Private ruling: Does CCo’s forestry interests in South Australia give rise to taxable Australian real property for the purposes of section 855-20 of the ITAA 1997?
Date of advice: 28 May 2018
Published: December 2018
Ruling period: 1 July 2017 to 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Does CCo’s ownership of the Forest Vegetation in South Australia give rise to taxable Australian real property for the purposes of section 855-20 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: 1. A Company (‘ACo’) is an overseas company. 2. In 2012, ACo acquired 18.0177099% of the ordinary shares in B Company Pty Ltd (‘BCo’), an Australian resident company. BCo owns (and at all relevant times owned) 100% of the issued share capital in C Company Pty Ltd (‘CCo’), which is also an Australian resident company. CCo was established to invest in timber plantations and other timber operations in Australia. 3. On 24 August 2017, ACo entered into two share sale agreements in respect of its shares in BCo: a) The first share sale agreement was entered into with XCo Pty Ltd as trustee for the Z Trust in respect of 12% of the ordinary shares in BCo. The sale price for the shares was $X. b) The second share sale agreement was entered into with Y Fund L.P. (acting through its general partner Z LLC) in respect of 6.0177099% of the ordinary shares in BCo. The sale price for the shares was $Y. 4. On 24 August 2017, ACo also entered into two loan note sale agreements in respect of loan notes issued by BCo: a) The first loan note sale agreement was entered into with XCo Pty Ltd as trustee for the Z Trust in respect of loan notes with an aggregate issue amount of $X. The sale price for the loan notes was $Y plus the interest that accrued on the loan notes between 1 July 2017 and the completion date for the sale. b) The second loan note sale agreement was entered into with Y Fund L.P. (acting through its general partner Z LLC) in respect of loan notes with an aggregate issue amount of $X. The sale price for the loan notes was $Y plus the interest that accrued on the loan notes between 1 July 2017 and the completion date for the sale. Value of the business 5. Both XCo as trustee for the Z Trust and Y Fund L.P. are independent from and unrelated to, ACo. 6. The sale price for the shares and loan notes imply a total value for BCo of approximately $T million. ACo also obtained a valuation on 12 July 2017 that stated that the fair market value of the ordinary shares in BCo was in the range of $X million to $Y million as at 30 June 2017. Assets 7. At the time the various share sale agreements were entered into, BCo’s major asset was the shares in CCo. 8. CCo’s Annual Financial Report dated 30 June 2017 indicates that CCo’s major asset is its “biological assets”, being various timber plantations in South Australia and Victoria (approximately 94% of the plantation by hectares is located in South Australia, with the remaining 6% located in Victoria). The biological assets are recorded on CCo’s balance sheet at fair value less sale costs. The value of the biological assets as at 30 June 2017 was $X million. 9. CCo acquired its South Australian biological assets pursuant to two Forest Property (Vegetation) Agreements (‘Forest Property Agreements’) that were entered into in 2012. On completion of a Forestry Property Agreement, legal and beneficial title to certain Forest Vegetation passes to CCo. 10. Each Forestry Property Agreement was entered into pursuant to the Forest Property Act 2000 (SA) (‘FPA’) and meets the requirements of a “forest property (vegetation) agreement” for the purposes of the FPA. 11. CCo also had a 70 year lease of the relevant land (subject to certain renewal rights), which commenced in 2012, for rent of $B (‘the Lease’). The Lease provides for various rights incidental to the carrying on of a plantation business. 12. CCo also owned a small parcel of freehold land in South Australia, which had a value of $X as at May 2017. Rights Granted under the Forest Property Agreements 13. The Forest Property Agreements state that CCo takes the ‘Legal and beneficial title to the Forest Vegetation on completion’. 14. Forest Vegetation is defined in the Forest Property Agreements to consist of trees which are of tree plantation species, and includes the trees growing on the relevant plots of land at the time the agreements were made and which were to be grown. 15. These agreements are given protection as legal interests registered on land title under section 7 of the FPA. Their effect on the title of vegetation is explained by subsection 5(2) of the FPA, which says that: A forest property (vegetation) agreement separates ownership of forest vegetation from ownership of the land on which the vegetation is growing, or is to be grown, by transferring ownership of the forest vegetation from the owner of the land (the transferor) to another (the transferee) without severance of the vegetation from the land. 16. CCo has the right to access and use the land on which the vegetation is situated in accordance with the Forest Property Agreements and the terms and conditions of plantation leases held over the land.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) Section 855-20 | Forest Property Act 2000 (SA) Section 3 | Section 4 | Section 5 | Section 6 | Section 7 | Section 8 | Section 9 | Section 12 | Real Property Act 1886 (SA) Section 3 | Section 47 | Section 51A | Section 69 | Section 223LB | Summary | 1. CCo’s Forest Vegetation interests in South Australia are taxable Australian real property for the purposes of section 855-20 of the Income Tax Assessment Act 1997 (‘ITAA 1997’).

Reasons for decision: Summary: 2. The term ‘taxable Australian real property’ (‘TARP’) is defined in section 855-20 of the ITAA 1997 as follows: A CGT asset is taxable Australian real property if it is: (a) real property situated in Australia (including a lease of land, if the land is situated in Australia); or (b) a mining, quarrying or prospecting right (to the extent that the right is not real property), if the minerals, petroleum or quarry materials are situated in Australia. 3. The term ‘real property’ is not defined in the ITAA 1997. However, the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No 4) Bill 2006 (‘EM’) (which inserted Division 855 into the ITAA 1997) provided the following explanation at paragraph 4.28: Taxable Australian real property generally refers to real property, within the ordinary meaning of that term, that is situated in Australia. 4. The ‘ordinary meaning’ of ‘real property’ is distinguishable from its technical legal meaning. The technical legal meaning of real property is all property which could historically be recovered by means of ‘real actions’. ‘Real actions’ were actions permitting the recovery of possession of land. These real actions have now been abolished: City Mutual Life Assurance Society Ltd v Smith (1932) 48 CLR 532 at 539 (Starke J). 5. The technical meaning of real property can be split into two broad categories: ● corporeal hereditaments (meaning tangible things such as land, buildings, trees, etc and including ownership of those things); and ● incorporeal hereditaments (intangible rights attaching to land, including profits à prendre and easements). 6. In the Commissioner’s view, the ordinary meaning of the term ‘real property’ for purposes of Division 855 includes all interests falling within the technical meaning of real property, but is wider than that. It also includes rights in the nature of real property interests, such as statutory interests in land which are analogous to but not precisely the same as real property interests. This view is in accord with the High Court’s endorsement in TEC Desert v Commissioner of State Revenue (Western Australia) (‘ TEC ’) 241 CLR 576 at paragraph 23 of the following excerpt from Megarry & Wade’s The Law of Real Property as a ‘ statement of basic principle’: The meaning of ‘real property’ in law extends to a great deal more than ‘land’ in everyday speech. It comprises, for instance, incorporeal hereditaments; and includes certain physical objects which are treated as part of the land itself. The general rule is ‘quicquid plantatur solo cedit’ (‘whatever is attached to the soil becomes part of it’). Thus if a building is erected on land and objects are permanently attached to the building, then the soil, the building and the objects affixed to it are all in law ‘land’, ie they are real property, not chattels. They will become the property of the owner of the land, unless otherwise granted or conveyed. 7. The Commissioner’s view is also supported by the statement of the High Court at paragraph 14 of TEC , which said: Further, of terms such as “real property”, “lease” and “fixture” it should be emphasised that, not only does each bear a technical meaning in the general law, but also when they appear in statutory regimes creating rights and imposing obligations it is not to be assumed that they are used simply and exclusively in the sense understood by the general law. 8. In the Commissioner’s view, rights under CCo’s Forest Property Agreements (as created under the FPA) amount to a profit à prendre and are therefore incorporeal hereditaments, and real property. Alternatively, the Commissioner considers that tree ownership rights under the Forest Property Agreements are corporeal hereditaments, and therefore real property. The Forest Property Agreements create profits à prendre 9. The Commissioner considers that the transfers of ownership of the trees, together with the conferral of rights of access to the land for taking the trees (in accordance with the Forest Property Agreements and Lease), create profits à prendre over the land. 10. The conditions under which a profit à prendre arises were described in the case of Marshall v Green (1875) 1 CPD 35 (‘ Marshall ’). In this case, Lord Coleridge CJ quoted with approval the following statement made in the case of Duppa v Mayo : The principle of these decisions appears to be this, that whatever at the time of the contract it is contemplated that the purchaser should derive a benefit from further growth of the thing sold from further vegetation and from the nutriment to be afforded by the land, the contract is to be considered as for an interest in land; but where the process of vegetation is over, or the parties agree that the thing sold shall be immediately withdrawn from the land, the land is to be considered as a mere warehouse of the thing sold, and the contract is for goods. 11. The same principle was later expressed in the High Court case of Australian Softwood Forests Proprietary Ltd & Others v Attorney General (NSW) (1981) (‘ Australian Softwood ’) 148 CLR 121. At 130 -131 of this case, Mason J explained the nature of a profit à prendre: A profit à prendre is generally described as a right to take something off another person’s land ( Duke of Sutherland v Heathcote [1892 1 Ch 475]), or the soil itself ( In re Refund of Dues under Timber Regulations [1935] AC 184). The right to take timber off another person’s land has given rise to a problem of classification. …Accordingly , if the trees were to be left on the land for the advantage of the purchaser so that he would derive benefit from further growth, then the contract was for the sale of an interest in land . If on the other hand, the purchaser was to enter and take the timber immediately, he would derive no benefit from the land and the contract was one for the sale of goods [emphasis added]. 12. The transfer of ownership of something forming part of land or which will grow on the land, with a right to go onto the land to take that thing, confers a profit à prendre at common law. This is demonstrated by Australian Softwood. The facts of that case concerned a company which owned land on which trees were to be grown. The company entered into agreements with purchasers (called ‘growers’) and agreed to sell trees to the growers that would be grown on the land, and obliging the growers to later remove the trees. The growers owned the trees on the land belonging to the company. 13. In describing the nature of the grower’s rights, Mason J stated at CLR 132-133: The principal argument against the grower having a profit à prendre is that it is an obligation on his part, not a right, under the contract to cut and remove the trees. … But I do not think that this negates the possibility that the grower’s rights amount to an interest in the nature of a profit à prendre. Property in the trees evidently passes to him before planting and their growth in the ground is for his benefit. The fact that he has an obligation, rather than a right, to cut and remove them at maturity on notice from the company is not in the circumstances of this case inconsistent with his having an interest in land. As he has an interest in land and a licence to enter the land in order to take possession of the fruits of his interest, what he has is something in the nature of a profit à prendre, if not a profit à prendre in the strict sense [emphasis added]. 14. A similar conclusion was reached, although not in respect of trees, in Mills v Stokman (1967) 116 CLR 61, 71 – 72. There, slate which formed part of land was sold to a purchaser, where the purchaser had the ability to remove that slate. This was also found to create a profit à prendre. 15. It follows that the sale of the ownership of trees attached to land, as in the case of the Forest Property Agreements, gives the purchaser a profit à prendre and therefore a real property interest in the land on which the item of sale is located. As CCo’s Forest Property Agreements were formally registered, they should constitute a legal profit à prendre (as opposed to an equitable profit à prendre) in accordance with the principles stated by Mason J in Australian Softwood at CLR 131 and the NSW Supreme Court in Shand at NSWLR 432). 16. In determining whether a profit a prendre exists, the principles of fructus industriales and fructus naturales are relevant. Fructus industriales refers to cultivated crops which are regularly harvested. A right to remove fructus industriales cannot be a profit à prendre, because they are primarily the product of labour, and not of the land. Examples of fructus industriales include cases such as Clos Farming Estates v Easton [2002] NSWCA 389 (‘ Clos ’) and Permanent Trustee Australia Ltd v Shand (1992) 27 NSWLR 426 (‘ Shand ’). The facts in Clos involved a viticulture grape farm which required regular tending, which the Court held at paragraph 62 to be “a process of industry” rather than a profit à prendre. 17. In Shand , the Supreme Court held that the grower’s interest in a macadamia nut farm was not a profit à prendre. The reasons for the Court’s decision was explained in NSWLR 432: In the instant case, either the trees had to be planted before there could be any suggestion of a crop, or once planted the trees had to be tended by mankind before producing a crop. Both of these circumstances again tell against there being a profit à prendre under the general rule. 18. Fructus industriales can be contrasted with fructus naturales. Fructus naturales refers to crops or trees which may require attention when planted but do not require frequent attention in order to produce a crop. A right to remove fructus natur ales can be a profit à prendre. 19. The Commissioner considers that long term timber plantations are fructus naturales and therefore a right to remove them is a profit à prendre and an interest in real property. This is supported by the following extract in Peter Butt’s Land Law (6 th Edition) which states at p68: A sale of fructus industriales is regarded as a sale of chattels, at least where (as will be normally the case) the purpose of the sale is swift severance from the land and then on-sale. Whether a sale of fructus naturales is a sale of an interest in land or a sale of chattels is more difficult. A contract for sale that provides for property in the items to pass to the purchaser but allows the purchaser to leave the items in position so as to get the benefit of continuing growth before eventual severance from the soil, is regarded as a sale of an interest in land . The relevant interest in land is a profit à prendre . But a sale of fructus natruales that requires the vendor to sever, or the purchaser to enter and sever, almost immediately (so that crops are not intended to remain in situ for any appreciable time), is regarded as a contract for the sale of chattels (goods) [emphasis added]. 20. The above view is also supported by case law. In Marshall Lord Coleridge CJ stated at CPD 39-40: Planted trees cannot in strictness be said to be produced spontaneously, yet the labour employed in their planting bears so small a proportion to their natural growth, that they cannot be considered as fructus industriales… 21. The above principle in Marshall was later upheld in the case of Corporate Affairs Commission v ASC Timber Pty Ltd (1989) 18 NSWLR 577 where Powell J said at p587: …as a reference to authority will show, in certain circumstances, part of the produce of the soil- as for example trees- which did not occur naturally, but was planted, and intended to be cultivated, may properly be regarded, not as “fructus industriales”, but as “fructus naturales”, and, thus, properly the subject of a profit à prendre. That this is so is revealed by the following passages in the judgments in Marshall v Green (1875) LR 1 CPD 35. 22. This principle was also upheld by the Privy Council in Kauri Timber Company Ltd v Commissioner of Taxes [1913] AC 771 (‘ Kauri ’). In Kauri , when discussing the principle of treating timber interests as an interest in land, Lord Shaw (representing the rest of the Privy Council) stated at AC 779: There may have been certain necessary modifications of the generality of this principle with respect to emblements or the products of industry like ordinary agricultural crops; but it is unnecessary to analyse these instances or to make any pronouncement upon some of the dicta of judges in later times. For the present is a broad case of the natural products of the soil in timber- a crop requiring long-continued possession of land until maturity is reached, and the contract with regard to it in the present case raises none of the difficulties springing out of a covenant for immediate severance and realisation. 23. More recently, this principle was relied on in the New South Wales Supreme Court case of Myola Enterprises Pty Ltd v Pearlman (unreported, NSWSC 3 September 1993 [‘ Myola’] ) There, Bryson J explained that long term timber interests would not come under the fructus industriales principle: Produce of the soil grown in an annual or other recurring cycle of crops is not the subject of profits à prendre. The law on this subject was stated in and appears by the judgment in Corporate Affairs Commission v ASC Timber (Powell J) (1989) 18 NSWLR 577, particularly at 586 to 592. See too Permanent Trustee v Shand (1992) 27 NSWLR 426 at 434 and 435 (Young J). In this branch of the law authority establishes that cultivated crops produced by human labour, referred to as fructus industriales, are not the subject of profits à prendre; they are contrasted with fructus naturales which are not produced by human labour, although timber produced in a long cycle would appear to fall outside the classification of fructus industriales. 24. Under CCo’s Forest Property Agreements, the trees that a grower acquires derive a benefit from the further growth of trees for a considerable period of time on another entity’s land. It is the Commissioner’s view that these Forest Property Agreements grant profits à prendre, consistent with the above case law. This view is also consistent with the Commissioner’s view expressed in paragraph 70 of TR 95/6 (Primary production and forestry), which states: To determine if a profit à prendre arises, the test in Marshall v Green [1875] 1 CPD 35 should be applied- that is, where at the time of the contract it is contemplated that the purchaser will derive a benefit from further growth of the thing sold, then the purchaser acquires an interest in the land, i.e., a profit à prendre: Ashgrove’s case. 25. The Commissioner also notes that section 12 of the FPA deems CCo’s Forest Property Agreements to be a profit à prendre. 26. Finally, the Commissioner observes that the rights granted are not limited to ownership of the trees on the land at the time of entry into the Forest Property Agreements. The rights include ownership of future trees as they come into existence on the land, and the right to go onto the land for accessing the trees. The rights therefore give CCo a right in the products of the land, not just trees which happen to be on the land at the time of the Forest Property Agreements, and access to the land for the purposes of obtaining these products. These rights are characteristic of a profit à prendre. 27. Accordingly, it is the Commissioner’s view that rights given to CCo by its Forest Property Agreements constitute incorporeal hereditaments and therefore real property for purposes of Division 855 of the ITAA 1997. CCo ’s trees are a corporeal hereditament 28. Alternatively, the Commissioner considers that CCo’s interests under the Forest Property Agreements constitute a corporeal hereditament and therefore real property, for the purposes of Division 855 of the ITAA 1997. 29. At common law, it is possible to separate the ownership of a corporeal hereditament on land from the underlying land. In relation to trees being separately owned from the owner of the land, Peter Butt’s Land Law (6 th Edition) made the following statement at p51: Again, it has long been held that a person can own trees growing on another’s land: that is, ownership of the trees can be separate from ownership of the land on which they stand. 30. The common law treats such tree ownership as an interest in real property. 31. In the Canadian case of National Trust Company Ltd v William Millar & Dickson 1912 Can LII 20 (‘ National Trust’ ) the Ontario Mining Act 1897 stated that even if Crown lands were sold or granted as mining lands, the pine trees on such land were to remain the property of the Crown. In National Trust , Duff J stated at CanLII 20 at p57: “The pine trees shall” the Act says “continue to be the property of Her Majesty”. The effect of such a provision seems to be that the ownership of the trees is severed from the ownership of the soil, but the quality of the ownership of the trees is not in any degree altered by the grant of the soil. The timber remains vested in the Crown as a corporeal hereditament. A standing tree, (as Chitty L J said in Lavery v Purcell): is just as much a hereditament in point of law as a house which is standing on the land and just as much so as the mines which are underneath. I only speak now as a real property lawyer. I am bound of course by English law to say that a tree is not a chattel [emphasis added]. 32. Duff J later described the tree ownership interest as “a determinable fee” at CanLII20 at p58: The principle… seems to be stated by Mr Leake with his usual accuracy in his book on the Uses and Profits of Land , at p30:- A grant, or an exception from a grant, of the trees growing in certain land, creates a property in the trees, separate from the property in the soil; but with the right of having them grow and subsist upon it. An estate of inheritance in a tree may thus be created; which would be technically described as a fee conditional upon the life of the tree . The authorities cited by Mr Challis, at p256 of his book on the Law of Real Property , establish beyond question that a determinable fee may be validly limited to a man and his heirs “as long as such a tree shall grow”, or “as long as such a tree stands ;” and the reason why such limitations are good is given in Liford’s Case , at p49, and is there said to be because a man may have an inheritance in the tree itself [emphasis added]. 33. A determinable fee was described in Peter Butt’s Land Law (2 nd Edition) at p118 as: A determinable fee simple is a fee simple which will automatically come to an end on the occurrence of a specified event which may never occur. 34. While Duff’s J judgment in National Trust was a dissenting judgment, his reasoning was later accepted unanimously by the Privy Council when this case went on appeal as Eastern Construction Co v National Trust Co (1914) AC 197 (‘ Eastern Construction ’). This was evident in the joint judgment the Privy Council delivered by Lord Atkinson, which stated at AC 208: … it is expressly enacted that patents for all Crown lands sold or granted shall contain a reservation of all pine trees standing or being thereon, and that these pine trees shall continue to be the property of Her Majesty. Duff J, in his able and convincing judgment, cited three following cases, namely Herlakenden’s Case , in which it was held that if trees be excepted in a feoffment to a man and his heirs, the trees in property are divided from the land, though in fact they remain annexed to it, and that if one should cut them down and carry them away it would not be felony. 35. The view expressed by Duff J has also been endorsed more recently by Canadian courts: Scott Worldwide Inc v McDonell Estate , 1997 CanLII 607 (NS CA); John Austin & Sons Ltd v Smith (1982) 35 OR (2d) 272(‘ John Austin ’). In John Austin, the Ontario Court of Appeal unanimously stated at 35 OR 281: Two well-established principles of law provide the appropriate legal background for the determination of this case. The first is that a fee simple estate may exist in trees. It is an estate of inheritance. In Washburn on Real Property (1860), the following appears at p4: But if the owner of land grants the trees growing thereon to another and his heirs, with liberty to cut and carry them away at his pleasure, forever, the grantee acquires an estate in fee in the trees, with an interest in the soil sufficient for their growth, while the fee in the soil itself remains in the grantor. 36. It should be noted that Eastern Construction was later quoted by the High Court to support its view in Commonwealth v New South Wales (1923) 33 CLR 1 (‘ Commonwealth ’). In Commonwealth the Federal Government compulsorily acquired certain lands in NSW under the Land Acquisition Act 1906 (‘LAA’). Some of the relevant land had been alienated in fee by the NSW Government to other parties but the NSW government had kept ownership rights to certain minerals, metals and timber on this land. 37. In Commonwealth , the NSW government alleged that its separate ownership rights to certain minerals, metals and timber was not ‘land’ as defined in the LAA. ‘Land’ was defined in the LAA as: Any estate or interest in land (legal or equitable), and any easement, right, power, or privilege over or in connection with land and also Crown land. 38. The NSW government’s view was rejected by the majority of the High Court. 39. In ruling that the timber, minerals and metals were part of the land, Isaacs J quoted the Privy Council case of Eastern Construction as support for this view and stated at CLR 34: On the other hand, trees growing on land are, according to the received legal definition of “land”, regarded as part of it. But if reserved in the grant of the land “the trees in property are divided from the land, though in fact they remain annexed to it” ( Herlakenden’ Case ), quoted by Lord Atkinson from the Privy Council in Eastern Construction Co v National Trust . It is precisely this principle that is embodied in the case of Attorney General of British Columbia v Attorney General of Canada , although the difference of subject matter and the relevant rules of law require converse application, and a different result. The words that have been quoted from that case, it will be observed, only say that gold and silver mines are not regarded as partes soli or as incidents of the land in which they are found “until” they have been aptly severed from the title of the Crown, and adds Lord Watson, “vested in the subject”. The words used plainly contemplate that, when they are so severed and vested in a subject, they do form partes soli. 40. The above view is also supported by the Privy Council case of Kauri Timber Company Ltd v Commissioner of Taxes [1913] AC 771(‘ Kauri’ ). In Kauri , the Kauri Timber Company ran a business of cutting, milling and selling timber. As part of its business, the company bought freehold and leasehold interests in land. It also bought rights to timber with the right to remove the timber within a stated period. 41. The Privy Council held that the rights to timber gave the company an interest in the land itself. At AC 776 Lord Shaw (representing the rest of the Privy Council) stated: So long as the timber, at the option of the company, remained on the soil, it derived its sustenance and nutriment from it. The additional growths became ipso jure the property of the company. All rights of possession necessary for working the business of cutting or even for preserving uninjured the standing and growing stock of timber were ceded under the lease. All this, together with the business facilities for removal and sale, was granted to the company, which became thereby invested with the possession of, and an interest in, the land. 42. Apart from the above, the taxpayer in their private ruling application dated 1 November 2017 made the admission at points 5.3 and 5.4 that trees form part of real property under common law, saying: 5.3 It is well established that trees growing on land are legally part of the land. As stated in Swinburn v Ainslie (1885) 30 Ch D 485 (which has since been cited by the High Court of Australia, e.g. in Northern Territory v Collins and Another (2008) 249 ALR 621, at 648: The broad proposition is this-and it presents itself in this case in the most naked form- if the trees in question are attached to and form part of the soil, they are realty; if they are severed from the soil they are personalty. I for my own part am unable to frame words which will express this proposition more clearly that the familiar maxim “ quicquid plantatur solo, solo cedit .” 5.4 Accordingly, CCo’s Forest Vegetation is prima facie part of the land unless it is considered to have been severed from the land. 43. From the above, it follows that it is possible to separate ownership interests in parts of land, including trees. These separate ownership rights are corporeal hereditaments. Based on this, it is the Commissioner’s view that CCo’s tree ownership interests under the Forest Property Agreements, constitute a corporeal hereditament and therefore real property. Taxpayer contention that CCo’s Forest Property Agreements are not real property due to the statutory severance provision under the Forest Property Act 2000 (SA) 44. Subsection 5(2) of the South Australian Forest Property Act 2000 (‘FPA’) states: A forest property (vegetation) agreement separates ownership of forest vegetation from ownership of the land on which the vegetation is growing, or is to be grown, by transferring ownership of the forest vegetation from the owner of the land (the transferor) to another (the transferee) without severance of the vegetation from the land. 45. The taxpayer contends that subsection 5(2) of the FPA is a statutory severance provision which severs CCo’s forestry interests from being part of the land and therefore CCo’s Forest Property Agreements should not be viewed as an interest in real property. 46. As support for its view, the taxpayer quoted the following statement made by the High Court in Commissioner of Main Roads v North Shore Gas Co Ltd (‘North Shore Gas’) (1967) 120 CLR 118 at 127: Differences of opinion from time to time have arisen concerning the true meaning and operation of the principle expressed in the maxim quicquid solo plantatur, solo cedit (see e.g. Wade v Hall [1] , but, primarily, it is applied to determine the right of the owner of land to things affixed to or embedded in the soil. Whatever is fixed to the freehold is said to become part of it and is subjected to the same rights of property as the land itself (Woodfall’s , Landlord and Tenant , 24 th ed. (1939), p749). The presumption is said to be rebuttable and, it seems to us, it must be so when a statute empowers someone other than the owner of land to affix to or embed things in the soil and yet retain ownership of the things so affixed or embedded. 47. The taxpayer also quoted the statutory severance cases of Anthony v Commonwealth of Australia (1973) 29 LGRA 61 (‘ Anthony ’) (where telephone lines were not deemed part of the land) and Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351; [2004] VSCA 10 (where certain fixtures were deemed chattels) as support for their view that OFO forestry interests were not land. The taxpayer argued that while the above cases did not involve Division 855 of the ITAA 1997, the same principles should apply to the facts in CCo’s case. 48. As further support for the above view, the taxpayer also quoted PBR Authorisation Number 1012811534095 where the Ruling held that certain wind farm assets were not real property for the purposes of Division 855, but chattels. 49. Based on the above, the taxpayer argues that the presumption to the common law maxim quicquid plantatur solo, solo cedit should be rebutted and that OFO’s forestry interests “ does not form part of the relevant land, but is instead a chattel ”. 50. The taxpayer also received a legal opinion (‘Opinion’) which takes the view that the Forest Property Agreements do not confer an interest in real property. The Opinion says that the interest the Forest Property Agreements confer is sui generis , which are not real property. | Detailed Reasoning - Commissioner’s response to taxpayer arguments: 51. In the Commissioner’s view, contrary to the taxpayer’s position, subsection 5(2) of the FPA does not have the effect of deeming the Forest Vegetation to be a chattel or giving rise to a sui generis non land interest, rather than a real property interest. 52. The Commissioner contends that the purpose of subsection 5(2) of the FPA is to create separate real property ownership interests in the “forest vegetation” (ie the trees), separate from the ownership interest of the land, “ without severance of the vegetation from the land.” In the Commissioner’s view, subsection 5(2) creates a real property interest in the forest vegetation that is separate from ownership of the land. It does not sever the trees from being a real property interest. 53. The Commissioner’s view that separate forest vegetation ownership interests are a form of real property is supported by both the statutory provisions and context of the FPA and RPA. Statutory Context of FPA & RPA 54. The context of the FPA was to provide statutory protection for parties who had separate ownership interests in trees grown on another party’s land. The FPA allows for the registration of forest property agreements on land title under the Real Property Act 1886 (SA) (‘RPA’). The purpose of the passage of the FPA was explained by the relevant minister in the Second Reading Speech to the Forest Property Bill 2000 (SA) as follows (South Australia, Parliamentary Debates, House of Assembly, 30 March 2000, 709 (Michael Armitage)): I am pleased to bring before the House a bill which provides improved investment security and support for the expansion of private forestry in South Australia. Although South Australia already has a well-established private forestry sector, these measures seek to increase investment and expansion opportunities by addressing known impediments to plantation forestry development and investment security. …The lack of a sound legal mechanism for clarifying ownership rights in relation to trees, in particular those trees grown on another person’s land, has long been identified as a major impediment to private forestry expansion, especially farm forestry. Under common law, trees are regarded as part of the land to which they are attached and like other land fixtures, belong to the landowner. Unfortunately, this can often present a difficulty for investors growing trees on another person’s land, especially in terms of preserving separate ownership rights. To date investors have relied on the use of leasehold and other contractual arrangements in order to secure separate tree ownership rights. While these common law arrangements have been used, they all have certain limitations, including limited flexibility and often inadequate security for the tree grower. Having regard to the inherent limitations of these common law options, South Australia’a approach to this issue has been to develop specific legislation to provide a safe and secure investment environment, without burdening either the landowner or potential investor with unnecessary costs or restrictions. The first part of the Bill allows for the secure ownership of trees separate from land ownership through the creation of an agreement between the land owner and tree owner known as a ‘ forest property agreement’ . Under such an agreement, individual ownership rights are clearly indentified and separated, while the agreement is also capable of being noted as a form of covenant on the actual land Title. Such a mechanism is considered important in terms of enhanced investment security , while it will also provide greater flexibility and options for both investors and landowners, including the opportunity for land and trees to be traded independently [emphasis added]. 55. The Second Reading Speech for the Forest Property Bill 2000 , House of Assembly, 30 March 2000, also made clear that registered forest property agreements were to be included in the definition of “easement” in the Real Property Act 1886 . This was stated on p710 in Minister Armitage’s speech: Amendment of Real Property Act 1886 The amendment defines easement to include a profit à prendre so as to make clear the registration procedures that are to apply in relation to an interest of that class, such as a forest property agreement. 56. Treating the rights created under forest property agreements as real property interests would further the purpose of giving investors security. By their nature, interests in land are secure because land is the most enduring and permanent form of property. Such interests are also secure because an advanced system of remedies exists to protect these interests at common law. For example, an action for abatement can be brought to protect a profit à prendre or an easement. This allows owners of such an interest to do what is reasonable to abate any obstruction to the exercise of the relevant rights (eg Roberts v Rose (1865) LR 1 Ex 82). 57. The above context of the FPA’s introduction supports the Commissioner’s view that rights under forest property agreements are intended to be real property interests. This is supported by the fact that registered forest property agreements are able to be registered on the land title and are also treated as as a profit à prendre and deemed easement under the RPA. Case law and private ruling quoted as support for taxpayer view 58. In the Commissioner’s view, the taxpayer’s reliance on statutory severance cases such as North Shore Gas , Vopak and Anthony does not support their view. 59. It should also be noted that cases such as North Shore Gas , Vopak , etc did not involve forestry interests in the context of section 855-20 of the ITAA 1997, but involved different types of rights and interests. Generally, those cases were concerned with the status of objects which had become affixed to land. In each, the primary question was whether the objects had become part of the land. In none were the ownership rights over a product of the land which had never been separated from the land including something that will grow on the land. There are also other case-specific grounds of distinction. 60. In the North Shore Gas Case , the property rights in question were those of a public utility company. The items of property concerned were pipes and similar objects in public and private land. In that case, Barwick CJ, McTiernan, Kitto and Taylor J at 127 quoted a passage of Evershed J in Newcastle-Under-Lyme Corporation v Wolstanton (1947) Ch 92 at 103 -101. Evershed J said that rights granted under statute to undertakers of a statutory purpose should be limited to those necessary to achieve the statute’s purpose. Newcastle-Under-Lyme likewise concerned rights granted for the provision of public utilities, in that case being gas mains and pipes under streets. 61. This is different to a statute like the FPA which permits owners of land to deal with interests in their land separately from the underlying land, and which is designed to give security to those parties which take interests from those owners. The FPA does not concern giving rights to any entity undertaking a public purpose, and the presumption the taxpayer relies on does not apply. In the Commissioner’s view, the context and wording of the FPA supports the view that owners of forest vegetation under Forest Property Agreements have a real property interest. 62. Anthony likewise concerned the vesting of ownership in an entity performing a public service, in that case the Postmaster-General. The same reasoning for distinguishing that case applies as that which relates to the North Shore Gas Case . Vopak concerned the ownership of buildings, fences, engines, machinery and other fixtures erected by a tenant during the term of the tenant’s lease. It permitted tenants a right to remove those objects during the term of the tenancy, but not afterwards. This is a statutory codification of the common law right a tenant has to remove fixtures he or she erects during the term of his or her occupation of leased premises. But for the common law doctrine of tenant’s fixtures or its statutory variants, fixtures erected by a tenant become part of the land. This is inequitable because it deprives a tenant who erected the fixtures for their own use for a limited period of ownership of those fixtures. That provides a justification for allowing the removal of the fixtures, or, in the case of the statute in Vopak , preventing objects from becoming fixtures. 63. This is not a problem which applies to the FPA. Because of the FPA, forest vegetation owners’ interests are protected. The mechanism by which this is accomplished is to give owners the ability to register their interest on land title. It should also be noted that the FPA expressly states that the owners registered interest on the land title is deemed to be a profit à prendre (and deemed easement via section 3 of the RPA). Maintaining separation between land and forestry vegetation was therefore never the intention of the FPA. 64. Another pertinent point is whether an Act or agreement has specifically named or described the rights it creates. The relevance of this point was stated in the High Court case of Asciano Services Pty Ltd v Chief Commissioner of State Revenue (NSW) 235 CLR 602 (‘ Asciano ’). In Asciano , the High Court referred to Evershed’s J judgment in Newcastle-under-Lyme Corporation v Wolstanton [1947] Ch 92 stating at CLR 614: Whilst it was competent for Parliament to confer or create interests in land, the absence of a reference in the statute to incidents normally associated with them suggested that the creation of such interests was not intended. 65. In regards to the same point, the High Court in Asciano also referred to Windeyer J’s judgment in North Shore Gas at CLR 614: Acknowledging that Parliament can confer rights and call them what it pleases, his Honour said: “But it need not give them any name. If it does not, there is no need for lawyers to insist on finding an old name for them, when they are in fact sui generis.” 66. Windeyer J also made the point in North Shore Gas at CLR 134, that on the facts in that case: The North Shore Gas Act of 1875 gave no name to the rights it created. 67. In the Commissioner’s view, the facts in the current case involving OFO’s Forest Property Agreements can be clearly distinguished from those cases mentioned by the taxpayer such as North Shore Gas , etc. Unlike in North Shore Gas , the FPA and RPA have clearly given names to describe the Forest Property Agreement rights created - as both a profit à prendre and deemed easement. These rights are able to be registered on title as well. This indicates the intention of the South Australian Parliament to create real property interests. Taxpayer reliance on private ruling 68. In relation to the private ruling quoted, it should be noted that private rulings are published for reasons of transparency. However due to the privacy and secrecy provisions within the tax law, often material facts and circumstances will need to be removed from the published version to protect the identity of the Ruling recipient. Because of this, such published versions cannot be relied upon as ‘authority’ for the Commissioner’s view. Therefore, in relation to the published ruling quoted by the taxpayer, it cannot be assumed that just because wind farm assets were held to be a chattel in that ruling that this will transpose to the different factual situation and context of forestry interests. For the reasons explained in this Ruling, forestry interests are a form of real property - both under common law and the FPA. Registration of forest property agreements under the FPA & RPA 69. The major mechanism by which the FPA seeks to include forest property agreements as real property interests is by permitting registration of forest property agreements on the title of land with the relevant legal protections accorded to registered land interests. This is achieved by sections 3, 7, 9, 11 and 12 of the FPA. 70. Section 12 of the FPA states: Subject to this Part, the provisions of a relevant registration law apply to, and in relation to, the registration of a forest property agreement or a transaction affecting a forest property agreement as if a forest property agreement were a profit à prendre. 71. Section 3 of the definition of the term “easement” in the RPA was deliberately amended by the FPA to include the term profit á prendre within this term. Therefore, any registered forest property agreement would be an easement for the purposes of both the FPA and RPA. 72. Easements can be included on certificates of title and like profit á prendre, are ‘real property’ under common law as incorporeal hereditaments. 73. Section 7 of the FPA provides that registration gives priority to interests under forest property agreements over holders of encumbrances at the time of registration where the encumbrance holders consent (or where the consent was dispensed with by a Court, if the encumbrance holders consent was unreasonably withheld in accordance with subsection 8(3) of the FPA). 74. It also gives priority over the holders of encumbrances over the land registered after a forest property agreement, and over the holders of mortgages or charges over forest vegetation registered after the forest property agreement. Additionally, forest property agreements have priority over all unregistered interests. Section 9 of the FPA also gives registered forest property agreements binding and enforceable rights against parties of other ownership interests in the same land (and their successors in title). Commissioner’s view - registration of forest property agreements under the RPA 75. In the Commissioner’s view, the fact that forest property agreements are able to be a registered interest on title, with protections that follow from that, indicates the FPA has the effect of creating rights in land. This is inconsistent with the taxpayer’s position that Forest Property Agreements confer an interest that is either a chattel or sui generis non land interest. Even the taxpayer’s own Opinion acknowledged that: It would indeed be unusual for interests that are not real property to be registrable under Torrens legislation. 76. The taxpayer’s own Opinion also acknowledged the possibility that OFO’s forestry interests constituted a real property interest, while still arguing “on balance” the possibility it was some form of sui generis non land interest. 77. The Commissioner disagrees with the taxpayer claim that alleged ‘non land interests’ are capable of being registered under the RPA. In the Commissioner’s view, only interests in or representing “land” (as defined in section 3 of the RPA) can be registered under the RPA. The term “land” is defined in section 3 of the RPA as including: All tenements and hereditaments corporeal and incorporeal of every kind and description, and every estate and interest in land. 78. The Commissioner’s view is supported by section 47 of the RPA (titled Registration of title in the Register Book) which makes clear that it can only register land interests when its states: This Division applies to, and in relation to, the registration of title to land in the Register Book [emphasis added]. 79. It should also be noted that CCo having a registered interest in land under the RPA would also be a “registered proprietor” as defined in section 3 of the RPA as: a person appearing by the Register Book to be the proprietor of an estate or interest in land registered under any of the Real Property Acts [emphasis added]. 80. At a phone conference, the taxpayer’s agent (Mr X) queried the above view that only land interests were capable of being registered under the RPA. Mr X argued that caveats are able to be registered on title and are not land interests. While it is correct that caveats are not land interests as such, caveats are lodged to represent a party claiming to have an estate or interest in land which they wish to protect via the caveat. This is supported by Peter Butt’s Land Law (Second Edition) at p500 -501: …a caveat may be lodged to protect any proprietary interest in Torrens title land. The claim must be to an interest in land : a caveat cannot, for example, be lodged to protect a mere contractual or personal right, or a right based on statute not also conferring an interest in land. 81. The above is borne out by the caveat provisions in the RPA. Section 80-F in the RPA (titled ‘Caveats’) states: A person claiming an estate or interest in the land to which an application under this Part relates, may at any time before the application is granted, lodge a caveat with the Registrar-General forbidding the granting of the application. 82. Sections 39 and 191 of the RPA which also deals with caveats, also has similar wording that a caveat can only be lodged by a party claiming to have an estate or interest in land. Accordingly, the Commissioner does not accept the taxpayer’s argument that the RPA permits registration unconnected with an interest in land. 83. Another argument the Opinion stated was that if a ‘non land interest’ was registered under the RPA, this would not “ fracture the indefeasibility that protects ‘normal’ registered interests in land ”. The Opinion contended that the RPA “ itself contemplates this possibility ” by stating that: ● Under s51A a certificate of title is conclusive evidence of title to ‘land’ and to any other estate or interest in ‘land’ that it records. If non land interests were in fact to be registered, conclusiveness would simply not extend to them, despite them being registered; and ● Under s69, the title of a registered proprietor of ‘land’ is indefeasible. ‘Land’ includes all estates or interests in land (s3(1)). If non-land interests were to be registered, indefeasibility would simply not extend to them. 84. The Commissioner disagrees with the above taxpayer view. For the reasons previously explained, it is the Commissioner’s view that only interests in or representing land (as defined in section 3 of the RPA) are capable of being registered under the RPA. Also the Opinion’s contention that registered ‘non land interests’ would not affect or “ fracture ” the indefeasibility “ that protects ‘normal’ registered interests in land ” is contrary to the rights granted to owners of registered Forest Property Agreements under the FPA. It is evident that subsection 7(3) and section 9 of the FPA clearly gives owners of registered Forest Property Agreements protection and an indefeasible and enforceable interest, as against other registered and unregistered “owners” who have interests in the same land. 85. If it was the intention of Parliament that sections 51A and 69 of the RPA would not “extend” or apply to the registration of Forest Property Agreements as alleged “non land interests”- it is submitted this would defeat the very purpose of the FPA and the accompanying amendments to section 3 of the RPA- which was to give certainty and protection of forest ownership interests via registration of these Forest Property Agreements as land interests under the RPA. It should also be noted that section 69 of the RPA refers to the “ title of every registered proprietor ”. As mentioned above, the term “registered proprietor” is defined in section 3 of the RPA as “ a person appearing by the Register Book to be the proprietor of an estate or interest in land registered under any of the Real Property Acts”. 86. Accordingly for the above reasons, the Commissioner does not agree with the taxpayer’s view that ‘non land interests’ are capable of being registered under the RPA. Even if it was held that ‘non land interests’ were capable of registration under the RPA (something the Commissioner doubts), it is contended that the rights accorded to registered Forest Property Agreements as a profit à prendre and deemed easement clearly demonstrates the statutory intention that these interests are “land” interests as defined in section 3 of the RPA. Commissioner’s view- re taxpayer opinion on section 12 FPA 87. The taxpayer’s Opinion argues that section 12 of the FPA allows registration of Forest Property Agreements under the RPA for limited purposes only, saying registration applies: ● “ only to the application of the provisions of a registration law (here the RPA) and not more generally ”; ● “ only to or in relation to the registration of a forest property agreement (or a transaction affecting such an agreement) and not more generally ”; ● “ for these limited purposes only ” a Forestry Agreement is deemed to be a profit à prendre - “ something which it is not ”. 88. It is submitted the Opinion attempts to limit the ambit of section 12 in a way contrary to both the wording and purpose of the provision and the broader context of the amendments made to both the FPA and RPA regarding the registration of forest property agreements. The Opinion is effectively reading words into section 12 that are not there (i.e the words “ and not more generally ” and “ for these limited purposes only ”) while attempting to unduly limit the ambit of the words that are there. 89. In the Commissioner’s view, the purpose and effect of section 12 is evident; it is subject to Part 2 of the FPA, to allow owners of registered forest property agreements to command all the rights and protections granted to registered owners of interests in land under the RPA. This is evident in section 12 stating that all provisions of a relevant registration law and registration apply to registered forest property agreements as if it were a profit à prendre. 90. The Opinion also states that section 12 deems the forest property agreement to be a profit à prendre- “ something which it is not .” This infers that CCo’s Forest Property Agreements would not constitute a common law profit à prendre and is only deemed to be so, as a statutory fiction under section 12. For the reasons stated in paragraphs 8 to 27 the Commissioner disagrees with this view. 91. It should be noted that just because words such as “as if” or “deem” are used in legislation, that does not mean that a statutory fiction is being created (as inferred by the Opinion’s quote of Cave J in R v Norfolk County Council (1891) 60 LJ QB 379). This point was addressed by Windeyer J in the High Court case of Hunter Douglas Australia Pt Ltd v Perma Blinds (1970) 122 CLR 49 where His Honour said at 65: In Muller v Dalgety & Co Ltd , Griffiths CJ said that “deemed” is commonly used “for the purpose of creating… a ‘statutory fiction’…that is, for the purpose of extending the meaning of some term to a subject matter which it does not properly designate. …But that the word can be used in that way and for that purpose does not mean that whenever it is used it has that effect. After all, to deem means simply to judge or reach a conclusion about something. …The words “deem” and “deemed” when used in a statute thus simply state the effect or meaning which some matter or thing has- the way in which it is to be adjudged. This need not import artificiality or fiction. It may be simply the statement of an indisputable conclusion, as if for example one were to say that on attaining the age of twenty-one years a man is deemed to be of full age and no longer an infant. 92. The above point was also discussed by Gleeson CJ in the New South Wales Court of Appeal case of Macquarie Bank Ltd v Fociri Pty Ltd (1992) 27 NSWLR 203, where his Honour stated at 207: It commonly happens that, because legislation contains a deeming provision, there may arise a question of construction which turns, not so much upon the meaning of the word “deemed”, as upon a view concerning the statutory purpose for which it has been used. Such a question may turn, for example, upon whether the legislature is intending to create a statutory fiction or whether, on the other hand, it is merely making a provision for the removal of doubt which might otherwise exist. 93. In the Commissioner’s view, section 12 of the FPA is merely providing statutory confirmation of the common law (for the avoidance of doubt) that registered forest property agreements constitutes a profit à prendre, so as to allow these interests to command all the statutory protections and rights allowed a registered interest in land. This is supported by the statutory context and purpose of the FPA to give owners of forest property agreements protection by granting them registered interests in land. Taxpayer view that Forest Property (Carbon Rights) Amendment Act 2006 effectively changed the nature of the rights under FPA 94. The Opinion also infers that amendments under the Forest Property (Carbon Rights) Amendment Act 2006 effectively altered the rights of registered forest property agreements under the FPA. The Opinion noted that paragraph 7(1)(c) in the original FPA expressly stated that forest property agreements were “ in the nature of a profit à prendre ” and that this is not stated in the current FPA. The taxpayer argues that the deletion of the original paragraph 7(1)(c) raises questions how far the deeming provision in section 12 can be relied upon. It argues that there is an “important distinction” between saying that an interest is “ in the nature of a profit à prendre ” under the former paragraph 7(1)(c) and that “ for limited purposes ” it is treated “ as if it were a profit à prendre ” under the current section 12 of the FPA. The Opinion then states that “on balance” section 12 does not create an interest in real property. 95. The Opinion also attempts to downplay the significance that the section 3 definition of “easement” in the RPA was specifically amended to include profit à prendre. The Opinion attempts to infer that this amendment to the term easement in section 3 of the RPA no longer applies or has relevance because “the former iteration of the Act has been superseded by the present Act, which regulates even forest property agreements created before the present Act .” 96. The taxpayer’s position is effectively arguing that the deletion of former paragraph 7(1)(c) in the FPA has substantially changed the rights of Forest Property Agreements under the FPA, from being in the nature of a profit à prendre to either being a chattel interest or some form of ‘non land interest’. The taxpayer’s agent (Mr X) stated at a phone conference that if former paragraph 7(1)(c) had not been deleted, it was unlikely his clients would have lodged their Ruling application arguing that CCo’s forestry interests were not real property. 97. The Commissioner disagrees with the taxpayer’s view for the reasons explained below. It should be noted that section 15 in the original FPA (which was the relevant provision for registering forest property agreements under the RPA) used identical wording as the current section 12 in the FPA, in stating that the provision was to apply “as if a forest property agreement were a profit à prendre.” It should also be noted that the Forest Property (Carbon Rights) Amendment Act 2006 which inserted the new amendments to the current FPA, deleted and replaced the entire Part 2 of the original Act (which section 7 was just one section); it did not specifically eliminate the former paragraph 7(1)(c) in isolation. 98. In the Commissioner’s view, the purpose of the Forest Property (Carbon Rights) Amendment Act 2006, was only to allow the creation of a new and separate property right- carbon sequestration rights, which could be separated from ownership interests in the forest vegetation and ownership in the land. The Amendment Act then allowed these carbon rights to be encapsulated under its own forest property agreement through section 5 of the FPA. Apart from the above, the Commissioner contends that the Forest Property (Carbon Rights) Amendment Act 2006 was never meant to change the nature of the rights granted to owners of registered forest property (vegetation) agreements under the FPA. 99. In the Commissioner’s view, the fact that the registration wording in the former section 15 is identical to the current section 12 indicates that the meaning of Parliament in deeming registered forest property agreements as a profit à prendre for the purposes of the RPA has not changed. It reflects a statutory intention that registered Forest Property Agreements should be treated as interests in land. 100. In the Commissioner’s view, the fact that there were later amendments to the FPA does not in any way affect an amendment done to section 3 of the RPA re the definition of “easement” and the deliberate Parliamentary intention to deem registered Forest Property Agreements under the FPA as a deemed “easement” and therefore an interest in real property and thereby to extend statutory protection to FPA interests equivalent to that given to other real property interests. To adopt the taxpayer’s view would be to subvert the statutory purpose of the FPA and South Australian Parliament’s intention to provide protection and support for forestry growers. 101. If the change made to former paragraph 7(1)(c) had the effect argued for by the taxpayer, it would mean that a fundamental and radical change of rights granted to owners of Forest Property Agreements under the FPA has occurred. Under the taxpayer’s view, the FPA prior to the Forest Property (Carbon Rights) Amendment Act 2006, granted owners of registered Forest Property Agreements recognised real property interests as a profits à prendre and deemed easement. After the Forest Property (Carbon Rights) Amendment Act 2006, the real property rights under former paragraph 7(1)(c) would be transformed into interests in chattels or into a sui generis ‘non land’ right. This would either substantially alter, as in the case of the change making the interests in trees into chattels, or significantly reduce, as in the case of changing rights from recognised property rights to sui generis ‘non land’ rights under the FPA. 102. The Commissioner also notes that interpreting the change made to paragraph 7(1)(c) as altering the nature of the rights of those taking interests under forest property agreements is contrary to canons of statutory interpretation. Specifically, it contradicts the presumption that legislation is not intended to affect existing rights and interests. This presumption was stated by French CJ in the High Court case of R & R Fazzolari Pty Ltd v Parramatta City Council (2009) (‘ Fazzolari ’) 237 CLR 603 at 619: The attribution by Blackstone, of caution to the legislature in exercising its power over private property, is reflected in what has been called a presumption, in the interpretation of statues, against an intention to interfere with vested property rights. It was expressed by Griffith CJ in Clissold v Perry , a land resumption case, thus: “In considering this matter it is necessary to bear in mind that it is a general rule to be followed in the construction of Statutes such as that with which we are now dealing, that they are not to be construed as interfering with vested interests unless that intention is manifest .” The presumption has been restated on more than one occasion in this Court. …The terminology of “presumption” is linked to that of “legislative intention”. As a practical matter it means that, where a statute is capable of more than one construction, that construction will be chosen which interferes least with private property rights [emphasis added]. 103. The above presumption was also confirmed in the High Court case of CJ Burland Pty Ltd v Metropolitan Meat Industry Board (1968) 120 CLR 400 and the Federal Court case of University of Western Australia (No 20) (2008) 246 ALR 603 at 634. 104. It should be noted that there is no indication anywhere either in the Forest Property (Carbon Rights) Amendment Act 2006 or its Second Reading Speeches that the South Australian Parliament ever intended such a radical change in rights for owners of Forest Property Agreements or forestry interests under the FPA, to convert these interests from real property interests to chattels or some form of ‘non land interest’. The Commissioner contends that if such a radical change was intended by the South Australian Parliament, this would have been expressly mentioned either in the Amending Act or the Second Reading Speeches or both. 105. In the Commissioner’s view, the taxpayer’s contention that such a change in rights occurred, is again contrary to the very statutory purpose and context of the FPA which was to give proper protection and real property rights to Forest Property Agreement owners. It is also contrary to the presumption principle stated in the High Court case of Fazzolari and other cases mentioned above. 106. Absent a clear indication that the Forest Property (Carbon Rights) Amendment Act 2006 intended such a change of rights for owners of registered Forest Property Agreements, the Commissioner considers that forest vegetation interests under the FPA should continue to be recognised as having the same nature as before the changes. 107. The Commissioner also observes that if the statute made trees into chattels, the FPA provisions regarding priority would be incoherent. Chattels are not part of land. Title to the land on which a chattel sits does not give any interest in the chattel. If the trees were chattels, there could be no question of the priority of other interests in land over ownership rights in the trees. Section 7 is therefore inconsistent with severance of the trees from the land, to the extent that the taxpayer argues that the ownership of the trees is protected by the registration of title. 108. The absence of a real property interest is also incongruous with the fact that forest property agreements give ownership of not just presently existing trees but also trees which will grow on land in the future. 109. The Commissioner finally notes that section 4 of the FPA states that the FPA is to be read subject to the law of the Commonwealth and the State relating to native title. State and federal native title law, as reflected in the Native Title (South Australia) Act 1994 (SA) and the Native Title Act 1993 , only recognises native title in respect of land and similar interests: Native Title (South Australia) Act 1994 (SA) s 4(1); Native Title Act 1993 , s 223(1). If the primary interests created by the FPA were not land interests, it is not obvious what rights would be subject to native title. This also suggests that trees affected by forest property agreements are not chattels. 110. The relevance of the registration issue and the view that the FPA clearly intended that registered Forest Property Agreements be treated as real property interests is also supported by the High Court case of TEC Desert Pty Ltd & Others v Commissioner of State Revenue 241 CLR 576 (‘ TEC’). In TEC the High Court unanimously ruled that the license obligations the purchasers had to use certain plant on land they did not own, did not amount to an estate or interest in land. A key reason for this ruling was stated by the High Court at CLR 592: Those stipulations did not qualify the registered title of WMC under the Transfer of Land Act , being, at best, nothing more than personal equities of the kind recognised in the authorities upon the operation of the Torrens System. Accordingly, the Sale Agreement did not include an agreement by WMC to vest in TEC and AGL an estate or interest in the freehold land the site of the Kalgoorlie power station, within the meaning of s70(2) of the Stamp Act [emphasis added]. 111. In TEC , the High Court stated that as the license obligations “ did not qualify the registered title of WMC under the Transfer of Land Act ”, it did not amount to an interest or estate in land. This can be contrasted with the facts in this case where CCo’s Forest Property Agreements are registered interests on the title under the RPA . Also, CCo’s registered interests do qualify the registered title rights of other parties who have ownership interests in the same land. This is shown in both subsection 7(3) and section 9 of the FPA which gives registered Forestry Agreement owners priority and enforceable rights over other owners of interests in the same land. Taxpayer argument re section 223LB of the RPA 112. The Opinion also argues that if the Forest Property Agreements created real property rights this would mean the agreements were in breach of section 223LB of the RPA (on the view that Forest Property Agreements would not constitute a “whole allotment”). Subsection 223LB(1) states: A person must not grant, sell, transfer, convey, mortgage or encumber an estate or interest (except a right of way or other easement) in land (whether or not the land has been brought under the provisions of this Act) unless that land constitutes- (a) The whole of an allotment, or of a number of allotments [emphasis added]. 113. The taxpayer then argues that because subsection 223LB(1) is breached, this leads to CCo’s Forest Property Agreements being void under subsection 223LB(4). The taxpayer also contends that the express exception in subsection 223LB(1) regarding easements is not relevant, as in its view, the deemed profit à prendre under section 12 of the FPA is only relevant for the purposes of registration. Based on this view the taxpayer then contends that this would: strike at the very existence of forest property agreements, not merely at their registration, making them ineffective for all purposes. 114. In the Commissioner’s view, the above taxpayer argument proceeds on a false premise by dismissing and disregarding the express exception given in subsection 223LB(1) regarding easements (which a profit à prendre is deemed to be included in under section 3 of the RPA). The Commissioner does not accept the argument that the deeming of registered Forest Property Agreements to be a profit à prendre under section 12 is only for registration purposes and nothing else. To adopt such a view is not only contrary to the wording of the legislation in both the FPA and RPA it is, again, adopting a view contrary to the purpose behind the FPA, which was to give forestry owners legal certainty and protection by having registered land interests under the RPA. 115. To adopt the Opinion would by its own admission, mean that the very existence of forest property agreements would be “ ineffective for all purposes .” In the Commissioner’s view, the South Australian Parliament could not have intended such a legally implausible result. By interpreting and applying the easement exception in subsection 223LB(1) in accordance with its plain wording, Forest Property Agreements can be registered, sold, assigned, etc under the RPA with no issue of breaching section 223LB. In the Commissioner’s view this is what the South Australian Parliament intended and the correct way the provision should be interpreted. 116. It is only if the taxpayer’s argument as to the premise succeeds that the issue argued to exist arises. If the premise is not made out, then problems arising from section 223LB are in fact an indication that section 12 of the FPA applies for purposes other than mere registration. Alternate argument -If FPA deems CCo’s forestry interests to be a chattel or non land interest 117. If it is held that the views of the Commissioner expressed above are incorrect, and the FPA deems CCo’s forestry interests (under its Forest Property Agreements) to be a chattel or non land interest, the Commissioner considers as an alternate argument, that section 855-20 is intended to include these interests. 118. The Commissioner is of the view that, given the large number of property rights which now owe their origins to statute, ‘real property’ in tax legislation cannot simply be limited to its traditional definition. As trees, where they not be immediately cut down and removed, have always been regarded as forming part of real property, the Commissioner also considers that section 855-20 must include interests created by the Forest Property Agreements. This view is supported by the High Court’s comment in TEC , which have already been set out. As set out above, this statement is to the effect that the meaning of ‘real property’ when it appears in legislation granting rights or imposing obligations should not be assumed to be limited simply and exclusively to the technical meaning of the phrase. | Detailed Reasoning - Conclusion: 119. In the Opinion, it was argued that in accordance with the North Shore Gas case principle, the nature of CCo’s Forest Property Agreements had to be determined by what the “ Act says or assumes about the nature of trees that are the subject of a forest property agreement .” Based on this principle, it is the Commissioner’s view that the rights created under the FPA, RPA and Forest Property Agreements intend that Forest Property Agreements such as CCo’s should be real property interests. 120. In this respect, the Commissioner notes that the Opinion based its views on whether CCo’s Forest Property Agreements constituted real property only in the context of the FPA. It did not interpret or make any reference to whether CCo’s Forest Property Agreements constituted real property under the wording and context of section 855-20 of the ITAA 1997.