EDI Rail (Maryborough) Pty Ltd and Commissioner Of State Revenue

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL

STREAM: COMMERCIAL & CIVIL

ACT: STAMP ACT 1921 (WA)

CITATION: EDI RAIL (MARYBOROUGH) PTY LTD and COMMISSIONER OF STATE REVENUE [2009] WASAT 49

MEMBER: JUDGE J CHANEY (DEPUTY PRESIDENT)

HEARD: 12 NOVEMBER 2008

DELIVERED : 19 MARCH 2009

FILE NO/S: CC 744 of 2008

BETWEEN: EDI RAIL (MARYBOROUGH) PTY LTD
ROCHE CASTINGS PTY LTD
Applicants
AND
COMMISSIONER OF STATE REVENUE
Respondent

Catchwords:

Stamp Duty - Corporate reconstruction - Exemption - Whether duty avoidance arrangement - Whether business purpose for transaction - Whether attempt to circumvent provisions relating to association of companies prior to transaction -Whether failure to provide material information

Legislation:

Income Tax Assessment Act 1936 (Cth), s 260
Revenue Laws Amendment (Assessment) Act 1996 (WA)
Revenue Laws Amendment (Assessment) Act 2000 (WA)
Stamp Act 1921 (WA), Part IIIBAAA, s 75JAA, s 75JB, s 75JB(d)(ii), s 75JB(1)(d), s 75JB(5), s 75JDA, s 75JDA(1), s 75JDA(1)(a), s 75J(2)

Result:

Application for review allowed. Assessment set aside.

Category: B

Representation:

Counsel:

Applicants: Mr DR Williams QC and Mr AC Willinge
Respondent: Mr B King and Mr B Prentice

Solicitors:

Applicants: Blake Dawson
Respondent: State Solicitor's Office

Case(s) referred to in decision(s):

Newton v Federal Commissioner of Taxation (1958) 98 CLR 1
The Commissioner of Taxation of The Commonwealth of Australia v Gulland (1985) 160 CLR 55
Worsley Timber 2000 Pty Ltd (in liq) v Commissioner of State Revenue [2007] WASC 155

REASONS FOR DECISION OF THE TRIBUNAL:

Summary of Tribunal's decision

In December 2002 following a takeover by the Downer Group of companies of the EDI Group of companies, a restructure of the businesses of the two groups was undertaken. In the context of that restructure a business in Western Australia known as Vaughan Castings was transferred to a newly incorporated company within the group. That transaction attracted an exemption from Stamp Duty in accordance with Part IIIBAA of the Stamp Act 1921 (WA).
The Commissioner of State Revenue consequently ascertained that six months after the exempted transaction but before the application for the exemption had been lodged, the shares in the new company had been transferred to a different company in the group. He considered the transfer of shares to the relevant information in relation to a duty avoidance arrangement and took the view that the failure to disclose the share transfer triggered a claw-back provision of the Stamp Act. The Commissioner issued an assessment for $1,026,812. An objection to that assessment was disallowed, and the applicants sought a view of that decision in these proceedings.
The Tribunal examined the transactions concerned and considered whether a duty avoidance arrangement existed. It reviewed the purpose of the relevant transactions and concluded that, although there was an 'arrangement' within that meaning of the relevant provisions, it was not a 'duty avoidance arrangement'. It concluded that there had been no failure to provide material information and that the assessment should be set aside.

Introduction

This case concerns the application of the provisions of Part IIIBAAA of the Stamp Act 1921 (WA) (Stamp Act) dealing with exemptions for corporate reconstructions. It is the provisions of that part of the Stamp Act as it stood as at 1 January 2003 to which regard must be had for the purposes of these proceedings. There have been amendments to that Part of the Stamp Act since the events the subject of scrutiny in these proceedings took place.
Part IIIBAAA of the Stamp Act provides for exemptions for duty in certain prescribed situations. Relevantly, exemptions from Stamp Duty are available in relation to the transfer of property between associated companies. The requirements for the necessary association are set out in the legislation. There are requirements that the companies involved in the transaction have been associated for a qualifying period and must remain associated for at least 5 years after the execution of the instrument in respect of which an exemption has been granted. Provision is made for an application for the exemption to be made in a particular form. If any material information is not given to the Commissioner of State Revenue (Commissioner) by the applicant for exemption, then what is known as 'the claw-back' applies. If the 'claw-back' applies, then the instrument is deemed not to have been exempted, and the duty and a fine are payable.
Compliance with all of the statutory requirements for the exemption does not necessarily result in an exemption being granted. That is because the Commissioner may refuse to grant an exemption if he considers that the instrument, the subject of the application, is likely to relate to a 'duty avoidance arrangement'. A 'duty avoidance arrangement' is defined in the legislation.
In September 2003, the Commissioner granted an exemption pursuant to Part IIIBAAA of the Stamp Act in relation to a transfer of assets from a company then known as Walkers Pty Ltd (which subsequently changed its name to EDI Rail (Maryborough) Pty Ltd) to a company known as Roche Castings Pty Ltd (previously known as Vaughan Castings Pty Ltd). Both of those companies are members of what is known as the Downer EDI Group, the ultimate parent company of which was Downer EDI Limited.
It subsequently came to the attention of the Commissioner that, after the exempted transaction had occurred, but before the application for the exemption was made, the shares in the transferee company, Roche Castings Pty Ltd, had been transferred to another company in the Downer EDI Group, namely Roche Mining Pty Ltd. For reasons which will become apparent, had Roche Mining Pty Ltd held the shares in Roche Castings Pty Ltd prior to the transfer of the assets from Walkers Pty Ltd to Roche Castings Pty Ltd, the exemption under Part IIIBAAA would not have been available.
On learning of the share transfer, the Commissioner took the view that he ought to have been advised of the transfer at the time that the application for exemption was made, and that the failure to draw that matter to his attention constituted a failure to provide material information so that the claw-back applied. Accordingly, the Commissioner applied the claw-back, and issued an assessment of duty of $718,051 together with a fine calculated in accordance with the claw-back provisions in an amount of $308,761 giving rise to a total assessment of $1,026,812.
On 16 September 2005, the applicants lodged an objection with the Commissioner. On 19 March 2008, the Commissioner disallowed the applicant's objection, and the applicant thereupon commenced these proceedings for a review of that decision.

The background facts

Downer EDI Limited was previously known as Downer Group Limited. At some time in the past, Downer Group Limited took over a mining operation which had been operating in Australia for over 60 years, known as Roche Brothers. Downer Group Limited was based in Brisbane, but approximately two thirds of the business of Roche Brothers operated in Western Australia. After Downer Group Limited took over Roche Brothers operations, it continued those operations through an entity known as Roche Mining Pty Ltd (Roche Mining).
According to Mr Robert Logan, who was the Chief Executive Officer of Roche Mining from October 1997 until November 2006, Roche Mining was a divisionally structured business. Some of the business divisions of Roche Mining, such as the blasting business and the minerals technology business, stood alone as separate legal identities. The rest of the divisions were not separate legal identities, but were more like divisional wings within the business.
Mr Logan said that the business divisions of Roche Mining were treated as if they were stand alone entities within the Roche Group, and managers were encouraged to treat the divisions as separate businesses.
On 6 February 2001, Downer Group Limited through its subsidiary Downer Holdings Pty Ltd acquired EDI Pty Ltd. The EDI Pty Ltd businesses included a minerals technology business and various other types of business. In the EDI Group was a company called Walkers Pty Ltd. Walkers Pty Ltd had a foundry business known as Vaughan Castings in Perth. Its main business was however, the manufacture of locomotive and passenger rail cars. Apart from the foundry business, its additional businesses included a sugar milling equipment business, a gear manufacturing business and an investment in a company called 3M. It also had a small Brisbane based industrial manufacturing business.
After Downer Holdings Pty Ltd acquired EDI Limited, Downer EDI Limited (as it became known) undertook restructure of the way the EDI Limited businesses had been structured. Mr Bruce Crane, who was company secretary and general manager of finance and administration for Downer EDI Limited from 2001 until 2006 said that bits and pieces of the business of EDI Limited went into different parts of Downer EDI Limited. The EDI Limited companies themselves were not moved, but the businesses were put under control of different Downer divisions. Some of the businesses went to Downer Engineering, some of the businesses went to the works infrastructure division, and the rail related activities were formed into EDI Rail Pty Ltd (formerly known as Evans Deakin Pty Ltd). In that restructure, the mineral technologies business went to Roche Mining.
In about February 2002, an approach was made to Walkers Pty Ltd by an entity known as Bradken Resources Pty Ltd (Bradken). Bradken was unrelated to the Downer EDI Group. Bradken expressed interest to Walkers Pty Ltd in buying the Vaughan Castings business. The transaction however, did not ultimately proceed.
After the proposed sale of the Vaughan Casting business to Bradken fell through, Downer EDI Ltd started to consider what to do with the business if it was going to remain part of the Downer EDI Group. At the time, the Vaughan Castings business remained part of Walkers Pty Ltd, and was operating at a loss. Downer EDI Limited wanted to put the Vaughan Castings business into either the engineering division or the mining division in order to make Walkers Pty Ltd a rail focused business.
In November 2002, Mr Crane was asked to enquire whether Roche Mining would take on management of the Vaughan Castings business. Accordingly, Mr Crane prepared an information memorandum for Roche Mining in November 2002 in relation to the Vaughan Castings business, and provided it to Mr Logan of Roche Mining.
In December 2002, Mr Crane sought advice from the group's accountants, Pricewaterhouse Coopers (PWC) concerning stamp duty implications of various proposed transfers within the Downer EDI Corporate Group. It is apparent that that advice contemplated a transfer of the Vaughan Castings business not to Roche Mining Pty Ltd, but to the engineering arm of the group trading through the entity Downer Engineering Group Pty Ltd. PWC provided advice by letter dated 19 December 2002. The letter sets out a summary of the advice in the following terms:
This letter concerns the proposed transfer of the Vaughan Casting business conducted by Walkers Pty Ltd ('Walkers') to Downer Engineering Group Pty Ltd ('DEG').
Executive Summary
•It will not be possible to obtain a corporate reconstruction exemption in Queensland or WA, on a direct transfer of Vaughan Casting business from Walkers to DEG. This is because Walkers and DEG have not been associated for the requisite 3 year period in thee jurisdictions.
•We consider that the transfer of the business may be effected without the incidence of stamp duty if it is effected by way of the following steps:
Step 1.Roll down Vaughan Casting business from Walkers to a newly incorporated subsidiary ('Newco');
Step 2.Transfer the shares in Newco from Walkers to DEG.
•A corporate reconstruction exception should be available in all jurisdictions in which an exposure to duty arises under Step 1. However, we recommend that determinations be obtained prior to the transactions taking place.
•No stamp duty will be payable on step 2 provided that, Newco is incorporated in a jurisdiction that no longer imposes duty on a transfer of unlisted shares (such as Victoria or Tasmania).
•If the transfer of the business is to take effect (as between the parties) from 1 January 2003, then Newco must be incorporated prior to this date to ensure that the requirements for corporate reconstruction relief are satisfied.
The letter then analysed the different legislative provisions in each State. In relation to Western Australia, the accountants summarised the requirements of the Stamp Act to obtain the exemption. Reference was then made to the duty avoidance provisions of the Stamp Act as follows:
Duty Avoidance Scheme
If the Commissioner forms the opinion that the transfer of WA assets from Walkers to Newco constitutes a 'duty avoidance scheme', then the commissioner may determine that the exemption will not apply. This may be the case even if the relevant conditions for relief have been satisfied. A 'duty avoidance scheme' is relevantly defined in section 75JDA of the Act as an arrangement:
(a)Avoiding or circumventing the operation of the provisions so far as they make the availability and continued effect of an exemption under section 75JB dependent on bodies corporate having been associated for a particular period or remaining associated for a particular period; or
(b)Having as its purpose, or one of its purpose, the reduction of duty that might otherwise become payable.
As it will not be possible to transfer the WA assets direct to DEG, it is possible that the Commissioner may regard the proposed two step sequence as being contrary to the intended operation of the corporate reconstruction provisions and consider it to be a 'duty avoidance scheme'. We therefore recommend not proceeding into the transaction until a binding ruling is obtained from the WA Commissioner.
According to Mr Crane, when the information memorandum was provided to Roche Mining, there was no certainty that the Vaughan Castings business would be transferred to that company. He said that that was simply the preferred position of the corporate office following the failure to sell the business to Bradken. Mr Crane said, that because the businesses formerly operated in the EDI Group were being managed by different companies within the Downer EDI Group, the management accounts and statutory accounts for those businesses 'did not match up'. He said that the companies operationally responsible for the businesses could not report the results of the businesses in their statutory accounts. The companies legally responsible for the businesses no longer controlled the businesses, and that position added a lot of costs and complexities to the companies' statutory accounts and record keeping. He said that there was confusion for both clients and staff arising from the fact that some businesses continued to operate under the names of the companies which legally owned them, but they were operated by different companies managing the businesses. Mr Crane said that he wanted to structure the Downer EDI Group to reflect the way that the businesses were being operated and managed. It was in accordance with that objective that the decision was taken to focus the business of Walkers Pty Ltd on rail, and move other businesses to more appropriate entities within the group, including Vaughan Castings.
During December 2002, Mr Logan reviewed the documents provided to him, including the information memorandum. He said that he came to the view that it made good sense to place Vaughan Castings under Roche Mining as there were elements of the Vaughan Castings business that Roche Mining could use and add value to. He therefore initiated oral communications with senior management of the Vaughan Castings business and met with them on 8 January 2003.
In the meantime, on 24 December 2002, Vaughan Castings Pty Ltd was incorporated in Victoria as a wholly owned subsidiary of Walkers Pty Ltd and on 2 January 2003, the assets of the Vaughan Castings business was transferred from Walkers Pty Ltd to Vaughan Castings Pty Ltd.
On 10 January 2003, Mr Crane sent a memorandum to Mr Stephen Gillies, Downer EDI Limited's chief executive officer. The memorandum advised that 'we are in the process of transferring the accountability to Roche effective 1 January 2003'. On 17 January 2003, it was announced that Vaughan Castings had joined Roche Mining.
Thereafter, Roche Mining assumed management of the Vaughan Castings business and according to Mr Logan, made substantial improvements in its operations and profitability. Vaughan Castings Pty Ltd changed its name to Roche Castings Pty Ltd on 17 January 2003.
On 2 July 2003, Walkers Pty Ltd transferred all of its shares in Roche Castings Pty Ltd to Roche Mining.
On 27 August 2003, PWC lodged an application dated 19 August 2003 for corporate reconstruction relief in respect to the transfer of the assets of the Vaughan Castings business. That application did not disclose the transfer of shares from Walkers Pty Ltd to Roche Mining. An exemption was consequently approved on the basis that Roche Castings Pty Ltd and Walkers Pty Ltd were associated bodies and that they satisfied the preassociation requirements.
As previously observed, when the Commissioner became aware of the share transfer, he took the view that that information would have materially affected the decision to grant an exemption.

Was there a duty avoidance arrangement

Section 75JDA of the Stamp Act defines a duty avoidance arrangement. Section 75JDA(1) provides:
duty avoidance arrangement means an arrangement -
(a)avoiding or circumventing the operation of the provisions of this Part so far as they make the availability and continued effect of an exemption under section 75JB dependent on bodies corporate having been associated for a particular period or remaining associated for a particular period; or
(b)having as its purpose, or one of its purposes, the reduction of duty that might otherwise become payable.
Section 75JDA(3) gives the Commissioner the discretion to refuse to grant an exemption. That subsection provides:
Even if on an application under section 75JD it is shown to the satisfaction of the Commissioner that section 75JB applies, the Commissioner may refuse to grant an exemption under section 75JB(3) or to issue an exemption certificate under section 75JB(3a) in respect of an instrument or to grant an exemption under section 75JB(3) in respect of a Part IIIBA statement if the Commissioner considers that the instrument or Part IIIBA statement relates or is likely to relate to a duty avoidance arrangement.
The reference in s 75JDA(1)(a) to 'bodies corporate having been associated for a particular period or remaining associated for a particular period' is a reference to the requirements of s 75JB which creates the entitlement to an exemption in the circumstances specified in that section. The section applies to instruments which convey a beneficial interest in property from one body corporate ('A') to another body corporate ('B'). The section requires that (A) and (B) are associated bodies corporate. Section 75J(2) describes the circumstances in which two bodies corporate are associated. It is common ground in these proceedings that, at the time of the transaction, Walkers Pty Ltd, Roche Castings Pty Ltd and Roche Mining Pty Ltd were associated bodies corporate for the purposes of Part IIIBAAA of the Stamp Act.
Section 75JB(1)(d) provides however, that for the exemption to be available, (A) and (B) must have been associated bodies corporate for a qualifying period. It is common ground that Roche Castings Pty Ltd which was incorporated on 24 December 2002, had not been associated with Walkers Pty Ltd (or for that matter Roche Mining) for the qualifying period. There is, however, an exception to that requirement found in s 75JB(1)(d)(ii). Association for at least the qualifying period is not required where:
(1)(ii) A and B have been associated since A acquired at least 90% of the issued share capital -
(A)of B on its incorporation in Australia; or
(B)of B as a body corporate incorporated in Australia that had been dormant since it was incorporated,
and B has been dormant from when A and B became associated until B resolved to acquire the beneficial interest;

What is meant by the expression 'dormant body corporate' is explained in s 75JAA. It is not necessary to set out in detail the provisions of that section, because it is common ground that Roche Castings Pty Ltd (or Vaughan Castings Pty Ltd as it was known at the time) was a dormant body corporate for the purposes of the section, from the time of its incorporation on 24 December 2002, until Walkers Pty Ltd resolved to acquire the beneficial interest in the assets of the Vaughan Castings business.
At the relevant time, s 75JB(5) provided:
(5)If within 5 years after the execution of the instrument or the date of the relevant acquisition A and B cease to be associated then the claw-back applies.
No issue as to the application of s 75JB(5) arises in this case.
In essence, the Commissioner's contention was summarised in his letter to the applicant's accountants dated 7 January 2005, in which it was said:
Application for exemption involving the use of s 75JB(1)(d)(ii) to transfer property to newly incorporated subsidiaries and the subsequent transfer of those subsidiaries to divisions of a corporate group that do not satisfy preassociation requirements are considered to be duty avoidance arrangements and as such will be disallowed in all instances.
The applicants contend that the pre-association period having been met in relation to the transfer from Walkers Pty Ltd to Roche Castings Pty Ltd, there was no 'avoiding or circumventing' of the relevant provisions, and that given the proper business purposes of both the transfer of the Vaughan Casting assets, and the subsequent transfer of shares in Roche Castings Pty Ltd, no duty avoidance arrangement existed.
The applicants contend, that no decision was taken by Roche Mining Pty Ltd to assume responsibility for the Vaughan Castings business until a meeting between Mr Logan and senior management of the Vaughan Castings business on 8 January 2003. On that basis, they contend that there cannot be said to be an 'arrangement' which involved the transfer of shares in Roche Castings Pty Ltd to Roche Mining Pty Ltd at the time the transfer of the Vaughan Castings assets was resolved by the Boards of Walkers Pty Ltd and Roche Castings Pty Ltd, and the transfer of assets became effective. The Boards' resolutions are minuted to have occurred on 2 January 2003, and the transfer of assets was specified as being effective as from 1 January 2003. I note, however, that the minutes of the meeting of directors on 2 January 2003, is headed 'Roche Castings Pty Ltd' notwithstanding that, at 2 January 2003, the company was called 'Vaughan Castings Pty Ltd', and according to Mr Logan, no decision to place the Vaughan Castings business under the management of Roche Mining Pty Ltd had been taken at that time.

Section 75JDA(1)(a)

Section 75JDA(1)(a) contemplates two types of arrangement that constitute a duty avoidance arrangement, being those described in para (a) and para (b) of the subsection respectively.
As to (a), the relevant issue for the purpose of these proceedings is whether there was an arrangement:
circumventing the operation of the provisions of this Part so far as they make the availability … of an exemption … dependent on bodies corporate having been associated for a particular period …
For a transfer of assets directly from Walkers Pty Ltd to Roche Mining Pty Ltd itself, an exemption would not have been available because the transferor company and the transferee company had not been associated for the required periods. For a transfer of assets from Walkers Pty Ltd to a newly incorporated dormant company the shares of which were held by Roche Mining Pty Ltd, the exemption would not have been available because the exception to the association requirement found in s 75JB(1)(d)(ii) of the Stamp Act would not operate. That exception only operates where the transferor of the assets is the company which holds the shares in the dormant transferee.
On the other hand, the transactions which actually effected the transfer of assets from Walkers Pty Ltd to Roche Castings Pty Ltd met the requirements of the provisions which make the availability of the exemptions dependant upon the two companies having been associated for a particular period.
The question becomes - should the transfer of assets and any subsequent transfer of shares be taken together as an arrangement which circumvents the pre-association requirements by bringing about an ultimate beneficial ownership of assets, which, if done in a single transaction, would not have been entitled to an exemption?
To address that question, it is first necessary to consider what constitutes an 'arrangement' for the purposes of s 75JDA. If, having found that there was an arrangement for the purposes of the section, it must then be determined whether the arrangement 'circumvents' the pre-association requirements of s 75JB.
The parties to these proceedings drew upon the approach which has been taken to construing the expression 'arrangement' for the purposes of s 260 of the Income Tax Assessment Act 1936 (Cth) (ITA Act). In Worsley Timber 2000 Pty Ltd (in liq) v Commissioner of State Revenue [2007] WASC 155 (Worsley Timber), Simmons J accepted that the interpretation of the expression 'arrangement' for the purposes of s 260 of the ITA Act provided guidance in construing that expression for the purposes of s 75JDA(1) of the Stamp Act.
In Newton v Federal Commissioner of Taxation (1958) 98 CLR 1 (Newton) at 7 - 8, a decision of the Privy Council, Lord Denning delivering the judgment on behalf of the Board said:
Their Lordships are of opinion that the word "arrangement" is apt to describe something less than a binding contract or agreement, something in the nature of an understanding between two or more persons - a plan arranged between them which may not be enforceable at law. But it must in this section comprehend, not only the initial plan, but also all the transactions by which it is carried into effect - all the transactions, that is, which have the effect of avoiding taxation, be they conveyances, transfers or anything else.
The applicants contend that there was no arrangement in place, as of the date of the transfer of the assets to Roche Castings Pty Ltd, which involved the transfer of Roche Castings Pty Ltd shares to Roche Mining Pty Ltd. They point out that the advice from PWC contemplated a transfer of the shares in a newly incorporated company to Downer Engineering Group Pty Ltd and not to Roche Mining Pty Ltd. They rely on Mr Logan's evidence that he did not agree to Roche Mining Pty Ltd assuming conduct of the business of Vaughan Castings until 8 January 2003.
The respondent relies on a number of matters as demonstrating that there was an arrangement from late 1992 amongst those who were responsible for decisions of this nature within the Downer EDI Group to place ownership of the Vaughan Castings business into another company within the group which did not have the requisite pre-association with Walkers Pty Ltd.
In my view, there was an 'arrangement' in existence as of 1 January 2003, which involved the proposal to transfer Vaughan Castings business to Vaughan Castings Pty Ltd and then to transfer that company's shares to another company within the Downer EDI Group, most likely Downer Mining Pty Ltd. The arrangements were in the form of a plan understood and pursued by Mr Crane, Downer EDI Group's Chief Executive Officer, Mr Gillies and Mr Logan.
That finding is based upon the following evidence:
(i)Mr Crane's evidence that in November 2002, Mr Gillies asked him to see whether Roche Mining Pty Ltd would take on management of the Vaughan Castings business.
(ii)Mr Crane prepared an information memorandum on the Vaughan Castings business in November 2002 and passed it onto the Chief Financial Officer and the Chief Executive Officer (Mr Logan) of Roche Mining Pty Ltd. The information memorandum proposed that the business would be transferred to Roche Mining as at 31 December 2002.
(iii)Although there was no certainty, the preferred position of the Downer EDI Group corporate office was to transfer the business into Roche Mining.
(iv)On, or shortly after 19 December 2002, Mr Crane received the advice that a direct transfer of the assets of the Downer Engineering Group Pty Ltd (which advice applied equally to a transfer to Roche Mining Pty Ltd) would attract stamp duty in Western Australia, but a 'roll down' of the assets to a new company and a transfer of the shares of that company would not.
(v)Mr Logan's evidence that Mr Gillies approached him in December 2002 regarding Roche Mining Pty Ltd's potential management of the Vaughan Castings business, and that on reviewing the papers including the information memorandum, he concluded in December 2002 that it made good sense to place the Vaughan Castings business under Roche Mining.
(vi)Mr Logan's evidence that he was not involved in the mechanics of how Roche Mining Pty Ltd would acquire the Vaughan Castings business - this tends to support a conclusion that the fact that Mr Logan did not meet with senior management of the Vaughan Castings business until 8 January 2003 is not relevant to the manner to which the proposed transaction would be effective in a legal sense. That was a matter for Mr Crane.
(vii)Very shortly after the advice from PWC was received, arrangements were made to incorporate the new company, and the incorporation was completed by 24 December 2002. The new company was incorporated in Victoria, a jurisdiction where duty would not be payable on the share transfer, as advised by PWC. Mr Crane was involved in the instructions for the incorporation. It is reasonable to infer that the incorporation was intended to be, as it was, the first step in the process suggested by PWC. That inference is supported by an email from Downer EDI's solicitors to Mr Crane sent on 24 December 2002 advising that the transfer of the Vaughan Castings business should be effected as soon as possible (thus ensuring that Vaughan Castings Pty Ltd maintained its status as a dormant company when it resolved to acquire the assets).
(viii)The delay in the transfer of shares until 1 July 2003, appears to have been based upon income tax considerations. According to advice from PWC recorded in a document entitled 'Restructure of Downer EDI Group' and dated February 2003, had the ownership of the business changed from Walkers Pty Ltd before 30 June 2003, there would have been adverse income tax consequences which would not occur if the transfer was later.

Was it an arrangement to circumvent the pre-association requirements?

The applicants contend that the pre-association requirements were not circumvented or avoided because they were in fact met. They contend that para (a) of s 75JDA(1) of the Stamp Act has no application unless an exemption is sought or obtained without the pre-association or post-association requirements having been met. I do not accept that latter contention. The breadth of the concept of an 'arrangement' in my view contemplates that the words 'avoiding or circumventing' are directed to the substantive effect of the arrangement. An arrangement might avoid or circumvent the operation of the provisions notwithstanding that the requirements of the provision appear on the face of the transaction to have been met.
In this case, it is correct that pre-association requirements were met in relation to the transfer of assets from Walkers Pty Ltd to Vaughan Castings Pty Ltd. Clearly, if that transaction is viewed in isolation then an entitlement to an exemption arises. The arrangement that I have found to have existed, went beyond the initial asset transfer. If that wider arrangement circumvented the pre-association requirements, then the power to refuse an exemption found in s 75JDA(3) of the Stamp Act arose.
The applicants contend that s 75JDA(1) has no application if there was a business purpose for the transaction. That submission is based upon the approach taken upon decisions concerning s 260 of the ITA Act. That section rendered void as against the Commissioner of Taxation of the Commonwealth any arrangement:
So far as it has or purports to have the purpose or effect of in any way, directly or indirectly:
(a)Altering the incidence of any income tax;
(b)Relieving any person from any liability to pay income tax or make any returns;
(c)Defeating, evading, or avoiding any duty or liability imposed on any person by this act; or
(d)Preventing the operation of this act in any respect.
In Newton, Lord Denning identified the approach to be taken in determining whether the section applied to a particular arrangement. He said at 8:
In order to bring the arrangement within the section you must be able to predicate - by looking at the overt acts by which it was implemented - that it was implemented in that particular way so as to avoid tax. If you cannot so predicate, but have to acknowledge that the transactions are capable of explanation by reference to ordinary business or family dealing, without necessarily being labelled as a means to avoid tax, then the arrangement does not come within the section.
That test was referred to as a 'useful one, but not a guide to the decision in every case' by Gibbs CJ in The Commissioner of Taxation of The Commonwealth of Australia v Gulland (1985) 160 CLR 55 (Gulland) at 66. His Honour added a qualification to the test as follows:
An arrangement which is not capable of explanation by reference to ordinary dealing and which on its face is obviously designed to bring about the result that less tax will be paid may nevertheless do no more than take advantage of an opportunity to reduce tax which the Act itself provides. A line of decisions illustrates that if the Act offers to the taxpayer a choice of alternative tax consequences, either of which he is free to choose, or offers certain tax benefits to taxpayers who adopt a particular course of conduct, the choice of the advantageous alternative or the adoption of the beneficial course does not mean that s 260 is attracted.
In Worsley Timber at [326], Simmons J seems to have accepted that both paragraphs of s 75JDA(1) called for a similar enquiry as to whether there existed a business purpose for the transaction. His Honour rejected a submission that a distinction in approach should be drawn from the use of the words 'avoiding or circumventing' in s 75JDA(1)(a) compared with the words 'having as its purpose' in s 75JDA(1)(b) (at [330] - [331]). His Honour also concluded (at [276]) that, although it was unnecessary for him to decide, the test as to the purpose was objective rather than subjective.
I am satisfied that, while the minimisation of stamp duty liability was clearly a factor in the manner by which the assets of Vaughan Castings were transferred to Roche Mining Pty Ltd, the predominant reason for the transaction was concerned with the orderly re-organisation of the businesses of the Downer EDI Group. I accept Mr Crane's evidence that the group wanted to reorganise the business of Walkers Pty Ltd to make it a more rail focused business. Mr Crane also said, and I accept, that the transfer of management of the Vaughan Castings business was intended to make it more profitable. That evidence is consistent with the terms of the information memorandum prepared by Mr Crane which asserted that 'the business has an excellent potential to realise some cost reductions through integration with Roche …'.
I also accept, that given that responsibility for management of the operations of the Vaughan Castings business was more efficiently placed in a different division of the Downer EDI Group, an alignment of the accounting processes so that ownership of the business reflected the management of the business, was a sensible commercial objective.
All of these purposes were the subjective purposes of Mr Crane and no doubt others involved with the corporate management of the group. They were, in my view, also purposes which were objectively apparent from the transactions in the sense that the outcomes described were actually achieved by the implementation of the arrangement.
The same outcome, with different stamp duty liability, could have been achieved by a direct transfer of the Vaughan Castings business to a wholly owned subsidiary to Roche Mining Pty Ltd. Does the imposition of the intermediate step of first transferring the business to a wholly owned subsidiary of Walkers Pty Ltd mean that the provisions of Part IIIBAAA have been circumvented or avoided? In my view, they were not. Rather they were arrangements which fall in the category of a case referred to in Gulland as 'taking advantage of an opportunity to reduce tax which the Act provides'. The immediate transfers of the Vaughan Castings business to a subsidiary of Roche Mining Pty Ltd apparently have had diverse income tax consequences. The fact that the shares were held by Walkers Pty Ltd for six months enabled the rationalisation of the Walkers Pty Ltd business focusing on rail activities to proceed without delay.
I am strengthened in that conclusion by having regard to the object of the relevant provisions of the Stamp Act. Part IIIBAAA is entitled 'Exemptions for corporate reconstructions'. Part IIIBAAA was introduced by the Revenue Laws Amendment (Assessment) Act 1996 (WA). In introducing the Bill in its second reading on 29 August 1996, Mr CJ Barnett said:
A number of amendments to this Act are proposed. The most important of these is the stamp duty relief for corporate reconstructions, which was announced as part of the 1996-97 Budget. Corporate reconstructions generally involve the transfer of property between commonly owned companies. If one lifts the "corporate veil", there is little or no change in the underlying ownership of the property in such circumstances. However, in many cases the stamp duty required to be paid on such transfers can be a major barrier to the reconstruction proceeding. The objective of the corporate reconstruction scheme contained in these amendments is to remove the stamp duty impediment to the achievement of a more efficient ongoing structure for a company group. The relief is intended, subject to certain conditions, to allow -
a corporation or group of companies to incorporate a holding company and transfer assets from certain subsidiaries to it;
a corporation to incorporate a new subsidiary and transfer assets to the new subsidiary;
When first introduced, s 75JDA was not part of Part IIIBAAA. The section was added in, in 2000 by the Revenue Laws Amendment (Assessment) Act 2000 (WA). In speaking to the Bill in its second reading, Mr Kierath said:
… The policy of this exemption was, and still is, aimed at excluding relief where the purpose of the reconstruction is to strip the assets of previously unrelated companies or to package group assets for on-sale to unrelated parties. Late last year, certain practices emerged indicating that attempts were being made to manipulate the exemption in order to package assets into a company structure under the guise of corporate reconstructions, greatly reducing the amount of stamp duty otherwise payable on the sale of assets to an unrelated purchaser.
The Government takes a dim view of these practices and in no way apologises for the additional constraints placed around the exemption by the measures in this Bill. The amendments in the bill are consistent with the overall policy of the exemption, but reinforce the integrity of the conditions that the body corporate receiving the exemption for an asset transfer should have a three-year pre-association and remain associated with the corporate group for a period of five years after the transfer. The amendments proposed are twofold. They seek to close down a potential weakness in the legislation exposed by a particular exemption application which sought to circumvent these conditions by a series of transactions which had no commercial efficacy apart from the minimisation of stamp duty. They also introduced a general anti-avoidance provision designed to deny the exemption where transactions are considered to provide stamp duty relief when none was intended to be given. This would include attempts to asset strip or asset package, or where the restructure would otherwise assist with the avoidance of stamp duty.

The consequence of the arrangement in this case is consistent with the objective identified by Mr Barnett, namely the transfer of assets within the group with the ultimate underlying ownership staying with the group. Because Walkers Pty Ltd and Roche Castings Pty Ltd remained associated after the transfer of the Roche Castings Pty Ltd shares to Roche Mining Pty Ltd, and because the purpose of the transfer was for the more efficient use of the Vaughan Castings business assets, the transactions did not fall within the category of transactions that s 75JDA was designed to avoid.
In my view, the arrangement made did not comprise a duty avoidance arrangement within the meaning of that expression described in s 75JDA(1)(a).

Section 75JDA(1)(b)

Section 75JDA(1)(b) focuses upon the purpose, or purposes of the arrangement. The method of application of s 260 of the ITA Act described by Gibbs CJ in Gulland has, in my view, clear application to the approach to be taken in considering what arrangements might be caught by s 75JDA(1)(b). Both parties in these proceedings accepted that an analysis of whether there exists a business purpose for the transaction, other than the reduction of stamp duty, was required in applying s 75JDA(1).
I have already determined that there were proper business purposes for the initial transfer from Walkers Pty Ltd to a new entity (being the focus in Walkers Pty Ltd of its business on rail related matters), and the transfer of shares in the new entity to Roche Mining Pty Ltd (being the alignment of ownership of the business with its management within the group).
In effecting those transactions, the applicants chose a particular course of conduct which was advantageous from a stamp duty perspective. They took advantage of an opportunity to reduce tax which the Stamp Act itself provided. In doing so, they achieved a purpose which was consistent with the objective for which the exemption provisions were introduced.
In my view, essentially for the reasons that the arrangement did not offend s 75JDA(1)(a), it did not offend s 75JDA(1)(b).

Did the applicants fail to give material information to the Commissioner?

Section 75JD(4) of the Stamp Act provides:
If any information given to the Commissioner in relation to an exempted instrument or Part IIIBA statement is false in a material particular or any material information is not given to the Commissioner the claw‑back applies and the penalty tax under section 75JE(b) or 75JF(b) is to be calculated to the date an assessment notice is issued by the Commissioner.
The applicants submitted that because the exemption related to the transaction involving the transfer of the Vaughan Castings business to Vaughan Castings Pty Ltd, only information relating to that transaction was material to the Commissioner's consideration of the entitlement to the exemption. There is, therefore, in the applicants submission no failure to provide material information which would give rise to the claw-back pursuant to s 75JD(4).
The Commissioner contends that, because the Commissioner's power under s 75JDA(3) to refuse to grant an exemption arises where he considers that the duty or instrument is 'likely to relate' to an duty avoidance arrangement, it is not open for an applicant for an exception under s 75JD to withhold information which may be relevant on the basis of a possibility that the respondent will not need to rely on that information in order to reach a determination. It is submitted that 'material information' must include information which is or may be significant in the Commissioner's consideration of the question as to whether the instrument relates or is likely to relate to a duty avoidance arrangement.
The Commissioner's complaint is that the information concerning the transfer of shares in Roche Castings Pty Ltd from Walkers Pty Ltd to Roche Mining Pty Ltd was not disclosed at the time of the application for exemption, notwithstanding that the application was lodged after the share transfer had occurred. I accept the Commissioner's submission that, if information is material to the application, or to a duty avoidance arrangement in relation to the transaction, it should be disclosed to the Commissioner even if it relates to events which post dates the transaction in respect of which the exemption is sought. In this case, however, I have concluded that the transfer of shares did not render the arrangement a duty avoidance arrangement within the meaning of s 75JDA. Accordingly, information concerning the transfer did not relate to a duty avoidance arrangement.
It is implicit in the written submissions of the Commissioner that the word 'likely' suggests that any information which might give rise to a question as to whether or not a duty avoidance arrangement exists must be disclosed, and any failure to do so automatically attracts the claw-back arrangement, regardless of whether the ultimate decision is that the information does relate to a duty avoidance arrangement. In support of that proposition, the Commissioner relies on the fact that PWC suggested that a ruling be first obtained before the suggested transactions were undertaken, because of a possibility that the Commissioner may consider there to be a duty avoidance arrangement.
The applicants proceeded on the basis that there was no duty avoidance arrangement. On that basis, the transaction involving the transfer of the shares in Roche Castings Pty Ltd, was not material to the exemption. Rather, what was material was information concerning the transfer of assets from Walkers Pty Ltd to Roche Castings Pty Ltd. All material information in that respect was provided, and the exemption was granted.
I have now concluded that the assumption upon which the applicants proceeded was correct. In my view, it is appropriate to determine whether material information was not given to the Commissioner having regard to the conclusion I have reached as to the existence or otherwise to the duty avoidance arrangement. In light of my conclusion, the information concerning the transfer of shares was not material to the application for the exemption. It follows that the claw-back triggered by s 75JD(4) does not apply.
It follows that the application for review should be allowed, and the assessment dated 25 February 2005 and No 2057418 should be set aside. The parties should file a minute of the appropriate orders to reflect the Tribunal's decision in accordance with these reasons.

Orders

1.The application for review is allowed.
2.The parties are to file a minute of proposed orders to give effect to these reasons on or before 27 March 2009.

I certify that this and the preceding [76] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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JUDGE J CHANEY, DEPUTY PRESIDENT

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