Budumu Pty Ltd (ACN 001 216 397)

1. [1]

   This is an application by the Plaintiff, acting as trustee (“the Trustee”) of the George Hardi Family Trust (“the Trust Estate”), asking the Court for advice under s.63 and or relief under s.81 of the Trustee Act 1925 (NSW) (“Trustee Act”).

2. [2]

   For the purposes of the s.63 application, the questions for advice are contained in prayers 2 and 3 of the summons.

3. [3]

   For the purposes of the s.81 application, the relief sought is contained in prayer 4 of the summons.

4. [4]

   The reason for application is because of amendments to the Land Tax Act 1956 (NSW) (“Land Tax Act”) and the Duties Act 1997 (NSW) (“Duties Tax Act”) which impose surcharges to the extent that a “foreign person” may be (not necessarily is) a beneficiary of the trust where the trust holds residential property.

5. [5]

   On 19 April 2021, having heard the evidence and submissions, I made the orders requested. I indicated I would subsequently publish my reasons. These are they.

The Land Tax Act

1. [6]

   Sections 5D(1)-(5) of the Land Tax Act are as follows:

2. [7]

   The term “foreign person” for the purposes of the Land Tax Act is defined in section s.104J of the Duties Act as “…A person who is a foreign person within the meaning of the Foreign Acquisition and Takeovers Act 1975 of the Commonwealth, as modified by this section …”

3. [8]

   Importantly, surcharge land tax is not charged if no beneficiary (including a potential beneficiary) is (or can potentially be) a “foreign person”.

The terms of the Trust Estate

1. [9]

   The terms of the Trust Estate are contained in a trust deed dated 11 April 1974 (“the Trust Deed”) and made as between Leo Hardi (as settlor) and the Trustee (as trustee).

2. [10]

   Clause 2 of the Trust Deed contains the trusts with respect to income. Clause 4 of the Trust Deed contains the trusts for capital.

3. [11]

   Clause 2 of the Trust Deed provides that:

4. [12]

   Clause 4 of the Trust Deed provides as follows:

5. [13]

   Further, paragraph 6(c) of the Trust Deed gives the Trustee the power to pay or apply the capital for the “…maintenance, education, advancement or benefit…” of a beneficiary.

6. [14]

   The objects of the power to appoint income (per cl.2) and the power to appoint capital (under cl.4 and paragraph 6(c)) are the “beneficiaries”. That term is defined in paragraph 1(d) of the Trust Deed as follows:

7. [15]

   Clause 7 of the Trust Deed prohibits (amongst others) the Trustee from benefiting, and relevant provides as follows:

8. [16]

   Clause 11 of the Trust Deed contains a power to vary, as follows:

The questions

1. [17]

   The Summons in prayers 2 and 3 pose the following questions for advice pursuant to s.63 of the Trustee Act:

   1. (1)

      Whether the Trustee has the power to vary the terms of the Trust Estate?

   2. (2)

      Whether the Trustee is not justified in disclaiming and / or surrendering its powers to appoint income and / or capital to any beneficiary of the Trust Estate whilst the beneficiary is a “foreign person” as that term is defined for the purposes of the Land Tax Act and the Duties Act?

2. [18]

   I examined similar issues in Re Dion Investments Pty Ltd [2020] NSWSC 1661 (“Re Dion [2020]”) and I gave advice on related questions recently in Cecil Investments Pty Limited [2021] NSWSC 211 (“Cecil”) and Casibond Pty Ltd [2021] NSWSC 320 (“Casibond”) and refer to those judgments to answer the current questions.

3. [19]

   Based on my previous findings in Cecil and Casibond and for the same reasons there, I answer the questions put to me here as follows.

4. [20]

   As observed by Barrett JA (with whom Beazley P and Gleeson JA agreed) in Re Dion Investments Pty Ltd [2014] NSWCA 367 (“Re Dion [2014]”), without more, a settlor and original trustee cannot vary the terms of a trust that has been created (at [42] in Re Dion [2014]). There are only four ways that a settled trust can be varied:

5. [21]

   I accept the Plaintiff’s submissions that the Trustee does not have the power to vary the Trust Deed, and that the power to vary contained in cl.11 of the Trust Deed expired upon the death of George and Anne Marie Hardi.

6. [22]

   Whether or not the Trustee can disclaim, release or surrender any powers depends upon the application of s.28 of the Conveyancing Act 1919 (NSW) (“Conveyancing Act”). The question is therefore whether the powers contained in the Trust Deed, being the powers to appoint income and or capital, are powers which are coupled with a duty.

7. [23]

   The answer to prayer 3 of the Summons is that the Trustee cannot disclaim and or surrender its powers to appoint income and or capital to any beneficiary of the Trust Estate while the beneficiary is a “foreign person” under the Land Tax Act and the Duties Act.

Section 81

1. [24]

   The relief sought (at prayer 4 of the Summons) under s.81 of the Trustee Act was an order permitting the Trustee to release all of the trusts and powers (referrable to the Trust Estate) such that any beneficiary of the Trust Estate that is a “foreign person” as that term is defined in the Duties Act and the Land Tax Act is not a beneficiary whilst they are a “foreign person”.

2. [25]

   This relief is pursued due to the effect of the State Revenue Legislation Further Amendment Act 2020 (NSW) (“the Amending Act”) on the Duties Act, Land Tax Act and the Land Tax Management Act 1956 (NSW). The Amending Act provides for exemptions from refunds of surcharge purchaser duty and surcharge land tax payable in respect of residential land by the trustee of a discretionary trust, if the trust prevents a foreign person from being a beneficiary of the trust. Here, that would result in an estimated annual liability of (at this stage) 2% of the taxable value of the land (which is residential property) held subject to the Trust Estate. In particular, there will be a charge of approximately $180,200 with respect to the land tax years from 2017 to 2020, and at this stage an annual charge of $44,740 for each subsequent year.

3. [26]

   Relief is also sought in the absence of a reserve power to vary the terms of the Trust Estate as contained in the Trust Deed, and because s.28 of the Conveyancing Act cannot be used to disclaim the trusts contained in clause 4 of the Trust Deed.

4. [27]

   For the same reasons as in Re Dion [2020], Cecil Investments and Casibond, I would therefore grant the relief sought in prayer 4 of the Summons under s.81 of the Trustee Act.

5. [28]

   I have made orders in this matter to the above effect.