K J Cooke ATF Cooke Investment Trust v Chief Commissioner of State Revenue [2026] NSWCATAD 130  

In this decision of the New South Wales Civil and Administrative Tribunal, the NSW State Revenue Commissioner’s decision to assess an amended discretionary trust as a special trust for not satisfying the “relevant criteria” under section 3A(3B) of the Land Tax Management Act 1956 (NSW) (LTMA) was set aside.

The Tribunal concluded that the Trust ought to be assessed as a “fixed trust” and not a “special trust” so that the Trust could be entitled to the benefit of the tax-free threshold in respect of NSW land held by the Trust. 

The Cooke Investment Trust (Trust) was originally setup as a discretionary trust on 15 November 2005. 

No other key underlying circumstances were discussed in detail in the Tribunal’s decision as the question to be answered here pertained to construction of the terms of the trust deed and whether they comply with the relevant criteria under section 3A(3B) of the LTMA.

The taxpayer asserted that all three relevant criteria of section 3A(3B) were satisfied by their amendments made to the trust deed, and the Commissioner asserted that the amendments satisfied none of the three relevant criteria.

The third criterion at section 3A(3B)(b) below, the restriction on variation, appears to also not have been addressed in detail in the Tribunal’s decision, indicating that it could be dependent on the other two criteria being successfully addressed so that those successful clauses can then be restricted from being varied or removed in the future.

The three relevant criteria of section 3A(3B) were broadly set out in the Tribunal decision (bold emphasis added):

3A   Special trust—meaning

[...]

(3B) For the purposes of this section, the relevant criteria are as follows—

(a)  the trust deed specifically provides that the beneficiaries of the trust—

(i)  are presently entitled to the income [criterion 1] of the trust, subject only to payment of proper expenses by and of the trustee relating to the administration of the trust, and

(ii)  are presently entitled to the capital of the trust, and may require the trustee to wind up the trust [criterion 2] and distribute the trust property or the net proceeds of the trust property,

(b)  the entitlements referred to in paragraph (a) cannot be removed [criterion 3], restricted or otherwise affected by the exercise of any discretion, or by a failure to exercise any discretion, conferred on a person by the trust deed,

(c)  if the trust is a unit trust—

(i)  there must be only one class of units issued, and

(ii)  the proportion of trust capital to which a unit holder is entitled on a winding up or surrender of units must be fixed and must be the same as the proportion of income of the trust to which the unit holder is entitled.

The trust deed was varied on 12 October 2023 converting the discretionary trust to an equal interests trust limited to the Primary Beneficiaries - not to a fixed unit trust. The specific changes under this deed of variation were also set out in the Tribunal decision (bold emphasis added):

(2)          Inserted a new clause 3.1 in the following terms:

“The Trustee holds the income generated by the Trust in each financial year for the Primary Beneficiaries equally and must on the 30th of June each year pay the income to the Primary Beneficiaries equally.”

(3)          Amended clause 3.8 to read:

“Each of the Beneficiaries in whose favour the Trustee shall pay, apply or set aside the income for that year or failing the exercise of the Trustee’s discretion to pay apply or set aside or accumulate, who shall be entitled to share in the income for that year, shall have an immediate and indefeasible vested interest in that part of the income for that year, so that the Beneficiaries in whose favour the Trustee shall pay, apply or set aside the income, or failing the exercise of the Trustee’s discretion to pay apply or set aside or accumulate, who shall be entitled to share in the income, shall be presently entitled to that share of the income.”; and

7           Amended clause 4.2 to read:

“Subject to clause 4.3, on that termination and vesting the trustee shall pay and assign the whole of the Trust Fund [capital] to such one or more of the Primary Beneficiaries and the Limited Beneficiaries then living or in existence (whether to the exclusion of some of them or not) in equal proportions and in such proportions as the Trustee shall decide. If the Trustee fails to make a decision then the Trust Fund shall vest in those alive at the date of vesting of the Primary Beneficiaries but if none are living then in those alive at the vesting date of the children of the Primary Beneficiaries but if none are living then in those alive at the date of vesting of the grandchildren of the Primary Beneficiaries.”

The taxpayer then lodged a Land Tax Variation Return stating that the Trust had been changed from a discretionary trust to a fixed trust, to which the NSW State Revenue Commissioner wrote back that the varied trust deed did not satisfy the relevant criteria for a fixed trust in section 3A(3B) of the LTMA.

So the taxpayer made a further deed of variation to the trust deed on 12 December 2023 (and accompanying Land Tax Variation Return) which amended the trust deed as follows (bold emphasis added):

(1)          Clause 4.2 was amended again to read:

“Subject to clause 4.3, on that termination and vesting the trustee shall pay and assign the whole of the Trust Fund to such one or more of the Primary Beneficiaries and the Limited Beneficiaries then living or in existence in equal proportions [Trustee proportions allocation decision power removed]. 

[...] If the Trustee fails to make a decision then the Trust Fund shall vest in those alive at the date of vesting of the Primary Beneficiaries but if none are living then in those alive at the vesting date of the children of the Primary Beneficiaries but if none are living then in those alive at the date of vesting of the grandchildren of the Primary Beneficiaries. 

[added part:] It is declared that the Primary Beneficiaries are presently entitled to the capital of the trust and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property at any time by the giving of notice to the Trustee.”

11        Clause 10.1 was amended to add:

“The entitlements referred to in clauses 3.1, 3.8 and 4.2 cannot be removed, [this satisfies the third criterion] restricted or otherwise affected by the exercise of any discretion, or by the failure to exercise any discretion, conferred on a person by the trust deed and the Trustee must not vary or otherwise amend these provisions by way of an amendment to this Deed.”

Three days later the NSW State Revenue Commissioner wrote back that the further varied trust deed still did not satisfy the relevant criteria for a fixed trust in section 3A(3B) of the LTMA, and the notice of trust land tax assessment was issued on 3 January 2024 for $22,453.30 and the next year 14 January 2025, for $25,173.30 as a special trust not as a fixed trust. 

The taxpayer objected on 31 January 2025 and this was disallowed by the NSW State Revenue Commissioner on 22 July 2025.

Tribunal Decision - Income Present Entitlement - First Relevant Criterion

The Tribunal analysed the variations and leaned towards a practical and purposive approach stating at paragraph 61:

61        These principles ought to be understood as an exercise which results in the Tribunal applying a practical and purposive approach, rather than a more detached and literal approach for which the Chief Commissioner contends. See Jacobs’ Law of Trust, 7th edition (2006) where it says:

"It has become fashionable to say that in construing settlements, the court should adopt an approach which is 'practical and purposive, rather than detached and literal'. [Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513 at 537; [1990] 1 WLR 1587 at 1610; Lock v Westpac Banking Corp (1991) 25 NSWLR 593 at 602, noted (1993) 67 ALJ 70; Re UEB Industries Ltd Pension Plan [1992] 1 NZLR 294 at 297; In re Scientific Investment Pension Plan Trusts [1999] Ch 53 at 62; [1998] 3 All ER 154 at 161; Collins v AMP Superannuation Ltd (1997) 75 FCR 565 at 580; 147 ALR 243 at 256; Nick Kritharas Holdings Ltd (in liq) v Gatsios Holdings Pty Ltd (2001) 38 ASCR 57 at [18] - [19]; Local Government Superannuation Board v Thorne (2002) 76 ALD 569 at [34]. See [2941].] But it may be doubted as Warner J himself observed in Mettoy Pension Trustees whether this does any more than encapsulate that which was explained by Lord Upjohn, itself well understood and not novel. [Caboche v Ramsay (1993) 119 ALR 215 at 232 - 3; Wilson v Law Debenture Trust Corporation plc [1995] 2 All ER 337 at 347 -8].

Very often, the fiscal background - the drafting of provisions in order to comply with, or take advantage of, favourable tax treatment - is another important consideration in construing the documents. [See, for example, Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513 at 537; [1990] 1 WLR 1587 at 1610; Re Landau [1998] Ch 223 at 233; [1997] 3 All ER 322 at 329; International Power plc v Healy [2001] 2 All ER 417 at [18] - [26]; [2001] 1 WLR 864]."

The NSW State Revenue Commissioner put forth various literal and overly technical arguments that the wording of the variation was not sufficient to give rise to a present entitlement that is indefeasible and that can be called upon by the entitled beneficiary at the relevant time. 

In relation to the Commissioner’s argument that the first criterion (present entitlement to income) failed, the Tribunal described at paragraphs 37 and 64:

While not expressed in this way, the position of the Chief Commissioner could be articulated as under the Deed the entitlement of the beneficiaries could be described as “present” only on 30 June of each income year. 

[...] shows the error in the Chief Commissioner's argument that there is there is a mismatch between the accounting period of 30 June and the taxing date of 31 December such that “no present entitlement to the income of the Trust could have been established as at 31 December of any relevant land tax year”.  

The Tribunal rejected all of the Commissioner’s arguments, and ultimately stated at paragraphs 38, 41 and 43 that the variations were correctly drafted and should not be held to fail the relevant criteria (bold emphasis added):

38        The Tribunal is satisfied that the Chief Commissioner’s description of the operation of clause 3.8 is not correct. The words “shall pay, apply or set aside” are not words articulated in the past tense but refer to the future ongoing obligation of the trustee in relation to the income of the Trust. This is so because of the word “shall”, which is in the future tense rather than the past and has the sense of “must” or “will”, does not refer to something that the Trustee has done, but something the Trustee will do. Thus, the obligation of the Trustee to pay an amount to a beneficiary in clause 3.1 is not a precondition to rights of the beneficiaries set out in clause 3.8.

41 [...] it is not, in the Tribunal’s view, necessary for there to be an additional clause giving beneficiaries the power to demand payment of their entitlements at any time. The right of a beneficiary to demand payment of the share of income arises because of the immediate and indefeasible vested interest they have in the part of the income to which they are entitled. 

43        Clause 3.8 carefully and expressly gives rise to an immediate and indefeasible vested interest in the beneficiary’s share of the income. The use of the words immediate and indefeasible make it clear the kind of right that is conferred on the beneficiaries. No further method to demand payment is required.

The essence of the relevant criteria requirements, as pertaining to legal entitlements then to be followed by actual payment, was then set out by the Tribunal at paragraphs 47, 48 and 50 (bold emphasis added):

47        For income tax purposes, it is clear that a resolution by a trustee for the distribution of the income of a trust, or a payment by a trustee on or before the end of the income year is sufficient to give rise to a present entitlement of a beneficiary.

48       The relevant criterion is whether or not the right to demand payment exists, not whether or not the payment is made. The majority of the High Court in Federal Commissioner of Taxation v Carter [2022] HCA 10; (2022) 274 CLR 304 said (at [20]):

“For present purposes, the relevant criterion in s 97(1) is the present legal right of the beneficiary to demand and receive payment of a share of the distributable income of a trust estate. The criterion for liability looks to the right to receive an amount of distributable income, not the receipt.”

49        This is consistent with the reasoning of the High Court in Bamford in which the Court said (at [39]):

“… the phrase ‘presently entitled to a share of the income’ directs attention to the processes in trust administration by which the share is identified and entitlement established. The relevant operation of those principles, supported by a review of the authorities, was described as follows by Bowen CJ, Deane and Fitzgerald JJ in Federal Commissioner of Taxation v Totledge Pty Ltd. Their Honours said:

‘A beneficiary under a trust who is entitled to income will ordinarily only be entitled to receive actual payment of the appropriate share of surplus or distributable income: the trustee will be entitled and obliged to meet revenue outgoings from income before distributing to a life tenant or other beneficiary entitled to income. Indeed, circumstances may well exist in which a trustee is entitled and obliged to devote the whole of gross income in paying revenue expenses with the consequence that the beneficiary entitled to income may have no entitlement to receive any payment at all. This does not, however, mean that a life tenant or other beneficiary entitled to income in a trust estate has no beneficial interest in the gross income as it is derived. He is entitled to receive an account of it from the trustee and to be paid his share of what remains of it after payment of, or provision for, the trustee's proper costs, expenses and outgoings.’”

The author also notes the Tribunal’s pragmatic consideration of trust distribution and accounting timing to determine the net income of the trust for the financial year as stated at paragraphs 51 to 53 (bold emphasis added):

51        [...] the administrative process by which the actual amount payable to a beneficiary can only be ascertained after an accounting process has been completed, a process which is contingent on the ascertainment of certain tax liabilities and other expenses incurred by the trustee. This process may well not occur until on or after 30 June of any year.

52        These pragmatic limits on the capacity of a beneficiary to receive payment following a demand, which clearly do not affect the present entitlement of the beneficiary in question, must be considered in the light of the language of clauses 3.1 and 3.8.

53 A careful reading of the Deed and in particular clause 3.1, reveals that the obligations of the Trustee are that it must hold the income generated by the Trust equally and it must pay the beneficiaries equally on 30 June of each income year. The Deed does not say “must only” pay the beneficiaries on that date. 

The Tribunal concluded that the beneficiaries have under the Deed, a present entitlement to their share of the income of the Trust at all times in the taxing year, regardless of the taxing date of 31 December and that the Deed satisfies the requirements of section 3A(3B)(a)(i) of the LTMA.

Tribunal Decision - Capital Present Entitlement - Second Relevant Criterion

The NSW State Revenue Commissioner also raised what appeared to be overly technical and literal arguments in relation to the second relevant criterion.

One of those arguments was dealt with by the Tribunal easily by reference to a standard clause:

70        argument can be dealt with swiftly. Clause 1.25 of the Deed says:

“Headings are inserted for convenience only and do not affect the interpretation of this Deed”.

And the other argument of the Commissioner was dealt with by a practical and pragmatic approach to construction of the varied clause 4.2 rather than an overly literal picking apart of that clause, the Tribunal stated at paragraph 77:

77        Again, applying the purposive and practical approach to construction, the Tribunal is satisfied that the inclusion of the right to wind up the Trust at any time in a clause which commences with the words “on that termination and vesting” is not limited by those words. There is nothing in the structure of the clause that demands that the operative time of the third sentence be limited to the opening words of the first sentence. Clause 4.2 does effectively provide that the Primary Beneficiaries are presently entitled to the capital of the Trust and have the right to wind up the Trust by giving notice to the Trustee and therefore satisfy section 3A(3B)(a)(ii) of the Act.

The author notes it could have been useful to know whether any part of the Commissioner’s objection rejection response to the taxpayer did or did not consider whether the relevant criteria could still be satisfied for a discretionary trust without restricting the beneficiaries to equal shares and without restricting the discretionary beneficiaries only to Primary Beneficiaries. 

Conclusion

The Tribunal has identified the use of standard fixed trust clauses used in fixed trust deeds (i.e. restriction on variation, present entitlement to income, present entitlement to capital, and in this case there was no multiple unit classes) to conclude that these standard fixed trust clauses still in substance do the same job as they are supposed to similarly to the context of a discretionary trust to fixed unit trust conversion and cannot be challenged by mere technical or overly literal arguments that seek to ignore the underlying practical intent or fiscal compliance background of those clauses.