Many state and federal taxing provisions provide different tax outcomes on the trustees of trusts depending on what type of trust is involved. One example of this is contained in the NSW land tax rules which provides for a land tax surcharge on unit trusts that are “special trusts” rather than “fixed trusts”. Given the specific requirements to be a “fixed trust” under those rules (ie that the unit holders have a present right of beneficial enjoyment of the land of the unit trust), many “standard unit trusts” will be a “special trust” rather than a “fixed trust” As a result, trustees of unit trusts, that wish to avoid that surcharge, will often have to tailor or amend their trust deeds to ensure that the trust is a “fixed trust”.
The decision of Marius Street Developments P/L ATF The Gerryjohn Unit Trust v CCSR [2020] NSWCATAD 291, considered whether the unit trust in question was a “special trust” or a “fixed trust”. The taxpayer wished to be assessed as a “fixed trust” and had therefore inserted the following “saving clause” in the unit trust’s trust deed to ensure that was the case:
“Fixed Trust
Notwithstanding any other provisions of this Deed, the unit holders are presently entitled to all of the income from any land owned by the Trust after the payment of the expenses properly incurred by the trustee in the authorised administration of the trust. Further the unit holders may require the trustee to wind up the trust and distribute either the land or the net proceeds of the sale of the land…”
The Tribunal found that the saving clause did not cause the unit trust to be a fixed trust. This was for a number of reasons including that:
The clause did not create a right of possession of the unit trust’s land to the unit holders;
The “notwithstanding any other provisions of this Deed” phrase only applied to the first sentence of the clause and not the second sentence; and
The clause did not effectively override other provisions in the trust deed that prevented the unit holders from having a present right of beneficial enjoyment of the land.
This case highlights the need to carefully draft trust deeds to meet specific legislative provisions and in particular when using “saving clauses”.
To discuss or for further information please contact:
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au
Laura Spencer
Senior Associate
M +61 436 436 718 | T +61 3 9611 0110
E lspencer@sladen.com.au
Lucy Liang
Lawyer
T +61 9611 0131
E lliang@sladen.com.au
