VCAT DECISION ALERT: Appointment of Director in Trustee Company Triggers Duty

A seemingly innocuous change of a director in a trustee company has cost the relevant taxpayer a substantial sum of money in a recent Victorian tribunal case.

Last month, the Victorian Civil and Administrative Tribunal (VCAT) handed down a decision which serves as a sobering reminder to carefully consider the duties implications of a change of director of a company which acts as a trustee of a landholding trust.

In Tao v Commissioner of State Revenue [2024] VCAT 637, VCAT considered the interpretation and operation of certain anti-avoidance provisions contained in the Duties Act 2000 (Vic) (Act).  These provisions, which are unique to Victoria and the Northern Territory, have the effect that a person who acquires control of a private landholder (whether directly or indirectly), may be deemed to have made a dutiable acquisition in that landholder of 100% or a lesser percentage as decided by the Victorian Commissioner of State Revenue.

Background Facts

66 William Road Pty Ltd (Trustee) was established by Mr Tao and others to carry out various property developments. The Trustee was appointed as the trustee of the WCT Unit Trust (Trust) pursuant to the terms of a trust deed. The units in the trust were issued as follows:

1. 50 units to Maclaw No547 Pty Ltd;
2. 25 units to Fredco Incorporated Ltd; and
3. 25 units in Amber Investments Pty Ltd (Amber Investments).

An associate of Mr Tao was the sole director, company secretary and shareholder of the Trustee.

In 2011, the Trustee purchased a property funded by a loan (Property).  In early 2014, following disagreements in relation to the management of the Trustee, Mr Tao acquired all of the shares in the Trustee (Share Acquisition) and became the sole director and company secretary of the Trustee (Appointment).

Sometime during March 2014 and 2015, Mr Tao engaged in discussions with  the financier regarding the discharge of the mortgage over the Property but by 20 April 2015, controllers were appointed over the Trustee and the Property was sold.

On 31 May 2019, the Commissioner of State Revenue issued a notice of assessment imposing a duty of $199,650 (plus penalties and interest of approximately $70k) in relation to the Share Acquisition and the Appointment.  This was on the basis that Mr Tao made a ‘relevant acquisition’ in the Trust as a result of acquiring control of the Trust, pursuant to section 82 of the Act (notwithstanding there had been no underlying change to the unitholders of the Trust).

The Legislation

Section 82 of the Act states that:

‘(1)…if a person within a 3 year period acquires, directly or indirectly, control over a private landholder, other than by a relevant dutiable acquisition, then, on the acquiring of that control, the person is taken… to have made a relevant acquisition in the landholder of:

1. 1. 100%; or
   2. a lesser percentage determined by the Commissioner to be appropriate in the circumstances.

(2)  for the purposes of subsection (1), a person acquires control over a private landholder if the person acquires the capacity to determine or influence the outcome of decisions about the private landholder’s financial and operating policies, considering:

1. 1. the practical influence the person can exert in addition to any rights the person can enforce; and
   2. any practice or behaviour affecting the private landholder’s financial or operating policies (even if that practice or pattern of behaviour involves the breach of an agreement or a breach of trust).

(3)  Subsection (1) applies regardless of interests or economic entitlements held by any other person in the private landholder.’   [Our emphasis] Issues in Dispute

Based on the section above, the two central questions in the case were:

1. Did Mr Tao acquire relevant control of the Trust because of the Share Acquisition and the Appointment?
2. If yes, was this was sufficient to trigger sec. 82 or was it also necessary for Mr Tao to obtain an interest in the Trust?

VCAT Decision

VCAT concluded as follows on these questions.

1. Mr Tao had acquired control following the Appointment and Share Acquisition. This was because he acquired the capacity to determine or influence the outcome of decisions about the financial and operating policies of the Trust. VCAT paid particular attention to Mr Tao’s role in negotiating the repayment of the loan with the financier as evidence of his ability to influence those financial and operating policies. This was decided notwithstanding that the other associates may have removed the Trustee as trustee in accordance with the trust deed (as unitholders) and effectively ending Mr Tao’s control, that of which they did not do.
2. It was not necessary that Mr Tao also obtain an interest equivalent to a beneficial interest in the Trust for sec. 82 to be engaged.
3. VCAT also determined that a reduction in duty payable from 100% was appropriate in light of the 25% unitholding in the Trust held by Amber Investments (which was an associated entity of Mr Tao). This was apportioned as a 15% reduction on the basis that the taxpayer held six out of the ten shares in Amber Investments (calculated as 60% of 25%).

What does this mean for taxpayers?

The decision is a reminder that the scope of the control provisions within the Act are wide and the ways in which a capacity to influence the financial or operational policy of landholding companies and trusts may be found in many circumstances.

The main takeaway for taxpayers is to err on the side of caution before directorship or ownership changes are made to trustee companies of landholding trusts.  Taxpayers are advised to seek advice before making any changes to the boards of trustee companies of landholding trusts – especially in Victoria.