Pacific General Securities Ltd & Finmore Holdings Pty Ltd v Chief Commissioner of State Revenue (No 2) - [2004] NSWADT 74

No judgment structure available for this case.

Set aside by Appeal:
Set aside by Appeal on 16/11/2004

CITATION: Pacific General Securities Ltd & Finmore Holdings Pty Ltd v Chief Commissioner of State Revenue (No 2) [2004] NSWADT 74

DIVISION: Revenue Division

PARTIES: APPLICANT
Pacific General Securities Ltd & Finmore Holdings Pty Ltd
RESPONDENT
Chief Commissioner of State Revenue

FILE NUMBER: 036011

HEARING DATES: 8/12/2003

SUBMISSIONS CLOSED: 12/15/2003

DATE OF DECISION:
04/19/2004

BEFORE: Verick A - Judicial Member

APPLICATION: Duties Act - aggregation of dutiable transactions

MATTER FOR DECISION: Principal matter

LEGISLATION CITED: Duties Act 1997
Income Tax Assessment Act 1936 (Cth)
Stamp Duties Act 1920
Stamp Duties Act 1923 (SA)
Taxation Administration Act 1996

CASES CITED: Bell v Federal Commissioner of Taxation [1951-1953] 87 CLR 548
Federal Commissioner of Taxation v Lutovi Investments Pty Ltd [1978] 140 CLR 434
Attorney General v Cohen and Another (1937) 1 KB 478
Davis v Commissioner of Stamp Duty 95 ATC 4245
Jeffrey v Commissioner of Stamps, Old Reynella Village Pty Ltd v Commissioner of Stamps (SA) 89 ATC 4916
Re Steeds Will Trusts, Sandford v Stevenson [1960] 1 ALL E R 487.

REPRESENTATION: APPLICANT
A O'Brien, barrister
RESPONDENT
I Young, barrister

ORDERS: The objection decision under review is set aside and the respondent directed to reassess the duty payable.

1 This is an application to the Tribunal pursuant to s 96 (1) of the Taxation Administration Act 1996 (the “TA Act”) to review an objection decision made by the Chief Commissioner (the “respondent”) to disallow the applicants’ objection to the respondent’s assessment of their tax liability under the Duties Act, 1997 (the “Duties Act”).

2 The principal issue in this matter concerns the aggregation by the respondent of five dutiable transactions under s 25(1) of the Duties Act as a single dutiable transaction. The application also raises the question whether, if the provisions of s 25(1) apply to the facts of this matter, the Respondent should exercise his discretion under s 25(2) which allows him not to aggregate dutiable transactions where he is satisfied that it would not be just and reasonable to do so in the circumstances. A subsidiary issue concerns the imposition of interest in the relevant assessment. The applicants seek a remission of the interest under s 25 of the TA Act.

The relevant facts

3 At issue is whether five individual contracts for the purchase of five separate residential houses situated consecutively in the same street in Dee Why, entered into by the exercise of five options and a joint venture agreement constitute a single dutiable transaction for purposes of s 25 of the Duties Act.

4 Only documentary evidence was produced at the hearing.

5 Two individuals, D and K, entered into identical options on 8 March 2001 with each of the owners of the houses situated in Dee Why (“the vendors”). The options allowed the substitution of a nominee as a purchaser and the vendors under the options agreed to provide the necessary consent to the option holders to make any application necessary for development purposes.

6 On 13 June 2001 a development application was made to the local council in the name of a company associated with D and K to develop the property on which the five houses were situated into a mixed use and multi unit residential development.

7 On 30 August 2001, a joint venture agreement was entered into by Pacific General Securities Limited (first applicant in this matter) with both the option holders and their associated company to acquire the five properties in Dee Why, to develop the properties and also market the developed units. The first applicant held a 65% interest in the joint venture and the company associated with the option holders held the remaining 35%.

8 The 35% interest in the joint venture held by the company associated with D and K was transferred to Finmore Holdings Pty Ltd (the second applicant) also a company associated with D and K. The applicants have not produced any evidence when this occurred but the parties have asked the Tribunal to infer that the transfer occurred prior to 30 November 2003.

9 The Tribunal is also asked to infer the following:

(2) that all five options were exercised by the applicants prior to 30 June 2001.

10 Between 28 and 29 November the applicants executed and exchanged contracts with all the five vendors of the properties in Dee Why. On 18 December 2001 the local council gave consent to the development proposed. The contracts were settled with the vendors between 7 and 13 March 2002.

11 The respondent initially treated each of the contracts with the vendors as an individual dutiable transaction. Duty on the contracts for sale of land was separately assessed in January and March 2002.

12 As a result of compliance activity carried out by the respondent, the respondent issued on 22 October 2002 a Notice of Assessment under s 14 of the TA Act to the applicants advising that duty of $176,6340 was assessed on the five contracts as a single dutiable transaction pursuant to s 25(1) of the Duties Act. The net duty payable under this assessment was $42,740 after crediting the applicants with the separate amounts of duty previously paid for the five individual contracts.

13 The applicants lodged an objection on 19 December 2002 against the respondent’s Notice of Assessment dated 22 October 2002 and which was disallowed by the respondent on 22 January 2003.

Relevant legislative provisions

14 Section 8 of the Duties Act imposes duty on certain transactions. It provides, relevantly, as follows:

“Imposition of duty on certain transactions concerning dutiable property

(1) This chapter charges duty on;

(a) a transfer of dutiable property, and

(b) the following transactions:

(ii) a declaration of trust over dutiable property,

(iii) a surrender of an interest in land in New South Wales,

(iv) a foreclosure of a mortgage over dutiable property,

(v) a vesting of dutiable property by or as a consequence of a court order,

(vi) the enlargement of a term in land into a fee simple under s.134 of the Conveyancing Act 1919.”

15 The transactions set out in s 8(1) are taken to be dutiable transactions for purposes of the Duties Act under s 8(2), which provides that such a transfer or transaction is a dutiable transaction for the purposes of this Act. Section 9(1) provides that each transaction referred to in s 8 (1)(b) is to be charged as if it were a “transfer”.

16 Because the duty imposed under the Duties Act is in respect of “transactions”, it is, under s 10, “immaterial whether a dutiable transaction is effected by a written instrument or by any other means, including electronic means”. Section 12 sets out what is ‘dutiable property” and includes an interest in land in New South Wales.

17 Liability to duty arises, under s 12, inter alia, where a written instrument effects the transaction, “when the instrument is first executed”. In the absence of a written instrument, the liability to duty arises “when a transfer of dutiable property occurs”.

18 Part 2 of Chapter 2 of the Duties Act deals with dutiable value of dutiable property. Section 25 requires aggregation of dutiable transactions in certain circumstances to determine the dutiable value of dutiable property. It provides as follows:

(b) the transferee is the same or the transferees are associated persons, and

(c) the dutiable transactions together form, evidence, give effect to or arise from what is, substantially, one arrangement relating to all of the items or parts of, or interests in, the dutiable property.

(3) The dutiable value of aggregated dutiable property is the sum of the dutiable values of the items or parts of, or the interests in, the dutiable property as at the time at which each dutiable transaction occurs.

(4) The amount of duty payable in accordance with this section is to be reduced by the amount of any ad valorem duty paid on a prior dutiable transaction that is, prior dutiable transactions that are, aggregated in accordance with this section.

(5) Duty may be apportioned to the instruments effecting or evidencing the dutiable transactions, or may be charged in accordance with section 18(1), as determined by the Chief Commissioner.

(6) A transferee to whom this section applies must disclose to the Chief Commissioner, in writing, at or before the time at which an instrument or statement relating to the dutiable transactions is lodged for stamping, details known to the transferee of:

(b) the consideration for each item or part of, or interest in, that dutiable property.

Maximum penalty (subsection (6)): 100 penalty units.

19 The respondent imposed under s 21 of the TA Act interest in respect of the assessment on the basis that a tax default had occurred. The full amount of interest imposed included, under s 22 of the TA Act, the sum of the market rate component and the fixed 8% premium rate component. The respondent has power to remit the whole or part of either or both the market rate component and premium rate component pursuant to s 25 of the TA Act.

Submissions of the applicants

20 The applicants’ grounds for their objection against the assessment are as follows:

not

Duties Act

2. That the Chief Commissioner has failed to exercise his discretion pursuant to section 25(2) of the Act in that he has failed to consider and satisfy himself whether in the circumstances it would not be just and reasonable to aggregate the dutiable transactions;

3. In the alternative, if the Chief Commissioner has exercised his discretion pursuant to section 25(2) of the Act, he should have been satisfied in the circumstances that it would not be just and reasonable to aggregate the dutiable transactions; and

4.That in the circumstances the Chief Commissioner should have considered it appropriate to remit the whole or part of either or both the market rate component and the premium component of interest pursuant to section 25 of the Taxation Administration Act 1996 (“the TAA”).’

21 The applicants have expanded these grounds in their written and oral submissions. Firstly, they submit that the question whether there is a liability under s 25(1) of the Duties Act should be considered at the stage when the last agreement was executed on 29 November 2001, which was executed prior to the Warringah Council giving the development approval. The applicants rely on the charging provisions of the Duties Act for this submission. In particular, s 12, which provides that if a written instrument affects a transfer of dutiable property, liability for duty arises when the instrument is first executed.

22 Secondly, the applicants contend that the word “arrangement” found in s 25(1) requires some element of bilateral or multilateral consensus relating to all of the items of dutiable property. In this regard, some reliance is placed on the High Court decisions in Bell v Federal Commissioner of Taxation [1951-1953] 87 CLR 548 and Federal Commissioner of Taxation v Lutovi Investments Pty Ltd [1978] 140 CLR 434 which are authorities that the “arrangement” postulated by s 260, the general anti-avoidance provision at that time, “is one to which there are two or more parties”. Reliance is also placed on the decision of Greene LJ in Attorney General v Cohen and Another (1937) 1 KB 478 at 490-1 who, when dealing “with an equivalent although differently worded English provision”, made the following observations:

under one contract

23 The applicants’ submit that in the present matter “there is no integration between the contracts” because the “Purchaser has dealt with each of the Vendors on an individual basis” and that “each arrangement with the Vendor is a fortuitous one and not integrated with any overall arrangement between the Purchaser and the Vendors generally, albeit that the Purchaser himself does have in mind the purchase of dutiable property as part of a single intended project”.

24 It is also submitted, whether there is one arrangement, “requires a consideration of the circumstances of the acquisition by the Purchaser, not the manner in which the property is to be, or intended to be, used by the Purchaser after the acquisition”.

25 Further, the applicants contend that “in the context of s 25(1), and the avoidance of duty”, “requires a consideration of whether there was substantially one arrangement but the purchaser having reduced the stamp duty payable on that one arrangement by some re-arrangement”.

26 Finally, the applicants reject the respondent’s view that the transactions are “integral and not fortuitous” on the ground that in the present matter “the options were exercised and the contracts were executed prior to development approval”.

27 The applicants, in the alternative, submit that in the circumstances of this matter the respondent in the proper exercise of his discretion found in s 25(2), should be satisfied that it was not just and reasonable to aggregate the dutiable transactions. The applicants contend that the “mischief sought to be dealt with by the provision, involving the splitting of a single acquisition of property in to a number of transactions in order to reduce the overall duty payable, does not arise” in this matter. In the present matter, the applicants claim:

“The purchaser has not sought to structure or alter arrangements for the acquisition of the whole of the property in order to reduce its liability for stamp duty that would otherwise be payable. Indeed the nature of the arrangements is such that it would have been virtually impossible for the purchaser to have acquired the whole of the property from the Vendors in any manner other than the manner in which the property was actually acquired.”

28 In relation to the interest imposed in this matter, the applicants seek a remission on the ground that the relevant provision of the Duties Act which “impose duty and to aggregate the transactions is quite novel and uncertain” and the respondent’s Revenue Ruling DUT 022 was issued after the option agreements had been entered into.

Respondent’s submissions

29 The respondent submits that s 25 ‘is invoked when three elements are satisfied, that is when several conveyances between the same purchasers occur within a specified time and the transactions evidence, give effect to or form “substantially one arrangement”’. These elements, the respondent says, are satisfied as follows:

45. Secondly, the transferees are the same or associated persons. On these facts, the transferees were two companies, which purchased all the properties as tenants in common in specified shares.

46. The third requirement of the section is that the dutiable transactions together form, evidence, give effect to or arise from what is substantially one arrangement, then all necessary elements to invoke the section, will be satisfied.

47. Although the Act does not define the term “arrangement”, in Revenue Ruling DUT 022 (“DUT022”), paragraph 11, that term is satisfied by such elements as a wider course of action than a single agreement, such as “all kinds of concerted action by which persons may arrange their affairs for a particular purpose or so as to produce a particular effect”: see Bell v Federal Commissioner of Taxation (1953) 87 CLR 548 at 573.’

30 The respondent rejects the applicants’ submissions that the word arrangement requires some element of bilateral or multilateral consensus relating to all of the items of dutiable property; that s 25(1) only operates when there is an “antecedent transaction” and that the option agreements were not inter-connected. The respondent’s reasons for rejecting these submissions are as follows.

31 The respondent submits that ‘the word “arrangement” is a word of great width capable of catching all arrangements whatever form they may take’ and that the income tax cases that are relied upon by the applicants can be distinguished as they considered definitions that included reference to “entered into” or “oral or in writing” and by contrast, s 25(1) uses the words “evidence, give effect to or arise from what is substantially, one arrangement” which “are wide enough to encompass transactions arising from a unilateral arrangement by one person alone”.

32 In relation to the applicants’ submission that s 25(1) “require a consideration of whether there was substantially one arrangement but the purchaser … reduced the stamp duty payable on that one arrangement by some re-arrangement”, the respondent submits that “there is no limitation or requirement in sec 25(1) as the Applicants contend, to compare, as it were, before and after situations, or that the section only applies if there is some re-arrangement ”. The respondent submits as follows:

separate items of

dutiable property

”.

dutiable property

33 Finally, the respondent submits that the transactions were integral and not fortuitous and “substantially one arrangement” for purposes of s 25(1). On the basis of the observations made by Greene LJ in the English case of Attorney-General v Cohen (supra), the respondent takes the view that ‘purchases of the same type of house, at the same public auction, in the same street is a mere “contiguity in time and place”’. The respondent, deals with this issue more fully in the following paragraphs of his written submissions:

68. In Jeffrey the Court, following the decision in Cohen, considered that four separate and independent conveyances which were unconnected other than the houses were all situated in the same street, the parties were the same, the conveyances all bore the same date and the contracts which they carried out were all made on the same day, did not form part of a ‘series of transactions’ required by the section. The Court considered that the appearance of separate and independent transactions raised a rebuttable presumption that the transactions were outside the section. What was required was some integral relationship between the other transactions to form part of a series of transactions: what was required by the section was “some essential unity, some oneness, some unifying factor that bring the several transactions within the section” (at 4131).

69. The same section of the South Australian Act was considered in Old Reynella Village Pty Ltd v Commissioner of Stamps (SA) 89 ATC 4916 at page 4918-9. In that case the purchaser acquired options to acquire seventeen different but adjoining lots, from different vendors with the intention of developing a shopping centre complex on the combined parcel. In Old Reynella (supra) Mohr J referred to the passage from Cohen (supra) and stated that the evidence established the purchasers:

“engaged in the process of acquiring separate but adjoining blocks of land with the intention of integrating them in due course into one holding and on that land entered into a contract or contracts for the erection of a shopping complex. That being so I am of the opinion that the relationship between the transactions was an integral and not a fortuitous one”.

71. The terms of the five (5) Option Agreements, the Joint Venture Agreement, the Development Application and the exercise of all five options pursuant to the Option Agreements and the Joint Venture Agreement establish “some quality in them which upon some intelligible ground removes them from the category of separate transactions and unites them under the head of a series” per Greene LJ in Attorney General v Cohen [1937] 1 KB 478 at 489. See also Thai Silk Co Ltd v Asher Nominees Pty Ltd (Unreported, Hill J. Federal Court 31 May 1989 at para 19).

72. In those circumstances, and a fortiori in the circumstances of the Applicants’ acquisition, development and marketing of a commercial/residential complex pursuant to the express fundamental terms of the Joint Venture Deed, the relationship between the transactions involving 3-11 Hawkesbury Avenue Dee Why was an integral and not fortuitous one. The terms of the Joint Venture Deed establish the “intelligible ground” that the transactions were substantially one arrangement.”

34 The respondent lodged supplementary written submissions after the hearing. The supplementary submissions were requested by the Tribunal to obtain assistance as to the policy underlying s 25 and as to what circumstances the respondent would regard as being appropriate for exercising the discretion under s 25(2) not to aggregate transactions. In these supplementary submissions, the respondent compared the previous legislative provisions dealing with aggregation that were contained in sections 41(3A) and 44B of the Stamp Duty Act 1920 with the current provisions found in s 25 of the Duties Act. In relation to the policy intent of s 25 the respondent makes the following supplementary submissions:

3. The previous legislative provisions were contained in sections 41(3A) and section 44B of the Stamp Duty Act 1920. Section 41(3A) provided as follows:

(a) pursuant to one transaction relating to the whole of the property, or

(b) that together evidence or give effect to what is, substantially, one transaction relating to the whole of the property,

one of the agreements shall be charged with the same ad valorem duty to be paid by the purchaser or person to whom the property is agreed to be conveyed as if it were a conveyance of the property agreed to be sold or conveyed for the total consideration for the whole of the property to which the transaction relates and shall be stamped accordingly and the other agreement or agreements shall be charged with the duty of $10 each.

44B Splitting of transactions

(1) If:

(b) at least one transaction to which this Division applies and at least one instrument liable to ad valorem duty under this Act,

(d) between the same parties or between one party and other parties, where the other parties are not at arms’ length from each other, and

(e) within, or apparently within, a period of 12 months of each other,

(g) the total amount of the consideration in respect of the whole of that property,

(2) If ad valorem duty has been paid in respect of a transaction or instrument referred to in subsection (1), the duty payable under that subsection shall be reduced by the amount of duty so paid.

5. Thus, the essential element of the preceding provisions was agreements or transactions “for the sale or conveyance of separate parts of, or separate estates or interests in, any property in New South Wales”. Section 41(3A) was considered in Davis v Commissioner of Stamp Duty 95 ATC 4245. In that case two agreements were entered into on the same day between the same parties. First, by a contract for sale of land (and subsequent transfer), real property was sold for a price of $87,000. Second, by deed, the vendor covenanted to assign a lease and to build in accordance with design documents, a building on the land for a consideration of $143,306. The two agreements were grouped under section 41(3A), as then enacted, and assessed accordingly. At page 4249 Spender AJ commenced by emphasising the words “separate parts of or separate estates or interests in any property in New South Wales” and concluded as follows:

it cannot be said that the agreements constituted agreements for the sale or conveyance of separate parts of any property.

The fact that the agreements were commercially related and in a commercial sense may be said to be part of one transaction is quite beside the point.

particular piece of property

7. Arguably, if the facts in the instant case involving Pacific General, or that matter Cohen’s case or Old Reynella Village, arose under sections 41(3A) or 44B of the repealed 1920 Act, such transactions would have escaped aggregation. This is because, consistently with the decision in Davis, and the exhortation of Spender AJ to “fix attention on a particular piece of property” there was not agreements or transactions “in relation to separate parts of, or separate estates or interests in, the same [particular] property.” In each of the instant case and Cohen and Old Reynella Village it is the conveyance of separate and distinct properties that are aggregated and not lesser estates or interests in “ a particular piece of property.”

8. The legislative change in section 25 of the Duties Act 1997 is marked, specific and deliberate. First, unlike section 44B, section 25 is not entitled “Splitting of transactions”. Second, section 25 applies to transactions in relation to “separate items of dutiable property, or separate parts of, or interests in, dutiable property”. The previous sections 41(3A) and 44B had no application to “separate items of dutiable property”.

9. The change in drafting between the sections is quite distinct and clear and must have been made with Davis in mind. Accordingly, section 25 must be intended by the legislature to bring the fact situation in Old Reynella Village squarely within the aggregation provisions. It is not limited to transaction splitting arrangements only.”

35 Lastly, the respondent submits that there are no exceptional circumstances on the facts of this case to support an exercise of the discretions under section 25(2) of the Duties Act. In the respondent’s view, the discretion should not apply to “cases squarely within the middle of the mainstream at which the section was aimed.” It should also in the respondent’s view, not apply to “factual situations, on all fours with the decision in Old Reynella Village” because to “apply the discretion in the factual circumstances of Old Reynella Village or the instant case, will cause the discretion to miscarry and to have the effect of exempting conventional mainstream transactions, which the basic purpose of the section was aimed at”. The respondent further submits that the discretion should not apply even if the arrangement under review is a “straightforward, ordinary commercial arrangement” and there was no intention or purpose to evade duty.

Reasons and decision

36 The principal issue in this matter depends on the application of s 25(1) of the Duties Act. The question for determination is essentially, whether on the facts of this matter, the provisions found in s 25(1) as a matter of degree and law apply and require the aggregation of the five different purchases by the applicants to be treated as a single dutiable transaction.

37 There are five requirements that need to be satisfied before the provisions of s 25(1) are available to the respondent. The requirements are as follows:

(ii) the relevant dutiable transactions must relate to separate items of dutiable property, or separate parts of, or interests in, dutiable property;

(iii) the dutiable transactions must occur within twelve months of each other;

(iv) the transferee or transferees of the dutiable property are the same or associated persons; and

(v) the dutiable transactions must together form, evidence, give effect to or arise from what is, substantially, one arrangement relating to all the items or parts of, or interests in, the dutiable property.

38 There is no dispute in the present matter in respect of the first four requirements. Both parties accept that the facts in this matter satisfy these four requirements. There are five dutiable transactions, each in respect of dutiable property, which all occurred on 28 and 29 November 2001 and the transferees were the same in each dutiable transaction. The dispute only revolves essentially as to whether the fifth requirement is satisfied in the present matter.

39 The question raised by the fifth requirement must depend upon the proper construction of paragraph (c) of s 25(1). Paragraph (c) provides as follows:

“the dutiable transactions together form, evidence, give effect to or arise from what is, substantially, one arrangement relating to all of the items or parts of, or interests in, the dutiable property”.

40 What then is meant by “substantially one arrangement”? The provisions of s 25 have not been previously considered by this Tribunal or the courts. The explanatory note which relates to the Duties Bill 1997 that introduced s 25 into the law is of no assistance as it is silent on the legislative purpose of the provisions found in s 25(1). Some guidance as to the scope of the words in paragraph 25(1)(c) is fortunately found in cases dealing with similar provisions considered in other jurisdictions and to some extent in rulings issued by the respondent.

41 The parties in defining the scope of paragraph (c) have, in their submissions, largely dealt with the meaning of the term “arrangement”. The applicants have, on the basis of cases dealing with s 260 of the Commonwealth Income Tax Assessment Act 1936 or its predecessor, submitted that the term “arrangement” requires “some element of bilateral or multilateral consensus relating to all the items of dutiable property” and “that for purposes of section 25(1) each of the vendors must be united with the purchaser in respect of that overall arrangement”. Cases relied on by the applicants include FC of T v Lutovi Investments Pty Ltd (supra).

42 Their Honours Gibbs and Mason JJ in Lutovi were considering s 44(2D) of the Income Tax Assessment Act which referred to at the relevant time to the issue of bonus shares where “ the share was issued in pursuance of, or as part of, an agreement or arrangement, whether oral or in writing and whether entered into before or after the commencement of this subsection” and went on, at p 443, to say as follows:

Newton v Federal Commissioner of Taxation

43 Lord Denning in Newton v FC of T (1958) 98 CLR 1 at p 7 in considering the application of s 260 had made the following observations as to the meaning of the word “arrangement” found in s 260 -

“their Lordships are of the opinion that the word ‘arrangement’ is apt to describe something less than a binding contract or agreement, something in the nature of an understanding between two or more persons – a plan arranged between them which may not be enforceable at law.”

44 The respondent has, on the other hand, submitted that the ‘word “arrangement” has, depending on its context, a number of different meanings’ and that as suggested by the New Shorter Oxford English Dictionary the definition of “arrangement” also includes “arrangement” in unilateral terms, namely: “plan or settle beforehand the details of (something to be done); give instructions for cause to take place”’. The respondent to support this proposition also cites Re Steeds Will Trusts, Sandford v Stevenson [1960] 1 All ER 487 where Lord Evershed MR, at p 492, made the following observations:

‘There was some discussion of the use of the word “arrangement”. Again, if I may respectfully say so, the language used by the learned judge seems to indicate that an arrangement must be in some sense inter partes, some kind of scheme which two or more people have worked out. I do not myself accept that. I think that the word ‘arrangement’ is deliberately used in the widest possible sense so as to cover any proposal which any person may put forward for varying or revoking the trusts.’

45 The respondent in his submissions also relies on the observations made by Aickin J in Lutovi where his Honour at page 463 said:

‘The word “arrangement” has several meanings and each reflects a broad and imprecise conception. At least one may be put aside immediately. The word may in some circumstances mean no more than a plan drawn up by and to be implemented by one person alone. In the present context it cannot have that meaning, because of the presence of the words “entered into”. The most appropriate meaning for the present context would seem to be an agreed “disposition of measures for a particular purpose”, or an “arranged condition or order of things”. If, as the context requires, the arrangement must be “entered into” it is hard to see how it can be distinguished from an agreement, and, in the present section, it seems likely that it does no more than widen the content of the “agreement” so as to include dealings which are less precise than the word agreement alone might suggest, and perhaps to emphasize that it is not to be confined to binding or enforceable agreements.’

46 On the basis of the above observations, the respondent submitted as follows:

Duties Act

entered into”

“oral or in writing”

“evidence”, “give effect to”

“arise from”

Newton

Lutovi

47 The authorities brought to my attention make it clear that the word “arrangement” is a word of great width. In its practical operation, the term can have different meanings depending on the context it is used. It is generally used to describe dealings between two or more persons. In some special situations, it can mean a unilateral arrangement. An example of the latter, would be the case of a trustee making a distribution in pursuant to some plan to benefit the beneficiaries of the trust. Another example would be the one that was before the court in Re Steeds Will Trusts. There it was a proposal, which “any person may put forward for varying or revoking the trusts”. In its unilateral use, the word “arrangement’ is more likely to refer to, as observed by Aickin J in Lutovi, to some “plan drawn up by and to be implemented by one person alone”.

48 In the context of s 25(1), the meaning of the word “arrangement” is in my view, dependent on at least two “dutiable transactions” being present. Section 8(1) of the Duties Act sets out the various dutiable transactions to which the Duties Act applies. In the case of the transfer of “dutiable property”, which is set out in s 11, clearly there are two parties involved. There is the vendor and the purchaser or transferee in each transaction. Section 8 also includes certain dutiable transactions, for example, the declaration of trust over dutiable property, where the arrangement would essentially be unilateral with just the person declaring the trust as being involved. In my opinion, the word “arrangement”, as used in s 25(1)(c) can refer to either a unilateral arrangement or a bilateral/multilateral arrangement. It would depend entirely on the facts of the case.

49 In the present matter, the five “dutiable transactions” were all bilateral transactions. In each case there was an independent vendor and the applicants as the purchasers. The operation of s 25(1)(c) to my mind is dependent on considering the relevant “dutiable transactions” together and asking the critical question whether they “form, evidence, give effect to or arise from what is, substantially, one arrangement”. Before attempting to answer this question I need to examine cases, which were brought to my attention and which have considered equivalent provisions in other jurisdictions. I think they provide some guidance to give an interpretation to the words found in paragraph 25(1)(c).

50 The English aggregation provisions were considered in Attorney General v Cohen (supra). Under the English stamp duty legislation, a higher rate of duty applied if the transactions formed “part of a larger transaction or of a series of transactions” where the total consideration exceeded the fixed threshold amount. In this case at a public auction of twelve lots, the respondent bought from the same vendor six lots each with a separate title. The revenue sought to aggregate the transactions on the basis that the lots were houses of the same type, all located in the same street and sold on the same day. It was held that each sale did not form part of a larger transaction or of a series of transactions in respect of which the aggregate amount or value of the consideration did not exceed the five hundred pounds threshold. In handing down the principal judgment, his Lordship Greene LJ gave his reasoning, which, I think, is of some instructive value in the present matter. First, his Lordship observed that the judge in the first instance had correctly considered the facts as follows at p 488:

…

In my judgment, if the Legislature had intended that a relationship such as that which exists in the present case between separate and independent transactions should constitute each transaction part of a series, it should have said so in clear terms, for example, by using some such words as “one of a number of substantially contemporaneous transactions”.

…

It is, in my judgment incumbent upon those who assert that a number of transactions constitute a series within the meaning of the section at least to point to some quality in them which upon some intelligible ground removes them from the category of separate transactions and unites them under the head of a series. In the arguments addressed to us on behalf of the Crown, I have been unable to discover any such intelligible ground, since the elements which it was suggested will convert what is not a series, appear to me to be quite fortuitous and incapable of being referred to any intelligible ground of differentiation.’

51 Lord Justice Greene continued at pages 490-491 to further explain more fully his reasons as follows:

‘I now turn to a consideration of the crucial words of the section. The word “series” must be read in its context, which is “part of a larger transaction or of a series of transaction” The expression “part of a series” suggests, to my mind, that by a series is meant something of which it can be said there is some integral relationship between its parts. It does not, I think, convey the idea that all that is required is that the transaction should be one of a number of transactions related to one another in time or space or both. This view is, I think, strengthened by the fact that the expression “part of a series of transactions” stands in juxtaposition to the expression “part of a larger transaction”. Many instances can be thought of where it might be doubtful whether a transaction could properly be described as “part of a larger transaction” but where by reason of the presence of an integral relationship with other transactions it could be said to form “part of a series of transactions”. And here it is of importance to remember that the class of transactions effected by documents covered by the section is a varied one. Thus it covers the case where in one action (or under one reference) by successive orders of the Court (or of Commissioners) different parts of a property become vested in a purchaser. Again, a builder developing a building estate might have under one contract an option to purchase different plots at different times, so that each option when exercised, would create a separate contract. In each of these cases it would at least be a matter of doubt whether a particular order or conveyance could be said to form part of a larger transaction, but there would, I think, be in each case such an integral relationship between the transactions as to constitute each indubitably part of a series of transactions. In my opinion, read in its context, the phrase “part of a series pf transactions” is intended to sweep in cases where the relationship between the transactions is an integral and not fortuitous one depending merely on such circumstances as contiguity in time or place, but is such that it would not or might not be sufficient to bring them within the phrase, “part of a larger transaction”.’

52 The South Australian Supreme Court in two cases also considered the Cohen case and aggregation provisions. The legislation under consideration was s 66ab of the South Australian Stamp Duty Act which applied to aggregate separate conveyances “that together form or arise from, substantially one transaction, or one series of transactions”, relevantly, provided as follows:

(b) that together form, or arise from, substantially one transaction or one series of transactions,

ad valorem

(1a) Where-

and

(b) the conveyances have been, or appear to have been, executed within twelve months of each other,

53 In the first case, Jeffrey v Commissioner of Stamps (S.A.) 80 ATC 4126, the Commissioner of Stamps (S.A.) sought to aggregate two conveyances which a mother and son had entered into for the purchase of two parcels of land which were adjoined and also previously held in common ownership and transferred by a single transfer. Jacobs J in considering the question whether the separate conveyances “together form or arise from substantially one transaction or one series of transactions” made the following observations at pages 4,131- 4,132:

one

…

Nevertheless, the concept of separate conveyances that “together form or arise from substantially one transaction …”, is itself not free from difficulty. It is the conveyance that is the relevant transaction Attorney-General v. Cohen (supra), and if there is more than one conveyance, there is prima facie more than one transaction, but the word “substantially” must be given some meaning. It can only mean, in my judgment, that the Commissioner is required to look at “the substance” of the several transactions, and determine whether they are, “in substance”, one transaction; although masquerading as several. The use of the word “substantially” seems to me to require a different approach from that which commended itself to Lord Justice Greene in Attorney-General v. Cohen (supra) where his Lordship said that “once the facts are ascertained then the question whether they fall within the language used in the section is a question of law” and “it is therefore … illegitimate to treat the question as a question of degree.” I can see no escape from so treating the question if one is to arrive at the substance of the transactions.’

54 His Honour, Jacobs J then proceeded to consider whether, in the case before him, the conveyances “together form or arise from substantially one transaction or one series of transactions” and reached the following conclusion on the facts:

All these factors combine, in my judgment, to give the transactions the integration and essential unity at which the section is aimed.’

55 Both Cohen and Jeffrey were considered in the second South Australian case, Old Reynella Village Pty, Ltd v Commissioner of Stamps (S.A.) 89 ATC 4916. In Old Reynella the appellant sought to acquire title in respect of 17 separate properties but adjoining blocks of land with the intention of integrating them in due course into one holding on which to undertake the development of a shopping centre complex. In a case stated, the Commissioner sought the opinion of the court as to whether the transactions whereby the appellant sought to acquire title to the 17 properties fell within the provisions of s 66ab of the South Australian Stamp Duties Act 1923.

56 Mohr J in considering this question, agreed with Jacobs J in Jeffrey, which had considered the same provision that the question was one of degree and law. His Honour than went to draw the following important distinction between the English legislation in Cohen and the South Australian legislation under consideration -

Cohen’s case

Stamp Duties Act

Cohen’s case

…

Greene L.J. in Cohen case at pp 490-491 gave an example of what he considered to be a series of transactions caught by the section in these words:

“… Again, a builder developing a building estate might have under one contract an option to purchase different plots at different times, so that each option, when exercised, would create a separate contract. In each of these cases [he had set out one other example] it would at least be a matter of doubt whether a particular order or conveyance could be said to form part of a larger transaction, but there would, I think, be in each case such an integral relationship between the transactions as to constitute each indubitably part of a series of transactions. In my opinion, read in its context, the phrase ‘part of a series of transactions’ is intended to sweep in cases where the relationship between the transactions is an integral and not a fortuitous one depending merely on such circumstances as contiguity in time or place, but is such that it would not or might not be sufficient to bring them within the phrase; part of a larger transaction.”

57 These cases have considered the facts in the context of the relevant legislation in issue but do in my opinion, provide some assistance in construing the words found in paragraph 25(1)(c).

58 In approaching the construction of the relevant words of the paragraph, there are, in my opinion, three matters, which it is important to bear in mind. The first is that it is only the relevant “dutiable transactions” that are required to be taken into account in arriving at the required conclusion. The question that need to be asked is - Do the “dutiable transactions” when taken “together” form, evidence, give effect to or arise from what is, substantially, one arrangement relating to the “dutiable property” subject of the “dutiable transactions”? In Cohen his Lordship Greene L.J. made it clear that for purposes of the English legislation, in considering the “transaction effected” was in each case the relevant conveyance. In Jeffrey, Jacobs J also restricted the inquiry to the relevant contracts that the mother and son had entered into. In Old Reynella, Mohr J considered the question in the context of a case stated. In the absence of any objection by the taxpayer, his Honour made a much wider inquiry, although his Honour was asked to rule whether the transfers or any of them should be aggregated. My view, in relation to paragraph 25(1)(c) is that it merely requires an inquiry into whether the “dutiable transactions” fall within the scope of the paragraph. As indicated, earlier, “dutiable transactions” are clearly defined in the Duties Act. In the present matter, the “dutiable transactions” are the five separate conveyances.

59 The inquiry, in my opinion, is confined to matters directly relating to the relevant “dutiable transactions”. The relationship between the parties, timing, previous history of the “dutiable transactions”, relationship between the “dutiable transactions”, whether the “dutiable transactions” are subject to interdependency clauses and whether the “dutiable transactions” are in respect of only part or some interests in the relevant “dutiable property” are I think some of the matters that are relevant in relation to this inquiry. That is not to say that the respondent is not entitled to look at surrounding circumstances to better understand the relevant “dutiable transactions”. For example, the respondent would be entitled to look at the whole scheme under this provision if the “dutiable transactions” are part of a scheme to reduce or avoid duty.

60 The second matter is that, once the facts relating to the “dutiable transactions” are ascertained the question whether they fall within the language used in the paragraph would depend on looking carefully at the substance of the transactions. The observations made in the cases referred to are helpful to the extent that it is necessary to discover some intelligible ground that will remove the “dutiable transactions” from the category of separate and independent transactions and unite them under the head of “one arrangement”. In Cohen it was suggested by Slesser L.J the need for “interdependence as to form a series” and Greene L.J the need for “some integral relationship” between the transactions, which is not merely “a fortuitous one”. Jacobs J described this test, in relation to the South Australian provision in Jeffrey, as ‘some essential unity, some “oneness”, some unifying factor that brings the several transactions within the section’. In Old Reynella, Mohr J relied on the Cohen approach without any qualifications. Although, the legislation in the these cases was different from paragraph 25(1)(c), the broad test suggested is helpful in giving the words “one arrangement” some sensible meaning in the context of the terms of the whole provision. The use of the word “one” must in my opinion support the kind of approach that was suggested by Jacobs J. In order for two or more “dutiable transactions” together form, evidence, give effect to or arise from what is substantially, one arrangement to dutiable property in respect of the relevant “dutiable transactions”, there must be present “interdependence” or some “integral relationship” or some “unifying factor” which is not just a “fortuitous one”.

61 A more practical test was suggested by Jacobs J in Jeffrey when his Honour made the following observations at p 4,133:

‘It can only mean, in my judgment, that the Commissioner is required to look at “the substance” of the several transactions, and determine whether they are, “in substance”, one transaction, although masquerading as several.’

62 The last matter concerns the “great width” of the word “arrangement” in the context of the legislative policy of s 25(1). The question whether the term “arrangement” includes “a series of transactions” was answered by Lord Denning in Newton (supra) at p. 9 as follows:

“Was there an arrangement? The answer is ‘Yes’. The whole complicated series of transactions must have been the result of a concerted plan;”

‘Section 25 refers to “arrangement” in the context of aggregating separate transactions (including transactions over a period of time), and so it is considered that “one arrangement” would include a “series of transactions” of that kind.’

63 The ruling also explains in paragraph 7, broadly, the policy intent of s 25 as follows:

‘The purpose of section 25 is to ensure the same duty is paid on similar transactions, even if comprised of separate documents or apparently distinct transactions. The legislation effects this by aggregating multiple “dutiable transactions” that are essentially one larger transaction, or a series of transactions constituting one arrangement.’

64 The correctness of the ruling in respect of statements that it contains about the aggregation of separate but adjoining blocks of land with the intention of integrating them into one holding is not before this Tribunal. I will refrain from expressing any detailed views; suffice to say that it relies on Old Reynella without any reference to Jeffrey or Cohen to support a wide inquiry to determine the nature of the arrangement in each case. I have expressed my views on the limited scope of inquiry that is allowed by s 25(1) which is consistent with the policy intent of s 25 that the respondent has ruled on in paragraph 7 of his ruling. Paragraph 25(1)(c) speaks of “one arrangement” not “part of a larger transaction or arrangement” nor some such words as “one of a number of substantially contemporaneous transactions”. In the context used “one arrangement” must only relate to the relevant “dutiable transactions” taken together without any reference to any antecedent or future transactions that would have some past or future relevance to the “dutiable property” acquired under the “dutiable transactions”.

65 The respondent has submitted that in applying the provisions of s 25(1) to this matter, the respondent is entitled to treat the “arrangement” for purposes of s 25(1) to include “the circumstances of the Applicants’ acquisition, development and marketing of a commercial/residential complex pursuant to the express fundamental terms of the Joint Venture Deed” to determine that “the transactions were substantially one arrangement”. In view of what I say is the scope of the inquiry I do not think that submission is available to the respondent.

66 Finally in considering whether the assessment has been correctly made, I need to look at the relevant facts in the context of the narrower inquiry. All that is left to be considered are the five transfers. Each of the “dutiable transaction” effected by the five conveyances was a separate and independent transaction unconnected with the others. There was no relationship between the “dutiable transactions” effected by the conveyances except that the houses were situated in the same street and the contracts were entered into and settlement occurred at about the same time. Each transfer was genuinely a separate contract with an independent vendor or vendors. The five properties were independent properties and there was no interdependence between the individual transfers. There was no suggestion by the respondent that there was any attempt to avoid or reduce duty in this matter by the applicants in entering into the relevant “dutiable transactions”. The question in these circumstances is whether the common factors present are sufficient to constitute each of these separate and independent “dutiable transactions” to be “substantially one arrangement”. In Cohen the purchasers and vendors of the relevant properties were the same but the court, on very similar facts, could not find any “intelligible ground” to rule that they were part of a larger transaction or series of transactions. In Jeffrey, the facts were important for the court to arrive at the conclusion that it reached to rule that the two transactions should be aggregated. The case involved a mother and son who had contracted with the same vendor to purchase adjoining properties, which had been held for sometime prior to the sale in common ownership and all previous sales, had included both properties on the one memorandum of transfer. These were compelling facts which allowed the court to treat the two transaction as “one of series of transactions”. I have expressed my doubts about the correctness of the decision in Old Reynella to consider a wide range of factors beyond the relevant transactions.

67 In the present matter, the relationship between the five “dutiable transactions” was not integral but merely a fortuitous one. That being the case, the “ dutiable transactions” under consideration did not together form, provided evidence, gave effect to or arose from what is substantially one arrangement. That conclusion would also make it unnecessary for me to consider whether the respondent should exercise his discretion found in s 25(2) or deal with the question of remission of the interest imposed by the respondent in this matter.

68 In the circumstances, the objection decision under review must be set aside and the respondent directed to reassess the duty payable by treating the “dutiable transactions” as individual transactions.

Actions

Download as PDF Download as Word Document

Citations

Pacific General Securities Ltd & Finmore Holdings Pty Ltd v Chief Commissioner of State Revenue (No 2) [2004] NSWADT 74

Most Recent Citation

Pacific General Securities Ltd and Finmore Holdings Pty Ltd v Chief Commissioner of State Revenue [2005] NSWADT 85

Cases Citing This Decision

3

Chief Commissioner of State Revenue v Pacific General Securities Ltd & Finmore Holdings Pty Ltd (No 2) (RD) [2005] NSWADTAP 54

Chief Commissioner of State Revenue v Pacific General Securities Ltd & Finmore Holdings Pty Ltd (Rd) [2004] NSWADTAP 51

Pacific General Securities Ltd & Finmore Holdings Pty Ltd v Chief Commissioner of State Revenue [2005] NSWADT 85

Cases Cited

3

Statutory Material Cited

5

BBlood Enterprises Pty Ltd v Commissioner of Taxation [2022] FCA 1112

Bell v Federal Commissioner of Taxation [1953] HCA 99

Australian Competition and Consumer Commission v BlueScope Steel Limited (No 5) [2022] FCA 1475

CITATION:	Pacific General Securities Ltd & Finmore Holdings Pty Ltd v Chief Commissioner of State Revenue (No 2) [2004] NSWADT 74
DIVISION:	Revenue Division
PARTIES:	APPLICANT Pacific General Securities Ltd & Finmore Holdings Pty Ltd RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	036011
HEARING DATES:	8/12/2003
SUBMISSIONS CLOSED:	12/15/2003
DATE OF DECISION:	04/19/2004
BEFORE:	Verick A - Judicial Member
APPLICATION:	Duties Act - aggregation of dutiable transactions
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Duties Act 1997 Income Tax Assessment Act 1936 (Cth) Stamp Duties Act 1920 Stamp Duties Act 1923 (SA) Taxation Administration Act 1996
CASES CITED:	Bell v Federal Commissioner of Taxation [1951-1953] 87 CLR 548 Federal Commissioner of Taxation v Lutovi Investments Pty Ltd [1978] 140 CLR 434 Attorney General v Cohen and Another (1937) 1 KB 478 Davis v Commissioner of Stamp Duty 95 ATC 4245 Jeffrey v Commissioner of Stamps, Old Reynella Village Pty Ltd v Commissioner of Stamps (SA) 89 ATC 4916 Re Steeds Will Trusts, Sandford v Stevenson [1960] 1 ALL E R 487.
REPRESENTATION:	APPLICANT A O'Brien, barrister RESPONDENT I Young, barrister
ORDERS:	The objection decision under review is set aside and the respondent directed to reassess the duty payable.