Roman Catholic Church Trust Corporation of the Archdiocese of Hobart v Commissioner of State Revenue

[2012] TASSC 43

[2012] TASSC 43

COURT:  SUPREME COURT OF TASMANIA

CITATION:Roman Catholic Church Trust Corporation of the Archdiocese of Hobart v Commissioner of State Revenue [2012] TASSC 43

PARTIES:  ROMAN CATHOLIC CHURCH TRUST

CORPORATION OF THE ARCHDIOCESE
OF HOBART

v
  COMMISSIONER OF STATE REVENUE

FILE NO/S:  847/2011
DELIVERED ON:  4 July 2012
DELIVERED AT:  Burnie
HEARING DATE:  19 March 2012
JUDGMENT OF:  Blow J

CATCHWORDS:

Taxes and Duties – Stamp duties – What transactions or instruments are liable – Deed of settlement or gift – Tasmania – What constitutes a gift – Transfer of assets of church school – Whether consideration or material advantage in return.

Duties Act 2000 (Tas), s53(n)(i).
Collector of Imposts for Victoria v Peers (1920) 29 CLR 115; Federal Commissioner of Taxation v McPhail (1968) 117 CLR 111; Leary v Federal Commissioner of Taxation (1980) 32 ALR 221, referred to.
Aust Dig Taxes and Duties [339]

REPRESENTATION:

Counsel:
             Appellant:  T M Grace
             Respondent:  P Turner
Solicitors:
             Appellant:  Middletons
             Respondent:  Director of Public Prosecutions

Judgment Number:  [2012] TASSC 43
Number of paragraphs:  22

Serial No 43/2012
File No 847/2011

THE ROMAN CATHOLIC CHURCH TRUST CORPORATION
OF THE ARCHDIOCESE OF HOBART v COMMISSIONER OF STATE REVENUE

REASONS FOR JUDGMENT  BLOW J

4 July 2011

1. This is an appeal pursuant to the Taxation Administration Act 1997 ("the Act"), s89(1)(a), against a determination by a delegate of the respondent ("the Commissioner"). It concerns a dispute as to whether a transfer of the plant and equipment of the Sacred Heart College at New Town in Tasmania is dutiable pursuant to the Duties Act 2000. The property in question was transferred by an incorporated association named Sacred Heart College Incorporated ("SHC") to the appellant, the Roman Catholic Church Trust Corporation of the Archdiocese of Hobart, by a deed dated 23 December 2010. The appellant contends that the transaction amounted to a gift, and was therefore not dutiable. The Commissioner contends that the transaction was not a gift, and that it is dutiable. He assessed duty in the sum of $132,170, on the basis that the property transferred was worth $3,365,446.93.

1. The critical provision is s53(n)(i) of the Act, which provides as follows:

"Duty is not chargeable under this Chapter on the following:

…

(n)  a transfer by way of gift of dutiable property so far as it passes or creates any interest, legal or equitable —

(i) in furtherance of any charitable purpose or any religious or educational purpose that is not charitable also …".

1. It is common ground that, if the transfer in question was one by way of gift, it was a transfer to which s53(n)(i) applies, with the result that duty is not chargeable, but that duty is chargeable if the transfer was not by way of gift. The word "gift" is not defined in the Act.

1. The school in question was opened in 1888.  From 1989, its assets, other than the premises, were owned by SHC, whose members were individual members of the Sacred Heart religious order.  In 2010 it was decided to transfer all the school's assets, including the premises, to the appellant.  The deed dated 23 December 2010 was executed by SHC, the appellant, and another entity which owned the premises.  Clause 2.1 of the deed provided as follows:

"On and subject to the terms of this Deed, SHC agrees to transfer and the Archdiocese [ie the appellant] agrees to acquire all of SHC's right, title and interest in the Assets and the College."

1. Clause 3 of the deed provided as follows:

"SHC and the Archdioceses [sic] acknowledge and agree that the College and the Assets are being transferred by way of gift and that there is no consideration payable for the transfer of the College or the Assets."

1. Prior to the transfer, SHC owed the appellant $3,847,246 in respect of two loans that had been made to SHC from the Catholic Development Fund. Clause 5 of the deed provided for the forgiveness of those loans.  It read as follows:

"5.1     Transfer on Completion

On Completion the CDF Loans will be transferred from SHC to the Archdiocese.

5.2      Release

On and from Completion, SHC will be released from all further obligations to repay the CDF Loans."

1. Before the execution of the deed, SHC was the employer of the college staff.  By cl 10 of the deed, it was agreed that the appellant would become the employer of the relevant employees, and the appellant assumed liability for the payment of various accrued entitlements of those employees.  Clause 10.4 of the deed provided as follows:

"The Archdiocese indemnifies and agrees to keep SHC indemnified against all claims for salary, wages, overtime, allowances and leave of any sort made by any Employee to the extent that such claim relates to the employment of the Employee post the Completion Date."

By cl 10.8, the appellant provided SHC with a similar indemnity in respect of claims made by the college principal.

1. The Commissioner contends that, because of the forgiveness of the loans, and because the appellant relieved SHC of various obligations that it would otherwise have had to employees, the transfer of plant and equipment to the appellant was not one by way of gift.

1. Without cls 10.4 and 10.8 of the deed, the appellant would still have become liable for all long service leave liabilities relating to the employees on the college staff.  By virtue of the Long Service Leave Act 1976, s5(4), the continuity of employment would be deemed not to have been broken by reason of the transmission of the business of the college, and the period of employment of each employee with the appellant would be deemed to include the period of his or her employment with SHC. It may be that the situation is the same in relation to some other types of liabilities to employees but, if so, there is no reason why that should make a difference to the outcome of this appeal.

1. Counsel for the Commissioner referred me to a number of cases which establish that a transfer of property does not amount to a gift if the transferor receives a material benefit or advantage in return for the transfer. In Collector of Imposts for Victoria v Peers (1920) 29 CLR 115 at 121, Knox CJ, Gavan Duffy and Starke JJ said:

"The word 'gift' has two distinct meanings in English law: it is used by conveyancers to describe certain assurances of real property, but it usually means a transference of the beneficial interest in property by one person to another without any consideration from that other."

1. In Federal Commissioner of Taxation v McPhail (1968) 117 CLR 111, a school council offered a reduced scale of fees to parents who undertook to pay a certain amount to the school building fund at the beginning of each term. Owen J held that such a payment was not a gift for the purposes of the Income Tax Assessment Act 1936 (Cth), s78(1)(a). At 116 his Honour said:

"But it is, I think, clear that to constitute a 'gift', it must appear that the property transferred was transferred voluntarily and not as the result of a contractual obligation to transfer it and that no advantage of a material character was received by the transferor by way of return."

1. In Leary v Federal Commissioner of Taxation (1980) 32 ALR 221 the Full Court of the Federal Court (Bowen CJ, Brennan and Deane JJ) unanimously held that a payment made by a taxpayer to a benevolent institution did not amount to a "gift" within the meaning of the Income Tax Assessment Act, s78(1)(a), because it was not made by way of benefaction, but was made to achieve a tax deduction and the cancellation of the taxpayer's liability in respect of a loan of $8,500. At 237, Brennan J said:

"The ordinary notion of gift and 'gift' in its technical meaning have common features: a transfer of a beneficial interest in property by way of benefaction, and an absence of a pecuniary or proprietary benefit passing to the transferor by way of return. …

… It will always be of significance that a disponor has received from a disponee, either directly or indirectly, the return sought for making the disposition."

1. Counsel for the appellant relied on a passage in the judgment of Dixon J (as he then was) in Collector of Imposts (Victoria) v Cuming Campbell Investments Pty Ltd (1940) 63 CLR at 643, where his Honour said that a transaction "may be a gift notwithstanding that the instrument is made upon a good or valuable consideration, provided that it is not a bona-fide adequate pecuniary consideration". Counsel for the appellant made a submission to the effect that it followed that the passing of consideration could be consistent with a transaction being a gift. However that case concerned a provision in the Stamps Act 1928 (Vic) that imposed duty on a deed of settlement or gift "whether voluntary or upon any good or valuable consideration other than a bona-fide adequate pecuniary consideration".  Dixon J was comparing the transaction with the words of the applicable statute, not discussing the ordinary meaning of the word "gift".

1. Counsel for the appellant referred me to four cases concerning transfers of mortgaged land.  In each case there was legislation that made the transferee liable for the mortgage debt.  The earliest of those cases was In re "The Land Tax Act 1877,"Ex parte Finlay (1884) 10 VLR (Eq) 68. The Full Court of the Supreme Court of Victoria held that, for the purposes of a land tax statute, the statutory liability of the transferees to pay the mortgage debt did not form a valuable consideration for the transfers to them. In Comptroller of Stamps (Vic) v Rylaw Pty Ltd (1981) 12 ATR 81, a company in liquidation had distributed mortgaged land to its shareholders in proportion to their shareholdings. In appeals to the Supreme Court of Victoria, Fullagar J held that the transfers in question did not constitute deeds of gift for the purposes of stamp duty legislation, on the basis that a statutory covenant to indemnify the transferor in respect of the mortgage debt did not amount to consideration for a transfer. In Gutwenger v Commissioner of Taxation (1995) 55 FCR 95, the Full Court of the Federal Court held that an unsolicited transfer of mortgaged land by a woman to her husband amounted to a gift for income tax purposes. At 108 the court suggested that the situation could be different if "the owner of mortgaged land transferred the land to another person in consideration of that person undertaking to indemnify the transferor in respect of the liability under a mortgage". In Crambrook Nominees Pty Ltd v Commissioner of Taxes 2000 ATC 4685, which concerned a question of liability to stamp duty under Northern Territory legislation, Thomas J held that the transfer of some mortgaged property by trustees to beneficiaries by way of distribution was not effected for valuable consideration. However this line of authority is relevant only to the liabilities in respect of long service leave, and possibly other employee-related liabilities, that would have fallen upon the appellant irrespective of the provisions of the deed. Even if the appellant's contractual promises about such liabilities make no difference to the question of whether the transfer of assets amounted to a gift, contrary to the suggestion in Gutwenger, this line of authority cannot help the appellant in relation to the forgiveness of the loans, nor in relation to liabilities which, but for the deed, the appellant would have had no liability to discharge.

1. In order to determine whether the transfer of the assets in question to the appellant amounted to a gift, it is necessary to look beyond the terms of the deed and consider the circumstances of the transaction.  There is a long line of stamp duty cases in which it has been held that questions of liability to duty should be determined by reference to the "real nature" or "substance" of a transaction, rather than the purported description of a document or the form that the transaction takes: Wale v Inland Revenue Commissioners (1879) 4 Ex D 270; Great Western Railway Company v Commissioner of Inland Revenue [1894] 1 QB 507; Commissioner of Stamp Duties (Qld) v Hopkins (1945) 71 CLR 351 at 378; Comptroller of Stamps v Buckland [1959] VR 517 at 520 – 521; Renwall Fabrics Ltd v Commissioner of Stamp Duties [1983] 1 Qd R 423 at 434 – 435.

1. I do not think that this is a case that can be decided by applying the Acts Interpretation Act 1931, s8A, which requires an interpretation of a provision of an Act that promotes the purpose or object of that Act to be preferred to an interpretation that does not promote that purpose or object. The relevant purpose or object of the Duties Act is to create liabilities to pay duties in respect of some transactions but not others.  There does not appear to be any underlying legislative purpose that can be taken into account in determining whether a particular transaction should be characterised as a gift or not.  It is necessary to decide whether the transaction in question was a gift in the ordinary sense of that word.

1. The only evidence that I have as to the circumstances relating to the transaction and the deed in question comes from an affidavit sworn by the executive officer of the SHC Governing Council, Mr Elliss, and from his cross-examination during the hearing of the appeal.  His evidence is unchallenged, and I accept it.  In 2010 the religious sisters who had been managing and administering the college decided that, because they were aging, they would propose transferring the assets of the college to the archdiocese.  There followed discussions with the director of the Tasmanian Catholic Education Office and the Archbishop of Hobart.  The proposal was agreed to.  A firm of solicitors was engaged to act for both SHC and the appellant.  They prepared the deed.  Mr Elliss gave instructions to that firm on behalf of SHC.  He did not give them any instructions in relation to the loans, but gave them general instructions to do whatever was necessary to complete the transaction. 

1. I have no evidence as to how it came about that a clause was included in the deed releasing SHC from its obligations in relation to the loans.  I infer that the clause was included on instructions from the appellant.  I have no evidence as to whose idea it was to release SHC from liability in relation to the loans, or whether there were any discussions about that.

1. Similarly, I have no evidence as to how it came about that clauses were included in the deed providing for SHC to be indemnified against claims for salary, wages, overtime, allowances and leave.  I infer that those clauses were included on instructions from the appellant.  Under cross-examination, Mr Elliss estimated that SHC's liabilities for those things amounted to about $500,000 to $800,000 at the time of the transaction.

1. I have no evidence of the assets and liabilities of SHC other than in relation to the assets transferred, the loan debts, and the employee entitlements.  I am prepared to take judicial notice of the fact that its members, as religious sisters, would not ordinarily have any significant assets.  However it does not follow that SHC, as a separate legal entity, did not have substantial assets and an ability to pay the loan debts or a substantial part of them.  If there had been evidence that SHC was insolvent or impecunious, I might have made a finding that the releasing of its loan debt liabilities was far from adequate consideration for the transfer of the relevant assets, but there was no such evidence.

1. On an appeal of this nature, the taxpayer has the onus of proving its case: Taxation Administration Act, s91. I have evidence that, before the preparation of the deed, it was proposed by one of the sisters, with the unanimous approval of the others, that the Archbishop accept the college as an archdiocesan college, and that his Grace agreed to that proposal. I do not know whether the decision to release SHC from the loan debts was made before, after, or in conjunction with the proposal for the transfer of the school's plant and equipment to the appellant. On the face of it, the deed provides for a transfer of the plant and equipment by SHC to the appellant, the release of SHC's loan debts by the appellant, and the indemnification of SHC by the appellant in respect of employee entitlements. I am not satisfied on the balance of probabilities that the release of the loan debts and the indemnities relating to employee entitlements were independent of the arrangement for the transfer of the plant and equipment. I am not satisfied that that transfer amounted to a gift for which SHC received no consideration or material benefit by way of return.

1. The decision under appeal in this case is a determination of a delegate of the Commissioner dated 27 July 2011, determining an objection by the appellant pursuant to the Taxation Administration Act, s86. The delegate disallowed the objection on the basis that the transfer in question did not amount to a gift. For the reasons stated above, I confirm that decision.