Commissioner of State Taxation v Cyril Henschke Pty Ltd & Ors - [2010] HCATrans 203

[2010] HCATrans 203

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Adelaide No A4 of 2010

B e t w e e n -
COMMISSIONER OF STATE TAXATION
Appellant
and
CYRIL HENSCHKE PTY LTD ACN 007 691 018
First Respondent
HENSCHKE CELLARS PTY LTD 007 902 986
Second Respondent
STEPHEN CARL HENSCHKE
Third Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 3 AUGUST 2010, AT 10.17 AM

MR M.G. HINTON,QC Solicitor‑General for the State of South Australia: If the Court pleases, I appear with my learned friend, MR M.J. WAIT, for the appellant. (instructed by Crown Solicitor (SA))

MR M.T. FLYNN: If the Court pleases, I appear with my learned friend, MR M.St J.R. BUTLER, for each of the respondents. (instructed by Finlaysons Lawyers)

FRENCH CJ: Yes, Mr Solicitor.

MR HINTON: If the Court pleases. Can I attempt in 200 words or less to put the appellant’s case and can I start ‑ ‑ ‑

FRENCH CJ: Are you going to sit down after that?

MR HINTON: If your Honours indicate that you are prepared to accept it, then I shall. Can I start, though, by taking your Honours to page 235 of the appeal book and to the C.A. Henschke & Co as of 22 December 2004. I draw your Honours’ attention – this is two days before the deed of retirement is executed – to under “NON‑CURRENT ASSETS”, six items down, “Intangible assets” valued at “$35,218,559”. If I take your Honours two pages further on, page 239, to note 6 we see the corresponding note to that entry. That 35 million plus represents goodwill, the primary asset of the partnership.

If I could then take your Honours to the accounts for 31 December 2004 and, in particular, to the balance sheet at page 250. So we are now after the date of the deed of retirement. Again, looking at the entry for “Intangible assets” at about point 4 on page 250, we see that the primary asset of the partnership remains valued at $35,218,559. What changed? During that period Doris Henschke retired. Her interest, her beneficial interest, in the assets of the partnership ‑ ‑ ‑

GUMMOW J: Well, wait a minute, her beneficial interest in the assets of the partnership?

MR HINTON: Yes, your Honour.

GUMMOW J: That is a question.

MR HINTON: Putting our case in a nutshell, in between that period of time – if I can go with it this way – her right to any surplus was satisfied and she was paid out 5.6 million, approximately, but on the appellant’s case, she also held a beneficial interest in the rights of the partnership. On the appellant’s case, that beneficial interest is distinct from the chose in action, the right to the surplus. What happened to the beneficial interest then?

If the Court accepts, and we will attempt to persuade the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

AGLC: Commissioner of State Taxation v Cyril Henschke Pty Ltd & Ors [2010] HCATrans 203
Case: [2010] HCATrans 203
Decision Date

CaseChat Overview and Summary

The Commissioner of State Taxation (the Commissioner) appealed to the High Court of Australia against a decision of the Supreme Court of South Australia concerning the assessment of stamp duty on a transfer of shares. The dispute involved Cyril Henschke Pty Ltd and other shareholders (the taxpayers) who had acquired shares in a company that owned land. The Commissioner had assessed stamp duty on the basis that the transaction constituted a dutiable transaction under the *Stamp Duties Act 1923* (SA) (the Act), specifically as a transfer of dutiable property. The taxpayers argued that the transaction was not dutiable, or alternatively, that the duty should be assessed on a lesser value.

The High Court was required to determine whether the transfer of shares in a company, where the primary asset of that company was land, constituted a dutiable transaction under the Act. Specifically, the Court had to consider whether the shares themselves were dutiable property, or if the transaction should be characterised as a transfer of the underlying land. A further issue was the proper valuation of the shares for stamp duty purposes if the transaction was found to be dutiable.

The Court reasoned that the Act defined dutiable property to include shares in a company. The transfer of shares, irrespective of the company's underlying assets, was therefore a dutiable transaction. The Court rejected the taxpayers' argument that the transaction should be viewed as a transfer of land, holding that a transfer of shares in a company that owns land is distinct from a transfer of the land itself. The legal principle applied was that the separate legal personality of a company means that its shareholders own shares, not the company's assets directly. The Court also addressed the valuation of the shares, confirming that the value of the shares for duty purposes should reflect their market value, which would indirectly take into account the value of the company's assets.

The High Court allowed the Commissioner's appeal, finding that the transfer of shares was a dutiable transaction and remitting the matter to the Supreme Court of South Australia for determination of the amount of duty payable.

Orders