Growthpoint Properties Ltd v Commissioner of State Taxation

Supreme Court of South Australia
(Full Court)
GROWTHPOINT PROPERTIES LTD v COMMISSIONER OF STATE TAXATION
[2015] SASCFC 65
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Blue and The Honourable Justice Bampton)
4 May 2015
TAXES AND DUTIES - STAMP DUTIES - TRANSACTIONS CONCERNING DUTIABLE PROPERTY - LIABILITY TO PAY DUTY - OTHER STATES AND TERRITORIES
TAXES AND DUTIES - STAMP DUTIES - TRANSACTIONS CONCERNING DUTIABLE PROPERTY - LAND RICH ENTITIES - OTHER STATES AND TERRITORIES
TAXES AND DUTIES - STAMP DUTIES - WHAT TRANSACTIONS OR INSTRUMENTS ARE LIABLE
On 5 August 2015 the trustee of Growthpoint Trust issued 347,563,813 units, amounting to 50.1 per cent of the total units, in the Growthpoint Trust to the appellant. On 24 September 2015 the appellant increased its holdings to 76.18 per cent.
The respondent made a decision charging the appellant with stamp duty on the transaction of 5 August 2015. A Notice of Assessment of Stamp Duty was issued for the sum of $2,991,727.90. The appellant objected to this assessment, the objection was disallowed by the Treasurer by a Notice of Determination.
The appellant appealed against that decision to a single Judge of this Court, the appeal was dismissed. The appellant now appeals to this Court.
Held (per Kourakis CJ, Bampton J agreeing):
1. The manifest purpose of Part 4 of the Stamp Duties Act 1923 (SA) is to charge a person who is left as the holder of a significant interest in a private land rich entity as a result of a transaction with stamp duty. (at [6]).
2. "Acquire" within the Stamp Duties Act 1923 (SA) is to be interpreted as occurring simultaneously with the change in the entity to a land rich entity. The transaction acquiring an interest is to be assessed at the completion of the transaction. (at [10]).
3. The purpose of s 95 of the Stamp Duties Act 1923 (SA) is to demarcate between acquisitions which will be levied at the applicable rate to market securities and those at the applicable rate to conveyances of land. (at [11]).
4. A transaction which at the same time effects the change of an entity into a land rich entity and confers on a person a significant interesting in that entity attracts the stamp duty payable within s 95 of the Stamp Duties Act 1923 (SA). (at [23]).
5. Appeal dismissed. (at [31]).
Held (per Blue J dissenting):
1. Section 95 of the Stamp Duties Act 1923 (SA) applies to transactions whereby a person or group acquires a significant interest, or increases a significant interest, in an entity which is a land rich entity at the time of the transaction and does not apply to a transaction which upon completion changes the entity from a non-land rich entity to a land rich entity (at [65]-[89]).
2. The acquisition by the appellant on 5 August 2009 of units representing 50.1 per cent of the total issued units in the Trust was not a transaction to which section 95 applied (at [90]).
3. When a person or group increases its significant interest in a land rich entity, the duty calculated under section 97(3) of the Stamp Duties Act 1923 (SA) is equal to the difference between the duty that would have been payable on the date of the increase on an acquisition of the whole of the interest of that person or group in the entity and the duty that would have been payable on the date of the increase on an acquisition by that person or group of its pre-existing interest (immediately before the increase). It is irrelevant whether duty had been paid under Part 4 on the acquisition of the pre-existing interest (at [96]).
4. The acquisition by the appellant on 24 September 2009 of units representing 26.067 per cent of the total issued units in the Trust was subject to duty of $979,605 (at [96]).
5. The appeal should be allowed. The orders made by the Judge should be set aside and duty the subject of the notice of assessment should be reduced from $2,855,441.50 to $979,605 (at [98]).
Stamp Duties Act 1923 (SA) s 91, s 94, s 95, s 95B, referred to.

WORDS AND PHRASES CONSIDERED/DEFINED
"Stamp duty, acquire, land rich entity, private entity, private unit trust scheme, unit trust, property transaction, property transfer"

GROWTHPOINT PROPERTIES LTD v COMMISSIONER OF STATE TAXATION
[2015] SASCFC 65
Full Court: Kourakis CJ, Blue and Bampton JJ

KOURAKIS CJ: This is an appeal against the decision of a single Judge of this Court confirming a decision of the Commissioner of State Taxation charging a transaction involving the issue of units in a unit trust with stamp duty on the scale applicable to transactions in land, pursuant to Part 4 of the Stamp Duties Act 1923 (SA) (the Act). The Commissioner of State Taxation (the Commissioner) issued the appellant, Growthpoint Properties Ltd (Growthpoint), with a Notice of Assessment of stamp duty in the sum of $2,991,727.90 on transactions by which it acquired a majority of the units in Growthpoint Properties Australia Trust (the Growthpoint Trust). Growthpoint objected to the Notice of Assessment. The Treasurer disallowed the objections by Notice of Determination dated 30 January 2011. Growthpoint appealed against the Treasurer’s determination. A Judge of this Court dismissed the appeal and confirmed the Notice of Assessment. Growthpoint appeals against the decision of the Judge.
The Transactions
On 5 August 2009 the trustee of the Growthpoint Trust issued 347,563,813 units in the Growthpoint Trust, representing 50.1 per cent of the total units on issue, to Growthpoint pursuant to a placement agreement dated 24 June 2009 (the first acquisition). On 24 September 2009 Growthpoint increased its total holdings to 76.18 per cent of the issued units in the Growthpoint Trust by two further acquisitions (the subsequent acquisitions). At all relevant times there were more than 50 unit holders in the Growthpoint Trust. Immediately prior to the first acquisition, the top 20 unit holders in the Growthpoint Trust held 51.7 per cent of the issued units, which meant that the Growthpoint Trust was not a “private unit trust scheme” and hence not a “private entity” within the meaning of those terms in s 91(1) of the Act because their combined unit holding was less than 75 per cent. I will refer to a unit trust scheme of which there are more than 50 unit holders or in which no more than 20 unit holders hold more than 75 per cent of the units as a widely held unit trust. On the completion of the first acquisition, the top 20 unit holders in the Growthpoint Trust held more than 75 per cent of its issued units and Growthpoint held more than 50 per cent of those units. The first acquisition had two legal consequences. It effected the acquisition by Growthpoint of more than 50 per cent of the issued units, an interest which is defined to be a “significant interest” in the Growthpoint Trust by s 91 of the Act and effected the transformation of the Growthpoint Trust from a widely held unit trust to a private entity within the meaning of that term in Part 4 of the Act. Growthpoint was at all material times “land rich” as defined by s 94(1) of the Act. The primary issue on this appeal is whether Growthpoint acquired a significant interest in a private land rich entity when it made the first acquisition. For the reasons which follow, I would answer that question in the affirmative.
The Act
At the relevant time, s 95 of the Act provided:
95—General principle of liability to duty
(1)     A person or group that acquires a significant interest, or increases its significant interest, in a land rich 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 has a significant interest in a land rich entity; or
(b)a transaction as a result of which a person or group that has a significant interest in a land rich entity increases its significant interest in the entity.
(3)     A transaction is dutiable under this Part even though the person or group that has a significant interest, or increases its significant interest, in the land rich 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.
(5)     However, if a private entity acquires a local land asset and, as a result of the acquisition, becomes a land rich entity, and conveyance duty is paid in respect of the transaction, the transaction is not dutiable under this Part.
Section 91 of the Act defines a private entity to mean a private company or a private unit trust scheme. A private unit trust scheme is in turn defined to mean:
private unit trust scheme means—
(a) a unit trust scheme in which less than 50 persons hold units; or
(b) a unit trust scheme in which 50 or more persons hold units if 20 or fewer persons hold 75 per cent or more in number or value of the units on issue,
but does not include a unit trust scheme that is an approved deposit fund or a pooled superannuation trust within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cwth);
…
unit trust scheme means an arrangement under which investors may acquire rights to participate, as beneficiaries under a trust, in profits, income or distribution of assets arising from the acquisition, holding, management, use or disposal of property;
A significant interest in a private entity is defined by s 91 to mean a proportionate interest in the entity of 50 per cent or more.
I will refer to the acquisition of significant interest as gaining or having statutory control of the underlying land assets. I will do so because the manifest purpose of the provisions is to charge a person who is left as the holder of a significant interest in a private land rich entity as a result of a transaction with duty as if he or she were taking a conveyance of the underlying land assets.
Division 2 of Part 4 of the Act is headed “Land rich entity” and by subsection 94(1) defines land rich entity to mean:
A private entity is a land rich entity if—
(a) the unencumbered value of the underlying local land assets of the private entity and associated private entities is $1m or more; and
(b) the unencumbered value of the entity’s underlying land assets comprises—
(i)in the case of a primary production entity—80 per cent or more; and
(ii)in any other case—60 per cent or more,
of the unencumbered value of the entity’s total underlying assets.
...
Inserting the relevant parts of the definition of a private entity into s 95 of the Act, it reads as follows:
A person... that acquires a significant interest, or increases its significant interest, in a [unit trust scheme in which 20 or fewer persons hold 75 per cent or more... of the units] notionally acquires an interest in the underlying local land assets of the equity...
Emphasis added
The Appeal
Growthpoint submits that the natural and ordinary meaning of s 95(1) of the Act is that the entity in which the significant interest is acquired or increased is already a private entity, which is a land rich entity, before the first acquisition or increase of the significant interest occurs. Growthpoint advances the following arguments in support of its contention. First, Growthpoint relies on the use of the present tense of the word “acquire” and that the acquisition is “in a private entity” which “is a private unit trust scheme”. Growthpoint submits that it is necessary first to identify if the relevant entity in which an acquisition is made is a private entity and then to ask whether the tax payer has acquired an interest in such an entity. Secondly, Growthpoint points to certain harsh taxation consequences of a construction which would subject to duty a transaction which simultaneously effects an acquisition and transforms the entity into a land rich entity.
Growthpoint’s first submission treats the word “acquire” as if it means an agreement to acquire. Even though historically stamp duty was charged on documents evidencing commercial transactions, s 95 of the Act renders dutiable the acquisition itself. The acquisition of the majority shareholding by Growthpoint occurred simultaneously with the transformation of the Growthpoint Trust from a widely held entity into a land rich entity. Growthpoint acquired, and only ever held a significant majority in the Growthpoint Trust, when that trust was a land rich private entity. Legal constructs, particularly those relating to transfers of property, may allow for, and indeed require, simultaneous and instantaneous changes in the ownership of proprietary interests and the nature of the underlying property. For example, a purchaser of shares in a company acquires an interest in a licensed broadcaster (or fisher or builder) if completion on the share purchase occurs simultaneously with the licence transfer. In this case the first acquisition, uno ictu, at once and at one blow, both bestowed a majority of units on Growthpoint, and by that very bestowal, brought the Growthpoint Trust within the definition of a land rich private entity. On completion of the first placement agreement, Growthpoint acquired a significant interest in a land rich private entity. It follows then, that on a proper construction of s 95 of the Act the first acquisition falls within it.
I would also reject Growthpoint’s second argument. I accept that the construction I would give s 95(1) of the Act has severe taxation consequences. However, the purpose of s 95 of the Act is to demarcate between those acquisitions which will be levied at the rate applicable to marketable securities and those which will be chargeable at the significantly higher rate applicable to conveyances of land. There are historical and continuing economic reasons for the maintenance of that substantial difference in rates. The growth in the use of property trusts through which the beneficial ownership of land can be traded has reduced the receipts of stamp duty drawn from land transactions. The legislature has by Division 2 of Part 4 of the Act delineated between those marketable security transactions, which will be taxed at the lower rate, and those transactions which will be taxed at the land conveyance rate, based on the concentration of ownership in the units of a trust. For understandable reasons in his second reading speech, the Treasurer chose to characterise the use of private entities to effect a transfer in the control of land as stamp duty evasion. However, the concept of tax evasion is elusive. It is the language of Part 4 of the Act and s 91 in particular on which attention must be focussed.
It is a necessary consequence of the way in which the line is drawn by Part 4 of the Act that dispositions or transfers of units may transform widely held unit trust schemes into private entities. As a result a unit holder not involved in the actual transfer which affects the transformation but who is nonetheless left with statutory control of the land asset may become liable to stamp duty. The harsh taxation consequences of which Growthpoint complains are inevitable because of the way in which the statute strikes the balance between the transfer of land and equities. On the other hand Growthpoint’s construction leaves great scope to undermine that balance.
It is convenient to consider the operation of the competing constructions of s 95(1) on a simply framed set of transactions. In what follows, I will refer to the parties' competing constructions of s 95(1) as the immediate, where the transaction and the change in nature of the entity occur uno ictu, and deferred, where the nature of the entity acquired is assessed prior to the acquisition and the change of nature after the acquisition, liability constructions. I use the expression free of duty to mean free of duty levied pursuant to Part 4 of the Act.
First consider a unit trust, X, with existing land assets of $800,000, in initially which four persons, A, B, C and D, each hold a single unit to which A transfers additional land, L, to the value of $400,000 in consideration for which he is issued with two further units (scenario 1). By that single transaction A becomes the holder of a significant interest in L and X becomes a land rich private entity. On the immediate liability construction of s 95(1) of the Act, the transaction is dutiable but is exempted by s 95(5) if conveyance duty is paid on the conveyance of the additional land. On the deferred liability, construction of the transaction does not fall within s 95(1) of the Act leaving no work for s 95(5) of the Act to perform in this scenario. Of course in this scenario, A was always in control of the additional land but by reason of s 95(5) of the Act, pays no duty on gaining statutory control of the existing land.
Next consider the position if A holds one unit, and B three units, in Y trust with the same existing land, to the value of $800,000 and that A transfers additional land to the value of $400,000 to Y for a further two units (scenario 2). By that transaction, A and B both become significant interest holders in what has become a private land rich entity, A taking statutory control of the existing land and B of the additional land, but both are exempt from duty either by reason of deferred liability construction or by s 95(5) of the Act.
If the trustee of X, with the unit holders A, B, C and D as in scenario 1, purchases the additional land from accumulated funds, X becomes a land rich entity and conveyance duty, pursuant to Part 3 Division 6 of the Act, is paid on the conveyance of the land. No unit holder in X trust has a significant interest and s 95(1) of the Act is not attracted by the conversion of X trust to a land rich private entity. If A were to subsequently purchase another holder's unit or be issued with two or more additional units in X trust (scenario 3), that transaction is dutiable pursuant to s 95(1) of the Act on both the immediate and deferred liability constructions.
If Y trust purchases the additional land from accumulated funds, B would be a significant interest holder in what has become a land rich private entity (scenario 4). On the immediate liability construction, B would come within s 95(1) of the Act but be exempted by s 95(5) of the Act if duty was paid on the conveyance. On the deferred liability construction of s 95(1) of the Act does not apply and again s 95(5) of the Act is left with no work to do.
The first four scenarios disclose the purpose of s 95(5) of the Act. It recognises that a conveyance of land into a private entity may transform it into a land rich private entity but that, insofar as an interest holder thereby gains statutory control of the underlying land assets, the transaction is not dutiable pursuant to s 95(1) of the Act. It is difficult to find any real work for s 95(5) of the Act on the deferred liability construction because the transaction which transforms a private entity into a land rich private entity is not caught by s 95(1) of the Act.
Next, consider the position when A holds 40 percent of the units in Z which owns land assets of $1.2 million, and 60 minor unit holders equally share the remaining units. If A were to purchase the units of 30 of them (scenario 5), he or she would, by that one transaction, become the holder of a significant interest in a land rich private entity. On the deferred liability construction, the transaction would not be dutiable yet there is no apparent reason to treat A in scenarios 3 and 5 differently. In both scenarios A takes statutory control of underlying land assets of the prescribed value without any conveyance duty having been paid.

Next, consider the position when the value of land owned by Z is $2 million and its unit holder A holds 40 percent of the units and the remaining units are held by 120 unit holders each holding 0.5 per cent of the units (the minor units). If B purchases all of the 120 minor units (scenario 6), he or she by that acquisition at once becomes the holder of a significant interest in Z which simultaneously is transferred into a private land rich entity. On the immediate liability construction the transaction is dutiable but not on the deferred liability construction. Scenario 6 shows that if a property speculator were to purchase property through a unit trust with more than 50 unit holders, duty would be payable on the conveyance into the trust but he or she would save any subsequent purchaser of all, or most, of the units, conveyance duty and thereby optimise his or her capital gain at the expense of the revenue. If C were later to purchase B’s units in Z (scenario 7) on both the immediate and deferred liability constructions, that transaction would be dutiable.
It is difficult to see why B in scenario 6 should be treated any differently to C in scenario 7. On both scenarios B and C respectively gain statutory control of the underlying land assets of Z, which exceed the prescribed amount, without paying any conveyance duty. There is no reason in policy for the differential treatment which the deferred liability construction gives the transactions underlying scenarios 6 and 7.
Next, consider the position when Z's land assets are two parcels of land valued at $1 million each and A holds 30 per cent of the units, B 30 per cent and 80 others each hold 0.5 per cent of the units. Z is at this time not a private entity. If B and 40 of the minor unit holders were to surrender their units in consideration for the transfer to them personally of one of the parcels (scenario 8), duty would be payable on the conveyance of the land to them. B would then directly hold a majority 60 percent interest in the fee simple. By the same transaction A is left with 60 percent of the units in Z and would therefore hold a significant interest in what has at the same time become a land rich private entity. A would pay duty on the immediate but not on the deferred liability constructions. However, there is no apparent reason why A should be dealt with more advantageously than B. True it is that A would not be liable in a scenario in which more than 50 unit holders remained in Z on either construction but that is because the Act draws the line between a widely held trust and a private entity (and statutory control) at that number. The point illustrated by scenario 8 is that in substance A and B are left with the same measure of “control” of the underlying land assets but only B is liable to pay duty on the transaction which effected that result.
In short the above scenarios show that the deferred liability construction allows the privatisation of a widely held property trust which gives a unit holder statutory control of the underlying land assets of the prescribed value to be effected free of duty. However, neither the text of Part 4 nor the apparent mischief to which it is directed, suggest that s 95(1) of the Act is limited to transactions transferring interests in land rich private entities and not to transactions which first concentrate control of land in a private entity.
It should be noted that the construction I would give s 95(1) of the Act will not render persons who hold a 50 percent or more interest in a land rich private entity liable to duty merely because of an increase in the value of the underlying land asset. If at the time of a transaction the value of the underlying land asset is less than one million dollars, the transaction is not dutiable. If the value of the underlying land asset subsequently appreciates to the prescribed value, the transaction does not become dutiable. The conversion of a private entity to a land rich private entity by appreciation of value over time is not the result of a transaction. The relevant time for determining duty is the completion of the transaction.
The construction I would make is supported by s 95(2) of the Act. Growthpoint contends that the words “are therefore dutiable” in s 95(2) of the Act indicates that the subsection does no more than state the effect of s 95(1). That submission has a superficial attraction because of the use of the word “therefore”. However, statutory provisions are not enacted as a commentary on the legal effect of preceding provisions. They are intended to have rule making effect. Subsection (1) and subsection (2) are both operative provisions which together impose the duty. There is no reason to read s 95(2) of the Act narrowly. It is an elaboration of the statutory intention expressed in subsection (1). Reading ss 95(1) and 95(2) of the Act together, it is clear that the statutory intention was to apply s 95(1) of the Act by reference to the result of the transaction. In that way, s 95(2)(a) of the Act supports the construction of s 95(1) which would render liable to duty a transaction which has the dual effects (“result”) of completing the acquisition of a majority interest in an entity and transforming that entity into a private entity.
Nor is the purpose of s 95(2) of the Act limited to emphasising the effects of subsections (3) and (4) which speak for themselves and are capable of affecting their purpose without s 95(2) of the Act. Section 95(2) of the Act must be given some work to do. Its work is to deny the construction advanced by Growthpoint by providing that it is the “result” of the transaction, that is its transformation of the land owning entity and the changes in the interests held in that entity, which determines whether the transaction is dutiable.
I also observe here that s 95(4) of the Act is in aid of s 95(3). It is therefore not surprising that the examples it gives do not deal with transactions which also transform the nature of the land holding entity.
Growthpoint submits that s 95B of the Act would be unnecessary if ss 95(1) and 95(2) have the consequence that stamp duty is payable whenever there is “a transaction as a result of which a person or group has a significant interest in a land rich entity”. Section 95B provides:
95B—Primary production entities
(1)This section applies to a transaction whereby a person or group acquires a significant interest, or increases its significant interest, in a relevant primary production entity if the entity ceases within the period of 3 years following the acquisition or increase to be a primary production entity.
(2)Duty is payable under this Part in respect of a transaction to which this section applies as if the entity had not been a primary production entity at the time at which the person or group acquired or increased the interest in the entity.
(3)In this section—
relevant primary production entity means a primary production entity that is not a land rich entity under section 94(1) only because the unencumbered value of the entity’s underlying land assets comprises less than 80 per cent of the unencumbered value of the entity’s total underlying assets.
In summary s 95B applies where a person acquires a significant interest, or increases a significant interest, in a relevant primary production entity which is not a land rich entity only because the unencumbered value of its assets is less than 80 per cent of the total value of its assets, but ceases to be a primary production entity within three years of that acquisition. The 80 per cent threshold only applies to private primary production entities whereas a 60 per cent threshold applies to all other entities. Accordingly, a primary production entity which has 70 per cent equity in its underlying assets is not a land rich entity. If, however, that entity ceases to be a primary production entity its unit holders become liable to stamp duty pursuant to s 95B of the Act.
Growthpoint’s argument is that s 95B of the Act is otiose because the transaction by which the primary production entity ceases to become a primary production entity would fall within the scope of the wide construction which the Commissioner gives s 95(1) of the Act. I reject that submission. Section 95B of the Act would still have much work to do. An entity may cease to be a primary production entity in many ways which do not involve any transaction at all. Moreover, s 95B(2) of the Act, which is the operative provision of the section, has the effect of requiring stamp duty to be assessed, not at the time of the subsequent transaction, if there be one by which the entities cease to be a primary production entity, but “at the time at which the person or group acquired or increased the interest in the entity”.
Conclusion
I would hold that a transaction which at the same time effects the transformation of an entity into a land rich entity and confers on a person a significant interest in that entity falls within s 95 of the Act. I would dismiss the appeal.
BLUE J.
This in an appeal against the dismissal by a Judge of this Court of a stamp duties appeal.
The primary question raised on appeal is whether the land rich entity provisions contained in Part 4 of the Stamp Duties Act 1923 (SA) (the Act) apply to a transaction whereby a person acquires a majority interest[1] in a company or unit trust that is not a land rich entity before the acquisition but becomes a land rich entity as a result of the transaction.
[1] An interest of 50 per cent or more, being a “significant interest” as defined by section 91 of the Act.
The secondary question is whether stamp duty payable under Part 4 on a transaction whereby a person increases a pre-existing majority interest in a land rich entity is to be calculated on the amount of the increase or on the entire holding in circumstances in which the pre-existing interest had been acquired when the entity was not a land rich entity and stamp duty had not been payable under Part 4 thereon.
Background
At all material times, the Growthpoint Properties Australia Trust (the Trust) was a “unit trust scheme” as defined by section 91 of the Act.[2] It held leasehold interests (the properties) in two parcels of commercial land at Adelaide Airport. It is common ground that the relevant value of the properties was $68.3 million.
[2] All references to the Act are to the Act as in force in August-September 2009 unless otherwise stated. In July 2011, the Statutes Amendment (Land Holding Entities and Tax Avoidance Schemes) Act 2011 (SA) substituted a new Part 4.
At all material times, more than 50 persons held units in the Trust. Before 5 August 2009 the top 20 unitholders held less than 75 per cent of the units in the Trust. The Trust was therefore not a “private entity” or a “land rich entity” as defined by sections 91 and 94 respectively of the Act.
On 5 August 2009, the trustee issued to the appellant Growthpoint Properties Limited (Growthpoint) 34,756,381 units in the Trust (the August transaction).[3] This gave to Growthpoint a proportionate interest of 50.1 per cent of total issued units of 69,374,014 in the Trust. This represented a “significant interest” as defined by section 91 of the Act. After completion of the August transaction, the top 20 unitholders held more than 75 per cent of the units in the Trust and accordingly the Trust became a “private entity” and a “land rich entity” as defined by the Act.[4]
[3] 347,563,810 units were issued to Growthpoint representing 50.1 per cent of the total issued units of 693,740,143 in the Trust. All units were then consolidated on the basis of 10 units for 1. For ease of reference, I refer to unit numbers after the consolidation as nothing turns on the difference.
[4] Growthpoint at the time took the view that the reference in the Act to a unit holder was to a beneficial as opposed to legal unit holder and, on this construction, the top 20 unit holders held less than 75 per cent of the units in the Trust. Growthpoint does not pursue that contention on appeal.
On 24 September 2009, the trustee issued to Growthpoint Properties a further 86,836,641 units in the Trust (the September transaction). This brought Growthpoint’s total units to 121,593,022 out of total issued units of 159,619,977.[5] This increased Growthpoint’s proportionate interest in the Trust by 26.067 per cent, giving it a total proportionate interest of 76.177 per cent.[6]
[5] The trustee made two issues of units to Growthpoint on the same day but, as nothing turns on the difference, the issue can be treated as if it were a single transaction.
[6] All percentage figures are rounded to 3 decimal points where necessary.
In May 2010, the respondent Commissioner of Taxation issued to Growthpoint a Notice of Assessment of Liability to Duty.[7] The Notice identified the dutiable transaction as an acquisition by Growthpoint of a “76.2% interest in the Growthpoint Properties Australia Trust (a land rich entity)” on 29 September 2009. It assessed duty at $2,855,441.50 and imposed interest thereon.[8]
[7] Issued pursuant to Taxation Administration Act 1996 (SA) s 14.
[8] The Commissioner later issued a substituted Notice of Assessment dated 4 June 2010 because the first notice incorrectly added the sum of the duty and interest shown in the total column. Nothing turns on this and the later assessment can be ignored for the purposes of this appeal.
Growthpoint paid the amount of the duty but lodged an objection to the assessment. The assessment was confirmed by the Treasurer. Growthpoint appealed against the assessment following the Treasurer’s determination of its objection. A single Judge of this Court dismissed Growthpoint’s appeal.[9]
[9] [2013] SASC 131.
Land rich provisions
The Act imposes stamp duty on conveyances at differential rates as between conveyances of property generally and conveyances of company shares, trust units in managed investment schemes and other financial products.[10] The rate of duty on a conveyance of financial products is a flat 0.6 per cent of the value. The rate of duty on a conveyance of other property, including land, is a sliding scale from 1 per cent on the first $50,000 up to 5.5 per cent of the value over $500,000.
[10] Financial products are defined by s 2(1) of the Act to mean, inter alia, company shares or any interest in a managed investment scheme registered under Chapter 5C of the Corporations Act 2001 (Cth). Unit trusts are often used for registered managed investment schemes.
Before 1990, a conveyance of land in South Australia worth $10 million attracted stamp duty of $543,830 or approximately 5.4 per cent of the value. A conveyance of all of the shares in a company or all of the units in a unit trust managed investment scheme whose sole asset was land worth $10 million attracted stamp duty of only $60,000 or 0.6 per cent of the value. There was an obvious incentive for a purchaser to structure an acquisition of land as an acquisition of shares or units in the landowner rather than of the underlying land asset. This was a lawful method of avoiding payment of stamp duty at land conveyance rates but had an adverse effect upon State revenue.
Part 4 was introduced into the Act in 1990[11] to counter schemes whereby commercial ownership of land was effectively transferred by transferring shares or units in a land rich company or trust, thereby attracting the lower financial product rate of stamp duty rather than the land conveyance rate on transfer of the land itself. This purpose is evident from the provisions of Part 4 and confirmed by the Attorney-General’s second reading speech. The Attorney-General described such schemes, their effects and the counter measure proposed in the following terms:
It seeks to insert a new part in the Stamp Duties Act 1923 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. Under the current provisions of the Stamp Duties Act instruments of transfer of company shares are charged at a substantially lower ad valorem rate of stamp duty than that charged on conveyances of land (60c per $100 as opposed to a progressive rate up to $4 per $100 respectively). For the scheme to operate land is placed in company ownership. Prospective purchasers of the land are invited to take a transfer of the shares in the company rather than the land directly. By this means duty is not paid on the value of the land as occurs in respect of the overwhelming majority of land purchases but instead duty is paid on the net value of shares…
…This Bill seeks to counter the above-mentioned scheme by providing that certain transfers involving the transfer of real property by way of shares in an unlisted company or units in a non-listed unit trust be taxed at land conveyance rates in respect of the underlying land.
…
The Bill is clearly aimed at those persons who artificially arrange their affairs to avoid or minimise the payment of stamp duty.[12]
[11] By the Stamp Duties Amendment Act (No 3) 1990 (SA).
[12] South Australia, Parliamentary Debates, Legislative Council, 3 April 1990, page 1064 (Christopher Sumner, Attorney-General).
The scheme of Part 4 was in essence to require a person who acquired a majority interest, or an increase in a majority interest, in a private company or private unit trust scheme that owned South Australian land worth at least $1 million comprising at least 80 per cent of its assets to lodge a statement in respect of the acquisition within two months of the transaction.[13] Stamp duty was imposed on the statement as if it were a conveyance of the same proportion of the underlying South Australian land owned by the entity.[14]
[13] Stamp Duties Act 1923 (SA) s 94(1), (6). Reference here is to the Act as it was following the amendments in 1990.
[14] Stamp Duties Act 1923 (SA) s 95(1).
In 2000, a substituted Part 4 was inserted into the Act.[15] It recast the operative provisions to impose stamp duty directly in respect of the relevant transaction rather than on the statement that was still required to be lodged with the Commissioner within two months after the transaction. It also imposed stamp duty in respect of transactions in which a person made no direct acquisition of shares or units but rather the majority interest was acquired or increased indirectly via the reduction of shares or units, or of rights in respect of shares or units, held by fellow shareholders or unitholders or by other indirect or passive means. These purposes are evident from the provisions of the substituted Part 4. This is confirmed by the Treasurer’s second reading speech:
In 1990, Part 4 was enacted to counter an avoidance scheme whereby revenue was being lost as a result of the practice of placing land in highly leveraged companies or unit trusts for the purposes of transferring the shares (or units) to prospective purchasers rather than the land itself. These provisions are known colloquially as the land rich provisions.
Various schemes have been identified by RevenueSA whereby through the use of trusts and other interposed entities, taxpayers are able to circumvent the 80 per cent test and the majority interest test found in the original provisions, and to take themselves outside of the land rich provisions, notwithstanding that they end up controlling land, the market value of which may significantly exceed the $1 million threshold.
The proposed bill therefore implements significant changes to the land rich provisions in order to remove the identified opportunities for tax avoidance. Specifically, amendments have been made to capture third party and passive acquisitions whereby a person gains control of a land rich entity.[16]
[15] By the Stamp Duties (Land Rich Entities and Redemption) Act 2000 (SA).
[16] South Australia, Parliamentary Debates, Legislative Council, 5 December 2000, page 774 (R I Lucas, Treasurer).

In keeping with addressing schemes to avoid payment of duty at land conveyance rates on what is tantamount to the commercial transfer of land, the substituted Part 4 applied only to a land rich entity, being an entity holding South Australian real property worth at least $1 million comprising at least 60 per cent of its assets.[17] It was confined to unlisted companies and to unit trusts having less than 50 unitholders or 20 or less persons entitled to 75 per cent or more of the units.[18] It was confined to persons who acquired or increased a majority interest in the company or unit trust.[19]
[17] Stamp Duties Act 1923 (SA) s 94(1)(b)(ii) definition of “land rich entity”. The percentage was 80 per cent if the entity was a primary production entity: s 94(1)(b)(i). Some assets, such as cash, were excluded from total assets unless the Commissioner was satisfied they were acquired in the normal course of business and not to avoid the duty.
[18] Stamp Duties Act 1923 (SA) s 91 definitions of “private entity”, “private company” and “private unit trust scheme”.
[19] Stamp Duties Act 1923 (SA) s 91 definition of “significant interest”.
The central definitions for Part 4 were contained in Divisions 1 and 2 and as at August and September 2009 were as follows:
91—Interpretation
(1)In this Part—
…
private company means—
(a)     a company that is limited by shares but whose shares are not quoted on a recognised financial market; or
(b)     a company that is not limited by shares,
but does not include a company excluded from the ambit of this definition by the regulations;

private entity means a private company or a private unit trust scheme;

private trust means a trust other than one in which the public is (or has been) invited to invest;

private unit trust scheme means—
(a)     a unit trust scheme in which less than 50 persons hold units; or
(b)     a unit trust scheme in which 50 or more persons hold units if 20 or fewer persons hold 75 per cent or more in number or value of the units on issue,
but does not include a unit trust scheme that is an approved deposit fund or a pooled superannuation trust within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cwth);
…

significant interest in a private entity means a proportionate interest in the entity of 50 per cent or more;
…

unit in a unit trust scheme means—
(a)     a right to participate in profits, income or distribution of assets under the scheme; or
(b)     a right to any such right of participation;

unit trust scheme means an arrangement under which investors may acquire rights to participate, as beneficiaries under a trust, in profits, income or distribution of assets arising from the acquisition, holding, management, use or disposal of property;
…
94—Land rich entity
(1) A private entity is a land rich entity if—
(a)     the unencumbered value of the underlying local land assets of the private entity and associated private entities is $1m or more; and
(b)     the unencumbered value of the entity's underlying land assets comprises—
(i) in the case of a primary production entity—80 per cent or more; and
(ii) in any other case—60 per cent or more,
of the unencumbered value of the entity's total underlying assets.
Division 3 was entitled Dutiable Transactions. It imposed stamp duty on transactions whereby a person (or group) acquired a significant interest, or increased its significant interest, in a land rich entity.[20] It deemed such a person to have acquired a notional interest in the underlying local land assets of the land rich entity.[21] The notional interest was the proportionate interest of the person who acquired a significant interest or, when that person already had a significant interest, the increase in the person’s proportionate interest in the land rich entity.[22] It imposed stamp duty in respect of that notional acquisition.[23] The stamp duty was equal to the duty on a conveyance of land with a value equal to the acquirer’s notional interest or, if the person already had a significant interest, the differential between duty on a conveyance of land with a value equal to the acquirer’s total notional interest and duty on a conveyance of land with a value equal to the acquirer’s pre-existing notional interest.[24]
[20] Stamp Duties Act 1923 (SA) s 95(1).
[21] Stamp Duties Act 1923 (SA) s 95(1).
[22] Stamp Duties Act 1923 (SA) s 95(1) and s 96.
[23] Stamp Duties Act 1923 (SA) s 95(1).
[24] Stamp Duties Act 1923 (SA) s 97(1) and (3).
Division 3 as at August and September 2009 relevantly[25] provided:
[25] Section 95A provided for aggregation of interests arising from associated transactions and section 95B provided for a situation in which a primary production entity ceased to be a primary production entity within 3 years of a transaction whereby a person acquired or increased a significant interest. They are not directly relevant and are not reproduced below.
Division 3—Dutiable transactions
95—General principle of liability to duty
(1)     A person or group that acquires a significant interest, or increases a significant     interest, in a land rich 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 has a significant interest in a     land rich entity; or
(b)     a transaction as a result of which a person or group that has a significant interest in a land rich entity increases its significant interest in the entity.
(3)     A transaction is dutiable under this Part even though the person or group that has a significant interest, or increases a significant interest, in the land rich 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.
(5)     However, if a private entity acquires a local land asset and, as a result of the acquisition, becomes a land rich entity, and conveyance duty is paid in respect of     the transaction, the transaction is not dutiable under this Part.
…
96—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 significant interest in a land rich 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.
(2)     If a person or group that has a significant interest in a land rich entity increases its prescribed interest as a result of a dutiable transaction, 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 ascertained
TV is the total unencumbered value of all the entity's underlying local land assets
P₁ is the fraction representing the proportionate interest in the entity before the increase
P₂ is the fraction representing the proportionate interest in the entity after the        increase.
97—Calculation of duty
(1)     If the total unencumbered value of the entity's underlying local land assets is $1.5m       or more, duty in respect of a transaction under which a person or group acquires a      significant interest in a land rich entity is to be equivalent to the duty payable on a conveyance of land with an unencumbered value equivalent to the value of the     acquirer's notional interest in the entity's underlying local land assets.
(2)     If the total unencumbered value of the entity's underlying local land assets is less    than $1.5m, duty is to be calculated in accordance with the following formula:
Where—
D is the amount of the duty
TV is the total unencumbered value of all the entity's underlying local land assets
d₁ is the duty that would be payable if subsection (1) were applicable
d₂ is the duty that would be payable in respect of a transaction for the acquisition of financial products with a dutiable value equivalent to the value of the notional interest.
(3)     Duty on a dutiable transaction under which a person or group increases its    significant interest in a land rich entity is to be calculated as follows:
Where—
D is the amount of the duty
d₁ is the amount that would have been payable if the person or group had acquired the whole of its interest in a single transaction at the time of the increase
d₂ is the amount that would have been payable if the person or group had acquired its pre-existing interest in a single transaction at the time of the increase.
(4)     However, if any part of a significant interest in a land rich entity was acquired by the relevant person or group more than 3 years before the date of a dutiable     transaction (the earlier acquisition), the duty calculated under the above provisions     is to be rebated by a percentage representing the extent of the earlier acquisition as         a proportion of the significant interest as a whole.
(5)     If a person or group acquires or increases a significant interest in a land rich entity through the acquisition of financial products or units in a private unit trust scheme      and duty has been paid under this Act or a corresponding law in respect of the     transaction for the acquisition of the financial products or units, the duty calculated under this section is to be reduced by the amount of the duty paid.
Sections 95, 96 and 97 addressed, and imposed stamp duty in respect of, two categories of transactions. First, a transaction in or by which a person acquired a significant interest. Secondly, a transaction in or by which a person who already had a significant interest increased the person’s significant interest.
This duality between acquiring and increasing a significant interest was referred to in subsections 95(1) and 95(3) and was the reason for the differentiation between paragraphs (a) and (b) of subsection 95(2), between subsections 96(1) and (2) which provided different formulae for calculation of the value of the notional interest acquired in the entity’s underlying local land assets, and between subsections 97(1) and (3) which provided different formulae for calculation of the duty payable in respect of the relevant transaction.
In July 2011, a third version of Part 4 was substituted.[26] This version is not relevant to the appeal and all references to the Act henceforth are to the Act as in force in August and September 2009.
[26] By the Statutes Amendment (Land Holding Entities and Tax Avoidance Schemes) Act 2011 (SA).
The primary Judge’s reasons
The Judge’s reasons are encapsulated in the following passage:
As a result of the 5 August 2009 transaction, Growthpoint Properties Limited obtained a significant interest in a land rich entity. As a result of the 24 September 2009 transaction, Growthpoint Properties Limited increased its significant interest in the land rich entity. To my mind, this is the clear meaning of subsection 95(2). The transactions of 5 August and 24 September 2009 are both dutiable transactions.
…
In my view, section 95 is plain in its meaning. Subsection 95(1) provides that a person or group that acquires a significant interest or increases its significant interest in a land rich entity notionally acquires an interest in the underlying local land asset of the land rich entity, and is liable to duty in respect of the notional acquisition. Subsection 95(2) makes it plain that the relevant test is to look at the result of the transaction, that is to the consequence of the transaction, and to consider whether the transaction has resulted in the person or group having a significant interest in a land rich entity or, alternatively, increasing its significant interest in a land rich entity.
I do not consider that the use of the word “therefore” detracts from this construction. To the contrary, it supports the construction. [27]
[27] [2013] SASC 131 at [27], [29], [30].
Contentions on appeal
Growthpoint accepts that the September transaction whereby it increased its significant interest in the Trust from 50.1 per cent to 76.177 per cent was subject to stamp duty under Part 4 on the increase of 26.077 per cent. It contends, however, that the August transaction was not subject to stamp duty under Part 4 because it did not thereby acquire a significant interest in a private entity or a land rich entity as provided for in subsection 95(1), the Trust only becoming a private entity following and by reason of the acquisition.
Growthpoint argues that the ordinary meaning of “acquire” connotes that the thing acquired already exists and that the units it acquired in August 2009 were not units or an interest “in a private entity” within the meaning of subsection 95(1) because the Trust logically only became a private entity following the acquisition. It points to the use in subsection 95(1) of the present tense “acquires”. It argues that subsection 95(2) in referring to the transaction resulting in the person having a significant interest is premised on the change being between no interest or a minority interest and a significant interest in the entity and not a change in the character of the entity itself from non-private to private or non-land rich to land rich. If there is a conflict between the two subsections, it draws attention to the presence of the word “therefore” that shows that subsection 95(1) is the leading provision. Growthpoint points to anomalous results that would be produced on the Commissioner’s construction that cannot have been intended by Parliament.
The Commissioner contends that the August transaction was subject to stamp duty under Part 4 because, as a result of the transaction, Growthpoint had a significant interest in a private entity and a land rich entity as provided for in section 95(2)(a). There was no requirement that the entity in question be a private entity or a land rich entity immediately before the event by reason of which a person acquired an interest in the entity: it was sufficient that this resulted from the event. The presence of the word “therefore” in subsection 95(2) shows that subsection 95(1) is to be so construed.
The Commissioner contends that all that is required is a comparison between the position before and after the relevant event. If before the event the person did not have a significant interest in a land rich entity and after the event it did, section 95 applied. The change might be in the person’s proportionate interest in a land rich entity increasing to or above the 50 per cent threshold. It might be a change in the character of the entity from non-private to private, there being no change in the majority unitholder’s proportionate interest. For example, a unitholder selling his or her units to an existing unitholder resulting in there then being only 49 unitholders. It might be a change in the character of the entity from non-land rich to land rich, there being no change in the majority unitholder’s proportionate interest. For example, the entity acquiring more local land taking its total value over $1 million. It might be a combination of two or all three of these changes.
The Commissioner contends in the alternative that, if the August transaction was not dutiable, the stamp duty imposed in respect of the September transaction was to be calculated under subsection 97(3) on the entire 76.177 per cent interest that Growthpoint had following that transaction because no duty had previously been paid by Growthpoint under Part 4 and no amount was therefore to be deducted on account of d₂ in the formula.
Growthpoint responds that duty on the September transaction on application of the subsection 97(3) formula was only on the difference between duty on the acquisition of a 76.177 per cent interest and duty on the acquisition of a 50.1 per cent interest.
Acquisition of significant interest
The Commissioner’s primary contention is that section 95 applies whenever a person who did not previously have a significant interest in a land rich entity now holds such an interest, regardless of whether that is because the person’s interest has increased to or beyond the 50 per cent threshold or because the person’s interest remains at the same level but the entity itself has changed to become a land rich entity. That change might be from non-private entity to private entity or from non land rich private entity to land rich private entity.
The subject clause in the sentence that is subsection 95(1) is:
A person or group that acquires a significant interest, or increases its significant interest, in a land rich entity
Such a person notionally acquires an interest in the underlying local land assets of the entity and is liable to duty in respect of the notional acquisition. The logical structure of this subject clause is as follows:
·A person or group
·acquires a significant interest, or increases its significant interest,
·in a land rich entity.
This structure naturally suggests that what is changing is the person’s proportionate interest in the entity (increasing to cross the 50 per cent threshold or from a pre-existing majority interest to a yet higher interest) rather than the entity itself changing character from non-land rich to land rich. It suggests that the change is quantitative rather than qualitative.
This is consistent with the structure of subsection 95(2) which provides that therefore a dutiable transaction is a transaction as a result of which a person or group:
(a) …has a significant interest in a land rich entity; or
(b) …that has a significant interest in a land rich entity increases its significant interest in the entity.
There are several textual, contextual and purposive considerations that suggest that section 95 is not addressed to a situation in which a person’s level of interest in an entity does not change but the entity itself changes character to become a land rich entity.
As identified above, the mischief to which Part 4 was addressed was to counter avoidance schemes in which a person acquires shares or units in a company or unit trust instead of acquiring the land owned by the company or trust to avoid paying duty at land conveyance rates. That mischief does not apply when a person does not acquire any shares or units and there is no change in the person’s proportionate interest in the company or unit trust.
The subject clause of subsection 95(1) addresses an increase in significant interest in conjunction with an acquisition of a significant interest. The concept of increasing a significant interest in a land rich entity necessarily connotes that the person already had a significant interest in a land rich entity before the increase (which is confirmed by subsections 95(2)(b), 96(2) and 97(3)). The conjunction in subsection 95(1) of acquiring and increasing a significant interest suggests that the same applies to an acquisition of a significant interest.
Subsection 95(4) sets out examples of situations in which a person acquires a significant interest notwithstanding that the person has a passive role in or is not a party to the transaction. All of the examples involve an increase in the person’s significant interest in the entity and none involve the person’s level of interest not changing but the nature of the entity changing from non-land rich to land rich.

If it had been Parliament’s intention to impose stamp duty whenever the nature of an entity changed to a private entity or a private entity became a land rich entity, it may be expected that Division 3 would have been structured very differently.
On the construction advanced by the Commissioner, anomalous results would be produced. An entity might change from a non-land rich entity to a land rich entity because it enters into a minor transaction but there is no change in its share or unit ownership. For example, it might dispose of a non-land asset worth $1,000 which pushes down the value of its non-land assets from 40.1 per cent to 39.9 per cent of its total assets. It might acquire land interstate or overseas for $1,000 which pushes up the value of its land assets from 59.9 per cent to 60.1 per cent of its total assets. In each case, an existing 50 per cent shareholder or unitholder would, on the Commissioner’s construction, be obliged to pay ad valorem duty at conveyancing rates upon 50 per cent of the value of the entity’s local land assets.
The proportion of a private entity’s land assets out of its total assets might increase above 60 per cent as a result of an acquisition of foreign land or disposal of a non-land asset, fall below 60 per cent as a result of a disposal of foreign land or acquisition of a non-land asset and increase above 60 per cent again as a result of a different acquisition of foreign land or disposal of a non-land asset leading to a liability of the major shareholder or unitholder to pay stamp duty, on the Commissioner’s construction, under Part 4 on each occasion on which it crossed the 60 per cent threshold upwards. Similarly, the value of a private entity’s local land assets might increase above $1 million on a small acquisition, then fall below $1 million on a small disposal, and later increase above $1 million again on a small acquisition. On the Commissioner’s construction, a majority shareholder or unitholder would be required to pay stamp duty under Part 4 on both occasions. It is unlikely that the legislature intended Part 4 to operate in such an anomalous manner.
The anomalous results of the Commissioner’s construction referred to in the previous two paragraphs strongly suggest that it was not Parliament’s intention to impose stamp duty under Part 4 merely because an entity with a majority shareholder or unitholder becomes a land rich entity.
Subsection 98(1) requires a person or group that acquires or increases a significant interest in a land rich entity to lodge a return with the Commissioner and pay duty imposed by Part 4 within two months after the date of the dutiable transaction. Failure to do so comprises a criminal offence. If section 95 applies to transactions under which a person or group increases its proportionate interest in an entity, the date for compliance with subsection 98(1) is certain and apparent. If section 95 applies merely because of a transaction by the entity resulting in an increase in the value of land held by an entity or reduction in the value of its non-land assets, the majority shareholder or unitholder would commit a criminal offence by not lodging a return when that shareholder or unitholder had no knowledge of the transaction.
These considerations require the Commissioner’s construction to be rejected. Section 95 and Part 4 do not apply merely because an entity in which a shareholder or unitholder has a majority interest becomes a land rich entity.
This conclusion does not necessarily entail that the construction advanced by Growthpoint should be accepted because it was Growthpoint’s acquisition of a majority interest in the Trust that resulted in the Trust becoming a land rich entity. However, rejection of the Commissioner’s construction does necessarily entail that the legislature’s focus in enacting section 95 was upon the change in the acquirer’s level of interest in a land rich entity rather than upon any change in status of the entity from non-land rich entity to land rich entity.
There are several textual, contextual and purposive considerations that support the construction advanced by Growthpoint.
As identified above, the mischief to which the original and revised versions of Part 4 were directed was to counter avoidance schemes in which a person acquires shares or units in a company or unit trust instead of acquiring the land owned by the company or trust to avoid paying duty at land conveyance rates. The mischief to which the revised version of Part 4 was addressed was to counter more sophisticated avoidance schemes in which a person acquired or increased a majority interest in a company or unit trust without making any direct acquisition but rather indirectly via the reduction of shares or units, or of rights in respect of shares or units, held by fellow shareholders or unitholders or by other indirect or passive means. It is evident that the revised form of section 95 was structured to address these mischiefs.
The logical structure of subsection 95(1) suggests that the level of the acquirer’s interest in the entity is the dynamic feature and that the characteristic of the entity as a land rich entity is static. On this reading, subsection 95(2) also proceeds on the basis that the result of the transaction is that the acquirer now has a majority interest, or an increased majority interest, in a land rich entity and that the entity’s status as a land rich entity is static.
Use of the present tense, namely “acquires” and “increases”, in subsection 95(1) tends to confirm that the object of the acquisition or increase is a land rich entity at the time of the acquisition. In normal usage, to say that someone acquires an interest in an object normally connotes that the object already exists at the time and is not created as a result of the acquisition. If an entity becomes a land rich entity because a person has acquired a majority interest in it, logically the acquisition transaction must be completed before the entity becomes a land rich entity.
Subsection 95(2) is not inconsistent with this construction of section 95 if it proceeds on the basis that the result of the transaction to which it directs attention is the increase in the person’s level of interest in the entity rather than any change of status of the entity as a result. On the construction advanced by Growthpoint, there was good reason for Parliament to enact subsection 95(2) to emphasise that subsection 95(1) applies whenever the result of the transaction is an increase in a person’s interest in a land rich entity above or beyond the 50 per cent threshold and it does not matter whether the result is merely a collateral effect of a transaction in which the person has a passive role or indeed of a transaction to which the person is not a party at all. The provisions contained in subsections 95(3) and (4) did not appear in the original version of Part 4. Those new provisions make it clear that a primary purpose of the revision of Part 4 was to prevent avoidance of Part 4. In particular, the revision prevents a shareholder or unitholder achieving a majority interest through a reduction of shares or units, through a reduction of the voting or other rights in respect of shares or units held by fellow shareholders or unitholders, or by other indirect or passive means.
If it had been the intention of Parliament that duty was payable when the acquisition of or increase in a majority interest resulted in an entity becoming a land rich entity, the provisions would have been drafted to ensure that they so provided in both instances. However, when a person increases a majority interest in an entity, subsection 95(1) is expressed to apply only when the person “increases its significant interest in a land rich entity” which connotes that the entity is already a land rich entity before the increase. This is made plain by section 95(2)(b), which is expressed to apply in the case of an increase only when “a person or group that has a significant interest in a land rich entity increases its significant interest in the entity”.[28] This is further emphasised by subsection 96(2), which prescribes the formula in the case of an increased significant interest and is also expressed to apply only when “a person or group that has a significant interest in a land rich entity increases its significant interest” in the entity. It is clear that duty is not imposed in respect of a transaction under which a person holding a 50 per cent interest in a non-land rich entity acquires the remaining interests and increases its interest to 100 per cent and the entity becomes a land rich entity as a result of that transaction. There is no reason for the position to be different when a person acquires a 50 per cent interest in the first place.
[28] Emphasis added.
The Commissioner contends that subsection 95(5) proceeds on the assumption that a transaction that results in an entity becoming a land rich entity is dutiable under Part 4 and the subsection is therefore inconsistent with the construction advanced by Growthpoint. The Commissioner contends that the purpose of subsection 95(5) is to avoid double duty when a vendor sells land in exchange for shares or units which give to the vendor a majority interest or increased majority interest in the company or trust. In such an instance, the company or trust pays duty at land conveyance rates on the land purchase and the vendor would otherwise be liable to duty under section 95.
Subsection 95(5) provides:
(5) However, if a private entity acquires a local land asset and, as a result of the acquisition, becomes a land rich entity, and conveyance duty is paid in respect of the transaction, the transaction is not dutiable under this Part.
The purpose of this subsection is obscure. The transaction it identifies is one by which a private entity acquires a local land asset. It is this transaction and no more that is identified and rendered not dutiable under Part 4 but it is not apparent how this transaction would be dutiable under Part 4. If, as the Commissioner contends, the subsection contemplates a broader transaction of which the land conveyance is only one part, it may be expected that the broader transaction would have been identified.
Whatever the purpose of subsection 95(5) might be, it is not the purpose advanced by the Commissioner. Nor does it support the Commissioner’s construction. First, subsection 95(5) only applies when the purchaser of the land is already a private entity and accordingly it does not apply if the purchaser becomes a private entity - and hence a land rich entity - as a result of the transaction. If it had been intended to operate to avoid double duty whenever an entity becomes a land rich entity as a result of a transaction in which shares or units are allotted in exchange for the land, it would have been expressed to apply to an entity and not to a private entity.
Secondly, if the subsection had been intended to operate to avoid double duty when shares or units are allotted in exchange for a conveyance of land and stamp duty is paid on the land conveyance, it would have been expressed to apply in this situation. However, it does not apply to the obvious case of a transaction in which a land rich entity purchases additional land in exchange for the allotment of units or shares which give to the vendor a majority interest in the land rich company.
Thirdly, the entity might own land worth $990,000 and acquire additional land for $10,000 in return for the issue of shares giving a 49 per cent shareholder a 50 per cent interest. The stamp duty on the land transfer would be $100 which would be only a small fraction of the duty payable by the majority shareholder of $21,330 if, as the Commissioner contends, Part 4 applies to the transaction. This demonstrates that, on the Commissioner’s construction of subsection 95(5), there would be no correlation between the duty paid on the conveyance of land to the entity and the duty otherwise payable under Part 4 on the acquisition of a majority interest in the entity.
It appears that the Parliamentary draftsperson had in mind some other aspect of a transaction involving a land conveyance that has not so far been identified or alternatively the subsection was included out of an abundance of caution without identification of the circumstances in which it would be required.
Whatever the purpose of the inclusion of subsection 95(5), it does not afford a reason to reject the construction advanced by Growthpoint.
In conclusion, on the proper construction of section 95, it only applies to a transaction by which a person or group acquires or increases a significant interest in an entity that is and remains a land rich entity. It follows that the August transaction was not dutiable under Part 4.
Amount of duty payable on September transaction
It is common ground on appeal that the September transaction was subject to duty under Part 4 because the Trust was a land rich company immediately before that transaction and, by the transaction, Growthpoint increased its significant interest from 50.1 per cent to 76.177 per cent. However, the parties differ on the amount of duty to be calculated under subsection 97(3).
Growthpoint contends that the duty is to be calculated by the application of the subsection 97(3) formula on the difference between duty on the acquisition of a 76.177 per cent interest and duty on an acquisition of a 50.1 per cent interest. That is, the duty is $979,605 being the difference between duty of $2,855,441.50 on the acquisition of a 76.177 per cent interest and duty of $1,875,836.50 on an acquisition of a 50.1 per cent interest.
The Commissioner contends that the duty is to be calculated by the entire 76.177 per cent interest that Growthpoint had following the September transaction because under subsection 97(3) no duty had previously been paid by Growthpoint and no amount was therefore to be deducted on account of d₂ in the formula. While this was the Commissioner’s secondary contention on appeal, it appears to have been the primary basis on which the Commissioner assessed duty in May 2010 because the Notice of Assessment shows only a single transaction in September 2009 and no separate transaction in or duty imposed in respect of August 2009.
The primary Judge did not in his reasons address the Commissioner’s alternative contention.
Subsection 97(3) provides:
(3) Duty on a dutiable transaction under which a person or group increases its significant interest in a land rich entity is to be calculated as follows:
Where—
D is the amount of the duty
d₁ is the amount that would have been payable if the person or group had acquired the whole of its interest in a single transaction at the time of the increase
d₂ is the amount that would have been payable if the person or group had acquired its pre-existing interest in a single transaction at the time of the increase.
The symbol d₂ in the formula refers to a hypothetical figure being the duty payable if Growthpoint had acquired its pre-existing interest in a single transaction at the time of increase. Growthpoint’s “pre-existing interest” was a proportionate interest of 50.1 per cent in the Trust. The “time of the increase” was 24 September 2009 when Growthpoint increased its significant interest in the Trust. The amount of duty that would have been payable if Growthpoint had acquired a proportionate interest of 50.1 per cent in the Trust on 24 September 2009 would have been $1,875,836.50. It follows that d₂ equals $1,875,836.50 and that amount is to be deducted from d₁ in the formula to calculate the duty payable by Growthpoint.
There is no reference in subsection 97(3) or the formula it contains to its being an element of d₂ that historically duty had been paid on the acquisition of the pre-existing interest. The Commissioner’s contention must be rejected.
Conclusion
I would allow the appeal. I would set aside the orders made by the primary Judge and in lieu thereof order that the duty the subject of the Notice of Assessment be reduced from $2,855,441.50 to $979,605. There should be consequential adjustments to interest on the duty while it was unpaid and on the overpaid duty. The Commissioner should pay Growthpoint’s costs of both appeals.
BAMPTON J: I agree with the reasons of the Chief Justice and I would dismiss the appeal.

[2015] SASCFC 65

4 May 2015

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