Significant Legal Cases 2014-15

Duties Act 2000 (the Act)

Consideration – “What moves the transfer”

Commissioner of State Revenue v Lend Lease Development Pty Ltd; Commissioner of State Revenue v Lend Lease IMT 2 [HP] Pty Ltd; Commissioner of State Revenue v Lend Lease Real Estate Investments Limited [2014] HCA 51

The Victorian Urban Development Authority (VicUrban) had transferred seven parcels of land in the Docklands area of Melbourne to the three taxpayers, collectively called “Lend Lease” (a parent company and two subsidiaries) between October 2006 and June 2010.

The Commissioner assessed duty on the value of the contractual promises in exchange for the land, and not the consideration for the value of the bare land transferred. Lend Lease objected to the assessments. The Commissioner disallowed the objections.

Lend Lease requested the Commissioner to treat the objections as appeals to the Supreme Court of Victoria. At first instance, the primary judge (Pagone J) dismissed the taxpayers’ appeals.

Lend Lease appealed to the Court of Appeal of the Supreme Court of Victoria. That Court (Warren CJ, Tate JA and Kyrou AJA) allowed each appeal.

By special leave granted on 15 August 2014, the Commissioner appealed to the High Court of Australia.

The appeals to the High Court turned on one statutory question posed by s20(1)(A) of the Act: What was the consideration for the dutiable transaction (being the amount of a monetary consideration or the value of a non-monetary consideration)?

The High Court found unanimously in favour of the Commissioner. The High Court allowed all of the Commissioner’s appeals (eight in total) with costs.

The High Court applied the case of Dick Smith Electronics (which considered the issue of consideration in the context of a transfer of marketable securities). It concluded at paragraph [50] that the consideration which moved the transfer by VicUrban to Lend Lease of each stage was Lend Lease’s performance of the several promises recorded in the 2001 Development Agreement (or that agreement as later varied and supplemented), in consequence of which VicUrban would receive the total of the several amounts set out in the applicable agreement.

It was only in return for the promised payment of that total sum, by the various steps recorded in the applicable agreement, that VicUrban was willing to transfer to Lend Lease the land comprising the relevant stage.

 

Transfers from trusts – exemptions – dutiable value

White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77

Three properties were held by the trustees of five testamentary trusts as tenants in common. The trustees transferred the properties to the taxpayer pursuant to a partnership agreement. The interests in the partnership were held by the trustees in proportion to the shares they originally held in the properties. Under the partnership agreement, the taxpayer had the power to sell, develop, lease and mortgage the properties subject to some limited restrictions.

The taxpayer argued the transfers were not dutiable by application of s35 of the Act (for “transfers to and from a trustee or nominee”, or “bare trusts”), s33(3) of the Act (for transfers bought about by “change in trustees”), or alternatively that the dutiable value was nil or nominal (as the equitable estate was retained by the testamentary trustees on behalf of the beneficiaries).

The taxpayer was unsuccessful in the Supreme Court and appealed to the Court of Appeal.   

  • The Court of Appeal found for the Commissioner on all grounds.
  • The Court of Appeal has affirmed the Commissioner’s interpretation of ss.35 and 33(3). The exemptions are not wider than their predecessors in the Stamps Act 1958.
  • Section 35 of the Act is only available in limited circumstances where property is “to be held” for the transferor.
  • Section 33(3) of the Act is not capable of application to transfers between separate trusts.
  • Notably, the Court held that transfers between trustees and beneficiaries are typically not for nil or nominal value as a matter of law. Instead, the “full value of the fee simple estate” is transferred.

 

Aggregation

Nanos v Commissioner of State Revenue (Review and Regulation) [2015] VCAT 328

The Commissioner assessed the transfer of a house together with the transfer of an adjoining block of land to the taxpayers on an aggregated basis. Both transfers were made on the same day pursuant to separate contracts of sale between the same vendor and the taxpayers as purchasers.

The contracts were entered into on the same day, and were conditional on each other. Section 24 of the Act provides that where separate transfers form “substantially one arrangement” they are to be assessed for duty on an aggregated basis. The result of aggregation is that a higher rate of duty can apply to the dutiable value of the entire property.

The Tribunal confirmed the relevant factors the Commissioner takes into account when determining whether there is “substantially one arrangement”.

Where two contracts are interdependent, this factor will be a strong indication that the transfers should be aggregated.

 

Land rich provisions – valuation methodology – aged care

Regis Aged Care Pty Ltd v Commissioner of State Revenue [2015] VSC 279

This matter related to the acquisition by the appellant on 2 July 2007 of 100 per cent of the shares in Paragon Group Investments Pty Ltd (PGI), which was the head of a corporate group owning residential aged care facilities.

The principal issue in dispute was whether PGI was “land rich”, which turns on whether its “land ratio” within the meaning of s71(2)(b) of the Act (in summary, the ratio of its land holdings to total property) was 60 per cent or more.

The Commissioner argued that statutory scheme required the value of the PGI’s land holdings to be determined relatively to the value of all of its unexcluded property. The Commissioner’s expert witness, who adopted a “top-down” valuation methodology, produced a land value relative to non-land value resulting in a ratio of around 87 per cent.

The appellant engaged a triumvirate of experts who applied materially different methodologies all driven by absolute values (that is, they arrived at separate/discreet values for the land and for the non-land assets). They ultimately determined that PGI’s land ratio ranged between 26.6 per cent and 29.9 per cent.

Almond J preferred the appellant’s expert evidence on all principal points determining that PGI was not “land rich”.  

 

Land rich provisions – amending grounds of objection (late) – date of acquisition – penalty – reasonable care – advice from external advisers

Lesdos v Commissioner of State Revenue (Corrected) (Review and Regulation) [2015] VCAT 173

This matter involved the taxpayer’s acquisition of a 50 per cent interest in a company, which in turn owned a building in Melbourne’s CBD. The Commissioner assessed the transaction for duty pursuant to the land rich provisions of the Act, and imposed penalty tax and market interest pursuant to the Taxation Administration Act 1997 (the TAA).

There were four issues in dispute before the Tribunal; all were decided in the Commissioner’s favour.

The principal issue was the date on which the taxpayer acquired its interest in the property, as this was relevant to the question of whether the company was “land rich” when the acquisition took place. The Tribunal found that the interest was acquired on 4 August 2011, after the call option was exercised pursuant to a Put and Call Option Deed and the purchase price had been paid on completion or settlement of the Share Sale Agreement. At which point in time there was no dispute that the company was “land rich”.

The second issue was in respect of a leave application under s109 of the TAA. A week before the hearing, the taxpayer foreshadowed that it would seek leave to argue a further ground pursuant to s85(2) of the Act (“the just and reasonable exemption”). Then, just a day before the hearing, the taxpayer served the Commissioner with its supplementary contentions and evidentiary materials in support of this ground.

The Commissioner contested the leave application. The Tribunal refused the taxpayer’s request for leave having regard to the following three factors: the taxpayer’s arguments on s85 were “misconceived and have no prospect of success”;  the taxpayer failed to provide an adequate explanation for its delay in seeking leave; and the discretion in s85 is reposed in the Commissioner and in the ordinary case, it is desirable that the exercise of that discretion should be considered in the first instance by the Commissioner (rather than by the Tribunal in the context of review proceedings).

The third issue was in respect of the imposition of penalty tax, for failure to take reasonable care and the impact of a taxpayer seeking “advice”. The taxpayer had sought advice from a firm of accountants on the transaction. The Tribunal held in the circumstances that it had not taken reasonable care and it confirmed that the imposition of penalty was appropriate. The Tribunal distinguished the “accounting” advice received in this matter from the type of advice received by the taxpayers in the revenue cases of Snowy Hydro (2012) VSCA 145 and Challenger (2010) VSC 464 which were matters where advice had been sought from lawyers.

The fourth issue was the imposition of market interest, which the Tribunal confirmed was appropriate as its function is simply to compensate the revenue for being deprived through no fault of its own of the use of the funds.

 

Land Tax Act 2005 (the LTA)

Grouping

Tadcaster Sorrento v Commissioner of State Revenue (Review and Regulation) [2015] VCAT 611

This matter arose from the Commissioner’s decision to exercise his discretion under s50 of the LTA to treat the taxpayer and its related corporations as a single corporation (grouping discretion) and assess them jointly for land tax on all lands owned by them in the 2010, 2011 and 2012 land tax years.

The taxpayer argued that the discretion to treat the related corporations as a single corporation should only be exercised if there had been a purpose or intention of avoiding land tax. The Commissioner argued that the discretion was not so limited, and was to be exercised taking into account a broad range of factors, including in this case that the group corporations were all wholly owned subsidiaries of the same parent company.

The Tribunal upheld the Commissioner’s decision. It agreed that the grouping discretion is not confined: “Its purpose is to protect the aggregation principle established by the Act ... the discretion requires consideration of such matters as the degree of relatedness of the companies under consideration, the degree of control by the directors of the day-to-day activities of each company, the uses to which the separate parcels of land are put, and the negative impact if any on the taxpayer of the exercise the discretion, as well of course as matters relating to whether the structure has been designed to avoid the payment of tax.”

 

Primary production land

Marrone v Commissioner of State Revenue (Review & Regulation List) [2014] VCAT 1137

This matter concerns land tax assessments for 20122, 2012 and 2013 in respect of land situated in Cranbourne jointly owned by a husband and wife (the taxpayers).

The taxpayers claimed that the land is exempt from land tax under s67 of the LTA on the basis that the land was used primarily for the business of primary production. The Commissioner disagreed with the taxpayers that it was used primarily for the business of primary production, although accepted that it had been used for primary production in respect of cattle.

Following a number of days of hearing, and evidence from the taxpayers, the Tribunal found in favour of the taxpayers based on the facts of this case. The Tribunal held in particular: “Insofar as comparing the cattle operation as with the rental income, it is clear [to the Tribunal] that when one looks at the use of the land to which it is being put, even though the rental income outstripped the primary production in terms of money, both in size and purpose, the primary production of the cattle was the main factor.”

 

Taxation Administration Act 1997 (TAA)

Schachna v Commissioner of State Revenue [2015] VSC 7

The taxpayer claimed that he never received an assessment in respect of a land rich transaction, served by the Commissioner in September 2007. The taxpayer claimed that the first time he became aware of it was when a copy of it was enclosed in the Commissioner’s letter of demand to recover the amount owing under the assessment.

The taxpayer subsequently objected to the assessment on 28 March 2014 and claimed that it was within the 60-day time limit in s99(1) of the TAA, as the assessment was served again on 20 February 2014.

The taxpayer subsequently issued an application to compel the Commissioner to set down his objection as an appeal in the Supreme Court on the basis that it was an objection that “had not been determined within 60 days”, pursuant to s106(3) of the TAA.

Croft J delivered judgment in favour of the Commissioner, finding that the original assessment had been served on 26 September 2007 and that sending a copy of the assessment on 20 February 2014 could not be service again of the original assessment as to do so would mean that every time the Commissioner sent a copy of an assessment it would enliven the 60-day time period in s99(1) of the TAA within which a taxpayer could lodge an objection. Section 99(1) required the identification of a single date of service after which a taxpayer could not lodge an objection unless the Commissioner granted permission under s100(1) of the TAA.

 

First Home Owner Grant Act 2000 (the FHOG Act)

Residence requirement

McMillan & Darlinson v Commissioner of State Revenue [2015] VCAT 773

This matter concerned the purchase of an established home in Mornington by a husband and wife and the Commissioner’s decision to require repayment of the First Home Owner Grant ($7000), Bonus ($2000) and the Boost ($3500) and the imposition of a $1000 penalty under s48(2) of the FHOG Act for their failure to comply with the residence requirement in s12. Namely, that at least one of the joint applicants would occupy the property as his/her principal place of residence (PPR) for the required minimum period, within 12 months of completion of the eligible transaction.

The property was leased at purchase, and the husband alleged once the initial tenants had moved out he moved in and occupied the property as his PPR. However, following an alleged change in the wife’s circumstances he gave evidence that they had to let the property to new tenants after the six months and rented a place in Collingwood, closer to his wife’s work.

The Tribunal upheld the Commissioner’s decision, commenting that it “was not satisfied as to the veracity of the applicant’s evidence in general throughout.”

Following a discussion of the evidence, the Tribunal ruled that “[i]t necessarily follows from the findings of the later start date…and of the exit date from the premises…that there was a less than six-month period of occupancy. It therefore follows that the s12 criteria of the Act has not been complied with.”

In terms of the penalty, the Tribunal confirmed that it was in line with the authorities and needed for deterrence: “It is very difficult and expensive for the revenue to make investigations into these matters and one can see that it is important to deter others.”

 

Residence requirement

Dammo v Commissioner of State Revenue [2015] VCAT 907

This matter concerned the purchase of an established home in Gladstone Park by the applicant and the Commissioner’s decision to require repayment of the First Home Owner Grant ($7000), Bonus ($3000), the Boost ($7000) and the imposition of a $1000 penalty under s48(3) of the FHOG Act for his failure to comply with the residence requirement in s12. That is, that the applicant would occupy the property as his PPR for the required minimum period, within 12 months of completion of the eligible transaction.

The Tribunal was satisfied on the evidence that it was “more likely than not Mr Dammo intended this property to be an investment”. Six months and two days after the applicant had moved in, he moved out and tenants moved in under a residential tenancy agreement.

“I accept that he was mindful of and wanted to comply with the requirements of the First Home Owner Grant. But living in the property for the purpose of complying with the grant is not living in the property as one’s principal place of residence.”

“In cases such as this…the applicant has the onus of proof. He bears the responsibility to persuade the Tribunal that on the balance of probabilities he complied with the residence requirement. The evidence falls well short of doing so. I am satisfied on the weight of the evidence that this occupation did not have the necessary degree of permanence to meet the residence requirement.”

In terms of the penalty, which the Tribunal sustained for reasons of general deterrence, it commented that “it is also important in my view that Mr Dammo has not repaid the grant. He has had the benefit of $17,000 for nearly six years at a cost to the public”.

 

Eligible transaction – court orders

Gomes v Commissioner of State Revenue (Review and Regulation) [2015] VCAT 452

The applicant obtained a transfer of an existing home from her ex-husband pursuant to a court order. It was this home for which the applicant sought the First Home Owner Grant. The Commissioner refused payment of the grant on the basis that there was not an eligible transaction (in this case, a contract for the purchase of a home).

The Tribunal agreed that the court order did not constitute a contract for the purchase of a home. This is because none of the fundamental requirements of a contract were satisfied (offer and acceptance, consideration and intention to create legal relations).

The Tribunal made orders affirming the Commissioner’s decision to refuse payment of the grant. The Tribunal also accepted that having received a duties exemption by declaring that the property was transferred to her by reason of the breakdown of her marriage, the applicant could not now take a different position and claim to have purchased the property from her ex-husband pursuant to a contract in order to obtain the grant.