Francey v Commissioner for Act Revenue
[2013] ACAT 84
•24 December 2013
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
FRANCEY v COMMISSIONER FOR ACT REVENUE
(Administrative Review) [2013] ACAT 84
AT 13/37
Catchwords: ADMINISTRATIVE REVIEW - landholder duty – purchase of land in company’s name – purchase option agreement: transfer of beneficially held shares in company to the Applicant – exercise of option - application of landholder duty on transfer of company shares even though duty was paid previously on transfer of land to company: second imposition of duty – whether constructive trust arose in favour of the applicant in relation to property held by company
Legislation:ACT Civil and Administrative Tribunal Act 2008 (ACT), ss. 68
Duties Act 1999 ss. 10, 11, 56, 76, 77, 78A, 83, 84, 85, 86, 88 -91, and Part 3.2
Taxation Administration Act 1999 ss. 29, 31, 37, 107A & 108A, and Schedule 1.2
Cases:Australian Building & Technical Solutions Pty Limited v Boumelhem; Boral Australia Limited v Boumelhem; Boumelhem v Jones [2009] NSWSC 460
Clout v Markwell [2001] QSC 91
Giumelli v Giumelli (1999) 196 CLR 101
Muschinski v Dodds (1985) 160 CLR 583
Parsons and Parsons v McBain (2001)109 FCR 120
Tribunal: Ms E. Symons – Presidential Member
Date of Orders: 24 December 2013
Date of Reasons for Decision: 24 December 2013
ACT CIVIL AND ADMINISTRATIVE TRIBUNAL AT 13/37
BETWEEN: MARIANNE FRANCEY
Applicant
AND: COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL: Ms E. Symons – Presidential Member
DATE:24 December 2013
ORDERS
1. The Tribunal sets aside the decision under review and substitutes its decision that the Applicant is not liable to pay duty on the acquisition of an interest in a landholding entity in the ACT.
2. The Respondent is to refund to the Applicant within 28 days all monies, including duty, penalty duty and interest, paid by the Applicant following the assessments of the Respondent on 29 February 2012 and 7 May 2013.
………………………………..
Ms E. Symons
Presidential Member
REASONS FOR DECISION
On 2 June 2013 Ms Marianne Francey (the Applicant) made an application to the ACT Civil and Administrative Tribunal (the Tribunal) for review of a decision (the decision) of the Commissioner of ACT Revenue (the Commissioner) dated 9 May 2013 to partly allow her objection to a decision (the original decision) dated 29 February 2013.
The original decision was that the Applicant was liable to pay duty on the acquisition of a significant interest in a landholding entity in the ACT. The acquisition was found to have occurred on 16 August 2011. The duty payable was assessed in the sum of $59,375. The Commissioner also decided that the Applicant should pay penalty tax of $14,843.75 calculated at a rate of 25%, and interest of $2,000.47. The total amount payable was $76,219.22.
The original decision was based on Australian Securities & Investments Commission records showing that 59,999 shares in the company Un De Six Pty Ltd (UDS), which had been beneficially held by Kerrill Thomas Chambers (KTC), had been transferred to the Applicant. UDS was the sole registered proprietor of Block 13 Section 21 Fyshwick (the property). The Commissioner determined that as a result of the transfer of shares, the Applicant acquired a significant interest in a landholding equity in the ACT for which duty was payable. The value of the property for the purpose of calculating the amount of duty was originally determined as $1,150,000.
The Applicant’s objection to the original decision was partly allowed in that the value of the property was reduced to $1,080,000. As a result, the sums payable by the Applicant were re-calculated and she was required to pay landholder duty of $54,650, penalty tax (at the rate of 25%) of $13,662.50 and interest of $1,819.33, all of which totalled $70,131.83. The Commissioner however, remained satisfied that the applicant had acquired a significant interest in a landholding entity and was liable to pay duty on that acquisition.
The hearing
The application was heard on 29 November 2013. The Applicant was represented by Mr N. Francey of Counsel. Ms K. Katavic of Counsel represented the Commissioner. The Tribunal had before it the documents (T docs) relevant to the decision under review, together with the Applicant’s Statement of Facts and Contentions, the Applicant’s Supplementary Statement of Facts and Contentions, a Chronology and List of Agreed Facts and Issues prepared by the Commissioner and the Commissioner’s Statement of Facts and Contentions.
The hearing proceeded by way of oral submissions as the facts were largely agreed. The Tribunal reserved its decision at the conclusion of the hearing.
After the hearing, on 3 December 2013, the Tribunal requested that the parties lodge written submissions in relation to the relevance of section 56 of the Duties Act 1999 (the Duties Act) and the jurisdiction of the Tribunal to declare a constructive trust. The Tribunal received written submissions from the Applicant on 5 December 2013, from the Commissioner on
16 December 2013 and Supplementary Submissions in Reply from the Applicant on 17 December 2013.
The relevant facts
The facts agreed were as follows:
a.on 14 December 2007, the Applicant entered into a Purchase Option Agreement (Option Agreement) (T90) with KTC for the right to purchase all of the shares in UDS;
b.UDS purchased the property on 14 January 2008 for $1,050,000; and,
c.on 16 August 2011, 59,999 shares in UDS were transferred to the Applicant for $1.00.
The Applicant’s claim
The Applicant’s claim is that she should be treated for all purposes of the Duties Act and at all material times as the beneficial owner of UDS and the property. Mr Francey asks the Tribunal to look at ‘the substance of the matter’ and not ‘the form’. He submits that equity dictates that the property and the shares in UDS were held on a constructive trust for the Applicant’s benefit from 14 December 2007, when the Option Agreement was signed by KTC and the Applicant. From that date, KTC could not walk away from the agreement; he could not deal with the shares the subject of that agreement otherwise than to transfer them to the Applicant when called upon and until called upon he held those shares beneficially for the Applicant.
The Applicant’s exercise of the option in the Option Agreement in
August 2011 and the associated transfer transferred the bare legal title of the UDS shares, and thus ownership and control to her; she being already the beneficial owner. Mr Francey asked, why, otherwise, would she directly or indirectly advance monies for the purchase of the property and borrow monies for that purpose in December 2007 and January 2008? As a consequence, he said, no liability for duty arose on the transfer of the shares. .
The Applicant also claimed that no shareholder could assert against the Applicant’s beneficial ownership in the property or the shares in UDS, as and from the date the corporate entity was used to acquire the property.
In the alternative, the Applicant submitted that, as duty was paid when the Option Agreement was first executed, subsection 11(2) of the Duties Act applies.
The Applicant seeks that the duty, penalty and interest paid be remitted to her.
The Response
The Commissioner opposes the application and asks the Tribunal to confirm the decision under review.
Issues
Mr Francey identified the primary issues for determination as:
a.whether, at all relevant times, all shares owned in UDS were held on a constructive trust for the Applicant’s benefit; and
b.whether the exercise of the Option Agreement transferred bare legal title of the shares in UDS and thereby ownership and control to the Applicant; and
c.in the alternative, whether subsection 11(2) of the Duties Act applies.
Ms Katavic identified the following issues for determination by the Tribunal:
a.Imposition of duty pursuant to Part 3.2 of the Duties Act
i. Whether Part 3.2 of the Duties Act applied to the transfer of the shares to the Applicant?
ii. What was the nature and effect of the Option Agreement?
iii. When did the Applicant acquire an interest in UDS:
(1)14 December 2007; or
(2)16 August 2011?
iv. What is the effect of subsections 84(3) and (4) of the Duties Act on the Option Agreement?
v. Depending on the answers to the above, was there a relevant acquisition for the purposes of section 86 of the Duties Act?
vi. If there was a relevant acquisition, was duty correctly imposed in the Reassessment?
b. If Part 3.2 of the Duties Act applies and duty was correctly imposed under section 85, did a tax default occur?
c. When was the duty payable under section 88 of the Duties Act 1999?
d. Penalty tax
i.Rate of penalty tax at 25%
ii.No penalty tax discretion; and
iii. Remission of penalty tax under section 37 of the Taxation Administration Act 1999 (TAA).
Relevant Legislation
Taxation Administration Act 1999
Section 108A of the TAA provides that the Tribunal may review ‘reviewable decisions’. Section 107A of the TAA defines a reviewable decision. This includes a determination by the commissioner of an objection by the taxpayer to an assessment and decisions made pursuant to section 31 of the TAA to impose penalty tax and a decision under section 37 not to remit penalty tax.
Pursuant to subsection 30(1) of the TAA if a tax default happens, the taxpayer is liable to pay penalty tax in addition to the amount of tax unpaid. A tax default is defined in the Dictionary to the TAA as a failure by a taxpayer to pay, in accordance with a tax law, the whole or part of tax that the taxpayer is liable to pay. The amount of penalty tax is determined in accordance with section 31 of the TAA. Subsection (1) provides, subject to section 31, the penalty tax is 25% of the amount of tax unpaid. Section 37 of the TAA relates to remission of penalty tax and provides:
37Remission of penalty tax
The commissioner may remit all or part of an amount of penalty tax payable by a person if satisfied that—
(a)either—
(i)the person has taken reasonable steps to mitigate, or to mitigate the effects of, the circumstances that resulted in the liability for penalty tax; or
(ii)the circumstances that resulted in the liability for penalty tax were exceptional; and
(b)it would be fair and reasonable to remit all or part of the penalty tax.
NoteThe commissioner’s decision to refuse to remit penalty tax payable by a person is an internally reviewable decision (see s 107, def internally reviewable decision), and the commissioner must give an internal review notice to the person (see s 107B).
Interest
Decisions under the TAA which may be internally reviewed and then reviewed by ACAT do not include a decision to remit interest pursuant to section 29 TAA. A decision to impose interest under the TAA is not otherwise reviewable pursuant to the provisions of section 107A or schedule 1.2 of the TAA.
ACT Civil and Administrative Tribunal Act 2008 (ACAT Act)
Pursuant to section 68 of the ACAT Act, when conducting a review, the Tribunal has all the powers of the original decision maker. Subsection 68(3) states:
(3) The tribunal must, by order—
(a) confirm the decision; or
(b) vary the decision; or
(c) set aside the decision and—
(i) make a substitute decision; or
(ii) remit the matter that is the subject of the decision for
reconsideration by the decision-maker in accordance with any
direction or recommendation of the tribunal.
Duties Act 1999 (the Duties Act)
Section 11 of the Duties Act, upon which the Applicant relies, provides:
11 When does a liability for duty arise?
(1) A liability for duty charged by this chapter arises when a
transfer of dutiable property occurs.(2) However, if a transfer of dutiable property is effected by an
instrument, liability for duty charged by this chapter arises
when the instrument is first executed.Section 56 of the Duties Act provides:
56 Property vested in apparent purchaser
(1) Duty of $20 is chargeable in respect of—
(a) a declaration of trust made by an apparent purchaser in
respect of identified dutiable property—(i) vested in the apparent purchaser on trust for the real
purchaser who provided the money for the purchase
of the dutiable property; or(ii) to be vested in the apparent purchaser on trust for the
real purchaser, if the commissioner is satisfied that
the money for the purchase of the dutiable property
has been or will be provided by the real purchaser; or(b) a transfer of dutiable property from an apparent purchaser to
the real purchaser if dutiable property is vested in an
apparent purchaser on trust for the real purchaser who
provided the money for the purchase of the dutiable property.(2) In this section:
purchase includes an allotment
.
The Tribunal has annexed copies of the relevant sections of Part 3.2 of the Duties Act which are relevant to the decision under review.
Applicant’s Submissions
The Applicant submits that, notwithstanding the agreed facts, the following background details are relevant to a consideration of the substance of the matter and the Applicant’s contention that a constructive trust arose when the Option Agreement was executed on 14 December 2007 or, at the latest, when UDS was used to purchase the property on 14 January 2008. These facts are:
i.The purchase transaction of the property and the business operating on the property in 2007/2008 was complicated because when the Applicant was negotiating the transaction she owned a business that was part of a Buying Group which restrained its members from owning any other business in the same industry that was not part of the group. She was in the process of finalising an agreement to exit the Buying Group. This was not finalised until 12 March 2008. In the meanwhile, the property and the business she was acquiring needed to be held by an entity with which she was not associated.
ii.At this time her brother-in-law, KTC, was the sole director of UDS. He owned the company and had no significant assets or liabilities other than shareholder loans to the company. KTC agreed[1] to the use of UDS as one of the purchasing entities for the transaction in order to assist his brother (the Applicant’s then spouse, Robert Farris Chambers (RFC)) and the Applicant. He also agreed to serve as the sole director of a new company, TS(CBR) Pty Ltd (TSCBR), which was set up for the purpose of purchasing the business. He said in his Witness Statement (Exhibit A2) he was not involved in any way with the negotiations for the purchase of the property and the business and he was not involved in the negotiations with NAB for the funding of the purchase.
[1] Kerrill Thomas Chambers, Witness Statement (Exhibit A2) 7 August 2013
iii.The Applicant negotiated with the vendor of the business and the property and with NAB for the finance to fund the purchase of both the business and the property.
iv.NAB, in providing the finance for the purchases, advised the Applicant that it needed to be satisfied that she had control over the assets being acquired as she was providing the additional asset backing for the transaction.
v.KTC entered into an Option Agreement with the Applicant on 14 December 2007 that allowed her, at any time on 24 hours’ notice, to formally acquire the shares in UDS for $1.00. The agreement obliged KTC to not sell, assign, mortgage, pledge, give away, transfer or otherwise encumber or deal with any interest in the UDS shares. The Option Agreement satisfied the NAB’s requirements and enabled the Applicant to comply with the Buying Group’s restraint condition.
vi.The NAB approved a loan of $3.55 million on 21 December 2007. An email to the Applicant from Matthew Douglas at NAB (NAB email) dated 19 November 2007[2] refers to the discussion in (iv) above. The borrowing scenario referred to in this email, except for a slight variation in the amounts, was corroborated by KTC in his Witness Statement (Exhibit A2). NAB approved a temporary overdraw facility for the Applicant to pay the deposit on the transaction.
[2] Applicant’s Chronology, part of Exhibit A6
vii.The Applicant said she did not seek legal, accounting, taxation or financial advice at the time that she entered into the Option Agreement and on UDS’s purchase of the property. It does however; appear from the NAB email, that she may have had some discussions about structure and tax ramifications with Mr Douglas when seeking NAB finance for the purchase of the property and the business.
viii.UDS entered into an agreement to purchase the property for $1,150,000 on 4 January 2008, paid stamp duty of $59,375 on 7 January 2008 and settled the purchase of the property on 14 January 2008.
ix.ASIC records show that KTC beneficially held 59,999 of the 60,000 shares in UDS until they were transferred to the Applicant when she exercised the option in the Option Agreement in August 2011. KTC and the Applicant executed the share transfer form on 16 August 2011.
x.The remaining one UDS share has been held by RFC at all material times.
xi.The Commissioner issued the section 82 notice on 23 January 2012 and on 29 February 2012 issued a Notice of Assessment based on the relevant acquisition by the Applicant of a significant interest in a landholding entity in the ACT.
Constructive Trust
Mr Francey submitted[3] that there is no occasion or need for the Tribunal to make a declaration of the existence of a constructive trust, (something probably only within the ambit of the jurisdiction of the Supreme Court of the ACT). He asks the Tribunal to make a finding of fact that a constructive trust arose on or shortly after 14 December 2007 and certainly no later than 14 January 2008.
[3] Applicant’s Supplementary Submissions, dated 5 December 2013.
Mr Francey further submitted[4] that as the concept of constructive trust has evolved, it has been recognised as arising both as a remedy (involving judicial discretion) and as an institution (whereby the property interest arises from inception and is not subject to judicial discretion).[5] It is recognised in the context of property settlements in family law proceedings.[6]
[4] Applicant’s Supplementary Statement of Facts and Contentions, paragraph 3
[5] Muschinski v Dodds [1985] HCA 78 (1985) CLR 583, Deane J at 612-4.
[6] Family Law Act (Cth), section 79
He referred the Tribunal to a number of authorities which, while not directly applicable to the factual situation in the present matter, could be applied by analogy. In the authorities, constructive trusts were found to exist in order to do justice and equity between members of a family or of a de facto relationship.
In Clout v Markwell[7] where there had been a common intention between the husband and the wife to create an equitable interest in a property and the husband had not denied her interest but had gone bankrupt, the trustee in bankruptcy argued that the wife could not claim an interest because the husband had not denied her interest and had, thus, not engaged in unconscionable behaviour. Atkinson J said[8]:
[7] [2001] QSC 91
[8] At paragraph 20
When the parties have formed a common intention as to the beneficial interest, a constructive trust comes into existence not because there has been an unconscionable denial of the other person’s beneficial interest but because it would be unconscionable for the legal owner to deny the beneficial ownership of another.[9]
As Deane J held in Muschinski v Dodds[10],
The content of the principle is that, in such a case, equity will not permit that other party to assert or to retain the benefit of the relevant property to the extent that it would be unconscionable for him to do so.
In such a case a constructive trust comes into existence. The court may declare or construe the existence of such a constructive trust but the declaration does not create the constructive trust.[11]Constructive trusts may in different circumstances come into existence when they are imposed by the court.[12] That is not the case where the equitable interest arises from the common intention to create it. In such a case the constructive trust comes into existence at the time the equitable interest arises.
[9] Gissing v Gissing [1971] AC 886; HoHol v HoHol [1981] VR 221 at 225; Maharaj v Jai Chand [1986] AC 898 at 907
[10] (1985) 160 CLR 583, at 620
[11] Muschinski v Dodds at 614
[12] Baumgartner v Baumgartner (1997) 164 CLR 137
Mr Francey submits that, by analogy, the Applicant’s equitable interest in UDS came into existence either when she entered into the Option Agreement in December 2007 or, at the latest, on 14 January 2008 when UDS completed the purchase of the property.
While there was no suggestion, or evidence, that the Applicant had engaged in behaviour that was intended to defeat a legitimate claim by the Commissioner, Mr Francey drew the Tribunal’s attention to Atkinson J’s statements in paragraph 21 of his decision in Clout v Markwell in relation to the effect of constructive trusts on unsecured creditors, namely:
Creditors should be expected in these times to be aware of the possibility of constructive trusts or of equitable interests which may arise when a debtor is married or in a de facto relationship.
In Parsons and Parsons v McBain,[13] the Full Court of the Federal Court of Australia considered when a common intention constructive trust arises. The Court adopted statements in the joint judgment[14] of the High Court in Giumelli v Giumelli[15] when finding that the parents of the Commissioner (their son) held the land upon constructive trust. The parents had promised the son, who was in partnership with them, that he would become the owner of part of their property, known as Dwellingup. Relying on this promise, the son had remained in the partnership and worked to improve the Dwellingup property. The Full Court of the Federal Court in Parsons v McBain rejected the notion that a common intention constructive trust first comes into existence when so declared by the court. Indeed, the Full Court also referred to Muschinski v Dodds[16] where Dean J said:
Equity acts consistently and in accordance with principle. The old maxim that equity regards as done that which ought to be done is as applicable to enforce equitable obligations as it is to create them and, notwithstanding that the constructive trust is remedial both in origin and nature, there does not need to have been a curial declaration or order before equity will recognize the prior existence of a constructive trust.... (emphasis added)
[13] (2001)109 FCR 120
[14] Gleeson CJ, McHugh, Gummow and Callinan JJ (at 112)
[15] (1999) 196 CLR 101
[16] At 614
In Australian Building & Technical Solutions Pty Limited v Boumelhem; Boral Australia Limited v Boumelhem; Boumelhem v Jones[17], Mr Boumelhem’s parents had provided funds for their son to purchase land and build two duplexes. Upon completion and subdivision, one of the titles would be transferred to the parents. When the son’s business collapsed the parents claimed an interest under both a resulting trust to secure their initial contribution and a constructive trust for later contributions they made to the building. Ward J declared that there was a resulting trust for the contributions to the purchase price. The parents were held to have a vested beneficial interest in the ownership of the land which could be perfected by the use of a constructive trust.
[17] [2009] NSWSC 460
Mr Francey urged the Tribunal, when considering this issue, to consider the intentions of the Applicant, KTC and RFC; notwithstanding that intention is not a necessary element of a constructive trust. KTC, in his Witness Statement dated 20 September 2013 (Exhibit A3), stated:
I state that at all material times since 14 December 2007 I understood and believed that in all the circumstances I held any shares in Un De Six Pty Ltd beneficially on behalf of Marianne Francey.
RFC, the owner of the remaining one share in UDS, said in his Witness Statement dated 23 September 2013 (Exhibit A4):
I state that at all material times since 14 December 2007 I understood and believed that in all the circumstances I held any shares in Un De Six Pty Ltd beneficially on behalf of Marianne Francey.
Mr Francey submitted that the Tribunal should find that the shares in UDS, the landholder company, were held beneficially on behalf of the Applicant pursuant to a constructive trust from either December 2007 or
14 January 2008; that when the option was exercised all that occurred was a transfer of the beneficial interest under the constructive trust; that no duty was payable and that the issue of penalty did not arise.
Imposition of duty/penalty tax
The Applicant contends that no penalty tax should be payable in accordance with section 31(6) of the TAA as:
a.in the circumstances, the Applicant took reasonable care to comply with the tax law; and
b.the imposition of penalty tax in the circumstances is unduly harsh and unreasonable; and
c.the Commissioner failed to place due weight on the fact that the Applicant held a genuine belief that no duty was payable.
Commissioner’s Submissions
The Commissioner submitted that it was for the Tribunal to determine whether the imposition of duty under part 3.2 of the Duties Act applied to the transfer between UDS and the Applicant.
In relation to the Applicant’s claim of a constructive trust, Ms Katavic submitted that this relied on the Applicant’s intentions or understanding of the Option Agreement and her intentions were irrelevant. Duty was either payable, or not payable, on the transfer in August 2011.
Ms Katavic submitted that even if the Applicant acquired an interest pursuant to the Option Agreement, the Tribunal should find that it was a confined or limited interest. No money was exchanged. It did not provide the Applicant with any entitlement to UDS dividends and it did not give her any voting rights in the company. It did no more than ensure that KTC would not interfere with the shares in particular ways. Even by reference to the document itself, something needed to be done to complete the purchase. The issue was ‘when’.
Ms Katavic also submitted that it did not matter that the Applicant had an interest in UDS before August 2011. On 16 August 2011, the Applicant’s interest changed when the transfer documents were delivered and executed, the acknowledged purchase price was paid, the purchase was completed and the transfer was registered (the completion); the Applicant became a shareholder in UDS with voting rights and entitlements to dividends. It is these features of the completion in August 2011 which satisfy the requirements of sections 76, 84, and 88 to 92 of the Duties Act.
The transaction is subject to duty because the transfer of the 59,999 UDS shares to the Applicant on 16 August 2011 was a significant interest in UDS as it meant that the Applicant held 99.9% of UDS. Therefore, it was a relevant acquisition for the purposes of sections 85 and 86 of the Duties Act.
Consideration
In the original application the Applicant claimed that the penalty provisions of the TAA were constitutionally invalid, however she did not include this ground in her Revised Application lodged on 7 August 2013 or in her Statements of Facts and Contentions or submissions made at the hearing. Accordingly, the Tribunal has not considered this claim.
The Tribunal proposes to firstly, consider the primary issue raised by the Applicant, that is, whether the Tribunal could make a finding of fact that a constructive trust was in place at all material times. Subject to that determination, the Tribunal will then consider any relevant issues raised in relation to the Duties Act and the TAA.
Constructive Trust
It is not in dispute that the Tribunal does not have jurisdiction to declare a constructive trust. However the Applicant has consistently raised, with the Commissioner, the issue of there being a constructive trust in place.
The Commissioner submitted[18] that the Tribunal’s jurisdiction in this case is limited to reviewing the subject matter of the decision – that is, whether the Applicant is liable to pay landholder duty in respect of the share transfer executed on 16 August 2011.
[18] Respondent’s further written submissions, 16 December 2013 at [6-7]
The Commissioner further submitted that if the Tribunal is required to determine whether or not a constructive trust exists for the purpose of reviewing the decision, it may only do so where it is relevant. In the present case, the Commissioner submitted it is not necessary to decide that issue because of the operation of the Duties Act, and therefore it follows that the Tribunal does not have jurisdiction to make a finding that a constructive trust exists. The Commissioner then submitted[19] -
..even if a constructive trust were to exist, a constructive trust would not be effective in circumventing the liability for landholder duty in the present circumstances. That is, a constructive trust may operate to compel the transfer of legal title to property to which another person is beneficially entitled. Here, Ms Francey has obtained the legal title to the shares in the company, of which she claims she was beneficially entitled prior to the transfer. That being the case, a constructive trust has no work to do.
[19] Respondent’s further written submissions, 16 December 2013 at [9]
The Applicant took issue with the Commissioner’s submission in the preceding paragraph that ‘the Tribunal does not have jurisdiction to make a finding that a constructive trust arose’, submitting[20] that ‘this is exactly what the Commissioner should have done’. The Applicant further submitted that the Commissioner’s submission that on the transfer of legal title this left no work for the trust to do ‘fails to address the issue presenting itself as to whether the transfer attracted a liability for duty because immediately before that bare legal title being transferred the Applicant already had full beneficial ownership.’
[20] Applicant’s Supplementary Submissions in Reply, 17 December 2013
The Tribunal noted that the Commissioner, when reviewing the original decision, considered[21] the Applicant’s contention that she was ultimately the beneficial owner of the UDS shares; that she considered the UDS shares were held in trust for her and that when she executed the share transfer in August 2011, there was no change in beneficial ownership.
[21] Reasons Statement T42, T43, T46 and T47
The Commissioner noted that the Option Agreement in no way indicated that a declaration of trust was made, nor that the taxpayer was beneficially entitled to the shares until such time as the share transfer was executed. The Commissioner highlighted that the actual wording in the Option Agreement provided that Mr Chambers will ‘retain complete and unencumbered ownership and possession of all the UDS shares indefinitely and exclusively for the execution of the purchase.’ (T46)
Further the Commissioner stated that the “The Option did not demonstrate that the shares were then hers ‘at all times’ as contended; the Option only provided the taxpayer with the right to purchase the UDS shares at any time and prohibited Mr Chambers from otherwise distributing the share capital.”[22]
[22] Pages 7&8, Reasons Statement, 7 May 2013 (T46, T47)
The Tribunal, having considered all of the evidence and submissions, concurs with Mr Francey’s submissions that the Applicant and KTC intended in entering the Option Agreement to create an agreement whereby all of the shares in UDS would be beneficially held for the Applicant. The unchallenged witness statements supported these submissions. While it was subsequently ascertained that KTC only held 59,999 shares in UDS and RFC held one share, this was not material to the Tribunal’s decision. The arrangement was described as a family arrangement at the time. This was unchallenged.
It is true that no reason was advanced as to why the Applicant had not obtained legal advice, or accounting or taxation advice when the Option Agreement was prepared. Had this occurred, the current proceedings may have been obviated.
However, it was apparent from the evidence before the Tribunal that around the time of entering the Option Agreement in December 2007, the arrangement related only to non-dutiable property being the UDS shares. There was no express declaration of trust.
The Applicant submits[23] that a constructive trust only arose when she negotiated to borrow the purchase monies for the property and the business, including the deposit and duty payable totalling approximately $3.5 million, and in doing so provided security for the loan over her own assets. The Tribunal is satisfied that KTC’s only involvement in the matter was to make his dormant company available to the Applicant, and her then spouse RFC, as the vehicle for the purchase of the property.
[23] Applicant’s Supplementary Submissions in Reply, 17 December 2013
It was not readily apparent from the evidence who drew up the Option Agreement; however it is apparent, when reading the Option Agreement and KTC’s two witness statements, that KTC regarded his UDS shares, from the time of the Option Agreement, as being beneficially held for the Applicant and no longer being his property. RFC, who held the one remaining UDS share, corroborated this in his witness statement.
The Tribunal has carefully considered the case law provided by the Applicant and all of the documentation and submissions before the Tribunal from both parties and is persuaded that the stated intention of the Applicant and KTC and RFC at all relevant times was that the UDS shares were beneficially held for the Applicant. By 14 January 2008 the Applicant had sourced and secured to NAB’s satisfaction, all of the finance for UDS as well as the duty to purchase the property (and the business). The Tribunal had no reason not to accept that this was the factual history. The Applicant was present during the hearing and was not cross examined.
The Tribunal concurs with the Applicant’s submissions[24] that from 14 January 2008 at the latest, no shareholder could assert beneficial ownership in the shares or the property of UDS against the Applicant and that the Applicant’s interest in UDS and the property would prevail over any creditor.
[24] Dated 23 September 2013, at paragraph 9
The Tribunal is satisfied and finds that a constructive trust arose no later than 14 January 2008. The consequence of this finding is that the beneficial ownership in UDS was vested in the Applicant as and from that date. What was transferred to her as the beneficial owner on 16 August 2011 was the bare legal title.
It follows that the Applicant, for the purposes of the Duties Act and the TAA, is not liable for the payment of duty on the transfer on 16 August 2011.
Section 11(2) of the Duties Act
Notwithstanding the above findings, the Tribunal has considered the second part of the Applicant’s claim. It is not in dispute that duty was paid at the time the Option Agreement[25] was first executed. Pursuant to subsection 11(2) of the Duties Act, the liability to pay that duty arises when the instrument is first executed. This has already occurred. The second imposition of duty is a duplication and, together with penalties, should be remitted.
Section 56 of the Duties Act
[25] Being a document or written statement – per Definitions, Duties Act 1999
Both parties submitted that this section has no application as there was no declaration of trust (section 56(1)(a)) and when the Option Agreement was entered into there was no dutiable property (section 56(1)(b)) within the meaning of section 10 of the Duties Act as the transfer of shares is not captured. The Tribunal concurs with these submissions.
Conclusion
For the reasons set out above, pursuant to section 68(3)(c)(i) of the ACAT Act, the Tribunal sets aside the decision under review and substitutes its decision that the Applicant is not liable to pay duty on the acquisition of an interest in a landholding entity in the ACT. The Commissioner is to refund to the Applicant within 28 days any monies, including duty, penalty duty and interest, paid by the Applicant following the assessments of the Commissioner on 29 February 2012 and 7 May 2013.
As a result of the Tribunal’s decision, the Tribunal has not considered that part of the Application which sought to review the calculation of the duty and penalty payable.
………………………………..
Ms E. Symons
Presiding Member
LEGISLATION
Duties Act 1999
77 Imposition of duty
This chapter charges duty on certain transactions that are not dutiable transactions to which chapter 2 applies.
78A Meaning of entity—pt 3.2
(1) In this part:
entity means—
(a) a private company; or
(b) a private unit trust scheme.
Note Private company—see the dictionary.
(2) In this section:
private unit trust scheme means a unit trust scheme that is not a public unit trust scheme.
79 Meaning of landholder—pt 3.2
For this part, a landholder is an entity that has a landholding in the ACT.
80 Meaning of landholding—pt 3.2
(1) For this part, a landholding is any interest in land, other
than the interest of a mortgagee, chargee or other secured
creditor or a profit à prendre.Note Interest—see the dictionary.
(2) However, an interest in land is not a landholding of—
(a) a private company unless the interest of the company
is a beneficial interest; or(b) a unit trust scheme unless the interest is held by the
trustees in their capacity as trustees of the scheme.
(3) This section is in aid of, but does not limit, the operation of
any provision of this part providing for constructive
ownership of interests....................
83 Interest and significant interest in landholders—
pt 3.2(1) For this part, a person has an interest in a landholder if the
person has an entitlement (otherwise than as a creditor or
other person to whom the landholder is liable) to a
distribution of property from the landholder on a winding up
of the landholder or otherwise.(2) A person who, under subsection (1), has an interest in a
landholder has a significant interest in the landholder if the
person, in the event of a distribution of all the property of the
landholder immediately after the interest was acquired,
would be entitled to at least 50% of the property distributed.(3) In this section:
person includes an entity.
Note Entity—see s 78A.
84How person acquires an interest in a landholder—pt 3.2
(1) For this part, a person acquires an interest in a landholder if
the person obtains an interest, or the person’s interest
increases, in the landholder regardless of how it is obtained
or increased.(2) Without limiting subsection (1), a person may acquire an
interest in a landholder—(a) by any of the following:
(i) purchase, gift, allotment, issue or transfer of a
share or unit in the landholder;(ii) variation, abrogation or alteration of a right
attaching to any such share or unit;(iii) cancellation, redemption or surrender of any
such share or unit;(iv) variation, abrogation or alteration of a right
of a holder of any such share or unit;(v) payment of an amount owing for any such
share or unit; or
(b) by any combination of the means mentioned in
paragraph (a); or(c) if the person holds an interest in the landholder
(whether or not as trustee) and the capacity in which
the person holds the interest changes (including if
there is a change in the beneficial ownership of an
interest held by a person as trustee).Example—par (c)
a person who holds a unit in the landholder declares a trust in relation to the unit
Note An example is part of the Act, is not exhaustive and may extend, but does not limit, the meaning of the provision in which it appears (see Legislation Act, s 126 and s 132).
(3) If the acquisition arises from an agreement to purchase, allot
or issue a unit or share, the acquisition is made, for this part,
when the agreement is completed.(4) For subsection (3)—
(a) it does not matter whether or not the acquisition or
interest acquired is registered; and(b) an agreement is taken to be completed when the
necessary transfer or title documents are delivered to
the person acquiring the interest and the purchase
price is paid in full.
(5) To remove any doubt, a person may acquire an interest in a
landholder without acquiring shares or units in the
landholder.85 When does liability for duty arise?
A liability for duty charged by this part arises when a relevant acquisition is made.
86 What is a relevant acquisition?—pt 3.2
(1) For this part, a person is taken to have made a relevant
acquisition if the person—(a) acquires an interest in a landholder—
(i) that is of itself a significant interest in the landholder; or
(ii) that, when aggregated with other interests in the
landholder held by the person or an associated
person, results in an aggregation that amounts to a
significant interest in the landholder; or(iii) that, when aggregated with other interests in the
landholder acquired by the person or other people in
an associated transaction, results in an aggregation
that amounts to a significant interest in the
landholder; or(b) having an interest described in paragraph (a) in a
landholder, acquires a further interest in the
landholder.Note Associated person—see s 83A.
(2) In this section:
associated transaction, in relation to the acquisition of an
interest in a landholder by a person, means an acquisition of
an interest in the landholder by another person in
circumstances in which—(a) those people are acting in concert; or
(b) the acquisitions form, are evidence of, give effect to or
arise from substantially 1 arrangement, 1 transaction
or 1 series of transactions.
88 When must duty be paid?
A tax default does not happen for the Taxation Administration Act if duty is paid within 90 days after the liability to pay it arises.
89 Who is liable to pay duty?
(1) Subject to subsection (2), duty chargeable under this part is
payable by the person who makes the relevant acquisition.(2) If a relevant acquisition results from an aggregation of the
interests of associated people, the person who made the
relevant acquisition and the associated person or people are
jointly and severally liable for payment of the duty.
PUBLICATION DETAILS
TO BE PUBLISHED
PART A
FILE NUMBER: | AT 13/37 |
PARTIES, APPLICANT: | Marianne Francey |
PARTIES, RESPONDENT: | Commissioner for ACT Revenue |
COUNSEL APPEARING, APPLICANT | Mr N. Francey |
COUNSEL APPEARING, RESPONDENT | Ms K. Katavic |
SOLICITORS FOR APPLICANT | pappas, j - attorney |
SOLICITORS FOR RESPONDENT | ACT Government Solicitor |
TRIBUNAL MEMBERS: | Ms E. Symons |
DATES OF HEARING: | 29 November 2013 |
PLACE OF HEARING: | Canberra |
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