Catbagan v Commissioner for Act Revenue - [2014] ACAT 44

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

CATBAGAN v COMMISSIONER FOR ACT REVENUE
(Administrative Review) [2014] ACAT 44

AT 13/76

Catchwords: ADMINISTRATIVE REVIEW – duty payable – home buyer concession scheme – dutiable value of land rent lease purchase – purchase condition for vendor to build a dwelling – consideration paid by applicant under contract is referable to house to be built on land - land rent leases are to be treated similar to Crown leases – unencumbered value of land and improvement value to be added for arriving at dutiable value
Legislation:Duties Act 1999, ss 7, 10, 11, 16A, 20, 22 and 252AA
Land Rent Act 2008, ss 7, 8, 16C, 17 and 24
Rates Act 2004, ss 7, 8, 16C, 17 and 24
Taxation Administration Act 1999, ss 108A and 111

Subordinate
Legislation:Taxation Administration (Amounts Payable – Thresholds – Home Buyer Concession Scheme) Determination 2012 (No 2) (Repealed) (D12012-275)
Taxation Administration (Amounts Payable – Duty)
Determination 2013 (No 2) (Repealed) (DI2013–174)

Cases:Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700
Archibald Howie Proprietary Limited v Commissioner of Stamp Duties (New South Wales) (1948) 77 CLR 143
Bambro (No 2) Pty Ltd v Commissioner of Stamp Duties (1963) SR (NSW) 522
Commissioner for ACT Revenue v Araghi and Dorsett [2013] ACTSC 43
Commissioner for ACT Revenue v Araghi and Dorsett [2013] ACTCA 54
Sportscorp v Chief Commissioner of State Revenue [2004] NSWSC 1029

Texts/Papers: Explanatory Statement to the Duties Amendment Bill 2012

Tribunal: Dr T. Foley – Senior Member

Date of Orders: 18 July 2014
Date of Reasons for Decision: 18 July 2014

ACT CIVIL AND ADMINISTRATIVE TRIBUNAL AT 13/76
BETWEEN:
MARY ANN CATBAGAN
Applicant

AND:
COMMISSIONER FOR ACT REVENUE
Respondent

TRIBUNAL: Dr. T. Foley – Senior Member

DATE:18 July 2014
ORDER

The Tribunal Orders that:

The Tribunal confirms the decision under review.

………………………………..
Dr. T. Foley
Senior Member

REASONS FOR DECISION

Mary Ann Catbagan (“the applicant”) has sought review of a decision of the Commissioner for ACT Revenue (“the respondent”) to disallow her objection to its refusal of her application for the Home Buyer Concession (“HBC application”) pursuant to the Duties Act 1999 (ACT) (“the Duties Act”) with respect to her purchase of a land rent lease of Block 16 Section 9 Jacka (“the property”) under the provisions of the Land Rent Act 2008 (ACT) (“the Land Rent Act”).
Jurisdiction to review the respondent’s decision is conferred on the Tribunal by section 252AA of the Duties Act and section 108A of the Taxation Administration Act 1999 (ACT) (“the Taxation Administration Act”)].

The Hearing

The matter was heard on 21 February 2014. The Tribunal had before it the documents provided by the respondent on which the respondent’s decision was based (“the T Documents”), the Submissions and Statements of Facts and Contentions of the parties and other exhibits tendered in evidence. The applicant was not present but submissions were made on her behalf by her husband Mr Jerome Catbagan. The respondent was represented by Mr G. McCarthy of Counsel.
The applicant and the respondent called no evidence. Submissions were made on behalf of both parties. At the Tribunal's request the parties filed further submissions after the hearing with respect to the applicability of section 22 of the Duties Act.

Background

On 20 March 2013, the applicant entered into a contact for sale with respect to the property (“the contract”).[1] The purchase price stated in the contract was $325,000. At the time the applicant entered into the contract the property was vacant land. The contract provided for a dwelling to be built on the land by the vendor and that completion of the contract was to occur within14 days of the issue of a certificate of occupancy and use for that dwelling.
[1] T documents, page 17
The applicant purchased the property as a land rent lease under the provisions of the Land Rent Act. The applicant did not purchase the property in a ballot or by direct sale from the Land Development Agency but by way of transfer from Sirj Group Pty Ltd, a registered affordable housing provider, which itself had acquired the land rent lease in May 2012.
On 17 April 2013, the applicant via her solicitor lodged the contract with the respondent for stamping, together with an application for the Home Buyer Concession Scheme (“the HBC scheme”)[2] plus attachments; a transfer [3] and a Conveyance Lodgement Form.[4] Each of the contract, the HBC application and transfer stated the purchase price/consideration as $325,000. Only the Conveyance Lodgement Form is printed to refer to “dutiable value” of the property which was stated as $325,000, consistent with the purchase price disclosed on the other documents lodged.
[2]    T documents, pages 18-21
[3]    Exhibit R4
[4]    T documents, pages 38-39
The respondent assessed the “dutiable value” of the property at $544,000. It did so by adding to the $325,000 expressed as the purchase price on the HBC application, the value of the 2013 Unimproved Land Value of the property (“the ULV”) [ST1] of $219,000. This total of $544,000 took the property outside the then applicable “upper value threshold” for concession of $525,000 under the Taxation Administration (Amounts Payable – Thresholds – Home Buyer Concession Scheme) Determination 2012 (No 2) (Repealed) (D12012-275) [“Disallowable Instrument DI2012-275”]. In the absence of such concession the respondent assessed the duty payable at $20,470 and issued a Notice of Assessment[5] requiring payment of that sum by 18 June 2013.
[5] T documents, page 51
On 2 July 2013, the applicant lodged an objection to this assessment. On 29 September, the respondent disallowed the objection confirming that the “dutiable value” exceeded the then applicable maximum threshold under the HBC scheme.
On 17 October 2013, the applicant paid the assessed duty of $20,470 together with $737.05 interest which had accrued to that date, being a total of $21,207.05.
On 25 October 2013, the applicant filed an application for review of the respondent’s decision with the Tribunal.
The dwelling on the property was completed in or about November 2013 and completion of the purchase took place on 5 December 2013.
It was conceded by the respondent at the outset of proceedings that the applicant’s purchase qualified as an “off-the-plan purchase” under section 16A of the Duties Act, the effect of which was that any duty assessed did not become due and payable until 14 days after completion of the sale. As such, the applicant is due for a refund of the interest paid of $737.05, together with interest on that sum at the rate prescribed under the s111(1) of the Taxation Administration Act.

The relevant law

The relevant law can best be considered in terms of a series of questions:
·What interest did the applicant acquire?
·What is a dutiable transaction?
·When is duty payable?
·What duty is payable?
What Interest did the applicant Acquire?
The applicant acquired an interest in property subject to the Land Rent Act. The Land Rent Act is “an Act about the rental of certain residential leases, and for other purposes”.
Section 7 of the Land Rent Act provides that:
7Application to pay land rent
(1)This section applies if the planning and land authority invites applications from eligible applicants for the ballot or direct sale of a single dwelling house lease that may be subject to the condition that the lessee pays land rent for the lease.
(2)An eligible applicant for the grant of the lease may apply to the planning and land authority to pay land rent for the lease.
Note 1The planning and land authority may grant a lease under the Planning and Development Act 2007, s 238.
Note 2If a form is approved under the Planning and Development Act 2007, s 425 for this provision, the form must be used.
(3)If the lease is granted, and an application is made under subsection (2) in accordance with the regulations, the lease—
(a)must be granted to the eligible applicant subject to the condition that land rent is payable for the lease; and
(b)must indicate that the lease is a land rent lease.
Note 1The planning and land authority need not grant a lease to an eligible applicant, even if applications for the lease have been invited (see Planning and Development Act 2007, s 244).
Note 2If applications for a lease have been invited subject to conditions, the planning and land authority may, without granting a lease, invite fresh applications for the lease subject to the same or other conditions (see Planning and Development Act 2007, s 244).
(4)A lease mentioned in subsection (3) is a land rent lease.

Section 8 provides for the calculation of the land rent payable for land rent leases acquired prior to 1 October 2013. For the first year of the lease it provides:
8Pre-1 October 2013 lease—land rent payable
(1)   This section applies to a land rent lease first granted under a contract entered into before 1 October 2013.
(2)   The land rent payable for the land rent lease for the year the lease is first granted is—
(a)    if the lessee is eligible for discounted land rent—the discount percentage of the unimproved value of the parcel of land under the lease; or
(b)    if the lessee is not eligible for discounted land rent—the standard percentage of the unimproved value of the parcel of land under the lease.
NoteLand rent is payable to the commissioner (see s 19).
…

Section 16C provides for restrictions on the transfer of land rent leases but is only referable to post-1 October 2013. Section 17 appears not to impose any similar restrictions as to transfer for pre-1 October 2013 leases:
16CTransfer of post-1 October 2013 lease
(1)This section applies to a land rent lease first granted under a contract entered into on or after 1 October 2013.
(2)The land rent lease may only be transferred to—
(a)an eligible transferee; or
(b)if, on application of a lessee under the lease, the commissioner decides it is appropriate that paragraph (a) should not apply—someone other than an eligible transferee.
Note 1See s 8AA for how the land rent payable under the transferred lease is worked out.
Note 2If a form is approved under the Taxation Administration Act, s 139C for this provision, the form must be used.
(3)The Minister may determine—
(a)matters that the commissioner must take into account in making a decision under subsection (2) (b); and
(b)circumstances when it is appropriate that subsection (2) (a) not apply; and
(c)a person to whom a lease may be transferred under subsection (2) (b).
...
17Transfer of pre-1 October 2013 lease—land rent
(1)This section applies if a land rent lease (other than a lease to which section 16C applies) is transferred.
(2)Subject to section 11 (Discount—eligibility), section 29 (Land rent—part of year) and section 30 (Land rent for pre-1 October 2013 lease—discount for part of year), the land rent payable for the land rent lease transferred is the standard percentage of the unimproved value of the parcel of land under the lease.
Note 1A transferee may apply to the planning and land authority for a variation of the lease to reduce the land rent payable to a nominal rent (see Planning and Development Act 2007, s 272A (Application for rent payout lease variation)).
Note 2Standard percentage is defined in the dictionary.
(3)In this section:
unimproved value, of a parcel of land under a transferred land rent lease, means the unimproved value—
(a)for a land rent lease transferred in the year the lease is first granted—determined under the Rates Act 2004, section 9 (First determination of unimproved value) for the year; and
(b)for a land rent lease transferred in a year after the year the lease is first granted—determined under the Rates Act 2004, section 10 (1) (Annual redeterminations) for the year.

Section 24 provides that land rent payable under a land rent lease operates as a charge on the interest of the lessee:
24Land rent—charge on the land
(1)Land rent payable for a land rent lease is a charge on the interest held by the lessee in the parcel of land under the lease.
(2)The charge takes priority over a sale, conveyance, transfer, mortgage, charge, lien or encumbrance in relation to the parcel of land.
(3)The charge does not have effect against an honest purchaser of the parcel of land for value if—
(a)the purchaser had obtained a certificate under section 31 (Certificate of land rent and other charges) in relation to the parcel before the purchase; and
(b)at the time of the purchase, the purchaser did not have notice of liability under the charge.
What is a dutiable transaction?
The applicant is subject to obligations as to duty under the Duties Act.
Section 7 of the Duties Act provides that duty is payable on a transfer of dutiable property:
7Imposition of duty on certain transactions concerning dutiable property
(1)This chapter charges duty on—
(a)a transfer of dutiable property; and
(b)the following transactions:
(i)an agreement for the sale or transfer of dutiable property;
(ii)a declaration of trust over dutiable property;
(iii)a grant of a Crown lease;
(iv)a grant of a commercial lease with premium.
(2)A transfer or transaction mentioned in subsection (1) is a dutiable transaction for this Act.
(3)In this section:
grant, of a Crown lease over land, includes the grant of a new lease following the surrender or determination of a Crown lease over land that includes part or all of the land over which the new lease is granted.
transfer does not include a transaction treated as a transfer by chapter 3.
NoteCh 3 treats certain transactions as transfers (eg, acquiring an interest in a landholder—see s 85 and s 86). Duty may be charged under ch 3 on those transfers. These may involve the vesting of property under a court order, which would otherwise be a transfer for s (1) (a) or (b) (i) (see dict, def transfer, par (a) (v)).

Section 10 provides that a Crown lease is dutiable property:
10. Dutiable property
(1) Dutiable property is any of the following:
(a)….
(b) a Crown lease;
…
When is duty payable?
Section 11 provides when the liability for duty arises in the case of a transfer of dutiable property.
11When does a liability for duty arise?
(1)A liability for duty charged by this chapter arises when a transfer of dutiable property occurs.
(2)However, if a transfer of dutiable property is effected by an instrument, liability for duty charged by this chapter arises when the instrument is first executed.

Relevantly, Section 16A provides for a different date of liability for duty in the case of an ‘off the plan’ purchase agreement.
16APayment of duty—‘off the plan’ purchase agreements
(1)For section 16, liability for duty on an ‘off the plan’ purchase agreement is taken to arise if at least 1 of the following events happens:
(a)the agreement is completed;
(b)the whole, or any part, of the purchaser’s interest under the agreement is assigned;
(c)the following period, beginning on the date of the agreement, ends:
(i)for a purchase agreement for a declared affordable house and land package—2 years;
(ii)for any other ‘off the plan’ purchase agreement—1 year;
(d)a certificate of occupancy has been issued under the Building Act 2004 for the building to which the agreement relates.
(2)The duty payable on an ‘off the plan’ purchase agreement—
(a)is payable within 14 days after 1 of those events happens; and
(b)may be paid before any of those events happens.
(3)Despite section 16, a tax default happens for the Taxation Administration Act if the duty payable on an ‘off the plan’ purchase agreement is not paid within the 14 day period under subsection (2) (a).
(4)In this section:
declared affordable house and land package means a house and land package declared under section 16B.
‘off the plan’ purchase agreement means—
(a)an agreement for the sale or transfer of dutiable property that is, or includes, land where a residence is to be erected or developed before completion of the sale or transfer; or
(b)a purchase agreement for a declared affordable house and land package.
What duty is payable?
Section 20 provides for the determination of the dutiable value of dutiable property:
20What is the dutiable value of dutiable property?
(1)The dutiable value of dutiable property that is subject to a dutiable transaction is the greater of—
(a)the consideration (if any) for the dutiable transaction (being the amount of a monetary consideration or the value of a non‑monetary consideration); and
(b)whichever of the following applies:
(i)for a land rent lease—the amount that would be the unencumbered value of the lease if it were a Crown lease that is not a land rent lease;
(ii)for any other dutiable property—the unencumbered value of the dutiable property…
…
…(7) In this section:…
declared affordable house and land package means a house and land package declared under section 16B
land rent lease—see the Land Rent Act 2008, section 7 (4).
Section 22 provides with respect to determining the “unencumbered value” of dutiable property that:
22What is the unencumbered value of dutiable property?
(1)The unencumbered value of dutiable property is the value of the property determined without regard to any encumbrance to which the property is subject.
(2)If, before land is transferred to a transferee, the transferee has made improvements to the land, the unencumbered value of the land is to be determined as if those improvements had not been made.
...

The applicant’s case

The applicant contends that she was taking over an existing land rent lease and that she was not purchasing a “standard lease”.[6] It was her understanding that the consideration in the contract she entered into was for the construction of a house on the property for $325,000.[7]
[6] T documents, page 8, paragraph 1
[7] Applicant’s Statement of Facts and Contentions, Facts, paragraph 1
The applicant did not pay the unimproved value of the land on settlement but rather had the benefit of the lease as a land rent lease. It was her understanding that by purchasing the property in this way she would not need to finance the cost of the land upfront. She also anticipated that she would have the benefit of an HBC application with respect to payment of duty and given that the consideration under the contract was $325,000 she anticipated the duty payable would be reduced to as little as $20.
She contends that the unimproved value of the land should not have been added as part of the dutiable value of the property as the contract was only for the construction of the house.[8]
[8] Applicant’s Statement of Facts and Contentions, Contentions, paragraph 1
The applicant further contended that the calculation of duty on the transfer had been assessed differently from previous similar neighbourhood transfers where dutiable value was assessed based only on the contract price of construction.[9]
[9] Applicant’s Statement of Facts and Contentions, Contentions, paragraph 2
The applicant tendered as evidence in support of the contention that the assessment of duty of other properties had been based solely on the contract price a statement of Shaun Iqbal dated 7 January 2014.[10] Mr Iqbal’s evidence was that he was a real estate sales consultant and that he had sold the property to the applicant. His evidence was that at the time of purchase he had provided her with “examples of properties that I previously sold wherein the duty assessed for each was based only on the contract price”.[11] He provides three addresses of such properties, together with one anonymised Assessment Notice which purported to show an assessment of duty based solely on the contract price.
[10] Exhibit A1
[11] Exhibit 1, paragraph 4

The applicant’s case was that either the assessment of duty was incorrect or, if it was correct, other assessments such as those cited were incorrect.

The respondent’s case

The respondent contends that the property purchased by the applicant comprised the Crown lease in the form of a land rent lease together with the improvements that were to be built on the property.[12]
[12] Respondent’s Statement of Facts and Contentions, paragraphs 2 and 3
The respondent argued that the improvements once made became a fixture given that the house was to remain in place permanently and that as such, citing Jordan CJ in Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 712-713 that such improvements had become “in law … land through having been fixed to land”. The respondent contends that it is this composite sum which is dutiable.
The respondent contends that the dutiable value for the land rent lease pursuant to section 20(1)(b)(ii) is $544,000.[13]
[13] Respondent’s Statement of Facts and Contentions, paragraph 9
The respondent tendered as evidence of the property’s dutiable value, Australian Valuation Office report[14] which assessed “the indicative value of improvements” as at 20 March 2013 at $330,000 and the “indicative land value” as at that date at $235,000. The respondent did not seek to rely on the higher land value of $325,000 but rather relies on the lower ULV of $219,000 used by it in originally assessing the applicant’s liability for duty.
[14] Exhibit R2A
The respondent says that the applicant is not eligible to be assessed for a reduced amount of duty under the HBC scheme as a consequence of this composite sum because the dutiable value exceeds the upper limit for a property value as determined by Disallowable Instrument DI2012-275.[15]
[15] Respondent’s Statement of Facts and Contentions, paragraph 12
The respondent says that the Commissioner’s dealings with unrelated third parties are a matter between the Commissioner and those parties solely and have no bearing on the applicant’s liability for duty.[16] The best the respondent can offer in this regard is that it has “brought the information provided to the attention of the assessing section for further investigation”[17] which conceivably may result in adverse reassessment to those parties.

Consideration

[16] Respondent’s Statement of Facts and Contentions, paragraph 13
[17] T documents, page 9

A series of questions arise for consideration.
What is the lease interest that the applicant has acquired?
Under the Land Rent Act, the applicant acquired the lease of a land rent lease which lease is subject to requirements to pay land rent annually as a proportion of the ULV of the land,[18] to such restrictions as to transfer that apply[19] and to a charge against the land for the land rent obligation.[20] As such, there are restrictions on the Crown lease the applicant acquired for $325,000. Nonetheless, she has acquired an interest in a Crown lease.
What “promise” did the applicant make/give to acquire that interest?
[18] Sections 7 and 8, Land Rent Act 2008
[19] Part 4, Land Rent Act 2008
[20] Section 24, Land Rent Act 2008
The respondent submits that the scope of the promise (to acquire an interest in an existing land rent lease and payment of consideration for the construction of a house on the property) made by the applicant should be construed in a manner consistent with that adopted by Dixon J in Archibald Howie Proprietary Limited v Commissioner of Stamp Duties (New South Wales) (1948) 77 CLR 143 at 153 (“Archibald Howie”) when construing the scope of the ‘consideration’ that “moves [a] conveyance”. The respondent submits the same approach of determining what “moved” the transaction between the purchaser and vendor in the Archibald Howie sense is also relevant in determining the unencumbered value for the purposes of assessing duty.
The respondent relied upon the decision in Bambro (No 2) Pty Ltd v Commissioner of Stamp Duties (1963) SR (NSW) 522 (“Bambro”) in this regard citing the passage at 528-529:
[I]f the whole building is to be completed before conveyance, then the dutiable “matter”, in the form of an agreement for the sale or conveyance of property, which is contained in the instrument is constituted by an agreement for the sale or conveyance of the land with the building upon it: and consideration and unencumbered value for the purpose of assessing…duty are to be assessed accordingly [emphasis added].
Archibald Howie would be of clear assistance if the issue was simply a question of the extent of the ‘passing of consideration that moved the transfer’ between the purchaser and vendor in the contract for sale of the property. But this is not the case here. The whole of what was received by the vendor in the transaction was the stated consideration of $325,000.
More relevantly, what the applicant obtained from her promise under the contract was the transfer of a land rent lease to her together with the benefit of a house to be built on it before completion. The relevant principle from Bambro that, if buildings have been completed before transfer, then duty would be payable on the improved land (Sugerman J at 529) is therefore relevant. However, the applicant has not obtained an entitlement to a ‘full’ Crown lease and the question is whether this reduced interest should be dutiable for its full value of $219,000.
What is the dutiable value of the lease interest that the applicant has acquired?
The applicant has acquired an obligation to pay duty on the dutiable value of the dutiable property she acquires, under section 20 of the Duties Act. Section 22 is also relevant with regard to the question of determining the unencumbered value of that property.

Consideration of sections 20 and 22

The determination of the dutiable value of property pursuant to section 20 requires a determination of which is the greater of two sums. The first is “the consideration (if any) for the dutiable transaction” as per section 20(1)(a) which in this case is $325,000. The second, specifically the provisions for a “land rent lease”, is “the amount that would be the unencumbered value of the lease if it were a Crown lease that is not a land rent lease”, (section 20(1)(b)(ii)).
The respondent argued that the proper calculation should be made under the second applicable limb, namely section 20(1)(b)(ii).
Section 20 has been subject to judicial attention in Commissioner for ACT Revenue v Araghi and Dorsett [2013] ACTSC 43 [“Araghi and Dorsett, ACTSC”] before a single judge Penfold J in the Supreme Court of the Australian Capital Territory; and, on appeal before the Court of Appeal of the Australian Capital Territory in Commissioner for ACT Revenue v Araghi and Dorsett [2013] ACTCA 54 [“Araghi and Dorsett, ACTCA”]. Though these decisions were made before the additional second limb of section 20(1)(b)(ii) applicable to land rent leases was added under the Duties Amendment Act 2012, the analysis of section 20 and section 22 in these decisions is nonetheless relevant here.
In her decision in Araghi and Dorsett, ACTSC, Penfold J considered how the words “the unencumbered value of the dutiable property” then used in what is now section 20(1)(b)(iii), should be interpreted.
In her analysis, her Honour had regard at paragraphs 135-139 to the decision of Gzell J in Sportscorp v Chief Commissioner of State Revenue [2004] NSWSC 1029; (2005) 213 ALR 795 [“Sportscorp”]. She cited at paragraph 137, Gzell J in Sportscorp (dealing with relevantly similar provisions in the Duties Act 1997 (NSW)) that the purpose of the section 22(2) provision was:
…to relieve a transferee [of land] from duty on the increment to value resulting from improvements for the cost of which the transferee was responsible.
However, section 22(2) is not applicable here. Section 22(2) rather envisages additional improvements made to the land which are separate and apart from those, if any, under the contract. The decision in Araghi and Dorsett is, therefore, clearly distinguishable because in the instant case, there is no such separate contractual agreement for additional work beyond the works provided for in the contract of 20 March 2013.
This interpretation is clear from her Honour's remarks, in considering the delayed duty liability effect of section 16A of the Duties Act in relation to "off the plan" purchase agreements, saying that "the value of the house and land that are ultimately transferred would seem to be generally dutiable in the same way as the value of a block of land sold with an established house on it..." [at paragraph 58]. It is also consistent with the decision in Bambro cited at paragraph 42 above.
Her Honour further clarifies this position [at paragraphs 136-139] in her remarks about Sportcorp indicating that section 22(2) only came into effect in that case if "...the transfer to the respondents could be said to be not in conformity with the land sale agreement..." [paragraph 136], that is to say, only if the transfer could be said to provide something additional to that provided for in the land contract. That is not the case here. The consideration paid under the contract was wholly referable to the house erected on the subject land by the developer before settlement.
Is the position any different in the case of a land rent lease?
The respondent argues that the effect of the addition of section 20(1)(b)(ii) relating specifically to land rent leases maintains this common law position in determining dutiable value.
This leg of section 20(1)(b) requires the dutiable transaction to be treated as a purchase of the Crown lease in the usual way. While the applicant may understand that she has only acquired an entitlement to ‘rent’ the land on an ongoing basis, nonetheless she is obliged to pay duty on the “unencumbered value of the lease”.
The respondent argues that “the unencumbered value of the lease …as if it were a Crown lease”[21] is determined “in the normal way” of calculating dutiable value by adding together the value of the improvements on the property and the land’s unimproved value, which is to say the manner in which the market value of property is normally determined.
[21] Respondent’s Further Submissions – S22(2), paragraph 18
The evidence that the respondent provides for the value of the “improvements” on the property is threefold:
(a)the applicant’s evidence in her Statement of Facts and Contentions [at paragraph 1] of the contract price for the construction of a house, being $325,000;
(b)the “indicative value of improvements” as at 20 March 2013 provided in the Australian Valuation Office report of $330,000[22];
(c)the total cost of “works requiring building approval” as at 11 June 2013 provided in Building Approval B20132532 for the property of $334,777.85.[23]
[22] Exhibit R2A
[23] Exhibit R2B
The respondent relies on the lowest of these sums as the value of the improvements on the property, namely, $325,000.
The evidence that the respondent provides of the value of the “land value” of the property is the determination of land value made in the Valuation Notice[24] of $219,000 as at 1 January 2013.
[24] Supplementary T documents, page 1
The respondent says these two sums should be added together for a total value of $544,000, which sum then places the property outside the applicable upper threshold of property values ($525,000) at which the duty concession ceased.
In effect, the applicant is required to pay duty on part of the dutiable value of a property (namely, the part being the ULV of $219,000), which land value she has, in fact, not paid. Given her successful land rent application, she is not required to pay that part of the value at the time of transfer and she has not paid it. That part of her “promise” under the contract is satisfied by her agreement to pay future instalments of a proportion of that “land value”.
The Explanatory Statement for the Duties Amendment Bill 2012 explains the intention of adding the section 20(1)(b)(ii) amendment:
A land rent lease is a lease over a parcel of land with the condition that the lessee pays rent on the land, rather than ‘purchase’ a crown lease in the usual way.
At the time of granting a land rent lease, duty is assessed and charged on the value of the lease as with a normal Crown lease. When a land rent lease is transferred from one lessee to another, its value for duty purposes is the consideration paid for it, or the unencumbered value as determined by valuation – whichever is greater.
….
The Bill makes amendment to the Duties Act 1999 to clarify the intent of the original policy – that duty is imposed on the transfer of a land rent lease at a value consistent with that of a normal Crown lease which doesn’t have a land rent condition attached to it.
It is clear from this that the purpose of the addition of section 20(1)(b)(ii) was to clarify that land rent leases were to be treated no differently from “normal” Crown leases for the purposes of calculation of duty. The unencumbered value has to be calculated as if the land rent lease is a “normal” Crown Lease transfer. In this case, a land rent lease which had been granted in the first instance to Siri Group Pty Ltd was subsequently transferred to the applicant by contract for sale dated 20 March 2013. The value of that lease for dutiable purposes is the greater of the consideration under the contract of $325,000 or “the unencumbered value as determined by valuation”.
The effect of the section 20(1)(b)(ii) amendment is that the usual position at law for assessing duty of a Crown lease applies in the case of the transfer of a land rent lease. This ‘usual position’ is that the “unencumbered value” refers to both the improvement value and the land value.

Conclusion

As such, the dutiable value of the contract is $544,000. Duty should be assessed on that sum.
It should be noted that the applicant's purchase qualifies as an "off the plan" purchase under section 16A of the Duties Act and as such, duty did not become due and payable until 14 days after the date of completion of 5 December 2013. The effect of this is that the applicable Disallowable Instrument for calculation of duty payable is Taxation Administration (Amounts Payable – Duty) Determination 2013 (No 2) (DI2013–174). The duty payable on a dutiable value of $544,000 under that instrument is $19,300.
On 17 October 2013, the applicant paid assessed duty of $20,470, plus interest of $737.05. The applicant has overpaid duty of $1170 and the respondent must refund that amount together with interest provided for in section 111 of the Taxation Administration Act. The applicant is also entitled to a refund of the interest of $737.05 paid. The applicant is, therefore, entitled to a refund of $1907.05, plus applicable interest.
It is noted that the readjustment of the relevant transfer date for dutiable purposes to the 5 December 2013 may also have a bearing on the applicant's First Home Owners Grant Act 2000 entitlement and this should also be reviewed by the respondent.

Decision

The Tribunal confirms the decision under review.

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Dr. T. Foley
Senior Member