Jones and ORS and Commissioner Of State Revenue
[2006] WASAT 131
•25 MAY 2006
JONES & ORS and COMMISSIONER OF STATE REVENUE [2006] WASAT 131
| STATE ADMINISTRATIVE TRIBUNAL | Citation No: | [2006] WASAT 131 | |
| TAXATION ADMINISTRATION ACT 2003 (WA) | |||
| Case No: | CC:2514/2005 | 3 NOVEMBER 2005 | |
| Coram: | JUDGE J ECKERT (DEPUTY PRESIDENT) | 25/05/06 | |
| 21 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed Commissioner's decision affirmed No order as to costs | ||
| B | |||
| PDF Version |
| Parties: | RONALD ARTHUR JONES DOREEN BETTY JONES SHIP MANAGEMENT SERVICES PTY LTD COMMISSIONER OF STATE REVENUE |
Catchwords: | Stamp duty Consolidation of lots held by different proprietors Creation of a super lot Subdivision Proportions held Stamp Act 1921 (WA) s 75AC Whether "exchange of property" Whether exemption applies Beneficial interest Scheme |
Legislation: | Stamp Act 1921 (WA), s 73AA(1), s 73AA(1)(a), s 73AA(1)(b), s 73AA(1)(c), s 73AA(1)(d), s 73AA(1)(e), s 73AA(1)(f), s 73AA(1)(f)(i), s 73AA(1)(f)(ii), s 73AA(1)(f)(iii), s 73AA(2), s 75AC, Schedule 2 4(1), 6 Strata Titles Act 1985 (WA), s 17(1) Taxation Administration Act 2003 (WA) |
Case References: | Ashington Holdings Pty Ltd v Wipema Services Pty Ltd (No 2) [1998] NSWSC 414 Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529 Grimwade v FCT (1949) 78 CLR 199 Salomon v A Salomon and Co Ltd [1897] AC 22 Sportscorp Australia Pty Ltd and Others v Chief Commissioner of State Revenue [2004] NSWSC 1029 Nil |
Orders | 1. The application is dismissed.,2. There is no order as to costs. |
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : TAXATION ADMINISTRATION ACT 2003 (WA) CITATION : JONES & ORS and COMMISSIONER OF STATE REVENUE [2006] WASAT 131 MEMBER : JUDGE J ECKERT (DEPUTY PRESIDENT) HEARD : 3 NOVEMBER 2005 DELIVERED : 25 MAY 2006 FILE NO/S : CC 2514 of 2005 BETWEEN : RONALD ARTHUR JONES
- DOREEN BETTY JONES
SHIP MANAGEMENT SERVICES PTY LTD
Applicants
AND
COMMISSIONER OF STATE REVENUE
Respondent
Catchwords:
Stamp duty Consolidation of lots held by different proprietors Creation of a super lot Subdivision Proportions held Stamp Act 1921 (WA) s 75AC Whether "exchange of property" Whether exemption applies Beneficial interest Scheme
(Page 2)
Legislation:
Stamp Act 1921 (WA), s 73AA(1), s 73AA(1)(a), s 73AA(1)(b), s 73AA(1)(c), s 73AA(1)(d), s 73AA(1)(e), s 73AA(1)(f), s 73AA(1)(f)(i), s 73AA(1)(f)(ii), s 73AA(1)(f)(iii), s 73AA(2), s 75AC, Schedule 2 4(1), 6
Strata Titles Act 1985 (WA), s 17(1)
Taxation Administration Act 2003 (WA)
Result:
Application dismissed
Commissioner's decision affirmed
No order as to costs
Category: B
Representation:
Counsel:
Applicants : Self-represented
Respondent : Ms Julie Jones
Solicitors:
Applicants : Self-represented
Respondent : State Solicitor's Office
Case(s) referred to in decision(s):
Ashington Holdings Pty Ltd v Wipema Services Pty Ltd (No 2) [1998] NSWSC 414
Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529
Grimwade v FCT (1949) 78 CLR 199
Salomon v A Salomon and Co Ltd [1897] AC 22
Sportscorp Australia Pty Ltd and Others v Chief Commissioner of State Revenue [2004] NSWSC 1029
(Page 3)
Case(s) also cited:
Nil
(Page 4)
Summary of Tribunal's decision
1 At all material times, Mr and Mrs Jones owned all of the shares in Ship Management Services Pty Ltd. Mr and Mrs Jones and Ship Management Services Pty Ltd planned a venture with the intention of transferring their four individual lots into one super-lot which could then be subdivided. The parties transferred land to each other with the purpose of amalgamating titles in order to aid subsequent subdivision. A deed was executed purporting to create a trust in which each party to the deed would hold what was originally the other's land as trustee for the other party. On demand and after subdivision, each party to the deed was required to transfer to the other a portion of land equal to that transferor's original contribution.
2 On 4 November 2004, the Commissioner of State Taxation assessed the Transfers as an exchange of property under s 75AC of the Stamp Act 1921 (WA) (the Act). Ad valorem duty calculated under Item 4(1) of the Second Schedule to the Act was consequently imposed on the parties to the transfer.
3 The applicants considered that the Transfers should not have attracted ad valorem duty as the exception criteria in s 73AA(1)(f) of the Act was fulfilled meaning that no beneficial interest in the land had passed.
4 The Tribunal found that the Transfers were exchanges of property within the meaning of the Act, that the Commissioner's Ruling SD3 was not applicable and that the applicants could not rely on the exception from liability under s 73AA(1)(f) of the Act. As a result, the Tribunal held that the Commissioner was correct in his assessment of stamp duty. The application was dismissed.
Background
5 Mr and Mrs Jones were the owners in fee simple as joint tenants of lots 57 and 58 Acton Avenue, Bentley and lot 43 Alexandra Place, Bentley (Jones land). Ship Management Services Pty Ltd (SMS) was the owner of lot 59 Acton Avenue, Bentley (SMS land). At all material times, Mr and Mrs Jones owned all of the issued shares in SMS.
6 By an agreement dated 5 January 2004 (the Development Agreement), Mr and Mrs Jones and SMS agreed to develop the Jones land
(Page 5)
- and the SMS land by consolidating that land into a single lot (super-lot) into one title on Deposited Plan 41158 for the purpose of subdividing the super-lot into 13 survey strata titles and then constructing 13 houses on those lots (the Venture). A step within the Venture was for Mr and Mrs Jones and SMS to transfer their respective land to one another (the Transfers) with the purpose of amalgamating titles in order to aid the subsequent intended subdivision.
7 Under the Development Agreement, Mr and Mrs Jones and SMS each agreed to "contribute to the development in ratio of" 50% each. They also agreed to demolish the existing houses on the Jones land and the SMS land.
8 As Mr and Mrs Jones were contributing three lots from the Jones land to the Venture, and SMS was contributing one lot from the SMS land to the Venture, the applicants agreed that Mr and Mrs Jones would hold 75% of the final strata product while SMS would hold 25%. The final proportion of land to be held by each of the parties to the Venture would therefore be the same proportion as their initial contributions of land (that is, Mr and Mrs Jones 75% and SMS 25%).
9 The applicants lodged an application with the Western Australian Planning Commission for the amalgamation, subdivision and development of the Jones land and SMS land. The application included a plan of the super-lot and a plan of the proposed subdivision into 13 survey strata lots. By a letter dated 14 April 2004, the Planning Commission approved the application subject to a range of conditions which included demolishing the existing house on each lot.
10 Mr and Mrs Jones transferred one-quarter of the estate in fee simple in the Jones Land to SMS (the Jones Transfer) as evidenced in an undated Transfer of Land form. The consideration stated on the Jones Transfer of Land Form was to "facilitate an amalgamation of titles". SMS transferred three-quarters of the estate in fee simple in the SMS Land to Jones (SMS Transfer) as evidenced in a second undated Transfer of Land form. Again, the consideration stated on the form was to "facilitate an amalgamation of titles".
11 On 19 October 2004, Sleat Property Settlements, as agent for the applicants, lodged the Jones Transfer of Land Form and the SMS Transfer of Land Form with the Commissioner of State Revenue together with a copy of the plan for amalgamation of the Jones Land and SMS Land.
(Page 6)
12 On 28 October 2004, a valuation was completed by the Valuer General's Office on behalf of the Commissioner determining that the value of one-quarter of the Jones Land was $199 500 and three-quarters of the SMS Land was $199 500.
13 On 4 November 2004, the Commissioner issued the Stamp Duty Assessment assessing the Jones Transfer and SMS Transfer to stamp duty of $6897.50 each on the basis of an exchange of property under s 75AC of the Stamp Act 1921 (WA) (the Act). The assessment was paid on 5 November 2004.
14 Sometime before 8 December 2004, the Department of Land Information (DOLI) received the Jones Transfer of Land Form and SMS Transfer of Land Form. On 8 December 2004, the applicants' solicitors requested that DOLI withdraw the Jones Transfer and SMS Transfer.
15 The applicants prepared amended versions of the Jones Transfer of Land Form and SMS Transfer of Land Form showing the consideration on each of the transfers to be "The terms of a Deed made 8 December 2004 between the Transferor and the Transferee".
16 On 8 December 2004, Jones and SMS executed a Deed of Trust (Deed). As evidenced in Recital 3 of the Deed, Mr and Mrs Jones and SMS intended to cooperate for the purposes of amalgamating their Land into a super-lot.
17 As reflected in Recital 5 of the Deed, Mr and Mrs Jones and SMS intended to be registered as the proprietors of the land on Deposited Plan 41158 (the amalgamated land) as tenants in common in the following shares:
(a) Jones as joint tenants as the proprietors of three undivided one fourth equal shares; and
(b) SMS as the proprietor of one one fourth equal share.
18 As evidenced in Recital 6 of the Deed, Mr and Mrs Jones and SMS intended to hold the Certificate of Title for the super-lot as trustee for each other in their respective shares. Upon any future subdivision, the parties intended, on demand, to transfer to Jones from the subdivision of the super-lot land equivalent to that which Jones have transferred and the parties intended to transfer to SMS a similar portion of the land as was equal to the contribution of SMS to the super-lot.
(Page 7)
19 On 9 December 2004, the applicants objected to the Commissioner's assessment of stamp duty on the basis that there was no change in beneficial ownership in the Jones Land or the SMS Land. On 24 February 2005, the Assistant Commissioner for State Revenue notified the applicants' solicitors that the objection had been disallowed.
20 On 22 April 2005, the applicants lodged an application in the State Administrative Tribunal for a review of the Commissioner's decision. The parties agreed that the primary issue for the Tribunal was whether the Jones Transfer and the SMS Transfer effected an exchange of property and were chargeable with duty as if the exchange involved a conveyance of one-quarter of the Jones land and three-quarters of the SMS land under s 75AC of the Act.
21 The Commissioner of State Revenue treated the transfers as an "exchange of property" under s 75AC of the Act and therefore imposed duty on the transfers at the ad valorem rate based on the valuation by the Valuer General. The Jones argued that there was no exchange or conveyance and that if the Tribunal concludes that s 75AC applies, then the exception contained in s 73AA(1)(f) of the Act applies to the transfers as they did not pass a beneficial interest in the land transferred, nor were they made in contemplation of the passing of a beneficial interest in the land transferred and nor were they made pursuant to a scheme where any beneficial interest had passed, would pass or might have passed in the land transferred.
22 The applicant and respondent both filed extensive written submissions on these questions of law. On 15 July 2005, the parties filed a Statement of Agreed Facts. On 3 November 2005 they made oral submissions in support. On this day, I delivered an oral decision on the questions of law. A transcript of that oral decision was sent to the parties. These written reasons reflect those oral reasons, and represent my understanding of the issues and of the resolution of those questions of law, as at 3 November 2005.
The Commissioner's submissions
The initial imposition of ad valorem duty
23 The Commissioner's primary contention is that s 75AC of the Act applies to both the Jones Transfer and the SMS Transfer and accordingly they should each be assessed as subject to ad valorem duty under Item 4 of the Second Schedule to the Act. The Commissioner assessed duty on the basis that the exchange of property was one-quarter of the Jones land
(Page 8)
- for three-quarters of the SMS land. The Transfers were each charged with duty as if the land was transferred for consideration equal to the unencumbered value of the Jones land and SMS land being transferred.
24 Section 75AC of the Act provides that:
"Any instrument or instruments effecting an exchange of any property for any other property shall be chargeable with duty as if the exchange involved –
(a) the conveyance or transfer of the first-mentioned property for consideration equal to the unencumbered value of that property; and
(b) the conveyance or transfer of the second-mentioned property for consideration equal to the unencumbered value of that property."
25 The Commissioner relies on the Jones Transfer of Land form and SMS Transfer of Land form first lodged with DOLI as well as the Deed. These documents described the proportion of contributions to the Venture and final ownership of the super-lot, and the final subdivision, as being in the ratio of 3 (Jones):1 (SMS).
26 The Commissioner argues that prior to the Jones Transfer, the Jones held all of the Jones land by themselves; and after the transfer, when the super-lot was effected, the Jones held three-quarters of the Jones Land and SMS held one-quarter of the Jones Land (albeit on trust). Similarly, prior to the SMS Transfer, SMS held 100% of the SMS land, and subsequent to the transfers, when the super-lot was effected, SMS held one-quarter of the SMS land and the Jones held three-quarters of the SMS land (albeit on trust).
27 The Commissioner also argues that despite the applicants' contentions otherwise, s 75AC does not require any consideration to be paid for the transfer; the payment of actual consideration is irrelevant to the calculation of duty under s 75AC as that section requires the Commissioner to assess duty "as if" consideration equal to the unencumbered value of the land transferred had been paid.
The exceptions to ad valorem duty
28 Section 73AA(1) of the Act specifies the circumstances where a conveyance or transfer does not pass a beneficial interest for the purpose of imposition of duty under s 75AC and assessment of duty under Item 4
(Page 9)
- of the Second Schedule to the Act, so that the conveyance is exempt from assessment of ad valorem duty. A conveyance or transfer that falls within any of this subsection's exceptions will, under Item 6 of the Second Schedule to the Act, attract nominal duty. However, s 73AA(2) of the Act provides that where a conveyance or transfer is made by any trustee or other person in a fiduciary capacity to a beneficiary, or made by a unit trustee to the holder of a unit in a unit trust scheme, and the conveyance or transfer does not conform to subsections (1)(b)(c)(d)(e) or (f), it "shall be deemed to operate as a voluntary disposition, and is chargeable with duty under s 75(1)".
29 The Commissioner contends that subparagraphs (a) to (e) of s 73AA(1) are not applicable in the current case and this was not disputed. Subparagraph (f) provides:
"A conveyance or transfer - …
(f) not otherwise coming within this section but which the Commissioner is satisfied –
(i) does not pass a beneficial interest in the property conveyed or transferred;
(ii) is not made in contemplation of the passing of a beneficial interest therein; and
(iii) is not part of, or made pursuant to, a scheme whereby any beneficial interest in the property conveyed or transferred, whether vested or contingent, has passed or will or may pass,
shall be charged with duty in accordance with item 6 of the Second Schedule."
30 The Commissioner argues that the inclusion of the word "and" at the end of paragraph (ii) means that conditions (i), (ii) and (iii) of paragraph (f) must each be fulfilled for the exception to apply. If one element of s 73AA(1)(f) is not met, then the provision will not be applicable.
31 Accordingly, based on the facts, the Commissioner states that the questions relevant to determining whether the exception arises are:
32 Did the Jones Transfer or SMS Transfer convey an interest in the property transferred?
(Page 10)
33 Was the Jones Transfer or the SMS Transfer made in contemplation of the passing of a beneficial interest?
34 Is the Jones Transfer or the SMS Transfer part of, or made pursuant to, a scheme whereby any beneficial interest in the Jones Land or SMS Land, whether vested or contingent, has passed, will pass or may pass?
35 For the exception in s 73AA(1)(f) to apply, the answer to all of the above questions must be "yes". The Commissioner is not satisfied that this is the case and he therefore concluded that the exception was not applicable. The Commissioner therefore contends that the Transfers did pass a beneficial interest in the Jones land and SMS land or will pass a beneficial interest in the Jones land and SMS land in the future.
36 The Commissioner is of the view that a beneficial interest was passed by the Jones Transfer and the SMS Transfer. Recital 5 of the Deed outlines the intention of the parties to achieve the result that the super-lot would be owned in the ratio of 3:1 by Mr and Mrs Jones and SMS as tenants in common. The Commissioner asserts that the resulting ownership is a different form of ownership to the form in which the land the subject of the super-lot was held pre-amalgamation. As cl 2 of the Deed provides for the Jones and SMS to hold the new certificate of title as trustee for one another (in respective proportions), the Commissioner further argues that a beneficial interest did in fact pass upon the Jones Transfer and the SMS Transfer.
37 The Commissioner further contends that the Transfers were made in contemplation of the passing of a beneficial interest as evidenced by clauses 2, 4 and 5 of the Deed.
38 The Commissioner drew the Tribunal's attention to Recital 6 of the Deed which sets out what was in contemplation of Mr and Mrs Jones and SMS at the time of the Transfers. At all times, the parties intended to amalgamate the land, subdivide the land and develop the land accordingly. This is abundantly clear from the terms of the Deed and is part of the Agreed Facts before the Tribunal. The Commissioner argues that this intention equates to contemplation of the passing of a beneficial interest. He argues that Recital 4 of the Deed also shows the intention of Mr and Mrs Jones and SMS to subdivide and to share costs incurred in the Venture.
39 Where land was to be subdivided, the Jones and SMS had an entitlement to have a proportion equivalent to their original contribution of land re-transferred back to them. The Commissioner contends that this
(Page 11)
- entitlement is not the same as being entitled to have the Jones' original land transferred back; it is not the exact same piece of land. The land to be transferred back to Mr and Mrs Jones is a sub-divided super-lot as opposed to four individual lots. The Commissioner consequently reasons that the Jones Transfer and SMS Transfer were made in "contemplation of the passing of a beneficial interest".
40 Once amalgamated, the registration of a strata plan results in strata lots being created with some of the amalgamated parcel of land attaining common ownership status: s 17(1) of the Strata Titles Act 1985 (WA). The Commissioner argues that the rights of an owner of a lot under a strata plan are different to the rights of an owner who holds an entire property before the strata plan is registered. The Jones intended entitlement to have land "equivalent to which Jones has transferred" transferred to the Jones on a subdivision of the super-lot (evidenced as Mr and Mrs Jones' and SMS' intention in Recital 6 of the Deed), is not the same as being beneficially entitled to the Jones Land as that land originally was. There will have been a change in the nature of the Jones Land; the same is true for the SMS Land. Any common property cannot be retransferred to the Jones or SMS and as a result, with the plan for subdivision on foot, the transfers were made in contemplation of the passing of a beneficial interest.
41 In addition to asserting that the Jones Transfer and the SMS Transfer did pass a beneficial interest and were made in contemplation of the passing of a beneficial interest, the Commissioner contends that the Jones Transfer and the SMS Transfer were in fact in relation to a "scheme" and therefore subsection (iii) of the exception provision (s 73AA(1)(f)) applies preventing the exception from operating in this case. The definition in the Oxford Dictionary (2nd ed) Oxford University Press, Melbourne, 1992 of a "scheme" is a "systematic plan or arrangement". As a result, the Commissioner contends that the steps involved in amalgamating the Jones Land and SMS Land evidenced a scheme. Where there is a "scheme" within the Act and the scheme is one whereby a beneficial interest in property passes or may pass and the conveyance or transfer in question is made pursuant to that scheme, the exception will not apply. The Commissioner contends that the Jones Transfer and SMS Transfer being a necessary part of the Venture were also made as part of, or pursuant to, a scheme. The transfers were necessary steps in the scheme to amalgamate the Jones land and SMS land for the purposes of subdivision.
42 The Commissioner contends that on amalgamation of the Jones land and SMS land into a super-lot, a beneficial interest in the Jones land and
(Page 12)
- SMS land passes. On registration of the super-lot, Mr and Mrs Jones no longer remain beneficially entitled to the benefit in the Jones land, rather Mr and Mrs Jones are entitled to a three-quarter share of the super-lot. The same change in nature of ownership is true for SMS. With reference to the Victorian decision Comptroller of Stamps v Yellowco Five Pty Ltd[1993] 2 VR 529, the Commissioner suggests that the question of whether a beneficial interest will or may pass can be analysed with respect to whether or not the parties hold the land on trust solely for one another with no potential for anybody else to acquire the property. The Commissioner contended that the trustees do not hold the land on trust for the transferees alone, but rather Mr and Mrs Jones hold the SMS land partly on trust for SMS, and SMS holds the Jones land partly on trust for Mr and Mrs Jones.
43 As a result of these answers to the relevant questions, the Commissioner submits that the exception criteria in s 73AA(1)(f)(iii) are not fulfilled and the exceptions in s 73AA(1) do not therefore apply.
The applicants' argument
44 As no written submissions were filed by the applicants in this matter, these arguments are a summary of verbal submissions made on 3 November 2005 during the hearing.
Jones are the sole shareholders of SMS
45 The applicants argue that as Mr and Mrs Jones are the sole shareholders of the company SMS, a beneficial interest could not have passed amongst themselves as they were all effectively the same party. The applicants argue that the Development Agreement was merely formulated so that SMS, as a company, was fulfilling its fiduciary duty to its shareholders by acting prudently and recording all acquisitions of property.
There was no "exchange of property" within the meaning of s 75AC
46 The applicants also argue that their interests in the super-lot remained the same after the Jones Transfer and the SMS Transfer. The proportion of land held by the Jones and SMS was exactly the same after the Transfers as before the Transfers took place. The applicants looked at the four blocks (the Jones land and the SMS land) in entirety before amalgamation, where the Jones held three-quarters of the land (three blocks) while SMS held one-quarter (one block). Post-amalgamation, this ratio of land-holding for each party remained the
(Page 13)
- same. The interest did not change; the transfer occurred purely to facilitate the amalgamation which would lead to the strata development. The applicants stated that had there been an alternative method of subdividing the land, this would have been seriously considered as they maintained that there was no actual benefit received from consolidating the lots.
The application of the exception provision
47 If the Jones Transfer and the SMS Transfer were held to be exchanges of property, the applicants argue that the exception in s 73AA(1)(f) should apply to their situation.
48 The applicants contend that the Deed was executed purely to permit compliance with the Western Australian Planning Commission rules so that the Jones land and SMS land could be subsequently developed. The intention of the applicants was always to develop that land within the parameters of the survey strata and this, Mr and Mrs Jones argued, was clearly evidenced in the Deed and the Development Agreement. There was no other method of achieving this within the accepted DOLI practice other than by the amalgamation plan. Putting the land into one super-lot was not a material change and did not effect a passing of the beneficial interest.
49 Mr and Mrs Jones further argued that the Deed creates a Trust where Mr and Mrs Jones hold the SMS land on trust for SMS and SMS holds the Jones land on trust for Mr and Mrs Jones. The trust created caused the four land titles to be amalgamated for the purpose of subdivision only. There in fact is no change in beneficial ownership as the Jones land and the SMS land are held on trust for the transferor as beneficiary. After the Transfers, the transferor retains the beneficial interest in the transferred land in both the cases of the Jones Transfer and the SMS Transfer.
50 Thus the applicants submit that the amalgamation of the Jones land and the SMS land was not a passing of the beneficial interest but merely a function of the mechanics required to reach an outcome long ago intended. As no beneficial interest was conveyed, nominal duty should be imposed; the exception provision, s 73AA(1)(f) of the Act, should be applied.
51 The applicants agreed with the Commissioner's contention that each of the three elements within s 73AA(1)(f) must be fulfilled in order to claim the exception but contended that they had been fulfilled.
(Page 14)
52 The applicants did not address the issue raised in s 73AA(1)(f)(ii) of whether or not the transfers were made in contemplation of the passing of a beneficial interest.
53 With respect to the Commissioner's argument concerning s 73AA(1)(f)(iii), the applicants argue that the conveyance of property was not a part of any "scheme". They said, with reference to the second definition point in the Oxford Dictionary, that "scheme" implies something untoward or secret whereas the circumstance in question was simply a necessity of arrangement; it was a part of the standard procedures established by DOLI and not part of a scheme.
Actual Monetary Consideration
54 The applicants also refer to the fact that there was not any actual monetary consideration involved in the Transfers and contend that this is relevant to whether or not ad valorem duty should be imposed on the transfers.
The valuation of the Land
55 Mr and Mrs Jones made submissions indicating that they believed that even if ad valorem duty had been correctly imposed, the Commissioner had assessed duty based on an incorrect valuation of the land involved.
56 In this case, the question of valuation clearly depends on the outcome of the primary questions of law; that is, whether the Transfers constitute an exchange of property within s 75AC of the Act (and therefore ad valorem duty applies), or whether the Transfers are not an exchange of property or an exception applies (and nominal duty is applicable).
Consideration of issues
57 Lots 57, 58 and 43 were in the name of Mr and Mrs Jones. Lot 59 was in the company name of SMS. Mr and Mrs Jones and SMS together wished to subdivide their land-holdings and eventually create strata interests on the land. Mr and Mrs Jones and SMS agreed they would amalgamate their land into a super-lot for the immediate purpose of seeking planning approval to subdivide and develop the land into survey strata. As Mr and Mrs Jones were contributing three lots to the Venture and SMS was contributing one lot, it was agreed that Mr and Mrs Jones would hold 75% of the final strata product while SMS would hold 25%. The end proportion of land held would be in the same proportion as the parties' initial contributions of land to the Venture.
(Page 15)
58 Mr and Mrs Jones held all the shares in SMS and they argued that this was relevant to whether or not a beneficial interest was passed by the Jones Transfer and the SMS Transfer. It is a long established principle of law that a company is a separate and distinct legal entity from its shareholders and its officers (Salomon v A Salomon and Co Ltd [1897] AC 22). A member (shareholder) of a company has no legal or beneficial interest in any of the assets of the company (Grimwade v FCT (1949) 78 CLR 199 at 206 per Williams J). Therefore, the Jones' argument that no beneficial interest could pass between Mr and Mrs Jones and SMS as they were one and the same has no bearing on the question concerning the passing of a beneficial interest.
59 Throughout their submissions, Mr and Mrs Jones contended that the amalgamation (or consolidation) of the Jones land and the SMS land was "by order of the WA Planning Commission" and that they were completely unaware of the requirement to amalgamate until they received the letter dated 14 April 2004 from the Western Australian Planning Commission (Transcript, written submissions paras 4(v), (vi), (viii), (x), (xii)). However, I am unable to find any such order from the Western Australia Planning Commission in that letter or in any other documentation before me. Contrary to Mr and Mrs Jones' argument in this respect, the Development Agreement dated 5 January 2004 says "The four properties are to be consolidated into one property then survey strata subdivided into 13 lots". This predated the Western Australian Planning Commission approval by over three months. The application to the Western Australian Planning Commission lodged by Mr and Mrs Jones and SMS included the plan for the consolidation of the four lots into a super-lot (Deposited Plan 41158). It follows from this that the Jones and SMS were aware of the need to amalgamate the lots. Mr Jones conceded during the hearing that the process of amalgamation prior to subdivision was necessary, regardless of Western Australian Planning Commission requirements (transcript page 6; page 42-49), and to some extent he accepted that the result was a beneficial change in ownership, or that what was held before amalgamation was different from the interests held in the super-lot (for example, transcript page 42-49 and the plan for the subsequent subdivision by Survey Strata (Plan 47399)). This was, albeit, an unintended result.
60 It is correct that amalgamation of lots is a prerequisite to subdivision of different lots owned by different entities – it is required by the various public authorities such as the Western Australian Planning Commission and DOLI. It is common sense – there is no other feasible way of subdividing property in different titles held by different owners. Mr and
(Page 16)
- Mrs Jones could have bought the SMS land outright, however, they would still have had to amalgamate the four lots prior to subdivision. The difference in that scenario would be that stamp duty would most likely have been payable on the transfer of the SMS land to Jones and not on the amalgamation of the land. However, as Mr Jones conceded, this course of action would have subjected SMS to the imposition of Commonwealth taxes.
61 It was argued by the applicant that despite the change in how the land area was divided, the land held was still identifiable as exactly the same piece of land as before the survey strata subdivision. For example, the land the subject of lot 59 was simply comprised of three lots instead of the initial single block.
62 The issue in this case was whether the amalgamation of the individual lots equated to an "exchange of property" so that the transfers are assessable by the Commissioner under s 75AC of the Act with ad valorem duty under Item 4 of the Second Schedule to the Act. If s 75AC applies then it is necessary to look at the available exceptions. If none apply then the applicants would have correctly been charged stamp duty at the ad valorem rate.
63 It appears clear that the amalgamation is an "exchange of property" within the meaning of s 75AC. Prior to amalgamation, Mr and Mrs Jones held the Jones land entirely and solely in their names; SMS held the SMS land in the same way. However, once the lots were amalgamated (a necessary and logical step in the process towards subdivision), Mr and Mrs Jones held 75% of the newly created super-lot and SMS held 25% of the super-lot.
64 The intention of Mr and Mrs Jones and SMS to achieve this outcome is evident in Recital 5 of the Deed. This new ownership arrangement created different interests for Mr and Mrs Jones than those held by them when they owned outright the three separate blocks comprising the Jones land. In essence, when looking in terms of previous ownership, one-quarter of the Jones land was exchanged for three-quarters of the SMS land. There was in law an exchange of property.
65 The nature of the interests held by Mr and Mrs Jones and SMS in the land after Transfer has also changed. After the Transfers (post-amalgamation), Mr and Mrs Jones and SMS held the super-lot as tenants in common. Whereas previous to the Transfers, Mr and Mrs Jones or SMS could alienate their property interests as they individually wished,
(Page 17)
- once the Transfers were made and the Jones and SMS became tenants in common, the land could not be disposed of without all owners' consent. A party's portion could be disposed of, however this would be disposal of a portion of the tenancy in common, not a portion of the land.
66 Once Mr and Mrs Jones and SMS owned the super-lot as tenants in common, each owner was entitled to possession of the whole of the super-lot (rather than the Jones being entitled to possession of the Jones land and SMS to possession of the SMS land).
67 The nature of the proprietary interests held by Mr and Mrs Jones and SMS in the land changed. There was therefore a likely change in beneficial interest.
68 The fact that consideration shown on the transfer was merely to facilitate an amalgamation of titles is legally irrelevant. Section 75AC clearly contemplates that consideration is not a requirement for it to apply and for ad valorem stamp duty to be applied to the instruments. The section refers to a transfer being "chargeable with duty as if the exchange involved the conveyance or transfer … for consideration equal to the unencumbered value of that property".
69 Potentially relevant to this case, and relating to subdivision and stamp duty, is the Commissioner's practice note SD3 of 21 October 2003. This practice note indicates that nominal duty only will be charged on "transfers of land to effect common ownership for the purposes of a subdivision" where the "taxpayer is able to provide evidence to confirm that the transfer is solely for the purpose of facilitating the subdivision". This practice note was not issued in relation to strata subdivision, but on the assumption that the Commissioner would apply it to the registration of a strata subdivision, consideration must be given to the further requirement contained within the practice note, to this effect:
"[It is required that] the parties will receive the same piece of land after subdivision, as they received, or, as they owned, previously."
70 As a question of fact, I find that the applicants have not fulfilled this final requirement. I am not satisfied that the parties will receive the same piece of land after subdivision, or after registration of the strata. Arguably, and for the reasons outlined above, SD3 could never apply to strata subdivision as the nature of the relevant proprietary interests will always change upon subdivision. The interest held by Mr and Mrs Jones
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- in the three lots changed through amalgamation into a proportionate interest in the super-lot.
71 The applicants are also not receiving the same piece of land post-subdivision as all strata-titled land by definition includes common property (see for example, Ashington Holdings Pty Ltd v Wipema Services Pty Ltd (No 2) [1998] NSWSC 414 (4 September 1998) per Young J at 16, 518-16, 519) and Sportscorp Australia Pty Ltd and Others v Chief Commissioner of State Revenue [2004] NSWSC 1029 per Gzell J at 56). The common property is held by the proprietors of the lots as tenants in common, in shares proportionate to their unit entitlements (s 17(1) Strata Titles Act 1985). The common property in the newly subdivided land will be owned by both Mr and Mrs Jones (75%) and SMS (25%), and the parties will therefore not receive the same piece of land after subdivision as they owned previously. Despite the change in the nature of the interests held, the quantity of land held by the parties after the Transfers changed. Lot 57 comprised an area of 999 square metres as did lots 58 and 59 (shown on the certificates of title as 39.5 perches, which equates to 999 square metres). Lot 43 comprised an area of 1004 square metres. The total land area of the super-lot was 4001 square metres. Therefore, if SMS was to receive 25% of the land it put into the Venture, it should receive 1000 square metres. However, SMS was to receive lots 7, 8 and 9 in the survey strata. Those lots comprise a total area of 773 square metres, not 999 or 1000 square metres.
72 The total of the 13 blocks in the survey strata comprises a land area of 3443 square metres. The balance of 658 square metres comprises common property and roads. Therefore 17.5% of the total land area is lost to common property; but 22.5% of the SMS entitlement is lost to common property. It becomes obvious when looking at simple arithmetic of the areas of land involved, that SMS is not entitled to receive back after the subdivision exactly what it put into the Venture. It is difficult to ascertain whether the 75/25 split was to be based on land area, numbers of lots to be transferred, the unit entitlement under the survey strata plan or the land value. However, it is not really relevant as where a subdivision involves a strata plan, there must, by its very nature, be a change in what is held by the joint venturers after the subdivision is completed.
73 As an exchange of property occurred and as s 75AC therefore applies, and as SD3 does not apply to the transfers, stamp duty would therefore have been correctly calculated on the transfers at the ad valorem rate unless an exception within the Act applied. Section 73AA(1) provides that an exception from ad valorem duty rate will apply where a
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- conveyance does not pass a beneficial interest. There are a number of subsections within this exemption provision which list scenarios where a beneficial interest does not pass.
74 Section 73AA(1)(a), (b), (c), (d) and (e) all apply only in circumstances involving a trustee of a unit trust or discretionary trust in circumstances not relevant here. Neither party addressed these provisions in their oral or written submissions. Despite the fact that a Deed of Trust was made and signed by the parties, I find that the Deed does not create an effective trust. The Deed is more properly described as a declaration of trust, although one with doubtful validity. A number of the recitals in the Deed purport to create obligations. However, as recitals, they are only evidentiary. These provisions, to be effective, should have been included in the operative part of the Deed. On these grounds I find the Deed to be primarily evidence of the applicants' intention and it is unnecessary to discuss the exceptions contained in s 73AA(1)(a)-(e) further.
75 Section 73AA(1)(f) provides a three-tiered, conjunctive test which operates to exempt transfers from ad valorem duty where the Commissioner is satisfied that a conveyance or transfer does not pass a beneficial interest in the property conveyed or transferred. As the test in (f) is conjunctive, each of its three elements must be fulfilled for the exemption to apply. These elements are:
(1) the transfer must not pass a beneficial interest in the property conveyed or transferred;
(2) the transfer must not be made in contemplation of the passing of a beneficial interest therein; and
(3) the transfer must not be part of, nor made pursuant to, a scheme whereby any beneficial interest in the property conveyed or transferred, whether vested or contingent, has passed or will or may pass.
76 The three questions outlined in the Commissioner's submissions as relevant to this conjunctive test are a correct analysis of the exception provision.
77 With respect to the first requirement, I consider the Commissioner is correct in submitting that a beneficial interest has passed in the property transferred. The beneficial interest is changing from the ownership of three lots in Mr and Mrs Jones' case, to a 75% interest, as a tenant in common, in an undivided share of the super-lot. The Deed, which purports to declare that the interests of each of the applicants are held on
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- trust, does not, in my view, displace the principle that the interest in the super-lot is a different interest to that held by each of the applicants prior to amalgamation of the four lots. This ousts the operation of s 73AA(1)(f) as one aspect has not been met.
78 In any event, the satisfaction of requirements (ii) and (iii) is also questionable on these facts. Subparagraph (ii) states that the Transfers must not be "made in contemplation of the passing of a beneficial interest therein". In this case there are some facts which point to the Transfers being done in contemplation of passing a beneficial interest and this could be argued to be evidenced by the Deed. For example, references in the Deed to future subdivision evidence the intention to create common property as outlined above.
79 Subparagraph (iii) of s 73AA(1)(f) requires that the Transfers are "not part of, or made pursuant to, a scheme". On balance, I conclude that there is likely a scheme in the facts of this case whereby any beneficial interest in the property conveyed or transferred has passed, or will or may pass. Counsel for the respondent submitted that the words "has passed, or will or may pass" allow the Commissioner to look to the future and what might happen to the land in the future. Counsel relied on Comptroller of Stamps v Yellowco Five Pty Ltd,per Fullager J at 531, to support the submission that "may or will pass" introduces an element of looking into the future, necessitating an inquiry as to how the land would be held after the conveyance was registered. I accept this submission that I am entitled by s 73AA(1)(f)(iii) to look to the future holding of the super-lot to determine whether any beneficial interest in the property conveyed pursuant to a scheme will pass on registration. I do not find it necessary to conclusively determine whether this is the case or not as the first requirement of s 73AA(1)(f) is not met.
Valuation method
80 Finally, there is a question of the method of valuation which the Commissioner used in his assessment of the land in order to calculate the stamp duty owed. Although two experts' evidence was compared to determine the value of the land conveyed, both parties are content to dispose of this issue without argument due to the insignificant difference in value.
Conclusion and Orders
81 I therefore find that the Commissioner was correct in assessing the transfer with ad valorem duty under Item 4 of the Second Schedule
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- pursuant to s 73AC, on the basis that there was an exchange of property which passed a beneficial interest in the land.
82 The application is dismissed and the Commissioner's assessment of stamp duty on the transfer is confirmed.
83 I make no order as to costs.
I certify that this and the preceding [83] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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JUDGE J ECKERT, DEPUTY PRESIDENT
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