarantor of Ms Benson ' s obligations under the lease, to suggest otherwise. These matters do not provide a basis to infer that either Ms Benson or Mr Benson would obtain a benefit from the arrangement other than,

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perhaps, some comfort or convenience. Further, I do not consider the fact that (as the primary judge found) the selection of Ms Benson as the tenant was explained, in part, by the desire of Mr Benson and DomaCom to test the ability for residential properties held by self-managed superannuation funds to be used by related parties, to be a relevant factor. This may be described as a matter going to motive rather than purpose. In any event, it does not affect the analysis of the way in which the fund would be maintained upon the leasing of the property to Ms Benson. In the absence of a financial or non-incidental benefit being obtained by Ms Benson or Mr Benson, and in the absence of any other facts or matters pointing to a collateral purpose, I conclude that the fund would be maintained solely for the core purposes, or the core purposes and the ancillary purposes, set out in s 62 upon the leasing of the Burwood Property to Ms Benson.

178. The above conclusion as to purpose is necessarily dependent on the facts and circumstances of the particular case. For example, the situation would be different if the lease were not at market rent. In the present case, there was strong evidence to support the proposition that the lease was at market rent. (The rent was the same as that paid by the two previous tenants, who had no relationship with Mr Benson or the Benson Fund. Further, the leasing of the property was handled by Student Housing Australia, which was unrelated.) If, however, the lease were not at market rent, then an inference would probably readily be drawn that the fund was being maintained for a collateral purpose, namely to provide discounted accommodation to a relative of a member of the fund, contrary to the sole purpose test. The situation would also be different if the Benson Fund ' s investment policy had been affected by the leasing of the property to Ms Benson. However, there is no suggestion to this effect on the facts and matters referred to in the Federal Court Reasons or in the materials to which we were taken during the hearing of the appeals.

179. For the above reasons, in my view, the primary judge erred in concluding that the leasing of the Burwood Property to Mr Benson ' s daughter in the circumstances set out in these reasons would cause Aussiegolfa to breach the sole purpose test.

Consideration of the AAT Appeal

180. In circumstances where the Commissioner ' s appeal against the Tribunal decision is effectively contingent on Aussiegolfa succeeding on the in-house asset issues in the Federal Court Appeal, it follows from the rejection of the grounds of appeal relating to those issues that the AAT Appeal is to be dismissed. In summary, the Tribunal proceeded on the basis that the units held by Aussiegolfa in the DomaCom Fund (or the Burwood Sub-Fund) constituted an in-house asset. Therefore, the Tribunal reasoned, the condition for the exercise of the Commissioner ' s power to make a determination under s 71(4) of the SIS Act was absent. For the reasons set out above, the units held by Aussiegolfa did constitute an in-house asset. It follows that the Tribunal proceeded on a correct basis and the decision to set aside the Determination was correct. It should be noted that this outcome is consistent with the Commissioner ' s primary position in relation to the appeals.

181. In these circumstances, it is unnecessary to consider Aussiegolfa ' s notice of contention in the AAT Appeal. However, I note for completeness that, had it been necessary to consider the matter, I would not have been persuaded by Aussiegolfa ' s challenge to the Tribunal ' s alternative conclusion that, if Aussiegolfa ' s units did not constitute an in-house asset, the Tribunal would have affirmed the Determination. The thrust of Aussiegolfa ' s submission is that, although the Tribunal was proceeding on an alternative basis, namely that the units held by Aussiegolfa were not an in-house asset, the Tribunal failed to adopt a construction of the Constitution consistent with that outcome in this part of its reasoning. The short answer to this submission is that, in [15]-[16] of the AAT Reasons, the Tribunal focussed on the substance and practical effect of Aussiegolfa ' s investment in the DomaCom Fund (or the Burwood Sub-Fund) rather than assuming a particular construction of the Constitution. In my view, no error has been shown in [15]-[16] of the AAT Reasons.

Conclusion

182. In relation to the Federal Court Appeal, it follows from the conclusion in relation to the Sole Purpose Issue that the appeal is to be allowed in part. It would appear to be appropriate for there to be a declaration reflecting the outcome on the sole purpose test issue notwithstanding the resolution of the in-house asset issues adversely to Aussiegolfa. Aussiegolfa ' s prayer for relief at first instance sought a declaration in relation to the sole purpose test independently of the declarations sought in relation to the in-house asset issues. The resolution of the sole purpose test issue may have significance for the parties independently of the in-house asset issues. The appropriate orders would appear to be:

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It is appropriate to receive submissions from the parties both as to the form of the orders and costs.

183. In relation to the AAT Appeal, the appeal is to be dismissed. In circumstances where the two appeals were heard together, it is appropriate to receive submissions from the parties as to costs. It is convenient to defer making substantive orders in relation to the AAT Appeal, and to make these at the same time as the substantive orders in the Federal Court Appeal.

 

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