OPALFIELD PTY LIMITED v COMMISSIONER OF LAND TAX (NSW)

Judges:
Sully J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 15 October 1993.

Sully J

By an amended summons filed on 9 February 1993 Opalfield Pty Limited (ACN 051 999 190) [``the plaintiff''], claims against the Commissioner of Land Tax [``the defendant''], relief as follows:

``1. An order that the objection in writing dated 1 May 1992 by the plaintiff to the assessment of the plaintiff by the defendant to land tax be allowed.

2. An order that the said assessment be set aside.

3. Costs.

4. Such further or other orders as to this Honourable Court may seem fit.''

2. The amended summons states as follows the grounds upon which that relief is sought:

``1. That, as of mid-night 31 December 1991, the facts and circumstances were such that the plaintiff was not the owner of the land known as 24A Victoria Road, Bellevue Hill (the `Land') within the meaning of that word as defined Section 3(1) of the Land Tax Management Act 1956 (the `Act') and was not deemed to be the owner of the Land by virtue of any of the sections 20, 24, 26, 31 or by any other provision of the Act.

2. Alternatively or in addition that the whole of the Land is exempt from taxation under section 10(1)(r)(ii) of the Act as being a parcel of residential land as defined in section 10(1D) of the Act used and occupied as the sole principal residence of one of the joint owners and for no other purpose.

3. Alternatively or in addition, on the proper construction of the terms of sub-section 10(1D)(a)(i) of the Act, that the Land is not owned by the plaintiff for the purposes of that sub-section.

4. Alternatively or in addition, that if the Land is not wholly exempt from taxation in accordance with section 10(1)(r)(ii) of the Act, then the adjusted value of the Land should, for assessment purposes, be reduced in accordance with section 10(4) of the Act.''

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3. The amended summons was supported by a number of affidavits. There was no cross- examination of any deponent, and there was no oral evidence otherwise. I am satisfied that the evidence establishes the following facts:

[a] That some time early in 1991 Mr. Kenneth Roy Allen, who lived then and continues to live at 24 Victoria Road, Bellevue Hill, decided to purchase the adjoining property, No. 24A Victoria Road, (``the subject property'']. According to Mr. Allen's affidavit, he wished to have that purchase ``... so far as possible... carried out with anonymity, and... (so that)... members of the general public should not, at the time of purchase, be aware of my involvement and that of my family in the purchase of... (the subject property).''

[b] To that end Mr. Allen took advice from Messrs. Mallesons Stephens Jacques, his solicitors. The upshot was that those solicitors acquired the plaintiff, the plaintiff having been earlier incorporated as a shelf company. Thereafter, all the formalities of the purchase of the subject property proceeded in the name of the plaintiff as the sole disclosed purchaser.

[c] The share capital of the plaintiff is $2.00. There are two $1.00 shares, both of which are held by a company known as Dabserv Corporate Services Pty Limited, a service company of Mallesons Stephen Jacques. The directors of the plaintiff have always been partners or former partners of Mallesons Stephen Jacques.

[d] The plaintiff has never carried on and does not at present carry on any business. All instructions to Mallesons Stephen Jacques with respect to the operations of the plaintiff have always come from Mr. Allen.

[e] Mr. Robert Deutsch, a former partner of Mallesons Stephen Jacques, and the person who dealt with Mr. Allen in respect of the purchase of the subject property, swore an affidavit in support of the amended summons. In part that affidavit deposes to the following matters:

"(The plaintiff) was a shelf company acquired by Mallesons Stephen Jacques to act as the apparent purchaser in the acquisition of... (the subject property). In accordance with my discussions with Mr. Allen... (the plaintiff)... held... (the subject property)... as a nominee for the beneficiaries who were Mr. Allen, Mr. Allen's wife, and Mr. Allen's three daughters. (The plaintiff) had no power to deal with... (the subject property)... in any way except in accordance with the directions of the beneficiaries. Further,... (the plaintiff)... did not at any time seek to deal with... (the subject property)... in any way and did not seek to levy any rent or occupation charge upon any occupier of the property, nor did it seek to grant any lease or licence in respect of occupation of... (the subject property)... or otherwise. Moreover,... (the plaintiff)... neither received nor ever had any authority from the beneficiaries to receive any rents or profits from the land, and has not at any time received any rents, profits, licence fees or any other benefit of any kind from... (the subject property)."

[f] On 7 June 1991 three documents of present relevance were executed. The first was a so-called Deed of Indemnity executed by Mr. Allen in favour of the plaintiff. The second was a conventional contract for the sale of the subject property. The third was a so-called Agreement to Act in Concert.

[g] The Deed of Indemnity recited an agreement on the part of the plaintiff to act or to continue to act, at the request of Mr. Allen, as the apparent purchaser of the subject property; and a condition of the plaintiff's agreement so to act that Mr. Allen indemnify the plaintiff against all claims and liabilities as more particularly provided in the substantive clauses of the agreement. There are three such substantive provisions in the Deed of Indemnity, of which the first only is relevant for present purposes. That provision is in the following terms:

"1. In consideration of... (the plaintiff)... agreeing to act as the apparent purchaser of... (the subject property)... (Mr. Allen)... hereby unconditionally and irrevocably agrees to indemnify and save harmless... (the plaintiff)... against all claims, liabilities, damages, costs (including legal costs on a solicitor and client basis) and expenses sustained or incurred by... (the plaintiff)... arising from or in connection with the purchase, holding and any subsequent disposal

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of... (the subject property)... including, without limitation, stamp duty, land tax and any claim or alleged claim made against... (the plaintiff)."

[h] The contract itself is in the conventional form of the 1988 Edition of the Law Society's Agreement for Sale of Land. It evidences, among other things, a total purchase price of $5,900,000, of which $590,000 is payable by way of deposit and the balance of $5,310,000 is payable on completion. The contract provides for the giving by the vendor to the plaintiff as purchaser of vacant possession of the subject property on completion.

[i] The Agreement to Act in Concert is made between Mr. Allen, his wife, and each of his three daughters. The document provides three brief recitals and the following operative provisions:

"1. This agreement sets out the terms and conditions upon which the parties purchase... (the subject property).

2. The parties must act in concert in purchasing... (the subject property).

3. (The subject property) is being purchased by the parties as tenants-in- common in the following shares:... (Mr. and Mrs. Allen as joint tenants take 70% of the shares, and each of the three daughters takes 10% of the shares).

4. All moneys required to be paid in connection with the purchase of... (the subject property)... must be provided by them separately out of each of their own bank accounts in the proportions specified in clause 3.

5. The sum of $3,500,000 (three million five hundred thousand dollars) to be paid on exchange of the contract to purchase... (the subject property)... must be paid by 5 separate bank cheques drawn on each of their separate bank accounts as follows:... (and provision is then made for Mr. Allen and his wife to provide a cheque for $1,225,000 each, and for each of the three daughters to provide a bank cheque for $350,000)."

[j] By letter dated 21 February 1992 and addressed to the Chief Commissioner of Land Tax, Messrs. Mallesons Stephen Jacques submitted an Initial Land Tax Return for the plaintiff in respect of the 1992 Land Tax Year. The letter informs the Chief Commissioner that the purchase was settled on 23 December 1991, and that two of Mr. Allen's daughters, together with the de facto husband of one of them, ``... moved into occupation of... (the subject property)... on 24 December 1991 and have since occupied... (the subject property)... as their sole place of residence. (One of the daughters)... intends to continue to reside in... (the subject property)... on a permanent basis''.

The letter draws attention, in general terms, to the arrangements as I have earlier outlined them, and offers to have executed ``a formal declaration of bare trust'' should the Chief Commissioner so require.

The plaintiff requests a pro-rata exemption from land tax under section 10(4) of the Land Tax Management Act, 1956 [``the Act'']. The letter asks that land tax exemption be granted to the plaintiff ``... on the basis that it is merely a nominee for secrecy reasons and two of the true owners have occupied... (the subject property)... for residential purposes and for no other purpose since the Contract was settled''. The letter goes on to refer to antecedent discussions allegedly held with the Office of the Chief Commissioner, and to advice allegedly given as a result of those discussions that: ``... if the Chief Commissioner was satisfied that... (the subject property)... was in fact held in terms of a bare trust for the true owners and at least one of them occupied... (the subject property)... for residential purposes, then an exemption from land tax should be granted''.

By an assessment issued on 19 March 1992, the defendant assessed the plaintiff to land tax in the sum of $30,044.60.

[k] By letter dated 30 April 1992 the plaintiff by its solicitors lodged with the defendant an objection against that assessment. The objection argues, essentially, two submissions:

[l] By letter dated 3 November 1992 the defendant disallowed the plaintiff's objection to the assessment. The defendant explained as follows the ground for that disallowance:

"... (the subject property)... does not qualify as `residential land' for the purposes of section 10(1)(r) of... (the Act)... as... (the plaintiff)... is deemed the owner under section 26 of... (the Act)... and section 10(1D)(a) applies."

The present proceedings are brought to the Court by way of an appeal against the defendant's decision, and in accordance with the provisions in that behalf of section 38A of the Act.

[m] Mr. Allen and his wife and three daughters did in fact provide separate bank cheques out of moneys standing to the credit of their respective personal accounts for the respective amounts that they were required to contribute pursuant to the Agreement to Act in Concert.

4. The facts as I have stated them in the immediately preceding paragraph are drawn from the evidence in the plaintiff's case. It is necessary to take note, also, of some additional facts which were adduced by the defendant during the presentation of his case. In that respect I am satisfied of the following additional facts:

[a] By an instrument bearing date 1 August 1991, the plaintiff lodged against the Title to the subject property a caveat claiming an interest as purchaser under the Agreement for Sale of Land to which I have earlier referred.

[b] On 23 December 1991 the plaintiff executed a Memorandum of Transfer in the conventional form. It was registered on 24 December 1992.

[c] By a Memorandum of Transfer bearing date 21 December 1992, the plaintiff transferred the subject property to Mr. & Mrs. Allen and their three daughters as tenants-in-common in accordance with the agreed apportionment previously noted in that regard. This transfer was registered on 4 January 1993.

[d] By an instrument dated 29 June 1992, the plaintiff withdrew the caveat referred to in [a] above.

[e] By a document in writing dated 29 June 1992, a company styled Vixano Pty Ltd ACN 002 816 787, the occupation of which was noted as ``investment company'', made application to the Commonwealth Bank of Australia for an advance by way of term loan of $8,000.000 [sic] for the purpose of providing ``... investment funds in the Allen Group of Companies''. The application provides, relevantly for present purposes, that the plaintiff is to give a first mortgage over the subject property. It is provided that the bank will lodge a caveat over the subject property and will hold the relevant Folio Identifier; an unregistered, but executed, dated and stamped Mortgage; an unregistered Memorandum of Transfer; and a withdrawal by the plaintiff of the caveat to which I refer in [a] above. It is provided that the bank reserves the right to register at any time the Transfer to the plaintiff and the bank's own Mortgage. It is made a condition of the term loan for which the application is made, that such registration take place before 30 June 1993. The application to the bank is executed in the conventional way by both the plaintiff and Vixano Pty Ltd. Mr. Allen is the counter-signing director to the common seal of Vixano Pty Ltd where the same is affixed to the application.

[f] The plaintiff did in fact execute by instrument dated 29 June 1992 a Mortgage in manner contemplated by the terms, as above quoted, of the application to the Commonwealth Bank of Australia.

5. Section 38B(1) of the Act provides that an appeal of the present kind:

``... is by way of rehearing of the original objection to the Chief Commissioner and is limited to the grounds of the original objection.''

Section 38BA of the Act provides that, upon the hearing of such an appeal as the present one:

``... the objector bears the onus of establishing the grounds of the objection on the balance of probabilities.''

6. Because of the limiting nature of the provisions of Section 38B above quoted, it is expedient to set out more particularly than I

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have hitherto done the grounds of the original objection taken by the plaintiff to the defendant's assessment. Those grounds are as follows:
  • ``(a) That at midnight 31 December 1991 the facts and circumstances were such that... (the plaintiff)... was not the owner of... (the subject property)... within the meaning of that word as defined in section 3(1) of... (the Act)... and was not deemed to be the owner of the land by virtue of section 20, 24, 26, 31 or any other provision of... (the Act);
  • (b) Alternatively, the whole of... (the subject property)... is exempt from taxation under section 10(1)(r)(ii) of... (the Act)... as being a parcel of residential land as defined in section 10(1B) of... (the Act)... used and occupied as the sole principal residence of one of the joint owners and for no other purpose;
  • (c) Further, and without limiting the above, on the proper construction of the terms of sub-section 10(1D)(a)(i) of... (the Act)... (the subject property)... is not owned by... (the plaintiff)... for the purposes of that sub- section.
  • (d) Alternatively, that if... (the subject property)... is not wholly exempt from taxation in accordance with section 10(1)(r)(ii) of... (the Act)... then the adjusted value of... (the subject property)... should, for assessment purposes, be reduced in accordance with section 10(4) of... (the Act);
  • (e) Further, or alternatively, the Assessment was arrived at by the Commissioner taking into account matters which he should not have taken into account or through not taking into account matters which he should have taken into account in issuing the Assessment.
  • (f) The grounds in this objection are intended to be read cumulatively and not alternatively unless the context otherwise requires or admits;
  • (g) No statement made in any ground is to be treated or construed in any way as an admission of any matter, fact or law.''

The ground of objection (e) as thus notified was not argued before me.

7. It is necessary, now, to notice in more detail certain provisions of the Act. In particular:

[a] By the operation of section 7(1) of the Act, land tax is levied and paid: ``... on the land value of all land situated in New South Wales which is owned by taxpayers (other than land which is exempt from taxation under this Act)''. ``Taxpayer'' is defined by the Act as meaning any person chargeable with tax levied pursuant to the Act. ``Person'' is defined by the Act as including a company.

[b] In virtue of section 8 of the Act, land tax is charged on land ``... as owned at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied''. ``Year'' means calendar year.

[c] ``Owned'' is defined by the Act as having ``... a meaning corresponding with that of owner''. ``Owner'' is defined as including, relevantly for present purposes:

"(a) in relation to land, every person who jointly or severally, whether at law or in equity-

(d) a person who, by virtue of this Act, is deemed to be the owner."

[d] There are various provisions of the Act which deem a person to be the ``owner'' of land for the purposes of the Act. As has been noted already, the objection here in question refers in particular to sections 20, 24, 26 and 31 of the Act. As I followed the submissions put for the defendant on the hearing of the appeal, it is the operation of section 26(1)(a) of the Act which is said to effect the deeming of the present plaintiff as ``owner'' of the subject property for the purposes of the Act.

[e] An ``owner'' otherwise liable to tax in accordance with the Act, may claim an exemption in respect of any land falling within any of a large number of enumerated

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categories of exemption that are stated in section 10 of the Act. The exemption which is relevant for present purposes is that effected by section 10(1)(r)(ii) of the Act. That exemption applies in respect of:

"a parcel of residential land not exceeding 2,100 square metres in area that is used and occupied as the principal place of residence of the owner of the land (or, if there are joint owners, as the principal place of residence of one or more of them) and for no other purpose."

``Residential land'' for the purposes of section 10(1)(r)(ii) does not include land that: ``is owned by a company;''. See section 10(1D)(a)(i) of the Act.

[f] Where a parcel of land exceeds in area 2,100 square metres, and it would have been exempted under sub-section (1)(r)(ii) of section 10(1), then section 10(4) of the Act provides a formula for assessment purposes, the short point of which formula is to reduce the land value for land tax purposes of that parcel of land. In the present particular case the land area of the subject property is 2,567 square metres, so that were section 10(1)(r)(ii) of the Act to apply to the subject property, then section 10(4) of the Act, also, would operate.

8. In considering whether or not the plaintiff is rightly to be characterised as having been, as at 31 December 1991, the ``owner'' of the subject property, it is necessary, in my opinion, to attend with some care to the actual standing of the plaintiff in relation to the subject property.

It was submitted for the plaintiff that the reality of the position as at 31 December 1991 was that the plaintiff was no more than what was described a ``bare trustee'' of the subject property. The plaintiff having nothing more than that character, could not, so it was submitted, be fitted within either of the categories (a) and (d) of the statutory definition of ``owner'' to which I have earlier referred.

9. The notions of a ``bare'' trust and trustee are examined by Gummow J in
Herdegen & Anor v FC of T 88 ATC 4990 at 5,003; [1988] 84 ALR 271 at 281 and following. Relevantly for present purposes, his Honour explains as follows that those notions:

"Today the usually accepted meaning of `bare' trust is a trust under which the trustee or trustees hold the property without any interest therein, other than that existing by reason of the office and the legal title as trustee, and without any duty or further duty to perform, except to convey it upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party. The beneficiary may of course hold the equitable interest upon a sub-trust for others or himself and others:... The term is usually used in relation to trusts created by express declaration. But it has been said that the assignor under an agreement for value for assignment of so-called `future' property becomes, on acquisition of the title to the property, trustee of that property for the assignee... and this trust would answer the description of a bare trust. Also, the term `bare trust' may be used fairly to describe the position occupied by a person holding the title to property under a resulting trust flowing from the provision by the beneficiary of the purchase money for the property.

What is meant in these situations by saying that the trustee holds the property without any duties to perform other than to convey the property to the beneficiary or as the beneficiary directs? The answer is supplied by Professor Waters in his work Law of Trusts in Canada, 2nd ed., 1984, p. 27:

`It is of course true that so long as a trustee holds property on trust he always retains his legal duties, namely, to exercise reasonable care over the property, either by maintaining it or by investing it; he cannot divest himself of these duties. The reference, however, is to duties which the settlor has enumerated. For example, the settlor may have required that the beneficiary be maintained until he reaches the age of majority, when he is entitled to call for capital and income. The trustee is then bare or naked of these active duties decreed by the settlor. If the trustee possesses his legal duties only for the purpose of guarding the property, prior to conveyance to the beneficiary, these duties are said to be passive.'" [88 ATC 5,003; 84 ALR at 281(25)-282(5)]

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Gummow J goes on to point out that the meaning of the term, ``bare trust'', may vary from statute to statute. I do not see anything in the Act which would involve giving the notion of a ``bare trust'' a meaning different from that attributed to it by Gummow J in the passages which I have quoted from his Honour's judgment.

I am mindful of the indemnity taken by the plaintiff under the Deed of Indemnity of 7 June 1991. The taking of this indemnity strengthens, as I think, the characterisation of the plaintiff as a ``bare trustee'' in the sense previously discussed.

I am mindful, also, of the dealings, to which I have earlier referred, involving the plaintiff, Vixano Pty Ltd and the Commonwealth Bank of Australia. It was a submission put by the defendant that these dealings showed a kind and level of activity on the part of the plaintiff that were not consistent with the character of a ``bare trustee''. I do not think that that is so. I think it to be a fair inference from the evidence, such as it is, respecting those dealings, that the plaintiff was not exercising in any sense at all genuinely independent powers and discretions as a trustee of the subject property, but was responding, rather, to the directions of Mr. Allen, being a person with a major beneficial interest, in a real sense, in the subject property.

10. The plaintiff having been identified as a ``bare trustee'', does the plaintiff fit within paragraph (a) of statutory definition of ``owner''?

It seems to me that a bare trustee in the position of the plaintiff at the relevant time does not have any of the entitlements to which paragraph (a) refers. I agree with the following description, which forms parts of the written submissions put in for the plaintiff:

``The nature of the trust was that the plaintiff was a mere nominee for the beneficial owners. It had no right to the enjoyment or possession of the property.''

In
Glenn v Federal Commissioner of Land Tax [1915] 20 CLR 490, Griffith CJ, a member of the majority, said, speaking of the notion of an ``estate in possession'' in revenue legislation such as the Act, that its ``essential element'' is:

``that the owner of it has a present right of beneficial enjoyment, whether accompanied by physical possession of the land or not.''

[20 CLR at 498]

I think that that same fundamental notion of ``a present right of beneficial enjoyment'', whether accompanied by physical possession of the land or not, informs the entirety of paragraph (a) of the relevant statutory definition.

I am, therefore, of the opinion that the plaintiff was not at the relevant time the ``owner'' of the subject property by virtue of that paragraph (a).

11. It then becomes necessary to consider whether the plaintiff is nevertheless ``deemed by the Act to have been the owner'' of the subject property at the relevant time.

Section 26(1)(a), upon which the defendant principally relies, is, relevantly for present purposes, in the following terms:

``Where... after the commencement of this Act, an agreement has been made for the sale of land, whether the agreement has been completed by conveyance or not, and an instrument that embodies all or any of the terms of the agreement, or a conveyance that gives effect to the agreement, has been duly stamped under the Stamp Duties Act, 1920, in respect of the sale:-

  • (a) the purchaser shall be deemed to be the owner of the land (though not to the exclusion of the liability of any other person) so soon as he has obtained possession of the land;''

In
Highlands Ltd v Deputy Federal Commissioner of Taxes (S.A.) [1931] 47 CLR 191, Starke J, speaking of an equivalent provision in the then current Commonwealth Land Tax legislation, expressed the view that ``possession'' is ``de facto possession referable to the agreement for the sale of land, and not the right to possess, or to have legal possession''. [47 CLR at 199]

It seems to me, with respect, that such an approach is correct in that it accords with what I think to be the underlying thrust of the whole of the Act, namely, to look in every individual case for the identity of the person who is, in a real and practical sense, enjoying beneficially the land which is putatively liable to tax. This surely makes sense in such a case as the present particular case where, by 31 December 1991, not only was the plaintiff not enjoying in any real sense the beneficial interest in the subject property, but two of the real joint beneficial owners had actually gone into de facto

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possession and enjoyment of the subject property.

I am, therefore, of the opinion that section 26(1)(a) of the Act does not operate, in the given circumstances of this case, so as to constitute the plaintiff the ``owner'' of the subject property as at the relevant date.

12. If I do not take time to explore in detail the other deeming provisions in the Act, that is because: first, and as I have earlier noted, those other provisions were not relied upon by the defendant (and see in this regard the contents of the defendant's letter disallowing the plaintiff's objection); and secondly, because as to each of those other possible deeming sections, I do not believe that they catch the present plaintiff when, as in my opinion is the correct approach, it is necessary when applying any of those other deeming provisions to the given facts of this case, to bear carefully in mind the real nature of the plaintiff's standing, as I have earlier described it, in relation to the subject property.

13. For the whole of the foregoing reasons, then, I have come to the conclusion that the plaintiff, as at 31 December 1991, did not satisfy the statutory description of ``owner'' of the subject property so as to be assessable to tax under the Act. That being so, I make the following orders:

 

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