Zeekap (No 56) Pty Ltd v Commissioner of Stamp Duties
[1999] TASSC 61
•31 May 1999
[1999] TASSC 61
CITATION: Zeekap (No 56) Pty Ltd v Commissioner of Stamp Duties [1999] TASSC 61
PARTIES: ZEEKAP (NO 56) PTY LTD
v
COMMISSIONER OF STAMP DUTIES
TITLE OF COURT: SUPREME COURT OF TASMANIA (FULL COURT)
JURISDICTION: APPELLATE
FILE NO/S: FCA 3/1998
DELIVERED ON: 31 May 1999
DELIVERED AT: Hobart
HEARING DATES: 17 May 1999
JUDGMENT OF: Underwood, Wright and Crawford JJ
CATCHWORDS:
Taxes - Duties - Stamp duties - What transactions or instruments are liable - Conveyance or transfer on sale - Sale of fishing vessel, equipment, licences and permits - Whether a sale of a business - Whether ad valorem stamp duty payable - Vessel, equipment, licences and permits under lease to another - Capacity or entitlement to use such assets for the purpose of generating an income or capital profit.
Stamp Duties Act 1931 (Tas), ss22(3), 69H.
Commissioner of Taxation v Murray (1998) 72 ALJR 1065; Aidinis v Hotchin [1971] SASR 447; Kenmir Ltd v Frizzell [1968] 1 All ER 414, considered.
Aust Dig Taxes [330]
REPRESENTATION:
Counsel:
Appellant: W T McMillan
Respondent: P Turner
Solicitors:
Appellant: Zeeman Kable & Page
Respondent: Director of Public Prosecutions
Judgment Number: [1999] TASSC 61
Number of Paragraphs: 16
Serial No 61/1999
File No FCA 3/1998
ZEEKAP (NO 56) PTY LTD (ACN 009 562 270) v
COMMISSIONER OF STAMP DUTIES
REASONS FOR JUDGMENT FULL COURT
UNDERWOOD J
WRIGHT J
CRAWFORD J
31 May 1999
Orders of the Court
Appeal allowed.
Order of Cox CJ made on 19 December 1997 set aside and in lieu thereof ordered that the Commissioner of Stamp Duties' assessment be varied from $18,150 to $20.
Ordered that $18,130 excess stamp duty be repaid by the Commissioner of Stamp Duties to the appellant.
Serial No 61/1999
File No FCA 3/1998
ZEEKAP (NO 56) PTY LTD (ACN 009 562 270) v
COMMISSIONER OF STAMP DUTIES
REASONS FOR JUDGMENT FULL COURT
UNDERWOOD J
31 May 1999
I agree with the reasons for judgment of Wright J.
Stamp duty is payable upon an agreement for the sale of (inter alia) the assets of the business. By statutory definition, these assets include the goods and licences of the business. At the date of the completion of the agreement for sale, neither the vendor nor the purchaser were carrying on any relevant business. Consequently, there was no agreement to sell the assets of the business. At the material time, the lessee of the assets was utilising them to carry on a business, but he was not a party to the agreement for sale in the relevant sense. As Wright J has said, the agreement was for the sale of the reversionary interest in the assets and a right to receive the income from their lease in the meantime.
I too would allow the appeal and set aside the order of the Chief Justice made on 19 December 1997 and in lieu thereof I would order that the Commissioner's assessment be varied from $18,150 to $20 and I would further order that $18,130 excess duty paid be repaid by the Commissioner to the appellant.
File No FCA 3/1998
ZEEKAP (NO 56) PTY LTD (ACN 009 562 270) v
COMMISSIONER OF STAMP DUTIES
REASONS FOR JUDGMENT FULL COURT
WRIGHT J
31 May 1999
This is an appeal from a decision of Cox CJ dismissing an appeal against the Commissioner of Stamp Duties' assessment of the appellant's liability to pay $18,150 stamp duty upon an agreement for sale in relation to a fishing boat. The relevant facts are fully set out in the judgment of the learned Chief Justice and have not been challenged by either party. For present purposes those facts may be compendiously stated as follows.
On 27 February 1996, the appellant agreed to purchase from W G Abbott, a fishing vessel, together with fishing equipment, licences and permits. At that time the fishing vessel, equipment, licences and permits were all under lease to Thomas and Michelle Brown. The lease ran until 20 April 1996 with an option to renew for one year only. As the learned Chief Justice correctly observed:
"What the appellant bought were the vessel and equipment and the fishing licences, but these were all subject to the lease. It procured no present right to conduct a fishing business, nor did it gain any right to immediate possession of the vessel and its equipment, nor to the benefits and privileges conferred by the licences."
In short, the appellant obtained no more than an entitlement to rental and other payments due or to fall due under the lease and a reversionary interest in the vessel, equipment, licences and permits when the lease expired.
The Commissioner of Stamp Duties assessed duty on the agreement in reliance upon the Stamp Duties Act 1931 ("the Act"), s69H. This section was inserted in the Act in 1990. It appears to be unique to Tasmania but has similarities to provisions in the Income Tax Assessment Act (Cth) dealing with the liabilities of people engaged in business to pay tax upon disposal of the business. Section 69H provides (inter alia):
"69H ¾ For the purposes of this Division and Schedules 2 and 3 ¾
'agreement for the sale of a business' means an agreement for the sale of the assets and property of the business including the following:
(a)real property, goods, livestock, vehicles, leases, tenancies, franchises, licences and goodwill belonging to the business, whether these are included in the transaction by which the business is sold or agreed to be sold or are the subject of another transaction;
(b)the rights of a purchaser under that agreement;
'business' includes ¾
(a)any business, profession, calling, vocation or other occupation carried on by a person or by a person in partnership with another person; and
(b)any interest or any part of an interest in a business;"
The appellant responded to the Commissioner's assessment on 23 May 1996 by lodging an objection on the grounds (inter alia) that the relevant agreement was not an agreement for the "sale of a business" as described in the notice of assessment. The Commissioner determined on 12 June 1996 that the objection would not be upheld and confirmed the assessment, saying:
"I have considered the grounds of objection as set out in the Notice of Objection and I have determined not to uphold the objection and consequently the assessment of stamp duty in the sum of $18,150 under Item 6 of the Second Schedule to the Act is confirmed. The basis upon which I have reached that conclusion is that the Agreement dated 27 February 1996, constitutes an agreement for the sale of a business and is therefore subject to ad valorem duty.
The agreement is for the sale of a business as defined in Section 69H of the Act. The licence together with the vessel constitutes a business for the purposes of the Act.
The purchaser of the business is placed in a position to carry on the business in the future if he wishes. The fact that the purchaser may choose in the future not to carry on the business is not relevant as the duty is on the sale of the business."
The learned Chief Justice adopted similar reasoning in dismissing the appellant's appeal against the Commissioner's determination. At 3 of his judgment his Honour said:
"I do not consider that the delay of two months from completion to the termination of the lease (or of a further twelve months should the option to renew be exercised) resulting, as it did, in the postponement of the purchaser's ability to carry on the business of fishing, altered the nature of the transaction. The means or assets necessary to the carrying on of a fishing business were agreed to be sold by the owner of them, subject to the temporary rights of a lessee to use them for a certain period upon payment of rent, and the purchaser acquired those assets and the capacity to carry on the business at the termination of the lease. In the meantime it was to receive the reserved rent. Stamp duty is payable on the sale of a business, notwithstanding that the vendor may not be able to give the immediate right to carry it on. The agreement to transfer the assets and the right to use them at the expiration of any prior interests amounts to an agreement for the sale of a business which is dutiable. In my opinion the appeal should be dismissed."
I cannot concur with this approach. A man who leases to another an asset for use in the other's business is not himself conducting that business any more than is the landlord who leases to a shop keeper the house or land from which he conducts that enterprise. The person who gives a lease of personal or real property to another may himself be conducting a business which involves, as part of its activity, the leasing of property, but he is not ipso facto conducting the business which is operated with the use of the leased property by the lessee. Merely because some residual value may accrue to him if the second man's business ceases and the use and enjoyment of the property reverts to the owner, this does not alter the position. Nor is the situation materially changed if the owner of the property needs to acquire some governmental or other approval for the use of the relevant property before it can be utilised for the lessee's business enterprise.
Surely the touchstone for whether or not a man has purchased a business must be whether or not he has acquired, along with any relevant assets, the capacity or entitlement to use such assets for the purpose of generating an income or capital profit.
In Aidinis v Hotchin [1971] SASR 447 at 449, Wells J said:
"In my opinion, when a person says he is selling a business he usually means that he is selling the capital assets (tangible and intangible), the stock-in-trade, and the goodwill (even if the goodwill is not expressly mentioned): compare Shipwright v Clements (1871) 19 WR 599. Conversely, goodwill will, generally speaking, pass with the stock-in-trade or the business premises according to the circumstances of each case: England v Downs (1842) 6 Beav 269 (49 ER 829) and Inland Revenue Commissioners v Angus (1889) 23 QBD 579, at p 594."
In Commissioner of Taxation v Murry (1998) 72 ALJR 1065, the High Court observed that a taxi licence is not itself a source of goodwill of a business. It merely confers a right to lawfully commence a business. Although the case was primarily concerned with what constitutes a disposal of goodwill, the majority judgment (Gaudron, McHugh, Gummow and Haynes JJ) contained the following observations which appear to me to be apposite in the present circumstances:
"Immediately prior to the sale of the licence to Mr and Mrs Wilkins, the licence gave Mr Gower to whom it was leased the right to conduct a taxi business. That business may have had some goodwill because its "get up" and the use of telephone bookings attracted custom. But the goodwill of the business belonged to Mr Gower who owned the vehicle and used it to the exclusion of the taxpayer and her husband and either drove or hired someone to drive the taxi. The taxpayer had no interest in that business.
Prior to the sale, the taxpayer and her husband exploited the licence in another way. They exploited its economic potential by leasing it. In so far as the licence was relevant to their business, it produced rent. Their position was the same as the owner of shop premises who rents it to a person who then commences a business at the site. While the shop business exists, the goodwill of the business belongs to the shop proprietor. If the lease expires and is not renewed and the business ceases to exist, the goodwill comes to an end. A new lease to a person commencing a similar business from the premises may command a premium, but no part of the premium is paid for goodwill."
Goodwill is rarely the only asset of a business, but it will be a rare sale of a business which does not include goodwill as a component part of the transaction. There is, however, no need to determine whether the definition of "agreement for the sale of a business" as meaning "an agreement for the sale of the assets and property" of the business requires that all of the assets must be comprised in the transaction for a sale agreement to be dutiable under s69H. The simple fact is that the present agreement dealt with the sale of discrete assets. It did not deal with the sale of a business.
As Widgery J said in Kenmir, Ltd v Frizzell [1968] 1 All ER 414 at 418:
"In deciding whether a transaction amounted to the transfer of a business, regard must be had to its substance rather than its form, and consideration must be given to the whole of the circumstances, weighing the factors which point in one direction against those which point in another. In the end, the vital consideration is whether the effect of the transaction was to put the transferee in possession of a going concern, the activities of which he could carry on without interruption."
The transaction presently under consideration does not meet this test.
I would therefore uphold the present appeal and set aside the order of the Chief Justice made on 19 December 1997 whereby he dismissed the appeal to him. I would also order that the Commissioner's assessment be varied from $18,150 to $20 and, further, that the excess duty paid by the appellant, to wit the sum of $18,130, be repaid to the appellant by the Commissioner.
File No FCA 3/1998
ZEEKAP (NO 56) PTY LTD (ACN 009 562 270) v
COMMISSIONER OF STAMP DUTIES
REASONS FOR JUDGMENT FULL COURT
CRAWFORD J
31 May 1999
I agree.
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