ROWNA PTY LTD AND COMMISSIONER FOR ACT REVENUE

[2007] ACTAAT 10

AUSTRALIAN CAPITAL TERRITORY

ADMINISTRATIVE APPEALS TRIBUNAL

CITATION:ROWNA PTY LTD AND COMMISSIONER FOR ACT REVENUE [2007] ACTAAT 10 (16 MAY 2007)

AT06/91

Catchwords: Duty – dutiable value of sale of Crown lease – contemporaneous surrender of sub lease and under lease and subsequent sale of Crown lease – consideration specified for surrender of under lease – consideration for sale of Crown lease expressed as Nil – whether sub lease and under lease should be ignored in determining dutiable value.

Administrative Appeals Tribunal Act 1989, s 37

Duties Act 1999, ss 7, 10, 11, 18, 20, 21

Taxation Administration Act 1999, s 107

Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143

Chief Commissioner of State Revenue (New South Wales) v Dick Smith Electronics Holdings Pty Ltd [2005] 221 CLR 496

Tribunal:Mr M H Peedom, President

Date:16 May 2007

AUSTRALIAN CAPITAL TERRITORY                   )

ADMINISTRATIVE APPEALS TRIBUNAL )          NO:     AT06/91

GENERAL DIVISION  )

RE:      ROWNA PTY LTD

Applicant

AND:   COMMISSIONER FOR

ACT REVENUE

Respondent

DECISION

Tribunal  :          Mr M H Peedom, President

Date  :          16 May 2007

Decision  :          The decision under review is affirmed.

…………………………..

President

AUSTRALIAN CAPITAL TERRITORY                   )

ADMINISTRATIVE APPEALS TRIBUNAL )          NO:     AT06/91

GENERAL DIVISION  )

RE:      ROWNA PTY LTD

Applicant

AND:   COMMISSIONER FOR

ACT REVENUE

Respondent

REASONS FOR DECISION

16 May 2007  Mr M H Peedom, President

The decision under review

This is an application to review a decision made on 22 November 2006 by a delegate of the respondent pursuant to section 107 of the Taxation Administration Act 1999. The effect of the decision was to determine the dutiable value on the transfer of the Crown lease of Block 1 Section 3 Division of City (“the property”) as $2,850,000.  The decision under review was made following an earlier determination of a delegate of the respondent that the dutiable value was $3,550,000 and the lodging of an objection to that determination.

The facts

2.  The facts relevant to a consideration of the issues in the case were not in dispute and were conveniently set out in chronologies prepared by the parties’ representatives and in documents lodged with the Tribunal by the respondent in accordance with section 37 of the Administrative Appeals Tribunal Act 1989.

3.  On 16 February 1961 the Crown lease of the property was granted to The English, Scottish & Australian Bank Limited (later, ES&A Holdings Ltd) (“ES&A”) for a term of 99 years commencing on 8 September 1960 (“the Crown lease”).  The Crown lease required ES&A to commence and to complete the construction of a building at a cost of not less than £115,000 within 27 months.  It also required the property to be used for commercial and professional offices and other purposes approved by the Commonwealth.  The rent payable for the Crown lease was £500 pa during the first 20 years and, thereafter, £5% pa of the unimproved value of the land.

4.  On 10 April 1964 ES&A granted a sub lease of the property to Legal & General Assurance Society Limited (“Legal & General”) for a term of 95 years and 144 days from 13 April 1964 to 4 September 2059 (“the sub lease”).  The rent payable for the sub-lease was one shilling per annum.

5.  On 13 April 1964 Legal & General granted an under lease of the property to ES&A for a term of 95 years and 141 days from 13 April 1964 to 1 September 2059 (“the under lease”).  The rent payable for the under lease was £20,550-1-00 pa but subject to review in accordance with a specified formula every 20 years.  Following the commencement of the under lease ES&A sub leased various portions of the property to other parties.

6.  On 15 July 1993 the sub lease was sold by Legal & General to the applicant (“Rowna”) for a consideration of $1,425,000.

7.  On 2 February 2004 ES&A and Rowna entered into a contract for sale of the Crown lease by ES&A to Rowna (“the contract”) for nil consideration.  It was a condition of the contract that ES&A surrender to Rowna its interest in the under lease and in the property.  In consideration of ES&A paying the sum of $3,550,000 (exclusive of GST) Rowna accepted the surrender (clause 33).  The parties acknowledged that by virtue of the sale of the property under the contract that the interests of both parties under the sub lease merged (clause 34.1).  On completion of the sale on 23 February 2004 ES&A was required to give Rowna a registrable application, to be executed and lodged for registration by Rowna, noting the merger of the sub lease in the Crown lease (clause 34.2).  As from the completion date Rowna released ES&A from the covenants binding it under the sub lease (clause 34.3(a)).  Clause 35.1 required Rowna, on the completion date, to lodge for registration in order of priority:  (a) the surrender of the under lease; (b) the transfer of the Crown lease; and (c) the application for merger of the sub lease and Crown lease.  Clause 38.1 provided that the contract was “the entire agreement of the parties on the subject matter”.

8.  On 23 February 2004 the applicant sold the Crown lease of the property to a third party (“Sintak”) for $2,825,000 and 10% GST.

9.  In support of its objection to the original determination of the dutiable value of the property, Rowna submitted to the respondent a valuation provided to it by a qualified valuer.  The valuer noted that, while the under lease generated income and therefore had a value, the grant of the Crown lease and sub lease only generated a nominal rent (10 shillings pa) for the entire period of the sub lease less 3 days.  He concluded that the major component of value lay with the under lease and not the sub lease and that the value of the transfer of the Crown lease by ES&A to Rowna was nominal.

10.  At the request of the respondent, the Australian Valuation Office (“AVO”) provided a valuation of the dutiable transaction, as requested, on two alternative bases.  On the basis that the sub lease and under lease were ignored for the purpose of the valuation, except to the extent (if any) that they might assist determining a market rent for the property, the unencumbered value of the Crown lease at the relevant date (2 February 2004) was $2,825,000.  On the basis that the sub lease and the under lease were taken into account, the unencumbered value of the Crown lease at the relevant date was “$Nil”.  It is to be inferred from a reference in the AVO report to the sale of the property on 10 February 2004 by Rowna to Sintak, without any sub lease or under lease in place, for $2,825,000 that that sale was relied upon as relevant comparable sales evidence to assist in determining the value of the Crown lease for the purpose of the decision under review.

The law to be applied

11. Under the Duties Act 1999 (“the Duties Act”) duty is charged, inter alia, on the dutiable value of a Crown lease that is subject to transfer at a specified rate (see ss 7, 10 and 18 Duties Act). Sections 7, 10 and 18 relevantly provide:

7Imposition 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:

(i)an agreement for the sale or transfer of dutiable property;

……….

(2)A transfer or transaction referred to in subsection (1) is a dutiable transaction for this Act.

10       Dutiable property

(1)       Dutiable property is any of the following:

(a)       land in the ACT;

(b)       a Crown lease;

18       Rate of duty

Duty is charged on the dutiable value of the dutiable property subject to the dutiable transaction at the relevant rate set out in part 2.3.

12. Section 11 provides:

11       When does a liability for duty arise?

(1)A liability for duty charged by this chapter arises when a transfer of dutiable property occurs.

(2)However, if a transfer of dutiable property is effected by a written instrument, liability for duty charged by this chapter arises when the instrument is first executed.

13. The dutiable value of such a transaction is determined in accordance with section 20(1) of the Duties Act which relevantly provides:

20 What is the dutiable value of dutiable property?

(1)The dutiable value of dutiable property that is subject to a dutiable transaction is the greater of—

(a)the consideration (if any) for the dutiable transaction (being the amount of a monetary consideration or the value of a non-monetary consideration); and

(b)       whichever of the following applies:

(i)for a long-term lease or franchise arrangement—the unencumbered value of the Crown lease of the land in relation to which the long-term lease or franchise arrangement is granted;

(ii)for any other dutiable property—the unencumbered value of the dutiable property.

14. Section 21 of the Duties Act relevantly provides:

21 What is the consideration for the transfer of dutiable property?

(1)The consideration for the transfer of dutiable property is taken to include the amount or value of all encumbrances, whether certain or contingent, subject to which the dutiable property is transferred.

Submissions

15. On behalf of the applicant, Mr B Meagher SC submitted that under the contract no consideration was paid for the transfer of the Crown lease. Any monetary consideration had been paid in respect of the surrender of the under lease which was not a transaction made subject to the payment of duty under the Duties Act. He submitted that regard should be had to the sub lease in determining the unencumbered value of the property and relied upon the valuation provided to Rowna and the AVO valuation, made on that basis, that the value of the property was nil. In consequence no duty was payable in respect of the transfer of the Crown lease.

16. Mr C J Bevan, of counsel, submitted on behalf of the respondent that the consideration for the sale of the Crown lease was $3,550,000 in which event the dutiable value was, pursuant to section 20(1)(a), that amount. He submitted that the description in the contract as a sale being of the under lease was misleading because what the contract provided to be transferred was, in accordance with the memorandum of transfer annexed to the contract and in substance, the Crown lease. The substance of the agreement was the sale and transfer of the Crown lease unaffected by the sub lease and the under lease. He relied upon the decision of the High Court of Australia in Chief Commissioner of State Revenue (New South Wales) v Dick Smith Electronics Holdings Pty Ltd [2005] 221 CLR 496 as authority for the proposition that related transactions needed, for the purposes of duties legislation, to be regarded in a global way rather than in isolation.

17.  In the alternative, Mr Bevan submitted that the net effect of all of the transactions involved in the contract was the acquisition by the applicant of the Crown lease which it was then able to on-sell to Sintak for $2,825,000.  The price difference between the purchase price paid by Rowna and the purchase price paid by Sintak was explicable by the premium which Rowna received from ES&A to acquire the under lease unaffected by the sub lease and the under lease.  The AVO valuation of $2,825,000 was objectively reasonable because three weeks after the date of valuation the applicant sold the Crown lease for that amount on an arm’s length basis.

Reasons for decision

18. In determining the dutiable value of the Crown lease at the date of the contract in accordance with section 20(1)(a), if applicable, the word “consideration” is required to be given the wider meaning or operation that belongs to it in conveyancing rather than the more precise meaning of the law of simple contracts. Under section 20(1)(a) the consideration is the money or value passing which moves the conveyance or transfer (see Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 at 152).

19. The references in section 20(1)(a) as to what the consideration is “for” and to the value of “non-monetary consideration” as well as the requirement of section 20(1) to determine the “unencumbered value” of the Crown lease where it is greater than the amount determined in accordance with section 20(1)(a) do not enable the consideration expressed in the relevant transaction to necessarily be determinative of the issue.

20.  It was the view of both the AVO and Rowna’s valuer that, at the date of the contract, if the sub lease and the under lease were to be taken into account in arriving at a determination of the dutiable value, the value of the Crown lease on transfer was $Nil.  These views clearly reflect the fact that the grant of the sub lease for nominal rent for the term of the Crown lease less only 3 days, had effectively deprived the Crown lease of any capacity to generate income and had passed that capacity and the right to occupy the property, if it chose, to the sub lessee.

21.  There was no evidence before the Tribunal that might explain the circumstances surrounding the surrender of the under lease by ES&A to Rowna.  The inference to be drawn from the payment of $3,550,000 by ES&A to Rowna is that the under lease was unfavourable to ES&A or that it considered that its commercial and other interests were otherwise better served by relinquishing its interest in the property.  It would be unrealistic, in my view, to regard the transfer of the Crown lease under the contract and the payment by the vendor of the Crown lease to the purchaser of $3,550,000 as being unaffected by the sub lease and the under lease.  To so regard it would attribute a substantial negative value to the Crown lease which, in view of the contemporaneous sale of it for the sum of $2,825,000 by the purchaser, it plainly did not have.

22.  The decision of the High Court of Australia in Dick Smith Electronics supports, in my view, the proposition that the transfer of the Crown lease cannot be looked at in isolation.  It is necessary to look at what was the money or the value ES&A received as a result of the several promises recorded in the contract to move the transfer of the Crown lease to Rowna.

23.  The contract in this case involved a number of components.  The surrender by ES&A of the under lease to Rowna and the merging of the sub lease with the Crown lease enabled the Crown lease to be passed to Rowna unaffected by those other property rights in it.  Contemporaneously with the transfer of the Crown lease by ES&A to Rowna, the Crown lease was sold by Rowna to Sintak.  The interest which Rowna sold to Sintak was the same interest which ES&A sold to Rowna.

24.  In the circumstances, I accept Mr Bevan’s alternative submission that the AVO valuation of the Crown lease as being the arm’s length sale price of $2,825,000 (exclusive of GST) paid by Sintak to Rowna contemporaneously with the sale of the Crown lease by ES&A to Rowna is self-evidently correct.

25.  The correct decision, in my opinion, is that the decision under review should be affirmed.

FORM 33

PUBLICATION DETAILS

TO BE PUBLISHED

To be completed by Member's Staff

________________________________________________________________________

PART A  FILE NO:      AT06/91

APPLICANT:  ROWNA PTY LTD

RESPONDENT:                   COMMISSIONER FOR ACT REVENUE

PARTY JOINED:                 N/A

COUNSEL APPEARING:    APPLICANT: MR B MEAGHER SC

RESPONDENT:       MR C BEVAN

PARTY JOINED:     

SOLICITORS:  APPLICANT: SLATER & GORDON LAWYERS

INCORPORATING GARY ROBB

& ASSOCIATES

RESPONDENT:       ACT GOVERNMENT SOLICITOR

PARTY JOINED:    

OTHER:APPLICANT:

RESPONDENT:       

PARTY JOINED:     

TRIBUNAL MEMBER/S:   MR M H PEEDOM, PRESIDENT

DATE/S OF HEARING:      2 MAY 2007  PLACE: CANBERRA

DATE OF DECISION:        16 MAY 2007  PLACE: CANBERRA

_______________________________________________________________________

PART B

RECOMMENDATION:

FULL REPORT ( )               CASE NOTE ( )        UNREPORTED DECISION (X)