Fujun Pty Ltd ATF Ni Family Trust v Chief Commissioner of State Revenue [2022] NSWCATAD 412
Background
The Land subject to review by the Tribunal is owned by the Applicant as Trustee of a discretionary trust established by Deed dated 26 June 2017 (“the Deed”).
On 12 October 2020, the Chief Commissioner issued a letter to the Applicant advising it of legislative changes applying to surcharge land tax and discretionary trusts and requesting that the Applicant provide a copy of any amending trust deed made before 31 December 2020 to irrevocably exclude foreign persons from being beneficiaries of the trust.
On 11 February 2021, the Chief Commissioner issued a surcharge Land Tax Assessment Notice to the Applicant. The Applicant denied that it was liable to pay the whole amount assessed and communications between the parties as to the quantum of the Applicant’s tax liability ensued.
On 4 March 2021, the Deed was amended by way of Deed of Variation (“the March Variation Deed”) to exclude beneficiaries who were foreign persons.
On 23 September 2021, the Chief Commissioner issued a further Land Tax Assessment Notice (“the Assessment”) on the basis that the Variation Deed did not comply with the requirements of s. 5D of the Land Tax Act 1956 (“the LTA”) as it did not irrevocably exclude named beneficiaries from being “foreign persons” of the Trust.
On 20 October 2021, the Applicant lodged an objection to the Assessment.
On 19 November 2021, the Deed was again varied by way of Deed of Variation (“the November Variation Deed”).
On 14 March 2022, the Chief Commissioner issued a Notice of Determination to the Applicant disallowing the Objection on the basis that the Deed did not prevent foreign persons being beneficiaries of the Trust by the required time of 30 December 2020 (“the Determination”).
On 16 May 2022, an Application for Review was filed in the Tribunal seeking review of the Determination.
The Statutory Framework
Section 5A of the LTA imposes surcharge land tax on residential land in New South Wales owned by “foreign persons”. For SLT purposes a “foreign person” has the same meaning as in the Duties Act 1997 (NSW) and, relevantly, includes a trustee of a trust in which one or more persons who hold a “substantial interest” in that trust is either an individual not ordinarily resident in Australia, a foreign corporation or a foreign government.1 In relation to a trust, a person holds a “substantial interest” if it (or together with its associates) holds a beneficial interest in 20% or more of the income or property of the trust.2 For discretionary trusts, each beneficiary is deemed to hold a beneficial interest in the maximum percentage of income or property of the trust that the trustee may distribute to that beneficiary.3
Section 5D was inserted into the LTA and took effect on 24 June 2020.4 The effect of s. 5D is that a trustee of a discretionary trust is deemed to be a “foreign person”, and thus liable to surcharge land tax, if the trust does not prevent a foreign person from being a beneficiary of the trust.5 That condition is generally only satisfied if no potential beneficiary of the trust is a foreign person, and the terms of the trust are not capable of being amended to allow a potential beneficiary to be a foreign person.6 Under transitional arrangements, a trustee is exempt from surcharge land tax for the 2017 to 2021 land tax years if the terms of the trust have been amended before midnight on 31 December 2020 so that the trust prevents a foreign person from being a beneficiary (and before payment of the land tax is due).7
Under s. 100(3) of the Taxation Administration Act 1996 (NSW), an Applicant bears the onus of proving, on the balance of probabilities, their case before the Tribunal.
Submissions
Applicant's submissions
The Applicant submitted that the Trust is not a “foreign person” as the Trust Deed, as varied, satisfies the requirements of s. 5D(2) of the LTA.
- The Applicant did not receive the notification allegedly sent by the Chief Commissioner on 12 October 2020 informing it of the change in law, nor was it informed of the change in law by its legal representatives that had advised it in relation to the purchase of the Land (at [33]);
- The Applicant resides in Victoria and is not familiar with the laws of New South Wales, nor had it previously encountered “such a special change” in the law (at [22], [33]); and
- The Applicant did not intend that any beneficiary of the Trust who is a “foreign person” receive any relevant benefit from the Trust (at [33]).
Chief Commissioner's submissions
The Chief Commissioner submitted that the Applicant was liable to surcharge land tax, because the Applicant was deemed to be a foreign person for the purposes of s. 5D of the LTA in respect of the 2018 to 2021 land tax years, as the Deed did not prevent foreign persons from being potential beneficiaries of the Trust by the required date of 31 December 2020.
Decision
The Tribunal confirmed at the outset that, although the Application for Review filed 16 May 2022 sought review of the Chief Commissioner’s Determination, the parties agreed that the Tribunal was reviewing the Chief Commissioner’s Assessment dated 23 September 2021 (at [15]).
The Tribunal found that the Variation Deeds did not take effect prior to 4 March 2021,8 being the date of execution of the March Variation Deed (at [41]. The Tribunal noted that the Applicant had therefore not complied with the changed law by the required date of 30 December 2020 (at [9]).
The Tribunal commented on the Applicant’s further submissions, as follows:
- There was no evidence as to what legal advice had been sought by the Applicant from its legal representative, nor what advice had been provided to them, in respect of the purchase of the Land. The Tribunal could therefore not make any relevant findings as to the advice (at [45]).
- There was no evidence to demonstrate whether the Applicant had received the letter dated 12 October 2020 from the Chief Commissioner notifying it of the change in law. In any event, the Applicant did not demonstrate that the Chief Commissioner was under a duty to provide advice to the Applicant in respect of the change in law so as to excuse the Applicant from its liability to pay surcharge land tax (at [47]-[49]).
- There was no evidence as to the extent of the Applicant’s familiarities with the law of New South Wales, nor did the Applicant reference any authority to the effect that a lack of familiarity or experiences with respect to changes in law entitled the Applicant to an exemption (at [51]).
- There was no evidence of the Applicant’s intention regarding the provision of benefits under the Trust to foreign persons, nor did the Applicant reference any authority to support the proposition that a lack of intention entitles a taxpayer to an exemption (at [53]-[54]).
The Tribunal concluded, having regard to the material before it, that it was not satisfied on the balance of probabilities that the Applicant had discharged its onus of proving its case.
Orders
(1)The decision under review is affirmed.
Link to the decision
Footnotes
- Duties Act 1997 (NSW) (“Duties Act”), s. 104J, read with Foreign Acquisitions and Takeovers Act 1975 (Cth) (“FATA”), s. 4(d)-(e)
- Duties Act, s. 104J, read with FATA, s. 4 (definition of “substantial interest”)
- Duties Act, s. 104J, read with FATA, s. 8(3)
- State Revenue Legislation Further Amendment Act 2020 (NSW), s. 2
- LTA, s. 5D(1)
- LTA, s. 5D(3), but see Land Tax Management Act 1956 (NSW), Sch. 2 Pt. 34 cl. 66(3)
- LTMA, Sch. 2 Pt. 34 cl. 66(2)
- There is a typographical error at [41] which refers to the effective date as 4 March 2001.