Ashurst Australia 16 September 2015 Stamp Duty Bulletin August 2015 stamp duty developments WHAT YOU NEED TO KNOW This Bulletin outlines Australian stamp duty developments in August 2015, which may impact your business: Administration New Commissioner of State Taxation in South Australia After 27 years as the Commissioner of State Taxation, Mike Walker retired on Friday 28 August 2015. Graeme Jackson commenced is the new Commissioner of State Taxation. Case Law BD Corporation Pty v Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 163 In an application for review of an objection, the Tribunal held that the taxpayer did not disprove the existence of the dutiable transaction while the Chief Commissioner was not required to positively prove its existence. Mazza v Commissioner of State Revenue [2015] VCAT 1190 This case acts as a reminder the dutiable value of long-term leases can be deemed to be the unencumbered market value of the freehold estate in land. Keadly Pty Ltd & Ors [2015] SASC 124 This is a successful example of how the equitable remedy of rectification can be used in a stamp duty context to alter agreements ab initio to reflect the correct intention of the parties. White Star Developments Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 180 This case, relating to a land tax liability, reiterates the principle that "a taxation authority cannot be estopped by conduct from fulfilling its duty to levy tax". Ashurst Stamp Duty Bulletin 16 September 2015 1
BD Corporation Pty v Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 163 Facts In BD Corporation Pty v Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 163, the taxpayer was a trustee of a trust which was assessed for ad valorem duty of $129,920 from a declaration of trust over land. The taxpayer lodged an objection against the assessment which was disallowed. Proceedings were commenced in the NSW Civil and Administrative Tribunal for a review of the assessment pursuant to section 100 of the Taxation Administration Act 1996 (NSW). Prior to the assessment in contention, the trust deed was stamped and assessed for nominal $500 duty for a declaration of trust over non-dutiable property. The taxpayer submitted it only had the onus of proving that the Chief Commissioner had wrongly assessed duty by presenting the unit trust deed which was not executed by the taxpayer. Further, the taxpayer argued that if the Chief Commissioner contended there was a dutiable transaction (ie a declaration of trust by conduct or made orally), then the onus to prove the existence of the transaction rested with the Chief Commissioner. Findings The Tribunal found that the taxpayer had failed to establish their case. The Tribunal agreed with the Chief Commissioner that the taxpayer was required to establish that it was not a party to any declaration of trust in respect of the land at the relevant time (and not just that the taxpayer did not execute the trust deed). This was not established by the taxpayer in fact, the Tribunal observed that the sworn affidavits in the proceedings confirmed that the taxpayer was a party to a deed of declaration of trust. Taxpayers should generally be aware that the onus requirements for an application for review are on the taxpayer. In particular, it is not necessary for the Chief Commissioner to establish or the Tribunal to find conclusively the existence of the dutiable transaction. Mazza v Commissioner of State Revenue [2015] VCAT 1190 Facts In Mazza v Commissioner of State Revenue [2015] VCAT 1190, the taxpayer purchased a long-term leasehold interest in an office building and adjoining facilities at Mildura. The price paid was $230,000. The lease was one of 180 comparable long-term leases granted by the Minister of Education in the Mildura area. The evidence was that the lease rentals for such leases were below market rentals for comparable properties, and as a consequence, incoming tenants would pay substantial amounts to acquire the leases. The Commissioner imposed duty of $11,990 on the transfer of the lease based on the Mildura Rural City Council's assessed capital improved value of the land of $282,000. When the taxpayer objected to the assessment, the Commissioner obtained a valuation of the unencumbered freehold from the Valuer-General at $300,000. The valuation was based on the assumption that the ground lease to the Minister of Education did not exist. Herron Todd White assessed the value of the leasehold interest acquired by the taxpayer at $230,000. Findings The tribunal found that the Commissioner was correct in assessing the transfer of the lease to duty based on the Valuer-General's valuation, which correctly assumed that the ground lease did not exist. Ashurst Stamp Duty Bulletin 16 September 2015 2
Generally, the dutiable value of a dutiable transaction is the greater of the consideration for the dutiable transaction and the unencumbered value of the dutiable property. Section 20(3) of the Duties Act 2000 (Vic) makes special provision for dutiable value where certain leases are transferred. Relevantly, the provisions apply to leases of a kind under section 7(1)(a)(va), being leases where the transfer or assignment is made and for which any consideration is paid for the transfer or assignment. The dutiable value of such leases is deemed to be the greater of the consideration, other than rent reserved that is paid or agreed to be paid, and the unencumbered value of the land that is subject to the lease. The taxpayer had an excusable misapprehension about how the provisions of the Duties Act 2000 (Vic) applied to long-term leases. They incorrectly argued that the dutiable value was value of leasehold interest acquired. The decision is a reminder that the dutiable value of long-term leases can be deemed by the Duties Act 2000 (Vic) to be the unencumbered market value of the freehold estate in land. Keadly Pty Ltd & Ors [2015] SASC 124 Facts In Keadly Pty Ltd & Ors [2015] SASC 124, the trustees of three family trusts (the trustees) and the settlor of the trusts (the settlor) sought to rectify the trust deeds establishing the trusts by amending the definition of the beneficiaries in each of the trust deeds. The trustees are third generation vignerons operating a vineyard in the Barossa Valley established in the 1800's. The business was conducted on 12 individual titles of land. The trustees wished their respective adult children to take over the family business, and sought advice regarding the separation of the family business into three separate businesses. The trustees received advice from the family accountant, (who also acted as the settlor), that the proposed transfers of land between the family members met the criteria for exemption from stamp duty as interfamilial transfers of farming property pursuant to section 71CC of the Stamp Duties Act 1923 (SA). Acting on the advice, the families gave instructions for the creation of three discretionary trusts and the incorporation of three trustee companies. Land was transferred to the three trustees, and the land transfers and family farm declarations were stamped. In May 2014, the Deputy Commissioner conducted a random audit of the transfers. The Commissioner concluded that the transfers were not eligible for the exemption, as the beneficiaries under the trust deeds were not restricted to relatives as defined in section 71CC. Each of the new trustees objected to the assessment; however, in December 2014, the Deputy Commissioner advised the parties that a decision on the objection "will be deferred to afford your client the opportunity to apply to the Supreme Court for rectification of the Trust Deeds so that their range of beneficiaries can be restricted". The Commissioner accepted that the transfers would be exempt if the trust deeds were rectified to restrict the range of beneficiaries. Findings Bampton J found that: The Court had jurisdiction to order rectification. The trust deeds do not express the true intention of the settlor, which was supported by the evidence provided by the family members and the Ashurst Stamp Duty Bulletin 16 September 2015 3
accountant. It was not a bar to rectification that the mistake was due to the negligence of the accountant (citing Weeds v Blaney [1978] 2 EGLR 8), or that it was sought to avoid stamp duty liability (citing Re Slocock s Will Trusts [1979] 1 All ER 358 at 363 as authority). "As rectification relates back to the time of execution of the document, so that it is taken to have existed in its rectified form at all times, upon rectification the transfers would be exempt from duty pursuant to section 71CC and the ex gratia scheme": [44]. Bampton J ordered that the trust deeds in question be rectified to remove all references to beneficiaries other than those provided for in section 71CC of the Act and insert a specific reference to beneficiaries as defined in section 71CC in terms of draft minutes of order to be settled by the Court. This decision is an example of how rectification can apply to stamp duty and tax matters. General principles relating to the equitable doctrine apply including that: rectification aims to correct a document that does not reflect the intention of the parties; rectification corrects the document ab initio; the remedy is discretionary and need not be granted by the Court; it is available as a discretionary remedy for common mistake; and it will not be available where there is no sufficient consideration within the agreement/deed, as equity will not assist a volunteer. White Star Developments Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 180 Facts In White Star Developments Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 180, the taxpayer was the trustee of a unit trust, whose assets include land in New South Wales. On 18 August 2014, the Chief Commissioner assessed the land to land tax in respect of the 2012, 2013 and 2014 years, on the basis that the trust was a "special trust" for the purposes of section 3A(2) of the Land Tax Management Act 1956 (NSW). The trustee sought review of the Chief Commissioner's decision under section 101 of the Taxation Administration Act 1996 (NSW), and asked that the assessments for the 2013 and 2014 tax years be set aside on the basis that it had been the intention of the taxpayer to establish a fixed trust, not a special trust (and if it was a fixed trust it would enjoy the benefit of a tax threshold not available in respect of special trusts). The trustee argued that had the Chief Commissioner issued the notices of assessment earlier, the trustee would have been in a position to rectify the terms of the trust deed prior to incurring land tax for the 2013 and 2014 tax years. Ashurst Stamp Duty Bulletin 16 September 2015 4
Findings R Perrignon, Senior Member of NCAT, found that the Chief Commissioner is entitled to issue an assessment within two years of the taxing date, according to section 14 of the Tax Administration Act 1996 (NSW) and he issued the notice of assessment within those two years. The Chief Commissioner "was under no duty to issue initial notices of assessment earlier than he did". Furthermore, Perrignon SM found that the delay of the Chief Commissioner in issuing an assessment was in fact due to the failure of the trustee to provide returns. The Senior Member found that, even if his finding was incorrect, and Chief Commissioner should have issued an assessment earlier, the land tax liability would not be affected, as "a taxation authority cannot be estopped by conduct from fulfilling its duty to levy tax". The Senior Member cited the decision of Block JM in EK Anderson Investments Pty Limited ATF Cacs Property Trust v Chief Commissioner of State Revenue [2012] NSWADT 132. Perrignon SM confirmed the Chief Commissioner's decision to assess the land to land tax is respect of the 2012, 2013 and 2014 tax years. Although this case is in relation to a liability to pay land tax, the decision acts a reminder that arguments of estoppel or unfairness will not be successful in challenging a tax assessment. Ashurst Stamp Duty Bulletin 16 September 2015 5
Contacts Geoffrey Mann Partner Melbourne T: +61 3 9679 3366 E: geoffrey.mann@ashurst.com William Arudsothy Senior Associate Sydney T: +61 2 9258 6818 E: william.arudsothy@ashurst.com Anthony Hui Lawyer Sydney T: +61 2 9258 6142 E: anthony.hui@ashurst.com This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For more information please contact us at aus.marketing@ashurst.com. Ashurst Australia (ABN 75 304 286 095) is a general partnership constituted under the laws of the Australian Capital Territory and is part of the Ashurst Group. Further details about Ashurst can be found at www.ashurst.com. Ashurst Australia 2015. No part of this publication may be reproduced by any process without prior written permission from Ashurst. Enquiries may be emailed to aus.marketing@ashurst.com. Ref: 236651388.01 16 September 2015