B.E.R.T. PTY LTD AS TRUSTEE FOR THE B.E.R.T. FUND NO 2 v FC of T
Members:JA Logan RFD PM
PE Hack SC DP
Tribunal:
Administrative Appeals Tribunal, Brisbane
MEDIA NEUTRAL CITATION:
[2013] AATA 584
Justice J A Logan RFD, Presidential Member Deputy President P E Hack SC
INTRODUCTION
1. Various industrial agreements in the construction industry require employers to make weekly payments to a common fund for the ultimate benefit of employees who become redundant, attain the age of 55 years, permanently leave the construction industry or similar eventualities. The various funds, called "approved worker entitlement funds" by the Fringe Benefits Tax Assessment Act 1986 (Cth), have concessional treatment under that Act provided they satisfy particular requirements of that legislation.
2. The applicant in these proceedings, B.E.R.T. Pty Ltd[1]
3. The respondent decided that the Fund was not a public trading trust. In a private ruling decision in December 2010 the Commissioner determined that he would not tax the Fund on that basis. When the Fund lodged its return for the 2011 income year the Commissioner assessed the Fund's income under s 99A of the ITAA 1936 and thus taxable at 46.5%. The applicant's objection to that assessment was disallowed on 12 November 2012. These proceedings were commenced thereafter.
THE LEGISLATION
4. Reference needs to be made first to the requirements of the Fringe Benefits Tax Assessment Act that must be satisfied before a Regulation could be made prescribing a fund for the purposes of the legislation[2]
(4) Before the Governor-General makes a regulation under paragraph (2)(a) prescribing a fund for the purposes of that paragraph, the Commissioner must be satisfied that:
- (a) …
- (c) under the fund's constituting documents, payments from contributions to the fund are to be made only for the following purposes:
- (i) to pay worker entitlements to persons in respect of whom contributions are made, or to death benefits dependants (within the meaning of the Income Tax Assessment Act 1997) or legal personal representatives (within the meaning of that Act) of those persons;
- (ii) to make investments to generate income from the assets of the fund;
- (iii) to reimburse contributors who have paid entitlements directly to persons in respect of whom contributions are made;
- (iv) to return contributions to contributors;
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- (v) to pay, for the benefit of a person in respect of whom contributions are made, an employment termination payment (within the meaning of the Income Tax Assessment Act 1997) into a complying superannuation fund (within the meaning of section 45 of the Superannuation Industry (Supervision) Act 1993), a complying approved deposit fund (within the meaning of section 47 of the Superannuation Industry (Supervision) Act 1993) or a retirement savings account (within the meaning of the Retirement Savings Accounts Act 1997);
- (vi) to transfer contributions to another approved worker entitlement fund;
- (vii) to pay the reasonable administrative expenses of the fund;
- (viii) to pay amounts to a contributor's external administrator that would otherwise be payable as mentioned in subparagraph (iii) or (iv) to the contributor;
- (ix) to pay interest on, or to repay, money lent to the fund; and
- (d) under the fund's constituting documents, payments from the income of the fund are to be made only for the following purposes:
- (i) a purpose mentioned in subparagraphs (c)(ii) to (ix);
- (ii) to make payments to contributors to the fund;
- (iii) to make payments to other persons where the payment is specified in subsection (5); and
- (e) under the fund's constituting documents:
- (i) an account must be kept for each person in respect of whom contributions to the fund are made; and
- (ii) the account must be kept in a manner that enables entitlements in respect of the person to be calculated.
5. The Fund was prescribed for the purposes of s 58PB(2) of the Fringe Benefits Tax Assessment Act by the Fringe Benefits Tax Amendment Regulations 2004 (No. 1)[3]
6. By virtue of s 102S of the ITAA 1936,
The trustee of a unit trust that is a public trading trust … is liable to pay tax on the net income of the public trading trust at the rate declared by the Parliament.
Section 25 of the Income Tax Rates Act 1986 (Cth) declares that rate to be 30%, the same as the rate declared by s 23(2) of that Act for companies.
7. The expression "unit trust" is not defined in the ITAA 1936 however "unit" is described in this way in s102M:
unit , in relation to a prescribed trust estate, includes a beneficial interest, however described, in any of the income or property of the trust estate.
A "prescribed trust estate" is defined in the same section as:
a trust estate that is, or has been, a public trading trust in relation to any year of income.
8. Section 102N(1) of the ITAA 1936 sets out the requirements for a trading trust. It provides,
(1) For the purposes of this Division, a unit trust is a trading trust in relation to a year of income if, at any time during the year of income, the trustee:
- (a) carried on a trading business; or
- (b) controlled, or was able to control, directly or indirectly, the affairs or operations of another person in respect of the carrying on by that other person of a trading business.
And a "public trading trust" is defined by s 102P(1) of the ITAA 1936 in this way,
(1) For the purposes of this Division, but subject to the succeeding provisions of this section, a unit trust is a public unit trust in relation to a year of income if, at any time during the year of income:
- (a) any of the units in the unit trust were listed for quotation in the official list of a stock exchange in Australia or elsewhere;
- (b) any of the units in the unit trust were offered to the public; or
- (c) the units in the unit trust were held by not fewer than 50 persons.
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We do not understand the Commissioner to dispute that the Fund, if it be found to be a unit trust, satisfies the requirements of s 102N(1) of the ITAA 1936. And, on the same basis, we do not understand the Commissioner to dispute the "public" requirement of s 102P(1). The evidence here is that the Fund has in excess of 86,000 members.9. Ultimately then the question is whether the Fund was a unit trust. That is so because unit trust is an essential element of the definition of public trading trust.
THE ARGUMENTS OF THE PARTIES
10. Mr Marks, counsel for the applicant, reminded us of the observations of the High Court in
CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic)[4]
- [14] Something now should be said respecting the task of statutory construction which was presented to Nettle J and then to the Court of Appeal. There were two steps to be taken. They were correctly identified in the submissions by the taxpayers to the Court of Appeal…. The first step was to ascertain the terms of the trusts upon which the relevant lands were held. The second was to construe the statutory definition to ascertain whether the rights of the taxpayers under those trusts fell within that definition.
- [15] In taking those steps, a priori assumptions as to the nature of unit trusts under the general law and principles of equity would not assist and would be apt to mislead. All depends, as Tamberlin and Hely JJ put it in
Kent v SS Maria Luisa [No 2] …, upon the terms of the particular trust. The term "unit trust" is the subject of much exegesis by commentators…. However, "unit trust", like "discretionary trust"…, in the absence of an applicable statutory definition, does not have a constant, fixed normative meaning which can dictate the application to particular facts of the definition in s 3(a) of the Act51.- [16] To approach the case, as both Nettle J and the Court of Appeal appear to have done in response to submissions by the Commissioner, by asking first whether, as was said to be indicated by
Costa & Duppe Properties Pty Ltd v Duppe …, the holder of a unit "in a unit trust" has "a proprietary interest in each of the assets which comprise the entirety of the trust fund", and answering it in the affirmative…, did not immediately assist in construing the definition of "owner" in the Act. That definition does not speak of ownership of proprietary interests at large, but of entitlement to any estate of freehold in possession.
The submissions of the applicant point to the reference in footnote 51 in paragraph 15. It read,
Section 102D(1) of the Income Tax Assessment Act 1936 (Cth), for the purposes of Pt III, Div 6B, defines a "unit" in relation to a "prescribed trust estate" as including "a beneficial interest, however described, in any of the income or property of the trust estate". Nothing for these appeals turns upon the income tax legislation.
11. Using this approach, and with particular emphasis on the words "a beneficial interest, however described", the applicant submits that the concept of "unit" is broad enough to encompass the beneficial interest that members of the Fund have in the property of the Fund. Whilst the members' interest might be defeated by an exercise of discretion or by events it is nevertheless a beneficial interest in the Fund's property and thus a "unit". Someone with such a "unit" is the holder of it so as to be a unitholder. The Fund trust deed requires a register to be kept to record the extent of members' benefits. A broad definition of "unit" warrants an equally broad definition of unitholder. Thus, on the applicant's argument, the key elements of a unit trust are present. The result is that the Fund is a unit trust that was a
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public trading trust in relation to the 2011 income year and the objection decision set aside.12. Mr Derrington QC, who led Mr Ballans of counsel for the respondent, stressed the need for unitisations of interests in property for there to be a unit trust. The definition of "unit" in s102M of the ITAA 1936 has no work to perform until the antecedent condition, a "prescribed trust estate", is satisfied. The apparent width of the definition of "unit" merely recognises that it is possible for a unit in a unit trust to relate to a proportion of some of the income or some of the property. The definition of "unit" does not relieve the ordinary meaning of the term unit trust and the requirement that beneficial interest in the trust be unitised into discrete parcels of rights.
THE TRUST DEED
13. The trust deed was executed on 22 December 2003 and has since been amended. It recites the obligation of industrial agreements to provide for payment by employers to employees upon those employees becoming redundant, that the Fund had been established to receive contributions made on or after 1 April 2003 and that the Fund would,
. hold them until the Employees are made Redundant or otherwise become entitled to payment of a Benefit.
By clause 2.3 the applicant declared that it held,
.… the Fund and its income upon the trusts and subject to the provisions contained in this Deed.
The "Fund" was defined in clause 1.2 as meeting the redundancy fund established by the Deed.
14. The Deed contemplated that "Participating Employers" would be admitted to the Fund by the applicant, would thereupon be bound by the terms of the Deed and would provide to the applicant information required to identify the "Members" in respect of whom "Contributions" were required to be made by the Participating Employers. By virtue of clause 4.1 any employee of a Participating Employer might become a Member. An employee wishing to become a Member could apply to the applicant in a prescribed manner and the applicant might admit or reject that application on receipt of the application. A person ceased to be a Member,
when the Trustee so resolves once all that Member's entitlements have been:
- (a) paid or forfeited; or
- (b) transferred to another fund in accordance with this Deed.
15. Clause 6 of the Deed required a Participating Employer to pay to the applicant, or as directed by it, within 14 days after the end of each month an amount equal to the "Minimum Contribution" for each Member for each "Week of Service" in respect of which Contributions were payable. It is not necessary for present purposes to consider the mechanism by which Contributions were made, it is sufficient to note that they were the payments required by an industrial instrument.
16. Clause 10.1 required that a "Member Account" be established for each Member showing,
- (a) any amount paid or transferred into the Fund in respect of a Member under clause 8[[6]
Clause 8 permitted the Fund to receive amounts transferred from another similar fund in which a Member or an Employer of that Member had participated. ]; - (b) Contributions made in respect of that Member; and
- (c) sums added to or deducted from the account under the provisions of this Deed.
By virtue of clause 28.1 a Member's Benefit was equal to the positive balance in his or her Member Account on the date the Benefit becomes payable. A Benefit was payable to a Member in the circumstances set out in clause 29 in these terms:
So long as to do so is not inconsistent with the FBT Requirements, a Benefit is payable upon a claim being[[7]
It would seem that the word “made” has been omitted at this point. ] by the Member if the Member has otherwise satisfied the requirements (if any) of the industrial instrument having application to the Member in respect of his or her entitlement to claim that Benefit and
- (a) retires from the work force on or after obtaining the age of 55 years;
- (b) suffers financial hardship and provides to the Trustee documentary evidence satisfactory to it that the Member has been unemployed for at least 4 weeks;
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- (c) dies;
- (d) becomes Totally and Permanently Disabled; or
- (e) is made Redundant and the Member makes a claim within 56 days of termination of employment.
- (f) permanently leaves the Construction Industry; or
- (g) permanently leaves Australia.
A Member had no entitlement to a Benefit until he or she had lodged a properly completed claim form with the applicant and satisfied the applicant's requirements, enquiries and information regarding his or her entitlement to that Benefit[8]
17. The Deed also required the establishment of an "Income Account" into which all income and profits of the Fund were required to be credited and from which losses on the disposal of any investment, Fund expenses not debited to a Member Account, and taxation not debited to a Member Account were required to be paid. Clause 27.1 of the Deed required that all of the income of the Fund be paid, applied or set aside by the applicant to, or for any one or more of the purposes mentioned in s 58PB(4)(d) of the Fringe Benefits Taxation Assessment Act 1986. Those provisions are set out above[10]
18. The nature of the interest of Members (and of Participating Employers) is described in clause 36.1 in these terms;
- (a) A Member's interest in the Fund is personal to the Member.
- (b) Except as provided in this Deed, a Participating Employer or a Member has no right to or interest in any money or other assets of the Fund.
19. The Fund must be wound up (with the prior approval of the employer and employee organisations that sponsored the Fund) in three circumstances specified in clause 38.1 of the deed including where "for any other reason the Trustee resolves to terminate the Fund." Where it is determined that the Fund is to be wound up the applicant must give notice in writing to Members and Participating Employers, specifying a date on which the Fund will be wound up. No new Members and no further Contributions may be accepted after the giving of that notice. As soon as practicable after the date specified, the applicant,
…must make provision after meeting expenses and liabilities for the following:
- (a) payment of Benefits which on or before giving the notices referred to in clause 38.2 had become payable to a Member; and
- (b) payment of an amount equal to the credit balance of each Member's Member Account in accordance with clause 37.4(c).
Any surplus remaining after that process is dealt with by clauses 38.5 and 38.6 in these terms:
-
38.5 Surplus
If after providing for expenses, liabilities and Benefits in accordance with clause 38.4, a surplus remains, the Trustee may pay, apply or set aside any part of that surplus in the following manner:
- (a) if it is from the income of the Fund - in the manner provided for in clause 27.1;
- (b) if it is from Contributions - in the manner provided for in clause 29A.1;
- (c) if it is not otherwise covered by paragraph (a) or (b) of this clause 39.5 - to any one or more of the following:
- (i) the Sponsors;
- (ii) the Members;
- (iii) the Participating Employers;
- (iv) the legal person or representatives of the Dependants of Members,
so long as to do so is not inconsistent with the FBT Requirements.
-
38.6 Takers In default
If the Trustee does not exercise the discretion contained in clause 38.5 (or to the extent to which the Trustee does not exercise
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or does not effectively exercise that discretion), the Trustee holds the surplus equally for the Participating Employers and Members as at the date the notice is given under clause 38.2.
20. Finally, it should be noted that a Member's Benefit may be forfeited. Clause 34 provides:
-
34.1 Loss of Benefits
Any Member:
- (a) who before a Benefit becomes payable, becomes bankrupt; or
- (b) whose Benefits whether by the persons own act, operation of law, an order of any court or otherwise become payable to or vested in any person, company, government or other public authority; or
- (c) who is suffering from any physical or mental disability which in the opinion of the Trustee renders the Member unable to manage his or her own affairs; or
- (d) who assigns or charges or attempts to assign or charge his or her Benefit,
forfeits entitlement to all Benefits other than those Benefits to which he or she has at that time become absolutely and indefeasibly entitled under the terms of this Deed.
-
34.2 Dependants to be Considered
Benefits forfeited by reason of clause 34.1 must be held for the Member and his or her Dependants as a class until the Benefit becomes payable. On the Benefit becoming payable the Trustee must pay the Benefit to any one or more of them in the proportions between them as the Trustee determines. The payment or application of any moneys pursuant to this clause is a complete discharge to the Trustee for those moneys. Any Benefit not able to be so dealt with is forfeited and must be applied in accordance with clause 34.4.
-
34.3 Lost Members and Small Amounts
The amounts standing to a Member's Account may be forfeited where:
- (a) the amount standing to the account is a Small Amount[[11]
An amount determined by the applicant: see clause 1.2 ] and there have been no Contributions credited to that account for 12 months; or - (b) in relation to that Member:
- (i) a statement sent by the Trustee under clause 5.2(b) to the last known address of the Member has been returned unclaimed;
- (ii) a continuous period of greater than 12 months has elapsed since the return of that statement and the Member's whereabouts has not become known to the Trustee during that period; and
- (iii) no contribution has been made to the Redundancy Fund in relation to that Member for that period.
Nothing in this clause 34.3 imposes an obligation on the Trustee to ascertain or establish the whereabouts of a Member.
- (a) the amount standing to the account is a Small Amount[[11]
-
34.4 Allocation for Forfeited Benefits
Every Benefit forfeited or to which a Member has lost his or her entitlement under any of the provisions of this Deed and not otherwise dealt with must be transferred to the Reserve Account.
CONSIDERATION
21. Having ascertained the relevant terms of the Trust the task that now confronts us is one of statutory construction. And, as the High Court has said frequently, that task must begin with the statutory text. Most recently in
Commissioner of Taxation v Unit Trend Services Pty Ltd[12]
As French CJ, Hayne, Crennan, Bell and Gageler JJ said in
Federal Commissioner of Taxation v Consolidated Media Holdings Ltd: "This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text". Context and purpose are also important. In Certain Lloyd's Underwriters Subscribing to Contract No
IH00AAQS v Cross French CJ and Hayne J said:"The context and purpose of a provision are important to its proper construction because, as the plurality said in Project
Blue Sky Inc v Australian Broadcasting Authority, '[t]he primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the
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provisions of the statute' … That is, statutory construction requires deciding what is the legal meaning of the relevant provision 'by reference to the language of the instrument viewed as a whole', and 'the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed'."(emphasis of French CJ and Hayne J) [citations omitted]
22. We do not accept the applicant's argument that the statutory definition of "unit" is broad and that accordingly a broad definition of unitholder is warranted. The present case is not like
Shell Company of Australia v Commissioner of Stamp Duties (Tas)[13]
23. In our view the applicant's case fails because the beneficial interests in the Fund were not divided into units, that is, discrete parcels of rights. On the applicant's argument the word "unit" in "unit trust" is unnecessary.
24. Moreover the interest of a Member in the Fund was personal. It was not capable of assignment. Additionally, any purported assignment of, or charge over, the Benefit resulted in the forfeiture of all Benefits to which the Member had not become absolutely and indefeasibly entitled. A member had no right to, or interest in, any money or assets of the Fund. At best, a Member had a right to the due administration of the trust property in accordance with the applicant's duty[14]
25. There is a further reason to conclude that the Fund was not a unit trust. That arises from the provisions of the Deed for the distribution of any surplus on dissolution. Clause 38.5 confers on the applicant a discretion which, if not exercised, or if not exercised effectively, results in the applicant holding the surplus "equally for the Participating Employers and Members". That notion seems to us to be entirely inconsistent with the nature of a unit trust which, we would have thought, would contemplate the distribution of any surplus in proportion to the number of units held.
26. We are then not satisfied that the applicant was the trustee of a unit trust that was a public trading trust. It follows that we would affirm the objection decision.
Footnotes
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