ACN 068 691 092 Pty Ltd v The Commissioner of State Taxation
[2017] SASC 195
•22 December 2017
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ACN 068 691 092 PTY LTD v THE COMMISSIONER OF STATE TAXATION
[2017] SASC 195
Judgment of The Honourable Justice Blue
22 December 2017
TAXES AND DUTIES - LAND TAX - OBJECTIONS AND APPEALS
TAXES AND DUTIES - LAND TAX - RETURNS AND ASSESSMENT - ASSESSMENT - IN GENERAL
TAXES AND DUTIES - LAND TAX - VALUATION - PARTICULAR PROPERTIES AND INTERESTS - OTHER CASES
This is an appeal against assessments of land tax on an aggregated basis.
The appellant was at all material times owned and controlled by Peter and Rosita Scragg.
In June 2010 the appellant transferred a 10 per cent interest in five properties to different members of the Scragg family and/or a company owned and controlled by them and retained a 100 per cent interest in a sixth property. The result prima facie was that ACN was not liable to pay land tax based on aggregation pursuant to subsection 13A(3) of the Land Tax Act 1936 (SA). However, it would be liable to pay land tax on an aggregated basis if the Commissioner of State Taxation formed the opinion that a purpose for the transfers was to reduce land tax.
In 2013 the Commissioner issued assessments and amended assessments assessing the six properties principally owned by ACN to land tax on an aggregated basis as a result of the Commissioner having formed the opinion that a purpose for the transfers was to reduce land tax.
An objection by ACN was disallowed by the Minister for Finance and ACN appeals against the assessments.
Held:
1. A purpose for the transfers was to reduce land tax (at [142]).
2. Appeal dismissed (at [143]).
Land Tax Act 1936 (SA) sections 4, 8B(1), 12, 13, 13A(2) and (3); Taxation Administration Act 1996 (SA) section 92, referred to.
ACN 068 691 092 PTY LTD v THE COMMISSIONER OF STATE TAXATION
[2017] SASC 195Civil
BLUE J:
This is an appeal by a taxpayer against assessments assessing land tax on an aggregated basis.
The appellant ACN 068 691 092 Pty Ltd (ACN) was owned and controlled by Peter and Rosita Scragg. They also owned and controlled Legalese Pty Ltd (Legalese).
At as June 2010 ACN owned amongst others 100 per cent or 99 per cent of six properties at Port Adelaide and Hindmarsh. It was prima facie liable to pay land tax based on the aggregate value of the properties pursuant to subsection 13A(2) of the Land Tax Act 1936 (SA) (the Act).
In June 2010 ACN transferred a ten per cent interest in five of the properties to different members of the Scragg family and/or Legalese. As a result of the transfers, ACN was prima facie not liable to pay land tax thereafter based on aggregation pursuant to subsection 13A(3) of the Act. However it would be liable to pay land tax on an aggregated basis if the respondent Commissioner of State Taxation formed the opinion that a purpose for the transfers was to reduce land tax.
In March 2013 the Commissioner issued to ACN assessments/amended assessments of land tax in respect of amongst others the properties in respect of amongst others the financial years ended 30 June 2011 (the 2011 year), 2012 (the 2012 year) and 2013 (the 2013 year). The assessments were issued on an aggregated basis as a result of the Commissioner having formed the opinion that a purpose for the transfers was to reduce land tax.
ACN lodged an objection against the assessments, which was disallowed by the Minister for Finance.
The issue on the appeal is whether a purpose for the transfers was to reduce land tax. ACN contends that the sole purposes for the transfers were implementing a strategy by Mr and Mrs Scragg to transfer Scragg family assets to their children (succession planning) or out of the Trust to themselves and their children (divestment) and attempting to insulate Scragg family assets from potential creditors (creditor planning). The Commissioner contends that the sole purpose or alternatively one of the purposes for the transfers was to reduce land tax.
Background
Mr Scragg was born in 1951. He has been a solicitor for more than 40 years. I infer that he became a solicitor in about 1973. He married and in 1977 he and his first wife had a daughter Jacqueline.
In 1974 Naiama Pastoral Co Pty Ltd (Naiama) was incorporated. It was principally owned and controlled by Mr Scragg’s parents. At material times they owned 51 per cent of the shares and the remaining shares were owned equally by Mr Scragg, his brothers and sister. Naiama owned pastoral land at Victor Harbour and Carracklinga.
Mrs Scragg was born in 1956. She married and in 1975 she and her first husband had a son Michael Edward (known as Eddie).
In about 1979 Mr and Mrs Scragg married. Their daughter Melanie was born in 1980 and their daughter Carla was born in 1982. Their daughter Victoria was born in about 1998.
In 1988 Mr and Mrs Scragg incorporated Legalese Pty Ltd (Legalese) to take over the conduct of the law practice Peter Scragg & Associates (the Practice). Mr and Mrs Scragg were its directors and shareholders.
In 1990 the Peter Scragg Family Trust (the Trust) was created with Jim Nisyrios as trustee. The Trust was a discretionary family trust. Eligible beneficiaries for income purposes comprised Mr Scragg; his wife, widow or former wife (collectively his wife); his children and remoter issue; any company in which he and/or his wife held the majority of shares; and the Seventh Day Adventist Church or any similar religious organisation. Eligible beneficiaries for capital purposes comprised Mr Scragg, his children and remoter issue. In 1992 and 1993 the income beneficiaries were expanded to include Annesley College[1] and any educational organisation attended by Mr Scragg, his wife or the children of either of them including Annesley College.[2]
[1] By Deed of Variation of Trust dated 15 June 1992.
[2] By Amending Deed dated 13 July 1993.
In 1992 Mr and Mrs Scragg entered into a contract to purchase land at McLaren Vale (the McLaren Vale property) for $27,750. At settlement the land was transferred to Eddie, Melanie and Carla. The purchase price was funded from child endowment payments received by Mr and Mrs Scragg which Mrs Scragg’s mother kept on their behalf of about $16,000 together with the balance funded by Mr and Mrs Scragg. In 2000 the property was sold for $52,500 by Eddie, Melanie and Carla and they retained the sale proceeds. Mr Scragg gave evidence that the property could not be sold until the youngest owner Carla turned 18.
In 1995 Mr and Mrs Scragg incorporated ACN to take over as the trustee of the Trust. Mr and Mrs Scragg were the directors and shareholders of ACN. The Trust acted as a service trust in connection with the Practice.
For ease of reference, I use the term the Scraggs to refer to any one or more of Mr Scragg, Mrs Scragg, their five children, ACN, the Trust and Legalese.
In 1996 Mr Scragg purchased a house at Royal Park (the Royal Park property). In 1997 he subdivided the land into two allotments. He retained the vacant allotment. He transferred the allotment on which the house was situated to Jacqueline for $50,000. The house allotment was valued by the Valuer-General at $72,000 and the transfer was stamped on the basis of that value (but no stamp duty was payable because Jacqueline was eligible for the first home concession). Mr Scragg regarded the difference of $22,000 between the value of the house allotment and the amount paid by Jacqueline as a gift. He regarded approximately $20,000 spent by him on renovations as a gift. In 1999 Jacqueline sold the house allotment for $45,000 to pay her creditors.
In 1997 the Scraggs entered into a contract to purchase land at 183-187 Port Road Hindmarsh (the 183 Port Road property) and 189-191 Port Road Hindmarsh (the 189 Port Road property). At settlement the land was transferred to ACN as trustee of the Trust.
In 1997 the Scraggs entered into a contract to purchase land at 52-54 Hill Street North Adelaide (the North Adelaide property). At settlement the land was transferred to ACN as trustee of the Trust.
By not later than 1997 Mrs Scragg was qualified as a solicitor.
In 1998, Peter Scragg & Associates commenced practising from 185 Port Road Hindmarsh with the Trust as its landlord.
On 30 June 1998 Mr Scragg lodged at the Lands Titles Office:
·a transfer by ACN to Mr Scragg of a one per cent interest in the 183 Port Road property for a consideration stated in the transfer of $2,700. The transfer was dated 29 June 1998 and stamp duty was paid on 30 June 1998;
·a transfer by ACN to Mrs Scragg of a one per cent interest in the North Adelaide property for a consideration stated in the transfer of $3,650. The transfer was dated 29 June 1998 and stamp duty was paid on 30 June 1998;
One of the purposes of Mr and Mrs Scragg receiving one per cent in each case was to avoid aggregation for land tax purposes.
In 1999 the Scraggs entered into a contract to purchase land at 36 West Street Hindmarsh (the West Street property). At settlement the land was transferred to ACN as trustee of the Trust as to 99 per cent and to Legalese as to one per cent. One of the purposes of Legalese receiving one per cent was to avoid aggregation for land tax purposes.
In November 1999 ACN executed a deed (the November 1999 deed) in which it declared that it set aside the North Adelaide property for the sole use and benefit of Mr and Mrs Scragg to the intent that they should be absolutely entitled to it and its sale proceeds within the meaning of section 160V of the Income Tax Assessment Act 1936 (Cth).
In 2002 Mr Scragg entered into a contract to purchase a property comprising three shops at 87 and 89 Commercial Road Port Adelaide (the 87 Commercial Road property) and 91 Commercial Road (the 91 Commercial Road property) for $300,000. Mr Scragg nominated ACN to acquire the two shops at 87 and 89 Commercial Road for $160,000 and Mr and Mrs Zientara to acquire the shop at 91 Commercial Road for $140,000. At settlement the 87 Commercial Road property was transferred to ACN as trustee of the Trust as to 99 per cent and to Naiama as to one per cent. One of the purposes of Naiama receiving one per cent was to avoid aggregation for land tax purposes.
In 2004 the Scraggs entered into a contract to purchase land at 5/72-76 Bacon Street Hindmarsh (the Bacon Street property). At settlement the land was transferred to ACN as trustee of the Trust as to 99 per cent, Mr Scragg as to 0.5 per cent and Melanie as to 0.5 per cent. One of the purposes of Mr Scragg and Melanie receiving one per cent was to avoid aggregation for land tax purposes.
In 2004 Mrs Scragg inherited from her mother a house at Largs North (the Largs property).
In about 2005 Eddie moved to London to work as a solicitor in London.
In 2005 the Scraggs entered into a contract to purchase a house at East Street Brompton (the East Street property). At settlement the land was transferred to ACN as trustee of the Trust as to 99 per cent and to Melanie and Carla as joint tenants as to one per cent. One of the purposes of Melanie and Carla receiving one per cent was to avoid aggregation for land tax purposes. In April 2009 the property was sold.
In April 2006 Mr Scragg entered into a contract to purchase a house at Flinders Park (the Flinders Park property) for $320,000. Mr Scragg agreed with Melanie that the land would be transferred into her name, that it would be subdivided into a house allotment and a vacant allotment on the basis that she would beneficially own the house allotment and hold the vacant allotment on trust for ACN as trustee of the Trust, and that she would pay $207,000 (inclusive of all costs of purchase and subdivision) for the house allotment. This agreement was recorded in a deed executed by Melanie and ACN dated 28 June 2006. Settlement took place on 29 June 2006. Melanie contributed $147,000[3] to the purchase price and ACN paid the balance of $173,000.[4] In September 2006 Mr Scragg wrote to Revenue SA saying that Melanie owed $60,000 to ACN. Although Mr Scragg said that Melanie also owed a pro rata share of stamp duty and LTO fees and gave evidence to this effect, the terms of the deed are clear that these costs were to be borne entirely by ACN. Mr Scragg gave evidence that Melanie has not paid the debt to ACN and that it may have been forgiven.
[3] $140,000 from ANZ Bank plus $7,000 first home buyers grant.
[4] $5,000 deposit plus $168,070 at settlement.
In July 2006 the three shops at 87-91 Commercial Road Port Adelaide were destroyed by fire (the Fire). They had been insured under a policy issued by AMP GI Distribution Pty Ltd and GIO General Limited (the Insurers) arranged by insurance brokers Plan 4 Insurance Services Pty Ltd and its director employee Mr Dixon (the Brokers). The cover was initially $300,000 (being the purchase price) but by the end of 2004 it had been increased to $1.3 million allocated as to $800,000 to 87-89 Commercial Road and as to $500,000 to 91 Commercial Road. By the time of the fire the cover had been reduced to $800,000 allocated as to $400,000 to 87-89 Commercial Road and as to $400,000 to 91 Commercial Road.
In late 2006/early 2007 Mr Scragg entered into a contract to purchase a house property at Port Wakefield (the Port Wakefield property) for $103,000. At settlement the land was transferred to Mr Scragg. Mr Scragg gave evidence that it was his intention to hold that property on trust for his daughter Victoria, that Mrs Scragg had saved about $20,000 on behalf of Victoria from child endowment and gifts, that he borrowed $80,000 secured by a mortgage over the property and that Mr and Mrs Scragg paid the small balance of the purchase price. Mr Scragg gave evidence that he did not put the property into the name of Victoria because he had learnt from experience with the McLaren Vale property that it could not then be sold until she turned 18. The rental income received has been treated as income of ACN, ACN has paid the mortgage and ACN has met the expenses.
In 2007 the Scraggs entered into a contract to purchase a house at Wood Avenue Brompton (the Wood Avenue property) for $305,000. At settlement the land was transferred to ACN as trustee of the Trust as to 99 per cent and to Eddie as to one per cent. One of the purposes of Eddie receiving one per cent was to avoid aggregation for land tax purposes. Mr Scragg gave evidence that it was his intention to subdivide the land into three and later four allotments and construct units on them.
In 2007 the Scraggs entered into a contract to purchase the 91 Commercial Road property for $400,000 from the Zientaras. At settlement the land was transferred to ACN as trustee of the Trust as to 99 per cent and to Naiama as to one per cent. One of the purposes of Naiama receiving one per cent was to avoid aggregation for land tax purposes. The purchasers took an assignment of the rights of action of the Zientaras against the Insurers and the Brokers.
In 2007 ACN and Naiama issued an action in the District Court (the District Court action) against the Insurers and Brokers claiming an entitlement to indemnity for $1.3 million in respect of the Fire and damages for negligence.
In July 2008 the ANZ Bank issued a letter of offer to ACN to renew its existing facilities and to grant two new facilities, the total of all facilities being $1.7 million.
Between May and October 2008 Eddie transferred to the Scraggs a total of $20,779 to assist Mr and Mrs Scragg financially.[5]
[5] $14,773 on 12 May, $3,339 on 30 June and $2,667 on 3 October 2008.
In October 2008 the Challenger Howard Mortgages Fund (Challenger), which had granted a five year term loan to ACN to purchase the 87 Commercial Road property, announced the suspension of new lending. As a result ACN was required to refinance the loan on its expiry in late 2009.
In December 2008 the ANZ Bank transferred management of the ACN accounts to its Portfolio Management Department due to protracted reduction of existing facilities from sale of assets and increased reliance on the overdraft due to insufficient cash flow and increased the interest rates on its facilities.
The Scraggs approached BankWest to refinance their facilities with ANZ Bank and Challenger.
In April 2009 the trial of the District Court action proceeded before Judge Burley over five days. At the end of the plaintiffs’ case, the defendants made a no case to answer submission in respect of which the Judge reserved his decision. In May 2009 Judge Burley upheld the no case to answer submission, dismissed the action and ordered that the plaintiffs pay the defendants’ costs of action.
In May 2009 ACN and Naiama instituted an appeal to the Supreme Court against the judgment of Judge Burley.
In June 2009 ACN transferred a 20 per cent interest in the Wood Avenue property to Eddie for a consideration expressed in the transfer of $45,000. The land was valued by the Valuer-General at $300,000 and the transfer of a 20 per cent interest was assessed for stamp duty based on a value of $60,000. Mr Scragg gave evidence that he regarded the true value of the property as $225,000 at the time. Mr Scragg gave evidence that the 20 per cent interest was transferred to Eddie in consideration for the monies that he had provided to the Scraggs between May and October 2008 and that it was the intention that, if the Scraggs proceeded to build units on the land, Eddie would have one of the units. Mr Scragg gave evidence that he intended that Eddie would receive a benefit approximately equal to the benefit that Melanie had received in respect of the Flinders Park property.
In June 2009 the respondents sought security for costs of the appeal to the Full Court.
In October 2009 the appeal was heard by the Full Court which reserved its judgment.
In November 2009 BankWest issued to ACN a letter of offer to grant a Business Edge loan facility of $1.309 million secured by mortgages over the Port Road, Commercial Road, Bacon Street and West Street properties; a fixed and floating charge over ACN’s property; guarantees by Legalese, Mr and Mrs Scragg and Melanie; a fixed and floating charge over the assets of Legalese; and mortgages over the Port Wakefield and Largs properties. At about the same time BankWest offered to grant to ACN a Lite Home Loan of $840,000 and to Mr and Mrs Scragg an Ultra Home Loan of $221,000.
In November 2009 Naiama transferred to ACN as trustee of the Trust its one per cent interests in the 87 and 91 Commercial Road properties for a consideration stated in the transfer of $4,250. This was done to enable the removal of Naiama from the District Court action. It also avoided the need for Naiama to give a guarantee and mortgage to BankWest.
In December 2009 Judge Burley ordered that the plaintiffs pay the costs of the defendants of the cross claims brought between the defendants.
In January 2010 the Scraggs drew down on the BankWest facilities and paid out the ANZ Bank and Challenger facilities.
In April 2010 the Full Court (by majority) allowed the appeal and set aside Judge Burley’s orders dismissing the claims in respect of 87-89 Commercial Road and remitted those claims to the District Court for trial before another Judge. The Full Court unanimously dismissed the appeal against Judge Burley’s orders dismissing the claims in respect of 91 Commercial Road. The Full Court ordered the defendants to pay the plaintiffs’ costs of the trial before Judge Burley and the appellants’ costs of appeal (except that the appellants were to pay GIO’s costs as to the appeal and trial in relation to 91 Commercial Road).
On 22 June 2010 the District Court action came before a Master for directions. The Master made orders relating to amended pleadings and expert reports. The Master referred the matter to a listing conference with a trial estimate of ten days. The Master noted that the plaintiffs contended that the trial should proceed on liability only and the defendants contended that the trial should proceed on all issues including the cross claims. The Master noted that there was a dispute whether the costs of the trial ordered by the Full Court were to be payable forthwith. The Master adjourned the directions hearing to 19 August 2010.
On 29 June 2010 BankWest issued to ACN a letter of offer to vary the Business Edge loan facility in relation to the mortgages over the Port Road and Commercial Road properties. Although the documentation is confused, I infer that it reflected consent by BankWest to the transactions summarised in the next paragraph.
On 30 June 2010 Mr Scragg lodged at the Lands Titles Office:
· a transfer by ACN to Legalese of a ten per cent interest in the West Street property for a consideration stated in the transfer of $27,000. The transfer was dated 31 May and had been assessed for stamp duty and stamp duty had been paid on 29 June 2010;
· a transfer by ACN to Melanie of a ten per cent interest in the Bacon Street property for a consideration stated in the transfer of $2,750. The transfer was dated 31 May and stamp duty had been paid on a value of $7,300 on 29 June 2010;
· a transfer by ACN to Legalese and Mrs Scragg jointly of a ten per cent interest in the 189 Port Road property for a consideration stated in the transfer of $32,000. The transfer was dated 31 May and stamp duty had been paid on a value of $33,500 on 29 June 2010;
· a transfer by ACN to Mrs Scragg of a ten per cent interest in the North Adelaide property for a consideration stated in the transfer of $26,000. The transfer was dated 31 May and stamp duty had been paid on 29 June 2010;
· a transfer by ACN to Mr Scragg of a ten per cent interest in the 87 Commercial Road property for a consideration stated in the transfer of $23,000. The transfer was dated 1 June and stamp duty had been paid on a value of $23,000 on 29 June 2010;
· a transfer by ACN to Melanie of a ten per cent interest in the 183 Port Road property for a consideration stated in the transfer of $32,000. The transfer was dated 2 June 2010 and stamp duty had been paid on 29 June 2010.
In July 2010 the trial of the District Court action was listed for April 2011. In August 2010 the defendants filed applications for security for costs.
In September 2010 the Commissioner wrote to the Scraggs referring to the increase in one of the minor interests in the Bacon Street property from 0.5 per cent to 10.5 per cent (Melanie’s interest) and enquiring about the reason or reasons for the creation of that minor interest for the purpose of subsection 13A(3) of the Act. Mr Scragg responded in relation to the June 2010 transfers generally. He said that it was the wish of the trustee to divest itself as soon as possible of its interest in those properties and wind up that part of the Trust relating to those properties. He said that this could not immediately be done due to the District Court action (any change in the legal status of the properties being likely to cause difficulties in the litigation) and because any significant change in the legal estates would create complications with BankWest and income tax implications limited the rate at which in species distributions of assets could take place.
In November 2010 the Commissioner wrote to the Scraggs referring to the creation of a minor interest in the 87 Commercial Road property of ten per cent in Mr Scragg and enquiring about the reason or reasons for the creation of that minor interest for the purpose of subsection 13A(3) of the Act. In January 2011 Mr Scragg responded reiterating that steps had now been taken to wind up the trading activities of ACN and make divestments of the trust fund to the various beneficiaries. He said that because of the restructuring process the opportunity was taken to include Mr Scragg as an owner. He reiterated the difficulties caused by the lending requirements of BankWest.
In February 2011 the Commissioner wrote to the Scraggs requesting documentation to support the reasons for the creation of the minor interests in the six properties that were subject of the June 2010 transfers. In March 2011 Mr Scragg replied reiterating that it was the intention to wind down the Trust on account of the age of the beneficiaries. He said that Mr and Mrs Scragg were nearing retirement age and all their children but one were old enough to hold land in their own right and were seeking to establish themselves. He said that the principal purposes for the establishment of the Trust were coming to an end. He said that there were no specific documents in relation to the process. He referred to impediments to the process being BankWest, the cost of stamp duty that would be incurred on transferring all of the assets into the names of individual beneficiaries and the District Court action.
In April 2011 the trial of the District Court action was heard by Judge Clayton who reserved his decision. Later that month Judge Clayton dismissed the action and ordered that the plaintiffs pay the defendants’ costs of action.
In June 2011 the Commissioner wrote six letters to the Scraggs in relation to the six properties the subject of the 30 June transfers. The Commissioner said that in respect of the 189 Port Road property he was not satisfied that there was no doubt that the five per cent minor interests of Legalese and Mrs Scragg were created solely for purposes unrelated to reducing land tax. The Commissioner said that in respect of the other five properties he had formed the opinion that one of the purposes of the creation of the ten per cent minor interest was to reduce land tax. The Commissioner said that the six properties together with the 91 Commercial Road property would be aggregated for land tax purposes. The Commissioner enclosed an assessment in respect of the seven properties for the 2009 and 2010 financial years based on aggregation.
In March 2012 the Full Court of the Supreme Court dismissed the plaintiffs’ appeal against Judge Clayton’s dismissal of the action and ordered that the appellants pay the respondents’ costs of the appeal.
In June 2012 ACN and Mrs Scragg transferred the North Adelaide property to Mr and Mrs Scragg pursuant to the November 1999 deed. The transfer was stamped exempt from stamp duty.
In around October 2012 Mr and Mrs Scragg in partnership took over from Legalese the conduct of the law practice of Peter Scragg & Associates.
In November 2012 the Commissioner issued an assessment in respect of the seven properties for the 2011 and 2012 financial years based on aggregation. The notice of assessment was not tendered.
In December 2012 Mr Scragg wrote to the Commissioner enclosing a copy of the November 1999 trust deed and requesting that the North Adelaide property be exempted from land tax under the principal place of residence exemption.
In March 2013 the Commissioner wrote to the Scraggs accepting that the North Adelaide property was exempt from land tax. The Commissioner enclosed a notice of assessment in respect of the 2013 financial year and amended assessments in respect of the 2009 to 2012 financial years.
In April 2013 Mrs Scragg entered into a contract with Carla to sell the Largs property to Carla for $264,000. In May Carla obtained approval from BankWest to borrow $300,000 on first mortgage security over the property. A settlement statement was prepared by Peter Scragg & Associates showing the purchase price as $270,000. In June the property was transferred to Carla pursuant to a transfer which showed the consideration as $330,000. This was the amount at which CBRE had valued the property in March 2013 in a valuation for the Commonwealth Bank. Mr Scragg gave evidence that Carla purchased the property for a discount of $60,000 to $80,000. Mr Scragg gave evidence that he regarded the purpose of this as being to match the benefit of $60,000 that had been given to Melanie.
In June 2013 ACN lodged with the Minister a notice of objection signed by Mr Scragg against the notices of assessment in respect of the 2011 to 2013 financial years. The objection said that Mr and Mrs Scragg had a history of many years providing real property interests to their children; the June 2010 transfers were consistent with a long-term plan to provide for Mr and Mrs Scragg in their retirement and for their children; and that transfer plan had been delayed by the global financial crisis, the strict lending requirements of BankWest, the District Court action and the capital gains tax that would be payable on distributions. He said that Mr and Mrs Scragg’s intention was to resume transferring interests to themselves and their children if and once conditions improved. Mr Scragg referred to the McLaren Vale, Royal Park, Flinders Park, East Street, Wood Avenue, Port Wakefield and Largs properties as representing gifts made by Mr and Mrs Scragg to the children. He said that the only purpose for creating the third party interests was to fulfil the Trust’s function, and Mr and Mrs Scragg’s desire, to provide for Mr and Mrs Scragg and their family.
In November 2013 the Wood Avenue property was sold for $530,000. 79 per cent of the proceeds (being ACN’s ostensible share) was paid into court in the District Court action and the balance of 21 per cent was used by Mr Scragg towards the purchase of a property at Port Adelaide. No amount was received by Eddie. Mr Scragg gave evidence that he considered that he held a significant moral obligation to Eddie in respect of the sale proceeds.
In December 2013 the Minister disallowed ACN's objection.
ACN has paid approximately $760,000 by way of costs of action to the defendant Insurers and Brokers.
Statutory regime
Land tax is imposed by section 4 of the Act in respect of land in the State subject to various exceptions. It is imposed jointly and severally on the “owner” of the land.[6] The owner includes the legal owner of the fee simple.[7]
[6] Land Tax Act 1936 (SA) ss 14 and 16.
[7] Land Tax Act 1936 (SA) s 2(1) definition of owner.
Land tax is imposed on the owner of land at the commencement of each financial year,[8] as at the commencement of the financial year[9] and calculated on the basis of circumstances existing at midnight on 30 June immediately preceding that financial year.[10]
[8] Land Tax Act 1936 (SA) s 4(2).
[9] Land Tax Act 1936 (SA) s 15(1).
[10] Land Tax Act 1936 (SA) s 4(3).
Land tax is a progressive tax ranging from 0 percent up to 3.7 percent of the site value as shown in the following table.[11]
[11] Land Tax Act 1936 (SA) s 8A(1) and 7(1).
Site Value[12] Percentage First $300,000 0% $300,001-$550,000 0.5% $550,001-$800,000 1.65% $800,001-$1,00,000 2.4% Over $1,000,000 3.7% [12] The thresholds shown were for the 2011 year. They have been adjusted each year since then.
Aggregation
Subject to qualifications, land tax is calculated on the aggregate site value of all land owned by the taxpayer.[13] One qualification is when there are two or more owners of one parcel of land and partial commonality of ownership of another parcel of land.[14]
[13] Land Tax Act 1936 (SA) s 8B(1).
[14] Land Tax Act 1936 (SA) s 13(3)(a). But see also s 13(1), (2) and (4).
However, this qualification has since 1 July 2008 been subject to two qualifications:
·if a minority interest holder’s interest is five per cent or less, the minority interest is disregarded and the majority owner is deemed to be the sole owner unless the Commissioner is satisfied that there is no doubt that the minority interest was created solely for a purpose or purposes unrelated to reducing the amount of land tax;[15] and
·if a minority interest holder’s interest is more than five per cent but less than 50 per cent, the minority interest is disregarded and the majority owner is deemed to be the sole owner if the Commissioner forms the opinion that a purpose for the creation of the minority interest was to reduce the amount of land tax.[16]
[15] Land Tax Act 1936 (SA) s 13A(2) and (5).
[16] Land Tax Act 1936 (SA) s 13A(3) and (5).
Sections 8B(1), 12, 13 and 13A of the Act relevantly provide:
8B—Aggregation of land
(1)Except as otherwise provided by this Act, land tax is calculated on the basis of the aggregate taxable value of all land owned by the taxpayer.
…
12—Tax in cases where there are two or more owners
(1)Subject to subsection (2), where two or more persons are the owners of land, the same amount of land tax is payable in respect of that land as if only one person were the owner.
(2)Subsection (1) does not affect the operation of any provisions of this Act under which the value of land is aggregated, for the purpose of the assessment of tax, with the value of other land.
13—Cases of multiple ownership and aggregation of value
(3)The aggregation principle is subject to the following qualifications:
(a) if two or more persons are the taxpayers for the same land, the taxable value of the land will not be aggregated with the taxable value of—
(i)other land for which one or more, but not all, of those persons is or are the taxpayer or taxpayers; or
(ii)other land for which one or more of those persons and some other person are the taxpayers;
…
(6)This section applies subject to the operation of section 13A.
Note—
1 See subsection (5).
13A—Commissioner may determine that minor interest is to be disregarded
(1)In this section—
prescribed interest—see subsections (2) and (3);
prescribed land means land where—
(a) 2 or more persons are the owners of the land; or
(b) the land is held on trust (other than a trust arising because of a contract to purchase or acquire an estate or interest in the land);
transaction includes any form of conveyance, transfer, contract, agreement or arrangement (whether or not in writing).
(2)If a person's interest in prescribed land is 5% or less, subsection (5) will apply in relation to the interest (a prescribed interest) unless the Commissioner, on the application of a person who, as an owner of the prescribed land, has an interest exceeding 5% in the land, is satisfied that there is no doubt that the interest was created solely for a purpose, or entirely for purposes, unrelated to reducing the amount of land tax payable in respect of the land, or any other piece of land.
(3)If a person's interest in prescribed land exceeds 5% but is less than 50%, subsection (5) will apply in relation to the interest (a prescribed interest) if the Commissioner forms the opinion that the purpose, or 1 of the purposes, for the creation of the interest was to reduce the amount of land tax payable in respect of the land, or any other piece of land.
(3a)If the Commissioner forms the opinion for the purposes of subsection (3) that the purpose, or 1 of the purposes, for the creation of an interest was to reduce the amount of land tax payable in respect of land—
(a) subsection (5) will be taken to have applied in relation to the interest from the date on which the interest was created; and
(b) if—
(i)the land was wholly or partially exempted from land tax for a particular financial year; and
(ii)the Commissioner is satisfied, on the basis of having formed the opinion, that there were not, in respect of that financial year, proper grounds for exempting the land from land tax,
the Commissioner may withdraw the exemption in respect of that financial year.
(4)For the purposes of subsections (2) and (3), the Commissioner may have regard to—
(a) the nature of any relationships between the owners of the land, or between the owners of 2 or more pieces of land and, if relevant, the relationship between a trustee and a beneficiary or beneficiaries or between 2 or more trustees or 2 or more beneficiaries; and
(b) the lack of consideration, or the amount, value or source of the consideration, provided in association with the creation of the interest; and
(c) the form and substance of any transaction associated with the creation or operation of the interest, including the legal and economic obligations of the parties and the economic and commercial substance of any such transaction; and
(d) the way in which any transaction associated with the creation or operation of the interest was entered into or carried out; and
(e) any other matter the Commissioner considers relevant.
(5)If this subsection applies in relation to a prescribed interest under this section—
(a) the person holding the prescribed interest is taken not to be—
(i)an owner of land for the purposes of this Act to the extent of the prescribed interest; or
(ii)in a case in which subsection (9)(a)(ii) applies in relation to a beneficiary, a beneficiary under a relevant trust for the purposes of this Act; and
(b) the land tax payable in respect of the land is to be assessed, and is payable—
(i)as if the land were wholly owned by the owner or owners of the land who do not hold the prescribed interest (or, if relevant, any such prescribed interest); and
(ii)in a case in which subsection (9)(a)(ii) applies in relation to a beneficiary, as if the interest of the beneficiary did not exist.
(6)However, a preceding subsection will not apply for the purposes of the other provisions of this Act if the effect is to decrease the amount of land tax payable in respect of any land.
…
(9)For the purposes of this section—
(a) a reference to an interest in land is a reference—
(i)to an estate, interest or other circumstance that makes a person an owner of land under this Act (but does not include an interest consisting only of a right of occupation); or
(ii)to an interest that a person has in land that arises by virtue of a trust, either as trustee or beneficiary, other than—
(A)a trust arising because of a contract to purchase or acquire an estate or interest in the land; or
(B)an interest arising in any other circumstances prescribed by the regulations; and
(b) an interest may be or become subject to the operation of this section no matter when it was created, including in a case where the interest was created before the commencement of this section.
Assessments, decisions and appeals
The administration and enforcement of the Act is governed primarily by the Taxation Administration Act 1996 (SA) (the Administration Act).[17]
[17] Land Tax Act 1936 (SA) s 3.
The Commissioner is empowered to make an assessment of a land tax liability of a taxpayer.[18] However, the liability to pay land tax is imposed automatically by the Act and is not dependent upon the making of an assessment by the Commissioner.[19]
[18] Taxation Administration Act 1996 (SA) s 8.
[19] Tooth & Co Ltd v Newcastle Development Ltd (1966) 116 CLR 167 at 170 per Barwick CJ, McTiernan, Taylor, Menzies and Windeyer JJ (addressing comparable New South Wales legislation); Kalomel Nominees Pty Ltd v Commissioner of State Taxation [2012] SASC 10 at [30] per Gray J.
A person who is dissatisfied with an assessment by or non non-reviewable decision of the Commissioner is entitled to lodge a written objection with the Minister.[20] A person who is dissatisfied with the Minister's determination of the objection may appeal to the Supreme Court.[21]
[20] Taxation Administration Act 1996 (SA) s 82.
[21] Taxation Administration Act 1996 (SA) s 92.
It is common ground that, although the proceeding is described as an appeal, the hearing is a hearing de novo.[22] It is common ground that, when an appeal is against the formation of an opinion by the Commissioner under subsection 13A(3), the question on appeal is the objective fact of the purpose of the transactions.[23] It is common ground that the onus of proof lies on the taxpayer.[24]
[22] Cyril Henschke Pty Ltd v Commissioner of State Taxation [2008] SASC 360, (2008) 104 SASR 1 at [36] per Bleby J; Kyren Nominees Pty Ltd v Commissioner of State Taxation [2013] SASC 58 at [88] per Kourakis CJ. See also in the context of different legislation Tourism Holdings Pty Ltd v Commissioner of Taxation [2005] NTCA 3, (2005) 15 NTLR 80 at [7]- [20] per Martin CJ and [90]-[92] per Angel J (Mildren J dissenting).
[23] Kyren Nominees Pty Ltd v Commissioner of State Taxation [2013] SASC 58 at [88] per Kourakis CJ.
[24] Taxation Administration Act 1996 (SA) s 97; Kyren Nominees Pty Ltd v Commissioner of State Taxation [2013] SASC 58 at [89] per Kourakis CJ.
The trial
Two affidavits by Mr Scragg sworn in April 2016 and March 2017 were tendered by ACN. Mr Scragg gave brief evidence in chief and was cross-examined at length.
Various documents were tendered by ACN and the Commissioner.
Scope of the appeal
In the notice of objection lodged in June 2013 it was said that the objection was against the notices of assessment in respect of the 2011 to 2013 financial years.
In the notice of appeal filed in January 2015, the decision the subject of the appeal is identified as the Commissioner’s decision to aggregate the land owned by ACN for the assessment of land tax for the 2010 to 2013 financial years.
In the statement of facts, issues and contentions filed in August 2015, it is said that the appeal is for the 2010 to 2014 financial years.
The Commissioner contends that the appeal is limited to the 2011 to 2013 financial years because under section 92 of the Administration Act the right of appeal is limited to a person who has made an objection and is impliedly limited to the decision the subject of that objection.
I accept the Commissioner’s contention which follows from the text of section 92 and the structure of Part 10 of the Administration Act.
In any event, in respect of land tax for the 2010 financial year the liability to pay land tax is determined by reference to the position as at midnight at the end of 30 June 2009. At that time the only minority interests in existence in respect of the six properties the subject of the appeal were the one per cent interests that had been created on 30 June 1998 or upon the subsequent acquisition by ACN of the properties. ACN accepts that a purpose of the creation of those one per cent interests was to reduce the amount of land tax payable and that the presumption created by subsection 13A(2) cannot be rebutted.
In respect of the 2014 financial year, this issue is academic for reasons which will become apparent.
Purpose of creation of minority interests
Subsections 13A(3) and (5) in conjunction provide that a minority interest in land of between five and 50 per cent is to be disregarded and the majority owner is to be regarded as the sole owner of the land for aggregation purposes if:
the purpose, or 1 of the purposes, for the creation of the interest was to reduce the amount of land tax payable in respect of the land, or any other piece of land.
The sole question for determination on this appeal is whether a purpose for the creation of the ten per cent interests in June 2010 in respect of the six properties was to reduce the amount of land tax payable (a land tax purpose).
It is common ground that the six properties are to be considered collectively. In other words either there was a land tax purpose for the creation of the interests in respect of all six properties or there was no land tax purpose for the creation of the interest in respect of any of the properties.
Prima facie inference of land tax purpose
I first consider whether an inference could be drawn that reduction of land tax was a purpose for the creation of the ten per cent interests based on the objective facts and circumstances proved by the evidence before considering the effect of the evidence of Mr Scragg and the alternative reasons advanced by him in pre-action communications with the Commissioner about the relevant purposes.
The history of the ownership of the six properties together with the North Adelaide and East Street properties is summarised in the following table:
Property Acquisition pre 1998 30.6.98 Acquisition post 1998 30.6.10 183 Port Road (1997) ACN 100% ACN 99% Peter 1% ACN 89%
Peter 1%
Melanie 10%189 Port Road (1997) ACN 100% ACN 100% ACN 90%
Rosita/Legalese 10%North Adelaide
(1997)ACN 100% ACN 99%
Rosita 1%ACN 89%
Rosita 11%West Street (1999) ACN 99%
Legalese 1%ACN 89%
Legalese 11%87 Commercial Road (2002) ACN 99%
Naima 1%ACN 90%
Peter 10%Bacon Street
(2004)ACN 99%
Peter .5%
Melanie .5%ACN 89%
Peter .5%
Melanie 10.5%East Street
(2005)ACN 99%
Carla/Melanie 1%N/A 91 Commercial Road (2007) ACN 99%
Naima 1%ACN 100%
The question whether an inference should be drawn involves consideration of a combination of all relevant circumstances. The Commissioner’s case is a circumstantial one. It is necessary to consider each item of relevant evidence whether pointing in favour of or against the inference and weigh all of the evidence together including the evidence of Mr Scragg to determine whether the inference should be drawn.
Mr Scragg was aware in June 2010 of the provisions of section 13A of the Act and hence of the prima facie advantages of minority interests exceeding five per cent being created.
The timing of the transfers is suggestive of a land tax purpose. Land tax for the 2011 year was to be determined based on the position as at midnight at the end of 30 June 2010. On 29 June 2010 the seven transfers were stamped and on 30 June 2010 they were lodged at the Lands Titles Office for registration. The lodgement by the deadline of midnight at the end of 30 June 2010 would have been critical for land tax purposes.
The variety of the beneficiaries of the transfers is suggestive of a land tax purpose. As a result of the June 2010 transfers, subject to one exception only, there was no commonality of ownership as between the seven properties. Leaving aside the 89 or 90 per cent interest held by ACN in each property, the balance of the interest was held by:
· ACN (91 Commercial Road);
· Rosita (North Adelaide);
· Legalese (West Street);
· Rosita/Legalese jointly (189 Port Road);
· Peter (87 Commercial Road);
· Melanie and Peter (183 Port Road);
· Peter and Melanie (Bacon Street).
If Peter had not already had a 0.5 per cent interest in the Bacon Street property, Melanie would have been the only minority interest holder in that property, there would have been no commonality of ownership at all between the seven properties and subsection 13(3) would have operated prima facie to prevent aggregation (subject only to the operation of subsection 13A(3)). Accordingly, if it was overlooked that Peter had a 0.5 per cent interest in the Bacon Street property, the combination of beneficiaries of the June 2010 transfers was ideally suited to achieving prima facie aggregation.
The fact that the transfers included transfers not only to Rosita of a minority interest in one property and Legalese of a minority interest in another property but also a transfer to them jointly of a minority interest in a third property is suggestive of a land tax purpose.
The identity of the beneficiaries of the transfers is suggestive of a land tax purpose. The fact that Legalese, being a company whose function was to carry on the legal practice of Peter Scragg & Associates, was the beneficiary of minority interests in two of the properties suggests a land tax purpose. The fact that the beneficiaries of four of the transfers were Mr and Mrs Scragg and their company Legalese is suggestive of a land tax purpose. The fact that, of the five children, only Melanie was a beneficiary of the transfers is suggestive of a land tax purpose.
The fact that a single property, namely the 91 Commercial Road property, was not the subject of the creation of a minority interest is suggestive of a land tax purpose. If a reason for the June 2010 transfers was a land tax purpose, it would be entirely consistent with that purpose that one property could be left solely in the name of ACN because there would be no commonality of ownership with jointly owned properties.
The size of the minority interests transferred is suggestive of a land tax purpose. The figure of ten per cent is sufficiently above the subsection 13A(2) threshold that it does not look immediately like a contrivance as would be the case if a figure of six per cent were used. Conversely a figure of a higher order such as 25 or 40 per cent is suggestive of other reasons for the transaction.
The similarity between the transfers and the earlier one per cent transactions is suggestive of a land tax purpose. One per cent minority interests were created in June 1998 in respect of existing properties owned 100 per cent by ACN. One per cent minority interests were created on the acquisition between 2002 and 2007 of the West Street, 87 Commercial Road, Bacon Street, East Street and 91 Commercial Road properties. In the case of the one per cent transactions, Mr Scragg accepted and I find in any event that a purpose of the transfers was a land tax purpose. I find in fact that their sole purpose was a land tax purpose.
There was a pattern from 1998 onwards that ownership by ACN of all properties except one acquired by ACN would be accompanied by a one per cent minority interest. Moreover, subject to one exception, the minority interests were created so that there was no commonality of interest between any two properties, the minority interests being created in:
· 189 Port Road (wholly owned by ACN until 2010);
· North Adelaide (Rosita);
· West Street (Legalese);
· 87 Commercial Road (Naima);
· 183 Port Road (Peter);
· Bacon Street (Peter and Melanie);
· East Street (Carla and Melanie jointly); and
· 91 Commercial Road (Naima).
There was an ostensible reason for placing 91 Commercial Road in the names of ACN and Naima the same as 87 Commercial Road notwithstanding the aggregation consequence because of the imminent District Court Action by ACN and Naima against the Insurers and Brokers. The pattern of creating minority interests in varying combinations of persons and entities was repeated in June 2010 in respect of the ten per cent transactions.
The similarity between the June 2010 transfers and the June 1998 transfers is suggestive of a land tax purpose. In each case the transfers were lodged on 30 June and had been stamped on 29 June. The fact that Mr Scragg had in 1998 created minority interests for a land tax purpose at the end of June cannot in itself establish that this was his purpose in 2010 but it tends to confirm the drawing of the inference.
Leaving aside the competing explanations for the June 2010 transfers advanced by ACN addressed below, I would have no hesitation in drawing the inference that a purpose for the creation of the ten per cent interests in June 2010 in respect of the six properties was to reduce the amount of land tax payable.
Ultimate finding of purpose
ACN contends that a purpose for the Transfers was implementing an overall strategy by Mr and Mrs Scragg to transfer Scragg family assets to their children (succession planning) or out of the Trust to themselves and their children (divestment). In Mr Scragg’s evidence and submissions at trial emphasis tended to be on succession planning whereas in the pre-action communications with the Commissioner the emphasis tended to be on divestment.
ACN contends that the succession planning purpose was demonstrated historically by transactions in which Mr and Mrs Scragg and/or ACN benefited their children in respect of other properties. I first make findings in respect of those transactions.
I find that in 1992 Mr Scragg intended to benefit Eddie, Melanie and Carla when the McLaren Vale property was purchased. I find that $16,000 had already been dedicated to the use of Eddie, Melanie and Carla. I find that Mr and Mrs Scragg contributed approximately $13,000 to the three children to pay the balance of the purchase price and this was the extent of the benefit that Mr Scragg considered they were conferring upon the three children.
I find that in 1997 Mr Scragg intended to benefit Jacqueline when the Royal Park property was subdivided and Mrs Scragg transferred the house property to Jacqueline. I find that Mr Scragg considered that the benefit had a value of approximately $40,000.
I find that in 2006 Mr Scragg intended to benefit Victoria when the Port Wakefield was purchased. I find that Mr Scragg intended ultimately to benefit Victoria some time after she turned 18 and at a point when she could assume responsibility for the balance of the mortgage. I find that Mr Scragg considered that the value of the benefit would depend on the amount of the mortgage that had been paid off by the time the property was sold or transferred to Victoria. However, I find that Mr Scragg intended that whether Victoria ultimately obtained a benefit and its extent would depend on future events.
I find that in 2006 Mr Scragg intended to benefit Melanie when the house allotment comprising part of the Flinders Park property was transferred beneficially to her. I find that Mr Scragg considered that the benefit had a value of $60,000.
I find that in 2009 Mr Scragg intended to benefit Eddie when a 20 per cent interest was transferred into his name. I find that Mr Scragg considered the immediate benefit to have a value of approximately $40,000 (being the difference between $60,000 and Eddie’s contributions of $20,000). However, I find that Mr Scragg intended that whether Eddie ultimately obtained a benefit and its extent would depend on future events.
On the one hand I accept that Mr and Mrs Scragg intended to benefit their children to an extent during their lifetimes and otherwise by their wills and they had done this to some extent during the period leading up to 2010. I also accept and find that Mr and Mrs Scragg intended to treat their five children fairly and equitably although as Mr Scragg pointed out this did not necessarily mean numerical equality in terms of financial benefits. On the other hand I find that Mr and Mrs Scragg intended to retain control and ownership of the principal assets which they had acquired over their lifetimes at least until their retirement.
Dealing first with the contention that a purpose of the June 2010 transfers was to transfer Scragg family assets to their children (succession planning), there are several features of the transactions that suggest that this was not a predominant purpose. First, if this was the purpose, there was no relevance in the date 30 June 2010 and no need for the transfers to be lodged by that date. This stands in contrast to a land tax purpose in respect of which that date would have been critical for the reasons given above.
Secondly the only child who was the beneficiary of the June 2010 transfers was Melanie. If the purpose of the transfers was succession planning, it may be expected that several if not all of the children would have been beneficiaries. It is true that Melanie was an existing guarantor of the BankWest facility and no doubt BankWest would have required the other children to give guarantees and sign mortgages as a condition of consent. However if Mr and Mrs Scragg wished to implement succession planning, this was unavoidable. In any event the fact remains that the transfers overall cannot be characterised as transferring Scragg family assets to their children.
Thirdly transfers to Legalese or to Legalese jointly with Mrs Scragg would not advance the succession planning purpose. The same applies to transfers to Mr Scragg and Mrs Scragg.
Fourthly the transfers to Melanie were only ten per cent interests in 183 Port Road and Bacon Street for a combined consideration of approximately $35,000. This is not of such an amount as apparently to justify the cost and effort of the transactions including the necessity of obtaining the consent of BankWest. I note that Mr Scragg gave evidence that he did not want to risk upsetting his new relationship with BankWest by seeking consent to transfers for greater amounts. However, given the small size of the transfers to Melanie, equally they do not appear to justify the risk or effort in seeking BankWest’s consent.
Dealing next with the contention that the June 2010 transfers were the first step in a strategy by Mr and Mrs Scragg to transfer Scragg family trust assets to themselves and their children (divestment), while Mr Scragg advanced this reason since his first correspondence with the Commissioner in September 2010, Mr Scragg never gave a persuasive explanation why there was a desire or need to divest the assets of the Trust in June 2010. Mr and Mrs Scragg had not yet reached retirement age. They had consistently acquired assets in the name of the Trust over the previous 15 years and there was no ostensible reason for them to begin transferring the assets into personal names at that point.
In addition, transferring a ten per cent interest in the West Street property to Legalese and a joint ten per cent interest in the 189 Port Road property to Legalese and Mrs Scragg appears to be a backward step in an asset divestment strategy.
In addition, if there was an overall intention of divesting a ten per cent interest in each property owned by ACN, there is no reason why the 91 Commercial Road property was not also the subject of a transfer of a ten per cent interest. I note that Mr Scragg gave evidence that there was no such transfer because of plans to rebuild 91 Commercial Road but he did not satisfactorily explain why this would have inhibited such a transfer or why there was such a transfer of 87 Commercial Road.
ACN contends that a purpose for the June 2010 transfers was attempting to insulate Scragg family assets from potential creditors, namely the defendants in the District Court action if that action failed and costs orders were made against ACN (creditor planning).
Mr Scragg did not identify this as a purpose for the June 2010 transfers in the pre-action communications with the Commissioner up to and including the objection in June 2013. On the contrary, the attitude of the defendants in that action was advanced in those communications as an impediment to transfers of larger percentages being made. However, it may be that Mr Scragg was at that stage reluctant to admit to an intention of engaging in transactions to the detriment of ACN’s potential creditors.
Mr Scragg gave evidence that by June 2010 he was concerned about the prospect of ACN losing the re-trial of the District Court action and being faced with large adverse costs orders. He gave evidence that, if the defendants succeeded in the litigation, obtained costs orders against ACN and directly or via a liquidator of ACN applied for an order for sale of ACN’s properties, there would be a better prospect of resisting or discouraging such an application if a third party owned ten per cent as opposed to only one per cent of the property. He gave evidence that he thought that if the transfers were made for no consideration they might be susceptible to being set aside as settlements. He gave evidence that he did not intend that the transferees would pay to ACN the consideration shown in the transfers unless ACN lost the litigation in which case the transferees might need to account to a liquidator of ACN for the payment of the consideration.
Objectively the prospect of resisting an order for sale would not be significantly increased by a co-owner having a ten per cent as opposed to a one per cent interest. While I accept that a ten per cent co-ownership would give the co-owner greater leverage on details of a sale as Mr Scragg suggested, it is doubtful that this additional leverage would have been perceived as being worth the cost and effort of undertaking the June 2010 transfers.
In addition, if this was the purpose, it may be expected that there would also have been a ten per cent interest created in the 91 Commercial Road property.
Ultimately it is necessary to weigh together all of the evidence. While I accept that transferring a ten per cent interest and ten per cent joint interest in the 183 Port Road and Bacon Street properties to Melanie may in a general sense have advanced a purpose of giving interests in properties to the children and creating ten per cent third party interests in six properties in which ACN held a 99 per cent interest may in a general sense have given the Scraggs greater leverage on details of a sale, the reasons given above lead to an overwhelming inference and I find that a substantial purpose of the June 2010 transfers was to reduce the amount of land tax payable in respect of land owned by ACN. Mr Scragg gave evidence of the existence of other purposes in relation to the five properties globally without generally explicitly denying the existence of a land tax purpose. To the extent that his evidence might be characterised as denying that reducing land tax was a purpose, I could not accept his evidence.
Conclusion
I dismiss the appeal.
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