Alexander v Chief Commissioner of State Revenue

Alexander v Chief Commissioner of State Revenue - [2017] NSWCATAD 180 - NSWCATAD 2017 case summary — Zoe

[4]

Uncontested facts

The following facts are uncontested and they provide background to the Chief Commissioner's assessment. 1. Mrs Beryl Alexander died on 24 July 2015 and probate of her estate was granted on 10 November 2015 to Mr Alexander and his sister Christine Joy Hill. 2. Mrs Alexander's estate consisted of her home in southern Sydney ("the Property"), substantial cash in a particular deposit account, other cash deposits and a reasonably substantial share portfolio. The Inventory of Property attached to the probate application indicated an estimated total value of the estate of just over $3.12 million and an estimated value of the Property of $1.8 million. 3. Probate was granted in respect of Mrs Alexander's Will made on 4 July 1986 ("the Will"). Under the Will she gave her residuary estate equally to her three children: Christine Hill, Beverley Alexander and Dennis Alexander. 4. It appears that following Mrs Alexander's death on 24 July 2015 the three beneficiaries agreed amongst themselves as to certain important matters regarding their mother's estate. The terms of their agreement were reflected in a letter dated 5 May 2016 to the Office of State Revenue signed by Christine Hill and Mr Alexander. That indicates that the siblings had agreed that: 1. the value of the estate was $2,960,292.67 and that accordingly the value of each beneficiary's share was $986,764.22; 2. for the purposes of these arrangements the three children assumed a value of the property at $1,640,000 and this assumption was apparently made in light of the saving of costs and delays which would otherwise be incurred if the Property were disposed of as contemplated under the Will; under which it would have to be sold on the market and the proceeds divided equally between the children; and 3. the Property would be transferred to Mr Alexander and in exchange he would pay the difference between the agreed value of the Property and his share of the estate to his two sisters in equal shares. 1. A Memorandum of Transfer ("the Transfer") of the Property dated 16 May 2016 was prepared and executed in the form prescribed by the Real Property Act 1900. The consideration stated on the Transfer was $653,236. That is the difference between the agreed value of the property ($1,640,000) and the agreed value of Mr Alexander's share of the estate ($986,764.22), the agreement in each case being the one between the three beneficiaries, as described in (4) above. 2. On 5 May 2016 Mr Alexander and Ms Hill submitted the Transfer to the Office of State Revenue, accompanied by a covering letter of explanation, a valuation by a registered valuer of the market value of the Property of $1,700,000 and a cheque for $50. 3. On 28 May 2016 the Chief Commissioner sent Mr Alexander a Notice of Assessment of duty of $47,827 less the $50 already paid, making a balance of $47,777. The Notice of Assessment was issued on the basis that the dutiable value of the property was $1,700,000 (as per the submitted valuation) reduced by one third in accordance with s 63 (2) of the Duties Act. 4. Mr Alexander objected to that assessment. 5. On 26 August 2016 the Chief Commissioner issued a Determination of Objection, which disallowed Mr Alexander's objection, confirmed that the assessment of duty of $47,827 was correct and provided reasons.

[10]

Taxation Administration Act 1996 96 Review by Civil and Administrative Tribunal (1) A taxpayer may apply to the Civil and Administrative Tribunal for an administrative review under the Administrative Decisions Review Act 1997 of a decision of the Chief Commissioner that has been the subject of an objection under Division 1 if: (a) the taxpayer is dissatisfied with the Chief Commissioner's determination of the taxpayer's objection, or (b) 90 days (not including any period of suspension under section 92) have passed since the taxpayer's objection was served on the Chief Commissioner and the Chief Commissioner has not determined the objection…. (4) The following provisions of the Administrative Decisions Review Act 1997 do not apply to an application made under this section (or any assessment or other decision to which it relates): ..(b) section 55 (3)-(6). (5) For the purposes of section 58 (1) (a) of the Administrative Decisions Review Act 1997: (a) the obligation of the Chief Commissioner under that paragraph to lodge a statement of reasons with the Tribunal in respect of an application is limited to providing the Tribunal with a statement of reasons only in respect of the matters arising from the grounds specified in the application, and (b) if one of the grounds specified in the application relates to a matter raised in an objection determined by the Chief Commissioner-the Chief Commissioner may rely on reasons previously given to the taxpayer by the Chief Commissioner under section 93 for the determination of the objection in explanation of that part of the assessment or decision to which the objection related. 100 Provisions relating to applications for review (1) An application for review following a failure of the Chief Commissioner to determine an objection cannot be made unless the applicant has given written notice of the proposed application to the Chief Commissioner not less than 14 days before it is made. (2) The applicant's and respondent's cases on an application for review are not limited to the grounds of the objection. (3) The applicant has the onus of proving the applicant's case in an application for review.

[12]

The Chief Commissioner's Case

The case put by Counsel for the Chief Commissioner and in the Chief Commissioner's written submissions received on 27 February 2017 was, in summary, as follows. 1. The Transfer reflected a transfer of dutiable property, namely real estate located in New South Wales: s 11 (1) (a) of the Duties Act. 2. There was a dutiable transaction when the Property was transferred from the executors of Mrs Beryl Alexander's estate to Mr Dennis Alexander, by operation of the Transfer. 3. Under section 13 of the Duties Act Mr Alexander as transferee is liable to pay the duty arising from this dutiable transaction. 4. Under s 21 (1) of that Act, the dutiable value of the dutiable property is the greater of any consideration paid under the dutiable transaction and the unencumbered value of the property. That last phrase means the value of the property without regard to any encumbrance, for example, a mortgage. 5. The proper dutiable value of the Property was that determined by the registered valuer in February 2016 and reflected in his or her valuation as submitted by Mr Alexander and his sister to the Chief Commissioner with their letter of 5 May 2016. That value was $1,700,000. This was greater than the agreed consideration referred to in the Transfer, which was $653,236. 6. In a situation where the concessions applicable to certain dealings with deceased estates set out in s 63 (1) of the Duties Act are inapplicable (which is the case here), the duty payable on the transfer of the Property, calculated in accordance with s 32 (1) would be: $40,490 plus $5.50 per $100 applied to $700,000 (which is the dutiable value of property over $1 million), which equals $78,990. 7. However, s 63 (2) applies to reduce the stamp duty payable. By reference to s 63 (2) the dutiable value of the dutiable property must be reduced by the value of Mr Alexander's entitlement to the property under the trusts contained in the Will. So, the dutiable value of the Property is $1,700,000. 8. But that figure is to be reduced by the portion of the dutiable value which is referrable to the dutiable property to which Mr Alexander had an entitlement under the trusts in the Will. 9. In this case, the reduction amount referred to in paragraph (8) must be $566,666. The portion of the dutiable value that is referable to the dutiable property to which Mr Alexander had such an entitlement is one third. One-third of $1,700,000 is $566,666. 10. Deducting that from $1,700,000 leaves the reduced dutiable property at $1,133,333. 11. The assessment of duty (stated in whole dollars) is therefore:

$40,490
plus $5.50 per $100 (or 5.5%) of $133,333; which is $7,333
= $47,827. 1. This was the amount referred to in the notice of assessment.

Counsel for the Chief Commissioner submitted that the legal analysis in these proceedings is straightforward and that duty is payable on the Transfer in accordance with the calculations set out under the previous paragraph; that that set of calculations is proper and accurate and is the only proper calculation of the duty payable.

[13]

Mr Alexander's case

Mr Alexander made some initial written submissions with his application and added to them in a document headed "Submissions and Evidence for Filing" which the Tribunal received in February 2017. I considered these submissions carefully and also took into account Mr Alexander's letter to the Crown Solicitor's Office dated 30 January 2017, his document headed "Reasons for Objection" dated 2 August 2016 which was annexed to the "Submissions and Evidence for Filing", Mr Alexander's brief oral submissions and his answers to my questions at the hearing.
On considering all those elements, it seems to me that Mr Alexander's submissions are based on 6 identifiable grounds. 1. The "non-commercial/family" nature of the transaction. Mr Alexander contends that the transfer of the Property was a family matter in his words: "an inter-generational transfer being not commercial or profit-oriented". 2. The transfer of the Property was, in Mr Alexander's words: ". in accordance with my mother's will and the powers given to the executors." I take it from Mr Alexander's written submissions that what he is suggesting is that the Tribunal should adopt a very broad notion of the concept of a "trust" as that term is used in s 63 (2). He states in section 4 of his Grounds for Application received on 2 November 2016: "The instruction, trusts, executor powers and intentions are crucial in determining what duties applicable in this family matter." I take it that Mr Alexander contends that the "real" intentions of the parties and hence the trust should determine, or be given very substantial weight in determining, the imposition of stamp duty. 3. The effect of the Chief Commissioner's assessment in this case is to impose death duty on the estate of Mrs Alexander and death duty has been abolished in New South Wales. 4. Subsection 63 (2) does not exclude the value of the estate and limit it to the property component only. I take it that Mr Alexander contends that the value of the Property for stamp duty purposes should be that agreed between him and his sisters. 5. In making a proper assessment of duty, "substance over form" should be adopted and "ordinary legal principles" should apply. There was little elaboration of this ground in the written submissions. 6. That a proper assessment should take into account the provisions of subsections 63(1)(a) (i) and 63 (2) as well as the Chief Commissioner's ruling or interpretations.

[19]

"Substance over form" and "ordinary legal principles"

At the hearing I asked Mr Alexander to explain what "substance" I should be considering and to identify the "ordinary legal principles" which he thinks I should apply in order to overturn the Chief Commissioner's assessment. Mr Alexander was not able to elucidate these matters. As indicated above at paragraphs 5 and 6, in conducting a review of this type I must decide what the correct and preferable decision is, having regard to the material then before me, including any relevant factual material and any applicable written or unwritten law. For that purpose, I may exercise all of the functions which are conferred or imposed by any relevant legislation on the administrator who made the decision: in this case, the Chief Commissioner.
The "substance" of the matter is provided by the relevant legislation and in this case by the Chief Commissioner's detailed explanation of the methodology involved in making the assessment. I cannot follow or see any persuasive value in Mr Alexander's submission that I should look at "substance" as opposed to "form". I not clear what he means by "form". The only hint I obtained of this was Mr Alexander's answers to my questions at the hearing in which he indicated that he had an expectation that duty would be payable on what he called the "shortfall amount" only. If Mr Alexander means that the "substance" of the private arrangement between siblings, particularly as to the value of the property, should be given precedence over the "form" of the legislation, that is not so. If he means "substance" to refer to the private, domestic, family and "not-for-profit" nature of the overall transaction, then they cannot be substituted for a proper analysis of the applicable legislation.
Similarly, Mr Alexander was not able to specify or describe to me the "ordinary legal principles" on which he relied I am not aware of any legal principles, which would in the circumstances of this case invalidate the methodology adopted by the Chief Commissioner in assessing the duty payable.

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