Adams Bidco Pty Ltd v Chief Commissioner of State Revenue

[2019] NSWSC 702

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Adams Bidco Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 702

Hearing dates:

3 May 2019

Decision date:

12 June 2019

Jurisdiction:

Common Law

Before:

Ward CJ in Eq

Decision:

Conclusions as per [166]. Parties to prepare short minutes of order to reflect reasons and/or any brief further written submissions on Issue 3 and/or costs.

Catchwords:

TAXES AND DUTIES – landholder duty – review of Duties Notice of Assessment by the Chief Commissioner of State Revenue – s 27(3)(a) of the Taxation Administration Act 1996 (NSW) – whether the plaintiff or a person acting on its behalf took reasonable care to comply with the Taxation Administration Act 1996 (NSW) and the Duties Act 1997 (NSW)

 

TAXES AND DUTIES – landholder duty – ss 26(1) and 28(1) of the Taxation Administration Act 1996 (NSW) – whether before the defendant informed the plaintiff that an investigation relating to the plaintiff was to be carried out, the plaintiff disclosed to the defendant in writing sufficient information to determine the nature and extent of the tax default

TAXES AND DUTIES – landholder duty – ss 25 and 33 of the Taxation Administration Act 1996 (NSW) – whether interest and/or premium interest should be remitted in full or in part – whether any penalty tax should be remitted in full or in part

Legislation Cited:

Duties Act 1997 (NSW), ss 140, 148, 149, 152, 155, 163D, Ch2, Ch 4
Land Tax Management Act 1956 (NSW), s 10AA
Taxation Administration Act 1996 (NSW), ss 3, 21, 22, 25, 26, 27, 28, 29, 33, 72, Div 2
Taxation Administration Act 1997 (Vic), s 30

Cases Cited:

Adams Bidco Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 735
Chief Commissioner of State Revenue v Adams Bidco Pty Ltd [2019] NSWCA 34
Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19; (2004) 56 ATR 82
Chief Commissioner of State Revenue v The Ettamogh Mob Australia Pty Ltd [2005] NSWADTAP 53; (2005) 61 ATR 200
Commissioner of State Revenue v Snowy Hydro Ltd (2012) 43 VR 109; [2012] VSCA 145
Deputy Commissioner of Taxation v Armstrong Scalisi Holdings Pty Ltd [2019] NSWSC 129
Dyda Pty Ltd v Commissioner of State Taxation (SA) [2013] SASC 156; (2013) 97 ATR 316
Federal Commissioner of Taxation v Traviati (2012) 205 FCR 136; [2012] FCA 546
Maritime Union of Australia v Minister for Infrastructure and Regional Development (2015) 238 FCR 464; [2015] FCAFC 187
Pharmos Nominees Pty Ltd v Commissioner of State Taxation (SA) [2012] SASC 24; (2012) 87 ATR 744
Pharmos Nominees Pty Ltd v Commissioner of Taxation (SA) (2012) 113 SASR 487; [2012] SASCFC 89
Power v Federal Commissioner of Taxation [2013] NSWCA 428; (2013) 284 FLR 42
Roads and Maritime Services v Desane Properties Pty Ltd [2018] NSWCA 196
Trust Co. of Australia Ltd v Chief Commissioner of State Revenue (NSW) [2002] NSWADT 21

Category:

Principal judgment

Parties:

Adams Bidco Pty Ltd (Plaintiff)
Chief Commissioner of State Revenue (Defendant)

Representation:

Counsel:
M Richmond SC with T Prince (Plaintiff)
J Hmelnitsky SC with M Sealey (Defendant)

  Solicitors:
PricewaterhouseCoopers (Plaintiff)
NSW Crown Solicitor’s Office (Defendant)

File Number(s):

2017/00213403

Publication restriction:

Nil

Judgment

1. HER HONOUR: In these proceedings, the plaintiff (Adams Bidco Pty Ltd) by summons filed 13 July 2017, applied for a review of the whole of an assessment notified to it by the defendant (the Chief Commissioner of State Revenue (NSW)) (the Chief Commissioner) by a Duties Notice of Assessment dated 16 September 2016 (the Assessment).

2. By the Assessment, the Chief Commissioner assessed the plaintiff to landholder duty in the amount of $7,976,073.60 in respect of the acquisition by the plaintiff on 27 June 2013 (the Relevant Date) of all the issued shares in Ingham Enterprises Pty Ltd (Ingham) (the Acquisition). Duty was payable under ss 140 and 148 of the Duties Act 1997 (NSW) (Duties Act) within three months of the Relevant Date (i.e., by 27 September 2013). As the duty had not been paid by that date, a “tax default”, within the meaning of s 3(1) of the Taxation Administration Act 1996 (NSW) (Administration Act), occurred on 27 September 2013 and the plaintiff then became liable (subject to the operation of ss 25, 27, 28 and 33 of the Administration Act) to pay interest and penalty tax under ss 21(1) and 26(1) of the Administration Act, respectively. The Assessment included the imposition of penalty tax in the sum of $1,091,648.41 (after a partial remission by the Chief Commissioner of the 25% penalty tax for which the plaintiff would otherwise have been liable pursuant to s 27(1) of the Administration Act) and interest in the sum of $1,390,107.19 (comprising both a component of market interest and, with a partial remission of this second component, a component of interest at the premium rate).

3. The plaintiff disputed that it was liable to landholder duty in respect of the Acquisition, contending that it was entitled to rely on the “primary producer” concession in s 163D of the Duties Act. It was ultimately unsuccessful in that contention, as I explain below. The dispute now before me relates principally to the imposition by the Chief Commissioner of penalty tax and interest (though there is a question of costs to which I will return in due course). The Chief Commissioner contends that the amount of interest and penalty tax determined in the Assessment was correct and that no further remission of penalty tax or interest is appropriate in all the circumstances.

Background

4. At all relevant times, Ingham acted as the holding company for the similarly named Inghams Enterprises Pty Ltd (Inghams) which operated a poultry production business in both Australia and New Zealand, including poultry production (both chickens and turkeys), poultry processing, wet pet food ingredients and stockfeed production. As part of this business, Inghams owned and operated more than 30 breeder farms, 12 hatcheries and 10 primary production plants, and owned around 22 million birds (comprising 1.6 million breeder birds and 20.4 million broiler birds) (see the affidavit affirmed 25 October 2017 of John Richard Hexton, the Chief Financial Officer, Company Secretary and Director Group Services of Inghams at the relevant times up to his retirement on 29 October 2013, and an alternative director of the plaintiff from 27 June 2013 to 29 October 2013, at [7] - [13], [18], [28], [30] and [35]).

5. On 9 March 2013, the plaintiff (then a newly formed company owned by funds managed by TPG Capital LP (TPG)) entered into a Share Sale and Purchase Agreement (Share Sale Agreement) to purchase all of the issued shares in Ingham from Robert Walter Ingham (the Seller). The Share Sale Agreement was completed, as noted above, on 27 June 2013.

6. On 30 September 2014 (some 12 months after the due date for payment of the duty) the plaintiff made a part payment of $3,609,479.94 towards the primary duty. The circumstances leading up to that part payment will be considered in due course. Suffice it for present purposes to note that it represented approximately half of the amount that the plaintiff’s advisers had contended (in submissions to the Chief Commissioner) was the amount of landholder duty payable if the primary producer exception did not apply; but less than half of what the Chief Commissioner had requested be paid at that stage (which itself was less than the amount that the Chief Commissioner had advised the plaintiff that he considered to be payable). The Assessment was issued on 16 September 2016. On 29 November 2016, the balance of the primary duty was paid, but without payment of interest or penalty tax referred to in the Assessment.

7. While the plaintiff accepted that, if the concession in s 163D of the Duties Act did not apply, it was liable to pay landholder duty in the amount assessed, it nevertheless contended that it was not liable to pay penalty tax (on the basis that it had exercised reasonable care within the meaning of s 27 of the Administration Act) or otherwise that the penalty tax should be reduced and it sought remission of the interest assessed (plaintiff’s submissions at [5]).

8. Following the determination by the Chief Commissioner (adverse to the plaintiff) of the plaintiff’s objection to the Assessment, these proceedings were commenced on 13 July 2017. Both parties agreed that the Acquisition was an “acquisition” of a 100% “interest” in a “landholder” within the meaning of Ch 4 of the Duties Act; that it was a “relevant acquisition” within the meaning of s 149 of the Duties Act; and that, subject to the application of the concession in s 163D(1), on the Relevant Date the plaintiff became liable to pay landholder duty under s 148 of the Duties Act but that no tax default would occur if the duty was paid within three months after that date (i.e., on or before 27 September 2013). Conversely, it was also accepted by both parties that if the concession in s 163D(1) did apply to the plaintiff then no landholder duty, penalty tax or interest was payable. Both parties also ultimately agreed on the quantum of any landholder duty payable if the Chief Commissioner’s contention that duty was payable was correct (though there was some dispute as to quantum during the period prior to about June 2016).

9. The matter initially came before Pembroke J for hearing on 21 May 2018. His Honour held that, at the relevant date, Ingham was a primary producer within the meaning of s 163D(3) of the Duties Act and that the plaintiff was entitled to rely on the primary producer exemption, ordering that the Assessment be revoked and that the Chief Commissioner pay the plaintiff’s costs (see Adams Bidco Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 735). His Honour did not consider it necessary to deal with the remainder of the issues that were raised in the parties’ respective Appeal Statements (i.e., the challenges by the plaintiff to the imposition of penalty tax and interest if landholder duty were payable); and, indeed, did not hear any evidence addressed to those issues though the matter had been fixed for a two day hearing for that purpose.

10. The Court of Appeal (see Chief Commissioner of State Revenue v Adams Bidco Pty Ltd [2019] NSWCA 34) subsequently allowed the Chief Commissioner’s appeal from the primary judgment, set aside the orders made by Pembroke J, and remitted the proceeding to the Equity Division for hearing and determination of the remaining issues raised in the proceeding, with the costs incurred to date at first instance to be within the discretion of the judge to whom the hearing of the remaining issues in the case was remitted. On remittal to the Equity Division, the matter was listed before me and, accordingly, I heard the remaining issues in the proceeding on 3 May 2019 (regrettably, just shy of a year from the date on which the proceeding had initially been listed for hearing).

Issues

11. Since the Court of Appeal has now determined the first issue in the proceeding, concluding that Ingham was not a primary producer within the meaning of s 163D(2) (since its landholding in all places did not wholly or predominantly comprise land used for primary production – see at [31], [54], [65], [201]), and there is no dispute between the parties as to the amount of landholder duty assessed, the issues remaining to be dealt with (Issues 2-5 as enumerated in the parties’ original submissions for hearing and as set out below) concern penalty tax and interest; together with the question of costs of the first instance hearing (which I will treat as Issue 6).

12. Although, in the plaintiff’s description of Issues 2-5 (with which the Chief Commissioner agrees), it is said that if Issue 2 is determined in favour of the plaintiff then Issues 3, 4 and 5 do not arise, having regard to the history of this matter (and even apart from the criticism made by the Court of Appeal as to the course adopted at the first hearing of the proceedings), I indicated to the parties at the hearing before me that I would be addressing Issues 3-5 whatever my conclusion as to Issue 2 might be.

13. The Issues, thus, to be determined (retaining the original numbering and adding the further issue) are as follows:

2.   Did the plaintiff or a person acting on its behalf take reasonable care to comply with the Duties Act and the Administration Act? If yes, then by reason of s 27(3)(a) of the Administration Act no penalty tax is payable and it is said that Issues 3, 4 and 5 do not arise.

3. If no to 2, did the plaintiff, before being informed by the defendant that an investigation relating to the taxpayer was to be carried out, disclose to the defendant, in writing, sufficient information to enable the nature and extent of the plaintiff’s tax default to be determined? If yes, then by reason of s 28(1) of the Administration Act the original amount of the penalty tax payable by the plaintiff under s 26(1) of the Administration Act is reduced by 80%.

4. If no to 2, in the circumstances should any penalty tax payable (after any reduction in accordance with s 28(1) of the Administration Act) by the plaintiff be remitted in full, or in part pursuant to s 33 of the Administration Act?

5. In the circumstances should the interest and/or premium interest assessed by the defendant be remitted under s 25 of the Administration Act, either in full or in part to a greater degree than provided for in the Assessment?

6.   What order should be made as to the costs of the first hearing of the matter?

Position of the Seller

14. Before setting out in more detail the factual background relevant to the determination of the above issues, I note a feature of the matter to which attention was drawn by the Chief Commissioner (and which it is said by the Chief Commissioner is of relevance to the assessment of whether the plaintiff had taken reasonable care for the purposes of s 27(3)(a) of the Administration Act), that being that, as part of the arrangements reached in relation to the Acquisition, it was the Seller (with his advisers), and not the plaintiff, who had the conduct of dealings with the Office of State Revenue (OSR) (i.e., the making of submissions to the Chief Commissioner and the conduct of all of the relevant discussions and negotiations), even though the liability to pay landholder duty is a liability of the plaintiff.

15. This is because as part of the arrangements reached in relation to the Acquisition (and as provided for in the Share Sale Agreement – see cl 18), the plaintiff has the benefit of a contractual indemnity in relation to duty payable in respect of the Acquisition. Mr Hexton has deposed (Mr Hexton’s affidavit at [44]) that during the sale process “it became obvious that stamp duty would be an important cost consideration for the sale process”; and (at [55]) that the plaintiff wanted to be indemnified for the stamp duty that might be payable and a clause was negotiated in the sale agreement to the effect that the Seller would be liable to pay landholder duty over a certain threshold but, if the duty payable was less than the threshold, the Seller would be entitled to a refund.

16. The Chief Commissioner argues that the effect of that arrangement is that the plaintiff has effectively insured itself against any adverse taxation consequences but that any “upside” in successfully disputing the Assessment inures for the financial benefit of the Seller (Chief Commissioner’s submissions at [82](d)). The Chief Commissioner argues that, in effect, the plaintiff has not put itself in a position to take reasonable care because in substance it has delegated the entire process to the Seller who has a specific commercial interest in landholder duty not being payable, “being an interest over and above the dollar value of the duty” (Chief Commissioner’s submissions at [82](f)). This is because it is perceived that the purchase price for the shares was greater than it would otherwise have been by reason of the indemnity arrangement (a not unreasonable assumption having regard to Mr Hexton’s evidence referred to above). In other words, the Chief Commissioner says that, in substance, the Seller is acting on his own behalf in his own commercial interest, having contracted to have the power to deal with the Chief Commissioner for his financial benefit; and that the question of reasonable care should not be approached having regard to what was reasonable from the perspective of the Seller and the Seller’s financial interests.

17. Pausing here, I did not understand the plaintiff by its submissions to be advocating that reasonable care was taken by it to comply with the taxation law by reference to what might be considered to have been reasonable on the part of the Seller; nor that the plaintiff should be taken to have exercised reasonable care by reference to the indemnity arrangement with the Seller. Nor, however, do I consider that such an indemnity arrangement of itself necessarily involved an abdication by the plaintiff of the exercise of reasonable care to comply with its taxation obligations; and in this regard it appears that the plaintiff itself sought advice as to the prospect of landholder duty arising as a result of the Acquisition and was later involved (at least to some extent) in the making of decisions as to the course to be taken in respect of any such duty.

18. Ultimately, I consider that whether the plaintiff took reasonable care in that regard will be determined by reference to the plaintiff’s conduct (not to the fact that arrangements have been put in place whereby the financial benefit of a favourable decision on the issue of landholder duty, or conversely the downside of an unfavourable decision, would be enjoyed or borne, as the case may be, by the Seller) and I accept the plaintiff’s submission that the indemnity arrangement is not relevant to the application of the objective test as to whether reasonable care was taken.

Further factual background relevant to the penalty tax/interest issues

19. It is convenient at this point to set out some further factual background which is of relevance to the determination of the penalty tax/interest issues presently for consideration. Where there is dispute as to these matters I have indicated the nature of that dispute. Otherwise, the following is drawn from the parties’ respective submissions and material referred to in the Court Book on this hearing.

20. In around May 2012, the Seller commenced a public sale process for the shares in Ingham (Mr Hexton’s affidavit at [42]). Negotiations concerning the proposed sale began in around July 2012 and continued in the following months (Mr Hexton’s affidavit at [42]-[43]). Mr Hexton had principal responsibility at Inghams for the day to day negotiations concerning the proposed sale and acted as the Seller’s representative in those negotiations (Mr Hexton’s affidavit at [43]).

21. As noted above, and not surprisingly, the tax consequences of the proposed acquisition were the subject of consideration during the sale process, including whether Ingham would qualify for the “primary producer” concession under s 163D(1) of the Duties Act. In around late November 2012, Mr Hexton sought advice from PricewaterhouseCoopers (PwC) in relation to the stamp duty consequences of the proposed sale (Mr Hexton’s affidavit at [44]). (An engagement letter was signed with PwC in February 2012.)

22. By email dated 27 November 2012, PwC sent to Mr George Wosinski, formerly Group Taxation Manager at Inghams, a draft memorandum dated 27 November 2012, in which it was said that “it may be difficult to support the argument that Ingham’s landholdings predominantly comprise land used for primary production because any manufacturing/processing and distribution centres are unlikely to qualify as primary production land”.

23. During December 2012, Mr Hexton had a number of discussions with PwC concerning stamp duty issues, including the possible application of the primary producer concession (Mr Hexton’s affidavit at [45]). Mr Hexton has deposed in his affidavit that he does not recall the precise content of those discussions (though he did give some evidence during cross-examination of some oral advice he recalled having been given – see [26] below) but clearly recalls agreeing to PwC’s recommendation to make an informal approach to the OSR, and seeking a private ruling to confirm the position (Mr Hexton’s affidavit at [45]). In an email dated 11 December 2012 from Mr Jamie Ward (a Senior Manager at PwC) to Mr Adrian Green (of PwC) there was reference to discussions in early December 2012 between PwC and the OSR concerning the possibility of making a private ruling.

19. On 22 January 2013, Mr Hexton received an email which attached a memorandum of advice (dated 21 January 2013 from PwC to Mr Wosinski), containing the statement (similar to that contained in the 27 November 2012 email referred to above) that “[i]t may be difficult to satisfy the argument that Ingham’s landholdings predominantly comprise land used for primary production due to the manufacturing, processing and distribution activities undertaken on many of the sites”. The memorandum indicated that there was “minimal guidance” in relation to the interpretation of the provision and that the cases on similar provisions in other contexts “tend to support using land area to determine the extent of the use in a particular application (as opposed to land value)”. It was at least implicitly conveyed by that memorandum of advice that, if land area were to be used, the concession would likely be available but that the concession would not be available if land value were to be used. The conclusion set out in that memorandum was that:

Based on the work undertaken, a land area test provides a primary production use of over 90%. However, based on land values, the primary production percentage is less than 50%. As discussed, certainty is to be obtained by seeking a private ruling to confirm the position. (my emphasis)

25. On 23 January 2013, Mr Hexton confirmed that a private ruling should be sought (Mr Hexton’s affidavit at [49]).

26. Pausing here, in cross-examination, in the context of his repeated evidence that he had a strong view or belief at the time that the primary producer concession would be allowed, Mr Hexton referred to oral advice from PwC to the effect that there was a very good chance of that. As already adverted to, Mr Hexton did not depose to any such conversation to that effect in his affidavit. What he said in cross-examination, relevantly, was (from T 12.31):

Q.   Yes, but you understood, didn’t you, that whether or not the Commissioner ultimately granted that exemption, that there was an amount of duty, at least on the Commissioner's view on how the legislation worked, that was due and payable in late September 2013?

A.   My view was that we didn’t ‑ that we would get that concession, it was very strongly, from the advice that I had been given, in my 35 years in the industry, my knowledge that I had been given that our land was predominantly used for primary production, with all our breeder birds and broader birds and that covering 80% of the land met that assessment. My advice had been given that land was predominantly the ‑ the criteria. The fact that the Commissioner, I understood, had given some verbal indication that integrated business were not excluded and, putting that together, my view was that we should be waiting for a decision on whether or not we were going to get the concession.

Q.    But you had been told that it might in fact be very difficult to demonstrate an entitlement to this concession?

A.    No. I had been told it was difficult, not necessarily very difficult. It was certainly unclear.

…

A.    My view was that we would ‑ we had a very good chance of not having to ‑ of getting that concession.

Q.    I see, and that was your‑‑

A.    And that was my view, it was the view of the advisers that were advising us.

Q.    Your advisers gave advice about that?

A.    Yes.

Q.    Written advice?

A.    No, verbal advice.

Q.    Which advisers?

A.    And strong advice, that—

Q.    Which advisers, Mr Hexton?

A.    Well, by Pricewaterhouse, in terms of whether or not we were ‑ had strong position, in terms of getting the primary concession.

Q.    And‑‑

A.    And I believe we did, from the information that I was given and from the assessment of the information before me.

Q.    And you say that the advice was given by someone at Pricewaterhouse?

A.    In terms of what the odds were, if you like, and whether we had a strong case for achieving that concession.

Q.    Who gave you that advice?

A.    Pricewaterhouse.

Q.    Who? Who though, Mr Hexton?

A.    Well, the advisers in Pricewaterhouse.

Q.    Did someone in particular refer you to that? You don’t refer to that in your affidavit, Mr Hexton. Can you tell us now, who told you that you?

A.    Probably Adrian Green but, you know, various partners and people in Pricewaterhouse.

…

Q.    And you say that advice was given as to the strength of the argument?

A.    Well, the advice was given, in terms of what ‑ to get that primary concession business, land had to be wholly or, as I understood it, predominantly used for primary production. 80% of our land was primary ‑ used for, in my view, primary production. It was for the raising and ‑ breeding and raising of chickens, turkeys and ducks and that’s what we did. We were a primary producer for income tax. Our stock was valued. All that information together gave me a strong view that we would have a very good chance of being entitled to that concession.

27. There is no documentary evidence to confirm (and the Chief Commissioner disputes) that any such verbal indication was given by the OSR on the issue of the availability of the concession; and it is difficult in the circumstances to place any weight on Mr Hexton’s somewhat belated recollection of such a conversation, particularly in the absence of a full account of the relevant communication.

28. By letter dated 24 January 2013, PwC made a request to the OSR for a private ruling to the effect that Ingham was a primary producer for the purposes of s 163D of the Duties Act. The private ruling application was said to be made on behalf of the proposed purchaser of Ingham (referred to in the application as “Bidco”, there being two main “remaining” bidders at that time – namely, Blackstone Group and TPG (Mr Hexton’s affidavit at [49]; [51])).

29. PwC’s 24 January 2013 letter contained factual and legal submissions in support of the requested ruling. The position there adopted was that, on an area basis, the land was predominantly land which would be exempt pursuant to s 10AA of the Land Tax Management Act 1956 (NSW). The letter also contained a table (Appendix A) headed “Land holdings held directly and indirectly by Ingham”, listing properties identified by street address and suburb in each state of Australia as well as in New Zealand; noting the size in hectares of each property, a short description of the “use” (such as “farm”), and a value for the “land”, as well as values for improvements and buildings. The table contained a “total” value for the land (for New South Wales this being $155,365,000). The Chief Commissioner in his submissions (at [146]) asserts that the application for a private ruling was not accompanied by OSR ‘Application for a Private Ruling’ form (Form 26). The plaintiff says this is incorrect (and inconsistent with the admission at [52] of the Defendant’s Appeal Statement and the Private Ruling Application) (see the plaintiff’s reply submissions at [33](c)).

30. I interpose here to note that the Chief Commissioner believes that the values for land in New South Wales appearing in the document referred to above were taken from valuations “purporting to be as at 30 June 2012” (referring to a letter dated 12 September 2013 from WK Wotton & Partners – which it is said suggests that those reports were prepared by that firm at some earlier point). The Chief Commissioner says that these valuations were only provided to him subsequent to a PwC email dated 19 June 2015; and were not provided at the time of the request for a private ruling. The Chief Commissioner further says that the information contained in Appendix A was not supported by evidence and that the information was not verifiable by him. The plaintiff cavils with those propositions. The plaintiff says that the results of land valuations conducted as at July 2012 were provided to the Chief Commissioner on 24 January 2013 as part of the private ruling application (in Appendix A) and that the actual valuations were on a disc provided to the Chief Commissioner on 13 September 2013 (referring to a letter dated 13 September 2013 from Inghams to a delegate of the Chief Commissioner that makes reference to a “CD of the documents” being attached – see the Court Book at Tab 43, Part B). Further, it is said that a valuation of the New South Wales land and goods as at 27 June 2013 was provided to the Chief Commissioner on 30 September 2014 (referring to a letter dated 30 September 2014 from PwC to the OSR which encloses the Inghams valuation from WK Wotton & Partners and PwC’s valuation of dutiable assets in New South Wales for stamp duty reporting purposes for Ingham – see the Court Book at Tab 76, Part B).

31. On 25 January 2013, KPMG (which was advising TPG) commenced due diligence work in relation to the proposed acquisition of Ingham (see the letter dated 30 January 2013 from KPMG at Tab 8, Part B, of the Court Book). An electronic data room was established to allow KPMG access to information about Ingham (see Mr Hexton’s affidavit at [51]). A copy of PwC’s advice was, it seems, included in the electronic data room (see the reference to a Vendor Due Diligence Report, or VDD report, in the KPMG draft due diligence report referred to below).

32. On 14 February 2013, KPMG issued a draft Phase 1 due diligence report which included the following advice:

Primary production concessions may be available where landholdings consist wholly or predominantly of land held for primary production.

NSW offers a concession on landholder duty on the acquisition of an interest in a primary producer. If the Target is a primary producer, landholder duty is only payable if the landholdings are 80% or greater of total property.

A primary producer is a landholder whose landholdings in all places (within or outside Australia) wholly or predominantly comprise land used for primary production.

We have considered whether the primary production concession would apply to Inghams.

The information available to us in the VDD Report and the dataroom indicates that the prospects for claiming the primary production exemption in NSW are low (as Inghams holds non-land property of significant value), however this is subject to further investigation.

33. The plaintiff submits that it is apparent that the reason given for the above advice involved a misunderstanding of the test in s 163D of the Duties Act, on the basis that the only reason given for the view as to prospects was that “Inghams holds non-land property of significant value” (see plaintiff’s reply submissions at [34](a)).

34. In early March 2013, an updated version of the PwC advice was placed in the dataroom and was emailed to KPMG (Mr Hexton’s affidavit at [52]-[54]).

35. On 6 March 2013, the plaintiff was incorporated.

36. On the same day, KPMG issued its final Phase 1 and Phase 2 due diligence reports, which included the following statements:

NSW offers a concession on landholder duty on the acquisition of an interest in a primary producer. If the Target is a primary producer, NSW landholder duty would be payable only if the landholdings are 80% or greater of total property.

A primary producer is a landholder whose landholdings in all places (within or outside Australia) wholly or predominantly comprise land used for primary production.

We have considered whether the primary production concession would apply to the Target. The information available to us in the VDD report and the data room indicates that the prospects for claiming the primary production exemption in NSW are low (as the land holdings may not consist wholly or predominantly of land used for primary production).

However, based on discussion with PwC, we understand that PwC have applied for a ruling from the [OSR] to confirm that the concession is available for [Ingham]. PwC have indicated that discussions with the OSR have appeared to be favourable. [Note that the last sentence was admitted at the hearing before me subject to a limitation order]

37. I interpose here to note that the Chief Commissioner again disputes that a favourable indication of the kind referred to in the KPMG due diligence reports was provided by the OSR and says that there is no evidence supplied by the plaintiff to support it. The Chief Commissioner submits that, on the evidence filed by the plaintiff, it does not appear that there was any ground for the assertion that discussions with the OSR “appeared to be favourable” at any time before the report was prepared. The Chief Commissioner points to the email dated 11 December 2012 from Mr Green (of PwC) to Mr Ward (of PwC) (see the Court Book, Tab 5, Part B) recording what appears to be the first communication with the Chief Commissioner on the subject of whether the primary producer concession might apply and says that there is nothing in this record which could be construed as a “favourable” view on the application of the concession; nor is there anything in the records of telephone conversations with officers of the Chief Commissioner that could be construed as conveying a “favourable” view on the concession. The Chief Commissioner also points in this regard to the fact that both KPMG reports to the plaintiff (or TPG) indicated that the prospects for claiming the primary production exemption were “low”. (As adverted to above, the plaintiff cavils with the Chief Commissioner’s characterisation of the KPMG advice – see plaintiff’s reply submissions at [34](a).)

38. On 9 March 2013, the parties entered into the Share Sale Agreement, which relevantly contained cl 18, making provision for the indemnity in respect of landholder duty to which I have already referred. The plaintiff accepts that, pursuant to the Share Sale Agreement, it is contractually liable to pay any landholder duty but notes that the Seller provides an indemnity to the plaintiff for landholder duty in excess of $25,735,000. The plaintiff points out that, under cl 18, the Seller is also contractually responsible for making lodgements in respect of landholder duty, and has the exclusive contractual right to object and appeal any assessment of landholder duty; and that the Seller is contractually obliged to consult with the plaintiff in good faith and obtain the plaintiff’s consent in relation to any action the Seller may wish to undertake in relation to landholder duty.

39. By letter dated 13 March 2013, the Chief Commissioner responded to the 24 January 2013 request made by the Seller for a private ruling, noting that newspapers had reported that the Share Sale Agreement had been entered into and stating that “in these circumstances we will not be issuing any private ruling in this matter”. The letter also noted that the application for the ruling was not made by the taxpayer (i.e. “the purchaser of the shares in the company”).

40. By letter dated 4 April 2013, PwC wrote to the Chief Commissioner: referring to the 13 March 2013 letter; stating that completion of the Share Sale Agreement was yet to occur and that there had been no changes to the facts contained in the 24 January 2013 letter; and asking for confirmation that s 163D applied to Ingham so that no landholder was payable on the acquisition. The Chief Commissioner responded to this letter by letter dated 30 May 2013 (see below at [43]). Meanwhile, it appears that officers of the OSR had indicated that the matter was “not a straightforward matter”- see the email dated 22 April 2013 from Ms Sara Hee Song (of PwC).

41. By letter dated 24 May 2013, KPMG, on behalf of the plaintiff, wrote to the Chief Commissioner, stating inter alia that:

We understand that the landholder duty aspects of this transaction will be the subject of separate correspondence with your office on behalf of the Seller. By the agreement of the parties, the Seller is responsible for making all lodgements with respect to landholder duty (refer to clause 18.1(c) of the [Share Sale Agreement]).

Accordingly, we do not enclose an Acquisition Statement nor make any representation with respect to landholder duty.

42. The plaintiff says that, between 19 April 2013 and 30 May 2013, PwC made numerous requests to the Chief Commissioner to determine the status of the matter (and continued to do so until an assessment was issued more than three and a half years after the initial private ruling request) (referring to the documents in the Court Book, Part B, at Tabs 28-30, 32-34, 49-50, 54-63, 65, 71-73, 76-81, 83-88, 94, 96 and 100).

43. As adverted to above, by letter dated 30 May 2013, the Chief Commissioner wrote to PwC, referring to the letters dated 24 January 2013 and 4 April 2013 (in which PwC had asserted that the exemption under s 163D applied) and stating:

We are seeking legal advice from the Crown Solicitor on this matter.

We will let you know if we need any (and if so, what) further information in order to determine whether the exemption in sec.163D applies in this case.

We note that any liability to pay landholder duty under Chapter 4 of the Duties Act 1997 will arise if and when the Ingham Share Sale and Purchase Agreement of 9 March 2013 is completed (Duties Act 1997, secs.148, 161). (We understand that completion is likely to occur on 24 June 2013 or 1 July 2013.) If the exemption in sec.163D does not apply, then the purchaser will have 3 months from this date to pay the landholder duty without committing a tax default for the purposes of the Taxation Administration Act 1996 (NSW) (Duties Act 1997, sec. 153).

44. As noted above, completion of the Share Sale Agreement took place on 27 June 2013. (The Chief Commissioner notes that no other correspondence was received at this stage from, or on behalf of, the plaintiff or the Seller in relation to landholder duty, notwithstanding completion of the Share Sale Agreement; and that no acquisition statement or exempt acquisition statement was lodged until 30 September 2014.)

45. After the completion date of the Share Sale Agreement, the Chief Commissioner commenced an investigation.

46. By letters dated 26 August 2013, the Chief Commissioner issued notices pursuant to s 72 of the Administration Act to each of the plaintiff, Ingham and an advisor (Investec) (collectively, the s 72 notices). The introduction to the notice to the plaintiff was substantially similar to that of the other notices and stated as follows:

Adams Bidco Pty Ltd - Acquisition of Ingham Enterprises Pty Ltd

Notice under s.72 of the Taxation Administration Act 1996

Pursuant to section 72 of the Taxation Administration Act 1996 (TAA), please provide to me, within four (4) weeks of the date of this notice, the information, instruments and records requested below. This request is made for the purposes of determining the tax liability or potential tax liability of Adams Bidco Pty Ltd. [my emphasis]

47. The following items were requested from the plaintiff:

1.    All expressions of interest, offers, offered terms, memoranda of understanding, term sheets and heads of agreement submitted by Adams Bidco Pty Limited or on its behalf in connection with its purchase of all the shares In Ingham Enterprises Pty Ltd.

2.    Copies of any independent valuations (whether of the business or your landholdings) obtained by or on behalf of Adams Bidco Pty Limited or its financier(s).

48. The following items were requested from Ingham:

1.   Information as to how all the real property held by the Inghams Group (being the freehold property and leasehold property set out In Schedule 7 to the Inghams Share Sale and Purchase SSA (“the Agreement”)) is being used both in Australia and New Zealand.

2.   A detailed breakdown of all of the sources of the revenues of the Inghams Group’s business (“the Business”).

3.   A detailed breakdown of how the Inghams Group’s workforce is employed in the various facets of its overall business enterprise.

4.   A breakdown of the salaries and wages paid to the Inghams Group’s workforce in the last 3 financial years set out on a separate business division by separate business division basis.

5.   The most recent independent valuations of all real property owned or leased by the Inghams Group as identified in Schedule 7 to the Agreement.

6.   The internal management accounts of the Group (as referred to in clause 2.3 of Schedule 3 to the Agreement).

7.   The completion accounts (as referred to in clause 8 and Schedule 5 to the Agreement).

8.   All land tax records and information on the land tax status of all real property owned or leased by the Inghams Group as identified in Schedule 7 to the Agreement.

9.    The documents marked with an asterisk in the enclosed copy of the Data Room Index annexed as Annexure B to the Agreement (to the extent that the documents, for example, valuation reports, have not already been requested in paragraphs 1 to 8 above).

49. Pausing here, the Chief Commissioner argues, and I would accept, that commencement of an investigation, to determine the tax liability of the plaintiff in relation to the Acquisition, is not consistent with there having been an acceptance at that stage of the plaintiff’s (or Seller’s) claim that the exemption in s 163D applied; and argues, and again such an inference is readily available given the experience of the plaintiff’s advisers, that this was presumably apparent to the plaintiff or its advisers.

50. By email dated 26 August 2013, Mr David Brooks of TPG forwarded the s 72 notice to Mr Watts, a director of the plaintiff, and Mr Hexton, referring to the fact that the notice was issued “under s. 72 of the Tax Administration Act” and that it was assumed to be “related to the ongoing stamp duty work / assessment”.

51. Responses to the s 72 notices were in due course received by the Chief Commissioner from the Seller and the plaintiff (and documents were provided on 12, 13 and 17 September 2013). The Chief Commissioner notes in this regard that the plaintiff’s letter dated 17 September 2013 commenced with the words:

We refer to your letter of 26 August 2013 regarding your request for information, instruments and records for the purpose of determining the tax liability or potential tax liability of Adams Bidco Pty Ltd

submitting that this indicates that the plaintiff was aware at this stage that the information was sought for the purpose of determining the tax or potential tax liability of the plaintiff.

52. On 17 September 2013 (and, therefore, shortly before the last day by which payment could be made to avoid a tax default, namely 27 September 2013), an email was sent by PwC to Mr Watts, setting out various courses of action in relation to payment of the duty, including:

The alternate course of action is to pay the duty to the OSR on a without prejudice basis, making it clear that we are not conceding our case. Ultimately, the choice as to whether or not to settle the duty will depend upon your cost of funds. I understand TPG have drawn down the funds to finance the duty and that the funds are available for immediate disbursement. If the opportunity cost of the bank interest is higher than the current cost of funds imposed on the later payment of the duty, then you might pay the duty. [my emphasis]

53. The Chief Commissioner says that it should be inferred, in light of the above advice, that the cost of funds and commercial considerations were at least part of the reasons why no payment was made. Relevantly, in this regard, the email makes no reference to uncertainty as to the amount which would be payable as duty as the reason for not making payment at that stage.

54. In the morning of 27 September 2013, Mr Hexton emailed Mr Brooks at TPG as follows:

I can confirm on behalf of Bob [the Seller] that we have requested and agreed to the position not to pay the NSW stamp duty on the basis of the exemption ruling requested. In the event the OSR charge penalties or interest in the event stamp duty is payable I can confirm that those payments will be included in the calculation of stamp duty paid for the purpose of the adjustment in the agreement and are therefore in effect to Bobs [sic] account.

If you need anything further please let me know.

55. On 28 February 2014, there was a telephone conversation (to which reference was subsequently made in a letter from PwC dated 30 September 2014 – see Tab 76, Part B, of the Court Book) in which a representative of the Chief Commissioner (according to the PwC letter, which version of the conversation the Chief Commissioner accepts – see fn 16 to the Chief Commissioner’s submissions) conveyed the following: that the OSR did not believe s 163D applied based on advice from the Crown Solicitor; that the Crown Solicitor’s advice was not yet available in writing (and would not be available for a couple of weeks); and that, once the Crown Solicitor’s advice was obtained, a letter would be issued together with an assessment explaining the decision.

56. It took over six months for the foreshadowed letter to be sent. By letter dated 2 September 2014, the Chief Commissioner wrote to PwC in relation to the Acquisition, stating that: the Chief Commissioner did not accept that Ingham was a “primary producer” within the meaning of s 163D(2) of the Duties Act (for the reasons there set out); the plaintiff had to complete and lodge an acquisition statement in accordance with s 152 of the Duties Act within 28 days of the letter; duty would be assessed on 100% of the unencumbered value of the landholdings and (non-exempt) goods in New South Wales of Ingham (s 155(1) of the Duties Act) and an allowance would be made in respect of the share transfer duty payable under Ch 2 (s 155(5) of the Duties Act). Updated valuations were requested of New South Wales land holdings and non-exempt goods. The letter noted that a tax default had occurred, and that this meant the plaintiff became liable to pay interest and penalty tax. Representations regarding possible remission of interest and penalty tax were invited. The letter also stated that the total value of Ingham land holdings, on the basis of the sum of the 2012 values of the individual New South Wales landholdings was $139,423,000, and that duty calculated on this value would be about $7,653,000. (It is noted in the Chief Commissioner’s submissions that the figure of $139,423,000 inadvertently omitted the Leppington and Liverpool Head Office properties which are said to have a combined value of $18,871,000 and which were listed separately in the PwC table.) The letter stated the plaintiff should make payment of this amount (noting that this amount of duty was to be subject to receiving updated valuations which had been requested).

57. The plaintiff notes that the September 2014 letter was sent more than 18 months after the application for the private ruling, and that the reasoning in that letter was later rejected by the Chief Commissioner in his Assessment Paper dated 24 August 2016 (see [61] below). The Chief Commissioner, however, points to this letter as putting the plaintiff squarely on notice of the requirement to pay the duty.

58. On 18 September 2014, PwC sent Mr Hexton an email, stating, among other things:

In NSW, we would calculate the duty on the same basis as has been submitted in the other states (ie adjusting for portfolio size and economic obsolescence). Based on the current draft PwC valuation report the NSW duty estimate (if imposed) is approximately $7.54m [I interpose to note, less than the Chief Commissioner’s calculation]. 50% of this duty would be $3.77m. The valuation report is currently being finalised and we will be able to provide an exact estimate based on the final report shortly but it is not expected to be materially different.

We suggest that only 50% of our estimate of the duty be paid at first instance (ie not 50% of what is actually assessed). We will be asking for no penalties and interest up until an assessment has been issued [it has not been issued yet] and then only market rate based interest for period after this. The current market interest rate is 2.69%. [my emphasis]

While 50% does not provide complete protection against accruing interest, in our discussions with Brendan [a reference to Counsel advising in relation to this issue – see T 19.22] we talked about recent experiences where the OSR seemed to be more incentivised (particularly in settlement discussions) to resolve a dispute where only partial payments had been made (rather than having to deal with a refund). You would also have the opportunity to revisit the payment amount and we would do so (at least amongst this group) in light of the Commissioner’s decision on penalties and interest, the actual amount assessed and the likely time period to resolve the matter. [my emphasis]

Can you let me know if you are okay to proceed on a 50% payment basis (ie ~ $3.77mil). [my emphasis]

59. PwC then responded to the Chief Commissioner by letter dated 30 September 2014: lodging an exempt acquisition statement; making a series of contentions about value (which the Chief Commissioner says were inconsistent with, and lower than, the position taken by the Chief Commissioner); and making payment “without admission and under protest” of 50% of the amount that PwC contended was the value.

60. The Chief Commissioner places weight on the fact that the plaintiff chose to pay under protest only the amount of $3,609,479.94 (being only half of the lesser figure that PwC had calculated) rather than the amount that the Chief Commissioner had requested (namely, payment of $7,653,000 pending further valuation information), commenting in this regard that the Chief Commissioner had requested payment of a figure less than he thought the duty would be. The Chief Commissioner also argues that the plaintiff’s internal documents reveal that the plaintiff was on notice that “some or all” of the “valuation assumptions” contended for by the plaintiff “may be viewed as optimistic”. It is submitted by the Chief Commissioner that at this point it was abundantly clear that there was a dispute as to the proper method of valuation (that dispute only being resolved after: several requests for further information by the Chief Commissioner; without prejudice communications over an extended period; and agreement as to value being reached and recorded in a deed of agreement dated 3 June 2016 (see Tab 132, Part B, of the Court Book).

61. Submissions were made on behalf of the plaintiff in relation to penalty tax and interest. An Assessment Paper dated 24 August 2016 was then issued by the Commissioner; following which, on 16 September 2016, the Assessment was issued.

62. As noted earlier, the balance of the primary duty was paid on 29 November 2016 (but the amount of the penalty tax and interest was not paid). The Chief Commissioner in the proceedings before Pembroke J sought an order for the payment of those further amounts plus additional interest. (I was not pressed for similar orders so I assume that since the Court of Appeal decision those amounts have been paid by or on behalf of the plaintiff. If that is incorrect, then no doubt an application will be made for any orders now needed as a result of the findings I make in this judgment.)

Relevant provisions

63. Failure to pay the tax on the due date is a “tax default” under Pt 5 of the Administration Act giving rise to a liability to pay interest (see s 21(1)), as set by s 22(1), and a liability to pay penalty tax on the tax unpaid (see s 26(1)), subject in each case to the operation of the provisions to remission or reduction of those amounts. Those provisions are as follows.

64. First, as to interest, s 21 (‘Interest in respect of tax defaults’) and s 22 (‘Interest rate’) respectively provide that:

21(1)   If a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day for payment until the day it is paid at the interest rate from time to time applying under this Division.

(2) Interest is payable under this section in respect of a tax default that consists of a failure to pay penalty tax under Division 2 but is not payable in respect of any failure to pay interest under this Division.

22(1)   The interest rate is the sum of:

(a)   the market rate component, and

(b)   the premium component.

(2)   The market rate component is:

(a)   unless an order is in force under paragraph (b), the Bank Accepted Bill rate rounded to the second decimal place (rounding 0.005 upwards), or

(b)   the rate specified for the time being by order of the Minister published in the Gazette.

(3)   The premium component is 8% per annum.

(4)   In this section, the Bank Accepted Bill rate in respect of any day within a period specified in Column 1 of the Table to this subsection is the monthly average yield of 90-day Bank Accepted Bills published by the Reserve Bank for the month specified in Column 2 of that Table opposite that period.

Table

Column 1               Column 2

Period                  Monthly average yield

1 January to 31 March            the preceding November

1 April to 30 June            the preceding February

1 July to 30 September         the preceding May

1 October to 31 December         the preceding August

(5)   If the monthly average yield of 90-day Bank Accepted Bills for a particular month is not published by the Reserve Bank before the beginning of the relevant period, it is taken to be the same as the last monthly average yield of 90-day Bank Accepted Bills published by the Reserve Bank before that month.

65. Both the market rate component and the premium component of interest may be remitted (in part or in whole) pursuant to s 25 (‘Remission of interest’) of the Administration Act, which provides that:

The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount.

66. As to penalty tax, s 26 (‘Penalty tax in respect of certain tax defaults’) provides that:

(1)   If a tax default occurs, the taxpayer is liable to pay penalty tax in addition to the amount of tax unpaid.

(2)   Penalty tax imposed under this Division is in addition to interest.

(3)   Penalty tax is not payable in respect of a tax default that consists of a failure to pay:

(a)    interest under Division 1, or

(b)    penalty tax previously imposed under this Division.

67. Pursuant to s 27, the amount of penalty tax is set (subject to the operation of the Div) at 25% of the amount of tax unpaid. Thus, where there is a tax default the taxpayer is prima facie liable to pay both interest and penalty tax at the rates set by the Administration Act, which is the starting point for consideration of the tax liability. Penalty tax does not carry interest unless there is a default in payment once assessed.

68. The Chief Commissioner submits that the policy underlying these provisions reflects the fact that the Administration Act treats taxpayers who pay all their tax on time differently to taxpayers who, for whatever reason, do not pay their tax on time; the difference being that interest and penalty tax are prima facie applicable subject to potential reduction by other provisions.

69. Section 27 (‘Amount of penalty tax’) of the Administration Act provides that:

(1)   The amount of penalty tax payable in respect of a tax default is 25% of the amount of tax unpaid, subject to this Division.

(2)   The Chief Commissioner may increase the amount of penalty tax payable in respect of a tax default to 75% of the amount of tax unpaid if the Chief Commissioner is satisfied that the tax default was caused wholly or partly by the intentional disregard by the taxpayer (or a person acting on behalf of the taxpayer) of a taxation law.

(3)   The Chief Commissioner may determine that no penalty tax is payable in respect of a tax default if the Chief Commissioner is satisfied that:

(a)   the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law, or

(b)   the tax default occurred solely because of circumstances beyond the taxpayer’s control (or if a person acted on behalf of the taxpayer, because of circumstances beyond either the person’s or the taxpayer’s control) but not amounting to financial incapacity.

70. The following provisions (ss 28-29) set out circumstances in which the amount of penalty tax is to be reduced. There is then a general discretion to remit under s 33.

28   Reduction in penalty tax for disclosure before investigation

(1) The amount of penalty tax determined under section 27 is to be reduced by 80% if, before the Chief Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out, the taxpayer discloses to the Chief Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined.

(2)   This section does not apply in respect of information disclosed by a taxpayer if the taxpayer is registered under a taxation law and:

(a)   the tax default involved a failure to lodge a return as required under that taxation law, or

(b)   the tax default involved a failure to pay tax by the date required under that taxation law.

29   Reduction in penalty tax for disclosure during investigation

(1) The amount of penalty tax determined under section 27 is to be reduced by 20% if, after the Chief Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out and before it is completed, the taxpayer discloses to the Chief Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined.

(2)   This section does not apply in respect of information disclosed by a taxpayer if the taxpayer is registered under a taxation law and:

(a)   the tax default involved a failure to lodge a return as required under that taxation law, or

(b)   the tax default involved a failure to pay tax by the date required under that taxation law.

…

33   Remission of penalty tax

The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount.

Issue 2 – “reasonable care”

Plaintiff’s submissions

71. The plaintiff submits that it took reasonable care to comply with the Duties Act and, accordingly, no penalty tax was payable.

72. In particular, the plaintiff places emphasis on the decision of the Victorian Court of Appeal in Commissioner ofState Revenue v Snowy Hydro Ltd (2012) 43 VR 109; [2012] VSCA 145 (Snowy Hydro) where the Court considered the meaning of “reasonable care” for the purposes of s 30 of the Taxation Administration Act 1997 (Vic) (a provision in relevantly identical terms to s 27 of the Administration Act).

73. There, the taxpayer had sought legal advice as to whether landholder duty was payable but did not disclose the content of the advice to the revenue authorities (see the decision at [171]). Five months after the relevant transaction occurred, and two months after the duty became payable, the taxpayer requested a private ruling in relation to the transaction (see at [167]; [172]).

74. The Victorian Court of Appeal unanimously concluded that, in the circumstances, the taxpayer had taken reasonable care within the meaning of s 30(3)(a) (the equivalent of s 27(3)(a)), saying (at [171]) that:

First, the seeking of legal advice shows, unambiguously, that the taxpayer wished to know whether it had any obligations under the Act and, if so, what they were. Seeking legal advice was both necessary and sufficient for that purpose.

75. The Court of Appeal considered (at [171]) that, in the circumstances of that case, the fact that the advice was not disclosed did not “justify any inference that the taxpayer was acting otherwise than in good faith in applying the advice. Nor did the non-payment of the tax”; noting that the question of liability there raised issues of considerable complexity (as, I interpose to note, it clearly did here). The plaintiff here submits that it is implicit in this reasoning that even if the advice had disclosed a real risk that duty was payable that would not (in circumstances where the liability issue was contestable and complex) negate the conclusion that the taking of advice demonstrated the taking of reasonable care (though the plaintiff appears to accept that if the advice were to be definitive that a tax liability existed the position would be different). I read the words “necessary and sufficient for that purpose” at [171] as referring to the purpose of demonstrating the taking of reasonable care. That is relevant, here, insofar as the advice received as to tax liability was qualified and gave rise to the very real possibility (whatever the Seller’s or Mr Heston’s personal view on this issue may have been) that landholder duty would be payable.

Determination as to Issue 5 - Interest

161. For the reasons put forward in the Chief Commissioner’s submissions I consider that no remission of the interest beyond that already granted should be made.

162. I have already noted my conclusion as to the reasonable care aspect of the matter (on which reliance is placed for the submission that the premium component of interest should be remitted to nil) and I do not consider that the OSR Guidelines as to voluntary disclosure before notification of an investigation squarely address the present situation. Moreover I consider that the delay in determination by the Chief Commissioner of the exemption ruling does not counterbalance the calculated decision made by the plaintiff not to pay the duty in the period between 27 September 2013 and September 2014 such as to warrant a further reduction (from the 50% reduction of the premium component of interest already given for that period).

163. As to the market rate component, I accept that the purpose of this is to compensate the revenue for the loss of the duty. Moreover I take into account that the plaintiff had the benefit of funds available to pay the duty had it chosen to do so. That said, if any part of the interest component relates to interest on the penalty tax as assessed (and I do not understand this to be the case) that would presumably need to be varied in light of the conclusion I have reached as to the s 28(1) reduction of the penalty tax. I will seek submissions on this issue.

Issue 6 - Costs

164. Finally, as to the costs of the first instance proceedings, ordinarily they should follow the event (in which, as to landholder duty, the Chief Commissioner ultimately succeeded). However, the plaintiff submitted that, as the precise form of any relief would depend on the analysis of the various issues here being considered, it would be appropriate for the parties to bring in agreed orders (including as to costs) having regard to the Court’s reasons. I consider that course to be eminently reasonable.

165. Again, in the absence of special circumstances, costs of the remittal hearing should follow the event. There has been a partial success for the taxpayer but how that sounds in terms of ultimate quantum I have not calculated. The course proposed above should be followed in this respect also.

Orders

166. For the above reasons, I have concluded that reasonable care to comply with the taxation law as at the date of the tax default has not been established (Issue 2); that the entitlement to a reduction in penalty tax pursuant to s 28(1) has been enlivened (Issue 3), such reduction to be of the full (pre-remission) 25% penalty – i.e., 80% of the 25% penalty tax otherwise payable; and that in light of that reduction no further remission of penalty is warranted); nor is any further remission of penalty tax (Issue 4) or interest (Issue 5) warranted. Issue 6 is to be determined either on the basis of agreed short minutes of orders or on the basis of brief written submissions, preferably on the papers, following the publication of these reasons, as will be the issue of costs of the remittal hearing itself. I will permit the parties to address orally if they wish, any further submissions they wish to make having regard to the conclusions I have reached in relation to Issue 3.

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Decision last updated: 12 June 2019