Fixed unit trusts in New South Wales: Sayden's case overturned

On 10 May 2013, the New South Wales Court of Appeal allowed an appeal brought by Sayden Pty Ltd against the decision of the ADT Appeal Panel given in Sayden Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 288 (the ADT Appeal Decision). You can view our June 2012 ClearLaw article on that earlier decision here.

This article discusses the Court of Appeal's decision^[1] and its impact (if any) on the Cleardocs NSW fixed unit trust deed.

The Court of Appeal Decision

In the ADT Appeal Decision, the Appeal Panel:

• acknowledged the Commissioner's policy that the insertion of a clause which mirrors the provisions of section 3A(3B) of the LTMA is generally sufficient for a trust deed to meet the 'relevant criteria' set out in section 3A(3B).
• agreed in this case that, consistent with a decision of an Office of State Revenue internal reviewer, there were a number of issues with the drafting of the particular trust deed in question. Both the Appeal Panel and the internal reviewer considered that those problems were not rectified by the trust deed containing overriding words aimed at ensuring the trust deed was a fixed trust for land tax purposes.

The consequence of the ADT Appeal Decision was that Sayden Pty Ltd would be liable to pay a higher rate of land tax as a special trust and not at the lower concessional rate that applies to fixed trusts. This was despite the fact that the relevant trust deed contained an overriding clause drafted to ensure that the trust would be assessed as a fixed trust.

The Court of Appeal considered that the Appeal Panel erred in its approach to interpreting the trust deed in question. In the Court of Appeal's view, the Appeal Panel should have approached the interpretation of the deed by reference to orthodox principles of construction rather than by assessing the deed on a clause by clause basis. Had the Appeal Panel adopted this approach, it would have concluded that the overriding clause would have taken precedence over any other provision in the deed.

How did the ADT Appeal Decision affect the Cleardocs NSW fixed unit trust deed?

Maddocks' view was (and still is) that, the ADT Appeal Decision had no legal implications for trusts established using the Cleardocs NSW fixed unit trust deed product. However, following the ADT Appeal Decision, it appeared that the Office of State Revenue's approach to interpreting fixed unit trust deeds changed slightly. As a consequence, some Cleardocs customers experienced difficulty in having their trusts classified as fixed unit trust, particular those customers that had not applied for a private ruling.

In response to the OSR's apparent new approach, Cleardocs made a small number of changes to the NSW fixed unit trust deed. The changes were to assist customers to obtain satisfactory assessments and rulings. Maddocks also re-stated its strong recommendation to Cleardocs customers that a private ruling be obtained in respect of every new fixed unit trust on which the trustee can rely in assessing its land tax liability.

Does the new decision change anything?

In short, no.

Maddocks has raised this matter with the OSR and the OSR has confirmed that the Cleardocs fixed unit trust should be, in all cases, classified as a fixed unit trust for land tax purposes. The OSR advised Maddocks that:

• it considers it unnecessary to obtain a private ruling in relation to each new fixed unit trust; and
• if any Cleardocs customer receives an adverse land tax assessment, the customer should refer the matter to the Senior Technical Officer, Land Tax at the OSR.

This case demonstrates the difficulty that can be experienced in interpreting both legislative provisions and trust deed terms, including for regulators who may not have significant exposure to how trusts deeds are drafted and used more generally.

Ultimately, Sayden Pty Ltd obtained a satisfactory decision. However, the correct decision is likely to have come at considerable cost and could have been avoided had the trust deed been more clearly drafted, or an initial ruling obtained from the OSR.

In light of these new developments, Maddocks and Cleardocs are reviewing the NSW fixed unit trust product. We will make any changes that we believe will help Cleardocs customers to obtain the best outcome possible.

More Information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Superannuation and Financial Services team or the General Commercial team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a wide range of trusts topics here.

Order Cleardocs trust packages

• Discretionary (Family) Trust
• Unit Trust - fixed
• Unit Trust - non-fixed
• Hybrid Trust
• Service Agreement
• Change of Trustee Discretionary Trust
• Change of Trustee Unit Trust