Commissioner of State Revenue v Hayes
[2004] VSC 504
•10 December 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
VICTORIAN TAXATION APPEALS
No. 5812 of 2004
| COMMISSIONER OF STATE REVENUE | Appellant |
| v | |
| DONALD AND LILY POH-SIM HAYES | Respondents |
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JUDGE: | Hollingworth J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25 October 2004 | |
DATE OF JUDGMENT: | 10 December 2004 | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 504 | |
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Stamp Duty – Duties Act 2000 – “family farm exemption” - whether transfer exempt from duty under section 56 - whether transferor is a person referred to in section 56(2) – whether “company” in s.56(2)(c) refers only to a company which is the beneficial owner of the land.
Duties Act 2000 s.56
Clifford v IRC [1896] 2 QB 187 cited
Commissioner of State Revenue v Viewbank Properties Pty Ltd [2004] ATC 501 followed
Cooper Brookes (Wollongong) v FCT (1981) 147 CLR 297 followed
Davies v Herbert (1885) 11 VLR 386 cited
FCT v McComas (1923) 31 CLR 479 cited
Hennell v IRC [1933] 1 KB 415 cited
Trust Co of Australia Ltd v Commissioner of State Revenue (2003) 197 ALR 297 cited
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr R Boaden | Solicitor for the Commissioner of State Revenue |
| For the Respondents | Mr P Bornstein | Mosley & Palmer |
HER HONOUR:
Introduction
This case concerns the stamp duty payable in relation to the transfer from Seyah Pty Ltd (“Seyah”) to the respondents (“the Hayes”) of a farm property at 72 Genoa Road, Mallacoota (“the property”)[1]. The sole issue is whether the transfer falls within what is commonly referred to as the “family farm exemption” in s.56 of the Duties Act 2000 (“the Act”).
[1]Being the land described in Certificate of Title Volume 8769 Folio 944.
The Hayes argue that the transfer is exempt from duty, because Seyah is a “company” within the meaning of s.56(2)(c). The Commissioner argues that it is not a “company” in the relevant sense, because Seyah did not own the property beneficially, but only as the trustee of a discretionary trust.
This is an appeal on a question of law against an order made by Senior Member Megay of the Victorian Civil and Administrative Tribunal on 7 April 2004 in proceeding T29 of 2003. The tribunal member found for the Hayes. The effect of the VCAT order was to reduce the duty payable from $31,660.00 to nil.
The appellant (“the Commissioner”) required leave to appeal to this court, pursuant to s.148 of the Victorian Civil and Administrative Tribunal Act 1998. On 26 May 2004, Nettle J granted leave to appeal, upon the Commissioner undertaking to pay the Hayes’ costs of the application for leave to appeal and the appeal[2].
[2]The Commissioner filed the application for leave to appeal on 6 May 2004, which was one day late. Nettle J also granted an extension of time.
The facts
The facts of this case are not in dispute, including the fact that the property is land which falls within s.56(1)(a) of the Act.
“The D Hayes Family Settlement” (“the family trust”) was created by a deed of settlement dated 24 January 1977 (“the trust deed”). The trust deed appointed Seyah as trustee and Donald Hayes as guardian during his lifetime, with his then wife, Maureen Hayes, as guardian after his death. The trust deed required the trustee to give the guardian written notice and to obtain the guardian’s consent before exercising certain powers.
The family trust is a discretionary trust. The original capital beneficiaries of the family trust were Donald and Maureen Hayes and their children. The trustee has a discretion to apply the net income amongst the income beneficiaries. The income beneficiaries were the capital beneficiaries and their descendents, spouses, widows and widowers, as well as such charitable institutions as the trustee might determine.
The trust deed was amended by a deed of amendment dated 21 January 1985; Maureen Hayes was removed as guardian upon the death of Donald Hayes. By a separate deed of appointment bearing the same date, Maureen Hayes was removed as a capital and income beneficiary. The “specified beneficiaries” for both capital and income purposes became Donald Hayes and his descendents; the spouses, widows and widowers of Donald Hayes and his descendents; and the “charitable income beneficiaries” (as defined in the trust deed).
Seyah was the registered proprietor of the property in its capacity as trustee. On 16 August 2002, Seyah executed the transfer to the Hayes for a stated consideration of $600,000. At the time of the transfer, the Hayes each owned 1 of the 2 issued shares and were the only directors of Seyah.
The transfer was lodged with the Commissioner, together with a “Family Farm Exemption Application” form, dated 13 May 2002.
On 14 October 2002, the Commissioner issued assessment number A134377 for $31,660, based on the total consideration expressed in the transfer.
On 14 November 2002, the Hayes’ solicitors, Mosley & Palmer, lodged a written objection to the assessment, on the basis that the transfer was exempt from duty under s.56 of the Act. The Hayes have paid the duty under protest. By notice of determination dated 17 April 2003, the Commissioner disallowed the objection. On 17 June 2003, Mosley & Palmer requested that the matter be referred to VCAT.
Legislation
The transfer may be assessed for duty under s.7(1) of the Act if:
(a) It is a transfer of “dutiable property” within the meaning of s.10(1)(a) of the Act; and
(b) No exemption from duty applies.
The only exemption relied upon here is under s.56 of the Act. The section needs to be considered in its entirety.
“Transfers of farms to relatives or charities
1)No duty is chargeable under this Chapter in respect of a transfer of dutiable property if the Commissioner is satisfied that –
(a) the dutiable property is an estate in fee simple … in [relevant] land … ; and
(b) the transferor is a person referred to in sub-section (2); and
(c) the transferee is a person referred to in sub-section (3); and
(d) the transfer does not arise from arrangements or a scheme devised for the principal purpose of taking advantage of the benefit of this section.
2)The transferor must be –
(a) a natural person; or
(b) a trustee for a natural person; or
(c) a company all the shares in which are owned by natural persons who are relatives of each other.
3)The transferee must be –
(a) a relative of a natural person referred to in sub-section (2); or
(b) a trustee under a fixed trust, the beneficiaries of which are limited to—
(i) a present or future relative of a natural person referred to in sub-section (2); or
(ii) a charitable institution; or
(iii)a present or future relative of a natural person referred to in sub-section (2) and a charitable institution; or
(iv) a present or future relative of a natural person referred to in sub-section (2) and a natural person referred to in sub-section (2); or
(v) a charitable institution and a natural person referred to in sub-section (2); or
(vi)a present or future relative of a natural person referred to in sub-section (2), a natural person referred to in sub-section (2) and a charitable institution; or
(c) a trustee under a discretionary trust the terms of which do not allow the distribution of the whole or any part of the capital of the trust that comprises [relevant] land … to any person or body other than a person or body referred to in paragraph (b); or —
(d) a natural person referred to in sub-section (2)(c).
4)In this section –
“charitable institution” means a corporation or body of persons associated for charitable purposes;
“fixed trust” means a trust under which the identity of the beneficiaries and the quantum of their interests are ascertained.”(emphasis added)
The tribunal’s reasoning
The tribunal member held that the transfer came with the s.56 exemption, because the transferor was a “company” within the ordinary meaning of s.56(2)(c). Specifically, she held that:
(a) The words in s.56(2)(c) are not ambiguous, are not capable of a range of meanings, and there is nothing that throws a different complexion on the plain words.
(b) The word “company” in s.56(2)(c) should be given its generally accepted meaning and does not exclude a company that holds its assets as bare trustee.
(c) The Hayes are the beneficial and substantial owners of the shares in Seyah.
(d)The Hayes are natural persons who are relatives of each other, within the meaning of s.56(2)(c).
(e) If a taxing statute is open to two acceptable constructions, one more favourable to the Crown and the other to the subject, then the latter construction should be preferred.[3]
[3]The subject and not the Crown should be given the benefit of is any doubt about chargeability: A-G v Winstanley (1831) 5 Bligh NS 130, 150. If the construction of a statute is open to two acceptable views, one more favourable to the Crown and the other to the subject, then the latter construction should be preferred: Clifford v IRC [1896] 2 QB 187 at 193; Davies v Herbert (1885) 11 VLR 386 at 388; Hennell v IRC [1933] 1 KB 415 and FCT v McComas (1923) 31 CLR 479 at 487.
Consequently, she ordered that the decision of the Commissioner be varied and the matter be remitted for reconsideration in accordance with her reasons.
The Commissioner’s contentions
The Commissioner says that the tribunal member erred. “Company” in s.56(2)(c) refers to a company which is the beneficial owner of the land in question, not one which owns the land as trustee. To construe otherwise would destroy the link that is necessary in all of the other scenarios envisaged by the section, that is, the family or relationship link between the former and new beneficial owners.
The heading and the construction of s.56 as a whole (in particular, s.56(3)(a) and (d)) indicate that a “family link” or “relationship link” is required between the old and new beneficial owners of the land.
Where the transferor is a natural person or trustee for a natural person, s.56 has the effect of only exempting a transfer of the beneficial interest in the land to relatives of the former beneficial owner. It is said that, for the sake of consistency, s.56(2)(c) should be construed in a way that imposes the same requirement, namely that a transferor company must have been the beneficial owner of the land. It is said that that must be what parliament intended.
The Commissioner also contends that the tribunal member erred in following the line of cases that says that where a tax statute is ambiguous the interpretation that is more favourable to the taxpayer should prevail. The Commissioner says that the relevant approach is that referred to in Trust Co of Australia Ltd v Commissioner of State Revenue[4], and Commissioner of State Revenue v Viewbank Properties Pty Ltd[5].
[4](2003) 197 ALR 297.
[5][2004] ATC 501.
The Hayes’ contentions
The transferor, Seyah, is an entity referred to in s.56(2)(c). It is a company, the shares in which are all owned by natural persons who are related to one another. Section 56(2)(c) imposes no other requirement. In the absence of any compelling reason to the contrary, the words should be given their natural and literal meaning. There is nothing in the words of the section or any extrinsic material to support the Commissioner’s view.
The Hayes agree that the purpose of the exemption is to provide relief from duty when farming properties are transferred within family units, and argue that the transfer in this case falls within the intended purpose of s.56.
Section 56(2)(c) should be given its natural and literal meaning, because had parliament intended to exclude companies which held property as trustee for a discretionary trust, it could have done so expressly. As the exemption provision expressly deals with the situation where the transferee is a company acting as the trustee for a fixed trust (s.56(3)(b)) or a discretionary trust (s.56)(3)(c)), it cannot be said that parliament has not contemplated the possibility of a transferor company holding the property in the capacity as trustee.
The likelihood of there ever being a situation arising where –
(a)The shares in a trustee company are all held by natural persons who are not beneficiaries under the trust;
(b) Those natural persons are all related to one another;
(c) The company sells or otherwise transfers a farming property to those shareholders or their relatives;
(d)A person who was not a beneficiary under the trust thereby gains the benefit of the exemption,
is so remote that it is not worth serious consideration.
In any event, even if ss.56(2) and (3) had been complied with in such a case, s.56(1)(d) would disallow the exemption if the transfer has been devised for the principal purpose of taking advantage of s.56.
Finally, the Hayes argue that since a transfer to a corporate trustee of a discretionary trust under s.56(3)(c) would be exempt from duty, parliament could not have intended that a further transfer from the corporate trustee to a beneficiary would not also be exempt from duty.
General principles of statutory interpretation
Neither side could refer me to any authority on the construction of s.56 or its predecessors. Accordingly, this case needs to be considered having regard to general principles of statutory interpretation, particularly those applicable to revenue legislation.
In Cooper Brookes (Wollongong) v FCT[6], Mason and Wilson JJ said that the fact that an Act is a taxing statute does not make it immune to the general principles governing the interpretation of statutes. Their Honours made the following comments about general statutory construction:
“The propriety of departing from the literal interpretation… extends to any situation in which for good reason the operation of a statute on a literal reading does not conform to the legislative intent as ascertained from the provisions of the statute…
Quite obviously questions of degree arise. If the choice is between two strongly competing interpretations, the advantage may lie with that which produces the fairer and more convenient operation so long as it conforms to the legislative intention. If, however, one interpretation has a powerful advantage in ordinary meaning and grammatical sense, it will only be displaced if its operation is perceived to be unintended.”
[6](1981) 147 CLR 297 at 321; 211 ATR 949 at 966; 81 ATC 4292 at 4306.
After noting those general principles, Nettle J in Commissioner of State Revenue v Viewbank Properties Pty Ltd[7] went on to say:
“Despite developments in the law relating to the construction of taxing statutes – so that by and large one is now to approach their construction in the same way as any other statute – the starting point remains the plain natural and ordinary meaning of the words of the legislation and the discernment of the legislative intention from the terms of the legislation viewed as a whole.[8] Within the limits which they impose it is appropriate to construe exemption and exception provisions like s.67A(3)(a)(i) of the Stamps Act 1958 (Vic) in favour of those who claim that they come within the exception.[9] But where the words of such a provision are clear, the mere fact that a liberal construction of the provision more closely accords with subjective perceptions of what is “equitable” will rarely if ever be sufficient basis to depart from the plain and ordinary meaning of the language that has been employed.[10] Absent a drafting mistake of the kind which underscored the decision in Cooper Brookes or absurd irrational or capricious results or the use of language which as a matter of natural and ordinary meaning permits of a multiplicity of possibilities, or perhaps extrinsic materials which make plain that the language employed simply fails to achieve the result which was intended, it is not permissible to depart from the plain and ordinary meaning of the words.”[11]
[7][2004] ATR 501 at [31].
[8]Cooper Brookes (Wollongong) Pty Ltd v FCT.
[9]Burt v FCT (1912) 15 CLR 469 at 482 per Barton J; Diethelm Manufacturing Pty Ltd v FCT (1993) 26 ATR 465 at 470-471; 93 ATC 4703 at 4708-4709; 116 ALR 420 at 426.
[10]Deputy FCT v Sheahan 86 ATC 4718 at 4728 per Tadgell J
[11]At [38].
In Trust Co of Australia Ltd v Commissioner of State Revenue[12] the High Court confirmed that revenue legislation is not immune from the general principles of statutory interpretation and that the “purposive” approach applies to the ascertainment of the meaning of such legislation.
[12](2003) 197 ALR 297.
Finally, there is the legislative requirement that, in the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether or not that purpose or object is expressly stated in the Act) should be preferred to a construction that would not promote that purpose or object. Further, consideration may be given to any matter or document that is relevant including but not limited to all indications provided by the Act and reports of proceedings in parliament. [13]
[13]Interpretation of Legislation Act 1984 s.35
Plain and ordinary meaning
In my opinion, s.56 is not ambiguous and has the following “plain natural and ordinary” meaning. The exemption applies in respect of a transfer of farm property which satisfies s.56(1)(a) if the transferor is a company of which all the shares are owned by natural persons who are related (which satisfies s.56(2)(c)), the transferees are the shareholders of the transferor company (which satisfies s.56(3)(d)), and the transfer does not arise from a scheme to avoid duty (which satisfies s.56(1)(d)).
The relevant phrase here is: “a company all the shares in which are owned by natural persons who are relatives of each other.” Sub-section (2)(c) is concerned with the ownership of the shares in the transferor company, not the ownership of the assets held in trust by the transferor company.
I agree with the tribunal member that the provision is not ambiguous and the relevant words are not capable of a range of meanings.
“Curiously, ‘company’ per se is not defined in the Duties Act 2000, whereas definitions exist for ‘corporation’, ‘private company’, ‘related body corporate’ and ‘Victorian company’ … ‘trustee company’ … ‘private corporation’ … There is nothing to point to a requirement that a ‘company’ for the purposes of s.56(2)(c) should be given anything other than its generally accepted meaning. It does not exclude a company that holds its assets as a bare trustee or a company that owns anything (sic) other than its share capital.”[14]
[14]At [30].
Seyah held the property as trustee for the family trust. It transferred the property in its capacity as the legal owner. The capital and income beneficiaries are family members and charitable institutions. The “family link” between the previous beneficial owners (the capital beneficiaries of the family trust) and the new beneficial owners (the Hayes) has not been broken. There is no obvious absurdity or irrationality in exempting duty on this transfer.
I agree with the Hayes’ submission that, since parliament has expressly provided for a transferee who is a trustee for a fixed (s56(3)(b)) or discretionary (s56(3)(c)) trust, it would be unlikely for parliament not to have contemplated the possibility of the transferor being a trustee for fixed and discretionary trusts with natural persons and charitable institutions as beneficiaries.
The Commissioner is concerned that the literal interpretation of s.56 may provide exemption to transfers between beneficial owners who are not related. I agree with the Hayes that, in the context of a family farm held by a company as trustee for a discretionary trust, the likelihood of the related shareholders not being beneficiaries of the trust seems remote. In any event, s.56(1)(d) excludes the exemption from applying in respect of artificial transactions created to take advantage of s.56.
Parliamentary intention
The concept of a “family farm exemption” was introduced for the first time in 1993[15]. It became exemption (28) in Heading VI of the Third Schedule to the Stamps Act 1958 (“Stamps Act”). Exemption (28) was not in the same terms as s.56(2)(c) of the current Act, since it only afforded exemption to a transfer from a natural person or a trustee for a natural person to a relative of the natural person or a trustee for a relative of the natural person.
[15]Inserted by s.4 of the Stamps (Further Amendment) Act 1993.
In 1997, exemption (28) was repealed and replaced by s.71 of the Stamps Act[16].
[16]Repealed by s.25 and replaced by s.21 of the State Taxation (Amendment) Act 1997.
In 1999, the family farm exemption was extended to include transferor companies[17]. Prior to that time, the exemption applied only where the transferor was a natural person, or a trustee for a natural person.
[17]S.8 of the Stamps (Amendment) Act 1999.
Section 56 of the Act is relevantly the same as s.71 of the Stamps Act as at the time when the Stamps Act was repealed in June 2001 and replaced by the Act.
On 22 April 1999, the then State Treasurer, Mr Stockdale, gave the second reading speech for various amendments to the Stamps Act, including the introduction of the transferor company provision. All that he said in relation to the family farm exemption was:
“Amendments are also made that extend the family farm exemption from stamp duty to include transfers of primary production property from a family-owned company to a natural person who is a relative of a shareholder in the company. To qualify for the exemption, all shareholders in the company must be related natural persons. The amendment provides increased consistency in the treatment of transfers to family members and is in line with the government’s intention of providing relief from duty on the transfer of farms to younger generations.”[18]
[18]Hansard 22/4/99 p602.
The second reading speech said nothing about requiring the transferor company to be the beneficial owner of the family farm. The construction proposed by the Hayes is not obviously contrary to the purpose or object underlying s.56.
Conclusion
For the reasons given, I find that the tribunal member did not err in her construction of s.56 of the Act and correctly applied it to the facts of this case. The Hayes fall within the ordinary meaning of s.56(2)(c). In the face of such ordinary and plain language, and in the absence of any contrary parliamentary intention, I agree with the tribunal member that there is no reason to search for some other more elusive interpretation.
I propose to order that:
(1) The appeal be dismissed.
(2)The appellant pay the respondents’ costs of the appeal including any reserved costs.
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