Li v Commissioner for Act Revenue; Li v Commissioner for Act Revenue (Administrative Review) - [2024] ACAT 24

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

LI v COMMISSIONER FOR ACT REVENUE; LI v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2024] ACAT 24

AT 47/21
AT 59/21

Catchwords: ADMINISTRATIVE REVIEW – liability for duty payable upon a “relevant acquisition” of shares in a property holding company – share transfers within a family and friend group – duty exemptions – ASIC register is not a definitive record of share owners or transfers – onus of proof lies with the applicants – tax penalty

Whether acquisition 1A was an accommodation for the purposes of loan exception under section 95 or trust exemption under section 115H(2)(f) of the Duties Act – shares transferred for “financial accommodation” do not have to be non-beneficially held – insufficient evidence of a loan arrangement – no conclusive evidence on the ‘non beneficial’ nature of the shares transfer for a trust exemption – applicants do not satisfy the onus of proof

Whether Acquisition 2 was an accommodation for the purposes of loan exception under section 95 or trust exemption under section 115H(2)(f) of the Duties Act – shares not transferred back within 5 years – insufficient evidence non-beneficial interest transferred – applicants do not satisfy the onus of proof
Whether Acquisition 3 is eligible for a trust exemption under section 115H(2)(f) due to being a “manifest” error – mistake – when a constructive trust arises – applicants do not satisfy the onus of proof
Penalty tax – amount of penalty tax – delaying the provision of information – providing information that is incomplete – inadequate record keeping – general deterrence – remission of penalty tax due to circumstances of the applicants

Legislation cited: Duties Act 1999 ss 57, 77A, 83, 85, 86, 87, 95, 115H(2)(f)
Taxation Administration Act 1999 ss 25, 30, 31, 37, 101
Evidence Act 2011 dictionary
Corporations Act 2001 (Cth) ss 169, 1070, 1071

Cases cited:Commissioner for ACT Revenue v Francey [2014] ACAT 67
Francey v Commissioner for ACT Revenue [2013] ACAT 84
Giusida Pty Limited v Commissioner for ACT Revenue [2016] ACTSC 275
Jokhan and Jokhan v Commissioner for ACT Revenue [2012] ACAT 15
Jones v Dunkel [1959] HCA 9
Kessey v Commissioner for ACT Revenue [2019] ACAT 83
Planet Red Pty Ltd v Commissioner of ACT Revenue [2017] ACAT 18
Theron v Commissioner for ACT Revenue [2013] ACAT 33
Wambo Coal Pty Ltd v Stuart Karim Ariff & 1 Or, [2007] NSWSC 589

List of

Texts/Papers cited: Revised Explanatory Statement, Revenue Legislation Amendment Bill 2019
Peter Radan and Cameron Stewart, Principles of Australian Equity and Trusts (LexisNexis Butterworths, 2010)

Tribunal:Presidential Member H Robinson

Date of Orders:  8 March 2024
Date of Reasons for Decision:   8 March 2024
AUSTRALIAN CAPITAL TERRITORY          )
CIVIL & ADMINISTRATIVE TRIBUNAL     )          AT 47/2021
BETWEEN:
CHI MAN LI
Applicant

AND:
COMMISSIONER FOR ACT REVENUE
Respondent

AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 59/2021
BETWEEN:
HUNG LI
Applicant

AND:
COMMISSIONER FOR ACT REVENUE
Respondent

TRIBUNAL:Presidential Member H Robinson
DATE: 8 March 2024

ORDER

The Tribunal orders that:

The Commissioner’s decision is confirmed, save that penalty tax in relation to each of the acquisitions is to be applied at the rate of 37.5%.

………………………………..
Presidential Member H Robinson

REASONS FOR DECISION

This is an application for review of two decisions by the respondent to impose duty under the landholder provisions in part 3.2 of the Duties Act 1999 (Duties Act). A liability for duty under this part arises when a person makes a “relevant acquisition” of shares in a property holding company. The applicants have sought to rely upon certain exemptions as grounds for not paying the duty.
Although the matter concerns three different acquisitions made by two people, as the applicants are father and son and the share acquisitions took place within the one company, the applications were heard together.

Brief background

The matter concerns a series of provisions in Part 3.2 of the Duties Act aimed at ensuring there is no avoidance of stamp duty in relation to the transfer of land (landholder provisions).
In broad terms, if a company owns a parcel of land and the owners of the company wish to transfer that land and avoid duty, one way of doing so might be to transfer shares in the company instead. The landholder provisions are aimed at stopping that kind of avoidance.
To that end, section 85 of the Duties Act provides that liability for duty arises when a “relevant acquisition” is made[1]. “Relevant acquisition” is defined to include the acquisition of a “significant interest” in a landholding entity (the landowner). Pursuant to section 83 of the Duties Act, a person holds a “significant interest” if the person, in the event of the distribution of the property, would be entitled to at least 50% of the property distributed upon winding up or otherwise. For the purposes of assessing ownership, a person’s interest may be aggregated with those of other “associated persons”, a term defined in section 77A of the Duties Act to include parents and children[2].
[1] See paragraph [14] of these reasons
[2] Duties Act s 77A(3)
The purpose of these provisions in Part 3.2 of the Duties Act is not to expand the imposition of duty to property transactions that would not be subject to duty if directly conveyed, and accordingly, the Duties Act also includes a range of exceptions aimed at preventing that. These include an exception in section 95 for shares transferred for the purposes of “financial accommodation” (the loan exemption) and an exception in sections 57 and 115H(2)(f) for where the shares are transferred on trust (the trust exemption).
The issue in this case is how these provisions – sections 95 and 115H – apply where the parties are family and business associates who have transferred shares in a company amongst themselves, in circumstances where the paperwork and procedures are, by their own admission, less than perfect.
It is important to note from the outset that the Commissioner does not suggest that the applicants in this case arranged their affairs to deliberately avoid liability for duty, only that the way they arranged their affairs, and responded to the Commissioner’s investigation, have exposed them to this liability.

The parties

The applicants are Mr Chi Man Li (Mr Li) and his father (Mr Hung Li).
The active applicant was Mr Li. Mr Hung Li is elderly. He filed a written statement, but otherwise played no part in these proceedings and was not available to give oral evidence or for cross examination.
The land the subject of the contested duty is Block 34, Section 18 Mitchell in the ACT (the Property).
The landholder is a company called Man Office (Australia) Pty Ltd (the Company). The landholder purchased the Property for $2.7 million in 2011. The parties agree that the Company is the beneficial owner of the land. At all relevant times, Mr Li was a director and shareholder of the Company. Mr Hung Li was sometimes a shareholder of the Company and other times not.

The “relevant acquisitions”

On 26 April 2019, the Commissioner’s delegate issued a notice to the applicants pursuant to section 14 of the Taxation Administration Act 1999 (TAA) for landholders duty payable under section 85 of the Duties Act 1999, as well as penalties and interest.
These determinations relate to a series of transfers of shares in the Company in 2015 and 2016:
(a)On 24 March 2015, the acquisition by Mr Li of 55 shares in the Company – although treated as one transaction, this was made up of transfers from two people:
(i) 25 shares from Jianhua He, which brought Mr Li’s ownership from 25 shares to 50 shares, or 50% of the Company (Acquisition 1A); and
(ii) 30 shares from Mr Tim Tay, which brought Mr Li’s interest from 50% of the Company to 80% (Acquisition 1B).
(b)On 8 February 2016, the acquisition by Mr Hung Li of 75 shares from Mr Li, which brought Mr Hung Li’s ownership from 0% to 75% (Acquisition 2); and
(c)On 1 July 2016, the acquisition by Mr Li of 20 shares from Mr Tay, meaning together Mr Hung Li and Mr Li (ie. father and son) owned 100% of the Company (Acquisition 3).
The Commissioner says that the following are dutiable transactions, unless an exemption applies:[3]
(a)Acquisitions1A is the acquisition of a “significant interest” in the Company by Mr Li pursuant to section 86(1)(a)(i) of the Duties Act;
(b)Acquisition 1B is the acquisition of a further interest in the company by Mr Li, as a person who already holds a significant interest in the property pursuant to section 86(1)(b) of the Duties Act;
(c)Acquisition 2 is an acquisition of a significant interest in the Company by Mr Hung Li pursuant to section 86(1)(a)(i) of the Duties Act; and
(d)Acquisition 3 is an acquisition of an interest by associated persons (Mr Li and Mr Hung Li) of a further interest in the Company pursuant to sections 86(1)(a)(ii) and (b) of the Duties Act.
[3] Respondent’s outline of submissions dated 18 November 2022 at [22]
On this basis, the Commissioner assessed liability as follows:[4]
(a)$101,062.50 payable by Mr Li in respect to Acquisitions 1A and 1B;
(b)$180,950 payable by Mr Hung Li in respect of Acquisition 2; and
(c)$23,460 payable jointly or severally by Mr Li and Mr Hung Li in respect of Acquisition 3.
[4] Respondent’s outline of submissions dated 18 November 2022 at [25]
Mr Li and Mr Hung Li concede that Acquisition 1B is a dutiable transaction, but otherwise deny that the other Acquisitions are dutiable on the basis that:
(a)Acquisition 1A was the reacquisition of shares transferred pursuant to a loan agreement, meaning that at no stage did the transferee hold a beneficial interest in the shares; and
(b)Acquisition 2 was a transfer for the purpose of providing security for a loan; and
(c)Acquisition 3 was a mistake because the shares were transferred in error and therefore the applicants should not be liable for stamp duty; or
(d)Alternatively, Acquisitions 1A, 2 and 3 were transfers of shares to be held on trust, being for the purpose of providing security for a loan or because of a mistake, meaning no beneficial interest passed and there was no relevant acquisition, or the trust exemption applied.
There is also a contest as to which valuation should be relied upon and whether penalty tax is applicable and at what rate.

The issues

The issues to be determined are:
(a)In relation to each of the reviewable decisions, was it a “relevant acquisition” under Part 3.2 of the Duties Act?
(b)If so, in relation to each of the transactions, are any of the exemptions under Chapter 3 of the Duties Act applicable, namely:
(i)section 95 (the loan exemption); or
(ii)section 115H(2)(f) (the trust exemption)?
(c)In relation to each of the transactions covered by the review, was there a tax default?
(d)If so, was that default caused wholly or partly by the applicants:
(i)delaying the payment of tax
(ii)delaying the provision of information required for the assessment of tax; or
(iii)providing information required under a tax law that is incorrect, incomplete or misleading; and
(e)If duty is payable in relation to one or more transactions, should the duty calculated on the basis of the value of the land at the relevant time be $3.5 million, as per the first valuation report, $3.1 million, as per a second valuation report, or some other figure?

The hearing process

This matter has a long, tortured history before the Tribunal, to which my own delay in finalising these reasons has contributed in no small part.
It is not necessary that I recount the full chronology here, other than to note that there were numerous adjournments, largely owing to the applicants’ or witness’ unavailability and illness and the late submission of documentation.
The matter commenced on 26 May 2021. It was only on 18 October 2022 that the parties attended a mediation, which was not successful. Following that, the Tribunal made directions by consent requiring the applicants to file any material they intended to rely upon at the hearing by 4 November 2022.
The applicants did not file any material in compliance with those directions. The applicants subsequently filed two witness statements on 18 November 2022, the day the respondent was required to file its material.
The respondent filed its outline of submissions on 18 November 2022, but was unable to incorporate the applicants’ material into those submissions. Accordingly, it filed supplementary submissions on 5 December 2022.
On 5 December 2022, the Tribunal made orders directing the applicants to file an outline of submissions by 7 December 2022. The applicants’ submissions were finally filed on 8 December 2022, the day before the hearing.
On 9 December 2022, the Tribunal heard the matter. It was adjourned to allow the applicants’ Company to obtain evidence from Mr Tay.
At the hearing, the applicants filed a change to company details record from ASIC (Exhibit A1).
On 15 December 2022, the applicants filed a statement signed by Mr Tim Tay dated 8 December 2022. The hearing did not finish on that day.
The matter resumed hearing on 9 March 2023. On this second day, the applicants called both Mr Tay and Ms Yuen to give evidence. Both were subject to cross-examination.
Mr Hung Li was not available for cross examination at any time.

The evidence

The applicants filed:
(i)Witness statement of Mr Li dated 17 November 2022 (filed on 18 November 2022)[5];
(ii)Witness statement of Mr Hung Li dated 17 November 2022 (filed on 18 November 2022)[6] ;
(iii)Witness statement of Mr Liang Kheng “Tim” Tay dated 8 December 2022[7];
(iv)Statutory declaration from Ms Chung Yee Yuen dated 17 November 2022[8];
(v)Outline of Submissions – noting a complete copy was filed on the day of the hearing (filed copy missing page 3);
(vi)Change to company details for Man Office (Australia) Pty Ltd (Company Details)[9]; and
(vii)A bundle of ASIC documents.[10]
[5] Exhibit A2
[6] Exhibit A4
[7] Exhibit A5
[8] CML-28
[9] Exhibit A1
[10] Exhibit A3 – HL7
Mr Li, Mr Tay and Ms Yuen gave evidence and were cross examined.
The Commissioner filed the Tribunal documents (T-docs), but otherwise filed no further evidence.
The applicants filed written submissions on 18 November 2022. These were late.
The Commissioner filed:
(a)Submissions dated 18 November 2022;
(b)Supplementary submissions on 5 December 2022 dealing with additional matters contained in the applicants’ late submissions.
Both parties’ counsel made oral submissions at the conclusion of the hearing. I thereafter reserved my decision.

Legislation

Section 85 of the Duties Act provides that duty is payable when a “relevant acquisition” is made.
“Relevant acquisition” is defined in section 86 of the Duties Act to include:
86 What is a relevant acquisition?—pt 3.2
(1) For this part, a person makes a relevant acquisition if—
(a)the person acquires an interest in a landholder that—
(i)is of itself a significant interest in the landholder; or
(ii)when aggregated with other interests in the landholder held by the person or an associated person, results in an aggregation that amounts to a significant interest in the landholder; or
(iii)when aggregated with other interests in the landholder acquired by the person or other people in an associated transaction, results in an aggregation that amounts to a significant interest in the landholder; or
(b)the person or an associated person—
(i)has an interest in a landholder mentioned in paragraph (a); and
(ii)acquires a further interest in the landholder.
A “significant interest” means:
83 Interest and significant interest in landholders—pt 3.2
(1) For this part, a person has an interest in a landholder if the person has an entitlement (otherwise than as a creditor or other person to whom the landholder is liable) to a distribution of property from the landholder on a winding up of the landholder or otherwise.
(2) A person who, under subsection (1), has an interest in a landholder has a significant interest in the landholder if the person, in the event of a distribution of all the property of the landholder immediately after the interest was acquired, would be entitled to at least 50% of the property distributed.
An “associated person” is defined in section 77A, relevantly to include:
77A Meaning of associated person
(1) For this Act, an associated person means a person who is associated with another person in accordance with any of the following:
(a)people are associated people if they are related people;
…
(3) related person means a person who is related to another person in accordance with any of the following:
(a)individuals are related people if—
…
(ii)the relationship between them is that of parent and child, brothers, sisters, or brother and sister;
(b)private companies are related people if they are related bodies corporate;
Pursuant to section 87 of the Duties Act, persons who make “relevant acquisitions” are required to file an “acquisition statement” within 90 days of the transaction. This statement must include various details, including details of the person making the acquisition, the value of the land and the duty paid in relation to any other acquisition.
Section 95 deals with concessions for “securing financial accommodation” and provides:
95 Duty concession—acquisitions securing financial accommodation
(1)     Subsection (2) applies if—
(a)a person—
(i)acquires an interest in a landholder; and
(ii)makes a relevant acquisition; and
(iii)tells the commissioner that the acquisition is made for the purpose of securing financial accommodation; and
(b)the commissioner is satisfied that the acquisition is effected for that purpose.
(2)     Duty under this Act is not payable in relation to the relevant acquisition, except as provided by subsection (3).
(3)     Duty is payable in relation to the relevant acquisition at the end of the period of 5 years after the date of the acquisition (or the longer period that may be determined by the commissioner in the particular case) if the interest concerned is not—
(a)reacquired by the person from whom it was acquired; or
(b)for an acquisition by way of mortgage—conveyed by the mortgagee to a third person in exercise of the mortgagee’s power of sale;
within that period (or that longer period).
(4)     Section 86 does not apply to the reacquisition by a person of the interest concerned.
Section 115H deals with transfer back from a trustee to a nominee and, paragraph (2)(f) provides:
115H Ch 3 transactions—exemptions
(1)…
(2) Duty is not payable in relation to a chapter 3 transaction if the land that is the subject of the interest concerned could have been acquired by the person in a way that results in no duty being payable under any of the following provisions:
…
(f)section 57 (1) (Transfers back from nominee), if the initial transfer from the transferor to the trustee was a chapter 3 transaction;
Section 57 provides for transfers back where property is transferred pursuant to a trust arrangement:
57 Transfers back from nominee
(1)     If—
(a)dutiable property that was transferred to a person to be held by that person as trustee for the transferor is transferred back to the transferor by the trustee for no consideration; and
(b)no person other than the transferor has had a beneficial interest in the dutiable property (other than the trustee’s right of indemnity) between its transfer to the trustee and its transfer back to the transferor;
duty under this chapter is not payable in relation to the transfer of the dutiable property back to the transferor.
(2)     If duty is not payable under subsection (1) on the transfer of dutiable property back from the trustee to the transferor—
(a)duty is not payable in relation to the initial transfer from the transferor to the trustee; and
(b)the commissioner must reassess the initial transfer and refund any duty paid on application for a refund made within 5 years after the initial assessment, or 12 months after the transfer back to the transferor, whichever is later.
(3)     In this section:
trustee includes a trustee appointed in substitution for a trustee or a trustee appointed in addition to a trustee or trustees.

Section 101(3) of the TAA provides:
The burden of showing that an objection should be sustained lies with the taxpayer making the objection.
Section 30(1) of the TAA provides that if a tax default happens, the taxpayer is liable to pay penalty tax in addition to the amount of unpaid tax. The TAA dictionary defines a tax default as a failure to pay, in accordance with tax law, the whole or part of tax a taxpayer is liable to pay. Under section 88 of the Duties Act, a tax default occurs in relation to a landholder under the Duties Act if the duty is not paid within 90 days of the relevant acquisition (i.e. the share transfer).
Section 31(1) of the TAA sets the default penalty for a tax default at 25%. However, a 50% penalty is payable if the Commissioner is satisfied that the default is caused wholly or partly by the taxpayer or a failure by a person to fulfil the taxpayer’s obligations under a tax law. In this regard, section 31 provides:
(2) The commissioner may increase the amount of penalty tax payable in relation to a tax default to 50% of the amount of tax unpaid if the commissioner is satisfied that the tax default—
(a)was caused wholly or partly by the taxpayer (or a person acting on behalf of the taxpayer)—
(i)delaying the payment of tax; or
(ii)delaying the provision of information required for the assessment of tax; or
(iii)providing information required under a tax law that is incorrect, incomplete or misleading; or
(b)is the taxpayer’s second or subsequent tax default in relation to a tax liability, or in relation to a similar or related tax liability.
(3) Subsection (2) applies to a tax default in the same way whether the tax default happened before or after the subsection commenced.

The Evidence

Mr Chi Man Li’s evidence

Mr Li’s evidence consisted of his written statement and oral evidence lead at the hearing and given under cross examination. I have summarised his evidence below.
Mr Tay and Mr Li have been business partners since about 1998, having previously been involved in a car importation business.
Between 1998 and 2007, Mr Li’s family loaned Mr Li and Mr Tay $1,200,000 for investment purposes (the first loan). Mr Li searched his records but has no documentation relating to this loan.
On 2 August 2007, Mr Li and Mr Tay established the Company with an initial shareholding of 1 share each. The Company records evidence this[11].
[11] CML-4, CML-5, CML-6
On 3 September 2007, the Company held a meeting at which Mr Li, Mr Tay and Mr Hung Li (Mr Li’s father) were in attendance. At that meeting, it was agreed that $600,000.00 of the first loan would be forgiven, and the remaining $600,000.00 would be “transferred from Tim Tay and I to the Company to be repaid … within 4 years.”[12]. Mr Li annexed to his statement a “minute book” minute dated 3 September 2007 as documentary evidence in support of this[13].
[12] Witness statement of Mr Li dated 17 November 2022 at [18]
[13] CML-7
On 22 October 2008, the Company borrowed a further $200,000 from Mr Hung Li and his wife (Mr Li’s mother) - Ms Chan Suk Hing (second loan). The documentary evidence for the terms of the second loan is dealt with later in this summary of Mr Li’s evidence, having been created sometime later to reflect a change in arrangements. He also provided records of bank statements from HSBC which confirm transfers of $200,000 to “Man Office”[14].
[14] CML-8
On 9 March 2011, Mr Li and Mr Tay held a meeting of directors of the Company at which it was agreed to purchase the Property, a property in Mitchell in the ACT, consisting of land and the glass business on it, for $2.7 million. He attached a copy of the minutes of the meeting to his statement.[15].
[15] CML-9
To purchase the Property, the Company borrowed:
(a)$1,800,000 from Mr Hung Li and Ms Chan (third loan); and
(b)$600,000.00 from Mr Jianhua He (fourth loan).
As evidence of the third loan, Mr Li relied on bank transfer receipts from a bank, HSBC[16]. These documents show a series of transfers from a HSBC account to an ANZ account over the course of 2011. The beneficiary of the transfer is a company named as “Manoffice Property Holdings Pty Ltd” (ie. a different name to the Company). Mr Li confirmed in his oral evidence that Manoffice Property Holdings Pty Ltd is “a different entity but under [Man] Office Australia”[17].
[16] CML-10
[17] Transcript of proceedings dated 9 December 2022, page 29, line 45. The respondent did not explore this distinction at the hearing, so I have not considered it further either
Turning to the fourth loan, it appears Mr He was an associate of Mr Li. Mr Li described the loan as an investment in Canberra by Mr He for business migration purposes[18]. Mr He, Mr Li explained, loaned the money and then accepted shares in the Company as security[19].
[18] Transcript of proceedings dated 9 December 2022,page 26, lines 40-41
[19] Transcript of proceedings dated 9 December 2022,page 26, lines 34-35
Mr Li’s understanding of the arrangement with Mr He was that Mr He could not sell the shares. However, if the Company had defaulted, and had to sells its assets, Mr He would get a distribution from the resulting funds as repayment[20]. Other than that, he had not intended that Mr He receive a “beneficial interest … for the business and any property we got.”[21]
[20] Transcript of proceedings dated 9 December 2022,page 54
[21] Transcript of proceedings dated 9 December 2022,page 26, lines 35-36
Mr Li’s evidence as to the terms of the fourth loan was oral only. He produced no documentation evidencing the terms of the loan or the transfer of funds. He agreed under cross examination that $600,000 was not an ordinary amount of money to go into the Company, and that he had not produced any bank records showing the deposit[22]. He said that the records had been provided to Mr He for his migration application, and so were not available.
[22] Transcript of proceedings dated 9 December 2022, page 51, line 32
To facilitate security for the fourth loan, the Company resolved to issue 98 more shares, bringing the total shares to 100 shares and allowing for 25 of those shares to be allocated to Mr He.
To give effect to this, Mr Li explained, first 49 more shares were given to Mr Li and 49 more to Mr Tay. However, this first step is not reflected in any ASIC documentation.
The next step is recorded. An ASIC Company details form (first ASIC form) dated 18 June 2013 records a “change to share structure” as having occurred on 8 August 2011[23]. The form states that the shares were distributed:
(a)50 shares to Mr Tay;
(b)25 shares to Mr Li; and
(c)25 shares to Mr He.
[23] Exhibit A1
The first ASIC form records also the shares held by all parties as “beneficially held”.
The transfer of shares to Mr He is recorded in the company register on 8 August 2011 as a “transfer for security purpose.”[24]
[24] CML-11
Mr Li also attached to his witness statement an “audit confirmation” declaration from the Company accountant, Mr Vong, of Allen Vong and Associates, dated 10 December 2013, as evidence of the existence of a “current, not secured…interest free” loan of $600,000[25] from Mr He.
[25] CML-16
On 2 January 2012, Mr Tay’s family agreed to loan the Company a further HKD$600,000,000 (fifth loan).
Shortly thereafter, Mr Li and Mr Tay agreed that the Company should enter more formal arrangements in relation to the family loans. Two loan agreements were entered into:
(a)On 18 January 2012, a loan agreement between the Company and Mr Li’s mother, Ms Chan Suk Hing (Chan Suk Hing Loan Agreement) [26]; and
(b)A loan agreement between the Company and Mr Tay’s wife Ms Hung Kar Tat (Hung Kar Tat Loan Agreement)[27]:
[26] CML-13
[27] CML-14
The Chan Suk Hing and Hung Kar Tat loan agreements were attached to Mr Li’s statement. Mr Li’s statement includes some assertions about the content of those agreements which are not quite reflected in the terms, but this may well be the result of some confusion about the language used[28]. I have summarised the agreements by reference to their written terms below.
The Chan Suk Hing Loan Agreement:
(a)confirms Mr Li’s family had loaned the Company an amount of $2 million;
(b)provides that the loan term was 4 years;
(c)provides that interest was payable in the fixed amount of $50,000pa;
(d)provides that “to protect the Lender, the Borrower gives what is known as a security interest or mortgage in an unregistered floating charge over the … [P]roperty … Lender has the right to exercise the floating charge right at any time by putting a caveat on the building title”; and
(e)states that Mr Li and Mr Tay provided personal guarantees and “allow the assets of [the Property] of [the Company] to be secured up to the value of AUD $2.5 million.”
The Hung Kar Tat Loan Agreement:
(a)confirms Mr Tay’s family had loaned the company the fifth loan;
(b)provides that the term was four years;
(c)provides that the interest rate payable was fixed at HKD$300,000 pa;
(d)states that “to protect the Lender, the Borrower gives what is known as a security interest or mortgage in an unregistered floating charge over the … [P]roperty … Lender has the right to exercise the floating charge right at any time by putting a caveat on the building title”; and
(e)states that Mr Li and Mr Tay provided personal guarantees and “allow the assets of [the Property] of [the Company] to be secured up to the value of AUD $2 million.
Mr Li also states in his statement that the Hung Kar Tat Loan Agreement “provided that Tim Tay was required to hold at least 50% of the issued shares in the Company until the Hung Tat Loan amount was repaid in full…”[29], but this condition does not appear in the written documents.
[29] Witness statement of Mr Li dated 17 November 2022 at [31]
Further to the Chan Suk Hing Loan Agreement, the Company attempted to register a mortgage over the Property, but was unsuccessful, and instead a caveat was lodged over the Property[30].
[30] Witness statement of Mr Li dated 17 November 2022 at [32]
The monies loaned under the fifth loan, reflected in Hung Kar Tat Loan Agreement, was received by the Company on 27 February 2012, and is evidenced by a Fubon Bank transfer[31].
[31] CML-15
On 30 January 2014, the Property was valued by Colliers International at $3,500,000.00[32] (first valuation report).
[32] CML-17
On 20 March 2015, Mr Li, Mr Tay, and Mr He held a meeting of directors of the Company. At this meeting, Mr Li and Mr Tay agreed that their respective shareholdings would be adjusted to reflect the contribution their families had made to the Company. Mr He agreed to accept Mr Li’s personal guarantee as security.
A copy of a minutes of the meeting is attached to Mr Li’s statement[33]. The minutes provide:
“Regarding to the share which transferred to Liang Kheng TAY and Jianhua He as security purpose for their loan, because they are both working in overseas, so Mr Liang Kheng TAY and Jianhua He decided to accept Mr Chi Man Li personal guarantee instead of the shares of the company as security for the loan.
Mr Jianhua HE and Mr Liang Kheng TAY agreed to revise the transfer of 25 and 30 shares back to Chi Man Li, and the share transfer is not involved with any payment, benefit and liability transfer.
Mr Jianhua He and Liang Kheng TAY fully aware that the shares which they held as security before has no benefit interest of the company, it is mainly for security purpose for their loan to the company.”
[33] CML-18
Accordingly:
(a)Mr He transferred 25 shares to Mr Li, in exchange for a personal guarantee from Mr Li in relation to the fourth loan[34]; and
(b)Mr Tay transferred 30 shares to Mr Li, as recognition for the greater contribution by Mr Li’s family and to reflect the understood share structure more accurately[35].
[34] A copy of the personal guarantee, in both Chinese and English, was at CML-19; and the register of members as at 10 March 2015
[35] CML-21 register of members as at 24 March 2015
Accordingly, as at 24 March 2015[36], the shareholdings were:
(a)80 ordinary shares held by Mr Li; and
(b)20 ordinary shares held by Mr Tay.
[36] CML-21
These transactions were recorded in the Company’s minutes of meeting of directors dated 20 March 2015[37], and in the Company’s Register of Members[38].
[37] CCML-18
[38] CML-20 and CML-21
Mr Li conceded at the hearing that he got a beneficial interest in the 30 shares from Mr Tay. It is only the transfer of 25 shares from Mr He to Mr Li that is in issue in this proceeding (ie. Acquisition 1A).
Mr Li’s evidence was that on 2 February 2016, two further transactions were agreed:
(a)First, Mr Hung Li would take a non-beneficial interest in 65 shares in the Company as security for repayment of the first loan (Hung Li first loan security agreement); and
(b)Second, Mr Hung Li would also take a non-beneficial interest in 10 shares in the Company as security for repayment of both the second and third loans and the interest owing under them (Hung Li second and third loan security agreement).
According to Mr Li’s written statement, it was a term of these loans that “my father would hold the shares pursuant to a non-beneficial interest as security.”[39] There is no written record of this agreement.
[39] Witness statement of Mr Li dated 17 November 2022 at [39]
Mr Li’s oral evidence was that he thought the 75 shares would come from his shareholding[40].
[40] Transcript of proceedings dated 9 December 2022, page 34, lines 20-22
Accordingly, following the execution of the loan agreement, 75 ordinary shares were transferred from Mr Li to Mr Hung Li. This resulted in a shareholding as follows:
(a)5 ordinary shares held by Mr Li;
(b)20 ordinary shares held by Mr Tay; and
(c)75 ordinary shares held by Mr Hung Li.
On 8 February 2016, the Company register recorded the shares transferred to Mr Hung Li as fully paid and beneficially held. Mr Li stated in both his written statement and his oral evidence that this was an error in the Company Register, as the intention was that they be security for the first, second and third loans[41].
[41] Witness statement of Mr Li dated 17 November 2022 at [42]; Transcript of proceedings dated 9 December 2022, page 34, line 40
The Chan Suk Hing Loan Agreement was extended on 28 February 2016[42] and the Hung Kar Tat Loan Agreement was extended in June 2016. Mr Tim Tay and Mr Li provided a personal guarantee to Ms Hung[43]. A copy of the personal guarantee is before the Tribunal. In contrast to much of the rest of the documentation, it is a multi-page template agreement signed by both guarantors[44].
[42] CML-22
[43] CML-23
[44] CML-23
Also attached to Mr Li’s statement is a document recording the extension of the Chan Loan Agreement [45] (Chan Loan Extension Agreement), titled “attachment to the corporate loan agreement.” It is dated 28 February 2016. This document records an agreement between Mr Li, on behalf of the Company, and his mother, Ms Chan, and is witnessed by Ms Yuen from Vong and Associates. The document records that Ms Chan agreed to accept 65% of the shares as a guarantee, and that the shares would be transferred back to Mr Li when the debt is repaid. Under the agreement, Ms Chan appointed her husband, Hung Li, to hold the shares for her[46].
[45] CML-22
[46] CLM-22
Mr Li agreed that there was no agreement “in writing” in relation to the other 10 shares held by Mr Hung Li on behalf of Ms Chan[47].
[47] Transcript of proceedings dated 9 December 2022, page 68, line 21
On 25 June 2016, Mr Li, Mr Tay and Mr Hung Li attended a meeting of directors of the Company, along with Ms Chan and Ms Hung. At that meeting, it was decided that:
(a)The Company would consent to a caveat being lodged over the Property as security for payment of the second and third loan amounts and the fifth loan amount;
(b)The 75 shares held by Mr Hung Li would be transferred back to Mr Li.
The agreement was noted in the Company’s minute book[48].
[48] CML-24
Following this meeting, on 1 July 2016, Mr Tay, “in error” transferred 20 shares in the Company to Mr Li[49] (Tay transfer error). This is recorded by a Change in Company Details form dated 8 July 2016[50]. Mr Li’s oral evidence was that he could not recall why the transfer was made[51] but it was not intended to leave Mr Tay with no shares in the Company.
[49] Witness statement of Mr Li dated 17 November 2022 at [48]
[50] CML T-docs, pages 115-117
[51] Transcript of proceedings dated 9 December 2022, page 77, lines 24-26
At the time of preparing his statement, Mr Li had understood that, as a result of the reacquisition of the 75 shares held by Mr Hung Li, and the transfer of Mr Tay’s shares, he held all 100 shares in the Company[52].
[52] Witness statement of Mr Li dated 17 November 2022 at [49]
On 7 March 2017, Ms Chan and Ms Hung lodged a caveat against the Property.
In October 2017, the property was valued by Colliers International at $3,100,00.00 (second valuation report).
Mr Li’s written and oral evidence was slightly inconsistent in how the Tay transfer error came to light. In his written statement, he says he was advised by the Company’s bookkeeper about the share transfer to Mr Tay. His oral evidence was he worked it out when he noticed Mr Tay holding no share in the company. Ultimately, it does not matter. Following Mr Yuen’s advice, Mr Li transferred 20 shares back to Mr Tay on 11 December 2017. This means the error was identified on around 6 December 2017 and corrected 6 days later. In his oral evidence, Mr Li acknowledged that the share transfer form was lodged by Mr Tay[53].
[53] Transcript of proceedings dated 9 December 2022, page 39
Hence, according to his statement, it was Mr Li’s understanding that as at 11 December 2017, the shareholding in the company was, or at least should have been:
(a)80 ordinary shares held by Mr Li; and
(b)20 ordinary shares held by Mr Tay.
This was still Mr Li’s understanding at the hearing[54]. He maintained this position after being shown a Company extract that recorded the current shareholding allocation as being him holding 5 shares and Mr Tay 20. “The correct position should be I got 80 shares and Mr Tay got 20.”[55]
[54] Transcript of proceedings dated 9 December 2022, page 40
[55] Transcript of proceedings dated 9 December 2022, page 40, lines 31-32
Mr Li’s evidence is that the fourth loan to Mr He was repaid in 2020[56]. He produced no records evidencing this. He conceded that the loan was not recorded as a liability in the Company’s financial accounts for the year 2015-2016[57].
[56] Witness statement of Mr Li dated 17 November 2022 at [60]
[57] Transcript of proceedings dated 9 December 2022, pages 62-64, noting that Mr Li appeared confused and thought perhaps it was mis-recorded as a loan from him to the Company
Both the Hung Kar Tat Loan and the Chan Suk Hing Loan Agreements were extended for a further 4-year term and remain current.
After receiving a Notice of Investigation from the Commissioner, Mr Li wrote to the Commissioner on 5 February 2018 advising that the shares were for security purposes. A copy of the letter was attached to his statement[58]. The letter provides:
“Regarding to the Notice of Investigation for the shares transfer of 65% to Mr Hung Li in 2016, we would like to notify you that the shares are for the security of a loan from his wife, my mom, Mrs Chan Suk Hing, and the full 65% will be returned to me after the loan being repaid before or at the terms expired in 2020.
So, the shares transfer purpose is mainly as security for a loan in the loan period. This is not a sale for the shares.
I attached a loan agreement which signed in Feb 2012 with Mrs Chan.”
[58] CML-33
On 18 June 2018, the Commissioner requested Mr Li lodge revised acquisition statements in respect of the transactions on 24 March 2015 (Acquisitions 1A and 1B), 8 February 2016 (Acquisition 2) and 1 July 2016 (Acquisition 3). Mr Li did this so on 18 July 2018. Mr Li’s oral evidence is that he was not aware of the requirement to file acquisition statements until advised by the Commissioner and does not know why their accountant didn’t know about them[59].
[59] Transcript of proceedings dated 9 December 2022, page 43, lines 7-8

On 30 June 2018, Mr Li sent the respondent a further letter regarding the shares transferred to Mr Hung Li[60]. In that letter he reiterated that the shares were intended to be security and were not beneficially held by his father. He advised that since the caveat was in place, his family did not need the shares, and “I need to hold a major share at that time to make the bank more comfortable.”[61] It is apparent from the letter that Mr Li found the record keeping and taxation requirements imposed confusing and frustrating. He stated:
“I will revise the share transfer of that 65% from my father Mr Hung Li and let them just keep the caveat for the company property to save all this hassle.”
[60] CML-34
[61] CML-34
On 10 September 2018, Mr Li provided the Commissioner with, amongst other things, two documents entitled “memorandum of understanding” (the MOU note) further explaining his position[62]. These were not ‘memorandums of understanding’ in the legal sense, but file notes recording Mr Li’s understanding of what had transpired. One document notes that “[s]hares still under Mr Hung LI will be transferred back to the company under Mr Chi Man LI after the investigation.”
[62] CML-35
When questioned by Ms Weir as to whether there has been an intention that the 75 shares be returned to him earlier, Mr Li said that Mr Hung Li “did transfer the share back” but they “lost the submission of the transfer.”[63] He was unclear on when the attempt had been made, but conceded it was not immediately after the meeting on 25 June 2016[64].
[63] Transcript of proceedings dated 9 December 2022, pages 73-74
[64] Transcript of proceedings dated 9 December 2022, page 75, line 45
Under cross-examination, Mr Li was unable to answer who had the beneficial interest in the shares then held by Mr Hung Li – “no one should hold any beneficial interest on those shares”[65].
[65] Transcript of proceedings dated 9 December 2022, page 70, lines 12-13
The Company did not have a distribution of profits[66] nor provide any other benefit[67], and at no time did Mr He[68] or Mr Hung Li[69] receive dividends. Mr Li maintained that they would not have been entitled to sell the shares.
[66] Transcript of proceedings dated 9 December 2022, page 52, line 40
[67] Transcript of proceedings dated 9 December 2022, page 54, line 4
[68] Transcript of proceedings dated 9 December 2022, page 54, lines 12-13
[69] Transcript of proceedings dated 9 December 2022, page 53
Mr Li agreed that one of his obligations as a director was signing off on the Company’ financial statements each year[70] but conceded he did not always understand them[71].
[70] Transcript of proceedings dated 9 December 2022, page 50, line 37
[71] Transcript of proceedings dated 9 December 2022, page 65, lines 37-38
When questioned about how long these matters took to get to hearing before the Tribunal, Mr Li denied deliberately delaying the proceeding and said that any delay was due to pain from a medical condition.
Mr Tay
Mr Tay signed a witness statement dated 8 December 2022. He gave evidence and was cross examined at the second day of the hearing.
At the time of making his statement, Mr Tay was the sole director and a shareholder of the Company.
Mr Tay had been business partners with Mr Li since 1998. His evidence in relation to the formation of the Company and purchase of the property was largely consistent with Mr Li’s.
I note that Mr Tay purported to give evidence about Mr Li’s intentions in relation to some of the transactions. The respondent, appropriately, objected to this evidence. I can give these assertions minimal weight, beyond accepting that they reflect what Mr Tay understood to be Mr Li’s or Mr Hung Li’s intentions in authorising the transactions.
Mr Tay’s recollection was that the Property was purchased with loans of $2.4 million from a bank, $1.2 million from Mr Li’s family, $700,000 from his family and $600,000 from Mr He.[72]
[72] Transcript of proceedings dated 9 March 2023, page 6
In relation to the distribution of shares that followed the property acquisition, Mr Tay explained that it was his understanding that Mr He was a friend of Mr Li who needed to invest $600,000 in Australia for the purpose of obtaining permanent residency. He and Mr Li gave Mr He 25% of the shares as “security” for that investment. – “[t]hen after he [got] the PR … he [got] the money back, and then he released the shares back to us.” [73]. He was firm that the money was a loan, not an investment[74].
[73] Transcript of proceedings dated 9 March 2023, page 6, lines 16-17
[74] Transcript of proceedings dated 9 March 2023, page 16, line 37
Mr Tay agreed that there should have been records of the repayment of loan from Mr He, and said the records and translation were done by the accountant[75]. He thought the money was paid back in China[76].
[75] Transcript of proceedings dated 9 March 2023, pages 16-17
[76] Transcript of proceedings dated 9 March 2023, page 17, lines 13-28
Mr Tay recalled that on 2 January 2012 his family agreed to loan the Company HKD$600,000,000, and that money was paid on 27 February 2012. He had no contemporaneous records of these transactions, although he referred to the drafting of subsequent loan agreements to reflect the arrangements that had been met.[77]
[77] Witness statement of Mr Tay dated 8 December 2022 at [14]-[15]
Mr Tay’s understanding at the time he made his statement was that Mr Li reacquired the 75 shares from Mr Hung Li on 25 June 2016 and the Company provided alternative security for the loan.
Mr Tay said that on 1 July 2016 he transferred 20 shares to Mr Li “in error”[78]. Both his statement and his oral evidence was that at this time – mid 2016, and after the reacquisition of Mr Hung Li’s shares - their respective shareholdings had been revised to represent their relative family investments.[79]
[78] Witness statement of Mr Tay dated 8 December 2022 at [23]
[79] Transcript of proceedings dated 9 March 2023, page 7, lines 44-46, page 8, lines 7-8
He had thought that his shareholding remained the same after that, until their “bookkeeping lady”, Ms Yuen, advised him that he had zero share in the Company.[80]
[80] Transcript of proceedings dated 9 March 2023, page 8
Mr Tay was surprised to find out that he had no shares. He was not able to explain how this happened. The situation was promptly remedied once the problem was identified. He called Mr Li straight away, and Mr Li called the accountants to “fix it”. Mr Tay said in oral evidence that he did not get involved. However, Mr Tay was shown a copy of the ASIC Change in Company Details form dated 28 September 2020, and particular “C4 Changes to the register of members.” The form recorded 75 shares held by Mr Hung Li. Mr Tay confirmed that he had signed the form. The purpose of signing the form, he said, was to record that Mr Hung Li held the shares for security purposes only. He conceded that: “after this I find Li Hung shares disappear, after I submit this form.”[81]. Mr Hassall asked him if that is what was supposed to happen, and he conceded “I have no idea.”[82]
[81] Transcript of proceedings dated 9 March 2023, page 13, lines 21-22
[82] Transcript of proceedings dated 9 March 2023, page 13, line 26
On 27 February 2023, he filed another Change of Company Detail form, requesting that the 75 shares be revised back to Mr Li.
When under cross examination, Mr Tay was shown a copy of the Chan Suk Hing Loan Extension Agreement. Ms Weir had anticipated questioning him as to why the document referred to 65% and not 75%/75 of the shares, but unfortunately the document as shown to him was already marked up as identifying a typographical error, and Mr Tay pre-emptively offered that explanation. I certainly do not draw any adverse inference about Mr Tay from this, but it was an unfortunate mishap that undermined the value of any evidence he could give about the discrepancy in the number of shares.
Ms Weir then took Mr Tay to the minute book of a Company meeting of 25 June 2016. Present were Mr Tay, Mr Li, Mr Hung Li, Ms Hung Kar Tat and Ms Chan. At that meeting, it was agreed that both families would be allowed to lodge a caveat against the Property, and both would withdraw the caveat when the loan was repaid. The document states “security shares will be revised after caveat”.[83]
[83] CML-24
Mr Tay frankly conceded that the documentation for the large loans was inexpert, but noted that the documents were prepared by an accountant, and that was enough for him because he was borrowing money from his father-in-law[84].
Ms Yuen
[84] Transcript of proceedings dated 9 March 2023, page 27, lines 27-28
Ms Yuen provided a statutory declaration declared 17 November 2022. She appeared by telephone at the hearing to confirm the contents of her statutory declaration.
In that declaration, Ms Yuen states that she discovered an irregularity in the register of the Company involving the transfer of 20 ordinary shares from Mr Tay to Mr Li on 1 July 2016:
“There was no reasonable basis for this transfer as it left Mr Tim Tay with 0 shares in the Company.
I informed Mr Chi Man Li of the finding, and it was rectified on 11 December 2017 when 20 ordinary shares were transferred back from Mr Chi Man Li to Mr Tim Tay.”[85]
[85] CML-28
In her oral evidence, Ms Yuen confirmed that she had no other conversations with Mr Tay or Mr Li about their shareholdings the company in June or July 2016.[86]
[86] Transcript of proceedings dated 9 March 2023, pages 32-33
Her evidence was not otherwise challenged.
Respondent’s evidence
The material relied upon by the respondent is incorporated in the T-docs. For the most part, the Commissioner’s position has been that the necessary information was in the sole hands of the applicants, and it is for them to prove their case.
Nonetheless, it is useful to set out here the documents and material relevant to how the Commissioner became aware of the alleged tax defaults, and what the Commissioner’s office knew at the time of making the decisions.
Under section 87 of the Duties Act, a person who acquires a dutiable interest is required to lodge an acquisition statement within 90 days. Neither of the applicants did this in relation to any of the relevant transactions. The Commissioner accepts they were unaware of the obligation to do so. Accordingly, the Commissioner became aware of the acquisitions through other channels.
On 20 December 2017, a delegate of the Commissioner (the delegate), after becoming aware of Acquisitions 1A, 1B and 2, wrote to the applicants and:
(a)advised Mr Li he was the subject of an investigation in relation to Acquisitions 1A and 1B[87]; and
(b)advised Mr Hung Li that he was the subject of an investigation into Acquisition 2[88].
[87] T-docs in relation to Mr Li (CML T-docs), page 118
[88] T-docs in relation to Mr Hung Li (HL T-docs), page 118
The delegate issued a notice to each of the applicants under section 82 of the TAA requesting information by 24 January 2018[89]. This date was extended to 7 February 2018[90].
[89] CML T-docs, page 119; HL T-docs, page 119
[90] CML T-docs, page 122
The applicants and the Commissioner engaged in correspondence about this, and the applicants provided documentation relating to the Chan Suk Hing Loan Agreement, the Chan Loan Extension Agreement and the caveat[91].
[91] CML T-docs, pages 124-202; HL T-docs, pages 127-295
On 18 June 2018, the delegate wrote to Mr Li:
(a)issuing a further section 82 request for information in relation to Acquisition 3[92];
(b)noting discrepancies in the documents provided[93]; and
(c)requiring the submission of acquisition statements within 14 days[94].
[92] CML T-docs, page 205
[93] CML T-docs, page 291
[94] CML T-docs, page 291
Mr Li provided further documents on 1 July 2018[95], including the first valuation report.
[95] CML T-docs, page 288
In the course of this correspondence, Mr Li advised[96] that the Company would transfer the 65 shares transferred to Mr Hung Li back to himself. In the letter of 2 July 2018, the Commissioner’s delegate advised that:
I note your comment in your letter in respect of your intention to transfer 65 shares from yourself to Mr Hung Li. As outlined above, this transaction would be considered a relevant acquisition in accordance with section 86 of the Duties Act and, therefore, duty would be payable.[97]
[96] See above
[97] CML T-docs, page 288
On 2 July 2018, the delegate advised Mr Li that as no duty had been paid in 90- days, a tax default had occurred. The delegate allowed a further 7 days to provide the acquisition statements, through which a request for an exemption could be lodged[98]. The document also set out the Commissioner’s understanding of sections 86, 87 and 88 of the Duties Act and the applicants’ duty to file an acquisition statement, even if they believe the acquisition to be exempt[99]. Mr Li agreed to file acquisition statements, and asked for, and was granted, an extension to 13 July 2018 to do so[100].
[98] CML T-docs, pages 287-288
[99] CML T-docs, pages 287-288
[100] CML T-docs, page 286
On 13 July 2018, Mr Li lodged acquisition statements for the relevant acquisitions, claiming an exemption under section 50A of the Duties Act[101]. On 17 July 2018, the delegate advised Mr Li that this exemption did not apply to landholder’s duty and set out the exemptions that did apply to landholders.[102]
[101] CML T-docs, page 285
[102] CML T-docs, pages 283-284
On 18 July 2018, Mr Li lodged acquisition statements for all the relevant acquisitions, claiming the loan exemption and trust exemption for all of them[103].
[103] CML T-docs, pages 84-85; HL T-docs, page 84-85
On 20 July 2018, the delegate wrote to Mr Li[104] and advised:
(a)The trust exemption was not relevant because no trusts were involved; and
(b)Further information was required in relation to the loan exemption.
[104] CML T-docs, pages 281-282
Mr Li responded that day, providing a copy of the Hung Kar Tat Loan Agreement and advising that he did not have any documentation in relation to the fourth loan (i.e. the He loan)[105].
[105] CML T-docs, page 281
On 3 August 2018, the delegate advised Mr Li that the Commissioner was not satisfied that the loan exemption applied and inviting further submissions from him as to why it did[106].
[106] CML T-docs, page 280
In response to this, on 10 September 2018, Mr Li provided the delegate with the MOU note.
On 24 September 2018, the delegate asked Mr Li to provide evidence and details for payment of the loan amounts[107].
[107] CML T-docs, page 305
Mr Li responded by:
(a)providing a bank transfer receipt for the Tay family loan dated 27 February 2012[108];
(b)advising he did not have any records of the fourth loan, but providing a copy of the letter from Vong and Associates confirming the loan[109]; and
(c)attaching the bank transfers in relation to the Li family loan[110].
[108] CML T-docs, pages 304, 306
[109] CML T-docs, page 304
[110] HL T-docs, page 307
The Commissioner was not satisfied that the evidence established that the loan exemption applied and issued the Notices for Assessment on 26 April 2019[111].
[111] CML T-docs, page 78; HL T-docs, page 78
The notices imposed 50% penalty tax in relation to each acquisition.

Parties’ submissions

Preliminary notes on the acquisition statements

In relation to the acquisition statements, the Duties Act provides that an acquisition statement has to be lodged within 90 days of the relevant acquisition. That permitted 90 days had long passed when the defaults were identified, and the statements were not lodged until 2018. However, the Commissioner’s Counsel advised the Tribunal that in relation to this obligation, the Commissioner takes the practical position that the requirement that a person's eligibility for the exemption is assessed at the time they lodge an acquisition statement, even if that statement is later than the 90 day period required by section 87(3) of the Duties Act, and that this is consistent with section 152 of the Legislation Act 2001, which provides that where there is a timeframe for doing something mandatory in an Act, that obligation continues even where the timeframe has lapsed. So, anyone who undertakes any of these transactions that would be dutiable remains obliged to file an acquisition statement, and when filed, that acquisition statement is taken to be an acquisition statement made under part 3.2 of the Duties Act.
The Commissioner acknowledged it is open to the Tribunal to take a different interpretation. However, in circumstances where the Commissioner’s concession appears open on the words of the legislation, and is not contested, and is in any case in the applicants’ favour, I see no reason to take a different view.
The Applicants’ submissions – summary
In broad terms, the applicants submit that the Tribunal should look to the substance of the acquisitions, rather than the form. They say that acquisitions 1A and 2 were transfers of shares to provide security for loans and subject to the “loan exemption” in section 95 of the Duties Act, while Acquisition 3 was an error that was subsequently rectified. In the alternative, they argue that all acquisitions were made “on trust” and are therefore covered by the “trust exemption” in section 115H.
Applicants’ submissions on the nature of the transfer of interest of the shares
The applicants submit that in the cases of Acquisition 1A and 2, the interest in the share that was transferred was a “non-beneficial” interest only.
To their credit, the applicants frankly concede that the ASIC documents state otherwise, and indeed record the transfers as beneficial. However, they say the record is an error, and is in any case not determinative of the true factual situation.
In this regard, the applicants rely on the decision of Presidential Member Symons in Francey v Commissioner for ACT Revenue [2013] ACAT 84, upheld on appeal in Commissioner for ACT Revenuev Francey [2014] ACAT 67 (Francey). In that case, the original decision of the Commissioner was based on ASIC documents showing that shares in a particular company were beneficially held by another company (KTC) and had been transferred to the applicant. The agreed facts, set out in paragraph 8 of the decision, were that immediately prior to the purchase of land, the applicant had entered a purchase option to acquire all the shares. The option was exercised three and a half years later, at a nominal price. The Commissioner relied on the ASIC documents, which said that KTC was the beneficial owner, therefore there was a transfer of beneficial ownership of the shares in August 2011 and duty was payable. The applicant argued, as summarised at paragraph 25 of the decision, that because of the existence of the option, there was a constructive trust from the date when the option came into effect through until the date when the option was exercised, which meant that there was no change in beneficial ownership and therefore no duty payable. The Tribunal's conclusion, at paragraph 58, was that a constructive trust arose no later than 14 January 2008, which was the date of purchase of the property, and that therefore beneficial ownership was vested in the applicant from that date, notwithstanding that the ASIC documents indicated the contrary, what was transferred in August 2011 was bare legal title. This decision was upheld on appeal.
The applicants concede that the facts in Francey are distinguishable from those in the present case, but say some of the principles are relevant – first that what is recorded in ASIC is not necessarily conclusive; and, secondly, beneficial ownership does not necessarily coincide with bare legal ownership.
The applicants contend that, taken as a whole, the evidence of Mr Li and Mr Tay is consistent with the shares having only been transferred as a form of security, with no entitlement to a dividend or other beneficial interest.
The applicants’ submissions on credit
The applicants accept that credit is a key issue in the case. In response to the accusation that they have “constructed” the loan-exemption/non-beneficial transfer argument retrospectively, they submit that this was not born out by the evidence.

The applicants contend that the sequence of events undermines any suggestion of construction of the defence:
(a)A notice of investigation was issued on 20 December 2017, together with a section 82 notice[112].
(b)Mr Li responded on 5 February 2018[113] stating that the 65 per cent share transfer in 2016 was as security for a loan (noting that he was actually asked about Acquisition 1 but responded about Acquisition 2).
(c)The Commissioner’s representative tried to assist the applicants[114], and on 18 June 2018 issued an email and a section 82 notice requiring Mr Li to provide acquisition statements within 14 days[115].
(d)Mr Li then provided a further response[116] saying:
“All the funds to support the business activity are from my family from our overseas business. Till today, the company still not repay any money or interest to the loan … I'll reverse the share transfer of that 65% from my father Mr Hung Li and let them just keep the caveat for the company property to save all this hassle.”
(e)The Commissioner’s representative, on 2 July 2018, warned Mr Li that there may be further duty payable if he did that. He also agreed to an extension for lodgement of the acquisition statements until 13 July 2018.
(f)On 13 July 2018, the applicants filed the initial acquisition statements seeking to rely on section 50A of the Duties Act, which the applicants now agree is not relevant[117].
(g)The Commissioner’s representative then explained what exemptions are available for these types of transactions and Mr Li learned that section 95, section 115J and section 115H are available for the first time on 17 July 2018.
[112] CML T-docs, pages 126-127; HL T-docs, pages 118-119
[113] CML T-docs, page 125
[114] Citing correspondence from the Commissioner ‘s representative to the applicants
[115] CML T-docs, page 205
[116] CML T-docs, pages 206-207
[117] Section 50 of the Duties Act relates to cancelled agreements
The applicants say that the Tribunal should conclude that much of the evidence around the existence of the loans predates the applicants learning that there was a loan exception, and that this should convince the Tribunal that these were in fact genuine arrangements.
Applicants’ submissions on Acquisition 1A
Subsection 95(1)(b) of the Duties Act provides for an exemption to duty where the Commissioner is satisfied that the acquisition is for the purpose of securing financial accommodation at the time the statement is lodged.
“Financial accommodation” includes an arrangement to provide security for a loan.
The Company was established with Mr Li and Mr Tay, as directors, holding a 50% interest each.
In August 2011, the directors resolved to buy the Property. To facilitate that purpose, there were a series of loans[118] including a loan of $1.8 million[119] from Mr Li’s family, and $600,000 from Mr He.
[118] One of which Mr Tay thought was about $2.4 million (which isn't referred to in the outline of written submissions)
[119] I note the differing evidence between Mr Li and Mr Tay as to these arrangements, with Mr Tay giving evidence for $1.2million
Mr He's investment was associated with his application for permanent residency, which required that he invested money in Australia. He did this by loaning money to the Company.
The applicants concede that there is no available documentary evidence of this, the fourth loan, nor is there any of documentary evidence of a transfer of money, or the repayment of the loan, but there is other evidence in the form of:
(a)the oral evidence of Mr Li and Mr Tay;
(b)a note in the company register on 8 August 2011[120] which indicates that the share transfer to Mr He was for a security purpose; and
(c)the letter from Mr Allen Vong, the company accountant at the time, dated 10 December 2013, which on its face confirms that as at 30 June 2013, the company had a current liability in the form of an unsecured interest free loan from Mr He for $600,000[121].
[120] CML-4
[121] CML-16
The repayment of the He loan happened in China, which partially explains why no evidence has been presented by the applicants.
At the time that the loans were made, Mr Tay and Mr Li had one share each, or 50 per cent each. They resolved to amend the structure to reflect the respective investments made by their families and to give Mr He security.
To do this, they issued 98 more shares, 49 of those shares went to Mr Tay to give him 50% of the shares; another 24 shares to Mr Li, so he became a 25 per cent shareholder; and 25 shares to Mr He. This arrangement reflected the greater investment by Mr Li’s family in the Company. The share dispositions are reflected in the change to company details record of 8 August 2011[122]. An ASIC document reflecting those new arrangements was lodged later, in 2012[123].
[122] Exhibit A1
[123] Transcript of proceedings dated 9 March 2023, page 37, lines 19-24
The share arrangement is clear evidence of Mr He’s investment in the Company.
The applicants acknowledge that the ASIC document and to some extent the share register refer (mistakenly) to a change of beneficial ownership, but the share register also indicates that the transfer of shares to Mr He was as security for his loan.
The applicants submit that the overall effect of this transfer of shares to Mr He was that he was in an equivalent position to a mortgagee under old title land who holds the certificate of title. There was no change in beneficial ownership as such, at least unless and until there is a default on the relevant loan, at which point the mortgagee or the shareholder (the legal shareholder in this case) becomes entitled to take further action, or at least has a claim on any proceeds of any sale. This, the applicants say, means that there was no dutiable transfer of the shares at all.
To the extent there was a dutiable transfer, it was for security purposes. The financial accommodation had been given back at the time of the original loan (which was before the Property was purchased), but it would be a nonsensical interpretation of section 95 to say that the transfer back of shares, when the loan is repaid, would be dutiable. So, on a common sense, purposive, interpretation to the provision, the Tribunal should hold that it encompasses a reacquisition of the type that occurred with Mr He and that therefore by operation of the loan exemption no liability would arise in relation to the first reacquisition.
Applicants’ submissions on Acquisition 2
This acquisition concerns the transfer of 75 per cent of shares from Mr Li to his father, Mr Hung Li. The duty is payable by Mr Hung Li.
Mr Hung Li was not available to give evidence. He is elderly and has health concerns. His position was represented by Mr Li.
The evidence of Mr Li and Mr Tay was that the purpose of this transfer was to provide security for the loans that had been provided by Mr Li's family, including Mr Hung Li, to the Company. Evidence of this arrangement is found in notes in the share register on 8 February 2016 saying that the transfer of the shares was as security for the loan funds that Mr Li's parents had provided.
This was an informal family arrangement, and that is some explanation for the limited contemporaneous documentation. However, the existence of the loans was not put in dispute by the respondent, and it should follow that if the loan is found to exist, then the need for security should similarly be accepted.
Further, evidence of the security arrangement can be inferred from the evidence of Mr Tay that in June 2016, it was determined that the transfer of shares was not necessary because the Li family was given permission to lodge a caveat over the Property. There is a minuted agreement that the shares be transferred back.
The applicants conceded that things then get complicated, as it is not clear what has happened to these 75 shares.
Mr Tay gave evidence that he endeavoured, admittedly some years after the event, to convince ASIC to recharacterize the 75 per cent transfer from Mr Li to Mr Hung Li. This was not reflected in ASIC registrar, and (to adopt the words of the applicants’ counsel), it appears that 75 per cent of shares have, in the words of Mr Hassall:
“just sort of gone off the radar altogether, sort of disappeared, but we submit that the tribunal has no reason not to find that the intention of the parties was that that 75 per cent of shares go back to [Mr] Li.”
The applicants submit that the Tribunal would be satisfied relatively comfortably that that transfer was connected with the fact that the Li family had lent substantial amounts of money to the Company and that the purpose was both to reflect that and to ensure that such a situation continued. When the loan was secured by alternative means, the shares were transferred back, and no duty is payable.
The applicants acknowledged, again, that the ASIC documents and part of what was recorded in the Company share register talked about a change of beneficial ownership, but again cited Francey as authority for the proposition that what is recorded in the ASIC is not determinative.
Applicants’ submissions on Acquisition 3
This is the 1 July 2016 acquisition by Mr Li of 20 shares from Mr Tay.
Mr Li could not explained - or perhaps more accurately, could not remember – the purpose of this transfer but neither he nor Mr Tay contemplated that it would result in Mr Tay having no shares in the Company.
Ms Yuen says she identified the error in 2017. It was never put to her that she did not in fact identify an error and nor was her evidence challenged. Within days of her advising Mr Tay and Mr Li of the situation, the transfer was reversed, such that Mr Tay got the 20 per cent of shares back.
The applicants submit that duty should not be applied in relation to something which was “manifestly an error” and was corrected as soon as it was identified.
The applicants referred to the case of Wambo Coal Pty Ltd v Stuart Karim Ariff & 1 Or, [2007] NSWSC 589 (Wambo Coal) per White J of the NSW Supreme Court. In that case, there was a transfer of property in error, and White J considered what the law was in relation to that type of situation, where there was a resulting trust potentially, or a constructive trust, and referred to some of those cases where banks deposit money into people's bank accounts and then sue them when they spend it. Hence, at paragraph 42, White J observed:
I do not see why, in principle, a constructive trust arising from the retention of moneys known to have been paid by mistake, and for which there was no consideration, would not arise from the time the payee acquired such knowledge, if the moneys paid could still be identified at the time such knowledge was acquired. Such a trust is as much an institutional trust as a trust imposed on property in the hands of the thief.
The applicants submit that the same conclusion should be reached in this case. The Tribunal needs no more to find that it was an error and that the Duties Act does not apply to errors.
Applicant’s submission on the trust exemption
In the alternative, the applicants submitted that all three relevant reacquisitions are covered by section 115H(2)(f) of the Duties Act.
Section 115H is a strangely worded provision. It applies when the land the subject of the interest concerned could have been acquired by the person in a way that results in no duty being payable under any of the listed provisions. This, the applicants’ counsel submitted, requires something of a hypothetical exercise – could the Property “that is the subject of the interest concerned could have been acquired by the person … in a way that results in no duty being payable…?”[124]
[124] Transcript of proceedings dated 9 March 2023, page 45, lines 7-9
One part of the applicants’ argument is that there does not need to have been a transfer of the shares on trust – if there had been a transfer then section 115H(2)(f) would have had no work to do. Instead, the issue is the potential transfer of the land. Following this, the applicants submitted that the question for the Tribunal is whether the land “could have been” effectively initially transferred and then transferred back pursuant to a trust arrangement in accordance with section 57 of the Duties Act.
Turning to section 57(1), the applicants submitted that if there is:
(a)an initial transfer to a trustee for the transferor,
(b)then a transfer back for no consideration, and
(c)no person other than the transferor has had a beneficial interest in the dutiable property in the meantime,
then duty is not payable in relation to the transfer back, nor is it payable in relation to the original transfer, as per section 57(2), and section 115H(2)(f) applies to the reacquisition.
Accordingly, the applicants submitted, the share transactions which are the subject of the Acquisition 1A could have been given effect by a transfer of the land to Mr He to be held by Mr He as trustee for the first applicant, and the subsequent transfer of the land back from Mr He, in circumstances where no person other than the first applicant had a beneficial interest in the land in the interim; and because there was no default on the loan (if there was a loan).
A similar approach could be taken to the second and third transfers. Undertaking the hypothetical exercise, 20 per cent of the Property could have been acquired by Mr Li in a way resulting in duty not being payable under section 57 because it could have been transferred by Mr Tay to Mr Li as trustee. It could then transferred back for no consideration and no person other than the transferor had a beneficial interest in it at any stage. Accordingly, the Property the subject of Acquisition 3 could have been acquired in a way that resulted in no duty being payable and is therefore not liable for duty by operation of the trust exception
The applicants further submitted that, setting aside hypotheticals, if the Tribunal does not accept that there was a loan from Mr He to the Company, then the trust exemption would still apply, because it would be a situation where there was no consideration moving in any direction and a trust would arise:
“if [the Tribunal] accept[s] that, notwithstanding the evidence that it was required as part of Mr He's permanent residency and so forth, that it was nothing more than a sham, then it must follow from that that there's no consideration and therefore that section 57(1) is in play, and by extension, section 115H(2)(f).”[125]
[125] Transcript of proceedings dated 9 March 2023, page 47, lines 13-17
In relation to the transfer to Mr Hung Li of the 75 shares, the applicants say that the same analysis is available, that as the parties decided to reverse the transfer “within a matter of months”, upon other security being arranged, there wasn't an intention to change beneficial ownership. It was akin to a mortgagee under old system land who holds a certificate of title on trust and the trust exemption would apply.
Applicant’s submissions on the value of the land
The applicants' contention is, effectively, that the 2016 transactions are closer in time to the second valuation report, and so that's the figure that should be adopted in terms of calculating duty, at least in relation to the latter acquisition.
Penalty tax
In terms of the appeal on the penalty tax issue, the applicants noted that the documents did not identify the date of the tax default and the date from which penalty tax has been calculated as being payable.
The applicants further noted that the Commissioner had imposed a 50 per cent rate of penalty tax because, among other things, the applicants sought to exercise their rights and sought to try to rely on the exemptions[126]. They cited the following passage in the decision in support of this:
I consider that penalty tax at 50 per cent remains appropriate here in accordance with section 30(2)(a)(iii). The taxpayer attempted to avoid payment of duty by claiming multiple exemptions and upon being refused under one exemption, simply tried to claim another, ultimately culminating in objection once the investigation was concluded and a Notice of Assessment issued.[127]
[126] Page 17
[127] Reviewable decision notices to Mr Li and Mr Hung Li
The applicants submitted that effectively what is being put there is that the applicants are being punished for seeking to claim the exemptions.
The applicants acknowledged they had the advice of accountants from time to time, but at the critical times they didn't have the assistance of an accountant.

The Commissioner’s submissions

The Commissioner’s position is that the Tribunal cannot be satisfied on the evidence before it that any of the exemptions are made out, having regard to section 101(3) of the TAA.
The Commissioner rejected the applicants’ position that the Tribunal should look to the end result of this series of transactions (a 30 per cent increase in Mr Li's shareholding) and contended that each transaction should be viewed separately[128]. The Commissioner conceded that were there a series of transactions very close together that are intended to, in practice, be all part of the same transaction, there might need to be some leeway to this, but that's not the case here where the transactions unfolded over a period of about nine years. The Duties Act deals with each relevant acquisition separately, and that is defined in sections 85 and 86 of the Duties Act.
[128] Other than the initial distribution of the 100 shares, which may have been a two stage process but was close in time
In terms of the loan exemption, the Commissioner agrees that “financial accommodation” includes a loan and that duty is not payable in relation to a transfer of shares made for the purpose of securing a loan so long as those shares are transferred back within five years.
The respondent accepts that the Tribunal's role is to stand in the shoes of the decision-maker and the tribunal can make that assessment itself.
On this basis, the respondent submitted that the questions in relation to each transaction for the loan exemption are:
(a)whether the Tribunal can be satisfied that the acquisition was effected for the purpose of securing financial accommodation; and
(b)if so, whether the shares were transferred back within five years.
Credibility
The Commissioner submitted that in terms of the facts before the Tribunal, this was “really a matter of credibility in terms of the evidence of Mr Chi Man Li…”.[129] The respondent did not submit that Mr Li was attempting to be deliberately dishonest in his evidence to the Tribunal, but rather submitted that the Tribunal would have reservations about the reliability of his evidence.
[129] Transcript of proceedings dated 9 March 2023, page 53, lines 43-44
The Commissioner submitted that Mr Li:
(a)repeatedly asked during cross-examination what his evidence was in his statement; and
(b)showed a lack of knowledge of the day-to-day workings of the Company, in terms of reliance on the accountant and confusion to date about the significance of particular transactions;
(c)recollected matters that were directly contradicted by other evidence; and
(d)failed to produce any documentary evidence to support the submissions made.
The respondent submitted that for these reasons, the Tribunal should not accept assertions made by Mr Li unless they're corroborated by documentary evidence, noting that authorities say that contemporaneous documents prepared without an eye to legal proceedings should be preferred over latterly constructed documents, and that is particularly the case here, where large transactions have left no paper trail, or no available paper trail, or are obviously incomplete.
The respondent conceded that there were consistent references to the share transfer being “for the purposes of” providing security in some documents, but submitted it is not clear what was meant by that.[130]
[130] Transcript of proceedings dated 9 March 2023, page 54, lines 27-29

The applicants’ case, as competently and creatively argued as it was, requires the Tribunal to accept the evidence of the Mr Li and Mr Tay as credible, and to draw supporting inferences from incomplete and sometimes contradictory evidence.
If I were to draw any inferences from the evidence, it would be that the applicants had no idea when they were moving shares around that they would be liable for duty under the Duties Act. They have, inadvertently, arranged their affairs in a way that exposes them to it, perhaps excessively so. This is unfortunate. They are facing a very significant penalty.
However, I do not accept that section 115H of the Duties Act allows the Tribunal to hypothesise about how the shares could have been transferred in a way that minimises duty and apply those exceptions. Rather, I accept the Commissioner’s position that the purpose of this section is to provide a taxpayer caught by these provisions by reason of a share transfer with the same exemptions they would have been entitled to had they acquired the dutiable Property directly. The applicants must prove a relevant exception applies to what they did.
The applicants’ assertion of a transfer of a non-beneficial interest in relation to Acquisitions 1A and 2 may well reflect what they wanted or even perhaps intended to happen, being that the shares were offered only as a kind of security only, with rights accruing only on default. However, there is no convincing evidence to establish that this was achieved at the time. Acquisition 3 was clearly an error, but only as to the outcome. There is no basis upon which I can find a relevant trust arose at the time of transfer. The applicants’ objections, accordingly, are not sustainable, and the Commissioner’s decisions to impose stamp duty on Acquisitions 1A, 2 and 3 are confirmed.
Consideration in relation to the valuation issue
Neither party made detailed submissions about the principles of valuation. Both parties relied upon the valuation reports, and neither called the writers or the report, or any other witness. The only issue was which of the first or second valuation reports was the best estimate as to the value of the Property at the acquisition dates.
The approach to be taken to valuation reviews in revenue matters was considered by the Tribunal in Planet Red Pty Ltd v Commissioner of ACT Revenue [2017] ACAT 18[181] as follows:
[181] Cited in Eldridge v ACTPLA [2020] ACAT 22 at [38]; Gusida Pty Ltd v Commissioner for ACT Revenue [2019] ACAT 100 at [38].
17. In the ordinary course of administrative review and the Tribunal deciding under section 68 of the ACT Civil and Administrative Tribunal Act 2008 whether to confirm, vary or set aside the decision under review, an applicant is not subject to any burden or onus of proof. The Tribunal’s obligation is to hear the matter ‘afresh’ and to decide what it considers to be the correct or preferable decision on the material before it.
18. Section 101(3) of the TAA modifies that position in relation to an objection to a reviewable tax decision by requiring the applicant to sustain its objection, meaning in this case to establish that the valuations are too high.
19. Section 101(3) of the TAA is a general provision applying to a wide spectrum of decisions to which a taxpayer may object under section 100 of the TAA. Whether the onus has been discharged is sometimes readily decided: the Tribunal finds that a decision is right or wrong, for example whether land tax or payroll tax is payable, or not, and the amount payable according to a statutory formula. However, concerning land valuation, to decide whether the onus has been discharged is problematic. The parties agreed (and properly so) that there is no ‘correct’ decision, when determining the UV of land. It is necessarily a subjective exercise where legitimate opinions can and invariably will differ, as they do in this case. How then can the applicant discharge the onus?
20. In Re Sharkey and Commissioner of Taxation the Administrative Appeals Tribunal (Cth) said in relation to 14ZZK of the Taxation Administration Act 1953, being the material equivalent of section 101(3) of the TAA:
But the practical reality in most cases is more likely to be that proper consideration of all of the material will lead the tribunal to a state of comfortable satisfaction that a particular outcome is either ‘correct or preferable’ in all the circumstances. Comfortable satisfaction that a different result is ‘preferable’ will justify the tribunal in regarding an applicant for review as having discharged the burden imposed by s 14ZZK(b) of the Taxation Administration Act — of showing that the taxation decision ‘should not have been made or should have been made differently’
21. In Rawson Finances Pty Ltd v Commissioner of Taxation Jagot J, sitting as a judge of a Full Court of the Federal Court on appeal, said as follows regarding this passage from Re Sharkey:
These observations seem to me to confuse the Tribunal’s general obligation as a merits decision-maker which may by s 43(1) of the AAT Act “exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision” (a power which has been held to oblige the Tribunal to make the correct or preferable decision on the available material) with the Tribunal’s duty to apply s 43(1) subject to the modification imposed by, relevantly in this case, s 14ZZK(b)(i) of the TA Act. In a case where s 14ZZK(b)(i) of the TA Act applies the correct or preferable decision is to set aside the decision under review if the applicant has discharged the burden of proving that the assessment is excessive and to dismiss the review application if the applicant has not discharged that burden. The fact that the Tribunal cannot be satisfied that the Commissioner’s assessments represent the correct or preferable decision does not mean that the applicant must succeed and the Commissioner fail. This would involve not only the casting of an onus of proof on the Commissioner but would also relieve the applicant of the applicant’s burden of proof. Both would be impermissible.
22. In Rigoli v Commissioner of Taxation the Federal Court endorsed Jagot J’s approach and then said:
... where s 14ZZK applies, the only state of satisfaction that the AAT is required to reach is whether, on the facts as found by the AAT, the taxpayer has proved that the assessment is excessive. If that state of satisfaction cannot be reached, the application for review must be dismissed.

23. These authorities demonstrate, in our view, that the Tribunal must approach its task not by endeavouring to determine what the valuations ought to be on the evidence before it and then substituting those valuations as the ‘preferable’ decisions for those of Commissioner. Rather, the Tribunal must first determine whether, on the evidence, the applicant has established within margins reasonably open to the Commissioner that the valuations are too high. Where valuation is necessarily a discretionary decision, in our view for the applicant to show that its viewpoint or the Tribunal’s conclusion is merely marginally preferable in all the circumstances to the Commissioner’s determination would not discharge the onus. In The Optimise Group Proprietory Limited and Commissioner of Taxation Forgie DP said:
49. The Tribunal’s task was explained more fully in Federal Commissioner of Taxation v Dalco. Brennan J observed that the purpose behind an assessment, objection and appeal or review “... is to ascertain the true tax liability of the taxpayer under the substantive provisions of the Act.” Speaking of an appeal, but the principles are equally apt to a merits review in this Tribunal, his Honour continued:
... It would be inappropriate for a court determining an appeal to make an order altering the tax liability assessed ... unless the court were satisfied that the amount to which it proposed to alter the assessment represented the true tax liability of the taxpayer. Although the grounds of objection limit the grounds of appeal, the ultimate question for the court hearing the appeal is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong. The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.(emphasis added)

24. To the extent that the Tribunal considers (and has considered in this case) what the valuations ought to be, it is done to establish as a reference point whether the applicant has discharged its onus. If and only if the onus is discharged may the Tribunal proceed – but need not do so – to decide the extent to which the valuations are too high and substitute different valuations.
25. In Rawson Finances Jagot J put it this way:

The two tasks (on the one hand, being satisfied on the facts as found that the applicant has proved that the assessment is excessive and, on the other hand, being satisfied on the facts as found as to the amount of the liability in the impugned decision) are conceptually different. The statute consigns the first task only to the Tribunal. It may be accepted that, in performing the first task, the Tribunal may consider and/or resolve the second task. No doubt in a case where the Tribunal can satisfy itself, in accordance with the second task, that the facts as found by the Tribunal give rise to the amount of the liability in the impugned decision the Tribunal can also discharge the first task with a high degree of confidence and conclude that the applicant has not proved that the assessment was excessive. Provided the Tribunal’s consideration of the second task does not distract it from the task which the statute requires to be performed there will be no question of law capable of vitiating the Tribunal’s decision. But the second task cannot be substituted for the first task.
(Citation omitted)

In other words, in order to succeed, the applicants would need to satisfy the Tribunal not just that there is preferable valuation (ie. the second valuation report), but rather that the valuation undertaken by the Commissioner was incorrect or excessive.
Taking their argument at its highest, the applicants contend that the Tribunal should have regard to the second valuation report, on the basis it is closer in time to the latter acquisitions than the earlier report. No authority was offered to support the principle that a later, but more proximate, valuation is to be preferred. Logically, it does not follow that a later report would be more reliable only by reason of being closer in time to the valuation date, at least unless the later report was prepared with the intention of valuing a property as a certain past date. No evidence pointed to the conditions at the time of the second valuation report being a better basis for assessing the approximate value of the Property as the acquisition times.
The difference in time between the respective reports and the acquisition dates is fairly minimal – the second valuation report was undertaken in October 2017, as opposed to 30 January 2014, for acquisitions that occurred between March 2015 and July 2016. An argument could be made for using different reports for different acquisitions, depending on proximity in time, but again, that is dependent on temporal proximity alone being the relevant consideration.
Given the differences in the valuations, presumably, something did change between January 2014 and October 2017, but neither party put on evidence about what that was, when it occurred, or the consequences for the valuation adopted by the Commissioner. The applicants did not put on any evidence to suggest that something happened in the market that would render the earlier valuation unreliable by the date of the acquisitions.
In the circumstances, I do not see any basis upon which I could conclude that the Commissioner’s valuation was excessive or otherwise in error. There simply is not enough evidence for me to decide one way or the other, and in the absence of such evidence, I see no basis to conclude the valuation was too high, nor anything to disturb the Commissioner’s assessment. I am satisfied in any case that reliance on the earlier report is, in the circumstances, correct.
Consideration of the penalty tax issue
A defaulting taxpayer is liable for penalty tax under section 30 of the TAA. The default rate of penalty tax is 25%[182], but a higher rate of 50% may be imposed in the circumstances of section 31(2) of the TAA[183].
[182] TAA s 31(1)
[183] The Act has been amended since the issue of the Notice of Assessment and the Statement of Reasons, but pursuant to section 31(3), the current provision applies
The Commissioner contends that a 50% penalty tax is appropriate because the applicants:
(a)delayed the provision of information required for the assessment of tax; and
(b)provided information required under a tax law that is incorrect, incomplete or misleading; and
(c)and Mr Li in particular, defaulted a second, related time with Acquisition 3.
Neither of the parties made detailed submissions about any authority on the application or interpretation of section 31(2).
It is uncontroversial to say that the imposition of penalty tax and interest is intended to promote compliance with the self-reporting scheme for acquisitions in landowning entities, encourage cooperation and provide general deterrence of tax default.
Section 31 of the TAA was amended with effect from 1 July 2019, and much of the relevant caselaw relates to the legislation before this period. In the Revised Explanatory Statement of the Revenue Legislation Amendment Bill 2019, the amendment is discussed as follows:
The Bill amends the penalty tax provisions to re-align the 25 per cent rate as the “base default” penalty rate. Previously the 50 per cent rate was an additional rate for tax defaults where the Commissioner for ACT Revenue is satisfied that the default was caused wholly or partly by a failure to take reasonable care.
This amendment clarifies that the 25 per cent penalty tax rate will be applied for tax defaults. Under existing provisions where the Commissioner is satisfied that a taxpayer took reasonable care to comply with tax laws, no penalty is payable.
The Commissioner may apply the 50 per cent rate if satisfied that the tax default was caused by the taxpayer delaying the payment of tax, delaying the provision of information required to the assessment of tax , or providing information required under a tax law that is incorrect, incomplete or misleading. This rate is also applicable in instances of repeat tax defaults.
These amended penalty tax arrangements will apply to tax defaults occurring before or after 1 July 2019.
This is expected to result in fewer taxpayers being subject to the 50 per cent penalty tax rate from 1 July 2019. However, this is not expected to result in a change of outcome for those taxpayers currently subject to the application of the 50 per cent penalty tax rate as the circumstances specified in these amendments are consistent with the circumstances for a failure to take reasonable care described in Revenue Circular GEN006 of 6 July 2018.
In other words, post the amendments, a failure to take reasonable care attracts a default penalty of 25% and this is the baseline. The 50% penalty is for situations where there is a higher degree of culpability on the part of the defaulting taxpayer.[184]
[184] A 75% penalty remains for certain other defaults where there is a degree of culpability by the taxpayer, but it is not suggested that applies here.
There is no suggestion of deliberate tax avoidance. The applicants had no idea about the operation of the Duties Act on share transactions of this kind, which took place largely within a family and friendship group.
While the authorities are clear that ignorance is no excuse not to meet legal obligations[185], awareness and risk mitigation can go toward the penalty tax.
[185] Jokhan and Jokhan v Commissioner for ACT Revenue [2012] ACAT 15 at [21]; Theron v Commissioner for ACT Revenue [2013] ACAT 33
To their credit, the applicants did seek some professional advice, albeit from an accounting firm. It would appear, based on Mr Li’s evidence, that the accountants did not advise the applicants as to their liability under the Duties Act, but it is impossible to make any finding as to why not. Apart from the limited evidence from Ms Yuen about the discovery of the error in Acquisition 3, there is no evidence before the Tribunal as to the scope of the firm’s retainer and the nature of the advice it provided. In any case, the general position is that the taxpayer is liable for any default by an advisor, and there is nothing before me that suggests that the default was out of the applicants’ control. The applicants concede that they did not keep good records.
In the circumstances, I am satisfied that the applicants did not take reasonable care. The penalty for this is the standard 25% penalty tax.
Whether the applicants are liable for a further penalty comes down to an analysis of their conduct after having been advised about the possible defaults.
The applicants submit that they are being penalised for raising arguments and exploring exemptions that were later abandoned. The applicants certainly should not be penalised for exploring which exemptions apply or pressing their rights for review. However, notwithstanding the less than precise language of the delegate, the applicants’ exploring options was clearly not the basis upon which the 50% penalty tax was imposed. Rather, the true basis for the penalty tax is the delayed and inaccurate information. After being notified that they were under investigation in December 2017, the applicants (or, more precisely, Mr Li) provided incomplete information in a piece meal fashion. Certain relevant information, including fulsome explanations as to the nature of several transactions, was not provided until this hearing.
The Commissioner appears to believe the applicants made a strategic decision to delay responding. If that was the strategy, it was most unwise, given the significant statutory interest imposed on matters of this kind. It seems more likely, taking into account all the circumstances, and the evidence of both Mr Li and Mr Tay, that the delays were caused by a lack of understanding of the law, limited professional advice, poor organisation, unfortunate ill health and perhaps a degree of panic over the determinations and the debt. These factors explain much of the applicants’ unsatisfactory response to the Commissioner’s enquiries.
But these are explanations, not excuses.
As noted above, some documents are still missing. The continuing failure to produce relevant, probative evidence amounted to a delay in the provision of information. This is particularly concerning in relation to allegation 1, where additional documents must be available and were never produced. Acquisition 2 is supported by some of the better evidence, and much of that evidence was provided to the Commissioner during the investigation, albeit in a rather haphazard manner. However, the full explanation and accompanying documentation were only provided when Mr Tay filed his witness statement in these proceedings.
In relation to Acquisition 3, the issue is more a late explanation. The applicants did not raise the issue of the transfer being for the purposes of correcting an error until sometime into the Commissioner’s investigation. For example, in the MOU document attached to the September letter to the Commissioner notes only that “In July 2016, further 20 shares transferred back to Mr Chi Man Li from Mr Liang Kheng Tay,”[186] and there is no mention at this stage of the transfer being in error. There may be a reason for this oversight – perhaps the applicants did not, at that time, understand that the error would be a ground of objection – but had that explanation been advanced up front, perhaps the matter could have been better sorted without the resort to litigation.
[186] CML T-docs, pages 292-296

The applicants’ approach was unhelpful, and I can understand the Commissioner’s frustration. Although I am not convinced that the applicants were being deliberately recalcitrant or strategic in their approach, it does appear that they were at the least disorganised and (understandably given the significant amount of money involved) and distressed when presented with the Commissioner’s requests. They appear to have become defensive, were sometimes less than frank, and then grasped at solutions in a way that seems to have ultimately been unhelpful.
Given the purpose of the penalty tax provisions, particularly the emphasis on self-reporting, understanding one’s liabilities, and co-operation with the investigation, the Commissioner’s decision to impose a 50% penalty tax is not without basis, and I am satisfied that the criteria for the imposition of the higher penalty tax is met.
That is not, however, the end of the matter. Section 37 of the TAA provides that the Commissioner may, if the Commissioner considers it appropriate in the circumstances, remit penalty tax by any amount.
The intended purpose of the penalty provisions of the TAA, is to encourage compliance and deter default, with the discretion available in section 37 of the TAA to recognise that mistakes do happen and to take account, when imposing penalty, of a taxpayer’s genuine efforts to address the reasons for the default and ensure future compliance[187].
[187] A Plus Plumbing and Building Services Pty Ltd & the Commissioner for ACT Revenue (Administrative Review) [2012] ACAT 76 at [92]
In Kessey v Commissioner for ACT Revenue [2019] ACAT 83, Member Warwick made the following observations about the operation of section 37, albeit in relation to land tax rather than duty:
71. Under section 37 of the TAA, the Commissioner may, if the Commissioner considers it appropriate in the circumstances, remit penalty tax by any amount. The conditions or factors to be considered in exercising this discretion are not expressly stated. The discretion must be exercised within the boundaries created by the subject matter, scope and purpose of the statute and of the particular provision by which the discretion is conferred.
72. In considering whether it is appropriate to remit penalty tax by any amount, the Tribunal must take into account subject matter, scope and purpose of the LTA, the TAA, and in particular section 37 of the TAA. The Tribunal must keep in mind the purpose for which land tax is imposed and paid. The Tribunal must keep in mind that the imposition of penalty tax and interest is intended to promote compliance with the self-reporting scheme for land tax, and to provide general deterrence of tax default . The Tribunal must keep in mind the legislative intention that the taxpayer is liable for any default by the taxpayer’s agent. The Tribunal must keep in mind that section 37 does not require special or exceptional circumstances for the remission of penalty tax. Keeping all these matters in mind, the Tribunal must consider whether the penalty (as imposed by the Commissioner) is harsh, having regard to the particular circumstances of the taxpayer.
The applicants submit that the Tribunal should find, to adopt the Senior Member’s words, that the outcome is “harsh, having regard to the particular circumstances of the taxpayer.”
I have some sympathy for the applicants. They are facing a very large penalty for a series of familial and fraternal transactions for which they made no profit and had no anticipation of any form of taxation liability. They did not set out to avoid tax, or even to minimise it. They took some care for their affairs, and sought some degree of expert advice, albeit from an accountant, and clearly not enough.
Further, it is not lost on me that the applicants have probably failed to make out their objections in part due to their poor record keeping. They are paying a heavy price for those failings, and there is some unreasonableness in punishing them twice for the same mistake.
On the other hand, this criterion looks to hardship and personal circumstances, and I have little evidence of any relevant special personal circumstances or actual financial or other hardship to be suffered by Mr Li or Mr Hung Li. I have no information about their financial circumstances or capacity to pay, and no basis to find the penalties impose an unreasonable impact upon them as individuals. I do not know anything about their broader circumstances at all, save that commentary from Mr Li in correspondence with the Commissioner indicates that duty under the Duties Act is not the only revenue liability he accrued during his business ventures in Australia due.
In contrast to some other cases where the higher level of penalty tax has been reduced on review by the Tribunal, there was no evidence before the Tribunal of the steps the applicants have taken to ensure compliance in the future. Still, one can hopefully conclude that they will now seek advice and take greater care and I would expect them to proceed with more caution in the future. Hence, while general deterrence remains an important consideration, specific deterrence is now less so.
The unchallenged evidence of the applicants is that neither they, nor anyone else, made any profit from these arrangements, beyond perhaps avoiding the increased costs of commercial finance. There were no distributions of profits by the Company during the relevant period (or, I understand, at all).
Section 37 of the TAA provides that the Commissioner, in whose shoes the Tribunal is standing, may remit penalty tax “by any amount”. There are no limits on this sum – there is nothing in the language used that suggests, for example, that the Tribunal is bound to remit the entirety of the additional penalty tax payable under section 31(3) of the TAA.
In this case, I am satisfied that the applicants did delay the provision of information required for the assessment of tax, being relevant documentation relating to all transactions, and that Acquisition 3 was a second default, in relation to a similar or related tax liability. I am, however, also satisfied that the penalty to be imposed is harsh, when the breaches are viewed as a whole and the arrangements that underlay them are fully considered. The late provision of documentation is, ironically, why the Commissioner was not able to do this at the time of the initial review.
In summary, therefore, while I am not satisfied that I should alter the penalty payable rate of 50% pursuant to section 31(2) of the TAA, I am satisfied that the consequences of this decision are harsh, and I consider it appropriate to remit some portion of the tax pursuant to section 37. I therefore reduce the additional penalty tax payable under section 31(2) by half, to 12.5%, making the penalty tax payable in total 37.5%.
The interest calculated in accordance with section 25 of the TAA should be added to this amount.
I do note, however, that I remain concerned about the apparent “disappearance” of the shares that should have been transferred from Mr Hung Li to Mr Li. Had there been evidence that these shares had been transferred back within the requisite time, my decision may well have been different. I cannot, however, see any way I can resolve this on what is before me.

Conclusion

The Commissioner’s decision is confirmed, save that penalty tax in relation to each of the acquisitions is to be applied at the rate of 37.5%.

………………………………..

Presidential Member H Robinson

Dates of hearing:	9 December 2022, 9 March 2023
Counsel for the Applicant:	Mr M Hassall
Counsel for the Respondent:	Ms K Weir