Edge Developments Pty Ltd & Ors v Commissioner of State Taxation - [2022] SASC 55

Supreme Court of South Australia
(Appeal to a Single Judge)
EDGE DEVELOPMENTS (SA) PTY LTD & ORS v TREASURER OF THE STATE OF SOUTH AUSTRALIA & ANOR

[2022] SASC 55
Judgment of the Honourable Auxiliary Justice Dart
3 June 2022
TAXES AND DUTIES - STAMP DUTIES - APPEAL, CASE STATED ETC - SOUTH AUSTRALIA
TAXES AND DUTIES - STAMP DUTIES - EXEMPTIONS
The first appellant is the trustee of a Unit Trust - the Unit Trust was established to pursue a commercial office development - community titles were issued in respect of the office building - pursuant to a performance charge the sale proceeds of the community titles were held on trust for the Unit Trust - the transaction under consideration on this appeal is the redemption and cancellation of units in the Unit Trust - the second and third appellants are the remaining unit holders - was the Unit Trust a land holding entity - s 2(2) of the Stamp Duties Act 1923 deems a beneficial interest in sale proceeds to be a beneficial interest in the land - a transaction whereby a party increases a prescribed interest in a land holding entity is dutiable - the appellants say that s 92(1) of the Stamp Duties Act applies - that excludes a charge as a relevant interest in land - that would mean the Unit Trust was not a land holding entity.
Held:
1. The Unit Trust is a land holding entity.
2. The redemption transaction increased the prescribed interest of the second and third appellants in a land holding entity.
3. The transaction was dutiable.
4. The appeal is dismissed.
Community Titles Act 1996 (SA); Real Property Act 1886 (SA); Stamp Duties Act 1923 (SA) s 2, s 91, s 92, s 98, s 100, s 102, s 102B, s 102F; Schedule 2 clause 3(1), clause 4(1); Taxation Administration Act 1996 (SA) s 30, s 82, referred to.
Commissioner of State Revenue v Snowy Hydro Ltd [2012] VSCA 145; Consolidated Mining & Civil Pty Ltd v Commissioner of State Taxation [2020] SASC 233; MSP Nominees Pty Ltd & Anor v Commissioner of Stamps (South Australia) (1999) 198 CLR 494; Pharmos Nominees Pty Ltd v Commissioner of State Taxation [2012] SASCFC 89, considered.

EDGE DEVELOPMENTS (SA) PTY LTD & ORS v TREASURER OF THE STATE OF SOUTH AUSTRALIA & ANOR
[2022] SASC 55

The applicants commenced two separate actions.[1] Each was a judicial review action, but the later action converted into an appeal. Each deals with the issue of whether a particular transaction attracted an obligation to pay stamp duty. The transaction was the redemption of units in a unit trust for value. There are two separate actions because there was more than one assessment of the duty payable.
[1] SCCIV-20-309 Edge Developments (SA) Pty Ltd & Ors v Commissioner of State Taxation and SCCIV‑20-310 Edge Developments (SA) Pty Ltd & Ors v Treasurer of the State of South Australia & Anor; both commenced on 5 March 2020.
In the result, there were three separate assessments of the amount of stamp duty said by the second respondent to be payable. In a practical sense, it is really only necessary to deal with the final assessment, given that is the ultimate position of the second respondent. The earlier two assessments are redundant. It means that the appeal action is the one that requires a decision.
There are three possible outcomes. The first is that no duty is payable. The second is that duty is assessable and payable, based on the valuation of the units in the unit trust which were redeemed. The third outcome, which is the position of the respondents, is that the duty is to be assessed on the underlying value of particular land.
Background matters
There were, at the time of the redemption of the units, four relevant parties. The first is Edge Developments (SA) Pty Ltd (“Edge”). It is a proprietary company limited by shares and was registered on 28 July 2008. It is the trustee of the Edge Developments Unit Trust (“Unit Trust”) which was constituted by a Deed of Settlement on 6 August 2008.
The next party is Adabco Pty Ltd (“Adabco”). It is also a company limited by shares and was registered on 28 June 1994. Relevantly, in August 2008, it was the registered proprietor of land at 9A and 11 Gilles Street Adelaide.
Also relevant is Tabco Pty Ltd (“Tabco”). It is a proprietary company limited by shares and was registered on 31 August 1997. In August 2008 it was the registered proprietor of land at 416 King William Street Adelaide. The land holdings of Tabco and Adabco were contiguous.
The final party is Moore Park Management Pty Ltd (“Moore Park”). It is also a proprietary company limited by shares and was registered on 14 July 1997. It was deregistered on 25 November 2018.
On 1 October 2009 Adabco transferred a portion of its land, for consideration, to Tabco, which paid stamp duty on that transaction. The purpose of the transfer was to facilitate a common development. Edge, in its capacity as trustee of the Unit Trust, caused to be constructed, on the consolidated land, an office building known as The BDO Centre, which fronts on to King William Street. Adabco caused to be constructed on the adjacent land a residential development known as The Wave Development. It is only the Edge development that is relevant on this appeal.
The two developments were undertaken in a manner which allowed the developments to be the subject of community titles, to be issued under the Community Titles Act 1996 and the Real Property Act 1886 (“common development”).
A development contract dated 22 December 2009 was lodged at the Lands Title Registration Office. A plan of community division was also lodged at the Lands Titles Office at that time. The application for a community division led to the creation of two primary lots in the common development. One of those lots relates to The Wave Development and its title was issued to Adabco. The other title relates to the Edge development and was issued to Tabco.
In relation to the Unit Trust, Adabco and Tabco jointly held 3,000,000 units. Moore Park held 1,250,000 units. The units gave certain rights to the parties. For present purposes, the most relevant right was an entitlement to share in the profits of the Edge development. The proposal was that each floor of the office building to be constructed was to be issued a separate title. It was intended that the individual titles would be sold. The unit holders would share in the profits from the sales of the community titles. Pursuant to the Deed of Settlement, Moore Park was entitled to 35% of all development profits.[2] Adabco and Tabco jointly were entitled to 65% of the development profits.
[2] Trust Deed clause 12.9.
The Edge development was completed. Nothing of relevance occurred until, on 30 July 2014, Edge, as trustee, executed a Deed of Redemption redeeming the Moore Park units. The redeemed units were cancelled. The units were valued in the amount of $2,350,000 and that amount was paid by Edge on 30 July 2014. At the same time Adabco and Tabco executed a Deed of Indemnity in favour of Moore Park. They also executed a Deed of Release in favour of Moore Park. The Director of Moore Park resigned as a Director of Edge as a consequence of the transaction.
The units were valued at arms-length at the time of the redemption. There is no dispute in respect of the value of the units redeemed. The position of the respondents is that that is not the relevant value for the purpose of assessing stamp duty.
At the commencement of the development in 2008 the four parties had executed a document called Performance Charge. By that document Tabco and Adabco granted a charge in favour of Edge over their interest in the development. It is the effect of the terms of the Performance Charge that divides the parties on the appeal.
The assessment process
On 7 January 2015, the appellants, by their solicitors, sent a bundle of documents to the second respondent so that he could express an opinion about the relevant assessment. The bundle included the redemption deed, the indemnity deed, the release deed and the share transfer. The share transfer relates to the Director of Moore Park transferring one ordinary share in Edge to Adabco. The duty on that share transfer was assessed at 60 cents. No issue arises in relation to that assessment and it is not otherwise relevant to any issue in dispute.
The second respondent issued a requisition on 24 September 2015 in relation to the documents. An answer was sent by the appellants through their solicitor on 2 November 2015. There appears to have been little activity for several years. On 21 November 2018 a stamp duty notice of assessment in the aggregate sum of $570,090.39 was issued (stamp duty at $388,370.90, interest of $162,300.94 and penalty of $19,415).
On 14 January 2019 the appellants lodged an objection to the assessment with the Treasurer, pursuant to s 82 of the Taxation Administration Act 1996 (“TAA”). On 9 January 2020 the appellants received the Treasurer’s determination dated 7 January 2020. It denied the objection, but revoked the original assessment.
On 20 January 2020 the first respondent issued a stamp duty notice of reassessment in the aggregate sum of $923,360.89 (stamp duty of $741,641.40, interest of $162,300.94 and penalty of $19,418.55). The appellants thereafter paid 50% of the assessed stamp duty (not interest and penalty) and, by notice of objection dated 18 March 2020, objected to the reassessment.
It became apparent that, in the reassessment, a mistake had been made in relation to the subject land. The Wave Development land had been included when calculating the value of the Edge development land. The majority of that land was not part of the assets of the Unit Trust.
On 28 March 2021 the first respondent revoked the reassessment and issued his further decision as a stamp duty notice of assessment dated 30 March 2021. The parties agreed the value of the relevant land at $23 million. The final assessment was in the amount of $557,970.62 (stamp duty at $380,120.90, interest of $158,843.67 and penalty of $19,006.05). That was the lowest amount of the three assessments.
It is that final assessment that is the subject of this appeal. It was issued after the commencement of these proceedings. The matter commenced as a judicial review of the Treasurer’s first decision. The first respondent’s position was that the decision could not be subject to judicial review, but was amenable to an appeal. Subsequently, a Notice of Appeal has been filed in these proceedings. The parties are content to proceed on the basis that this is an appeal in the usual way.
Basis of the assessment
To understand the involved nature of the issues raised on an appeal, it might assist to set out the basis on which the final assessment was made. That requires consideration of the various provision of the Stamp Duties Act 1923 (“SDA”).
Historically, of course, stamp duty was imposed on instruments. In the recent past, that has changed to some extent. Part 4 of the SDA applies to transactions rather than instruments. The dispute on the appeal arises under Part 4. The change was noted by Parker J in Consolidated Mining & Civil Pty Ltd v Commissioner of State Taxation where his Honour said:[3]
Part 4 of the SDA was enacted by the Stamp Duties Act Amendment Act (No 3) 1990 (SA). As originally enacted, Part 4 was entitled “Acquisition of Certain Interests in Companies and Unit Trust Schemes Dutiable as Conveyances of Land”. That title clearly summarised its operation. As Kourakis CJ noted in Growthpoint Properties Ltd v Commissioner of State Taxation, although stamp duty had historically been charged on documents evidencing commercial transactions, Part 4 (pursuant to the former s 95) rendered dutiable the acquisition itself.[4]
The Second Reading speech delivered in the House of Assembly by the Minister of Finance, the Hon Frank Blevins, in support of the Bill that became the Stamp Duties Act Amendment Act (No 3) 1990 commenced with the observation that Part 4 was to be introduced “to counter a blatant tax avoidance scheme and thereby prevent stamp duty revenue from being lost as a result of certain transactions being arranged in a manner which minimised the liability to duty.”[5] The Minister explained that the Government was concerned that where land was owned by a company, a prospective purchaser was invited to take a transfer of the shares in the company rather than have the land conveyed. The result was that duty was not paid upon the value of the land but at the much lower rate applicable to a share transfer.
[3] [2020] SASC 233 at [27]-[28].
[4] (2015) 122 SASR 508 at [10].
[5] Parliamentary Debates, House of Assembly, 21 March 1990, p 692.
This matter is a transaction case. Despite the involved arguments, the matter turns on two issues. The first is whether the Unit Trust is a landholding entity. The second is whether Adabco and Tabco have increased a prescribed interest in a land holding entity. It only arises if the unit trust is a land holding entity. The answer to those questions will determine the outcome of the appeal.
At the commencement of the project the units held by Moore Park amounted to a 29.41% interest in the Unit Trust. That interest was extinguished by the redemption and subsequent cancellation of the Moore Park units. Since the redemption, Adabco and Tabco hold 100% of the issued units in the Unit Trust.
Section 91 of the SDA is a definitions section. The following three definitions are relevant:
unit trust scheme means an arrangement made for the purpose, or having the effect, of providing for persons having funds available for investment facilities for the participation by them, as beneficiaries under a trust, in any profits or income arising from the acquisition, holding, management or disposal of any property subject to the trust;
prescribed interest means—
(a)in relation to a private company or a private unit trust scheme—a proportionate interest in the entity of 50% or more; and
(b)in relation to a listed company or a public unit trust scheme—a proportionate interest of 90% or more;
proportionate interest in a relevant entity means—
(a)for a person or group that has a direct or indirect interest in the entity—the percentage representing the extent of that interest; or
(b)for a person or group that has both a direct and an indirect interest in the entity—an aggregate percentage representing the extent of both those interests;
Prior to the redemption, Adabco and Tabco jointly held an interest of 70.59% of the units in the Unit Trust, which is a unit trust scheme. Being an interest of more than 50%, it is relevantly a prescribed interest. The next section of the SDA that is relevant is s 100:
100—General principle of liability to duty
(1)A person or group that acquires a prescribed interest, or increases a prescribed interest, in a land holding entity notionally acquires an interest in the underlying local land assets of the entity and is liable to duty in respect of the notional acquisition.
(2)The following transactions are therefore dutiable:
(a)a transaction as a result of which a person or group acquires or has a prescribed interest in a land holding entity; or
(b)a transaction as a result of which a person or group that has a prescribed interest in a land holding entity increases its prescribed interest in the entity.
(3)A transaction is dutiable under this Part even though the person or group that has a prescribed interest, or increases a prescribed interest, in the land holding entity as a result of the transaction—
(a)is not a party to the transaction; or
(b)has a passive role in the transaction.
(4)For example, any of the following is capable of being a dutiable transaction:
(a)an allotment of shares in a company or units in a unit trust scheme; or
(b)the variation or abrogation of rights attaching to shares in a company or units in a unit trust scheme; or
(c)the redemption, surrender or cancellation of shares in a company or units in a unit trust scheme; or
(d)the addition or retirement of a partner in a partnership with assets comprising shares in a company or units in a unit trust scheme.
(5)However, if a relevant entity acquires a local land asset and, as a result of the acquisition, becomes a land holding entity, and conveyance duty is paid in respect of the transaction, the transaction is not dutiable under this Part.
(6)If a person who acquires or holds an interest in a land holding entity is a trustee for 2 or more trusts, any interest in the entity acquired or held by the person for different trusts are to be treated as if they were acquired or held by separate persons.
The final assessment proceeded on the basis that Adabco and Tabco, as a result of the redemption, increased their prescribed interest in the Unit Trust which, for reasons I will come to, is said by the respondent to be a land holding entity. The respondents say that s 100(2)(b) applies to the redemption.
The SDA contains a method of establishing the value of a notional interest acquired as a result of a dutiable transaction. The relevant section is:
102—Value of notional interest acquired as a result of dutiable transaction
(1)If a person or group has, as a result of a dutiable transaction, a prescribed interest in a land holding entity, the value of the notional interest acquired in the entity's underlying local land assets is determined as follows:
Where—
NV is the value to be of the notional interest acquired
TV is the total unencumbered value of all the entity's underlying local land assets
P is the fraction representing the proportionate interest of the person or group in the entity.
The assessment proceeded on the basis of the agreed value of the subject land at $23 million. The notional interest acquired being 29.41%; the value of the subject land was $6,911,355. Duty was assessed on that amount.
The following section of the SDA is relevant to determining if the unit trust is a land holding entity:
98—Land holding entity
A relevant entity is a land holding entity if the relevant entity holds local land assets.
On the face of it, the Unit Trust does not hold any land. To be a land holding entity, it must have a relevant interest in a local land asset:
92—Land assets
(1)A land asset is land other than—
(a)a mortgage, lien or charge; or
(b)an interest under a warrant or writ.
(2)A local land asset is a land asset constituted by land in South Australia.
The Unit Trust must be a land holding entity for the purpose of s 98 of the SDA for the transaction to be dutiable. The respondent relies on the following section of the SDA:
2—Interpretation
…
(2)An interest of a particular kind in the proceeds of the sale of property is, until the property is sold, taken to be an interest of the same kind in the property.
Example—
A beneficial interest in the proceeds of the sale of property is, until the property is sold, taken to be a beneficial interest in the property.
The Court was advised that the present drafting of s 2(2) was due to the outcome in MSPNominees Pty Ltd & Anor v Commissioner of Stamps (South Australia)[6] where the High Court held that the redemption and cancellation of units in a unit trust did not change the interest of the remaining unit holders in the unit trust.
[6] (1999) 198 CLR 494.
The respondents submit that, because the Unit Trust had an entitlement to the proceeds of the sale of the community titles, it had an equitable interest in the land itself. The interest in the sale proceeds are said to arise by clauses 3.1.1.3 and 3.1.1.4 of the Performance Charge. Those clauses are in the following terms:
3.1.1.3on each Sold Date – duly and punctually to HOLD and STAND POSSESSED on trust for the grantee:
3.1.1.3.1the Sale Contract; and
3.1.1.3.2the proceeds therefrom
in respect of that Sale in full satisfaction on the part of the Grantors to be performed and observed hereunder in respect of that Sale; and
Deliver Cheque
3.1.1.4 on the each Sold Date – endorse and deliver to the Grantee the settlement cheque in respect of the proceeds referred to in Sub-clause 3.1.1.3.2 in discharge of the trusts created under Sub-clause 3.1.1.3.2;

The Unit Trust is the grantee. The respondents say that the obligation to hold the proceeds of sale on trust for the Unit Trust creates a beneficial interest in the sale proceeds. Then, by operation of s 2(2), a deemed beneficial interest in the community titles is created. The Unit Trust is therefore a land holding entity. The respondent says that the beneficial interest is not excluded by s 92(1).
The applicants say the existence of the Performance Charge means s 92(1) applies and the Unit Trust is not to be regarded as a land holding entity. The appeal primarily turns on which view of s 92(1) is correct.
The contentions
After the hearing, further written submissions were received from the parties, to encapsulate the arguments as they developed during the hearing. An Amended Notice of Appeal was also filed. Relevantly, the appeal grounds are:[7]
[7] SCCIV-20-310, Amended Notice of Appeal filed 23 June 2021, FDN30.
3.1.1at the date of the Redemption Transaction Edge as trustee of the Unit Trust owned no land (as defined in sections 2(4), 91 and 92 of the SDA) or interest in land as defined
3.1.2if at the date of the Redemption Transaction Edge as trustee of the Unit Trust owned any land (as defined in sections 2(4), 91 and 92 of the SDA) or interests in land as defined, it was the Performance Charge and the Performance Charge is a mortgage or charge and therefore not a land asset for the purposes of Part 4 of the SDA by virtue of section 92(1)(a) of the SDA;
3.1.3the Redemption Transaction did not constitute a dutiable acquisition under Part 4 of the SDA;
3.1.4the Redemption Transaction did not require the lodging of a statement with the Respondent under section 102B of the SDA; and
3.1.5the Redemption Transaction did not require the payment of duty under Part 4 of the SDA as there was no acquisition of a prescribed interest or an increase in a prescribed interest in a land holding entity as required by section 100(1) of the SDA and accordingly neither section 102A(1) nor section 102A(2) applied to require the calculation of duty as therein provided;
3.1.6if the Redemption Transaction did require the lodging of a statement with the Respondent under section 102B of the SDA and required the payment of duty under the SDA by virtue of Part 4 of the SDA (which is denied):
(a)the Edge Land as defined in the Performance Charge did not include the further land described in the Treasurer’s Decision as the Adabco Land (Further Land);
(b)the Treasurer in the Treasurer’s Decision wrongly regarded the Further Land as the whole of the land comprising the Wave Development rather than a portion of the Adabco Land (Balance Edge Land);
(c)the Balance Edge Land, is only a very small portion (if any) of the land comprising the Wave Development;
(d)the value of the Further Land or the Balance Edge Land, if either is to be included, is less than the $22.35 million (Further Land Value) as stated in the Treasurer’s Decision;
(e)the value of the land described as the Tabco Land in the Treasurer’s Decision was less than the Treasurer’s Tabco Land value;
(f)if there was any additional land to that described as the Tabco Land in the Treasurer’s Decision the value of that land was as described in the Treasurer’s Decision, namely $510,000, as adopted by the Respondent;
(g)the value of the Performance Charge is some lesser amount than the sum of the Further Land Value and the Treasurer’s Tabco Land value; and
3.1.6Afurther, if none of the foregoing applies to render the Redemption Transaction non dutiable under Part 4, then section 102F(1) of the SDA in conjunction with either item 3(2)1 or item 4(2)2 of Schedule 2 Part 1 of the SDA exempt the Redemption Transaction from any duty under Part 4;
3.1.7further, any duty payable under the SDA, if the Redemption Transaction is dutiable, is to be determined as a redemption of units under section 71(3)(a) and to be assessed solely on the amount of the Redemption Consideration; and
3.1.8further, both the Respondent and the Treasurer should have been satisfied that any tax default was not a deliberate tax default nor did it result from, wholly or partly, from a failure on the part of the Appellants or a person acting on their behalf to take reasonable care to comply with relevant taxation laws and therefore no penalty tax was payable as provided for by section 30(2) of the TAA.
The ground of appeal in 3.1.6A is new. During the course of oral submissions the arguments of the appellants moved around to some extent. The appellants placed greater emphasis on the following section:
102F—Exempt transactions and related matters
(1)A transaction under which a person or a group acquires an interest in a land holding entity is exempt from duty under this Part if it takes place in circumstances in which a conveyance of an interest in the underlying local land assets would not attract ad valorem duty.
Consideration
The issues raised in grounds of appeal 3.1.1 to 3.1.5 can be dealt with together. The starting point is that the appellants assert that there was no need to lodge a return with the second respondent. The obligation to lodge a return is found in s 102B(1):
102B—Acquisition statement
(1)If a dutiable transaction occurs, the person or group that acquires or increases its prescribed interest in the land holding entity must, within 2 months after the date of the dutiable transaction, or, if the transaction was an exempted transaction under Part 4AA but the exemption has been revoked by the Commissioner, within 2 months after receiving notification of the revocation—
(a)lodge a return with the Commissioner in a manner and form determined by the Commissioner; and
(b)pay the relevant amount of duty.
Maximum penalty: $10 000.
The lodging of a return is necessary if there is a dutiable transaction. The first matter put by the appellants is that the right to receive the proceeds of sale of land does not create an interest in the land. It quotes authority for that proposition.[8] It can be accepted that the authorities referred to contain a correct statement of the common law position. The question is whether a different outcome is required because of the operation of the SDA. The appellants say that s 2(2) does not alter the common law position.
[8] Commissioner of State Revenue v Snowy Hydro Ltd [2012] VSCA 145 at [52].
The deeming effect of s 2(2) is clear. A party with an interest in the proceeds of the sale of property is taken to have an interest of the same kind in the properties. Clause 3.1.1.3 gives the first appellant a beneficial interest in the sale proceeds. It follows that it has a beneficial interest in the land being sold. The common law position would appear to have no bearing on the outcome. The interest is created by statute. The interest of the first appellant in the sale proceeds is a local land asset. The value of the interest is greater than $1 million and therefore the Unit Trust is a land holding entity.
The appellants then say that, even if an interest in land is created, the interest is excluded by operation of s 92(1). The only interest created is pursuant to a mortgage, lien or charge. If that argument is correct, the first appellant would not be a land holding entity.
In this matter we are dealing with Part 4 of the SDA, which deals with land holding entities and transactions undertaken in respect to such entities. The nub of the argument put by the appellants relates to whether or not the transaction creates an interest in a mortgage or charge.
In their further written submissions,[9] the appellants say as follows:
4.In this context of this matter, under Part 4, where there is an increase in a prescribed interest, and consequently a notional acquisition of an interest in a land holding entity, a liability for duty arises under section 100(1) as exemplified by section 100(2)(b). For the purposes of calculating the duty on the notional acquisition, where there is an increase in a prescribed interest, section 102(2) prescribes how the value of the notional interest acquired in the entity's underlying local land assets is to be determined.
9.Assuming one of those heads of charge applies in the circumstances of this matter, which itself may be questioned, then the duty that would have been payable on a conveyance of land with an unencumbered value of the notional interest, being an interest in a mortgage, as defined in section 76., 5 would have been zero either under either item 3(2)1 or item 4(2)2 of Schedule 2 Part 1.6 The notional interest in the asset in this matter is a notional interest in the Performance Charge, a mortgage as defined in section 76. The Commissioner’s contention is that the Performance Charge constitutes the land asset as defined, but not a charge, with or without the assistance of section 2(2).
[9] Filed 23 June 2021, FDN29.
The Performance Charge imposes a wide variety of obligations on Adabco and Tabco with respect to the Edge development. Those obligations are secured by a charging clause found in the Performance Charge. If the interest of the Unit Trust in the Edge land was solely pursuant to a mortgage, lien, or charge, then it would not hold a local land asset and would not be a land holding entity.
The relevant interest of the Unit Trust in the Edge land is the interest created by the deeming effect of s 2(2). It is a beneficial interest in the Edge land. That interest is not an interest as chargee. It can be accepted that the performance charge is a charge for the purpose of s 92(1). A person may hold more than one interest in land. That is the case here. The Unit Trust is a land holding entity, notwithstanding it may also have an interest in the land as chargee. Appeal grounds 3.1.1 to 3.1.5 fail.
The appeal grounds stated in paragraph 3.1.6 of the grounds of appeal no longer arise. The issue was corrected in the final assessment.
The ground of appeal set out in 3.1.6A relates to s 102F. It provides that a transaction by which a person acquires an interest in a land holding entity is exempt if a conveyance of the local land asset would not itself attract ad valorem duty.
The appellants’ position is set out in their further written submissions in the following terms:[10]
14.Section 102F(1) renders an acquisition of an interest in a land holding entity exempt from duty under Part 4 if it takes place in circumstances in which a conveyance of an interest in the underlying local land assets would not attract ad valorem duty. The example after section 102F(1) describes an acquisition of shares in a land holding entity by way of a distribution from a deceased estate. It states such an acquisition is exempt from duty under Part 4.
16. A conveyance of the Performance Charge itself or an interest therein would be exempt from ad valorem duty under either of items 3(2)1 or 4(2)2 of Schedule 2 Part 1. It is mortgage as defined in section 76, as already described.
17.Consequently, the Redemption Transaction took place in circumstances in which a conveyance of an interest in the underlying local land assets would not have attracted ad valorem duty and therefore section 102F exempts the Redemption Transaction from the operation of Part 4, if items 3(2)1 or 4(2)2 of Schedule 2 Part 1 do not work directly on the head of charge, as described earlier. Therefore, the redemption of the units, the Redemption Transaction, was exempt under Part 4.
[10] Filed 23 June 2021, FDN29.
The provisions of s 102F(1) are directed at transactions whereby a person acquires an interest in a land holding entity. The underlying land assets here are the land assets of the Unit Trust. The redemption transaction caused Adabco and Tabco to increase their prescribed interest in a land holding entity. That is the relevant interest. Whether the appellants increased their interest in the Performance Charge is of no moment.
The subject land, if conveyed, would attract duty.[11] A conveyance of the Edge land would appear to be subject to no relevant exemption. The Court is not dealing with the conveyance of an interest in the Performance Charge. The provisions of s 102F appear to have no application.
[11] See Schedule 2 clause 3(1) or clause 4(1).
Waiver of penalty
The Commissioner assessed that a penalty was payable. Where a party defaults in respect of their tax obligations, that person is liable to pay penalty tax. The penalty can be waived. The relevant provision is found in the Tax Administration Act 1996:
30—Penalty tax in respect of certain tax defaults
(1)If a tax default occurs, the taxpayer is liable to pay penalty tax in addition to the amount of the tax unpaid.
(2)Penalty tax is not payable in respect of a tax default if the Commissioner is satisfied that the tax default was not a deliberate tax default and did not result, wholly or partly, from any failure by the taxpayer, or a person acting on the taxpayer's behalf, to take reasonable care to comply with the requirements of a taxation law.
(3)Penalty tax imposed under this Division is in addition to interest.
(4)Penalty tax is not payable in respect of a tax default that consists of a failure to pay interest under Division 1 or a failure to pay penalty tax previously imposed under this Division.
It can be seen that the Commissioner can determine that no penalty tax is payable if he is satisfied that there was not a deliberate tax default and, to the extent that there was a tax default, it did not result wholly or partly with any failure by the tax payer to take reasonable care. The provision has been considered in a number of authorities.
In Pharmos Nominees Pty Ltd v Commissioner of State Taxation Blue J, with whom Anderson and Stanley JJ agreed, said as follows: [12]
Pharmos argued before the trial Judge that it had acted reasonably because it had obtained legal advice before entering into the transaction, difficult questions of construction were involved and views on the construction of the Act may differ. The trial Judge observed that Pharmos elected not to disclose the legal advice it had obtained and it was entirely possible that Pharmos had been advised that there was a real risk that the Instrument was dutiable. The trial Judge also observed that, while the Commissioner had issued circulars encouraging taxpayers to lodge straightforward documents for stamping through RevNet and not submit them for assessment, the transactions in question were particularly complex and the circulars made it plain that in cases of doubt documents should be submitted for assessment. In these circumstances, the trial Judge was not satisfied that Pharmos had taken reasonable care to comply with the requirements of the Act and upheld the imposition of penalty tax.
On appeal, Pharmos agitates the same arguments put to the trial Judge. I reject those arguments for the reasons articulated by the trial Judge. While Pharmos was not obliged to disclose the content of its legal advice, it could not rely on the fact that it obtained legal advice on the issue of reasonable care unless it elected to disclose the content of that advice. Pharmos relies upon Challenger Listed Invested Ltd v Commissioner of State Revenue,[13] in which the taxpayer acted in accordance with solicitor’s advice. However, in that case, the taxpayer disclosed the content of the advice and in any event the circumstances attracting stamp duty liability were quite different to those in the present case. Pharmos also relies upon Snowy Hydro Ltd v CSR (Vic) Ltd,[14] in which the Court found there was no primary stamp duty liability and went on to find that the taxpayer acted reasonably in relying on legal advise. While the reasons for judgment do not make it clear, there is no suggestion in the reasons that the content of the advice was not disclosed and in any event the circumstances attracting stamp duty liability were quite different to those in the present case.
[12] [2012] SASCFC 89 at [79]-[80].
[13] [2010] VSC 464.
[14] [2010] VSC 221.
The issue arises in the context of a party saying they acted on legal advice. Acting on legal advice in a way consistent with that advice is often relied upon to say that the tax payer took reasonable care to comply with taxation law. It is not clear that is the position advanced here. There is little evidence advanced by the appellants as to what steps were taken. There has been no proffering of any legal advice justifying the approach of the tax payer.
There is insufficient evidence before the Court to be satisfied that it is appropriate to rely on s 30(2) of the Tax Administration Act.
Conclusion
The appeal should be dismissed. The third assessment, based on the increased value of the prescribed interest, was the correct basis on which to assess the duty payable. I will hear the parties on the form of the orders to be made.