The decision of Victory International Pty Ltd v Commissioner of State Revenue [2025] VSC 484 will have significant impact across Victorian land transfer (stamp) duty. In the decision, Sloss J of the Victorian Supreme Court, has determined that acquisitions of units in a “hybrid unit trust” were subject to landholder duty, despite the wide discretions placed on the trustee’s power of distribution.
This case is notable as being one of the first to consider hybrid unit trusts from a stamp duty perspective.
This means that, going forward, there is a real risk that transactions relating to units in all landholding hybrid unit trusts are potentially subject to Victorian landholder duty.
While successful, the matter was remitted to the Commissioner for a fresh assessment as he defended his decision on a different basis to his initial assessment.
Absurdly, the Commissioner was successful in arguing that, due to the trust deed’s broad powers to amend the trust deed and the over wide definition of “associated person” in the Duties Act 2000 (Vic), each unitholder acquired a 100% interest in the hybrid unit trust (without apparently considering whether this would be a clear breach of fiduciary obligations).
This bizarre outcome will have massive implications for even standard types of unit trusts – as the Commissioner now has, apparently, the ability to impose 100% duty on the acquisition of a single unit in any unit trust.
Facts
Victory International Pty Ltd was incorporated on 27 September 2011. On the same date, the Victory Hybrid Unit Trust was established with Victory International Pty Ltd as trustee.
Initial unitholdings
On establishment, two individuals, Kathryn Yang (as to 51) and Ningjun Liu (as to 49) of:
The 100 issued shares in Victory International Pty Ltd;
The 100 issued A Class Units in Victory Hybrid Unit Trust (these held voting rights only with no rights to capital or income other than the return of paid up capital);
The 100 issued B Class Units Victory Hybrid Unit Trust (these held income rights only with no rights to vote or capital other than the return of paid up capital);
The 100 issued C Class Units Victory Hybrid Unit Trust (these held capital rights only with no rights to vote or income); and
The 100 issued D Class Units Victory Hybrid Unit Trust (these held a discretionary right to receive income ranking in pari passu with the holders of the B Class units).
All units were issued for $1.
Land acquisition
At the time of the unit transfers (described below), Victory International Pty Ltd as trustee of the Victory Hybrid Unit Trust was a purchaser under an uncompleted contract for the purchase of land in Victoria (apparently on nomination from the original purchaser Kathryn Yang – see footnote 20).
The contract for the purchase of land in Victoria had a purchase price of $9,277,500 and settlement occurred in 2013.
Transaction
In October 2012, the original shareholders/unitholders Kathryn Yang and Ningjun Liu transferred their shares and units to:
JY Property Pty Ltd as trustee for JY Property & Investments Trust (37%, transferred from Kathryn Yang);
ZJF Investments Pty Ltd as trustee for ZJF Investments Trust (26%, being 14% transferred from Kathryn Yang and 12% transferred from Ningjun Liu); and
LBZ Pty Ltd as trustee for LBZ Investment Trust (37%, transferred from Ningjun Liu).
The % refers to the % of the shares in the trustee company and each class of units on issue in the hybrid trust. At all relevant times there was 100 shares on issue and 100 units of each of the A, B, C and D classes on issue.
Rights to distribution
Under the trust deed, the term “Beneficiaries” was defined widely to include, amongst others, shareholders of the Trustee, shareholders of unitholders, employees of the Trust, relatives of any Beneficiary, the trustee of any trust of which a beneficiary of the Trust is in turn has a beneficial interest etc.
Clause 17 of the Trust deed dealt with trust distributions.
Clause 17.1 provided:
17.1 Subject to any distribution of Capitalised Earnings to any one or more Beneficiaries in accordance with the terms of this Clause, on and from the Termination Day, the Trustee shall hold the Trust Fund for the holders of Capital Units.
Clauses 17.5-17.7 provided:
17.5 Subject to Clause 17.6 hereof, the Trustee:—
17.5.1. [sic] return the Capital to the holder or holders of Units living or in existence at the time of the Termination Day; and
17.5.2 may distribute the whole or any part of the Capitalised Earnings of Trust Fund to the holder or holders of Capital Units living or in existence at the time of the Termination Day in proportion to the total number of Capital Units held by them at the commencement of the Termination Day.
17.6 The distribution of the Trust Fund as expressed in Clause 17.5 hereof is subject to any distribution of the Trust Fund to any one or more of the Beneficiaries.
17.7 At the direction from time to time and at any time of the Voting Unit Holders, the Trustee may distribute the whole or any part of the Capitalised Earnings of the Trust Fund to all or any of the Beneficiaries living or in existence at the time of the direction to the exclusion of the other Beneficiaries and in such shares and proportions and in such manner as the Voting Unit Holders have directed. If the Voting Unit Holders so resolve, the Trustee may distribute the Capitalised Earnings of the Trust Fund to a Beneficiary preferentially to any other entitlement to Capitalised Earnings by Unit Holders.
Clause 17.7 therefore provided a broad discretion at any time at the direction of the Voting Unit Holders, to distribute capital of the trust fund to all or any of the widely defined classes of Beneficiaries.
However, in the absence of any distribution under clause 17.7, clause 17.1 provided that on termination of the trust – “the Trustee shall hold the Trust Fund for the holders of Capital Units”.
Was the transfer of units a relevant acquisition?
The key question was whether the transfer of units in the hybrid unit trust was a relevant acquisition for landholder duty purposes.
The relevant landholder duty provisions were newly amended at the time of the transaction, applying from 1 July 2012.
The Commissioner had assessed the trustee, Victory International Pty Ltd to duty. The trustee was jointly and severally liable to landholder duty under paragraph 85(1)(b) of the Duties Act 2000 (Vic) – although it is typical to impose duty on the unitholders that made the relevant acquisition. The assessment issued on 30 September 2020.
A relevant acquisition occurs in Victoria if the acquisition is of an interest of 20% or more in a private unit trust scheme that is a landholder.
A unit trust scheme is defined in subsection 3(1) of the Duties Act 2000 (Vic) as:
"unit trust scheme" means any arrangements made for the purpose, or having the effect, of providing, for persons having funds available for investment, facilities for the participation by them, as beneficiaries under a trust, in any profits, income or distribution of assets arising from the acquisition, holding, management or disposal of any property whatever pursuant to the trust;
Section 79 of that Act defines an “interest” and a “significant interest” as:
(1) A person has an interest in a landholder if the person has an entitlement (otherwise than as a creditor or other person to whom the landholder is liable), whether directly or through another person, to a distribution of property from the landholder on a winding up of the landholder.
(2) A person who, by virtue of subsection (1), has an interest in a landholder has a significant interest in the landholder if the person, in the event of a distribution of all the property of the landholder immediately after the interest was acquired, would be entitled to—
(a) in the case of a landholder that is a private unit trust scheme—20% or more of the property distributed; or
The case preceded on basis that the Hybrid trust was a “unit trust scheme” for the purposes of the landholder duty provisions.
Section 89H of the Duties Act 2000 (Vic) provides for a deemed maximisation of entitlements to a distribution on a winding up:
(1) This section applies to any calculation, for the purposes of this Part, of the entitlement of a person (the interested person ) to participate in a distribution of the property of a landholder, whether on a winding up, a vesting of trust property or otherwise.
(2) A calculation is to be made based, firstly, on a distribution carried out in accordance with the constitution of the landholder, and with any law relevant to the distribution, as in force at the time of distribution, and the entitlement of the interested person is to be evaluated accordingly.
(3) Next, a calculation is to be made based on a distribution carried out after the interested person, and any other person whom the interested person has power to direct with respect to such a distribution or who is, in relation to the interested person, an associated person, has exercised all powers and discretions exercisable by them—
(a) to effect or compel an alteration to the constitution of the landholder; and
(b) to vary the rights conferred by units or shares in the landholder; and
(c) to effect or compel the substitution or replacement of units or shares in the landholder with other units or shares in it—
in such a manner as would maximise the value of the entitlement, and the entitlement of the interested person is to be evaluated accordingly.
(4) The results obtained by an evaluation of the interested person's entitlement in accordance with subsections (2) and (3) are then to be compared, and whichever evaluation results in a greater entitlement is the correct evaluation, for the purposes of this Part, of the entitlement, unless the Commissioner, being satisfied that the application of this subsection in the particular case would be inequitable, determines otherwise.
Section 89H has long been considered a specific anti-avoidance provision, designed to maximise entitlements that are artificially reduced. It has never been interpreted as applying to the general power to amend the terms of the trust deed typically found in may trust deeds.
The Court’s reasoning
Is a Hybrid Unit Trust a “unit trust scheme” for landholder duty purposes?
The Court accepted that the specific Victory Hybrid Unit Trust was a “unit trust scheme” for landholder duty purposes – as this was the agreed position of the parties.
It is interesting that this was not in contention – given that the label “unit trust” should not be determinative of the issue. In fact, as the beneficiaries of the trust are wider than the persons investing funds into the trust – there is a real argument that a “hybrid unit trust” is another category of trust entirely.
Did the units in the Victory Hybrid Unit Trust confer an “interest” on the unitholders?
The taxpayer argued that, given the broad powers of discretion vested by the trust deed in the trustee to distribute capital to the wide pool of beneficiaries – there was no “interest” acquired.
However, the Court held (at paragraph 279) that the question of whether a person acquires an interest in a unit trust is:
the focus of the enquiry as to ‘entitlement’ under s 79(1), on a statutory winding up of the landholder, is on whether the units that the unit holder holds are units that entitle it ‘to participate proportionately with other unit holders in a distribution of the property of the trust on its vesting’.
At paragraph 281, because clause 17.1 of the trust deed provides that on a winding up “the Trustee shall hold the Trust Fund for the holders of Capital Units”, therefore:
281 Accordingly, as each of the Transferees is the holder of C Class Units, which are the ‘Capital Units’ that effectively entitle the holder to participate proportionately with other holders of C Class Units (in direct proportion to the number of C Class Units held) in a distribution of the property of the Victory Hybrid Unit Trust on its vesting, each of them has the requisite ‘entitlement’ to a distribution of property from the landholder on a (statutory) winding up of the landholder, and thus has an ‘interest’ in the landholder by virtue of s 79(1).
This determination arises because the capital distribution discretions in the particular hybrid unit trust in question are effectively all prior to winding up.
Are the interests acquired “significant interests”
With respect to the Court, once the determination that interests had been acquired by the capital unit holders, there was no further work to be done to support the imposition of duty.
If the C Class Unit Holders have capital distribution rights, then the proportions acquired (37%, 26% and 37%) are all above the 20% significant interest threshold and each unit holder acquired a significant interest for the purposes of subsection 79(2) of the Duties Act 2000 (Vic).
However, unfortunately, the Court entertained the State Revenue Office’s contentions under section 89H to maximise entitlements to a distribution of capital on a vesting of trust property.
The definition of “associated persons” is very wide and includes the trustee and each beneficiary of a trust.
The Court interpreted section 89H as allowing a consideration of the wide power of amendment under the trust deed.
At paragraph 292:
However, when one looks at the steps prescribed by s 89H(3)(a) and (b) and (c), it is clear that the entitlement calculation to be undertaken thereunder is one that does involve the relevant persons (being the interested person and any associated person(s)) exercising all of their powers and discretions to effect an alteration to the constitution and to vary the rights conferred by the units in the trust and to effect or compel the substitution of units in the trust with other units in the trust, ‘in such a manner as would maximise the value of the entitlement’ of the interested person. That extensive process, which the appellant acknowledges is ‘directed to “maximising” specific, unexercised winding-up rights that have been conferred on a ...unitholder, or associated person’, is reflective of the fact that s 89H is ‘anti-avoidance in nature’.
The Commissioner argued that, taking into account the amendment power to alter the rights of each unitholder, each unitholder acquired a 100% interest in the trust (thus the total acquisition was 300%).
This is, of course, nonsensical.
Firstly, neither the Court nor the Commissioner appears to have considered whether amending the trust deed to exclusively benefit one unitholder over all others would be a clear breach of the fiduciary obligations owed by the trustee to the remaining unitholders.
Secondly, what was transferred was 100% of the units on issue, the rights conferred by 100% of the units could never be more than 100%.
Lastly, as above, it was also unnecessary – section 79 (on the Court’s reading) is sufficient to impose duty without needing to go to section 89H.
Reduction from 300% to 100%
While the Court did accept that the Commissioner’s view that he would determine under subsection 89H(4) to only impose duty on 100% overall – this turned on the Commissioner being satisfied that it would be inequitable to impose duty on more than 100%.
Are the landholder duty provisions intended to tax all acquisitions of land?
Sloss J made much of the comment by the Treasurer in his second reading speech on introducing the 2012 Landholder Duty provisions that the landholder duty provisions have now evolved into a distinct head of duty “so that all acquisitions in land are subject to duty regardless of how the land is acquired” (see e.g. paragraph 241).
With respect to the Court, this is simply not the case and is repeating a category error made by the then Treasurer. It also cannot form the basis for assessing duty.
Landholder duty and its precursor land rich duty do not apply to “acquisitions in land”. Instead, the modern Victorian landholder duty provisions only apply to:
(a) Certain acquisitions of shares in some landholding companies;
(b) Certain acquisitions of units in some landholding unit trusts;
(c) Acquisitions of control over private landholding companies or unit trusts; or
(d) Certain acquisitions of economic entitlements in landholding companies.
Interestingly, (c) and (d) are Victorian unique concepts.
It is the transfer duty provisions, particularly the change of beneficial interest and economic entitlement provisions that are directed to taxing all acquisitions in land.
Impact of this decision
Are all hybrid unit trusts subject to landholder duty?
Hybrid unit trusts have long been treated as a species of discretionary trust and therefore out of the landholder duty provisions.
All trust deeds are distinct and there is no one category of “hybrid unit trusts”. As the High Court held in CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53 – the first step is to always determine what rights the trust deed confers on the unitholders.
For example, may hybrid unit trust deeds provide for broad discretionary powers on a winding up – which may mean that no “interest” is conferred on the capital unitholders.
Going forward, the Commissioner, however, will be emboldened to argue that all hybrid unit trusts are subject to landholder duty and that the acquisition of capital units in a hybrid unit trust can be subject to landholder duty.
Any dealing in capital units in a hybrid unit trust are therefore potentially subject to landholder duty and must be considered carefully.
Broad impact of section 89H
Given the Court accepted the Commissioner’s wide and unfettered view of section 89H – there is a massive risk for all unit trusts going forward.
A typical unit trust deed confers broad powers of amendment. Despite significant income tax, trust law and other restrictions – it is hypothetically possible to amend any trust deed to provide that a single unitholder obtains all the capital distribution rights.
On the basis of the decision in this case, the interest of any unitholder in any unit trust (hybrid or otherwise) is conceivably able to be maximised to 100%.
This could even apply to a person acquiring a minimal parcel of units in a listed trust.
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Phil Broderick
Principal
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