Shop, Distributive and Allied Employees Association v Commissioner of State Revenue
[2005] VSC 484
•16 December 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
VICTORIAN TAXATION APPEALS
No. 6567 of 2004
| SHOP, DISTRIBUTIVE AND ALLIED EMPLOYEES ASSOCIATION | Appellant |
| V | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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JUDGE: | Hollingworth J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 April 2005 | |
DATE OF JUDGMENT: | 16 December 2005 | |
CASE MAY BE CITED AS: | SDAEA v Commissioner of State Revenue | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 484 | |
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Tax and duties – Transfer of land from trustee to beneficiary – $5.5 million paid by beneficiary to trustee – Held that s.36 of Duties Act 2000 requires transfer to be made to beneficiary qua beneficiary – Held transfer made by way of sale not to beneficiary qua beneficiary – Exemption in s.36 did not apply – Appeal dismissed
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr B Shaw QC Mr D Batt | A J Macken & Co |
| For the Respondent | Ms D Harding | Solicitor for the Commissioner of State Revenue |
HER HONOUR:
Introduction
In September 2002, Fedsda Pty Ltd (“Fedsda”) as trustee of the Fedsda trust transferred the property at 53 Queen Street, Melbourne to the appellant taxpayer, a beneficiary of the Fedsda trust. The taxpayer paid Fedsda $5,500,000 for the property.
The taxpayer says the transfer is exempt from duty by virtue of s.36 of the Duties Act 2000, because it was a transfer from a trustee to a beneficiary of the same trust. The respondent Commissioner says that s.36 only applies where a transfer is from a trustee to a beneficiary in its capacity as beneficiary (“qua beneficiary”) and not for valuable consideration. The taxpayer disputes that s.36 contains any such requirement.
In the alternative, if the Commissioner’s construction of s.36 is correct, the taxpayer says that the transfer was from trustee to beneficiary qua beneficiary, so the exemption applies in any event.
The facts
The facts are largely uncontested and are set out in the affidavits and exhibits filed on behalf of the taxpayer.[1]
[1]The taxpayer relies upon the affidavits of Joseph de Bruyn sworn 5 October 2004 and 21 March 2005, Dominic James Macken sworn 5 October 2004 and 18 March 2005, and Kathleen Eleanor Bugeja sworn 18 March 2005. By notice dated 24 February 2005, the Commissioner objected to certain parts of the taxpayer’s original affidavits. Having filed the additional affidavits dated March 2005, the taxpayer no longer relies on those parts in the original affidavits which were the subject of the Commissioner’s notice of objection dated 24 February 2004, save for the evidence referred to in objection 10. Mr de Bruyn was the only deponent to be cross-examined.
The taxpayer has at all relevant times been an association of employees constituted and registered under the Workplace Relations Act 1996 (Cth) (“the Workplace Act”) and its predecessors. It is a body corporate with power to purchase, hold, sell and otherwise deal with real property.[2]
[2]Section 27 of Schedule 1B of the Workplace Act.
The internal constitution of the taxpayer is governed by rules which are registered under the Workplace Act (“the rules”). The members of the taxpayer are attached to relevant State branches. To the extent set out in the rules, each branch is entitled to have full autonomy, representation and control of the industrial interests of its members. The branches maintain separate branch funds and books of account.
The branches are not separate legal entities from the taxpayer. The relevant branch in this case is the Victorian branch. It is not and never has been registered under the Trade Unions Act 1958 (Vic) or any other legislation which would operate to confer separate legal personality on it.
The Fedsda trust is a unit trust which was set up by the Victorian branch of the taxpayer and what was then the Federated Clerks’ Union of Australia, for the purpose of facilitating their acquisition and joint equal ownership of the property.
Since 29 November 1976, Fedsda has been the trustee and the taxpayer has been a beneficiary of the Fedsda trust. Since 17 December 1993, the taxpayer has been the sole beneficiary of the trust.
On 16 December 1976, Fedsda became the sole registered proprietor of the property. It bought the property in its capacity as trustee of the Fedsda trust. At the time of purchase, Fedsda paid the applicable stamp duty on the transfer. Fedsda remained the sole registered proprietor until the transfer the subject of the present dispute.
On 30 September 2002, Fedsda and the taxpayer executed a transfer of the property to the taxpayer. The transfer followed some correspondence between the taxpayer and Fedsda, which will be discussed in detail later in these reasons. The taxpayer paid $5,500,000 to Fedsda.
The transfer was to the taxpayer absolutely. The consideration stated on the original transfer was “Entitlement in equity as beneficiary of the Fedsda trust”.
In order for the transfer to be accepted for registration, the Registrar of Titles sought further information and requested certain amendments to be made.[3] On 20 August 2004 the transfer, as amended, was finally registered. The amended transfer described the consideration as “Entitlement in equity and $5,500,000 being paid by the transferee by way of administrative adjustment between its branches.”
[3]The amendments were negotiated between the Registrar and the solicitors for the taxpayer over a period of more than one year. The details of those negotiations are not relevant for present purposes.
The taxpayer says that, notwithstanding the correspondence and the payment, there was in fact no sale. It says that the payment occurred for internal administrative purposes only. This argument will be discussed further later in these reasons.
In January 2003, the Commissioner issued a notice of assessment to the taxpayer for duty of $275,000, based on a dutiable value of $5,000,000. The assessment was paid in full. The basis of the assessment was that the transfer was not exempt under s.36 because the property was not transferred to the taxpayer qua beneficiary.
In February 2003, the solicitors for the taxpayer lodged an objection to the assessment. On 27 October 2003, the Commissioner issued a notice of determination of the objection, upholding the basis of the original assessment and increasing the assessment by $27,500 to $302,500, based on a dutiable value of $5,500,000. This appeal commenced on 17 June 2004.
The exemption
At the time of the transfer, s.36 provided that:
“No duty is chargeable under this Chapter in respect of a transfer of dutiable property that is subject to a trust (“the principal trust”) to a beneficiary of the principal trust if –
(a) the beneficiary was a beneficiary when the property … was first vested in a trustee of the principal trust; and
(b) the transfer is -
(i) to the beneficiary absolutely; or
(ii) to the beneficiary as trustee of another trust (“the second trust”) of which all the beneficiaries are natural persons who were beneficiaries of the second trust when the property … was first vested in a trustee of the principal trust; and
(c) the duty (if any) charged by this Act in respect of the first vesting of the property … in a trustee of the principal trust has been paid.”
The competing construction arguments
The taxpayer argues that on its plain and ordinary meaning, s.36 relevantly contains only the following requirements:
(a)There be a transfer of dutiable property that is subject to a trust to a beneficiary of that trust;
(b)The beneficiary was a beneficiary at the time when the property was first vested in a trustee of the trust;
(c)The transfer be to the beneficiary absolutely; and
(d)Any duty charged at the time of the first vesting of the property in a trustee of the trust has been paid.
There is no dispute that in the present case, each of those requirements is satisfied. Accordingly, the taxpayer says that the requirements of s.36 have been established and the transfer is exempt from duty.
The taxpayer argues that there is no basis – whether by reference to the words of the section, the overall nature, context or purpose of the legislation, or the statutory history – for departing from that plain and ordinary meaning and introducing additional requirements which are not provided for in the section. In particular, there is no basis to read into the section a requirement that there has been no consideration for the transfer. That is especially the case in the context of a revenue statute, the exemptions in which should not be narrowly construed.
On the other hand, the Commissioner argues that s.36 does not apply unless a transfer is to a beneficiary qua beneficiary. In other words, the transfer must be moved by the exercise of an authority in the trust deed to distribute in specie to the beneficiary, by a proper call for vesting of the trust or by compliance with a court order. This construction is said to be supported by the plain and ordinary meaning of the words used in s.36, the context in which s.36 appears and parliamentary materials relating to the introduction of s.36 and its provenance. Here, the Commissioner says that the taxpayer’s claim cannot succeed because the transfer was moved by the exercise of a power to sell.
The taxpayer urges me to read the words of s.36 literally. On the other hand, the Commissioner urges me to take a broader, purposive approach. The literal approach to statutory interpretation is less influential than it used to be, although it is still frequently used. In Cooper Brookes (Wollongong) Pty Ltd v FCT[4], the majority in the High Court in effect read words into s.80C(3) of the IncomeTax Assessment Act 1936 (Cth) in order to avoid a drafting oversight and to achieve a result which was consistent with parliament’s perceived intentions. That was done to avoid the literal meaning of the words used, which would have produced a result that was variously described as “incongruous”[5], “contrary to the objects of the Act”[6] and “capricious and irrational”[7]. In doing so, Mason and Wilson JJ observed that:
“In some cases in the past the [literal and golden] rules of construction have been applied too rigidly. The fundamental object of statutory construction in every case is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole. But in performing that task the courts look to the operation of the statute according to its terms and to legitimate aids to construction.”[8]
[4](1981) 35 ALR 151.
[5]Per Gibbs CJ at 157.
[6]Per Stephen J at 162.
[7]Per Mason and Wilson JJ at 170.
[8]At 169-70.
Ever since it was first enacted in 2000, the heading to s.36 has read “Property passing to beneficiaries.” That heading forms part of the Act.[9] Neither side was able to refer me to any cases on the meaning of the expression “passing to”. Whatever the full scope of that expression may be, I agree with the Commissioner that the expression “passing to beneficiaries” does not appear apposite to describe, for example, a purchase of trust property by a beneficiary. It would strain the language used in s.36 to describe such a transaction as a passing to the beneficiary.
[9]By virtue of s.36(2A) of the Interpretation of Legislation Act 1984.
I also agree that the Commissioner’s construction is supported by the context in which s.36 appears. Section 36 is in Division 1 of Part 5 of Chapter 2 of the Act. Part 5 provides exemptions and concessional rates of duty. Division 1 is concerned with trusts. As well as s.36, Division 1 applies to changes in trustees (s.33), declarations of trust (ss.34(1)(a), 37 and 38), transfers pursuant to purchase money resulting trusts (s.34(1)(b)) and bare trusts (s.35). In the case of each of those other exemptions, the capacity in which a person receives a transfer (or acts in the case of those provisions which concern declarations of trust) is critical to the availability of the exemption.
Each side argues that an examination of the legislative history of s.36 and its predecessors assists its case.
The immediate predecessor of the first version of s.36 can be found in provisions substituted into the Stamps Act 1958 by the Stamps (Further Amendment) Act 1981.[10] Exemption (10) to Heading VI of the Third Schedule to the 1958 Act was the relevant provision and was in the following terms:
[10]These included a new subdivision dealing with conveyances of real property and land transfers (s.7) and Heading VI to the Third Schedule (s.9).
“Any instrument for the conveyance of real property that is subject to a trust to a beneficiary of the trust, if the beneficiary was a beneficiary when the real property was first vested in a trustee of the trust and the trust was not created by a declaration of trust by the person in whom the real property was vested immediately before it vested in the trustee and the conveyance is –
(a) to the beneficiary absolutely;
(b) to that beneficiary, as trustee of another trust of which all the beneficiaries are natural persons who were beneficiaries of that other trust when the real property was first vested in a trustee of the first mentioned trust –
if, when the real property was first conveyed to a trustee of the first-mentioned trust, the conveyance was duly stamped under this Act or was not liable to duty.”
Exemption (10) was the subject of consideration by Mr G Nettle, as he then was, sitting as the Administrative Appeals Tribunal of Victoria in Ralara Pty Ltd v Comptroller of Stamps (Vic)[11]. In that case, two trustee companies sold a trust property to the taxpayer company, which was the beneficiary of both trusts. The taxpayer contended that the transfer was exempt from duty under exemption (10). The tribunal member held that exemption (10) was concerned with transfers to a beneficiary qua beneficiary and therefore did not apply to a transfer by way of sale for consideration.
[11](1992) 92 ATC 2,108.
The tribunal member said that, if read “literally and in isolation”, exemption (10) appeared not to be limited to a transfer to a beneficiary qua beneficiary[12]. After considering the competing arguments as to what parliament might have intended by the exemption, he said:
“Consequently, I think that something different was intended and hence that, even if the terms of exemption (10) are not ambiguous, their meaning is sufficiently doubtful to require that I construe them not only in the context of the Act as a whole but also by reference to their legislative history and to such other extrinsic material as might be thought to be relevant.”[13]
[12]At [6].
[13]At [7].
When he went on to consider the 1958 Act as a whole, he found it not particularly helpful. Unlike the current Act, it was not a coherent whole, but a collection of sets of provisions, many of which had little to do with the others. However, he found greater assistance in an examination of the legislative development of exemption (10). After considering the different language used in exemption (10) and its predecessors, and the relevant parliamentary reading speeches, the tribunal member made the following observation which the Commissioner says is equally relevant in the present case:
“Assuming, as I do, that it is appropriate always to keep in mind the question: what did parliament intend, I find it difficult to give any answer to the question of why parliament, by a side wind and without fanfare, would seek to exempt a conveyance on sale from duty simply because of the fortuitous circumstance that the vendor was a trustee of a trust the beneficiary of which was the purchaser. I also think that if there is no logical answer to that question one is directed towards the conclusion that the language used does, implicitly, contain a limitation on the exemption which it creates.”[14]
[14]At [16].
Nether side was able to refer me to any authority in which the correctness of Ralara has been considered. Whilst obviously not bound by the decision, I agree with the tribunal member’s interpretation of exemption (10) and his reasoning process.
The concept of consideration was first mentioned explicitly in the version of s.36 which was enacted by Act No 79 of 2000, the Duties Act 2000.
The explanatory memorandum to Act No 79 of 2000 said that the object of the Act was to replace the Stamps Act 1958 with a modern statute expressed in clear language and with a more contemporary conceptual foundation. It noted that the new Act was based on provisions that were broadly uniform across Australia[15]. In relation to Part 5, which contained inter alia s.36, the memorandum said that “the Act maintains all existing exemptions under the Stamps Act 1958 in relation to transfers of land...”
[15]In the case of s.36, both sides agreed that it was modelled on s.57 of the relevant NSW Duties Act.
Section 36 was amended prior to the commencement of Act No 79 of 2000 by s.7(2)(3) of Act No 46 of 2001, the Duties (Amendment) Act 2001. The differences between the first and second versions of s.36 are shown in the following marked-up version:
“(1)No duty is chargeable under this chapter in respect of a transfer for no consideration of dutiable property to a beneficiary made under and in conformity with
the trusts contained in a declaration of trusta trust, subject to sub-sections (2) and (3).(2)Sub-section (1) applies only to the extent that the property being transferred is property that the Commissioner is satisfied is –
(a)wholly or substantially the same as the property
the subject of the declaration ofthat became an asset of the trust and that –(i)duty charged by this Act has been paid
in respect of the declaration of trust over that propertyupon the property becoming an asset of the trust; or(ii)
the declaration of trust is exempt from dutyno duty was chargeable upon the property becoming an asset of the trust; or
(b)dutiable property representing the proceeds of re-investment of property referred to in paragraph (a); or
(c)property to which both paragraphs (a) and (b) apply.
(3)Sub-section (1) applies only if the transferee was, or became, a beneficiary at the time at which duty became chargeable
in respect of the declaration of trust.”
The explanatory memorandum to Act No 46 of 2001 said that:
“Subsections (2) and (3) substitute wording in sections 36(1), 36(2)(a) and 36(3) of the Duties Act. The purpose of these amendments is to ensure that the current exemption applying to property passing to beneficiaries under a trust arrangement has the same effect as exemption (10) …”
The drafters of s.36, as it appeared in its first two versions (Acts No 79 of 2000 and 46 of 2001), clearly thought that the express references to the transfer being for no consideration, and being made under and in conformity with the trust, had the same effect as exemption (10). In other words, the drafters had the same understanding of exemption (10) as the tribunal member had in Ralara. The new terminology of s.36 was simply adopted as part of an attempt to achieve national uniformity.
Section 9 of the State Taxation Legislation (Amendment) Act 2001 substituted a new s.36 (“the 2001 amendment”). That is the version of s.36 which applies in this appeal.
The explanatory memorandum relating to the 2001 amendment stated that the general object of the Act was to make “minor technical amendments” to the Duties Act 2000, “for the purpose of clarifying existing Duties Act provisions.” In particular, it said that:
“Section 9 relates to the exemption from duty that applies to property passing to beneficiaries of a trust. Section 36 of the Duties Act 2000 is substituted with a new provision. The effect of this amendment is to preserve the current exemption in the Duties Act and mirror, in its entirety, the policy intent of exemption (10) …, which provided relief for transfers of dutiable property to certain eligible beneficiaries. To be eligible, the beneficiaries are required to be beneficiaries when property is first vested in the trust and the relevant duty charged (if any) has been paid on the transfer of property into that trust. Furthermore, the transfer of dutiable property must either be made to the beneficiary absolutely, or to the beneficiary as trustee of another trust. The amendment also clarifies the position that relief is provided where the nature of the property being transferred to the beneficiary is substantially the same as when it first became an asset of the trust.”
The second reading speech to the bill stated:
“The amendments to the Duties Act are minor and are required to clarify the operation of existing policy...
A change is made to section 36 of the Duties Act, substituting for the provision currently in the Act, which is modelled on the New South Wales draft, with one taken from the Stamps Act. These are the provisions providing a duty exemption for transfers of dutiable property passing to the beneficiaries of a trust.
The current exemption contained in section 36 of the Act and its predecessor, exemption (10) …, provides relief for transfers of dutiable property to certain eligible beneficiaries.
The reason for providing the relief is that the beneficiaries have already borne the burden of duty, and therefore, do not have to do so when they receive their beneficial entitlement. The new provision will achieve this outcome and reduce taxpayer uncertainty about the operation of the existing Duties Act position.”
The taxpayer argues that the changes to s.36 made by the 2001 amendment evince a clear legislative intention inconsistent with the Commissioner’s construction. In the first two versions of s.36, parliament expressly required the transfer to have occurred for no consideration and made under and in conformity with the trust; in the 2001 amendment it removed any such requirement. In light of the amendment, the taxpayer argues that it is plainly incorrect that the section can apply only where there is no consideration for a transfer.
Without the benefit of the extrinsic material, I think there would be much force in that contention. One would ordinarily assume that if parliament removed phrases like those from a section, it would have intended to alter the meaning of the section.
However, in this case, that assumption does not stand up, because of the various statements of parliamentary intention. In particular, I refer to the following:
“The effect of this amendment is to preserve the current exemption in the Duties Act and mirror, in its entirety, the policy intent of exemption (10) …, which provided relief for transfers of dutiable property to certain eligible beneficiaries.”
The “current exemption” referred to there was the intermediate version of s.36, which expressly required the transfer to be for no consideration and made under and in conformity with the trust.
As already discussed, that was the same meaning as attributed to exemption (10) in what appears to be the only case on that exemption, the case of Ralara. Prior to the enactment of s.36, the Tribunal’s finding had not been called into question in any subsequent decision. The references in the explanatory memoranda make it clear that parliament wanted to maintain the policy intent of exemption (10). Parliament is presumed to have intended the words to bear the meaning which had been attributed to them in Ralara, namely that a transfer must be to a “beneficiary qua beneficiary”, and the heading “property passing to beneficiaries” reinforces this.
I am satisfied that in making the 2001 amendment to s.36, parliament intended to retain the requirement that the transfer be to the beneficiary qua beneficiary.
I also note that unintended anomalies could arise if s.36 were to be read as capable of applying other than to transfers to beneficiaries qua beneficiaries. For example, it would be possible for somebody such as a property developer to set up a discretionary trust with an enormous number of potential beneficiaries and to then go about selling property to members of the beneficiary class for valuable consideration. In such a case, the sale would be wholly unconnected with the fact that the purchaser was a beneficiary, yet if the taxpayer’s construction is correct, no duty would be payable on the transfer. I cannot think that parliament would have intended such a result.
In what capacity did the taxpayer receive the transfer?
In the alternative, the taxpayer says that even if s.36 only applies where a transfer is to a beneficiary qua beneficiary, the exemption applies in the present case, because the proper characterisation of the transfer is that it was to the taxpayer qua beneficiary. On the other hand, the Commissioner says the taxpayer received the transfer as a purchaser for consideration.
Under the trust deed, only income could be distributed to beneficiaries prior to the vesting day. The trust deed also provided that beneficiaries were not entitled to any particular part of the trust fund and no beneficiary was entitled to the transfer to it of any property comprised in the trust fund[16]. Furthermore, in the present case, the taxpayer did not purport to call for a transfer under the trust deed.
[16]Clause 3(b).
Whilst Fedsda had general trustees’ powers to sell, transfer and convey property[17], those powers had to be exercised for the purposes of the trust. Such provisions would not have authorised it to simply transfer the property to a beneficiary prior to the vesting day without consideration.
[17]For example, clause 15(f).
The taxpayer then says that, quite apart from the terms of the trust deed itself, a beneficiary has a right to wind up the trust and call for the distribution of the trust assets. In doing so, it relies upon the rule in Saunders v Vautier[18] that one or more adult beneficiaries who between them have an absolute, vested and indefeasible interest in the capital and income of property may at any time require the transfer of the property to them. The taxpayer says that, as sole beneficiary, it already had the entire equitable interest and the right to require Fedsda as trustee to transfer to it the legal title.
[18](1841) 4 Beav 115 [49 ER 282].
As the High Court has recently commented in CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings Pty Ltd[19], “the classic nineteenth century formulation by the English courts of the rule in Saunders v Vautier did not give consideration to the significance of the right of the trustee under the general law to reimbursement or exoneration for the discharge of liabilities incurred in the administration of the trust.” In that case, having regard to the terms of the particular trust deed, the High Court held that until satisfaction of the trustee’s right of reimbursement under the trust deed, it was impossible to say what the trust fund in question was. If it were necessary to decide the matter, in my opinion the same result would follow in this case, having regard to the terms of the Fedsda trust deed.
[19]CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings Pty Ltd [2005] HCA 53 per Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ.
Most importantly for present purposes, whatever rights the taxpayer may have had under the Saunders v Vautier principles, it did not purport to exercise them here. The Fedsda trust has not been wound up and the trust assets distributed. On the contrary, Fedsda has purchased further trust property.
On what basis then was the transfer effected? The Commissioner says that the correct legal characterisation of what occurred is that Fedsda sold the property to the taxpayer for $5,500,000. It was a simple sale and purchase for monetary consideration.
The taxpayer says that the payment was nothing other than a necessary internal financial adjustment, perceived to be required under the Workplace Act and its rules and made to comply with them, to ensure that the pre-existing distribution of the taxpayer’s assets as between its various branches was maintained. The taxpayer relies upon the following matters in support of that conclusion:
(a)No contract of sale was signed between the taxpayer and Fedsda;
(b)The taxpayer had administrative branches in each State, which are not separate legal entities;
(c)Assets of the taxpayer are administratively allocated to particular branches and accounted for by them;
(d)All assets of Fedsda as trustee are and at all relevant times have been administratively allocated to the Victorian branch of the taxpayer and accounted for by it;
(e)In particular, prior to the transfer, the property was administratively allocated to the Victorian branch and accounted for by it;
(f)The assets administratively allocated to particular branches and accounted for by them at all times remain the property of the taxpayer; and
(g)At the time of executing the transfer and making the payment, the taxpayer understood that:
(i)upon the transfer, it was required under the Workplace Act to make an internal financial adjustment between its general fund and its Victorian branch, in the amount of the value of the property, to prevent the funds of that branch from being diminished in consequence of the transfer and to ensure that they continued to be appropriately distinguished from the general fund; and
(ii)the payment to Fedsda constituted the required adjustment and made the payment for that reason.
Even accepting for present purposes that the internal administrative arrangements of the taxpayer and the understanding of its executive are as described above, I do not accept that the proper characterisation of the transaction is that it was purely an internal administrative matter.
In mid 2002, the Victorian branch was considering moving its offices to a new building which Fedsda had acquired in Southbank. Fedsda was considering arm’s length offers for the purchase of the property by developers and others. It offered the property to the taxpayer before selling it to any other party.
In a letter dated 30 July 2002 from Geoff Williams, the company secretary of Fedsda, to Joseph de Bruyn, national secretary of the taxpayer, Fedsda offered to sell the property for $5,500,000. Fedsda said that the price was the equivalent of $1,358 per square metre and was based on recent sales of comparable buildings and on some offers which had already been received for the property.[20] It also noted that two agents had indicated that $5,500,000 was achievable and that “the directors of Fedsda therefore believe this to be a just and fair value”. The letter also extended what was described as a “period of exclusive negotiations” with the taxpayer, and asked for a written response by a particular time “in order not to prejudice Fedsda’s opportunity to sell to third parties”.
[20]The other offers were: $4.65M or $5.0M plus 50% of profit on redevelopment; $5.10M; $5.25M; $5.5M with Fedsda to pay the agent’s fee.
In a letter dated 5 August 2002 from Mr de Bruyn to Mr Williams, the taxpayer accepted the terms contained in Fedsda’s letter, one of which was “that we purchase the building for $5.5M”. The letter suggested “that the purchase be settled on 30 September 2002” and requested that “consideration be given to any opportunity that the association’s solicitor may advise for minimising or avoiding payment of stamp duty on the transaction”.
The fact that a formal contract of sale was not executed is not conclusive as to whether what occurred was in fact a sale. On their face, these letters clearly contemplated a sale and purchase for $5,500,000, not some sort of internal adjustment.
Mr de Bruyn circulated a postal vote to all members of the taxpayer’s national executive, in order to obtain internal approval for the transaction. He sought approval to execute the transfer and other necessary documents to:
“(a) effect the said transfer in title in accordance with the terms set out in correspondence exchanged between the [taxpayer] and [Fedsda] dated 30 July 2002 and 5 August 2002 respectively;
(b) draw a cheque for the agreed consideration upon the accounts of the [taxpayer]; and
(c) to tender … payment of this sum to Fedsda at settlement …”
This postal vote document supports the Commissioner’s contention that this was a sale transaction for which the sum of $5,500,000 was “the agreed consideration”. There is nothing in this internal document which suggests that the payment was made purely for internal administrative purposes.
Evidence was led as to the taxpayer’s internal accounting practices as between its branches and the national body. The Victorian branch is part of the taxpayer, not a separate legal entity from it. All of the real and personal property maintained and accounted for on a branch or national basis are assets of the taxpayer, whether managed by the branch or the national office.
Mr de Bruyn’s evidence was that if an asset which is administratively allocated to a branch is to be “transferred” from that branch to another branch or the national office, then an internal financial transfer or adjustment is made to the accounts of both. Of course, in such a case there is no transfer of the asset between separate legal entities, no change in legal position, merely an internal accounting adjustment.
The taxpayer’s own internal practices with regards to the balancing of funds as between the Victorian branch and the national body are a matter for it. They do not alter the correct legal characterisation of the transaction.
Although the consideration is described on the transfer form as being “$5,500,000 being paid to the transferee by way of administrative adjustment between its branches”, what happened was not merely an internal financial transfer or internal accounting adjustment in the books of the same legal entity, namely the taxpayer. Instead, there was a transfer of the legal ownership of the property from Fedsda to the taxpayer, and the payment of $5,500,000 from the taxpayer to Fedsda. The fact that the assets of the Fedsda trust are recorded in the Victorian branch’s consolidated accounts, and are “administratively allocated” to the Victorian branch, does not make them the assets of the taxpayer or of the state branch.
Even if, contrary to my earlier findings, the property could have been simply transferred to the taxpayer qua beneficiary, without the payment of any consideration, the current problem could have been avoided by the taxpayer taking the transfer and simply doing an internal accounting adjustment. But that is not what the parties actually did. They chose to make an actual payment of $5,500,000 to Fedsda, which then held the money as trust property.
The fact that Mr de Bruyn and other members of the taxpayer’s national executive may have thought that what they were doing was only an internal accounting adjustment - one that they thought they were required by the rules or the Workplace Act to perform - does not change the nature of what in fact occurred.
The price sought by Fedsda was in truth, in substance and in law consideration which moved the transfer. The transfer was not made to the taxpayer qua beneficiary. It follows that the taxpayer is not able to avail itself of the exemption under s.36 of the Act.
Orders
I propose to order that the appeal be dismissed.
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