Market Square (Qld) Pty Ltd atf Market Square Unit Trust v Commissioner of State Revenue
[2014] QCAT 539
•5 August 2014
| CITATION: | Market Square (Qld) Pty Ltd atf Market Square Unit Trust v Commissioner of State Revenue [2014] QCAT 539 |
| PARTIES: | Market Square (Qld) Pty Ltd atf Market Square Unit Trust (Applicant) |
| v | |
| Commissioner of State Revenue (Respondent) |
| APPLICATION NUMBER: | GAR381-12 |
| MATTER TYPE: | General administrative review matters |
| HEARING DATE: | On the papers |
| HEARD AT: | Brisbane |
| DECISION OF: | Member Allen |
| DELIVERED ON: | 5 August 2014 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. The Tribunal orders that the submissions of market Square dated 1 March 2013 and the affidavits of Antony John Knox dated 28 February 2013 and Robert John Balanda dated 12 April 2013 shall form part of the grounds and evidence for the purpose of the review application. 2. The application is listed for a directions hearing on a date to be advised. |
| CATCHWORDS: | APPLICATION FOR REVIEW – leave to raise new grounds and evidence by applicant Taxation Administration Act 2001 s 71 Lighthouse Philatelics Pty Ltd v Commissioner of Taxation (1991) 32 FCR 148 |
APPEARANCES and REPRESENTATION (if any):
This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (QCAT Act).
REASONS FOR DECISION
Market Square (Qld) Pty Ltd (‘Market Square’) was subject to three default assessments by the Commissioner of State Revenue (‘the Commissioner’) in respect of certain surrenders of units in the Market Square Unit Trust as follows:
a) Transaction Number 503739567 relating to the surrender of MBA Varsity Lakes’ 46.5% interest in the trust on 12 June 2007;
b) Transaction Number 503739591 relating to the surrender of Jones’ 16.26% interest in the trust on 10 December 2007; and
c) Transaction Number 503739666 relating to the surrender of Rose’s 16.26% interest in the trust on 10 December 2007.
The assessment in relation to transaction number 503739567 has been dealt with by way of a dismissal on the basis that the total amount of duty penalty and unpaid tax interest was not paid before the application to review was lodged as required by the Taxation Administration Act 2001 (Qld), s 69(1)(b).
This current application is a subsequent preliminary application made by Market Square as a result of the Commissioner’s belief that certain matters raised in submissions by Market Square constituted new grounds and/or new evidence in respect of the application under review. Which in accordance with s 71(3)(a) requires the leave of the Tribunal under s 71(2) in regard to grounds and s 71(3)(a) in regard to evidence.
The original objection was by way of letter dated 12 December 2011 from McInnes Wilson Lawyers to the Commissioner. Copies of the following documents amongst other material were included with the letter of objection:
a) the Trust Deed for the Market Square Unit Trust;
b) the Unit Holders Agreement; and
c) the Joint Venture Agreement.
The grounds of the objection can be summarised as follows:
a) The trust deed in respect of the Market Square Unit Trust has been varied by a unit holders agreement and a joint venture agreement. The effect of which is that each of the unit holders had entitlements to specific property of the trust.
b) The unit holders interest in the trust can be described consistently with the Unit Holders Agreement as:
i)MBA Varsity Lakes Pty Ltd as trustee for the Varsity Lakes Unit Trust (MBA) ; Lot 2 on SP 192120 capital gains from disposal, income arising from rent, right to call for the property to be transferred and 100 per cent of the net proceeds of any disposal.
ii)K A Jones Pty Ltd as trustee for the Jones Family Trust and G A Rose Pty Ltd as trustee for the Rose Family Trust (Jones and Rose); Lot 1 on SP 206399 and Lot 4 on SP 206399 capital gains from disposal, income arising from rent, right to call for the property to be transferred and 100 per cent of the net proceeds of any disposal.
iii)Briken Pty Ltd as trustee for the Briken Unit Trust; Lot 3 on SP 192120 capital gains from disposal, income arising from rent, right to call for the property to be transferred and 100 per cent of the net proceeds of any disposal.
iv)The unit holders had the right to require the trustee to sell the specific property they were entitled to and in exchange for a distribution of the net proceeds of sale they were required to surrender their units in the trust.
c) In the case of MBA the property it was entitled to was sold on 13 June 2007 following which a distribution of the net proceeds of sale was made to MBA. Then MBA surrendered its units in the Market Square Unit Trust. The same can be said in respect of the Jones and Rose units. Lots 1 and 4 were transferred on 14 December 2007 and subsequently Jones and Rose surrendered their units in the Trust.
d) It is Market Squares argument that the dutiable value of the trust surrenders by MBA, Jones and Rose is nil given that, at the time of the surrenders of the units by MBA, Jones and Rose there was no value attached to their respective trust interests or indeed any connection to dutiable property of the trust (which is consistent with the Unit Holders Agreement and the Joint Venture Agreement). This view is supported by the financial statements of the trust, which show the net profit of the trust for each year being distributed only for those unit holders whose pre-identified lots were sold in the financial year.
e) Market Square also disputed the dates the Commissioner had determined that the unit redemptions for MBA and Jones and Rose occurred, as that would mean that units were surrendered before the dates of the settlement of each of the properties and the dates the unit holders received their final distributions.
f) Section 52 of the Duties Act 2001 provides that contracted property is taken to be dutiable property held by a trust. In this case, the information originally provided indicates that MBA’s pre-identified properties were subject to uncompleted property sale contracts at the time that it surrendered its units in the trust. Having regard to the effect of s 52 on this basis for example it is submitted that as MBA’s Lot 2 was subject to a sale agreement, which completed successfully after the redemption of MBA’s units then MBA’s trust interests should be considered to have a dutiable value of nil.
Market Square made submissions on 1 March 2013 in accordance with the Tribunals directions. Those submissions set out the background of the creation of the trust and terms of the trust deed. Then described the subsequent transfers of units to other parties being MBA and Briken and the entering of the unit holders agreement and the joint venture agreement and a description of their provisions.
The submissions noted that a change of trustees had occurred and described the process of the construction of commercial units on land owned by the trustee and the interests of the parties with details of the sale and transfers of the various lots.
Submissions were made about the power to vary the interests and rights of beneficiaries pursuant to the unit trust deed. It is stated that there is no doubt that had the trustee acted in accordance with the requirements of cl 27 of the unit trust deed to appropriately amend the unit trust deed to bring the relevant provisions into line with the terms of the unit holders agreement then no duty would have been payable. Submitted that the trustee and the unit holders substantially complied with that clause. And that is important to note that the corporate trustee, Market Square was owned and controlled by the Unit Holders. Although Market Square was a separate legal entity it was at all material times owned and controlled by the very same persons who were parties to the unit holders agreement. The joint venture agreement also included the same persons and entities together with guarantors.
Alternatively, all of the relevant beneficiaries under the unit trust deed were said to have disclaimed any entitlement to any income or capital of the unit trust apart from their entitlements agreed to in the unit holders agreement and the joint venture agreement. As set out in clause 3 of the unit holders agreement and cl 11.1 of the joint venture agreement. The unit holders clearly agreed and effectively communicated their agreement to the Trustee that their interest pursuant to cl 3.3 in the trust deed was varied so that they would accept in full and final discharge of their entitlements under the trust deed the distribution and other entitlements referred to in cl 3.1 of the UHA.
Each of the corporate beneficiaries was clearly acting within power in so doing and because Market Square was effectively controlled by those beneficiaries, Market Square was clearly on notice of that agreement and obliged to act in accordance with its terms. Market Square was also well aware of what was occurring by virtue of the joint venture agreement and the decision by the directors of Market Square to enter into the building contract with Glenzeil.
The submission then goes on to consider the determination of dutiable value. And raises the issue of the market valuations of lots 1 and 4 of SP 206399 and lot 3 on SP 192190. Stating that one obvious difficulty with relying upon that valuation, which was effected by DTZ on 25 August 2011, is that it relied for its efficacy on the sales of lot 1 and 4 which occurred on 21 November 2007 and the market value of lot 3 estimated by the valuer as at 25 August 2007. The relevant date for assessing the unencumbered value of the remaining lots would, even on the Commissioner’s case, have been the date of surrender, 29 June 2007.
Further, in order to work out the value of the remaining assets of the trust, it is necessary to have regard to the trustee’s right of indemnity and right to remuneration. The amount of costs and expenses incurred by the trustee, with respect to which he was entitled to an indemnity from trust property, and the amount of outstanding remuneration, as at the relevant date, would have to be calculated and deducted from the unencumbered value of the remaining trust property.
There were also affidavits filed as follows:
a) affidavit of Antony John Knox dated 28 February 2013; and
b) affidavit of Robert John Balanda dated 12 April 2013.
This application was made as a result of the Commissioner contending that certain of the matters addressed in the submissions of 1 March 2013 constituted new grounds and clearly the affidavits may be considered to be new evidence. The specific matters which were contended by the Commissioner and made subject to the application for new grounds were said to be as follows:
a) That the trustee was owned and controlled by the unit holders, with the implication being that the trustee was effectively in agreement with the arrangements that the unit holders agreement and joint venture agreement sought to implement. In support of this contention, the applicant relies upon the evidence contained in the affidavit of Anthony John Knox, which was not provided to the Commissioner as part of the objection process.
b) As an alternative argument, that the beneficiaries under the Trust Deed disclaimed any entitlement to the income or capital of the unit trust, apart from those entitlements agreed in the unit holders agreement and joint venture agreement
c) That the Commissioners reliance upon market appraisal in determining the dutiable value of the trust surrenders was problematic, additionally, the Commissioner failed to have regard to the Trustees right to indemnity and right to remuneration in determining the unencumbered value of the property of the trust.
The Commissioner in his submissions in respect of this application stated that he considered the new grounds and evidence to be as follows:
a) That the trustee and the unit holders had substantially complied with the terms of cl 27 of the Trust Deed relating to variation so that the joint venture agreement and the unit holders agreement amounted, in effect, to a special resolution” as comprehended by cl 27. The Trustee was “on notice” in relation to the two agreements and acquiesced and agreed to the terms, in these circumstances, “there was no need for any further formality”.
b) That because the Trustee was owned and controlled by the unit holders, an implication arose that the Trustee was in agreement with the new arrangements purportedly set in place under the joint venture agreement and the unit holders agreement. The submissions observe that “there is no doubt the unit holders and the Trustee could have acted pursuant to cl 27”, nonetheless “they no doubt thought that was not necessary and relied on the provisions of the joint venture agreement and the unit holders agreement.
c) In support of this broad contention and probably those others above Market Square now proposes to rely upon the affidavit of Antony John Knox dated 28 February 2013 and the affidavit of Robert John Balanda dated 12 April 2013.
d) By way of an alternative argument to the principal one as to the purported variation of the trust deed by combined force of the joint venture agreement and the unit holders agreement the beneficiary unit holders under the trust deed are said to have disclaimed any entitlement to the income or capital of the trust except for those entitlements provided for under the joint venture agreement and the unit holders agreement. This disclaimer is maintained to have been affected “by virtue of clause 3 of the unit holders agreement cl 11.1 of the joint venture.
e) The reliance of the Commissioner on a professional property valuation prepared for a unit holder and provided to the then legal advisor to Market Square, email Hooke to Pearce 15 September 2011, attaching the market appraisal of DTZ dated 25 August 2011, in determining the dutiable value of the trust surrenders is now questioned, as is the omission of the Commissioner to take into account the right to indemnity and the right to remuneration of the Trustee and other costs in determining the unencumbered value of trust property.
Both parties submitted that the discretion to allow new grounds and or new evidence is a wide discretion and should be made on the same considerations of justice upon which such decisions are regularly made in litigation[1]. The decision in that case goes on to say “it was in the past a reproach to the law that that the real issues could be refused a hearing for a defective objection”. The Commissioner also noted the requirement under s 28 of the QCAT Act that the Tribunal act in the substantial merits of the case and referred to Townsville CC & Anor v Dept Main Roads [2005] QCA 226 in terms of the merits not being able to trump a countervailing rule of law but they are one factor that must be taken into account when exercising a discretion. The Tribunal notes that it was also stated in that decision that it permits resort to a common sense judgment in all the circumstances.
[1]Lighthouse Philatelics Pty Ltd v Commissioner of Taxation (1991) 32 FCR 148.
The Commissioner also made reference to the decision of Drummond J in Silly Solly Management Pty Ltd v Commissioner of Taxation [2001] FCA 1095 where he stated, “It is clear that s 14ZZO would permit a taxpayer to challenge the particular appealable objection decision the subject of its appeal on grounds additional to those relied on in its objection. But I do not accept that because a particular appealable objection decision can be said to have resulted in the taxpayer's assessment being excessive for a particular reason, that always gives the Court jurisdiction to deal at large with any issues that the taxpayer may wish to raise in relation to the particular assessment, whether those issues are the subject of decisions by the Commissioner, or whether they have not yet crystallised, so long only as they might be suitable issues for declaratory relief. In that case a taxpayer had appealed an objection decision and then sought to enlarge the grounds of appeal in respect of a different part of his assessable income.
In regard to the matters here the submissions made about variation of the trust deed and possible disclaimer relate to the effect of the arrangements between the parties to the transaction, which has resulted in the imposition of the duty. It is clear that the documents were before the Commissioner from the start and if these are new grounds they relate to the interpretation of the documents. The primary ground here is that the assessment is excessive having regard to the effect that Market Square submits that the unit holders agreement and the joint venture agreement have on the relationship between the trustee and the unit holders. These new grounds relate to the effect that Market Square says those agreements have on the trust deed and they are then additional grounds. It is not the case that they raise any other issue in regard to the assessment because the assessment itself only relates to one particular transaction and so the issue which resulted in the application for a new ground in the Silly Solly being refused case does not arise here.
The Commissioner has said that there has been no explanation as to why these matters were not raised previously and there will be some form of prejudice as the Commissioner’s position has been based on the grounds raised in the objection. There was no explanation because Market Square did not anticipate that the submissions of 1 March 2013 constituted new grounds. The Commissioner based his assessment of duty on the trust deed, unit holders agreement and the joint venture agreement, there is no new document before the Commissioner and so it cannot be said that he has been asked to change his position and so there can be no prejudice.
The Tribunal will certainly make its final decision having regard to the substantial merits of the case. Any decision now not to allow new grounds based on the documents before the Tribunal would be prejudging those merits and it is considered in the interests of justice that Market Square be able to marshal all of the relevant grounds of review available to it where those grounds relate to the matter the subject of the review that is the documents which have always been before the Commissioner.
That being said Market Square has also sought to raise an issue in regard to the valuation of the properties owned by Market Square and the trustee’s rights to an indemnity and remuneration. The valuation was supplied to the Commissioner by Market Square and there was no issue raised about it in the objection. There has also not been any evidence provided by Market Square to support any new ground in regard to the valuation.
Having regard to the complexities of this application it may be that if the Tribunal determines that the dutiable value of the trust surrender is other than nil then consideration will need to be given to determining what are the components for calculation under s 63 of the Duties Act 2001 and it will be at that point that valuation of the dutiable property held by the trust will need to be calculated. It is in the interests of justice that the assessment of duty be based on the correct valuation of the property and so that ground will also be allowed.
To ensure that there is no question as to what is and what isn’t a new ground or new evidence the Tribunal orders that the submissions of Market Square dated 1 March 2013 and the affidavits of Antony John Knox dated 28 February 2013 and Robert John Balanda dated 12 April 2013 shall form part of the grounds and evidence for the purpose of the review application.