Commissioner of State Revenue v McShane
[2009] TASSC 73
•4 September 2009
[2009] TASSC 73
COURT: SUPREME COURT OF TASMANIA
CITATION: Commissioner of State Revenue v McShane [2009] TASSC 73
PARTIES: COMMISSIONER OF STATE REVENUE
v
McSHANE, Patrick John
FILE NO/S: 527/2009
DELIVERED ON: 4 September 2009
DELIVERED AT: Hobart
HEARING DATE: 18 August 2009
JUDGMENT OF: Crawford CJ
CATCHWORDS:
Taxes and Duties – Stamp duties – Exemptions – Tasmania – Exemption for transfer of primary production land to a relative of the transferor – Whether transfer of farm to relative and stranger in blood exempt.
Duties Act 2001 (Tas), s225(1)
Aust Dig Taxes and Duties [327A]
REPRESENTATION:
Counsel:
Appellant: P Turner
Respondent: D Wallace
Solicitors:
Appellant: Director of Public Prosecutions
Respondent: Wallace Wilkinson & Webster
Judgment Number: [2009] TASSC 73
Number of paragraphs: 34
Serial No 73/2009
File No 527/2009
COMMISSIONER OF STATE REVENUE v PATRICK JOHN McSHANE
REASONS FOR JUDGMENT CRAWFORD CJ
4 September 2009
Donald Maurice McShane was the owner in fee simple of rural land at Royal George. It was and is used in the business of primary production.
On 2 July 2008, he signed a transfer under the Land Titles Act 1980, by which he transferred his estate in fee simple in the land to two people as tenants in common in equal shares. The transferees were his son, Patrick John McShane, who is the respondent to this appeal, and Claus Pedersen, who was not a relative. The consideration for the transfer was expressed as $1,800,000.
Stamp duty payable on the transfer was assessed by the appellant Commissioner under the Duties Act 2001, at $69,550, being the duty usually payable on a transfer of land for a consideration of $1,800,000. It was assessed on an ad valorem basis as required by s29(1), the calculation being $6,550 for the first $225,000 of the dutiable value (the consideration) plus $4 for every $100 by which the dutiable value exceeded $225,000.
The respondent objected to the assessment under the Taxation Administration Act 1977, s80(1)(a), claiming that the transfer was exempt from duty insofar as it concerned a transfer of a half-interest in the property to him. The exemption was claimed by virtue of the Duties Act, s225(1). The Commissioner delegated the function of determining the objection. The delegate rejected the objection and affirmed the decision under review.
The respondent appealed to the Magistrates Court (Administrative Appeals Division) under the power given by the Taxation Administration Act, s89(1). A magistrate upheld the appeal, set aside the decision that was made by the delegate, and in substitution for it, decided that duty under the Duties Act was not payable by the respondent in respect of the one-half interest in the property that was transferred to him. In other words, it was the magistrate's determination that duty was only assessable in respect of the half-interest that was transferred to Mr Pedersen and not in respect of the half-interest transferred to the respondent.
The Commissioner appealed to this Court under the Magistrates Court (Administrative Appeals Division) Act 2001, s47(2), which permits appeals on a question of law. There is no dispute that what is raised by the appeal is a question of law. I have concluded that it must be answered in favour of the appellant.
Factual background to the transfer
Mr McShane senior intended that he would transfer the property to the respondent and that the latter would continue to use it for primary production. However, the respondent was unable to obtain the necessary finance to pay his father in return for the property.
Mr Pedersen, who was a farmer and a friend, agreed to assist upon the basis that he would purchase a half-interest in the property and that he and the respondent would hold the fee simple as tenants in common.
The statutory exemption from duty
The Duties Act, s225, is in these terms:
"225 Intergenerational rural transfers
(1) Duty under this Act is not chargeable on a transfer of real property, whether for consideration or not, and which includes personal property used solely or principally in connection with the business of primary production, if the Commissioner is satisfied that the transfer —
(a) relates to land that —
(i)is currently used, and which will continue to be used, in the business of primary production; and
(ii)is primary production land within the meaning of section 7 of the Land Tax Act 2000; and
(b)does not arise from any arrangement or scheme devised to evade the payment of duty by taking the benefit of this exemption; and
(c) is from —
(i)a natural person to a relative of the person or to a trustee of a trust in which all the beneficiaries are individually named and are relatives of the person at the time of the transfer and may not be varied other than by the addition of a relative individually named in any deed of variation; or
(ii)a company to a trustee of a trust in which all the beneficiaries are individually named and are relatives of all the shareholders of the company at the time of the transfer and may not be varied other than by the addition of a relative individually named in a deed of variation; or
(iii)a company to a natural person and all the shareholders of the company are relatives of the person; or
(iv)a trustee of a trust to a person who is a relative of all those named beneficiaries of the trust who are natural persons; or
(v)a trustee of a trust to a trustee of another trust of which all the beneficiaries are individually named and relatives at the time of the transfer of all those beneficiaries of the first-mentioned trust who are natural persons and of which the named beneficiaries may not be varied other than by the addition of a relative individually named in a deed of variation.
(2) Duty under this Act is not chargeable on any transfer of shares in a farming company to the extent of the proportion of the value of the shares which is the same proportion that the value of the farming property bears to the value of the total assets of the company, if the transfer is from a natural person to —
(a)a relative of the person; or
(b)a trustee of a trust in which all the beneficiaries are individually named and are relatives of the person at the time of the transfer and may not be varied other than by the addition of a relative individually named in a deed of variation.
(3) A relative of a person is —
(a)a lineal descendant of the person; or
(b)an adopted child, a natural child or a step-child of the person; or
(c)a lineal ancestor of the person; or
(d)a brother, sister, nephew, niece, aunt or uncle of the person; or
(e)the spouse or caring partner of the person or of a person referred to in paragraph (a), (b), (c) or (d)."
It is not disputed that the transfer related to land that was used at the time of the transfer, and which will continue to be used, in the business of primary production; that the land was primary production land within the meaning of the Land Tax Act 2000, s7; and that the transfer did not arise from any arrangement or scheme devised to evade the payment of duty by taking the benefit of the statutory exemption. For those reasons, the transfer complied with s225(1)(a) and (b).
The provisions of par(c) are critical to the outcome of the appeal, and in particular the opening words of subpar(i), which provide for exemption from duty if the transfer is from "a natural person to a relative of the person".
The appellant's argument is those words should be read as requiring that if there is more than one transferee, all of the transferees must be relatives of the transferor, and if the transfer is to two people, one of whom is a relative, and the other is not a relative, the exemption does not apply.
The respondent's case is that there was a transfer of real property to a relative, as well as a transfer of real property to a non-relative; that in effect two distinct estates or interests in the property passed to two separate transferees; and that as a result, that part of the transfer which was to the relative was entitled to the exemption, but the part of the transfer to the non-relative had no such entitlement.
The respondent's arguments
The learned magistrate accepted the arguments advanced by counsel for the respondent. He considered that the purpose of the scheme to which s225 gave effect was to assist younger family members to take up ownership of family farms and, as a consequence, to encourage the use of more efficient and innovative farming methods. His Honour approached the task of interpreting the section with that purpose in mind. He cited Burt v Commissioner of Taxation (WA) (1912) 15 CLR 469 at 482, where Barton J said that where the construction of exceptions to a general rule of taxation are seriously in doubt, the interpretation should favour those whose claims are based upon the exceptions. He also cited French J in Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450 at 457; 116 ALR 420 at 426, for the proposition that a statutory exemption is not to be given a narrow application.
An argument that was accepted by the learned magistrate, but which I regard as fallacious, was that involved in the transaction were two transfers and not one, there being a transfer from the father to the son of a one-half interest as tenant in common, and a transfer by the father to a non-relative of the other half interest as tenant in common. He pointed out that the exemption in s225(1) is couched in the singular where it provides that "duty under this Act is not chargeable over a transfer of real property" in any of the exempt circumstances, and concluded that the transfer to the son was exempt from duty, but the transfer to the non-relative was not exempt. His Honour described the transfer of one-half of the father's interest in the land to his son as "a transfer in its own right".
The learned magistrate added that there were in effect two distinct estates or interests of the transferor that passed to two separate transferees. That was plainly erroneous, for the transferor did not have two distinct estates or interests. He had only one, an estate in fee simple.
Finally, the learned magistrate considered that as there was a doubt about the correct interpretation, it should be interpreted in favour of the respondent, and commented that the legislature could have made its intention clear if it intended that the exemption would not apply in the circumstances of the case. Of course, that particular argument is countered by an opposite statement that the legislature could have made itself clear if it did not intend that result. However, I presume that his Honour had in mind the principle of interpreting taxation legislation to which reference was made in Burt v Commissioner of Taxation (WA).
Counsel for the respondent argued that the learned magistrate was correct in his reasons and conclusion.
The appellant's arguments
Counsel for the appellant submitted that the learned magistrate was wrong to treat the transfer as in effect two transfers or transactions. He submitted that there was only one transfer or transaction that was dutiable. It was erroneous, he argued, to treat the case as one of two transactions and to exempt one of them.
Reference was also made by counsel for the appellant to other provisions in s225 which reveal that the object and purpose of the section was to provide exemptions for transfers made only for the benefit of relatives and did not extend to transfers in which one or more transferee was a non-relative.
Discussion
I have concluded that the appellant should succeed for a number of reasons. One of them arises out of the object and purpose of s225.
It is clear from s225(1)(c) that there is no exemption if a transfer is from a natural person to a trustee unless all of the beneficiaries of the trust are relatives of the transferor (subpar(i)). If one beneficiary is not a relative there is no exemption, even if there are a great number of beneficiaries who are relatives.
It is equally clear that there is no exemption if the transfer is from a company to a trustee unless all of the beneficiaries of the trust are relatives of all of the shareholders of the transferor (subpar(ii)).
Similarly, it is clear that there is no exemption if the transfer is from a company to a natural person unless all of the shareholders of the transferor are relatives of the transferee (subpar(iii)). Further, if the transfer is from a trustee to a natural person then, for the exemption to be gained, that person must be a relative of all of the beneficiaries of the trust who are natural persons (subpar(iv)).
Finally, concerning par(c), there is no exemption if the transfer is from a trustee to a trustee, unless all the beneficiaries of the transferor are relatives of all the beneficiaries of the transferee (subpar(v)).
Under s225(2) it is provided further that duty is not chargeable on any transfer of shares in a farming company if the transfer is from a natural person to a relative of that person or to a trustee of a trust in which all the beneficiaries are relatives of that person.
The provisions of s225 to which I have referred demonstrate an object and purpose to provide exemption from duty only where all of those to whom dutiable property is transferred, or who have a beneficial interest in the transferee, are related to the transferor, or to all of those with a beneficial interest in the transferor, either as a shareholder of a company or beneficiary of a trust. I conclude that where a non-relative is involved, no exemption is intended.
I cannot accept that the legislature intended that if the transfer had been to a trust of which the respondent and Mr Pedersen were the sole beneficiaries, or to a company of which they were the sole shareholders, there would be no exemption, but that in a situation such as the present, there would be an exemption. It makes more sense that it was intended that there be no exemption in all three cases.
The Acts Interpretation Act 1931, s8A(1), supports the Commissioner. It provides that "in the interpretation of a provision of an Act, an interpretation that promotes the purpose or object of the Act is to be preferred to an interpretation that does not promote the purpose or object". The purpose or object of the Duties Act is to create and charge a number of duties. Its principal objects are not to grant exemptions from liability to pay duty. However, if it is assumed that subs(1) does not bar consideration of the purpose or object of the provision itself when interpreting it, the Commissioner's assessment is still supported.
The scheme of the Act includes the following. The expression "dutiable property" extends to land in Tasmania and an interest in land (s9(1)). The Act charges duty on a transfer of dutiable property, and such a transfer is a dutiable transaction for the purposes of the Act (s6(1)(a) and (2)). Liability for duty arises when a transfer of dutiable property occurs (s10(1)). Duty is payable by the transferee (s11).
Duty is charged on the dutiable value of the dutiable property subject to the dutiable transaction at the relevant rate set out in Pt3 (s17). In the circumstances of this case, the dutiable value of the dutiable property that was subject to the dutiable transaction was the consideration of $1,800,000 (s18(1)).
Section 29 prescribes the rate of duty chargeable on a dutiable transaction. As I mentioned earlier, the rate is calculated ad valorem, but the percentage of the rate increases as the consideration increases. In that way, the duty payable on a transaction involving a consideration of $1,800,000 is greater than the sum of the duties payable on two dutiable transactions each with a consideration of $900,000. (The duty on a dutiable value of $1,800,000 is $69,550, but the duty on each of two dutiable values of $900,000 is $33,550, a total of $67,100.)
My own experience as a legal practitioner over many years tells me that before the commencement of the Duties Act, duty on a transfer to more than one transferee was never assessed upon the basis that the number of dutiable transactions was determined by the number of transferees, so that the dutiable value of each was separately assessed for duty. There is no reason to think it was intended that the Act would change that practice.
Orders
It will be ordered that the orders of the magistrate of 1 June 2009 are set aside and that the decision of the Commissioner's delegate of 17 October 2008 is affirmed.
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