Nemkal Investments Pty Ltd v Chief Commissioner of State Revenue

[2003] NSWSC 48

CITATION:	Nemkal Investments Pty Ltd v Chief Commissioner of State Revenue [2003] NSWSC 48
HEARING DATE(S):	10/02/03
JUDGMENT DATE:	17 February 2003
JUDGMENT OF:	Gzell J
DECISION:	Assessment revoked. Matter remitted to Defendant for determination in accordance with reasons.
CATCHWORDS:	TAXES AND DUTIES - Stamp Duty - Transaction resulting in change in beneficial ownership of land in NSW - No instrument chargeable with ad valorem duty - Dutiable statement to be lodged unless exemption applicable - Exemption if change in beneficial ownership as the consequence of issue of units in a unit trust scheme - No need for identity between issue of units and transaction resulting in change - Sufficient if issue of units a step in the transaction and change a consequence of the issue
LEGISLATION CITED:	Stamp Duties Act 1920 Duties Act 1997 Taxation Administration Act 1996
CASES CITED:	Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 Halloran v Minister administering National Parks and Wildlife Act (1999) 105 LGERA 405 Reseck v Federal Commissioner of Taxation (1975) 133 CLR 45 Macintosh v Federal Commissioner of Taxation (1979) 25 ALR 557
PARTIES :	Nemkal Investments Pty Ltd - Plaintiff Chief Commissioner of State Revenue (NSW) - Defendant
FILE NUMBER(S):	SC 3581/01
COUNSEL:	Mr F P Carnovale for the Plaintiff Dr H R Sorensen for the Defendant
SOLICITORS:	Antunes Lawyers for the Plaintiff Crown Solicitor for the Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

MONDAY 17 FEBRUARY 2003

3581/01 NEMKAL INVESTMENTS PTY LTD v CHIEF COMMISSIONER OF STATE REVENUE

JUDGMENT

1 The events with which this case is concerned arose under the New South Wales Stamp Duties Act 1920. That legislation has been replaced by the Duties Act 1997.

2 Division 3A was introduced to the Stamp Duties Act 1920 as an anti-avoidance measure. It applied to a transaction which resulted in a change in the beneficial ownership of an estate or interest in, amongst other things, land in New South Wales under s 44(1)(a). If the change in beneficial ownership was not effected or evidenced by an instrument chargeable with ad valorem duty, the party to the transaction who would have been liable to pay such duty had the instrument been executed was required to lodge a statement in respect of the transaction under s 44A(1) which was deemed to be a dutiable instrument under s 44A(5).

3 Certain changes in beneficial ownership were excluded from the operation of Division 3A. In particular, by s 44(2)(d) a change in beneficial ownership occurring as the consequence of the issue or redemption of units in a unit trust scheme was excluded.

4 The limited issue raised in these proceedings is whether the issue or redemption of such units must constitute the entire transaction by which the change in beneficial ownership arose or whether s 44(2)(d) applied to a multi-step transaction in which the step of issue or redemption of units effected the change in beneficial ownership.

5 The plaintiff was the trustee of the Nemkal unit trust. It was common ground that it was a unit trust scheme for the purposes of s 44(2)(d). 100 units were initially issued to Ivan John Nemcich and Helen Nemcich as trustees of the John Nemcich family superannuation fund. Before the transactions in question, Mr and Mrs Nemcich as such trustees were allotted a further 3,385,000 units as were John Kalazich and Linda Kalazich as trustees of the John Kalazich family superannuation fund.

6 On 13 November 1997 a series of transactions took place with respect to interests in a number of parcels of land in New South Wales. As each series of transactions followed the same pattern, it is only necessary for me to describe one such series.

7 Salind Pty Ltd was the owner of two units in a property at Waterloo and also owned a property at Castle Hill. Nemkal as trustee of the unit trust made a written offer to Salind to purchase the properties for $2,000,000 to be satisfied by the issue of 2,000,000 special attributable income units. Those units carried special rights irrelevant for present purposes. The written offer provided for acceptance by delivery of the certificates of title to the properties to a named individual and by informing him that the offer was accepted. The directors of Nemkal had resolved that if the offer was accepted in accordance with its terms, the units would be issued without further resolution. Salind’s directors provided the certificates of title to the named individual and informed him that Salind accepted the offer. Nemkal then issued Salind with a certificate for the special attributable income units.

8 The defendant maintained that the acceptance of the written offer effected a change in beneficial ownership of land in New South Wales.

9 To complete the series of steps which occurred on 13 November 1997, Nemkal redeemed Salind’s units for $2,000,000 by way of an interest free loan repayable on demand. Nemkal resigned as trustee and appointed Salind in its place. Salind then resigned and appointed Nemkal in its place and Salind executed an instrument of transfer of the properties to Nemkal.

10 The plaintiff argued that the change in beneficial ownership of the properties arose upon the issue of the units to Salind and since that change fell within s 44(2)(d), Division 3A did not apply. The defendant argued that the transaction by which beneficial ownership in the properties changed was a multi-step one consisting of the written offer, its acceptance and payment in the form of the allotment of the units and that the exemption in s 44(2)(d) only arose if the entire transaction fell within its terms. Since the transaction in question was not limited to the issue of the units, the defendant argued that s 44(2)(d) did not apply.

11 The issue before the Court is a limited one. Dr Sorensen, who appeared for the defendant, conceded that there was no change in beneficial ownership prior to the allotment of the units. The only question for resolution is whether s 44(2)(d) was enlivened by the allotment of the units as part of a transaction otherwise caught by s 44(1)(a) or whether s 44(2)(d) only applied when allotment or redemption of units was the entirety of the transaction to which s 44(1)(a) applied.

12 The plaintiff submitted that there was no requirement of identity between a transaction the subject of s 44(1) and an exclusion under s 44(2). Mr Carnovale, who appeared for the plaintiff, pointed to the difference in the language of the two provisions. Section 44(1) dealt with a transaction that gave rise to a change in beneficial ownership. Section 44(2) dealt with a change in beneficial ownership consequent upon a specified event such as the issue or redemption of units. Mr Carnovale submitted that if the legislature had intended to limit the exclusions in s 44(2) to the entirety of the transaction otherwise caught by s 44(1), it would have been easy for s 44(2) to take the form: “This Division does not apply to the following transactions.”

13 Dr Sorenson responded that while s 44(1) looks at a transaction leading to a change in beneficial ownership, s 44(2) is concerned with the change in beneficial ownership. To use his phrase s 44(2) was concerned with the “back end”. But, he submitted, to achieve the purpose of Division 3A as an anti-avoidance measure, the focus of s 44(1) and s 44(2) should be the same and that was only achieved if the subject of s 44(1), the transaction, was entirely covered by s 44(2). On the other hand, Mr Carnovale submitted that as long as the change in beneficial ownership occurred as a consequence of an event listed in s 44(2), the s 44(1) transaction which constituted or included that event was excluded from the operation of Division 3A.

14 The plaintiff sought support for its submissions in Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639. That case differed from the instant circumstances in that the owner of the land in question was the only unit holder in the trust when the offer to purchase was made by the trustee. That offer was for a specified sum and its oral acceptance constituted the owner a nominee of the land for the trustee. Subsequently, the trustee issued further units to third parties and redeemed the units of the land owner. A majority of the Court of Appeal held that the acceptance of the offer and payment of the purchase price did not result in a change in beneficial ownership for the purposes of s 44(1). It was the coincidence of ownership of the land and sole unit holding in the trust that led to this result. Meagher JA put it at 654:

“…The legal estate resided in Coles Myer Property Investments both before and after steps (5) and (6). Either s 23C and s 54A of the Conveyancing Act 1919, applied to nullify the ordinary effect of these two steps, or they did not. If they did, the beneficial interest remained with Coles Myer Property Investments. If they did not, beneficial interest also remained in Coles Myer Property Investments, in its capacity as sole unit holder in ISPT. In neither event is there any change of beneficial interest…”

Fitzgerald A-JA at 660 said:

“The beneficial estate or interest in the Forster Shopping Village which passed to ISPT was the concatenation of rights, enforceable in equity against Coles Myer Property Investments both as vendor and sole unit holder, which ISPT obtained in respect of the property under the contract of sale and purchase and the trust deed with respect to the Forster No 1 Trust. Nothing else passed to ISPT, or to or from Coles Myer Property Investments: cf Suncorp (at 301-303). It was unnecessary for that to occur: cf Corin v Patton (1990) 169 CLR 540, for example, see Deane J (at 579).”

15 The plaintiff points out that Fitzgerald A-JA described the transaction in terms of a series of steps and, while it was unnecessary to his decision, he saw no difficulty in regarding the subsequent step as effecting a change in beneficial ownership as a consequence of the issue of units in a unit trust scheme. Meagher JA agreed with the reasons for judgment of Fitzgerald A-JA.

16 In his dissenting judgment, Mason P regarded acceptance of the offer and payment of the purchase price as effecting a change in beneficial ownership. His Honour took the view, at 652, that such a conclusion was necessary to give effect to the intention of the parties to bring the entire equitable interest in the land within the trust. In light of the concession that there was no change in beneficial ownership in this case until the allotment of the units, a like consideration does not arise for my determination. What is of significance is the rejection by Mason P of the submission of the appellant that it was sufficient to enliven the operation of Division 3A that the transaction as a whole resulted in a change in beneficial interest. His Honour, at 646, took the view that in a multi-step transaction it was necessary to identify when and how the change occurred, if only to be able to answer the question posed by s 44(2)(d).

17 The defendant sought support for his submission in Halloranv Minister administeringNational Parks and Wildlife Act (1999) 105 LGERA 405. That case was similar to ISPT in that when the trustee made its offer to purchase the land in question, the land owner was the sole unit holder of the trust. It was similar to the instant circumstances in that the purchase price was satisfied by the allotment of further units. As in ISPT, the trustee issued units to a third party and as in ISPT and the instant circumstances, the trustee redeemed the units held by the land owner. Unlike ISPT and the instant circumstances, the units of the third party were also redeemed but in the context of a written offer by the third party to purchase the land from the trustee in consideration for the redemption of the units.

18 Talbot J was concerned with whether or not the documents relating to the transaction were subject to stamp duty in which event there was difficulty in their admission in evidence. He concluded, at 421, there was no liability to stamp duty and admitted the documents. With respect to differing circumstance of land purchase in consideration for redemption of units, his Honour said at 420:

“However, the third part of the transaction does not equate to what occurred in the second stage of ISPT . The change of interest in ISPT was achieved by the issue of new units in the Trust to a third party and the redemption of units held by an existing beneficiary. In Pacinette the consideration paid by Pacinette to the Trustee was the agreement to accept the redemption of units as payment for the land. A change of interest thereby occurred by transfer rather than as a consequence of the reorganisation of the unit holdings within the Trust structure. Alternatively the change occurred as a consequence of the Trustee agreeing to transfer the asset in specie upon redemption of the units. The latter analysis of the third step in the transaction is not open, in my view, when regard is had to the nature of the offer to purchase made to the Trustee by Pacinette.
Once again there was no change in beneficial ownership for the reason that Pacinette, as the sole unit holder, already held an entitlement to the whole of the Trust Fund ( ISPT at 654). In the first part of the transaction, whatever interest passed was transferred from the vendor to the purchaser as the trustee to be held by the trustee on behalf of the vendor, whereas in the third part of the transaction whatever interest passed was transferred from the trustee holding it on behalf of the sole beneficiary to the purchaser who was that sole beneficiary.”

19 Dr Sorensen submitted that his Honour characterised the last step as offer, acceptance and payment such that s 44(2)(d) did not apply. He submitted that a like approach should be taken in the instant circumstance. He submitted that unlike ISPT, which involved an actual redemption of units, his Honour did not regard the last step in the transaction as giving rise to a discrete redemption of units.

20 Talbot J held that no change in beneficial ownership occurred with respect to the last step in the transaction which he characterised as a transfer. However, there was neither an instrument of transfer nor a conveyance and none was intended. The land owner executed a power of attorney in favour of the third party authorising it to deal with the land in any way it saw fit. Dr Sorensen submitted that his Honour used the word as a shorthand description of what happened. It was unnecessary for his Honour to analyse with precision what happened because on any view stamp duty was not exigible. If the step constituted a redemption of units, it was exempt under s 44(2)(d). If it constituted a transfer, there was no change in beneficial ownership because the third party was the sole unit holder in the trust. In that context his Honour’s general contrast between a transfer and a reorganisation of unit holding is understandable.

21 For my part, I see no reason in principle why the language of s 44(2) should have been limited by the constraint that only entire transactions answering its descriptions fell with its purview. As both parties contended, s 44(2) was concerned with a different concept from s 44(1). The latter was concerned with transactions having the effect of changing beneficial ownership. The former was concerned, not with transactions as such, but with specific changes in beneficial ownership that are to be excluded from exigibility.

22 Nor do I regard the authorities as supporting the defendant’s submission. In ISPT the “broad brush” submission of the defendant, that a transaction the net effect of which achieved a change in beneficial ownership was caught by Division 3A, was specifically rejected by Mason P and impliedly so by the other members of the court who dealt only with the defendant’s more specific submissions.

23 Just as such an approach was inappropriate in ISPT so, it seems to me, the argument that the transaction in question was constituted by offer acceptance and payment by allotment of units fails to identify at which point in that process the change in beneficial ownership occurred. In light of the concession that it did not occur earlier than the allotment of the units, it is that step in the transaction that is to be analysed.

24 Following acceptance of the offer by Salind, Nemkal acted in accordance with the prior resolution of its board of directors and issued 2,000,000 special attributable income units to Salind and issued a certificate to that effect. That answers the description in s 44(2)(d) of an issue of units. It was as much a separate and discrete step as were the allotments of units in ISPT and Halloran.

25 The plaintiff submitted that the phrase “as the consequence of” in s 44(2) when used to describe the relationship between two consecutive events, required that there be more than just a temporal connection between the two events but that it was not necessary that the earlier event should be the sole or dominant cause of the later event. What was required was a link or connection between the two events such that it could be said that the later event followed on from the earlier one. Mr Carnovale referred to Reseck v Federal Commissioner of Taxation (1975) 133 CLR 45 at 51, 56 and McIntosh v Federal Commissioner of Taxation (1979) 25 ALR 557 at 560, 564, 569-570. This proposition was not seriously challenged by the defendant.

26 In my opinion the multi-step transaction in the instant circumstances resulted in a change in beneficial ownership of an interest in land in New South Wales in terms of s 44(1)(a) but that change occurred as the consequence of the issue of units in a unit trust scheme in terms s 44(2)(d).

27 Because the defendant maintained that the plaintiff ought to have lodged a statement under s 44A and had failed to do so, he issued an assessment in pursuance of s 127B(1). Being dissatisfied with the assessment, the plaintiff objected thereto in terms of the then s 124(1). The defendant having disallowed the objection, the plaintiff applied to this Court for a review of that decision under the then Taxation Administration Act 1996, s 96(1).

28 In accordance with the powers conferred on this Court under s 101(1) of the Taxation Administration Act 1996, I propose to revoke the defendant’s assessment and remit the matter to him for determination in accordance with these reasons. I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons.

Last Modified: 02/19/2003