JOHROSA PTY LTD and COMMISSIONER for ACT REVENUE (Administrative Review)
[2013] ACAT 18
•24 January 2013
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
JOHROSA PTY LTD and COMMISSIONER FOR ACT REVENUE (Administrative Review) [2013] ACAT 18
REASONS FOR DECISION
AT 11 of 2012
Catchwords: ADMINISTRATIVE REVIEW – duty payable on transfer of land – joint venture between related entities – dutiable value – penalty on unpaid tax
List of Legislation: ACT Civil and Administrative Tribunal Act 2008 ss. 68,69
Duties Act 1999 ss. 7, 10, 11, 12, 15, 16, 20. 21, 22
Taxation Administration Act 1999, ss.31, 37, 107A, 108
Tribunal: Mr B. Hatch, Senior Member
Date of Orders: 24 January 2013
Date of Statement of Findings: 24 January 2013
Date of Reasons: 25 March 2013
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL )
AT 11 of 2012
BETWEEN:
JOHROSA PTY LTD
Applicant
AND: COMMISSIONER FOR ACT
REVENUE
Respondent
TRIBUNAL: Mr B. Hatch, Senior Member
DATE: 24 January 2013
ORDER
1. The decision under review is varied by assessing the value of the land at $6.075 million and the applicant is to pay interest as prescribed by the Taxation Administration Act 1999 plus penalties at 50% pursuant to section 31 of the Taxation Administration Act.
..................………………………………..
Ms L. Crebbin, General President
for and on behalf of
Mr B. Hatch, Senior Member
REASONS FOR DECISION
These are the reasons for the decision made on 24 January 2013 reported as [2013] ACAT 4. The decision concerns an application for review of a decision made by the Commissioner for ACT Revenue (the respondent) on 14 February 2012. The decision, which had three components, related to the amount of duty payable by the applicant in relation to its purchase of Block 3 Section 69 Division of Lyons, now known as Block 5 (the land). The land is located opposite the Woden Town Centre on the western side of Melrose Drive.
The decision being reviewed
The applicant agreed to purchase the land from the Commissioner for Social Housing for the Australian Capital Territory (Housing) on 4 December 2008 in circumstances that are set out in more detail below. The transfer price was given in the contract as $4.4 million. The transfer was lodged with the respondent and the respondent assessed the duty payable on the stated price at $278,750. That sum was paid by the applicant.
Sometime later the respondent became concerned that the land was transferred for less than its value as at the date of the transfer. The respondent obtained a valuation and, after considering the applicant’s objections and undertaking a review, found that as at 4 December 2008, the value of the land for the purpose of calculating duty was $9.225 million.
On 14 February 2012 the respondent decided that the duty payable by the applicant should be re-assessed based on the greater value.
This meant that the applicant was in default of its tax obligations in relation to the transfer. The respondent found that the default was caused wholly or partly by a failure of the applicant to take reasonable care to fulfill its tax obligations. The respondent said that the applicant should have declared that the dutiable value was greater than the transfer price set out in the contract. He decided that the applicant should pay penalty tax of 50% of the amount of tax unpaid.
The respondent also decided that the interest that the applicant had to pay on the outstanding duty should not be remitted or reduced.
Those parts of the respondent’s decision that relate to the dutiable value of the land and to the amount of any penalty tax that should be paid by the applicant, can be reviewed by this tribunal[1]. The part of the decision that relates to interest cannot.
The transfer of the land
[1] Sections 108A and 107A, Taxation Administration Act 1999
The land was part of a public housing area. The housing on the land was demolished and Housing then looked to redevelop the land. In 2005 the Hindmarsh Group (a related entity to the applicant) successfully tendered to re-develop the land. During the tender process, Hindmarsh indicated that it valued the land at $4.4 million. Housing and Hindmarsh commenced negotiations and on 16 May 2007 entered into a joint venture agreement (the JVA) for the re-development. The JVA is long but in essence, provides that Housing is to supply the land and that the applicant is to build units on it. The proceeds of the sale of the new units are to be divided between the joint venture partners in accordance with a formula set out in the JVA.
The applicant and Housing intended that the land would remain in the name of Housing until a later time. That intention was not realised. The applicant needed to raise finance for the building project. The financier was, unremarkably, not prepared to lend money to the applicant when the land in question was in the name of another party, even when that party was a partner in a joint venture. The result was that on 4 December 2008, the partners agreed to transfer the land to the applicant for a price of $4.4 million in accordance with the value established by the tender process. When lodging the transfer for assessment, the applicant declared that the value of the land was $4.4 million and that it was not being transferred for less than its dutiable value. There was no disagreement about these facts.
The Relevant Legal Principles
10.Sections 68 and 69 of the ACT Civil and Administrative Tribunal Act 2008 deal with the power of the tribunal to review decisions. The Tribunal may exercise any of the functions given to the original decision maker and reviews the decision itself, not the reasons of the original decision maker. The Tribunal’s order is taken to be the decision of the original decision maker from the date that the order is made. Both the Federal Court and the High Court have endorsed the view that the object of a review of this nature is to determine the ‘correct or preferable’ decision.[2] The application of this phrase has been explained in this way:
[2] Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409 per Bowen CJ & Deane J at 419; Shi v Migration Agents Registration Authority (2008) ALR 390 per Kiefel J at 422
In some instances only one decision is open on the facts or the law: in such a case the tribunal decides if the correct decision was made. In other instances there is a discretion – a choice open to the decision-maker – as to which decision to make: there it is for the tribunal to decide which is the preferable decision.[3]
[3] Control of Government Action 2nd ed. Creyke, R & McMillan, J at 3.3.11
11.The relevant powers and discretions for this decision are contained in the Duties Act 1999 (Duties Act) and the Taxation Administration Act 1999 (TA Act).
12.The Duties Act allows duty to be charged on a transfer of dutiable property.[4] Such a transfer is a dutiable transaction.[5] Section 10 of the Duties Act describes what constitutes dutiable property. There is no doubt that the land in this case is dutiable property and that the transfer of the property was a dutiable transaction.
[4] Section 7(1)(a), Duties Act
[5] Section 7(2), Duties Act
13.The liability for duty arises when the instrument effecting the transfer of the property is first executed[6] – in this case that was 4 December 2008. Duty is payable by the transferee[7]- in this case, the applicant.
[6] Section 11(2), Duties Act
[7] Section 12, Duties Act
14.The transferee must lodge the transfer instrument with the respondent within 90 days after the liability arises.[8] The relevant duty is to be paid within 90 days after the liability arises; otherwise the transferee has a ‘tax default’ for the purposes of the TA Act.[9]
[8] Section 15, Duties Act
[9] Section 16, Duties Act.
15.Sections 20, 21 and 22 of the Duties Act explain how the dutiable value of a property is decided. In summary, for this case the dutiable value of the land is the greater of the consideration for the transfer; namely $4.4 million, and the unencumbered value of the land as at the date of the transfer.
16.The question of what the unencumbered value of the land was as at 4 December 2008 is a question of fact. It is the first question that this tribunal must decide. If the tribunal, finds that the unencumbered value of the land as at 4 December 2008 is an amount that is greater than the consideration for the transfer, the respondent will re-assess duty based on that dutiable value.
17.The applicant’s statement of Facts and Contentions conveniently summarises the approach to be taken when answering the question[10]:
[10] Applicant’s Statement of Facts and Contentions, 28 May 2012, pp11-12
“Value” for these purposes is to be determined by inquiring “what a person desiring to buy the land would have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell”. (emphasis added) (Spencer v Commonwealth (1907) 5 CLR 4148 at [57].
…
The best and most appropriate evidence of the value of land is evidence of comparable sales. (Sportscorp Australia Pty Ltd and Others v Chief Commissioner of State Revenue (2005) 213 ALR 795 at [89]) The question of whether a sale of land is sufficiently comparable to provide a reliable basis for a determination of value is essentially a question of fact to be assessed by the expert valuer. (Sportscorp at paragraph [21]…)
18.Where, as in this case, a number of expert valuers have different opinions on what are sufficiently comparable sales and what the correct answer is to a question about the value of property, the tribunal must review the opinion of each expert and determine for itself, which is the correct or preferable answer.
19.If the applicant has not paid the correct amount of duty, it is in default of its tax obligation and is liable to pay penalty tax, in addition to the amount of unpaid tax and interest. Section 31(1) of the TA Act sets a base penalty tax of 25% of the unpaid tax. However, if the respondent (and for the purposes of this case, the Tribunal) is satisfied that the tax default was caused wholly or partly by a failure by the applicant to take reasonable care to fulfill its tax obligations, the penalty tax increases to 50% unless the applicant satisfies the respondent that it had a reasonable excuse for the failure[11].
[11] Section 31(2) and (3), TA Act
20.The penalty tax increases again to 75% if the respondent is satisfied that the default was caused wholly or partially by intentional disregard[12].
[12] Section 31(4), TA Act
21.No penalty tax is payable if the respondent can be satisfied that the taxpayer took reasonable care to comply with the tax law or if the default happened solely because of circumstances beyond the taxpayer’s control.[13]
[13] Section 31(5), TA Act
22.Section 37 of the TA Act also gives the respondent the power to remit all or part of an amount of penalty tax if satisfied that reasonable steps were taken to mitigate the circumstances that resulted in the penalty tax liability, or if the circumstances were exceptional and it would be fair and reasonable to remit all or part of the penalty.
23.In this case the respondent was satisfied that the appropriate penalty tax rate was 50% and that there was no basis for a remission of the tax. The second issue for the tribunal is whether on reviewing the material before it, this was the correct or preferable decision.
The Hearing
24.The hearing proceeded over four days. The tribunal had before it a bundle of documents that the respondent considered to be relevant to the review of its decision. Each party filed statements setting out the facts that it relied on and the arguments or contentions that it wished to make. Each party supported its position with valuation reports and three valuers gave evidence. Each party had an opportunity to make submissions about how the relevant law applied to this case.
The Evidence
25.Mr Brett Smith gave evidence. He was the project manager for the land, and employed by Hindmarsh. His evidence was about the background to the JVA and the work involved in getting to that point. While interesting, I am unable to see much relevance to the decision that has to be made. There was an open tender which Hindmarsh won. That was never in dispute. Mr Smith gave evidence as to what works were done on the land between entering the JVA and the transfer. There is some relevance with respect to the works done in relation to the valuation however, I am of the view that such matters are best left to the valuers. He had no knowledge as to the value of the land. Mr Smith was questioned about these and other matters and I accept his evidence. None of it appeared to be controversial. Counsel for the respondent did not put to Mr Smith at any time that he may have been mistaken or that his memory may have been wrong.
26.The real issue in this matter is the value of the land. Three valuers gave evidence. Mr Powderly is a valuer. His evidence was that the value of the land as at the date of transfer was $6.75 million, including improvements and $6 million excluding improvements. Mr Powderly gave much evidence as to the value of what were said to be other comparable properties. As with all valuations, these comparisons are difficult to use. Mr Powderley gave evidence that he regarded the sale of a site at Narrabundah to be comparable.
27.I accept that the site at Narrabundah is a comparable site for valuation purposes. This is a site at the corner of Jerrabomberra Avenue and Goyder Street. It had been a motel. The site was cleared and unit housing was built on it. Mr Powderley said that the Narrabundah site was more valuable than the land under consideration. Many other sites were put to Mr Powderly and he described many others in his valuation report. None of these other sites are in my opinion, sufficiently comparable to the land to provide much useful guidance as to the value of the land at the relevant time.
28.Mr Flannery gave evidence. He is a valuer. Again he gave evidence as to comparable sites. He valued the land at the time of transfer at $6.15 million. As with Mr Powderley, I was impressed with the comparison to the Narrabundah site. His evidence was also that the Narrabundah site was superior to the land. I accept that evidence.
29.The final valuer to give evidence was Mr McInerney. I found his evidence to be argumentative. He was concerned to give evidence about why the other valuers were incorrect, rather than to explain why the tribunal should accept that his substantially different valuation of $9.225 million was the correct valuation.
30.In relation to the Narrabundah site, his evidence was that the site was inferior to the land. One reason he gave for this was that the site was over 2 kilometres from the local shops. My view of the map as tendered suggested that the route Mr McInerney proposed to the shops was less than 2 kilometres. Further, I suggested to him that a resident could be expected to take the most direct route to the shops which appeared to be less than 1 kilometre. Mr McInerney rejected the suggestion and maintained his assertion that residents of Narrabundah would take the longer route to the shops. His evidence did not assist me and I have disregarded it.
31.I accept the evidence of Mr Flannery and Mr Powderly. Mr Flannery gives the dutiable value of the land at the time of sale as $6.15 million. Mr Powderly gives the value as $6 million. It is difficult to draw a distinction between two close outcomes given by experts whose evidence on crucial matters was similar. Either value could be accepted as the correct value. In my view the preferable decision is to accept that the value of the land lies between these two figures. I therefore find that the dutiable value of the land as at the date of transfer was $6.075 million. The decision of the respondent to assess the dutiable value of the land at $9.225 million is varied accordingly.
32.The final matter and one which is of much interest to the applicant, is the issue of penalties. It follows from the above finding that penalty tax is payable by the applicant under section 31 of the TA Act. Virtually no evidence was called relevant to the question of the determination of penalty tax. The almost entire hearing dealt with valuation. After a lot of evidence I did not find that issue to be perplexing. The parties had relied on an earlier, old valuation to establish the value of the land as at the date of transfer.
33.The applicant’s Statement of Facts and Contentions sets out arguments as to why the applicant should not be required to pay any penalty tax.[14] The applicant contends that the consideration for the transfer was the price “struck between arm’s length parties, one of whom was the ACT Government, in a rigorous and transparent public tender process. The consideration reflected the use to which the land was to be put. It was arrived at following the completion of a feasibility study.”
[14] Applicant’s Statement of Facts and Contentions, 28 May 2012 at paragraphs 47 – 62.
34.The applicant further says:
If a tax default exists at all in this case, it arises by reason of the opinions of valuers on matters peculiarly within their specialist area of expertise, not through the culpability of the applicant…”
35.I take it to be accepted that the majority of land transfers are between parties who are at arm’s length. In a perfect world neither is overly keen or desperate and the market price prevails. At other times the parties are related and a question arises as to whether the price paid represents the true market value. Every solicitor is aware of such matters. They often arise in family matters when property is transferred. It also arises when property is transferred between related entities. The applicant and Housing were in a partnership. The JVA meant both would benefit from the deal. Such a deal is normal in business. What I find unusual is that it seems to have occurred to no one, including the solicitors employed by the parties, to determine that such a transfer between partners might not be seen as a transfer between parties who were at arm’s length, particularly once circumstances changed and the original intent of the partners as to how the joint venture would progress could not be realized.
36.No evidence was put that explained why the applicant (and Housing) assumed that the dutiable value of the land on 4 December 2008 would be the same as, or less than, the value that had been accepted in a tender process that concluded in 2005, or why the applicant did not think to obtain a fresh valuation. It relied on a valuation obtained a long time before the transfer. Even a valuation obtained just months or weeks before a transfer may not be sufficient if the valuation is not prepared for the purpose of the transfer.
37.This isn’t a case in which the difference between the transfer price and the dutiable value is explained by a difference of opinion between valuers about matters peculiarly within their area of expertise. The transfer sum was based on valuations accepted in a process that took place some years before the transfer. It was, not surprisingly, less than the dutiable value as at the date of the transfer.
38.I regard the default of the taxpayer to have been due to a failure to take reasonable care about its tax obligations in relation to the land. In the absence of any evidence on the point, I cannot be satisfied that there was a reasonable excuse for the failure.
39.I do not consider that the default was due to the intentional disregard of the taxpayer. Intentional requires some thought. There does not appear to have been any real thought given to the dutiable value of the land as at the time of the transfer (as distinct from the value set in the tender process) and the duty which would be payable on the transfer.
40.I agree with the respondent that there should be no remission of penalty under section 37 of the TA Act. There was no evidence that would allow me to be satisfied that the applicant took reasonable steps to mitigate the circumstances or the effect of the circumstances that led to the tax default. I do not regard the fact that there was a tender process in 2005 that led to a value being agreed between the applicant and an ACT government agency, to be an exceptional circumstance that resulted in a default and liability for penalty tax following a transfer in December 2008. The default could have been avoided by the applicant adverting to the likely difference between values and taking steps to address that difference when the transfer was lodged for assessment.
41.I conclude that the applicant is responsible to pay penalty tax pursuant to the law. Such penalty should be at the rate of 50% as set out in section 31(2) of the TA Act. The decision of the respondent in relation to penalty tax is confirmed.
..................………………………………..
Ms L. Crebbin, General President
for and on behalf of
Mr B. Hatch, Senior Member
PUBLICATION DETAILS
TO BE PUBLISHED
To be completed by Tribunal Staff
PART A FILE NO:
APPLICANT:
RESPONDENT:
COUNSEL APPEARING: APPLICANT:
RESPONDENT:
SOLICITORS: APPLICANT:
RESPONDENT:
OTHER: APPLICANT:
RESPONDENT:
TRIBUNAL MEMBER/S:
DATE/S OF HEARING:28, 29, 30 May 2012 PLACE:CANBERRA
DATE/S OF REASONS FOR DECISION: 25 March 2013
PLACE: CANBERRA
PART B
RECOMMENDATION:
FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )
COMMENTS:
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