Lockv Commissioner of Taxation [2003] FCA 309 (9 April 2003)
Last Updated: 9 April 2003
FEDERAL COURT OF AUSTRALIA
Lockv Commissioner of Taxation [2003] FCA 309
TAXATION - superannuation funds - whether superannuation funds met the requirements of s 42 of the Superannuation Industry (Supervision) Act 1993 (Cth) so as to be "complying" funds for the relevant years of income - which subsection of s 42 applied to the relevant years of income - whether there was a contravention of s 66(3) of the Superannuation Industry (Supervision) Act 1993 (Cth) - whether s 66(3) of the Superannuation Industry (Supervision) Act 1993 (Cth) applied to conduct undertaken prior to the funds electing to become regulated superannuation funds within s 19(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) - whether acquisition by the superannuation funds of units in certain trusts, which trusts owned land, amounted to an acquisition by the superannuation funds of the assets of the trusts.
WORDS & PHRASES - "scheme", "acquire"
Superannuation Industry (Supervision) Act 1993 (Cth): ss 42, 66
Superannuation Industry (Supervision) Amendment Act 1997 (Cth)
Charles v Federal Commissioner of Taxation [1954] HCA 16; (1953) 90 CLR 598, applied
Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639, applied
MSP Nominees Pty Limited v Commissioner of Stamps (South Australia) [1999] HCA 51; (1999) 198 CLR 494, distinguished
Karingal 2 Holdings Pty Ltd v Commissioner of State Revenue [2002] VSC 431; (2002) 51 ATR 190, applied
Australian Prudential Regulation Authority v Holloway [2000] FCA 579; [2000] 104 FCR 521, applied
DONALD WILLIAM LOCK& CREINA CARMEL LOCK(AS TRUSTEES OF THE LOCKSUPERANNUATION FUND (No 2)) v COMMISSIONER OF TAXATION
V 769 of 2001
DONALD WILLIAM LOCK& CREINA CARMEL LOCK(AS TRUSTEES OF THE WILLOWBANK SUPERANNUATION FUND) v COMMISSIONER OF TAXATION
V 770 of 2001
GOLDBERG J
9 APRIL 2003
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIAVICTORIA DISTRICT REGISTRY / V 769 of 2001
BETWEEN: / DONALD WILLIAM LOCK& CREINA CARMEL LOCK
(as Trustees of the LOCKSUPERANNUATION FUND (No 2))
Applicants
AND: / COMMISSIONER OF TAXATION
Respondent
JUDGE: / GOLDBERG J
DATE OF ORDER: / 9 APRIL 2003
WHERE MADE: / MELBOURNE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicants pay the respondent's costs of and incidental to the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIAVICTORIA DISTRICT REGISTRY / V 770 of 2001
BETWEEN: / DONALD WILLIAM LOCK& CREINA CARMEL LOCK
(as Trustees of the WILLOWBANK SUPERANNUATION FUND)
Applicants
AND: / COMMISSIONER OF TAXATION
Respondent
JUDGE: / GOLDBERG J
DATE OF ORDER: / 9 APRIL 2003
WHERE MADE: / MELBOURNE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicants pay the respondent's costs of and incidental to the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIAVICTORIA DISTRICT REGISTRY
V 769 of 2001
BETWEEN: / DONALD WILLIAM LOCK& CREINA CARMEL LOCK
(as Trustees of the LOCKSUPERANNUATION FUND (No 2))
Applicants
AND: / COMMISSIONER OF TAXATION
Respondent
V 770 of 2001
BETWEEN: / DONALD WILLIAM LOCK& CREINA CARMEL LOCK
(as Trustees of the WILLOWBANK SUPERANNUATION FUND)
Applicants
AND: / COMMISSIONER OF TAXATION
Respondent
JUDGE: / GOLDBERG J
DATE: / 9 APRIL 2003
PLACE: / MELBOURNE
REASONS FOR JUDGMENT
Introduction
1 This is an appeal from a decision of the Administrative Appeals Tribunal ("the Tribunal") given on 3 July 2001. The Tribunal decided that the applicants, as trustees of the LockSuperannuation Fund No 2 ("LockFund No 2"), had contravened s 66(3) of the Superannuation Industry (Supervision) Act 1993 (Cth) ("the Act") and that the LockFund No 2 was not a complying superannuation fund for the year of income ended 30 June 1995. The Tribunal also decided that the applicants, as trustees of the Willowbank Superannuation Fund ("Willowbank Fund"), had contravened s 66(3) of the Act and that the Willowbank Fund was not a complying superannuation fund for the year of income ended 30 June 1996.
2 The Tribunal's decision affirmed the earlier decisions of the Australian Prudential Regulation Association ("APRA") to give notice to the applicants as trustees pursuant to s 40 of the Act that the LockFund No 2 was not a complying superannuation fund in relation to the year of income ended 30 June 1995 and that the Willowbank Fund was not a complying superannuation fund in relation to the year of income ended 30 June 1996.
The LockFund No 2
3 The genesis of the sequence of events which was considered by the Tribunal was summarised by the Tribunal in the following passage in its reasons at [4]:
"The evidence of Mr and Mrs L [the applicants] and Mr S [their accountant] was that, in May 1995, Mr L discussed with Mr S the possibility of an investment property owned by himself and his wife being transferred to the superannuation fund. Mr S had discussions with a legal adviser who prepared the documents for the transactions outlined above. While Mr L could not recall signing the particular documents he said that his usual practice was to sign documents on the advice of Mr S as his accountant. A similar discussion and set of documents was prepared and signed in May/June 1996 to transfer a second investment property to a superannuation fund."
4 On 9 June 1995 the applicants' solicitors sent a letter headed "Taxation Planning - Lock to the applicants' accountants setting out a number of documents to be signed or executed and a number of steps which were to be taken. In the letter the solicitors stated:
"You have requested that we provide advice as to whether or not the acquisition of units in the property trust by the fund would be a breach of section 66(1) and section 66(3) of The Superannuation Industry (Supervision) Act 1993 (`SIS') as the property was initially owned by Mr D W Lockand Mrs C C Lockwho are members of the fund.
We confirm our advice that we do not believe that sections 66(1) or 66(3) of SIS would be breached by the fund acquiring units in the trust.
In order for section 66(1) to be breached it is necessary that [the] trustee of the fund acquire an asset from a member of the fund or a relative of the member of the fund. By Mr D W Lockand Mrs C C Lockselling to LockInvestments as trustee of the property trust, the property ceases to be owned by Mr D W Lockand Mrs C C Lockand it is then owned by LockInvestments as trustee of the property trust.
...
As indicated we do not believe that the transactions that are to occur contravene this section [s 66(3)] as the asset which is being acquired are units in a unit trust which were never owned by a member of the fund."
5 The steps set out in the letter were in fact implemented as follows:
* By deed dated 12 June 1995 the LockProperty Trust ("the Property Trust"), a unit trust, was established with LockInvestments Pty Ltd as trustee. At all material times the applicants were the directors of LockInvestments Pty Ltd.
* On 12 June 1995 LockInvestments Pty Ltd, as trustee of the Donald LockFamily Trust ("the Family Trust"), subscribed for 10 units of $1.00 each in the Property Trust.
* On 20 June 1995 the Property Trust acquired the land at Unit 3, 58 Main Road, Riddells Creek, Victoria ("the Riddells Creek land") from the applicants for $100,000 which was not paid on that date. The Property Trust thereby became indebted to the applicants for the purchase price of $100,000.
* On 20 June 1995 the Family Trust subscribed for 102,936 units in the Property Trust. It paid $2,936 in cash and assumed liability for the $100,000 debt owed by the Property Trust to the applicants. The Family Trust at this stage owned all the units in the Property Trust.
* By deed dated 23 June 1995 the LockFund No 2 was established, with the applicants as trustees. The employer sponsor of the Fund was Gisborne Plumbing Pty Ltd, which employed both applicants. The applicants were the only employee members of the Fund.
* On 29 June 1995 the LockFund No 2 accepted a transfer of member benefits of the applicants amounting to $130,751.04 from the LockSuperannuation Fund No 1.
* On 29 June 1995 the LockFund No 2 subscribed for 102,946 units in the Property Trust paying $102,946 cash for the units.
* On 29 June 1995 the Property Trust redeemed the 102,946 units held by the Family Trust which received $102,946 on such redemption. On the same day the Family Trust paid the applicants $100,000 in discharge of the debt owing to them for which the Family Trust had assumed liability on 20 June 1995.
* On 30 June 1995 employer contributions of $100,000 were made in respect of the applicants as members of the LockFund No 2. As at 30 June 1995, the LockFund No 2 had total assets of $242,591.
* On 30 June 1995 the applicants gave APRA a notice of election pursuant to s 19(4) of the Act, that the Act apply in relation to the LockFund No 2. Thereupon the LockFund No 2 became a regulated superannuation fund within s 19(1) of the Act.
* On 1 May 1998 the auditor of the LockFund No 2 provided a report to APRA pursuant to s 129 of the Act in which he stated that he had formed the opinion that the sequence of events may have breached s 66(3) of the Act.
The Willowbank Fund
6 The Willowbank Fund was established in similar circumstances, with the same trustees, employer sponsor and employee members as the LockFund No 2. On 9 May 1996 the applicants' solicitors wrote a letter headed "Lock Taxation Advice" to the applicants' accountants in the following terms:
"It is proposed that Mr Locksell a property which is owned by him to the trustee of a unit trust (`the trust') with a new superannuation fund (which is to be established after the property has been acquired by the trustee of the Trust) (`the fund') ultimately owning all of the issued units.
The transaction would proceed on the same basis as the transaction which occurred in the 1994-1995 financial year of which you are familiar.
...
You have sought our advice as to whether the provisions of section 66 of the Superannuation (Industries) Supervision Act 1993 (`the Act') would be breached if the assets of the existing superannuation funds (`the existing funds') (which includes units in a unit trust of which the principal asset is a property formally owned by Mr Lockbut which was acquired by the trustee of the unit trust prior to that superannuation fund being established) are rolled over to the fund.
Section 66(1) of the Act states that the trustee or investment manager of a regulated superannuation fund must not intentionally acquire an asset from a member of the fund. In order for the section to be breached, Mr Lockwould need to be, at the time the asset was acquired from him, a member of the fund. This would not be the case with the proposed acquisition nor was it the case with any of the assets which are to be rolled over.
Therefore we do not believe that the provisions of the Act would be breached if the assets of the existing funds were rolled over to the fund. Prior to rolling over the assets of the existing funds the stamp duty and capital gains tax consequences will need to be considered.
..."
7 The steps which were implemented were:
* By deed dated 25 June 1996 the Willowbank Unit Trust ("the Willowbank Trust") was established. LockInvestments Pty Ltd was trustee.
* On 25 June 1996 LockInvestments Pty Ltd as trustee of the Family Trust subscribed for 10 units of $1.00 each in the Willowbank Trust.
* On 26 June 1996 the Willowbank Trust acquired the land at Lot 10, Spencer Road, Woodend, Victoria ("the Woodend land") from the applicants and Mrs Locks brother for $220,000 which was not paid on that date. The Willowbank Trust thereby became indebted to the applicants and to Mrs Locks brother for the purchase price of $220,000.
* On 26 June 1996 the Family Trust subscribed for 230,387 units in the Willowbank Trust. It paid $10,387 in cash and assumed liability for the $220,000 debt owing to the applicants and Mrs Locks brother. At this point the Family Trust owned all the 230,397 units in the Willowbank Trust.
* On 27 June 1996 the Willowbank Fund was established with the applicants as trustees. Gisborne Plumbing Pty Ltd was the employer sponsor and the applicants were the only employee members.
* On 27 June 1996 the applicants transferred their member benefits totalling $134,571 from the LockFund No 2 to the Willowbank Fund. Gisborne Plumbing Pty Ltd paid employer contributions of $150,000 into the Willowbank Fund on behalf of the applicants as members of the Fund.
* On 27 June 1996 the Willowbank Fund subscribed for 230,397 units in the Willowbank Trust paying $230,397 cash.
* On 27 June 1996 the Willowbank Trust redeemed all the units held by the Family Trust which received $230,397 on such redemption.
* On 28 June 1996 the applicants gave APRA a notice of election pursuant to s 19(4) of the Act, that the Act apply in relation to the Willowbank Fund. Thereupon the Willowbank Fund became a regulated superannuation fund within s 19(1) of the Act.