Li v Commissioner for Act Revenue; Li v Commissioner for Act Revenue (Administrative Review)

Case [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

Continue reading Li v Commissioner for Act Revenue; Li v Commissioner for Act...

Sign in free to access the full text

Details
AGLC
Li v Commissioner for Act Revenue; Li v Commissioner for Act Revenue (Administrative Review) [2024] ACAT 24
Case
[2024] ACAT 24
Decision Date

CaseChat Overview and Summary

Li v Commissioner for ACT Revenue and Li v Commissioner for ACT Revenue (Administrative Review) involved the applicants, Mr. Li and Mr. Hung Li, challenging the imposition of stamp duty by the Commissioner for ACT Revenue. The dispute arose from three acquisitions of shares in a property holding company. The applicants argued that the acquisitions were either exempt from stamp duty or constituted a manifest error warranting relief. The court was required to determine whether the acquisitions were exempt under the relevant sections of the Duties Act, specifically considering if they qualified as financial accommodations or trusts. Additionally, the court had to assess the onus of proof, the adequacy of evidence provided, and the appropriate rate of penalty tax.

The court examined whether Acquisitions 1A and 2 qualified as financial accommodations under section 95 of the Duties Act or as trusts under section 115H(2)(f). It concluded that the applicants failed to provide convincing evidence that the shares were transferred for financial accommodation purposes or that they constituted a non-beneficial interest for a trust exemption. For Acquisition 3, although acknowledged as a manifest error, the court found no basis to conclude that a relevant trust arose at the time of transfer. Consequently, the applicants did not meet the onus of proof, and the court confirmed the Commissioner's decisions to impose stamp duty on the acquisitions.

The court also deliberated on the penalty tax, considering the applicants' failure to provide timely information, the incompleteness of the information provided, and inadequate record-keeping. Despite these shortcomings, the court applied a reduced penalty tax rate of 37.5% due to the applicants' circumstances. The Tribunal confirmed the Commissioner's decisions, with the specified penalty tax rate applied to each acquisition.

Orders

Orders of the court

The Tribunal orders that:

1.

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%.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

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

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

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.