Sherratt v Commissioner of State Revenue
[2013] QCAT 9
| CITATION: | Sherratt v Commissioner of State Revenue [2013] QCAT 9 |
| PARTIES: | Karl Noel Sherratt |
| v | |
| Commissioner of State Revenue |
| APPLICATION NUMBER: | GAR259-12 |
| MATTER TYPE: | General administrative review matters |
| HEARING DATE: | On the papers |
| HEARD AT: | Brisbane |
| DECISION OF: | Jim Allen, Member |
| DELIVERED ON: | 7 January 2013 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. The decision of the Commissioner of State Revenue dated 31 May 2012 is confirmed. |
| CATCHWORDS: | Review of decision of Commissioner of State Revenue – exemption from duty for transfer to correct clerical error Duties Act 2001, s 152 Pryke & Ors v Commissioner of State Revenue [2007] QCA 121 |
APPEARANCES and REPRESENTATION (if any):
This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act).
REASONS FOR DECISION
History of the application
Mr Sherratt and his wife purchased an investment property in 2010. The title was registered in their names jointly and it was not until Mr Sherratt came to prepare his income tax return for the 2010/11 year that he became aware of a problem in the way the title to the property was held. Mr and Mrs Sherratt then executed a transfer of the property from themselves to themselves but with the property to be held as tenants in common in the shares of Mr Sherratt 99/100 and Mrs Sherratt 1/100. The consideration on the transfer was said to be “The desire to change the tenancy”.
The transfer with statutory declarations from both Mr and Mrs Sherratt, the Office of State Revenue Form 2.2 and a recent title search were submitted to the Office of State Revenue for an assessment of duty. The letter accompanying the documents noted that the transfer was exempt under section 152 (exemption to correct clerical error) of the Duties Act 2001.
The assessor dealing with the matter requested further information and details of the value of the property, which were provided. Ultimately an assessment of duty in the amount of $4,346.25 was issued on 13 December 2011 for duty on a transfer of 49% of the property which was then valued at $380,000.
Mr Sherratt objected to the assessment on the ground that the s 152 exemption should have been granted and that objection was disallowed by the Commissioner of State Revenue on 31 May 2012. Mr Sherratt has applied to the Tribunal for a review of the Commissioner’s decision in regard to the objection.
The Legislative Framework
When exercising its review jurisdiction the Tribunal steps into the shoes of the Commissioner and decides the review in accordance with the Act[1] and the enabling Acts[2] and performs the functions conferred on the Tribunal under those acts and has all of the functions of the Commissioner for the reviewable decision[3].
[1] Queensland Civil and Administrative Tribunal Act 2009
[2] Taxation Administration Act 2001 and Duties Act 2001
[3] Section 19 of the Queensland Civil and Administrative Tribunal Act 2009
The review of a decision of the Commissioner is limited to the grounds of the objection unless the Tribunal orders otherwise[4]. The Tribunal hears and decides the review by way of a reconsideration of the evidence before the Commissioner unless the Tribunal considers it necessary in the interests of justice to allow new evidence[5]. The review is to be decided in accordance with the same law that applied to the making of the original decision[6]. The Tribunal may confirm or amend the decision; or set aside the decision and substitute its own decision; or set aside the decision and return the matter for reconsideration by the Commissioner[7].
[4] Section 71(2) of the Taxation Administration Act 2001
[5] Section 71(3) of the Taxation Administration Act 2001
[6] Section 71(4) of the Taxation Administration Act 2001
[7] Section 24 of the Queensland Civil and Administrative Tribunal Act 2009
The grounds of the objection is that the transfer should have been entitled to an exemption from duty in accordance with section 152 of the Duties Act 2001 on the basis that it was a dutiable transaction to correct a clerical error in a previous dutiable transaction about the same property.
The Commissioner’s objection decision sets out the history of s 152 of the Duties Act 2001. At the time of the transaction, s 152 of the Duties Act 2001 stated:
(1)Transfer duty is not imposed on a dutiable transaction to correct a clerical error in a previous dutiable transaction about the same property if-
(a) No additional consideration is paid or payable; and
(b) The beneficial interests in the property change only to the extent necessary to correct the error.
Examples of clerical error in a dutiable transaction about property-
. an accidental misdescription of the property
. an accidental misdescription of a party to the transaction
(2)To remove any doubt, it is declared that an error by a party about the appropriateness of a transaction to achieve an intended legal result is not a clerical error in the transaction.
The section has been altered by amendment to the Duties Act 2001 in the Revenue and Other Legislation Amendment Act 2006. The previous legislation stated:
(1)Transfer duty is not imposed on a dutiable transaction to correct an error in a previous dutiable transaction about the same property if-
(a) No additional consideration is paid or payable; and
(b) The beneficial interests in the property change only to the extent necessary to correct the error.
Section 152 prior to the amendment was supported by Practice Direction Duties Act 55.1 issued 4 November 2002 and with effect up until 21 November 2006. It is stated that despite the seemingly broader context of the word “error” without the restrictive use of “clerical”, the Commissioner’s practice during this time in assessing transactions with relevance to s 152 was always to limit the exemption to correction of clerical errors in the dutiable transaction itself, for example, transferring the wrong property title or misnaming a transferee.
The Commissioner’s practice was challenged in the Pryke[8] case. It was held in that case that the exemption could apply to transactions which were necessary to achieve a legal effect which the parties to the transaction mistakenly believed an earlier transaction would achieve. As a result of the challenge, the Commissioner considered the court’s interpretation of the exemption under s 152 was beyond the intended scope and practice regarding the section, in that it permitted parties to rely on the use of s 152 in circumstances where the parties may have failed to consider, take advice upon and/or implement the most appropriate legal structure for a transaction in the first instance. The Commissioner considered that this placed the risk of the inappropriate structuring of decisions on the State, rather than on the parties, with consequent revenue risks and uncertainty.
[8]Chesterman J in Pryke & Ors v Commissioner of State Revenue [2006] QSC 226 and on appeal Douglas J in Pryke & Ors v Commissioner of State Revenue [2007] QCA 121.
To align the section with the consistent practice in the first five years of the operation of the Duties Act 2001, s 152 was amended to insert the word clerical in front of the word error throughout the section, to remove any doubt about the intentions of the section, subsection 2 was added. The Commissioner issued Practice Direction Duties Act 55.2 to align with the amended legislation which remained in force until the issue of Public Ruling DA152.1.1.
The transaction
According to the Commissioner’s objection decision the contract for the purchase of the property was entered by Mr and Mrs Sherratt on 28 June 2010 and the original transfer was executed on 29 July 2010. The material filed on behalf of Mr Sherratt explains that the transfer was prepared by the solicitors acting in the purchase for Mr and Mrs Sherratt based on their instructions contained in a “Conveyancing Questionnaire” used by that firm. A copy of the original “Conveyancing Questionnaire” was provided to the Tribunal and it clearly sets out that Mr and Mrs Sherratt were to hold the property as joint tenants. The transfer was then prepared based on those instructions and in accordance with the practice of the firm it was executed by a solicitor and was not seen by Mr and Mrs Sherratt prior to its lodgement in the Department of Environment and Resource Management for registration.
It was not until August 2011 after holding the property for the first financial year that Mr Sherratt contacted the firm regarding the manner in which the investment property was held. Mr Sherratt is said to have advised that as a result of preparing his taxation matters for the first year he had held the investment property, his accountant had pointed out that the property was held in joint tenancy and not as tenants in common as recommended by the accountant and this resulted in a very disadvantageous taxation position and maximum financial benefit of having the rental property could not be gained unless the tenancies were changed to reflect tenants in common with the majority shares to the main household breadwinner.
Prior to the purchase of the land Mr and Mrs Sherratt had obtained financial advice on or around 20 May 2010 from the Australian College of Financial Education Pty Ltd – Mooloolaba. It is stated in statutory declarations provided by Mr and Mrs Sherratt that the financial advisers recommended that the property be held as tenants in common in the shares of 99/100 to Mr Sherratt and 1/100 to Mrs Sherratt.
The advice itself does not appear to support this, as it is clear on page 6 of the advice that the property is to be owned in the name of one of the parties being the party who currently has a taxable income. It is noted that the other party has no present taxable income. It is clearly stated in a section headed Investment Capacity “Buying I such property (registered in single name).
Mr and Mrs Sherratt in their material confirm that Mr Sherratt is the party who currently is working. In his statutory declaration Mr Sherratt states that the calculations were done in this way for ease of calculation so the financial advisors did not have to extrapolate the figures for 99% and 1%. A letter from a financial adviser dated 30 October 2011 confirms that the advice was that the property be held as tenants in common in the shares of Mr Sherratt 99/100 and Mrs Sherratt 1/100.
In their statutory declarations Mr and Mrs Sherratt state “that at all relevant times, including the time of giving instructions to our solicitors in the conveyance of the property it was our intention to follow the advice of the financial advisers. It was an honest mistake and oversight of mine when “joint tenants” was circled on the solicitor instruction form”.
Discussion
It is clear that there was no clerical error in the preparation of the transfer as it correctly showed Mr and Mrs Sherratt were to hold the property as joint tenants in accordance with the instructions on the Conveyancing Questionnaire. The Commissioner's view is that “a clerical error of the type contemplated by s.152 of the Duties Act relies on the instructions given to the legal representatives and ultimately the person completing the Form 1 transfer, and that the mistake or clerical error was made in completing the transfer, contrary to such instructions.”
This would then limit the error to one which occurs within the office of the legal representatives in carrying out their client's instructions. It is submitted on behalf of Mr Sherratt that the section should not be limited in this way. In particular relying on the decision in Pryke which was said to still be good law. The Commissioner's view was that “the appeal case (Pryke) was still based on the wording of s.152 of the Duties Act prior to the amendment. It was not submitted to the judges that the form of the amendment should be taken into account in assisting their interpretation of the (original) section that applied to the relevant transaction in that case.”
This is reflected in Douglas J's decision at para [15]. At para [24] Douglas J states “Mr Lyons QC for the respondents pointed, initially, to the recognition in s152(b) of the possibility that beneficial interests could change to the extent necessary to correct an error as arguing against any proposition that the relevant error should be limited to a clerical error. In my view there is substance to that submission.” By analogy the change in the language of the section by the insertion of the word clerical would be seen to limit the application of the exemption.
Subsection 152(2) must also be taken into account so that an error associated with the legal effect of a transaction is not a clerical error. The error here was not discovered until Mr Sherratt's accountant advised that holding the property as joint tenants with his wife would have adverse tax consequences. The original financial advice received by Mr and Mrs Sherratt on its face showed that the property should be held by the person who had a taxable income, which was Mr Sherratt.
There was no mention of tenants in common in the financial advice until the time of the second transfer and the letter from the financial adviser. While Mr Sherratt has stated that the accountant had recommended that the property be held as tenants in common no evidence in this regard was provided from the accountant. The Conveyancing Questionnaire clearly set out what the options were in regard to how the property should be held and that if it was to be held as tenants in common then the shares in which the property was to be held would need to be nominated. This should have been sufficient information to remind Mr and Mrs Sherratt that they had intended to hold the property as they now claim.
In the Tribunal’s view Mr and Mrs Sherratt always intended that they would hold the property to obtain tax advantages from the deduction of the expenses relating to the property to the fullest extent. While it was recommended they purchase the property in the sole name of Mr Sherratt to achieve this, they decided to buy the property in both names and did not understand that the legal effect of this for tax purposes would limit the deductibility of the expenses. This error is not then a clerical error in terms of a misdescription of the property or a party but it is in error in terms of not understanding the legal effect of the choice to hold the property as joint tenants on the deductibility of the expenses for the property. It is made clear by subsection 152(2) of the Duties Act 2001 that such an error is not a clerical error and there then no entitlement to the exemption under s 152 of the Duties Act 2001.
The decision of the Commissioner of State Revenue dated 31 May 2012 is confirmed.
1
2
0