Case R71

Judges: HP Stevens Ch

TJ McCarthy M
PM Roach M

Court:
No. 1 Board of Review

Judgment date: 25 July 1984.

---

T.J. McCarthy (Member)

Sometime in the period 26-29 April 1977 A and his wife, B, executed a transfer of a Crown lease of land in favour of A. The agreed consideration was $50,000, but in fact (as both A and B acknowledged) that amount was never paid, although receipts were prepared which purportedly evidenced payment. The subject property was the residence of A and B and was also used as a place of business by B. It was intended by both A and B that A would hold the leasehold interest as trustee of a discretionary trust for the benefit of A, B, C or D as the trustee saw fit. Following instructions given by A and B to their solicitor, the S. Trust was created on 29 April 1977 when E and F settled $100 on A to be held in accordance with the provisions of a Deed of Settlement of the same date, with A, B, C and D being named therein as possible beneficiaries. Thereafter, A dealt with the leasehold interest as an accretion to the trust fund of the S. Trust and treated the rent which B paid to A in respect of the property as income of the S. Trust. A and B had no children and their intended heirs were C and D; the mother of C was E and the mother of D was F.

2. In the tax return of the S. Trust for the year ended 30 June 1979 the net income was returned as $2,337, and A as trustee declared therein that no distribution to the beneficiaries had been made because the entire amount had been set aside to enable repairs and improvements to be made to the property in the future. Relying on sec. 97(1)(a), the Commissioner included one quarter of $2,337 in the assessable income of each of A and B. A objected on the ground that it was ``contrary to declarations made by (A)'', which presumably meant the declaration made by A in the trust return, and B objected on the ground that it was contrary to ``facts known by you'' which presumably also referred to the statement in the trust return.

3. At the hearing counsel for the Commissioner submitted (by way of an alternative submission) that the leasehold interest was held by A in his own right and not as trustee of the S. Trust. The basis of this submission was non-compliance with the Statute of Frauds or sec. 23C of the Conveyancing Act, 1919 (N.S.W.), whichever was the relevant statute. In order to answer this submission I must first ascertain the relevant statute. Certain provisions of the Conveyancing and Law of Property Act, 1898 (N.S.W.) apply in the A.C.T. by virtue of sec. 6 of the Seat of Government Acceptance Act 1909 (Cth.) which adopted the laws in force in N.S.W. immediately before 1 January 1911, the date of acquisition of the Territory by the Commonwealth. Some parts of the Conveyancing Act, 1919 (N.S.W.) are given effect in the A.C.T. by virtue of the Conveyancing Ordinance 1951, the Law of Property (Miscellaneous Provisions) Ordinance 1958 and the Trustee Ordinance 1957, but sec. 23C of the Conveyancing Act, 1919 (N.S.W.) (which was introduced in N.S.W. in 1930) has never been in force in the A.C.T. However, the predecessor of sec. 23C(1)(b) was sec. 7 of the Statute of Frauds and this remains in force in the A.C.T. Section 7 of the Statute of Frauds requires that

``all declarations or creations of trusts or confidences of any lands, tenements or hereditaments shall be manifested and proved by some writing signed by the party who is by law enabled to declare such trust, or by his last will in writing, or else they shall be utterly void and of no effect.''

4. Counsel for the Commissioner submitted that a document dated 14 June 1977 and signed by both A and B was not sufficient compliance. That document recorded that

``in consideration of the payment of fifty thousand dollars only ($50,000) receipt of

---

ATC 502

which is hereby acknowledged we, the joint lessees (A and B) of property comprising... hereby agree to complete a transfer of the said property (subject to contract and approvals) to The S. Trust.''

Counsel also referred to sec. 124 of the Real Property Ordinance 1925 - which prohibits the Registrar from making any entry in the Register Book of any notice of trust, whether express, implied or constructive, but requires the Registrar, when a document declaring trusts is lodged with him, to enter a caveat forbidding the registration of any instrument not in accordance with the trusts - and pointed out that the Registrar had never entered a caveat. But the absence of a caveat by the Registrar cannot be decisive.

5. I think there is much to be said for the view that the document dated 14 June 1977 is a sufficient compliance with the Statute of Frauds, notwithstanding the precursory language of the document. Although the execution of the transfer of Crown lease preceded the date of the document, it was evidently realised that sec. 57(1) of the Real Property Ordinance 1925 rendered the transfer ineffectual to pass any legal estate or interest until registration (which occurred on 18 October 1977). It may be noted that the document was also signed by B who was then one of the registered lessees and whose signature was necessary for effective compliance with sec. 7 of the Statute of Frauds:
Tieney v. Wood 19 Beav. 330 ; 52 E.R. 377 , see also 8 A.L.J. 326 . The reference in the document to the S. Trust is a sufficient reference to incorporate the provisions of the Trust Deed:
Thomson v. McInnes (1911) 12 C.L.R. 562 at p. 569 . On the whole, I favour the view that the document constituted an effective compliance with the Statute of Frauds, notwithstanding the imprecise language used in the document. Even if this view were not sound, it must be correct to say that in the circumstances the doctrine of part performance could be successfully invoked: see
Lincoln v. Wright (1859) 4 De G. & J. 16 ; 45 E.R. 6 . Equity does consider it a fraud for a person to whom an interest in land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the interest as his own: see Jacobs, Law of Trusts in Australia (4th Ed.) at p. 83. I also note in passing that the consequence of non-payment of the agreed purchase price is not a resulting trust but normally a lien:
Wirth v. Wirth (1956) 98 C.L.R. 228 , per Dixon C.J. at pp. 236-237. I would therefore reject the submission by the Commissioner that during the year ended 30 June 1979 the leasehold interest was held by A in his own right and not as trustee of the S. Trust.

6. Clause 19 of the Trust Deed permitted the trustee to vary the terms of the trust provided three months notice of such intention was given to the settlors. However, there was no evidence, and indeed no suggestion, that A had ever exercised this power. Clause 3(a) gave the trustee a power, exercisable on or before 30 June in each year, to pay or apply the net income to or for the benefit of such of the beneficiaries (or their issue) as he saw fit. But this power was not exercised in the relevant year of income - all the trustee did was to purport to accumulate the net income of the trust for the year ended 30 June 1979 so as to provide for future repairs and improvements. But cl. 5 expressly precluded the trustee from accumulating income and cl. 3(a) provided that any amount of the net income not so paid or applied was to be shared equally among the beneficiaries. Relying on this default entitlement clause the Commissioner assessed A and B under sec. 97(1)(a).

7. In amending a's original assessment so as to include in his assessable income one quarter of $2,337, the Commissioner overlooked cl. 17 of the Trust Deed which was as follows:

``Notwithstanding anything to the contrary hereinbefore expressed or implied no discretion or power by the settlement conferred on any person or on the trustee shall be exercised and no provisions of this settlement shall operate so as to confer or be capable of conferring any benefit on the Settlor or the Trustee or any person (notwithstanding that he be otherwise within the description of beneficiaries) who has paid money or transferred property to the trustee to be held on the trusts created by this Deed of Settlement, as from the time when any such latter person pays money or transfers property aforesaid.''

8. In my opinion, the plain effect of cl. 17 was to preclude the trustee from being a beneficiary for the purposes of cl. 3(a), so A should not have been assessed under sec. 97(1)(a) on any part of the net income of the

---

ATC 503

trust estate for tax purposes. So far as B is concerned, the question is whether B satisfies the description of ``any person... who has... transferred property to the trustee to be held on the trusts created by this Deed of Settlement'' by virtue of the transfer of the Crown lease from A and B to A. In my opinion, the latter part of cl. 17, on its proper construction, is restricted to a payment of money or a transfer of property which is intended to be an addition to corpus pursuant to cl. 1(c)(ii) and which is made after the Deed of Settlement takes effect: see the words ``at any time hereafter'' in cl. 1(c)(ii). Even if the execution of the transfer preceded the Deed of Settlement taking effect, that transfer was not effective to pass the legal interest until registration of the Crown lease in the name of A on 18 October 1977: see sec. 57(1) and 72 of the Real Property Ordinance 1925 . Thus in the year ended 30 June 1979 cl. 17 precluded both A and B from being beneficiaries for the purposes of cl. 3(a) and the only beneficiaries who became automatically entitled in equal shares to the net income of the trust for trust purposes were C and D. C was born on 10 October 1961 and D on 12 September 1967. Pursuant to sec. 98, A as Trustee should have been assessed in respect of C and in respect of D such that the net income of the trust estate for tax purposes was split into two equal portions. A and B should not have been assessed under sec. 97(1)(a) on any part of the net income of the trust estate.

9. The next question is whether the notices of objection by A and B are sufficient to enable them to rely on cl. 17 of the Trust Deed. Section 190 provides that ``[u]pon every... reference... the taxpayer shall be limited to the grounds stated in his objection''. In referring to his declaration in the tax return of the trust, A's objection was that he should not have been taxed under sec. 97(1)(a) because as trustee he had exercised a discretion to accumulate all of the net income. In response to the objection, the assessor presumably noted that the trustee had no discretion to accumulate income, noted also the default entitlement provision in cl. 3(a) and disallowed the objection accordingly. A's objection did not refer the Commissioner's attention to any other matter, and in particular, did not refer directly or indirectly to cl. 17 of the Trust Deed. I take B's objection to raise the same ground as A's objection. Thus even though the assessments in question are erroneous, they cannot be upset by the Board.

10. For the above reasons I would uphold the Commissioner's decisions upon the objections and confirm the assessments of A and B which are before the Board.