ISPT Pty Ltd v Commissioner for ACT Revenue
[2013] ACAT 43
•20 June 2013
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
ISPT PTY LTD & COMMISSIONER FOR ACT REVENUE
(Appeal) [2013] ACAT 43
AA 12/53 from AT 11/38
Catchwords: APPEAL ADMINISTRATIVE REVIEW – Duty payable on lease – effect of provisions of the Duties Act 1999, which expired on 30 June 2009 – whether later lease replaced the earlier lease instrument - whether the original Tribunal erred in law – whether avoidance purpose required – whether the previous lease instrument was ‘spent’ – necessary degree of equivalence between earlier and later lease documents
List of Legislation: Duties Act 1999 (as it was current until 30 June 2009), ss 133, 139, 148, 150A and 421
List of Cases: ISPT Pty Ltd & Commissioner for ACT Revenue (Administrative Review) [2012] ACAT 70
Giris Pty Limited v FCT (1969) 119 CLR 365
Thornthwaite and Commissioner for Social Housing (2012) ACAT 11
List of Texts/Papers: Explanatory Statement to the Duties Amendment Bill 2006 (No 2)
Tribunal: W.G Stefaniak - Appeal President
W. Corby - Senior Member
Date of Orders: 20 June 2013
Date of Reasons for Decision: 20 June 2013
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AA 53 of 2012
BETWEEN:
ISPT PTY LTD
Applicant
AND:
COMMISSIONER FOR ACT REVENUE
Respondent
APPEAL TRIBUNAL: W. G Stefaniak – Appeal President
W. Corby – Senior Member
DATE: 20 June 2013
ORDER
1.The application for appeal is dismissed and the order of the original Tribunal is confirmed.
………………………………..
W.G Stefaniak - Appeal President
For and on behalf of the Tribunal
REASONS FOR DECISION
This is an appeal by a taxpayer from a decision of the ACT Civil and Administrative Appeals Tribunal (the ‘original Tribunal’) dated 18 October 2012 (the ‘original Tribunal decision’).
The original Tribunal confirmed the reviewable decision by the Respondent (the ‘Commissioner’) to disallow the objection by the Applicant /Appellant (‘ISPT’) to the Commissioner’s assessment of duty pursuant to section 421 of the Duties Act 1999 (ACT) (the ‘Duties Act’) with respect to a lease executed by ISPT and the Commonwealth dated 9 May 2010 (the ‘Lease’).
The provisions of the Duties Act relevant for this decision did not, except insofar as the transitional provisions apply, operate after 30 June 2009.
Relevant legislative provisions
133Definitions—ch 5
In this chapter:
lease does not include a long-term lease.
lease instrument means an instrument that evidences or effects a lease.
139When must duty be paid?
(1) A lease instrument becomes liable to duty on the day of first execution.
(2) A lease instrument also becomes liable to duty on the making of a variation to the lease that increases the cost of the lease and, if such a variation is made, duty is chargeable on the amount of additional cost resulting from the variation.
(3) Duty must be paid to the commissioner within 90 days after the lease instrument becomes liable to duty, except as otherwise provided by this chapter.
148Reassessment of duty—early termination
(1)A lessor may apply in writing to the commissioner for a reassessment of duty paid on a lease instrument if the lease is terminated before the end of its term.
(2)Subsection (1) applies in relation to a lease instrument irrespective of how the lease is terminated.
(3)The application must be made within 5 years after the initial assessment or 12 months after the termination, whichever is the later, and must be supported by the documents and information that the commissioner specifies.
(4)The commissioner must—
(a)if satisfied that the lease has been terminated before the commencement of the term—refund the whole of the duty paid; or
(b)if satisfied that the lease has been terminated early—refund the difference between the duty actually paid and the duty that would have been payable if the lease had been granted for a term equal to the period for which the lease actually remained in force before termination.
(5)In this section:
termination, of a lease, includes the lease coming to an end.
150AExpiry—ch 5
This chapter and the following provisions expire on 30 June 2009:
·dictionary, definitions of fit-out costs, lease instrument, value of the lease and variation.
421Application of ch 5 to certain arrangements
(1)In this section:
repealed provisions means the provisions mentioned in section 150A (Expiry—ch 5) as those provisions were in force immediately before their expiry.
(2)Despite their expiry, the repealed provisions apply to a lease instrument mentioned in repealed chapter 5 (Lease instruments) if—
(a)the lease instrument replaces a lease instrument evidencing or effecting a lease that was entered into before 1 July 2009; or
(b)an option was granted, or another arrangement was made, before 1 July 2009 the only or main purpose of which was to defer the execution of, or a variation to, the lease instrument until 1 July 2009 or later so that chapter 5 would not apply to the lease instrument.
(3)Without limiting subsection (2), the commissioner must not refund duty under section 148 (Reassessment of duty—early termination) on a lease instrument evidencing or effecting a lease of property if satisfied that the lessee or any associated person will continue to lease the property, or substantially the same property, under a new arrangement.
(4)This section is a law to which the Legislation Act, section 88 (Repeal does not end effect of transitional laws etc) applies.
Background
ISPT and the Commissioner agree on the following matters that were accepted by, and referred to at paragraphs 5-17 and 40-47 in the decision of, the original Tribunal[1]. Relevantly:
[1] See Appellant’s Submissions dated 1 March 2013 at paragraph 3
a. 10 September 2004 – ISPT and the Commonwealth entered into a Heads of Agreement (the ‘Heads of Agreement’). The Heads of Agreement set out the parties’ intention to enter into a lease of premises whereby ISPT would lease premises (the ‘premises’) to the Commonwealth Attorney General’s Department (the ‘AGD’). The premises were to be part of a building to be built by ISPT on land at 3-5 National Circuit Barton in the ACT (the ‘building’). The Heads of Agreement was not binding and did not attract duty.
b. 7 April 2006 - ISPT and the Commonwealth executed an Agreement for Lease (the ‘AFL’). The AFL was a ‘lease instrument’ as defined in section 133 of the Duties Act. Duty was payable on the AFL. On 27 July 2007, the Respondent assessed duty in the sum of $905,236.00. The assessed duty was paid by ISPT. Annexed to the AFL was a document identified in the Appellant’s Submissions dated 1 March 2013 at paragraph 4 as the “Redundant lease” and also as “the document in the form of a lease”. The AFL made clear that the unexecuted lease attached to it was not to commence before 6 April 2009. This lease was never executed.
c. In November 2006 amendments made to the Duties Act resulted in the abolition of duty on lease instruments executed after 30 June 2009, being the date mentioned in section 150A of the Duties Act.
d. On or about 16 February 2007 worked commenced on the demolition of the existing structures on the land at 3-5 National Circuit, followed by construction of the building.
e. Practical completion of the building was achieved on or about 26 March 2009. AGD began moving in to the premises as and from 28 March 2009.
f. On 9 May 2010, ISPT and the Commonwealth executed:
i.a Deed of Release (the ‘Deed of Release’) with an effective date of 5 April 2009. The Deed of Release purported to release the parties from rights and obligations set out in the AFL; and
ii.a Lease (the ‘Lease executed 9 May 2010’) which had a commencement date of 6 April 2009 and applied to the occupation of the premises by the Commonwealth (AGD) as the tenant and ISPT as the lessor.
The duty paid in relation to the AFL by ISPT was ultimately refunded, in full, to ISPT pursuant to section 148 of the Duties Act.
On 28 October 2010, the Commissioner assessed duty on the lease. On 2 December 2011, the Commissioner disallowed ISPT’s objection in relation to the duty assessed on the Lease executed 9 May 2010. ISPT sought review of this decision by the Commissioner in the Tribunal. It is the original Tribunal’s decision to confirm this decision that is the subject of this Appeal.
Appeal Hearing
The Appeal was heard on 18 April 2013. Ms Tsekouras of Counsel appeared for the Appellant. Mr McCarthy of Counsel appeared for the Respondent. The Appeal Tribunal had available to it the original Tribunal’s Reasons for Decision dated 18 October 2012; the documents which had been available to the original Tribunal; the transcript of the proceedings in the original Tribunal on 31 August 2013; written submissions by the Appellant dated 1 March 2013; written submissions by the Respondent dated 22 March 2013 and the Appellant’s submissions in reply dated 12 April 2013.
No further evidence was tendered during the Appeal hearing, however the Appellant did, at the Appeal Tribunal’s request, provide as attachments to an email dated 25 April 2013 documents entitled ‘Reconciliation of Preliminary 6th April 2009 to Finalisation of Lease 30 April 2010’ and ‘Tax Invoice no. 9394685’.
The original Tribunal’s findings of fact included the matters set out in paragraph 9 of the original Tribunal’s reasons for decision dated 18 October 2012 –
9.During the construction phase the applicant [ISPT] and the Commonwealth negotiated and agreed to substantial variations to the arrangements provided for under the AFL. In or about March 2009, the applicant [ISPT] and the Commonwealth reached the mutual view that the draft lease attached to the AFL was inadequate or inappropriate for the purpose of reflecting the arrangements between them. [Words in square brackets added.]
At paragraph 23 of the Appellant’s Submissions dated 1 March 2013 it states:
23. …the parties [being ISPT and the Commonwealth] having entered into the Agreement for Lease (to which the Redundant Lease was annexed) well prior to the construction of the premises realized that the Agreement for Lease and the Redundant Lease did not reflect the commercial and legal arrangements they had agreed during the construction period and following the Attorney General’s Department actually moving into the building after practical completion of construction. [Words in square brackets added.]
In the period between the execution of the AFL in April 2006 and the Lease executed 9 May 2010, ISPT and the Commonwealth negotiated changes to the premises, use and contractual responsibilities that would be covered by the lease agreement between them. Those negotiations resulted in changes to some of the matters covered by the AFL, and the lease attached to the AFL. The agreement reached as a result of those negotiations was reflected in the terms of the lease executed 9 May 2010.
The Appeal
An Appeal Tribunal should not interfere with an order made by an original Tribunal unless there is some manifestly obvious error made by the original Tribunal which, if it was not rectified, will have a substantive adverse bearing, such that it would not be in the interests of justice if the decision of the original Tribunal were allowed to stand.
If the order of the original Tribunal is fundamentally sound, then it will not be interfered with. The premise is that unless there is something obviously wrong in the earlier decision, and it would be unjust not to rectify it, the Appeal Tribunal has nothing before it that would justify altering the decision. (See Thornthwaiteand Commissioner for Social Housing ( 2012 ) ACAT 11 paragraphs 54, 55 and 56 )
An Appeal Tribunal will also look at whether the decision of the tribunal below was a decision that was open for it to make on the facts before it. It is within these parameters that this Appeal Tribunal will operate.
The primary question to be decided in this matter, which is consistent with the issue identified by the original Tribunal, is whether the Lease executed 9 May 2010 “having been executed after 30 June 2009, the date mentioned in section 150A of the Duties Act[,] was nevertheless chargeable with duty”[2]. The original Tribunal concluded that it was.
[2]See paragraph 18 of the Original Tribunal’s Reasons for Decision dated 18 October
2012 [ISPT Pty Ltd & Commissioner for ACT Revenue (Administrative Review)
[2012] ACAT 70]
The Appellant submits that the original Tribunal erred in law when it concluded that:
a. the Lease replaced the AFL and the lease annexed to the AFL, within the terms of section 421(2)(a) of the Duties Act; and
b. there is no requirement for an avoidance purpose to enliven the operation of section 421(2)(a) of the Duties Act[3].
[3] See Appellant’s Submissions dated 1 March 2013 at paragraph 6
The questions raised by the Appellant are essentially the same as those that were before the original Tribunal. The Appellant says that the original Tribunal erred in law in coming to its decision in relation to those questions. No new matter of fact is raised, nor evidence tendered by the Appellant. The Appellant asserts that the original Tribunal erred in making the following findings:
a.The AFL and the Lease were fundamentally equivalent, notwithstanding the differences between the two instruments and the changes to the contractual arrangements between ISPT and the Commonwealth that they evidenced. Based on this conclusion the original Tribunal was satisfied that the Lease replaced the AFL within the meaning of section 421(2)(a) of the Duties Act[4].
b.Section 421(2)(a) of the Duties Act does not require the ‘replacement arrangement’ to have an avoidance character[5].
[4] See paragraphs 49 and 50 of the original Tribunal’s Reasons for Decision dated 18 October 2012
[5] See paragraph 54 of the original Tribunal’s Reasons for Decision dated 18 October 2012
It was common ground and the original Tribunal accepted, that there was no avoidance purpose when ISPT and the Commonwealth executed the lease on 9 May 2010.[6]
[6] See paragraph 54 of the original Tribunal’s Reasons for Decision dated 18 October 2012
The Appellant:
a.filed written Submissions dated 1 March 2013; and
b.filed written Submissions in Reply dated 12 April 2013.
Counsel for the Appellant made oral submissions, supported by Authorities, which were handed up, at the hearing of the Appeal on 18 April 2013.
The Respondent:
a.filed written Submissions dated 22 March 2013.
Counsel for the Respondent made oral submissions, supported by Authorities, which were handed up, at the hearing of the Appeal on 18 April 2013.
The parties agreed that the AFL was a lease instrument that attracted duty at the time that it was executed. ISPT paid the assessed duty on the AFL on 27 July 2007.
Chapter 5 of the Duties Act imposed duty on lease instruments.[7] Section 150A of the Duties Act abolished duty on lease instrument executed after 30 June 2009.
[7] Chapter 5 of the Duties Act 1999 expired on 30 June 2009 (see Duties Amendment Act 2006 (No 2) )
Section 133 of the Duties Act defined ‘lease instrument’ for the purpose of Chapter 5:
lease instrument means an instrument that evidences or effects a lease
‘Lease’ is defined in the Dictionary to the Duties Act:
lease means-
(a) a lease of land in the ACT or an agreement for a lease of land in the ACT; or
(b) an agreement (for example, a licence) by which a right to use land in the ACT at any time and for any purpose is given to or required by a person.
Section 139 of Chapter 5 stated:
139 When must duty be paid?
(1) A lease instrument becomes liable to duty on the day of first execution.
(2)A lease instrument also becomes liable to duty on the making of a variation to the lease that increases the cost of the lease and, if such a variation is made, duty is chargeable on the amount of additional cost resulting from the variation.
(3) …
The Appellant agreed [8] that the transitional provisions, beginning with section 420(1) of the Duties Amendment Act 2006 (No 2), make it clear that despite the repeal of Chapter 5, where the term of a lease, which was evidenced or effected by a lease instrument executed before 1 July 2009 extended beyond 30 June 2009, duty would continue to apply to the period of the lease instrument which operated beyond 30 June 2009.
[8] See Applicant’s Submissions in Reply dated 31 July 2012 at paragraph 17
The Appellant agreed and accepted that the AFL when first executed attracted duty. The Appellant agreed that if the AFL had continued to operate, the fact that the AFL evidenced a lease arrangement that was to commence on or after 6 April 2009 and run for a period of 15 years, therefore well beyond 1 July 2009 and the repeal of Chapter 5, it would have continued to be dutiable.
The Appellant says however that because the needs of the tenant (AGD) changed in the period subsequent to the execution of the AFL and before the date of practical completion of the premises, the parties to the AFL found it necessary to renegotiate the terms of their relationship. These changes meant that the lease document attached to the AFL did not adequately express their respective rights and obligations and so it was never executed.
Accordingly, by the time of ‘practical completion’ of the premises on 26 March 2009 and the staged occupation of the premises by AGD as and from 28 March 2009, there was no binding lease instrument. There were ongoing negotiations between ISPT and AGD that culminated in the lease that was executed on 9 May 2010.
The Appellant says that due to the changes that had been negotiated in the relationship between ISPT and AGD in relation to the premises, the lease document executed on 9 May 2010 was a document that evidenced a substantially different relationship between ISPT and AGD as compared with the lease attached to the AFL. For this reason, the Appellant says that although there were some things which did not change, there was not the necessary degree of equivalence between the unexecuted lease that was annexed to the AFL and the lease subsequently executed on 9 May 2010, for the original Tribunal to have found that the later document ‘replaced the earlier’.
The Appellant says that the later document included licences over the crèche, outdoor and public areas which had not been included in the earlier document and included changed arrangements including changes in obligations with regard to repairs and maintenance. These changes and other differences meant that the later document was substantially different from the earlier document and it did not ‘replace’ it within the meaning of section 421(2)(a) of the Duties Act.
The Appeal Tribunal agrees with the Appellant’s submission in the original Tribunal hearing, that the question for decision in this matter primarily focuses on the meaning of the term ‘replaces’ in section 421(2)(a) of the Duties Act.
The Appellant [9] says that the AFL was terminated before the lease annexed to it was executed and this occurred before 1 July 2009, within the meaning of section 148(4) of the Duties Act.[10] The Appellant says that as the AFL was, by the Deed of Release, terminated on 5 April 2009 and the duty that ISPT had paid was refunded, there was no dutiable lease instrument prior to 1 July 2009. The lease executed after 30 June 2009 could not be said to ‘replace’ an arrangement that had been the subject of a charge for duty.
Does section 421(2)(a) require an avoidance purpose?
[9] See Applicant’s Submissions in Reply dated 31 July 2012 at paragraph 26-28
[10] Section 148(4) of the Duties Act
The Appellant submitted that the original Tribunal erred in finding that section 421(2)(a) did not require that the circumstances surrounding the execution of the replacement lease instrument had an avoidance purpose.
The Appeal Tribunal agrees with the approach adopted by the original Tribunal to the interpretation of section 421(2)(a) of the Duties Act.[11] The original Tribunal considered the words of the section, it adopted a purposive approach and after considering the Minister’s Introduction Speech and the Explanatory Statement to the Duties Amendment Bill 2006 (No. 2) which resulted in the Duties Amendment Act 2006 (No.2), it concluded that the operation of section 421(2)(a) of the Duties Act does not require an avoidance purpose.
[11]See the original Tribunal’s Reasons for Decision at paragraphs 30 to 35 inclusive
The Appeal Tribunal is of the view that if it is found that a lease instrument executed after 30 June 2009 ‘replaces’ an earlier lease instrument, executed before 1 July 2009 and to which Chapter 5 applied so that duty was payable, then the transitional provision – section 421(2)(a) – applies. Consequently the repealed provisions of Chapter 5 apply and duty is payable notwithstanding that the ‘replacement’ lease instrument was executed after 30 June 2009 and the circumstances surrounding the execution of the replacement lease instrument do not arise from an intention to avoid duty.
It is, in the Appeal Tribunal’s view, clear that the situation described in section 421(2)(a) of the Duties Act is quite distinct from section 421(2)(b) of the Duties Act. Section 421(2)(b) specifically refers to intent as being determinative in its operation. This feature is completely absent from section 421(2)(a). The distinction is also apparent, as noted by the original Tribunal in its reasoning, in the Minister’s Introduction Speech and the Explanatory Statement. Replacement and avoidance are identified as separate and distinct situations to which the transitional provisions apply. Obviously it is possible that the execution of a replacement lease after 30 June 2009 may have an avoidance purpose, however this is not a necessary feature of the arrangement for section 421(2)(a) to apply.
The Appellant submitted that the original Tribunal erred in failing to recognize that when, in the Introduction Speech, the Minister says that the transitional provisions are required:
... To limit opportunities for avoidance and to protect[12] revenue …
the reference to:“protecting the [sic] revenue”[13] … could only mean something akin to “limiting avoidance opportunities”. The concept of “protecting” the revenue necessarily implies measures aimed at “protection” through [sic] leakage by means of deliberate exploitation of what may be perceived as “gaps” in the legislation. [Words in square brackets added.][12] Whilst nothing turns on it in the Appeal Tribunal’s view, it is noted that the Appellant virtually always, when quoting or referring to this passage from the Minister’s Introduction Speech, adds that word ‘the’ before revenue. It may be that this misquote has lead the Appellant to add a slightly different interpretation to this passage than it might otherwise have done.
[13] See paragraph 15 of the Appellant’s Submission dated 1 March 2013
The Appeal Tribunal is not persuaded by this submission. Whilst it may be true to say that one aim of the transitional provisions was to prevent loss or ‘leakage’ of revenue through ‘gaps in the legislation’, the further assertion that such situations were limited to circumstances of ‘deliberate exploitation’ is not consistent with the wording of section 421(2)(a) of the Duties Act. The Appeal Tribunal accepts the original Tribunal’s characterization of this provision as being “intention neutral”. [14] The original Tribunal did not, as submitted by the Appellant,[15] suggest that the ‘transitional provisions’ were all ‘intention neutral’.
[14] See paragraph 53 of the Original Tribunal’s Reasons for Decision dated 18 October 2012
[15] See paragraph 13 of the Appellant’s Submissions dated 1 March 2013
The Appellant submits[16] that the “underlying principle of the Transitional Provisions”, including section 421(2) and (3) of the Duties Act, was to protect revenue which could otherwise be lost “through the use of devices and arrangements” intended to avoid duty.
[16] See paragraph 17-29 of the Appellant’s Submissions dated 1 March 2013
The Appellant submits that because it failed to accept that section 421(2)(a) of the Duties Act has an anti-avoidance purpose, the Tribunal found that ‘replace’ in section 421(2)(a) applied to “an arrangement which exhibited none of the “mischief” the transitional provisions were intended to catch”.[17]
[17] See paragraph 26 of the Appellant’s Submissions dated 1 March 2013
The Appellant submits that “it is difficult to imagine a situation where a replacement lease” would be executed except in the context of an intention to avoid duty.”[18] The Appellant’s assertion appears to be based on the premise that in order for one document to replace another, the degree of equivalence must be very high. If the two documents were very similar, then the only reason for the execution of the later lease instrument would be to avoid duty. The Appellant says that absent an ‘avoidance purpose’ the only reason for the execution of a later instrument would be to reflect changes to the agreement between the parties. It is these changes, and the differences between the documents to reflect them, that mean the later document cannot be said to replace the earlier one.
[18] See paragraph 21 of the Appellant’s Submissions dated 1 March 2013
Using this reasoning by the Appellant, it is arguable that the legislation did not need to explicitly refer to an ‘avoidance purpose’ in section 421(2)(a) of the Duties Act, because such a purpose would inevitably underlie any factual situation to which the section would apply – namely the execution after 30 June 2009 of a lease that could be said to replace a lease instrument executed before 1 July 2009.
The Appellant submits that it is agreed by the parties and was accepted by the original Tribunal that no avoidance purpose existed when the lease was executed on 9 May 2010. Thus even if the lease of 9 May 2010 could be said to replace the AFL, there was no avoidance intention.
However, the Appellant says that the Lease executed on 9 May 2010 did not replace the AFL and the lease annexed to it, because the two documents were substantially different and thus section 421(2)(a) of the Duties Act does not apply.
The Appeal Tribunal considers that:
a. as stated above, it agrees with the original Tribunal’s conclusion that section 421(2)(a) of the Duties Act does not require an ‘avoidance purpose’ to enliven its operation;
b. no avoidance purpose existed when ISPT and the Commonwealth executed the Lease on 9 May 2010;
c. there may be limited circumstances in which a replacement lease is executed without an avoidance purpose, however the Appeal Tribunal does not accept that the Appellant’s submission in this regard is consistent with the conclusion that an avoidance purpose is necessary for the operation of section 421(2)(a).
46. The wording of section 421(2)(a) of the Duties Act, particularly as compared with the specific inclusion of the need for an avoidance purpose in section 421(2)(b) and the extrinsic material referred to above and discussed in the original Tribunal’s Reasons for Decision support the original Tribunal’s conclusion on this issue.
The Appeal Tribunal concludes that the original Tribunal did not err in finding that section 421(2)(a) of the Duties Act did not require ‘replacement arrangements’ to have an avoidance purpose.
What needs to be decided is ‘does the later lease instrument replace the earlier? If this situation exists, then intention is irrelevant.
Does the lease executed 9 May 2010 ‘replace’ the AFL, with annexed lease, within the terms of section 421(2)(a) of the Duties Act?
The original Tribunal, noting that there is no definition of the word ‘replace’ in the Duties Act, considered various dictionary definitions of the word and the use of the term in other ACT legislation. The original Tribunal concluded, at paragraph 39 of its Reasons for Decision,[19] that:
a lease instrument can be said to ‘replace’ an existing lease instrument where its purpose is to ‘take the place of’ or ‘provide a substitute for’ or ‘to fill the role of’ the existing lease with a substitute, namely a new lease. While this ‘replacement’ allows for variance in the two instruments the word ‘replace’ does primarily suggest equivalence.
[19]ISPT Pty Ltd & Commissioner for ACT Revenue (Administrative Review) [2012]
ACAT 70
At paragraph 41 it said:
At the same time the word ‘replaces’ does contemplate a measure of ‘difference’ to only a limited degree.
The original Tribunal went on to consider, by reference to the evidence given at the original Tribunal hearing, the various matters raised by both parties in relation to the differences and similarities between the two documents. It concluded at paragraph 48 that:
These changes indicate variation between the AFL and the new lease. However the variations are such as to fit within the meaning of ‘replace’ given the continuing areas of equivalence.
The Appellant says that the original Tribunal erred in coming to this conclusion. The Appellant submits that the Lease executed 9 May 2010 is ‘essentially different’ from the proposed lease annexed to the AFL.[20] The Appellant says that in order for the later document to be considered to ‘replace’ the earlier document, there must be a high degree of equivalence between the two documents.
[20] See paragraph 34 and subsequent paragraphs of the Appellant’s Submissions datedThe Appellant, although acknowledging that there are similarities between the two documents, says that the necessary degree of equivalence is not evident in the present matter. The Appellant identified the differences between the documents to demonstrate that section 421(2)(a) of the Duties Act should not apply. The Respondent asserts that the necessary degree of equivalence can be demonstrated when the documents and the relationship they create are viewed as a whole. The Respondent says that the original Tribunal did not err in finding that the Lease executed on 9 May 2010 ‘replaced’ the AFL and enlivened the operation of section 421(2)(a) of the Duties Act.
The Appellant submits that of particular relevance when comparing the two documents is the difference in, and extension to, the areas of exclusive possession granted to the Commonwealth (AGD) under the Lease executed on 9 May 2010 as compared with the anticipated areas of exclusive possession referred to in the lease annexed to the AFL.[21] In addition the Appellant says that the original Tribunal, by concluding that the ‘building envelope’ and location of the lease’ stayed the same, failed to recognise that, within that envelope and location, the “proprietary rights and enforceable contractual rights of the parties had fundamentally changed”.[22]
[21] See paragraphs 36 to 39 of the Appellant’s Submissions dated 1 March 2013
[22] See paragraph 41 of the Appellant’s Submissions dated 1 March 2013
The Appellant submits that the original Tribunal failed to recognize the “commercial significance of contractual changes between the two arrangements” which were so significant and of such “commercial importance” to the parties that the parties were “compelled .. to abandon” the AFL and the lease annexed to it, and to execute the Lease on 9 May 2010.[23] The Appellant acknowledged that there were aspects of the AFL which remained, being:
…the most basic terms without which the “deal” would have been abandoned altogether. That is, the agreed rate of rent for the different classes of areas in the building, the term and that the lease would in fact relate to 3-5 National Circuit.[24]
[23] See paragraphs 42 – 46 of the Appellant’s Submissions dated 1 March 2013
[24] See paragraph 45 of the Appellant’s Submissions dated 1 March 2013
In the Appeal Tribunal’s view, these aspects which remained were a significant feature of the binding AFL. Notwithstanding the changes to the agreement between the parties and the differences in the Lease executed on 9 May 2010 as compared with the lease attached to the AFL which recorded those changes, it was open to the original Tribunal to be satisfied that there was the necessary degree of equivalence to support its finding that the later instrument replaced the earlier.
The Appellant acknowledged that the main purpose of the AFL, as compared with the Heads of Agreement, was to create a binding relationship between the parties. ISPT had, by the date that the AFL was executed, already embarked on a costly project to construct the building which housed the premises that were the subject of the AFL and, ultimately, the Lease executed on 9 May 2010. In both the AFL and the lease executed 9 May 2010 AGD was to be, effectively, the only tenant in the building.
The Appellant submits that, even before AGD began to occupy the premises on 28 March 2009, the parties recognized that the lease document attached to the AFL no longer reflected the agreement between them. Indeed, the terms of that agreement were still being negotiated. The Appellant submits that due to the nature and extent of the changes made, the AFL was, in effect, ‘spent’. The lease attached to the AFL, as it no longer reflected the agreement between the parties, was never executed. Thus, says the Appellant, from the time of occupation of the premises by AGD until the execution of the Lease on 9 May 2010, the parties operated in a legal ‘no man’s land’.
There were however features of the AFL that did remain, and these are acknowledged by the Appellant.[25] These were the basic terms of the ‘deal’ between the parties. But for the ‘survival’ of these terms the Appellant says that the ‘deal’ would have been ‘abandoned altogether’.[26]
[25] See paragraph 45 of the Appellant’s Submissions dated 1 March 2013
[26] See paragraph 45 of the Appellant’s Submissions dated 1 March 2013
It is the Appeal Tribunal’s view that the AFL was not ‘spent’ prior to the execution of the Deed of Release and Lease on 9 May 2010. Indeed the execution of the Deed of Release was intended to ensure that any ongoing impact of the AFL was ended on 5 April 2009 before the commencement on 6 April 2009 of the Lease executed on 9 May 2010. It was a precondition to the execution of the Deed of Release that the parties execute a new lease on the same date as the Deed.[27]
[27] Clause 2 of the Deed of Release stated that:
(a)The provisions of this deed .. are subject to and conditional upon ISPT and the Commonwealth entering into a New Lease. [‘New Lease’ is defined in the Clause 1.1 of the Deed of Release as ‘the lease of the Premises entered into between ISPT and the Commonwealth on the date of this deed]
(b)This deed .. has no force or effect if the condition precedent is not satisfied.
In response to a request by the Appeal Tribunal, the Appellant provided to the Appeal Tribunal on 25 April 2013 a copy of a reconciliation document that sets out the calculation of the balance of rent payable by the AGD as at 30 April 2010 and as reflected in the ‘additional invoice # 9394685’ issued 24 March 2010 in the sum of $45,223.06 (plus GST) (the ‘reconciliation document’ and ‘invoice’.
The reconciliation document confirms that AGD had been invoiced for rent for the period from 6 April 2009 until 30 April 2010 based on the AFL. A reconciliation was then undertaken and revealed an additional amount was payable as calculated by reference to the changes evidenced in the Lease executed on 9 May 2010. An additional invoice for $45,223.06 was issued by ISPT for the difference. AGD had already been invoiced by ISPT, as lessor, $9,457,234.74. Following adjustments for storage and parking the additional amount payable by AGD was set out in the invoice.( $9,502,007.83 less $9,457,234.74 =$44,773.09 plus $449.97 adjustment for parking = $45,223.06 )
The Appeal Tribunal considers that this reconciliation and adjustment further demonstrates that the Lease executed on 9 May 2010 was intended to replace the earlier agreement between the parties and that the parties were not, in the period between 6 April 2009 and 9 May 2010, operating in a legal ‘no man’s land’.
The Appeal Tribunal considers that the Lease executed on 9 May 2010 in fact replaced the AFL and the lease annexed to the AFL.
The Appeal Tribunal accepts the submissions made by the Respondent, in writing and at the hearing of the Appeal, that the original Tribunal did not err in law in concluding that section 421(2)(a) of the Duties Act applied.
The Respondent says that the original Tribunal took account of and considered the evidence in relation to the variation between the AFL and draft lease attached to it, and the lease executed on 9 May 2010 and correctly concluded that the later document replaced the earlier. The Respondent submitted that the original Tribunal was correct in concluding that there is no avoidance purpose required to enliven section 421(2)(a) of the Duties Act. Consequently the Respondent asserts that the original Tribunal was correct in finding that duty was payable by the Appellant pursuant to section 421(2)(a) despite the repeal of Chapter 5 of the Duties Act on the lease executed on 9 May 2010.
The Appellant submitted that in the context of taxation legislation, such as the Duties Act, it would create too much uncertainty if the Appeal Tribunal were to affirm the original Tribunal’s decision. That decision was based on the finding that section 421(2)(a) of the Duties Act applies to a factual situation where there is no avoidance purpose and the later lease instrument is different from the earlier instrument but is nonetheless determined to ‘replace’ the earlier instrument.
The Appellant says that no taxpayer can be certain, or confidant, when executing lease instruments subsequent to 30 June 2009, that the Respondent will not impose duty pursuant to section 421(2)(a) of the Duties Act. The Appellant relied on statements made in Giris Pty Limited v FCT (1969) 119 CLR 365; 371-373 per Barwick CJ and 379 per Kitto J. The Appellant submitted that this would not only lead to uncertainty, but the possibility of duty being imposed was ongoing despite the stated intention of the legislature to abolish duty on lease instruments executed after 30 June 2009.
The Appeal Tribunal does not accept that the effect of the original Tribunal’s decision will lead to uncertainty. Whether or not section 421(2)(a) of the Duties Act applies will depend on the particular facts. It is true to say that, as in the current matter, a degree of judgment may need to be exercised to determine whether the section applies. The original Tribunal undertook that exercise and came to the conclusion that the facts supported the finding that section 421(2)(a) of the Duties Act applied.
The Appeal Tribunal considers that it was open on the evidence before it for the original Tribunal, after considering the similarities and differences between the AFL and the Lease executed on 9 May 2010,[28] to conclude that:
a.there were differences in the details of the AFL and the lease executed on 9 May 2010; however
b.there was a sufficient degree of ‘equivalence’ between the two documents so that the Lease executed on 9 May 2010 ‘replaced’ the AFL within the meaning of section 421(2)(a) of the Duties Act; therefore
c.duty was payable on the lease executed 9 May 2010.
[28] See the paragraphs 40-47 of the original Tribunal’s Reasons for Decision dated 18 October 2012
The Appeal Tribunal agrees with the comments made and the conclusions arrived at by the original tribunal in its interpretation of the wording and effect of section 421(2)(a) of the Duties Act. The Appeal Tribunal can find no error that justifies amending the decision that the original Tribunal reached.
Accordingly, the Appeal is dismissed and the decision of the original Tribunal is confirmed.
………………………………..
W.G Stefaniak Appeal President
For and on behalf of the Tribunal
PUBLICATION DETAILS
TO BE PUBLISHED
To be completed by Tribunal Staff
PART A
FILE NUMBER: | AA 12/53 |
PARTIES, APPELLANT: | ISPT Pty Ltd |
PARTIES, RESPONDENT: | Commissioner for ACT Revenue |
COUNSEL APPEARING, APPELLANT | |
COUNSEL APPEARING, RESPONDENT | |
SOLICITORS FOR APPELLANT | |
SOLICITORS FOR RESPONDENT | Ms Tarbet, ACT Government Solicitor |
TRIBUNAL MEMBERS: | W. G Stefaniak – Appeal President W. Corby – Senior Member |
DATES OF HEARING: | 18 April 2013 |
PLACE OF HEARING: | ACAT, Canberra |
PART B
RECOMMENDATION:
FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )
COMMENTS:
1 March 2013
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