VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
administrative DIVISION
REVIEW AND REGULATION LIST	
vcat reference No. Z989/2019	
CATCHWORDS	
Review and Regulation List – Duties Act 2000 (Vic), s 36A – Availability of exemption from duty for transfer of property from discretionary trust to its beneficiaries – Whether Tribunal can be satisfied that the transfer was not part of a sale or other arrangement under which there existed any consideration for the transfer in circumstances where financial statements record loans from beneficiary to trust being reduced to nil – Assessment confirmed.	

APPLICANT	Tony Baullo and Jordan Sebastian Baullo	
RESPONDENT	Commissioner of State Revenue	
WHERE HELD	Melbourne	
BEFORE	R Tang AM, Senior Member	
HEARING TYPE	Videoconference Hearing	
DATE OF HEARING	5 October 2023	
DATE OF ORDER and reasons	13 October 2023	
CITATION	Baullo v Commissioner of State Revenue (Review and Regulation) [2023] VCAT 1164	

Orders

The assessment of duty made on 14 May 2019 (notice of assessment no: 19515886) is confirmed.

R Tang, AM
Senior Member			

APPEARANCES:		
For Applicant 	Mr R Appudurai of Counsel	
For Respondent	Mr O Ciolek of Counsel	

Reasons
1	By this proceeding, Mr Tony Baullo (‘Mr Baullo Snr’) and Mr Jordan Baullo (‘Mr Baullo Jnr’) seek review of an assessment of duty made by the Commissioner of State Revenue (‘Commissioner’) under the Duties Act 2000 (Vic) (‘Duties Act’) on 14 May 2019 (‘Assessment’).  Under the Assessment, duty of $46,070 was imposed in respect of the transfer of a property in Pascoe Vale South (‘Relevant Property’) from JT Development Nominees Pty Ltd (‘JTDN’) to the applicants (‘Relevant Transfer’).
2	The applicants contend that the Relevant Transfer is exempt from duty under section 36A of the Duties Act on the basis that the property was transferred to them as beneficiaries of the J.T. Family Trust (‘Trust’). 
3	The Commissioner assessed the Relevant Transfer, and submits the Assessment should be confirmed, on the basis that he could not be satisfied that the transfer was ‘not part of a sale or other arrangement under which there exists any consideration for the transfer’, being one of the requirements for the exemption to apply: section 36A(1)(e).
4	For the reasons which follow, I am not satisfied that the Relevant Transfer was not part of an arrangement under which there existed any consideration for the transfer.  To the contrary, I am satisfied – on the balance of probabilities – that there was consideration that ‘moved’ the transfer in the form of satisfaction or forgiveness of amounts owed by JTDN to the applicants in connection with the acquisition of the Relevant Property.   
The acquisition of the Relevant Property and its transfer to the applicants
5	Mr Tony Baullo Snr is a builder who has had some experience with property development.  
6	On 2 December 2017, he and his son (Mr Baullo Jnr) attended and were the successful bidders at the auction for the Relevant Property.  The purchase price was $905,000.  Mr Baullo Snr gave evidence that: 
•	he and his son intended to develop two units on the property; 
•	as it was his first development with his son and, as they were very excited at the prospect of undertaking the venture together, they entered the contract of sale of real estate prior to getting any advice as to how to structure the arrangement;
•	to keep their options open, the contract allowed for nomination of a different party to take the transfer of the property; and
•	he paid the deposit ($90,000) by cheque (with Mr Baullo Jnr subsequently reimbursing his father for his half share).  
7	Subsequently – on the advice of his accountant (Mr Buccheri) – Mr Baullo Snr decided that the Relevant Property should be held in a discretionary trust.  Accordingly, in February 2018, he and his son proceeded to: 
•	establish JTDN, of which they were both directors and shareholders; and
•	execute a Deed to establish the Trust (‘Trust Deed’), which they executed as directors of JTDN, with Mr Buccheri acting as the settlor.
8	At some stage, JTDN was nominated as the transferee and, on 21 March 2018, the company was registered as the sole proprietor of the Relevant Property.  The balance of the purchase price was funded by a mortgage loan from the National Australia Bank (‘NAB’).  However, as JTDN did not have any bank account (or other funds) itself, the applicants had to fund the stamp duty of $49,370 and some other incidentals personally.  Including the deposit, the applicants contributed $156,846 in respect of the purchase of the Relevant Property.  As Mr Baullo Jnr explained in his affidavit, the contribution was made ‘in anticipation of [his father and him] being reimbursed that sum from the proceeds of any sale of the lots/dwellings following the completion of the project’.
9	In June 2018, Mr Baullo Jnr proposed to his partner, and they decided that they wished to own and occupy one of the units on the Relevant Property.  While Mr Baullo Snr was supportive of this, he saw it as ‘changing the goal posts’.  As he advised his son, in order for the couple to access the main residence exemption from capital gains tax in respect of the unit they intended to occupy, the Relevant Property could no longer be held within the Trust.
10	Mr Baullo Snr initially explored transferring his share into his own family trust but, after speaking to an officer at the State Revenue Office (‘SRO’) determined that the Relevant Property needed to be transferred to himself and his son, as this would not be subject to duty.
11	Mr Baullo Snr instructed a lawyer, Mr Livio Belvedere, to give effect to the transfer.  Mr Belvedere prepared a Transfer of Land, which he signed on behalf of JTDN (as transferor) and the applicants (as transferees) on 28 March 2019.  At the time Transfer of Land was signed, it seems the space for the recording of the consideration was left blank.  At some stage before the transfer was registered, the words ‘Entitlement in equity’ were added.
12	While the form for the transfer of land was signed in March 2019, the transfer itself was not completed until late October 2019.  It seems that this was, at least in part, because the applicants first needed to arrange a new loan to pay out the NAB mortgage and to fund the costs of the development, with ‘unconditional approval’ for the loan being received from Westpac Banking Corporation in July 2019.   
13	In answer to a question from me, Mr Baullo Snr said that he and his son had not convened a meeting of JTDN to approve the transfer of the Relevant Property to themselves.  As such, it is uncertain as to whether the power or discretion relied upon by the trustee to effect the transfer was either or both of:
•	clause 5(a) of the Trust Deed, which provides that the trustee ‘may at any time … Distribute capital or any part of it to any Beneficiary in such amount as it decides’; or
•	item 12 of Schedule 4 to the Trust Deed, which provides:
While any mortgage, debts or any other moneys remain owing by the Trustee in its capacity as Trustee under this Deed, the Trustee may apply [or] transfer [the Trust Fund] or portions of the Trust Fund as it decides in payment in part or in whole of the relevant liability. 
14	Neither of the applicants has any expertise in finance and accounting and, as such, left it to Mr Buccheri to reflect both the acquisition of the Relevant Property, and its subsequent transfer to the applicants, in the financial statements of the Trust.  It is noted that the applicants did not call Mr Buccheri to give evidence in this proceeding, however, the accounts record the following matters:
•	at 30 June 2018, the Trust: 
-	owned freehold land and buildings with a value of $959,620, being the sum of the purchase price of the Relevant Property and the stamp duty and incidental costs paid by the applicants;
-	owed the NAB an amount of $825,869, reflecting the sum advanced by the bank for the purchase of the Relevant Property; 
-	owed an amount of $156,846 by way of ‘Beneficiary Loans’; and
•	at 30 June 2019, the Trust no longer held any substantive assets or owed any liabilities (apart from cash of $1). 
15	Subsequently:
•	on 14 April 2020, JTDN was deregistered; and
•	by 28 September 2021, the Relevant Property had been subdivided and partitioned so that Mr Baullo Jnr became the registered proprietor of the lot on which his home was located and Mr Baullo Snr acquired the other lot.
The exemption and relevant authorities
16	Under the Duties Act, duty is ordinarily charged on a transfer of ‘dutiable property’, which includes an estate in fee simple in land.  Duty is imposed on the ‘dutiable value’ of the relevant property, which is the greater of the consideration for the transfer or the unencumbered value of the property transferred.
17	However, there are a number of exemptions from duty set out in Part 5 of Chapter 2 to the Duties Act, which includes the exemption in section 36A for ‘property passing to beneficiaries of discretionary trusts’.
18	Section 36A(1) provides that ‘[n]o duty is chargeable … in respect of a transfer of dutiable property that is subject to a discretionary trust … to a beneficiary of the trust’, subject to satisfaction of certain pre-conditions.
19	The only pre-condition in issue in this case is section 36A(1)(e), which provides that the Commissioner must be ‘satisfied that the transfer is not part of a sale or other arrangement under which there exists any consideration for the transfer’.  It is relevant to note that there is an exception in section 36C, which provides that a transfer is not to be treated as part of a sale or arrangement only because a beneficiary ‘gives a mortgage to secure the same or a greater amount as that outstanding under a mortgage to which the property was subject immediately before the time of the transfer’.
20	It is well established that, for duty purposes, ‘consideration’ is the ‘money or value passing which moves the conveyance or transfer’ and can include the ‘extinguishment of [a] loan balance’ (whether by way of payment, set off, forgiveness or otherwise).  While such an arrangement may not involve a sale, the extinguishment of a loan balance in connection with a transfer has been accepted as falling within ‘another arrangement’.  Further, there is ‘extensive authority supporting the extinguishment of a debt by implication from conduct’.
21	As I indicated in Astakhov v Commissioner of State Revenue (‘Astakhov’), on review of an assessment denying the exemption, the Tribunal needs to consider whether or not it is satisfied – on the balance of probabilities – as to the matters set out in section 36A(1)(e), having regard to the evidence presented at the hearing and noting that the applicants bear the onus of proof.
Submissions
Applicant’s submissions
22	In closing, Mr Appudurai (counsel for the applicants) contended that there is nothing in the evidence before the Tribunal to suggest that the applicants:
•	made any loans to JTDN or the Trust; and/or 
•	forgave any loans which may be found to exist.
23	In relation to the first point, Mr Appudurai made much of the fact that, at the time the deposit for the Relevant Property was paid by the applicants, the Trust ‘did not exist’.   Further, he observed that the stamp duty did not go through the accounts of the Trust but, as is common in conveyancing practice, was swept by NAB from the applicants’ personal accounts.  Similarly, it was said the other incidentals were paid directly by the applicants.  Accordingly, it was contended that the amounts were simply ‘contributions’ by the applicants, and the recognition of the sum in the Trust’s financial statements for the year ended 30 June 2018 as ‘beneficiary loans’ was essentially erroneous.
24	While Mr Appudurai accepted that there was ‘some unfortunate language’ in correspondence between Mr Belvedere and the SRO (see [29]), it was ‘not a one way street’.  He suggested that the ‘language of loans’, as used by Mr Belvedere, came from the erroneous accounts.
25	In relation to the second point, Mr Appudurai contended that the Trust’s financial statements for the year ended 30 June 2019 did not record ‘actual facts’, but rather were a reflex of income tax considerations.  Much was made of my observation, in Astakhov, that the financial statements in that case were ‘based on the income tax treatment of the transfer as a deemed sale and, as such, the recorded reduction in the loans owed to [the applicant and his wife] did not reflect any forgiveness of those loans which could be regarded as consideration’.  Mr Appudurai submitted that the situation was the same in this proceeding, such that the financial statements could not support an inference that any debt owing to the applicants had been forgiven. 
26	Further, Mr Appudurai contended that, ‘in substance and fact’, what ‘really moved the transaction was the decision not to proceed with the property development venture’ because of the ‘drastic change of plans’ resulting from Mr Baullo Jnr’s engagement.
27	Mr Appudurai also (faintly) raised an alternative argument, namely that the policy behind the provision permitting the refinancing of mortgages (by excluding them as sales or arrangements covered by section 36A(1)(e)) was to maintain the exemption where there was no change in (economic) position.  He submitted that, even if the applicants had made loans to the Trust, their (economic) position had not changed in the sense that both before and after the transfer, they enjoyed beneficial ownership and control of the land. 
Commissioner’s submissions
28	Mr Ciolek (counsel for the Commissioner) contended that there are three ‘critical factual matters that cannot be controverted’, namely:
•	based on advice, the applicants chose to structure the arrangements by having the Relevant Property purchased by JTDN as trustee of the Trust;
•	the applicants chose to structure their affairs to treat the sums they had paid in respect of the Relevant Property (i.e. $156,846) as advances by way of loan(s); and 
•	following the transfer of the Relevant Property, the beneficiary loans were reduced to nil.
29	In relation to the second point, Mr Ciolek observed that Mr Baullo Snr relied on his accountant and lawyer, who should be accepted as having acted as the agent of the applicants (with appropriate authority) and, as such, the accounts properly reflected the sums paid by the applicants as loans.  He added that this was supported by: 
•	Mr Belvedere’s reference to ‘beneficiary loans’ in correspondence he had sent to the SRO on the applicants’ behalf; and
•	Mr Baullo Jnr’s affidavit which referenced the expected ‘reimbursement’ of the funds contributed by the applicants.
30	In relation to the last point in [28], Mr Ciolek contended that, in the absence of any evidence from Mr Buccheri, it was ‘speculation to surmise’ whether or not the accounts reflected the way in which the income tax law operated. 
31	While the Commissioner accepted there is conflicting evidence as to how to characterise the reductions in the loans, i.e. as to whether the loans were forgiven or repaid/settled through the transfer, Mr Ciolek suggested that the evidence pointed most strongly to the former (although, in either case, section 36(1)(e) would not be satisfied).  
32	In support of the contention that the beneficiary loans had been forgiven, Mr Ciolek pointed to:
•	Mr Belvedere’s email to the SRO on 10 May 2019, in which he stated that ‘as the land is being transferred to the beneficiaries the loans will be forgiven and not repaid’; and
•	Mr Baullo Jnr’s affidavit, which states that, after the transfer of the Relevant Property, he and his father ‘considered that there was no longer any monies owed to us by the [Trust]’.
33	In relation to alternative (i.e. that the beneficiary loans had been repaid by transfer of the Relevant Property), Mr Ciolek pointed to:
•	the objection lodged by Mr Belvedere on behalf of the applicants, which refers to the Relevant Property ‘being transferred in part pursuant to [Clause 12, Schedule 4 of the Deed]’ and that the ‘intent of the statement’ in the email of 10 May 2019 ‘was to confirm that the beneficiary loan is being satisfied pursuant to Clause 12, Schedule 4 of the Deed’; and
•	Mr Belvedere’s email to the SRO on 12 September 2019 that the Relevant Property was: 
treated as having been transferred out to the beneficiaries in two components which include the beneficiary loan account as being paid out or cleared by the trust by a transfer of a corresponding proportion of the value of the subject property.
34	I asked Mr Ciolek to explain how the Tribunal was to form a view as to the circumstances in which the amounts recorded as beneficiary loans had been reduced to nil given there was no resolution of JTDN to indicate whether the transfer was being effected under either or both of the capital distribution power or the power to settle debts by transferring trust funds (see [13]).  He suggested that the Tribunal had to decide the matter on the material before the Tribunal and that, given Mr Belvedere was aware of the terms of the Trust Deed, his correspondence supports an inference that the loans were either forgiven or repaid.  He added that, the fact the decision was ‘undocumented, does not mean it was not taken’.
35	Mr Ciolek suggested the Tribunal should reject the applicants’ submissions that the reference to beneficiary loans in the financial statements was a ‘mere label’, observing that they had taken the ‘presumptive benefit’ of being creditors of the Trust (e.g. enabling them to prove for the debt in the event the Trust’s assets were insufficient to meet all liabilities) and should also be regarded as having ‘taken on the disadvantages of the structure’.  In the latter regard, once a decision had been made to distribute the Trust’s only real asset to the applicants personally, it became necessary to deal with the beneficiary loans which ‘ought to have loomed large’ in the sense that, if the loans were not dealt with, the transfer of the Relevant Property to the beneficiaries would leave a large ‘capital deficit’ for all beneficiaries of the Trust, noting this was a class of persons which was broader than the two applicants.
36	As to the applicants’ submissions regarding section 36C, Mr Ciolek observed that the provision ‘expressly articulates the circumstances in which section 36A does not apply’ and that, if the legislature had intended that the forgiveness or waiver of a beneficiary loan could be ignored, then the legislation ‘would say so’.
Analysis
37	The first issue to address is whether the amounts shown as ‘beneficiary loans’ in the Trust accounts were, in fact, loans or otherwise debts owed by JTDN to the applicants.
38	It is true that the deposit was paid by the applicants before the Trust was established.  Indeed, the evidence suggests it was paid before the applicants had even decided to purchase the Relevant Property through a trust structure.  However, the real question is whether there was an agreement or understanding that, in return for nominating JTDN to take the transfer of the Relevant Property, the trustee would reimburse the applicants for that amount.  That there was such an arrangement is evidenced in Mr Baullo Jnr’s affidavit, in that he states they contributed the amount ‘in anticipation of being reimbursed that sum from the proceeds of any sale of the lots/dwellings following completion of the project’. 
39	Of course, the stamp duty and other incidentals were paid after JTDN had been registered and the Trust established.  Given the applicants were the ‘controlling mind’ of the trustee, it is unsurprising that no loan agreement was put in place.  However, it is clear that when the applicants paid these amounts, they did so on behalf of JTDN as the liable party, and as such, there was a concomitant obligation on JTDN to repay those amounts to the applicants.  
40	As indicated by Davies J of the Federal Court of Australia in Radilo Enterprises Pty Ltd v Commissioner of Taxation, ‘[t]he essence of a loan is that there be a debt, that is, moneys outstanding to be repaid at a fixed or determinable time or on demand’.  There can be no doubt that there was money owing by JTDN to the applicants, even if the repayment of the debts was contingent on future lot sales.
41	Accordingly, I am satisfied and find that the amount of $156,846 recorded as beneficiary loans in the Trust’s financial statements for the year ended 30 June 2018 represented loans (or other liabilities) owed by JTDN to the applicants.
42	It is not disputed that, following the Relevant Transfer, JTDN was no longer indebted to the applicants.  This is evidenced by the fact that JTDN was deregistered in April 2020 (see [15]), given that a company cannot be voluntarily deregistered where it has any outstanding liabilities.
43	Accordingly, there must have been an ‘extinguishment of the loan balance’, whether by way of payment, set off, forgiveness or otherwise.  Whether this occurred contemporaneously with the Relevant Transfer or not, it is clear the applicants accepted that ‘once the property had been transferred to [them]’, ‘there was no longer any monies owed’.  
44	For this reason, I am satisfied and find that extinguishment of the amounts recorded as beneficiary loans was part of the consideration that moved the Relevant Transfer and, for the purposes of section 36A(1)(e), reflected an ‘arrangement’ between JTDN and the applicants.  I consider this to be the case notwithstanding that the apparent motivation for restructuring the ownership of the Relevant Property was precipitated by Mr Baullo Jnr’s engagement.
45	For these reasons, I cannot be satisfied that the Relevant Transfer was ‘not part of a sale or other arrangement under which there exists any consideration for the transfer’ and, as such, the preconditions for the exemption in section 36A of the Duties Act are not satisfied.
46	Further, section 36C can have no application as any loan from the applicants to JTDN was not subject to a mortgage and the applicants each confirmed (in answer to a question from me) that, in any event, no part of the funds advanced by Westpac was used to refinance the debt owed to them.

R Tang, AM
Senior Member