TAX TRAINING NOTES Monthly tax training May 2020 - Squarespace
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TAX TRAINING NOTES
Monthly tax training
May 2020
Brown Wright Stein tax partners:
Andrew Noolan E: ajn@bwslawyers.com.au P: 02 9394 1087
Geoff Stein E: gds@bwslawyers.com.au P: 02 9394 1021
Matthew McKee E: mpm@bwslawyers.com.au P: 02 9394 1032
Michael Malanos E: mlm@bwslawyers.com.au P: 02 9394 1024
www.bwslawyers.com.auBrown Wright Stein Lawyers
Level 6, 179 Elizabeth Street
Sydney NSW 2000
P 02 9394 1010
1 Cases ....................................................................................................................................................4
1.1 Greensill – capital gain distributed to non-resident beneficiary ........................................................4
1.2 Mussalli – income vs capital .............................................................................................................5
1.3 Baynes – duty – real and apparent purchaser..................................................................................7
1.4 Benidorm – duty on declaration of trust ..........................................................................................10
1.5 Young – land tax primary production exemption ............................................................................12
1.6 Havilah Resources Ltd – research and development .....................................................................15
1.7 Wareham v Marsella – appeal update ............................................................................................16
2 Legislation ..........................................................................................................................................19
2.1 Progress of legislation ....................................................................................................................19
2.2 COVID-19: temporary financial advice relief for early access of super ..........................................19
2.3 Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2020 ...................20
2.4 Update to JobKeeper Rules ...........................................................................................................21
2.5 COVID-19 – Commercial Tenancies Regulation ............................................................................25
2.6 COVID-19 – extension of the scope of services that registered BAS agents can provide .............26
3 Rulings................................................................................................................................................27
3.1 CR 2020/22 – Djerriwarrh Investments Limited – bonus share plan ..............................................27
3.2 TD 2020/2 – Thin Capitalisation – valuation of debt capital ...........................................................28
3.3 PCG 2020/4 – schemes in relation to the JobKeeper payment......................................................29
3.4 PS LA 2020/1 –further time for an ABN or provide notice of assessable income or supplies ........31
3.5 LCR 2020/1 – JobKeeper payment – decline in turnover test ........................................................32
4 Private Binding Ruling ......................................................................................................................34
4.1 GST on the purchase and sale of a property..................................................................................34
4.2 Taxable supply ...............................................................................................................................34
4.3 CGT – deceased estate sale of replacement dwelling ...................................................................35
4.4 Discretionary trust to unit trust ........................................................................................................36
4.5 CGT on the sale of a right to receive future trailing commission ....................................................37
5 ATO and other materials ...................................................................................................................38
5.1 ATO Decision Impact Statement – Burton......................................................................................38
5.2 ATO Decision Impact Statement – MWB Accountants...................................................................38
5.3 COVID-19 – APRA FAQ's Super Trustee's response to COVID-19...............................................39
5.4 COVID-19 – Victoria Land Tax Relief .............................................................................................39
5.5 COVID-19 – New South Wales Land Tax Relief ............................................................................39
5.6 COVID-19 – Administering the super guarantee amnesty .............................................................40
5.7 COVID-19 – ATO lodgement and payment deferrals .....................................................................40
Our tax training notes are edited by Gillian Tam and Marianne Dakhoul and prepared by members of our team:
Rachel Vijayaraj Amanda Comelli Helen Young
Isabelle Marcarian Lora Ye Rose McEvoy
Alice Kwan Eleanor Arthurson
www.bwslawyers.com.auMonthly tax training - May 2020
About Brown Wright Stein
Brown Wright Stein is a medium-sized commercial law firm based in Sydney. We provide legal advice in the
following areas:
• Tax
• Dispute Resolution
• Corporate & Commercial
• Franchising
• Property
• Employment
• Estate Planning
• Elder Law
• Intellectual Property
• Corporate Governance
• Insolvency & Bankruptcy
Our lawyers specialise in working with business owners and their business advisors, such as accountants,
financial consultants, property consultants and IT consultants – what we see as our clients' 'business family'. We
develop long-term relationships which give our lawyers a deep understanding of our clients' business and
personal needs. Over the years we have gained a unique insight into the nature of operating owner-managed
businesses and the outcome is that we provide practical commercial solutions to business issues.
At Brown Wright Stein, we believe in excellence in everything we do for our clients. It's this commitment that
enables us to develop creative, innovative solutions that lead to positive outcomes.
This paper has been prepared for the purposes of general training and information only. It should not be taken to be specific advice purposes
or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any
reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas
contained within.
All rights reserved. No part of these notes may be reproduced or utilised in any form or by any means, electronic or mechanical, including
photocopying, recording, or by information storage or retrieval system, without prior written permission from Brown Wright Stein Lawyers.
These materials represent the law as it stood on 7 May 2020.
Copyright © Brown Wright Stein Lawyers 2020.
Liability limited by a scheme approved under Professional Standards LegislationMonthly tax training - May 2020 1 Cases 1.1 Greensill – capital gain distributed to non-resident beneficiary Facts Alexander Greensill, a United Kingdom resident who was not an Australian tax resident, was a beneficiary of the Peter Greensill Family Trust, an Australian resident non-fixed trust which was established on 21 January 2010 with Peter Greensill Family Co Pty Ltd as the trustee. On 4 November 2011, the trustee of the Peter Greensill Family Trust was issued 100 ordinary shares for $0.267 in Greensill Capital Pty Ltd, an Australian financial services company which held shares in Australian and UK companies, which were not taxable Australian property. Between 15 December 2011 and 12 December 2014, further shares in Greensill Capital were issued to the trustee. During this period, various ordinary class shares were converted into B class shares and certain shares were also split into ordinary and B class shares. In each of the 2015, 2016 and 2017 income years the trustee made capital gains of $13,074,628, $10,070,680 and $35,213,910 respectively, through the disposal of shares in Greensill Capital. In each of those years, the trustee resolved to distribute 100% of the capital gains from the sale to Alexander. Certain shares were also transferred in specie to Alexander in 2017. The Commissioner issued assessments to the trustee under section 98 of the ITAA 1936 for the 2015, 2016 and 2017 income years on the basis that the capital gains attributable to Alexander under Subdivision 115-C of the ITAA 1997, were assessable to the trustee. Section 98 of the ITAA 1936 provides that a trustee is taxed, in relation to a beneficiary, if the beneficiary is a non-resident at the end of the income year. Section 115-220 provides that where a beneficiary is a non-resident and presently entitled to trust income, then an 'amount' in respect of the beneficiary must be added to the assessment of a trustee under section 98. The 'amount' is the amount apportioned between the trustee and beneficiary of the trust estate as set out in section 115-225. The trustee objected to the assessments and argued that: 1. the capital gains distributed to Alexander were capital gains from a CGT event which are to be disregarded under section 855-10(1) of the ITAA 1997 and no amounts are to be assessed to the trustee under section 98; and 2. CGT event E5 happened in relation to the shares transferred in specie and in consequence the capital gain could be disregarded. Section 855-10 provides that a ‘capital gain or capital loss from a CGT event’ is disregarded if the taxpayer is a foreign resident or trustee of a foreign trust when the gain is made, and the asset is not taxable Australian property. Another provision, section 855-10 provides that a capital gain made by a beneficiary of a fixed trust can be disregarded, broadly, where a CGT event happens to an asset of the fixed trust and that asset is not taxable Australian property. CGT event E5 happens if a beneficiary becomes absolutely entitled to a CGT asset of a trust. The consequences of CGT event E5 are that both the trustee and the beneficiary can make a capital gain. The trustee’s capital gain is the amount by which the market value of the asset is more than its cost base. The beneficiary's capital gain is the amount by which the market value of the asset is more than the cost base of the beneficiary’s interest in the trust capital to the extent it relates to the asset. The beneficiary can disregard the gain Brown Wright Stein Lawyers © 2020 page 4
Monthly tax training - May 2020 if they acquired their interest in the trust for no expenditure (unless they acquired it by way of assignment) or if they acquired their interest in the trust pre-CGT. The Commissioner disallowed the objection but agreed that the shares transferred to Alexander in specie was the happening of CGT event E5. The trustee appealed to the Federal Court. Issue 1. Does section 855-10 apply to disregard the capital gains attributed to Alexander in the years 2015, 2016 and 2017? 2. Does section 855-10 apply to disregard the capital gains from the happening of CGT event E5? Decision Thawley J rejected the trustee's argument in respect of the capital gains attributed to Alexander in the income years 2015, 2016 and 2017. Thawley J held that section 855-10 did not apply to the circumstances as the Peter Greensill Family Trust was not a foreign resident or trustee of a foreign trust. Further, the words ‘…disregard a capital gain or capital loss from a CGT event...’ in s 885-10(1) did not apply to the capital gains attributed to Alexander. The connecting word 'from' indicated a connection between the capital gain and the CGT event and was not intended to apply to an amount which is ‘attributable to a CGT event’ which occurred to another person. Capital gains deemed to be made by a beneficiary under Division 115-C so that they are taxable to a trustee under section 98 are not a capital gain 'from' a CGT event as required in section 855-10. In respect of the shares transferred to Alexander in specie, Thawley J held that s 855-10 applied to disregard any capital gain that Alexander made from the in specie transfer as that capital gain was 'from a CGT event', being CGT event E5. The trustee’s gain could not be disregarded under section 855-10 for the reasons above. Any deemed capital gain attributed to Alexander from the trust would not be 'from a CGT event' and would not be disregarded under s 855-10. The appeal was dismissed. Citation Peter Greensill Family Co Pty Ltd (trustee) v Commissioner of Taxation [2020] FCA 559 (Thawley J, Sydney) w http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2020/559.html 1.2 Mussalli – income vs capital Facts From 2005 McDonald's Australia Limited (MAL) offered Mr Ronald Mussalli a lease and licence to operate a McDonald's Family Restaurant on four restaurant sites – Erina, Erina Fair II, Gosford West and Wyoming. He entered these agreements using one of his entities, the trustee of the Mussalli Family Trust (MFT). Mr Mussalli had previously worked in operations at MAL. These offers included the terms of a full licence and lease which included MFT being required to make a number of rental payments. The first part was the base rent payable monthly plus GST. The second part was an additional percentage rent amount calculated by reference to monthly gross sales plus GST. This second amount could be lowered to a lower percentage of monthly sales if Mr Mussalli made an additional upfront rent payment on the day of handover. The day of handover was the day that the Mr Mussalli would begin to operate the restaurant. Brown Wright Stein Lawyers © 2020 page 5
Monthly tax training - May 2020 For example, for the Erina restaurant, the higher rent percentage was 11.82% or the lower fixed rate was 8.25% which also required an upfront payment of $660,000 plus GST to be paid the day that Mr Mussalli commenced operation of the restaurant at Erina. In all the transaction documents with MAL the upfront amounts were referred to as 'prepayment of rent'. Mr Mussalli ultimately decided to make the lump sum payment on the day of handover to secure the lower fixed rate for the monthly rent payable for each of the restaurants. Mr Mussalli later entered into lease and licence agreements for an additional three restaurants being Gosford Imperial, Mingara and Bateau Bay, and again made the lump sum payment for the purpose of securing a lower fixed rate in relation to the monthly rent. Four of the agreements entered into reached their end dates by the date of the hearing, however the agreements expressly prevented automatic renewal. As at the date of the hearing, one of the four agreements had an increased term, and one had been re-written. The remaining two were operated on a holding over basis. Only one of the agreements provided for a refund of the prepayment amount if MFT couldn't obtain a further term of the lease. The trustee of MFT claimed deductions in respect of the upfront payments made to MAL, with the deductions being claimed over 10 years (note that one of the rental terms was 20 years, and one was 7.8). There was an amount claimed as a deduction for the income years ending 30 June 2012 to 30 June 2015 (the Relevant Years) for each of the restaurants. In each of the Relevant Years, the trustee of the MFT resolved to distribute the net income of the trust, as to 50% for Saroncorp Pty Ltd and as to 50% for Saronvest Pty Ltd as trustee for the MIT. In turn, Saronvest Pty Ltd as trustee for the MIT paid a portion of the net income of the trust to each of Mr Mussalli, Sandra Mussalli and Daniel Mussalli in each of the Relevant Years as beneficiaries of the trust. There were also trust distributions made to Benjamin Mussalli in the 2013 to the 2015 financial years inclusive. Each of the applicants were issued with amended income tax assessments that resulted from denying MFT deductions for the upfront amounts. These assessments were objected to, and the Chief Commissioner disallowed the objections. The basis of the Commissioner's rejection of the objections was that the payments identified as 'prepaid rent' were actually outgoings of capital or of a capital nature and were therefore non-deductible. Evidence was given by two accounting experts as to how MAL had calculated the upfront amount. One expert, a Mr Halligan, opined that in its selling models MAL calculated the upfront amount for the restaurant as the difference between the amounts described in the model as the ‘agreed price of the restaurant’ and the ‘value of equipment’. The other expert, Mr Lonergan’s opinion was that, whilst prima facie the upfront amount is the difference between the ‘agreed price of the restaurant’ and the ‘value of the equipment’, the upfront amount represents the capitalised value / net present value of the rental differential terms offered. The upfront amounts were capitalised in the balance sheets of MFT, despite being written off for tax purposes. Mr Mussalli gave evidence that he paid the upfront amounts as he was shown profit projections by MAL, and in each instance, he earned more profit if he paid the upfront amounts than if he did not. He also stated that he expected that the reduced rental would likely be payable if the rental arrangements were renewed after the end of their term. No evidence was led as to what a fair market rent for the sites would be. Brown Wright Stein Lawyers © 2020 page 6
Monthly tax training - May 2020
Issues
Whether the upfront lump sum payment paid for each restaurant was an outgoing of capital or of a capital nature?
Decision
Her honour considered the better view was that the payments were of capital or were capital in nature. They were
a one off, lump sum, non-refundable amount paid to secure an enduring advantage, being the right to pay the
lesser amount of rent for the term of the arrangement, and potentially thereafter. The payments did not relate to
any future obligation to pay rent.
The labelling of the amounts as prepayments of rent was not determinative of their true character. It was noted
that the payments were not recurring.
The payments were seen to be to secure a preferable business structure (lower rent) rather than payments for
the carrying on of a business.
The fact that Mr Mussalli gave evidence that he made the payments because he concluded that it would be better
financially to pay the lower percentage rent for each store confirmed to the judge that the advantage sought was
‘in each case a business with a better profit-making structure’.
Although her honour noted she would have come to the same conclusion irrespective of the accounting evidence,
she preferred the evidence of Mr Halligan and the Commissioner’s submission that:
..the way in which the upfront amount was calculated is inconsistent with it being characterised as ‘rent’.
Instead the way in which MAL calculated the upfront amount, as the residual left over after deducting the
value of equipment from the agreed price determined by reference to a valuation based on a multiple of
between 4.76 and 5.50 times earnings, irrespective of the lease term, is itself an indication that the
franchisee is making a capital acquisition by paying the upfront amount.
The fact that no evidence was led about whether the higher or lower rents were a fair market rent, in a situation
where the applicants bore the burden of proof, meant that the conclusion that the rights conferred an enduring
advantage on MFT could not be excluded.
Further, the Court accepted the Commissioner's submission that the non-refundability of the prepayment amount
(with the exception of one restaurant) and the fact that the payments permanently extinguished the obligation to
pay the higher rent was an indication that the prepayment amount should be characterised as being in respect of
some kind of lease right.
The Court concluded that Mr Mussalli and the other applicants had failed to prove that the amended assessments
were excessive and dismissed the applications with costs.
Citation Mussalli v Commissioner of Taxation [2020] FCA 544 (Jagot J, Sydney)
w http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2020/544.html
1.3 Baynes – duty – real and apparent purchaser
Facts
Jill Baynes and her husband sought to acquire an apartment in Balmain for a purchase price of $2,225,000. For
asset protections reasons, Jill wished to acquire the property via an apparent purchaser arrangement with her
daughter as the apparent purchaser (to be on title) and her as real purchaser (as the real owner). On 30 January
2015, Jill transferred $225,000 to her daughter so that her daughter could pay the deposit on the purchase of the
property. The daughter obtained a loan from AMP for the balance of the purchase price, for which Jill provided an
indemnity and an undertaking to repay the loan. Two accounts were held with AMP, a loan account and an offset
account.
Brown Wright Stein Lawyers © 2020 page 7Monthly tax training - May 2020 Before completion, Jill and her husband engaged Argyle Solicitors to advise them in relation to their arrangements for the purchase of the property, including on the duty implications. They were advised the fact that Jill was indemnifying her daughter for the loan with AMP and the associated costs, ‘may be sufficient to satisfy section 55(1)(a)(i) provided that the Chief Commissioner is satisfied that the loan and all associated costs will be repaid [by Jill]’. On 20 February 2015, contracts were exchanged with the purchase of the property being completed by April 2015. Following settlement adjustments, the purchase price of $2,225,000 became $2,236,112. The balance (after the deposit) was paid as follows: 1. $200,000 from a Macquarie Bank Account in the name of the trustee of the family trust; 2. $815,971 from a joint account in the names of Jill and her husband (which was paid in 3 instalments and partially from an inheritance received by the husband from the estate of his late mother); 3. $999,750 from the loan provided by AMP to Jill's daughter. Duty in the amount of $107,865 was assessed and paid. Between 27 December 2017 and 3 January 2018, the applicant’s husband caused the transfer of $535,000 to the AMP offset account. These funds were part of his inheritance from his late mother. On 1 June 2018, Jill's husband transferred $899,523 to the AMP loan account with the notation ‘payout loan’. Part of these funds came from the $535,000 which Jill's husband had deposited into the AMP offset account. On 27 September 2018, Jill and her daughter executed a transfer to transfer the property into Jill's name. The consideration was described as ‘Pursuant to s. 55 Duties Act 1997’. This transfer was lodged with the Chief Commissioner together with a letter and supporting documents requesting that duty on the transfer be assessed at the concessional rate of $50 provided for by section 55 of the Duties Act 1997 (NSW). On 5 October 2018, the Chief Commissioner advised Jill that they were not satisfied that the requirements of section 55 of the Duties Act had been met. The reasons for this conclusion included that some of the moneys used to purchase the property had come from the joint account held by Jill and her husband, and thus were not payments made solely by Jill. On 9 October 2018, the Commissioner issued a Notice of Assessment for ad valorem duty, in the amount of $128,440. That amount was promptly paid, on 11 October 2018. On 28 November 2018, Jill lodged an objection to the notice of assessment. This objection included the following statements: 1. ‘We sought expert legal advice at the outset to establish an Apparent Purchase Arrangement and the intention was for [Jill and her husband], as husband and wife to jointly fund the purchase.’ 2. that Jill was not briefed ‘…that every dollar used to pay for the purchase of the property had to be my money exclusively and that every transfer of funds had to be from my bank account’ 3. ‘…all funds used to pay for the property in my name came from the company my husband and I own and the inheritances we both received. Additionally, the funds from the company were repaying a loan that I had provided through our family trust…’. On 25 January 2019, the Commissioner disallowed the objection. On 26 March 2019, Jill sought a review of the Commissioner's objection decision. As part of the proceedings Jill also argued that the funds sourced from her husband’s inheritance had been gifted to her. There were no contemporaneous records of such a gift and oral evidence was given in the Tribunal on this point. Issue Whether Jill is entitled to a concessional rate of duty upon a transfer to her of title to the property? Brown Wright Stein Lawyers © 2020 page 8
Monthly tax training - May 2020
Decision
For Jill to succeed, she had to establish, on the balance of probabilities, that:
1. the property was dutiable property;
2. the property was transferred from Jill’s daughter to Jill;
3. the property was vested in Jill’s daughter upon trust for Jill; and
4. Jill provided the money for the purchase of the property, and for any post-purchase improvements to the
property.
The first and second matters were not in dispute. The Tribunal considered the fourth matter first (given that
resolution of the third matter turns in part upon the resolution of the fourth matter).
Did Jill provide money for the purchase of the property?
The requirement that the purchase moneys have been provided by Jill required that Jill had provided the whole of
the purchase price. The Tribunal referred to Gleeson v Commissioner of State Revenue [2009] VSC 464 at [32]
where the Supreme Court of Victoria stated: ‘This is an all or nothing question. There is no basis for
apportionment’. The Tribunal confirmed that there is no discretion to be found in this requirement.
The Tribunal examined the payments made as consideration for the property (outlined above) and the means by
which the AMP loan was repaid. The Tribunal noted that it was common ground that the deposit of $225,000 and
the amount of $200,000 from the family trust were moneys provided by Jill. However, it was also common ground
(and the contemporaneous documentary records show) that:
1. part of the $763,423 paid toward the purchase price was paid from the joint account, utilising funds which
Jill's husband had received by way of inheritance and had deposited into the joint account; and
2. part of the loan repayment of $899,523 on 1 June 2018 was paid from the offset account in the name of Jill's
daughter, utilising funds which Jill’s husband had received by way of inheritance and had caused to be
deposited into the offset account.
Given this, the Tribunal found that Jill did not provide all of the money for the purchase of the property. The
Tribunal noted that it appeared that Jill had interpreted the advice given from Argyle Solicitors as indicating that
section 55 could apply if the moneys provided to purchase the property came from sources other than herself
alone.
Was there a gift of Jill’s husband’s inheritance to Jill?
Jill sought to rebut the prima facie position with an argument that the moneys obtained from her husband were
gifts to her, such that those moneys belonged to her for the purchase of the property. She submitted that:
1. since 1998, she had lent more than $4,500,000 to businesses operated by her husband which he wanted to
repay (and which, since 2015, she had started receiving repayments for); and
2. her husband did so by gifting to Jill the funds he received by way of inheritance.
The Commissioner submitted that Jill's submissions were a ‘retrospective rationalisation’ given that it was not
supported by, and was inconsistent with, documents previously provided to the Tribunal.
The Tribunal examined the letter of advice from Argyle Solicitors. The letter stated that ‘Jill and her husband will
receive an inheritance which will allow them to purchase the property outright…’ but did not ever refer to the
husband's inheritance being gifted to Jill for use in paying for the property.
The Tribunal also reviewed the objection and the application and focussed on the language used by Jill in those
documents. For example, the objection contained statements including that the ‘intention was for [Jill and her
husband] to jointly fund the purchase.’ A similar statement was made in the application. These references were
inconsistent with the proposition that the funds for the purchase of the property were provided solely by Jill, or
Brown Wright Stein Lawyers © 2020 page 9Monthly tax training - May 2020
that there was a gift to Jill. Neither the objection nor the application referenced the husband gifting his inheritance
money to Jill.
The Tribunal also considered that, as there was no contemporaneous document in evidence which threw light on
whether the transfers made by the husband were made as a gift, any intention to give a gift (if made) would have
been communicated orally.
The Tribunal analysed the evidence given by Jill, her husband and Mr Chew (the accountant for the Baynes
family, the trust and the company which owns the husband's businesses). It noted that their evidence (taken at its
highest) concerned the making of the gift but did not address primary facts as to how the gift was created. Mr
Chew's evidence was silent on this issue.
Given the above, the Tribunal was not persuaded that there was such a gift and concluded that Jill did not provide
all of the moneys used to purchase the property.
The Tribunal determined that the concessional duty treatment was unavailable.
Citation Baynes v Chief Commissioner of State Revenue [2020] NSWCATAD 106 (SM S Goodman, Sydney)
w https://www.caselaw.nsw.gov.au/decision/5e979601e4b0d927f74aeddd
1.4 Benidorm – duty on declaration of trust
On 1 May 2007, Mr John Phillip Dawson, a solicitor for Mr Robinson (a resident of Guernsey, now deceased),
caused Benidorm Pty Ltd to be incorporated for the purpose of Benidorm being used as a vehicle for the
purchase of a Macquarie Street Apartment. Mr Dawson was the sole director and shareholder in Benidorm.
On 16 May 2007, immediately before entry into the contract for the purchase of the Macquarie Street Apartment
by Benidorm for $12,050,000, a declaration of trust was executed by Mr Dawson as the sole director and
shareholder of Benidorm, by which Mr Dawson acknowledged that he held his shares in the capital of Benidorm
as a mere nominee for Mr Robinson absolutely.
It is accepted by Revenue NSW that Mr Robinson was the ‘real’ purchaser of the Macquarie Street Apartment,
having provided the whole of the purchase price to Benidorm, the apparent purchaser. Ad valorem duty was paid
on the purchase price.
On 31 May 2007, Benidorm and Mr Robinson entered into a deed of trust whereby Benidorm declared that it had
entered into the contract for the purchase of the Macquarie Street Apartment at the request, and at the cost, of Mr
Robinson and declared that it would hold the title to the Macquarie Street Apartment as trustee for Mr Robinson.
THE TRUSTEE
The Trustee hereby declares that the Trustee holds the property in trust for the Beneficiary and hereby
agrees that the Trustee will at the request and cost of the Beneficiary convey the land to such person,
firm or corporation at such time or times and in such manner and make such applications and execute all
such instruments and do all acts and things and otherwise deal with the same as the Beneficiary shall at
any time direct.
THE BENEFICIARY
The Beneficiary will at all times indemnify and keep indemnified the Trustee and in the case of the
Company, its successors and assigns and in the case of a person, his legal representatives against all
liabilities which the Trustee may incur by reason of the property being acquired and held in the name of
the Trustee and in particular (without limiting the foregoing) will pay or cause to be paid the balance of the
purchase moneys for the property, and stamp duty and costs for the purchase of the property and all
rates, taxes and other outgoings applicable to the property which the Trustee its successors and assigns
or his personal representatives may be or become liable to pay in respect of the property.
Brown Wright Stein Lawyers © 2020 page 10Monthly tax training - May 2020 On 13 September 2013, Mr Robinson died in Guernsey and in his will, he appointed Mr Stubbs (the late Mr Robinson’s partner) as his sole executor and beneficiary. Probate of the was issued in Guernsey and on 23 December 2014 the grant of probate was resealed in the NSW Supreme Court. On 29 January 2015, Benidorm and Mr Stubbs executed the document the subject of the present proceedings, by which it was declared that, in consequence of Mr Robinson’s death and the terms of the will, Benidorm ‘will hold’ the Macquarie Street Apartment on trust as ‘Nominee’ for the ‘New Beneficiary’ (Mr Stubbs) on the same terms as the earlier declaration of trust. After first assessing Mr Stubbs on the 29 January 2015 declaration of trust and then withdrawing that assessment as it assessed the wrong entity, on 8 March 2019 the Chief Commissioner issued a Notice of Assessment for the second declaration of trust for $982,682.84 (being ad valorem stamp duty of $710,490 and interest for late payment of $272,312.84). This was on the basis that document was a declaration of trust, and none of the concessions in the Duties Act applied. On 31 March 2019, Benidorm objected to the Notice of Assessment. On 17 May 2019, the Chief Commissioner partially disallowed the objection (only partially allowing to the extent of remitting some of the interest). A review of the decision was then applied for in the Supreme Court. Benidorm argued that there were a number of reasons that the latter declaration should not be dutiable, including that the later declaration did not create a new trust, it merely acknowledged an existing trust. In part the Chief Commissioner’s rebuttal to this point was that if that were the case, there would be no need for concessional duty provisions such as section 55 (the apparent purchaser rules). Issues 1. Whether the later declaration constituted a ‘declaration of trust’ within the meaning of the definition in section 8(3) of the Duties Act; 2. If yes, whether the later declaration was a ‘transaction’ liable to duty; 3. If yes, whether the Second Declaration is liable to nominal duty pursuant to the ‘no double duty provision’ or because there was a transfer made in conformity with trusts in the will. Decision Declaration of Trust – section 8(3) of Duties Act The Court held that in order for a declaration to come within the meaning of section 8(3) of the Duties Act, the declaration ‘must do something more than, in the sense of having legal effect beyond, merely acknowledging the position’ that subsisted at the time of the declaration. In forming this conclusion, her Honour had regard to Gageler J's judgment in Commissioner of State Revenue v Rojoda Pty Ltd [2020] HCA 7, namely that a purported declaration of trust that merely acknowledges the legal position that has come into effect, is not a declaration of trust. The Court accepted Benidorm's arguments that: 1. the real and personal estate of Mr Robinson included the beneficial interest of Mr Robinson in the Apartment; 2. the combined application of section 44 and 47 of the Probate and Administration Act was to vest the whole of the real and personal estate of Mr Robinson in Mr Stubbs as sole beneficiary of the Will, on and from the date of death of Mr Robinson; 3. on and from Mr Robinson's death, Mr Dawson held the shares in Benidorm on an express trust for Mr Stubbs and Benidorm held the Apartment on an express trust for Mr Stubbs (in lieu of Mr Robinson); 4. by reason of the above, the later declaration of trust was not necessary or effective under the principles of trust law to vest a beneficial interest in the Apartment. In other words, the Apartment could not be vested in Mr Stubbs by Benidorm pursuant to the later declaration, because Benidorm never held a beneficial interest in it; 5. as such, later declaration could operate as nothing more than an acknowledgement or confirmation existing arrangement. Brown Wright Stein Lawyers © 2020 page 11
Monthly tax training - May 2020
In relation to the Chief Commissioner’s point that there would be no need for the apparent purchaser rules if an
acknowledgement of an existing trust were not dutiable her honour considered that in a resulting trust the
existence of the trust could be rebutted by evidence and that there was therefore something more done by
declaring a trust over resulting trust property than merely evidencing a pre-existing trust.
As there was considered to be no declaration of trust, duty should not have been imposed on the instrument.
Double Duty – subsections 18(6) and (6A) of Duties Act
Although the Court found in favour of Benidorm in relation to the first issue, the Court still considered the
remaining issues, in case of an error in the disposition of the first issue.
The Court did not accept that the Second Declaration was liable to nominal duty under either subsections 18(6) or
s18(6A) of the Duties Act.
This is because, in relation to subsection 18(6), it is only engaged if ad valorem duty was paid on the relevant
'transfer'. On the facts, ad valorem duty was not paid on a transfer, it was paid on the contract of sale.
Further, subsection 18(6A) is only engaged where, relevantly:
1. the relevant declaration of trust is the same trust that was declared by a previous declaration; and
2. the beneficiary under the declaration of trust is the same as the beneficiary under the previous declaration of
trust.
The Court did not accept that the beneficiary of the later declaration, Mr Stubbs, was the same as the beneficiary
of the earlier declaration, Mr Robinson. The Court rejected Benidorm's submission that because Mr Stubbs
inherited the same 'position' as Mr Robinson as beneficiary, on a purposive construction, Mr Stubbs was the
same beneficiary.
Transfer under will – section 63(1)(a)(i) of Duties Act
The Court also rejected Benidorm's argument that the later declaration was liable to nominal duty under section
63(1)(a)(i) of the Duties Act, being the concession for a transfer of dutiable property which was made under and
in conformity with the trusts contained in the will of a deceased person or arising on an intestacy.
The Court held that section 63(1)(a)(i) was not engaged because the later declaration was not a ‘transfer’ as
required by that section. Further, the later declaration was not made by the legal personal representative of Mr
Robinson, but rather was made by Benidorm. The fact that Mr Stubbs was recorded as a party to the document
did not mean that he made the later declaration.
Citation Benidorm Pty Ltd v Chief Commissioner of State Revenue [2020] NSWSC 471 (Ward CJ, Sydney)
w https://www.caselaw.nsw.gov.au/decision/5eaa10d9e4b0d927f74af5c0
1.5 Young – land tax primary production exemption
Facts
Mr Spencer Young as trustee for the Spencer Young Family Trust was the registered proprietor of adjoining
parcels of land at Arcadia comprising of:
1. 15 Wylds Road, Arcadia – Lot 1 in the 2016 land tax year;
2. 11 Wylds Road, Arcadia – Lot 12 in 2016 land tax year;
3. 11 Wylds Road, Arcadia – Lot 121 in the 2017 land tax year; and
4. 35A Halls Road, Arcadia – Lot 122 in the 2017 land tax year.
On July 2014, Mr Young in his capacity as trustee for the Spencer Young Family Trust, exchanged contracts with
Mr Geelan to purchase Lot 1 for $1,900,000 and Lot 12 for $950,000. Lot 1 had a house on it in which Mr Geelan
lived. It was agreed that there would be a deferred settlement of 12 months and that Mr Geelan could live rent
Brown Wright Stein Lawyers © 2020 page 12Monthly tax training - May 2020 free in the house for 2 years after settlement in return for ongoing property maintenance and other services in relation to the property and some proposed construction activities On August 2014, Mr Jones, Mr Young's building consultant commenced drawing up plans for the development application process and on 24 December 2014, lodged an application with Hornsby Council to adjust the boundaries of existing Lots 1 and 12 to create new Lots 121 and 122, and to establish an equestrian arena and stable building for equestrian training. In accordance with the Hornsby Local Environmental Plan, the proposed stables and arena would be used for private use only. The plan appears to have been amended to include construction of a new dwelling on lot 121 and a swimming pool. Mr Young spent approximately $1 million on building works. From August to November 2015, works at the property commenced including demolishing sheds, clearing land, on Lot 1 for stables, sheds, three smaller yards and a horse exercise arena, and levelling and filling on Lot 12 for another paddock. On 27 November 2015, five horses were brought onto part of the land. A sixth horse was brought onto the property in October 2016. Evidence was given about the reasons that the horses were held. In December 2015, an aerial photograph of the land showed a large fenced arena where earthworks were being carried out. Those earthworks comprised over 50% of the area of Lot 1 and about 50% of the area of Lot 12. From January to December 2016, further works were undertaken on the land, including demolition of existing structures, earthworks and the installation of drainage systems. In May 2016, an additional paddock on part of Lot 12 was fenced and used in rotation by the horses. At December 2016, an aerial photograph of the land showed that the large fenced area now had a long rectangular roof over the arena. There were also footings for the stables in the area. An area of greater than 50% of lot 122 was being used for construction and was uninhabitable by horses. From the photograph it may be that one of the horses was being maintained on Lot 122 at this time. For Lot 121 a much smaller area was the subject of construction and it appeared the remaining horses were being maintained on the lot. Between October 2016 and March 2017, the exercise area was covered, and a new stable building and water tanks were constructed on part of Lot 122. In April 2017, the horse stables and training area were still under construction. An application for ‘interim occupation certificates’ for the horse stables and arena buildings was lodged with Council in December 2017. At January 2018, an aerial photograph of the land showed there were two large water tanks on the property. The arena had sand and a network of drains by that time. The arena could be used to ride horses by about December 2017. In January 2018, the yard, new house and pool, had not yet been built. On 2 January 2018, the Chief Commissioner wrote to the Mr Young, advising that the land did not qualify for the primary production land exemption. In March 2018, the Chief Commissioner requested further documentation including the ‘business plan for the horse breeding enterprise operating and plans for its future planned operations’. On 26 March 2018 Mr Young provided a document styled as a business plan titled ‘Yindarra Park Equestrian’. There were no sales of horses, purchases of horses, breeding of horses or births of horses occurring on the land during 2016 and 2017. There was some training on the property which occurred in the last three months of 2016 after The Last Emperor was brought into the property. It appears the Young family occasionally stayed at the property. The land was zoned rural land. The Commissioner did not consider that the primary production exemption for land tax was available, as the dominant use of the land was for the ‘maintenance of horses for the purpose of selling them or their natural increase or bodily produce’. On this basis: Brown Wright Stein Lawyers © 2020 page 13
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1. on 29 September 2016, the Chief Commissioner issued Mr Young with a Land Tax Assessment Notice in
respect of Lot 1 and 12 in the amount of $32,096 for the 2016 land tax year.
2. on 21 October 2017 the Chief Commissioner issued Mr Young with a Land Tax Assessment Notice in the
amount of $45,280 for the 2017 land tax year for Lots 121 and 122.
Mr Young, objected, and when the objection was disallowed, appealed the decision to the NSW Supreme Court.
At the hearing, Mr Young failed to adduce any financial reports relating to horse activities on the land, and did not
put into evidence any financial information or tax returns in respect of the horse activities on the land, or any
registration for GST in respect of his horse activities on the land.
Issue
Whether the primary production exemption was available.
Decision
Payne J concluded that Mr Young has not proven that the land was 'used for primary production' during the tax
years, and held that the land was not exempt from land tax.
His honour considered that for land to be used for primary production there must be deliberate physical acts in
relation to the land, and the land must be 'used' and actually used, not be contemplated or intended to be used
nor merely be suitable for use.
His honour found that the physical uses of the land in the relevant tax years were:
1. demolition, clearing and construction works from August 2015 onwards and for many months of the 2017 tax
year;
2. residential use from July 2015 onwards, and
3. the maintenance of horses only from 27 November 2015 onwards.
His honour considered it was the objective character of the physical activities carried on from the land, not the
subjective intention behind them, that determined the use of each lot during the tax years. It was considered that
Mr Geelan’s residential use and the occasional residential use by the Young family was able to be put to one side
for the relevant tax years as residential use was not the dominant physical use of the land in those years.
What needed to be weighed up was the competing physical uses of the land in the tax years being demolition,
clearing and construction works as compared to the maintenance of horses.
On the evidence, the prevailing physical use of the land of Lots 1 and 12 in 2016 and Lot 122 in 2017 was the
ongoing clearing, excavation, demolition and construction works. The lots were not used 'for' the maintenance of
horses, which could not occur on land on which these works were taking place. The maintenance of horses was
to be the dominant use of Lot 121 in the 2017 year.
As there was no occupation certificate in relation to the horse stables and arena buildings until December 2017,
the judge found that these structures were not useable in the 2016 and 2017 land tax years, so that the land was
not fit for primary production in the relevant tax years.
His honour considered horses could be kept on the land for one of two purposes, for the purpose of sale
(including of their progeny) and also for recreational use. This is unlike the position for other animals where a
conclusion should be reached that they are being held for sale.
Objectively, the judge found that the land was stocked with horses unsuitable and untested for any business of
breeding and selling dressage horses. The business plan was only prepared in response to the Chief
Commissioner’s request as part of the dispute and therefore was not given any weight. The absence of financial
records also led, objectively, to a finding against sale of the horses or their progeny being a dominant use of the
land.
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While his honour noted that little would turn on subjective purpose, he found on the evidence from Mr Young that
he did not consider his subjective purpose in the land tax years was maintaining them to sell them, their natural
increase or bodily produce.
Citation Young v Chief Commissioner of State Revenue [2020] NSWSC 330 (Payne J, Sydney)
w http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2020/330.html
1.6 Havilah Resources Ltd – research and development
Facts
Havilah Resources is an exploration company which engages in mining activities at various sites including Portia,
Kalkaroo and Maldorky for gold, copper-gold and iron ore, respectively.
Section 355–1 of the ITAA 1997 provides that an R&D entity may be entitled to a tax offset for R&D activities.
Section 355-20 of the ITAA 1997 provides that R&D activities are either ‘core R&D activities’ or ‘supporting R&D
activities', which are further defined in sections 355-25 and 355-30 of the ITAA 1997.
Relevantly, section 355-25 of the ITAA 1997 provides:
(1) Core R&D activities are experimental activities:
(a) whose outcome cannot be known or determined in advance on the basis of current knowledge,
information or experience, but can only be determined by applying a systematic progression of work that:
(i) is based on principles of established science; and
(ii) proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions;
and
(b) that are conducted for the purpose of generating new knowledge (including new knowledge in the form
of new or improved materials, products, devices, processes and services).
(2) However, none of the following activities are core R&D activities:
…
(b) prospecting, exploring or drilling for minerals or petroleum for the purposes of one or more of the
following:
(i) discovering deposits;
(ii) determining more precisely the location of deposits;
(iii) determining the size or quality of deposits;
…
(f) activities associated with complying with statutory requirements or standards, including one or more of
the following:
(i) maintaining national standards;
(ii) calibrating secondary standards;
(iii) routine testing and analysis of materials, components, products, processes, soils, atmospheres and
other things;
Division 2 of Part III of the Industry Research and Development Act 1986 (Cth) sets out registration of an R&D
entity for R&D activities. Any findings made by Innovation and Science Australia under that Act with respect to
registration of an R&D entity for R&D activities and the nature of R&D activities are binding on the Commissioner
of Taxation for the purposes of any entitlement of an R&D entity to the R&D tax offset under Division 355 of the
ITAA 1997.
On 13 May 2014, Havilah Resources applied to Innovation and Science Australia to register activities related to
the Maldorky, Portia and Kalkaroo mining projects for the 2013 income year. These activities were registered on
20 May 2014.
On 27 May 2015, Havilah Resources applied to register similar activities for the 2014 income year. The activities
were registered on 31 May 2015.
Brown Wright Stein Lawyers © 2020 page 15Monthly tax training - May 2020 In mid-2015, Innovation and Science Australia initiated a compliance review of Havilah Resources' registered activities for 2012/13. On 22 December 2015, a finding was made that some of the claimed activities were not core or supporting R&D activities. Havilah Resources requested an internal review of that finding but it was confirmed on 23 November 2016. Havilah Resources then applied to the AAT for review of the internal review decision. Havilah Resources contended that, during the 2013 and 2014 income years, it engaged in activities in relation to the Portia, Kalkaroo and Maldorky sites for which it was entitled to receive a tax offset pursuant to Division 355 of the ITAA 1997 because they were ‘R&D Activities’. Issue Were the activities registered by Havilah Resources for the 2013 and 2014 income years 'core R&D activities' for the purposes of Division 355 of the ITAA 1997? Decision The AAT found that none of the claimed activities were core R&D activities within the meaning of section 355- 25(1) of the ITAA 1997. The AAT did not consider whether any of the claimed activities were supporting R&D activities since no core R&D activities were found. In determining whether any of the claimed activities were ‘core R&D activities’, the AAT considered that 355-25(1) of the ITAA 1997 requires experimental activities to be conducted in a scientific way for the purpose of generating new knowledge that is likely to benefit the wider Australian economy. The requirement to likely benefit the wider Australian economy is not set out in the legislative text of section 355-25(1), however the AAT read down section 355-25(1) to include this requirement, based on the statutory context and purpose of the R&D tax incentive legislation. On this basis, the AAT noted that many of the claimed activities were not core R&D activities because the new knowledge claimed was site specific and would not benefit the wider Australian economy. The AAT also held that some of the activities were not core R&D activities because they were associated with complying with statutory requirements or standards, and therefore fell within the exclusion in section 355-25(2)(f). The AAT rejected Havilah Resources' argument that the activities could still qualify as core R&D activities where they have a dual purpose. The AAT held that the test for the section 355-25(2)(f) exclusion was broad as a result of the words ‘associated with’ used in that section. The AAT also held that the statutory inclusion of words ‘in a scientific way’ in section 355-5 of the ITAA 1997, which sets out the object of Division 355, suggests that a systematic progression needs to be recorded to achieve that standard. Many of the activities were found to lack contemporaneous documentation and written evidence, which was relevant to the AAT making a finding that no core R&D activities had been undertaken. Considering the evidence as a whole, the AAT concluded that none of the activities registered in respect of the sites at Portia, Kalkaroo and Maldorky were core R&D activities. The activities used established methods and non-innovative techniques. The new knowledge generated was site specific, resulting from routine investigation rather than experimentation and the testing of hypotheses, and was unlikely to benefit the wider Australian economy. Citation Havilah Resources Ltd and Innovation and Science Australia [2020] AATA 933 (Deputy President P Britten-Jones, Adelaide) w http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/AATA/2020/933.html 1.7 Wareham v Marsella – appeal update Facts The Victorian Supreme Court of Appeal has dismissed the appeal of Caroline and Martin Wareham from the decision of McMillan J in Re Marsella; Marsella v Wareham (No 2) [2019] VSC 65 (see the April 2019 Tax Training Notes). Brown Wright Stein Lawyers © 2020 page 16
Monthly tax training - May 2020
The case concerned the payment of the death benefit of Helen Marsella. Caroline was the daughter of Helen from
her first marriage. Upon her mother's death, Caroline appointed her husband Martin as co-trustee of the Swanson
Retirement Fund and resolved to pay the entire superannuation benefit to herself.
The trial judge found that Caroline and Martin had exercised their discretion as trustees of the Fund without giving
real and genuine consideration to the interests of the dependents of the Fund (including to the deceased's second
husband, Mr Marsella). Accordingly, it was held that Caroline and Martin be removed as trustees of the Fund.
Issues
Caroline and Martin appealed to the Court of Appeal on 10 different grounds, although the grounds may be
summarised as follows:
1. the trial judge erred in concluding that the trustees failed to give real and genuine consideration to the
interests of those who might potentially benefit from the exercise of the discretion regarding payment of the
death benefit;
2. the trial judge erred in taking notice of findings made in Family Court proceedings to inform the current
proceeding;
3. the trial judge erred in finding the power of distribution in the fund deed was a ‘special power’, rather than a
‘general power’;
4. the trial judge erred in finding that Caroline acted in bad faith;
5. the trial judge erred in directing that the trustees of the Fund be removed.
Decision
The Court of Appeal rejected each of the grounds set out above.
Notably, the Court of Appeal restated the principle in Karger v Paul [1984] VR 161 that the essential components
of a trustee's exercise of discretion are present if ‘the discretion is exercised by the trustees in good faith, upon
real and genuine consideration and in accordance with the purposes for which the discretion was conferred’.
The Court of Appeal confirmed that until the High Court decided otherwise, the Karger v Paul principle remains
applicable to superannuation funds.
In upholding the trial judge's decision, the Court of Appeal found that:
1. Caroline misunderstood her duties as trustee and acted on incorrect legal advice;
2. Caroline chose not to give evidence and as such, there was no evidence to prove that Caroline sought
specialist advice from a lawyer in the superannuation field (as her accountant Mr Hayes advised her to do);
3. the evidence of Mr Hayes that Caroline told him she had given 'careful consideration to all of the dependents'
did not amount to ‘unchallenged evidence’ (because Caroline did not give evidence and she could not be
cross examined on the statement);
4. the trial judge never indicated to Caroline that she would not concern herself with the Family Court
proceedings, but rather that she was ‘aware of the background’ of the Family Court proceedings. The trial
judge was entitled to rely on the decision in those proceedings;
5. although the power of distribution in the Fund deed required the trustee to choose among the identified class
of potential beneficiaries, this choice reflected a discretion and not a general power of appointment that
permitted the trustees to distribute the proceeds of the fund to Caroline without regard to the interests of other
potential beneficiaries. The discretionary power was very far removed from a general power, by which the
appointor has rights ‘virtually equivalent to ownership’;
6. even if Caroline did not act in bad faith, the test in Karger v Paul requires only one of the limbs to fail, that is,
the exercise of the trustee's discretion would not be valid if:
a. the trustee acted in bad faith; or
b. the trustee did not act upon real of genuine consideration; or
c. the trustee did not act in accordance with the purposes for which the discretion was conferred.
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