Picone v Chief Commissioner of State Revenue [2022] NSWCATAD 382
Background
The Patrick Picone Family Trust (“the Trust”) was a discretionary trust formed on 19 December 2003. The First Applicant, Terrence Picone (“Terrence”) was the owner of interests in land held under the Trust at all relevant times (at [17]). The beneficiaries as defined in the Trust instrument included Patrick Picone (“Patrick”), his spouse from time to time, his issue, any spouse from time to time of any of his issue, the trustee in a personal capacity, companies wherever incorporated in which any of the individual beneficiaries holds an interest as shareholder or director, the trustee of any trust of which an individual beneficiary is also a beneficiary, certain types of charities, and anybody whom the trustee appoints as a beneficiary.” (at [18]).
The Statutory Framework
Section 5A of the Land Tax Act (“LTA”) imposes surcharge land tax on residential land in New South Wales owned by a “foreign person”, which has the same meaning as in Chapter 2A of the Duties Act 1997 (NSW), and includes a trustee of a trust if 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.
A person holds a “substantial interest” in a trust if it (or together with its associates) holds a beneficial interest in 20% or more of the income or property of the trust. 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.
Under s. 5D of the LTA which took effect on 24 June 2020, 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. 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. Under transitional provisions in cl. 66 of Schedule 2 of the Land Tax Management Act 1956 (LTMA), 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 so that the trust prevents a foreign person from being a beneficiary before midnight of 31 December 2020 (ie before the taxing date for the 2021 tax year).
Section 127(3) of the Corporations Act 2001 (Cth) provides for the execution of deeds by Australian incorporated companies (which includes the Applicant). Under that sub-section, a company may execute a deed if that document is expressed to be a deed and is signed by the company’s directors, or a director or secretary or, alternatively, by the affixation of its common seal witnessed by the company’s directors, or a director and secretary.
Under s. 100(3) of the Taxation Administration Act 1996 (NSW), the Applicants bear the onus of proving their case before the Tribunal, on the balance of probabilities.
Applicants submissions
The Applicants submitted that, because of the special circumstances relating to the Trust and Patrick himself, the Chief Commissioner should waive, in whole or part, the surcharge land tax assessed under the Decision (at [21]). Those special circumstances included Patrick’s effective control of the Trust since November 2014 and his mental illness, that neither Terrence nor Patrick are foreign persons, and that no income or assets had been distributed to foreign persons from the Trust (at [22]).
Chief Commissioner’s submissions
The Chief Commissioner submitted that, in order to obtain the relief set out in the transitional provisions in cl. 66 of sch 2. to the Land Tax Management Act 1956 (“LTMA”), the trust instrument needed to be amended as required by s. 5D of the LTA by 31 December 2020, and this did not occur. While the Chief Commissioner had a discretion under cl. 66(5) of sch. 2 to the LTMA to extend the date by which payment of surcharge land tax is due if the terms of the Trust have been amended as necessary by 31 December 2020, there was no discretion to extend the period for making the amendments required by cl.66 beyond 31 December 2020. Without such a power, the Chief Commissioner submitted that the reasons for failing to make the required amendments before the taxing date for the 2021 tax year are of no relevance (citing Chu v Chief Commissioner of State Revenue [2021] NSWCATAD 238).
The Chief Commissioner also submitted that, as per the judgment of the High Court in Commissioner of Taxation v Ryan (2000) 201 CLR 109, questions of general unfairness or natural justice are not relevant to taxation assessments, citing a number of instances in which that principle has been consistently applied in relation to New South Wales state taxation (at [23]).
Decision
The Tribunal considered the situation to be analogous to that considered by Senior Member Currie in Chu v Chief Commissioner of State Revenue [2021] NSWCATAD 238, a matter that also concerned the late amendment of a discretionary trust deed and the consequent imposition of surcharge land tax (at [25]. The Tribunal therefore adopted and accepted as correct Senior Member Currie’s observation that “the legal position is quite clear. There is no discretion in the Chief Commissioner to exempt the imposition of surcharge land tax where the statutory criteria are not met ...”
The Tribunal noted (at [26]) the statement of the High Court of Australia in Commissioner of Taxation v Ryan (2000) 201 CLR 109 at 123 that “Appeals to general notions of ‘fairness’ or ‘justice’ do no more than attempt to mask the absence of any foundation in the legislation for the conclusion which is asserted”.
Accordingly, the Tribunal did not consider the Applicants demonstrated to the requisite standard that the Chief Commissioner’s decision was incorrect.
Orders
The Tribunal ordered that the decision under review is confirmed (at [28]).
Link to the decision