ACT Civil and Administrative Tribunal|2010-11-03|Before: Professor P

ARAGHI and DORSETT AND COMMISSIONER FOR AUSTRALIAN CAPITAL TERRITORY REVENUE (Administrative Review) [2010] ACAT 78 (3 November 2010)

ROOZBEH ARAGHI and LUKE JOHNATHON DORSETT AND COMMISSIONER FOR AUSTRALIAN CAPITAL TERRITORY REVENUE (Administrative Review) [2010] ACAT 78

Catchwords: ADMINISTRATIVE REVIEW - Home Buyer Concession Scheme - first home buyers - two separate contracts: one for purchase of land, and other for construction of home - interdependence of contracts - dutiable property - "real nature" or "substance" of the transaction - issue of different parties to the agreements which are interlocked - are amended terms an independent "arrangement" that constitutes an agreement for the purpose of the ?

Duties Act 1999, ss.7, 8, 10, 11, 16A, 20, 22, and 26

Legislation: Duties (Affordable House and Land Package)

Taxation Administration (Amounts Payable-Thresholds-Home

Buyer Concession Scheme) Determination 2008 (No2).

Taxation Administration (Amounts Payable - Eligibility - Home

Buyers Concession Scheme) Determination 2008 (No 2)

List of cases: Bambro (No2) Pty Ltd v Commissioner of Stamp Duties

TEC Desert Pty Ltd & Anor v Commissioner of State

Revenue (WA) (2007) ATC 4001, [2006] WASC 300

Minister for Immigration v Kurtovic [1990] FCA 22; (1990) 92 ALR 93;

Paul v the Commissioner of Inland Revenue [1936] SC 443

Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537

Re Ian Lindquist and Stephanie Jane Lindquist and the

Commissioner for ACT Revenue [2004] ACTAAT 12

Tribunal: Professor P Spender Presidential Member

CIVIL AND ADMINISTRATIVE TRIBUNAL ) NO: AT 10/10

AND: COMMISSIONER FOR AUSTRALIAN CAPITAL TERRITORY REVENUE

Tribunal : Professor P Spender Presidential Member

The decision of the Respondent of 6 January 2010 is set aside.

The matter is remitted to the Respondent for reconsideration on the basis that the duty chargeable under the Duties Act 1999 (ACT), and in respect of the Applicants' entitlements under the Home Buyer Concession Scheme, the First Home Owner Grant and the First Home Owner Boost, is only the duty payable on the contract for the sale of the land at Block 25 Section 15 Crace, with the value of the improvement in the form of the house at Block 25 Section 15 Crace being excluded from the assessment.

The land at Block 25 Section 15 Crace was owned by the Land Development Agency ("the LDA"), which is a statutory authority of the ACT established under section 31 of the Planning and Development Act 2007. The property formed part of a larger land holding of the LDA in the suburb of Crace which formed part of a community development scheme under the Community Titles Act 2001.

The LDA entered into an arrangement of some description with a private developer, Crace Developments Pty Ltd (ABN 26 125 306 498) ("Crace Developments") to construct affordable housing on the LDA's land in Crace. In the early part of 2009 advertisements were placed in the ACT media calling for eligible people to express interest in the developments. The advertisements sighted by the Tribunal expressly targeted first home buyers but it transpired that first home buyer status was not an essential qualification for participation in the development.

Mr Araghi and his partner Mr Dorsett ("the Applicants") saw advertisements in the media about the development at Crace. They initially contacted staff at Crace Developments to make general enquiries about prices and were told that it was unlikely that they would obtain a 3 bedroom home under $400,000. This raised concerns on the part of Mr Dorsett as to whether he and his partner would still be eligible for concessional stamp duties and for the First Home Owner Grant ("the FHOG") if they were to purchase a home at this price. The statutory regimes governing concessional stamp duties, known as the Home Buyer Concession Scheme ("the HBCS") and first home buyer's grants are addressed below.

The staff at Crace Developments explained that there were to be two separate contracts, one for the purchase of the land from LDA and the other for the construction of the home on the land by Crace Developments and that stamp duty was only payable on the contract for the sale of the land. The staff at Crace Developments offered the observation that because the contract price for the sale of land was below the threshold for concessional stamp duty that the HBCS should still apply.

The Applicants attended an information session at Kaleen Sports Club on 14 March 2009 where they were provided with a disc containing the proposed contract of sale, a proposed building contract with Crace Developments and other material. The Applicants took the contract to their solicitor who advised that stamp duty was payable only on the contract for the sale of the land and that the HBCS should still apply.

On the advice of their solicitor, the Applicants approached staff at the Respondent's office on 1 April 2009 and were informed that the HBC stamp duty concession should still apply at the $20 level to the contract for the sale of the land and that no stamp duty applied to a contract solely for the construction of a house.

The LDA as the owner and vendor of the land was required to provide the Applicants with a copy of the proposed contract for sale of the land ("the Draft Land Contract") by virtue of section 9 Civil Law (Sale of Residential Property) Act 2003. That obligation was satisfied by the disc provided at the Kaleen Sports Club. The Draft Land Contract provided on the disc contained what is referred to as the "interdependence" clause which linked the completion of the contract for the sale of the land with the completion of "any building contract entered into with respect to the land by the buyer". The relevant provision stated as follows:

31.1. Completion of this contract is interdependent with and conditional on completion of any building contract entered into with respect to the Land by the Buyer. If the building contract is rescinded or terminated, this Contract is taken to be rescinded.[1]

It is significant to note that clause 31.1 of the Draft Land Contract does not actually oblige the purchaser to enter any particular building contract with any particular entity.

Clause 22.3 of the Draft Land Contract[2] provided by the LDA to the Applicants determined the date for completion of the contract for the sale of the land. The date for completion was to be the later of the registration date of the Crown lease or the registration date of the community plan.

It is significant to note that clause 22 of the Draft Land Contract supplied to the Applicants did not tie the date of completion of the contract for the sale of the land to the completion of any building contract. Thus it was possible that under the Draft Land Contract, completion of the contract for the sale of the land would precede the completion of any building on the land.

The form of clause 22 of the Draft Land Contract gave rise to a significant issue of internal inconsistency. Because it was both possible that completion of the contract for the sale of the land under clause 22 could precede the completion of any building contract, it is difficult to see what operation the last sentence in clause 31.1 may have had. Once the settlement of the conveyance of the land was completed following registration of the community plan, the Applicants would take an indefeasible title under section 58 Land Titles Act 1925 which could not be retrospectively abrogated simply because the Applicants were subsequently found to be in default under a building contract with a third party.

On 20 March 2009 the Applicants received a letter from Crace Developments informing them of the process to be adopted at the land sales to be held at Crace on 4 April 2009, at which time land lots would be allocated on the basis of priority of registration on that day.

At about 5pm on 2 April 2009 staff from Crace Developments emailed the Applicants two revised contracts with a one page document containing information about the changes. The information about the changes was set out in a document entitled "Summary of Land Sale Contract Changes - Sections 14 and 15" ("Summary of Land Contract Changes") and a copy of this document was tendered in evidence during the Tribunal hearing.[3] The document offers little explanation of the purpose or effect of the changes to the contracts.

The final contract for the sale of the land was dated 9 April 2009 ("the Final Land Contract"), which stated a contract price for the sale of the land of $81,000. The Final Land Contract was between LDA as sellers and the Applicants as buyers.[4] The final contract for the construction of the house was dated 9 April 2009 ("the Final Home Building Contract") which stated a contract price of $352,900. The Final Home Building Contract was between Crace Developments as builder and the Applicants as purchaser.[5] Crace Developments is a consortium with Canberra Investment Corporation Ltd as project manager and lead partner. The other consortium partners are Defence Housing Australia and PBS Property Group. It is a separate entity from the LDA.

The circumstances in which the Applicants signed the Final Land Contract and the Final Home Building Contract are discussed below.

The Final Land Contract contained a number of significant changes from the Draft Land Contract. The first change was to insert a definition of "Home Building Contract" into clause 1.1 which defined that contract to be a contract with Crace Developments entered on the same day. This amendment was significant because it abrogated the right of the Applicants to choose a different builder.

The second significant amendment was to clause 22 to redefine the date for completion of the contract for the sale of the land to be the date of practical completion of the building contract with Crace Developments. This had the effect of preventing any transfer of title to the land to the Applicants prior to the completion of the building contract with Crace. The purpose of the amendment to clause 22 was referred to in the Summary of Land Contract Changes as follows:

It was identified that potentially the land sale contract could complete prior to the home building contract which is not the intention.[6]

The third significant amendment was to the "interdependence" clause - clause 31 - to provide that any termination of the building contract with Crace Developments would result in a termination of the contract for the sale of the land.

It is clear enough that the amendments were intended to overcome the internal inconsistencies in the contract noted above. However the amendments also had the effect of depriving the Applicants of the right to complete the contract for the sale of the land separately to the building contract and prima facie mandated that the Applicants must take ownership of the land in its improved condition (i.e. the house and land together). Herein lays the origin of the Applicants' current predicament.

The Final Home Building Contract with Crace Developments contained a reciprocal interdependence clause - clause 7.1 - and provided in clause 7.2 for completion to take place simultaneously with completion of the Final Land Contract.

The Applicants queued outside the Crace Developments' office on the night of 3 April 2009 with other prospective purchasers. The Applicants had not at that time had an opportunity to take independent advice about the terms of the new contracts. When arriving at the head of the queue on the morning of 4 April 2009, the Applicants were presented with the new contracts for the sale of land and the building contract to sign, without discussion of the content. They signed the contracts because they thought they had little choice but to do so if they wanted the affordable house and land.

The combined price of the Final Land Contract and Final Home Building Contract was $433,900.

By or on 7 July 2009 the conveyance of the property was completed and the Applicants' solicitors presented the Home Buyer Concession Application Form[7] to the ACT Revenue Office, the Respondent in the current proceedings.

On 11 August 2009 the Applicants' solicitors lodged an Affordable House and Land Package Declaration Form with the Respondent,[8] the relevance of which is addressed below.

On 18 August 2009 the Respondent assessed the stamp duty at $16,864.50 based on a dutiable value of $433,900 being the sum of the cost of the land and the house.[9] This sum exceeded the upper threshold of $422,000 for land and house packages under the HBCS with the consequence that the Applicants were found not to be eligible for the HBCS. The Applicants were notified of this by letter of 20 August 2009.

The Applicants sought reconsideration by the Respondent of the decision. The Respondent carried out the reconsideration and notified the Applicants that the original decision was affirmed. That decision was conveyed to the Applicants in two letters of 3 September 2009 and 7 September 2009.

In a letter sent on 7 September 2009,[10] the Respondent asserted that the Applicants' purchase was in fact an "off the plan" purchase within the meaning of section 16A of the Duties Act 1999 ("the Act") and for this reason they also did not qualify for the FHOG and the First Home Owners Boost (totalling $14,000) under section 24C First Home Owners Grant Act 2001.

The definition of an "off the plan" purchase agreement is set out in section 16A of the Act. This provision states as follows:

(a) an agreement for the sale or transfer of dutiable property that is, or includes, land where a residence is to be erected or developed before completion of the sale or transfer; or

(b) a purchase agreement for a declared affordable house and land package

The meaning of this provision and its relationship to other relevant provisions of the Act was not the subject of detailed submissions before the Tribunal. This provision requires an agreement for the sale of the land with the house in situ. When viewed as separate contracts, however, there was not any one agreement that answered the definition of an "off the plan" purchase under section 16A of Act; but the Respondent took the view that interdependence clause in the two contracts had the effect of converting the two contracts into what is, in substance, one agreement for the sale of property which included the house and land.[11] This argument will be dealt with in more detail below.

The Applicants lodged an objection to the assessment under section 100 of the Taxation Administration Act 1999 on 19 October 2009. By decision of 6 January 2010, the Respondent disallowed the objection.[12]

The Respondent gave reasons for disallowing the objection.[13] The Respondent relied upon section 7(b)(i) of the Act, asserting that the execution of both contracts on 4 April 2009 brought the transaction within the ambit of section 7(1)(b) ("an agreement for the sale or transfer of dutiable property"). The Respondent said that the interlinking clauses in the contract had the effect that the contracts were "in substance" the one agreement for the one dutiable property (i.e. land and house). These various terms are addressed below.

On 12 February 2010 the Applicants filed an application with the Tribunal to review the Respondent's decision of 6 January 2010.[14] In the application for review the solicitor for the Applicants indicated that the Applicants lost the benefit of the concessional stamp duty and had also lost the benefit of the boost to the first home owner's grant of some $14,000, leaving a total loss of $30,844.50.

On 10 June 2010 the Applicants filed their Statement of Facts and Contentions with various witness statements annexed.

On 23 June 2010 the Respondent filed its Statement of Facts and Contentions. Annexed were copies of the Final Land Contract, the Final Home Building Contract, the Crown lease and the community plan.

On 8 July 2010 the Applicants filed a reply to the Respondent's Statement of Facts and Contentions which essentially purported to raise an estoppel in respect of the incorrect advice the Applicants claim to have received from the Respondent's staff concerning the concessional stamp duty.

Prior to the hearing the Respondent filed supplementary submissions relating to the relevance of the decision of the NSW Supreme Court in Sportscorp v Chief Commissioner of Revenue[15] together with a bundle of authorities.

The matter was listed before the Tribunal on 12 July 2010. Mr Nelson, solicitor, appeared for the Applicants and Dr Jarvis of counsel appeared for the Respondent.

Mr Dorsett gave oral evidence in essentially the same terms as his statement that had been previously filed in this matter, from which the history set out above is extracted. It was clear from his evidence that he did not understand the significance of the "interdependence" clauses or "completion date" clauses in either version of the contract. He said that he was satisfied from his enquiries with Crace Developments staff, the Respondent's staff and his solicitor that he would remain eligible for the concessional stamp duty and first home owners boost.

In cross examination, Mr Dorsett conceded that he always had the intention to buy a house and land package although the mechanics of it were for his advisors to determine.

The Act regulates the imposition of stamp duties on the sale or transfer in the ACT of what is described as "dutiable property" and the Taxation Administration Act 1999 fixes the particular rates of stamp duties.

Section 7 of the Act is the pivotal provision which provides for the imposition of duties on the transfer of "dutiable property":

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

Section 10 defines "dutiable property" to include "land" in the ACT. The definition of dutiable property does not include any improvements upon the land per se as dutiable property and accordingly there is no stamp duty payable on a contract for the construction of a dwelling per se. Relevantly, this provision states:

The distinction between the Act's treatment of land, which constitutes dutiable property, and its treatment of buildings per se which do not fall within the definition of dutiable property underpins the thrust of the Applicants' contention that the present interlocked contracts was a "back door" method of rendering a building contract liable to stamp duty that would ordinarily not be liable for stamp duty. This will be discussed in further detail below.

Pursuant to section 11 of the Act, liability to pay stamp duty arises when a transfer of dutiable property occurs. A transfer or transaction mentioned in section 7(1) is a "dutiable transaction" for the purposes of the Act.[16] Section 8 operates to charge duty on a dutiable transaction mentioned in section 7(1)(b) "as if each such dutiable transaction were a transfer of dutiable property" (section 8 (1)). Table 8 (which is set out in section 8 of the Act) sets out a number of "dutiable" transactions in column 2 which may or may not amount to a transfer of dutiable property in other contexts e.g. a declaration of trust. However the effect of section 8(1) is for the duty to be charged as if each of the dutiable transactions were a transfer of dutiable property. Of relevance to the present case is item 1, where the relevant dutiable transaction is an "agreement for sale or transfer" (column 2) and the property transferred is "the property agreed to be sold or transferred" (column 3). Column 5 deems the transfer to occur "when the agreement is entered into". Therefore, the dutiable property is deemed to be transferred as at the date of the agreement

The duty is assessed by reference to the "dutiable value" of the dutiable property.[17] The concept of the "dutiable value" is defined in section 20 to be the unencumbered value of the dutiable property:

20 (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:

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

The "unencumbered value" of the dutiable property is defined in section 22 and in relation to the transfer of land is to exclude the value of any improvements to the land e.g. any dwellings:

22(2) If, before land is transferred to a transferee, the transferee has made improvements to the land, the unencumbered value of the land is to be determined as if those improvements had not been made

Duty is only payable on dutiable property. If the transferred dutiable property contains non-dutiable property as well, then the Commissioner is required to come to some apportionment of value between the dutiable and non-dutiable property:

26(1) If a dutiable transaction relates to dutiable property and property that is not dutiable property, it is chargeable with duty under this chapter only to the extent that it relates to dutiable property.

Thus, for example, if the Commissioner were satisfied that the value of the house constructed upon the land was non-dutiable then the value of that house would need to be deducted from the total house and land cost.

The actual amount of duty payable is an amount determined by the Minister under the Taxation Administration Act 1999.[18] Section 139 of the Taxation Administration Act 1999 provides the Minister with this power:

(a) the amount of tax, duty or licence fee payable under a tax law;

(b) the rate or differential rates at which, or the method by which, an amount of tax, duty, a licence fee or interest, payable under a tax law is to be calculated;

The Taxation Administration (Amounts Payable-Duty) Determination 2008 (No1)[19] determines the rate of stamp duties in the general case. In the case of dutiable amounts under $100,000 the rate is $20 and thereafter it increases on a sliding scale.

However, the ACT has its own initiative to assist people on low incomes into their own homes, the HBCS. Part of this scheme was, at the relevant time, contained in Taxation Administration (Amounts Payable - Eligibility - Home Buyers Concession Scheme) Determination 2008 (No 2[20]) and in the Taxation Administration (Amounts Payable-Thresholds-Home Buyer Concession Scheme) Determination 2008 (No2).[21]

Under this scheme, the stamp duty for eligible people is reduced on a sliding scale set out in the first of the abovementioned determinations starting at $20 for dutiable amounts below the prescribed threshold. The prescribed threshold depends upon whether the purchase is just land or whether it is land with a house already upon it. In the case of land alone, the lower threshold below which the stamp duty is only $20 was, at the relevant time, $189,200. The upper limit at which the concession ceased altogether was $233,200. For land and house purchases the lower threshold was $340,000 and the upper threshold was $422,000.

The Act provides for special treatment of some categories of transfers of dutiable property including "off the plan" purchases of land and house[22] and a "declared affordable house and land package".[23] The definition of an "off the plan purchase" is set out above.

Status as an "off the plan" purchase does not affect the rate of duty levied; it only affects the timing of the payment but it does affect eligibility for the first home buyers boost.

An affordable house and land package for the purposes of section 16B was, at the relevant time, defined in the Duties (Affordable House and Land Package) Declaration 2007[24] which provided that any house and land package under $300,000 satisfied the definition. The purchase in the present case obviously exceeded this threshold.

Although it is not of immediate relevance, it is worth noting the legislative intent embodied in section 20(2) of the Act which provides that the duty on declared affordable house and land packages is only levied on the land component thereof:

20(2) However, the dutiable value of a dutiable transaction that is a purchase agreement for a declared affordable house and land package, is the lesser of -

(a) the value of the land component of the package on the date of the agreement; and

(b) the value of the land component of the package on the date the liability for duty arises under section 16A(1).

The authorities to which the Tribunal was referred

The Respondent provided a bundle of authorities and took the Tribunal to some of these cases as part of submissions. Some cases were directed to the estoppel issue which the Tribunal considered to be sufficiently well established that it did not need to resort to the authorities.

In Re Ian Lindquist and Stephanie Jane Lindquist and the Commissioner for ACT Revenue[25] ("Lindquist") the joint owners of a block of land (A and B) determined to enter an agreement with IL and SJL to strata the block and construct two residential units. Post strata, one residential unit would be owned by A and B as joint tenants and the other unit would be owned by IL and SJL as joint tenants. The undertaking was to be funded via the purchase price paid by IL and SJL for a half interest in the land and by IL and SJL paying A and B to carry out the construction of the unit that was to be ultimately owned post strata by IL and SJL.

The transaction was to proceed in stages. The first stage involved the sale of the block of land in its non strata state from (A and B) as vendors to the combination of (A and B) and (IL and SJL) as joint tenants. Under this agreement IL and SJL were purchasing a half interest in the land.

The sale of land transaction proceeded and stamp duty was levied on the value of half the unimproved value of the block at the $20 rate.

At the same time as the above agreement for the sale of the half interest in land was entered, the parties entered a second agreement to carry out the strata plan; the construction of units and the allocation of the two units. This agreement was predicated on the basis that the half interest in the title to the bare land had been transferred and therefore the parties to the second agreement were the two sets of joint tenants with parity of interest i.e. the parties stood in a different legal relationship to each other under the second agreement than they had occupied under the first agreement.

These plans were carried into fruition some time after the registration of the original transfer of the half interest in the bare land.

The Commissioner took the view that the original stamp duty of $20 had been wrongly assessed and determined to reopen the matter. The Commissioner had regard to the second agreement and came to the view that the full agreement between the parties had never been simply for the purchase of a half interest in the bare land by IL and SJL, but rather it had always been the agreement of the parties that IL and SJL would acquire a half interest in the strata scheme with a residential unit upon that half interest. The Commissioner levied stamp duties on the transfer to IL and SJL on that basis. IL and SJL appealed to the Tribunal.

The President of the Tribunal affirmed the Commissioner's decision. In so doing, the President noted that had the agreement to strata the land and construct the units been entered into after the transfer to the half interest in the bare land to IL and SJL, then stamp duty would only have been payable on the transfer of the half interest in the bare land ($20).[26]

The President noted that the second agreement had been entered at the same time as the first agreement with the intention that the two agreements were to be interdependent. Although it is not made explicit in the decision, the President appears to have read both contracts as if they formed a single agreement for the purchase by IL and SJL of a half interest in a strata with a residential unit. It is this approach that the Respondent now urges upon the present Tribunal.

The President did not address the issue where the parties in the second agreement were different to the parties of the first agreement and therefore Lindquist is distinguishable from the present case. The significance of the differences between the parties to the contracts will be discussed below.

In Bambro (No2) Pty Ltd v Commissioner of Stamp Duties[27] ("Bambro") the NSW Court of Appeal considered a case in which there was an agreement between the same parties to transfer ownership of bare land between the vendor and the purchaser and only after the transfer of title, for the vendor to construct buildings at an agreed price. The Commissioner in Bambro sought to read the two agreements as a single agreement in the same manner as is now urged upon the present Tribunal and levy stamp duty upon the value of the land with the building in situ.

The Court of Appeal considered the application of sections 17 and 41 Stamp Duties Act (NSW). Section 41 is in essentially the same terms as section 7(1) of the Act. Section 17 Stamp Duties Act (NSW) is in essentially the same terms as section 26 of the Act and provides for an apportionment of value between dutiable and non-dutiable elements of the property transferred.

The Court identified the issue for determination to be the identification of the dutiable property agreed to be transferred or sold. In the case of bare land sold or transferred prior to any building occurring upon the land, the Court concluded that the only property sold was the bare land itself. The Court considered that:

where there are both an agreement to sell land and an agreement by the vendors to build upon the land sold, the considerations being distinct and the building to commence only after conveyance of the land, these are distinct matters in respect of which duties are separately leviable of the appropriate kinds and amounts.[28]

The current case is distinguishable from this conclusion because the interlocking clauses in the contracts intended to lead to the consequence that the construction of the building would occur prior to, or simultaneously with, the conveyance of the land.

Mr Nelson was strident in his criticism of the Respondent's conduct in this matter. He contended that the present device of interlocking the contract for the sale of the land with the building contract was a "back door" method of rendering contracts for the construction of houses dutiable when they are not of themself a species of "dutiable property" and hence would not ordinarily attract stamp duty.

During the hearing, the Tribunal informed Mr Nelson that it did not accept his contention that any wrong advice from a staff member of the Respondent or from Crace Developments could give rise to an estoppel against the mandatory terms of the Act.[29] There was some discussion concerning possible actions in tort for negligent advice but the Tribunal informed the parties that it had no jurisdiction to entertain such an action in the present application for review of the Respondent's decision.

The Respondent argued that both contracts were entered into on the same day and they are in substance one agreement for the sale of the property because the two contracts are dependent on each other and therefore inextricably linked. Each contract is conditional on each other and each contract simply cannot stand alone. Clause 7.1 of the Final Home Building Contract makes that contract interdependent with, and conditional on, the Final Land Contract. Similarly, clause 31.1 of the Final Land Contract makes that contract interdependent with, and conditional on, the Final Home Building Contract. Therefore the two contracts together constitute what is the agreement for the sale of the property.

The Respondent further argues that the transferee, who is the same under both contracts, had entered into both contracts under an arrangement that constitutes an agreement for the purposes of the Act. The fact that that agreement is evidenced and effected by two separate contracts does not preclude those contracts from together constituting what is one agreement under the Act. As a result, the combined amount of consideration made for both the land purchase and the house purchase is the dutiable value for the dutiable transaction for the purposes of the assessment of duty pursuant to section 20 of the Act. This means that the assessable duty on the purchase of the property was correctly determined by the Respondent as being based on the combined total price of the land and the home i.e. $433,900.

In the alternative, the Respondent submitted that for the purposes of section 20 of the Act, the unencumbered value of the dutiable property - the Crown lease - is the amount payable by the transferee for the land with the dwelling constructed upon it, i.e. $433,900.

One agreement for the sale of the house and land?

It is uncontroversial that stamp duty is assessable on the combined land and house value where the land and house are the subject of the sale or the subject of an agreement for sale. Counterfactually, if the LDA had itself constructed the house upon the block chosen by the Applicants, and had transferred title to the Applicants of the house and land upon completion of the building, then stamp duty would plainly be levied on the total house and land value.

But, as will be discussed below, this is not what happened in the present case.

It is clear that in interpreting the contracts, particularly resolving the question of whether there were, in effect, one or two agreements, the Tribunal is "entitled to look at the "real nature" or "substance" of the transaction in order to ascertain whether that instrument is properly characterised by its purported description and the form that it takes."[30]

However, it is the legal effect rather than the economic effect of the agreements which must be ascertained. As stated by Simmonds J in TEC Desert Pty Ltd & Anor v Commissioner of State Revenue (WA),[31] the Tribunal must:

determine the legal effect of the instrument from a consideration of all its terms properly interpreted, by reference to extrinsic materials as appropriate .... [32]

In addressing a submission of a party to the proceedings, his Honour continued:

if the submission is that the provision directs me to characterise the instrument by reference to its economic effects rather than its legal effects, then I must reject such a submission as inconsistent with the authorities ... .[33]

In a similar vein, Spender J in Davis v Commissioner of Stamp Duties (NSW) stated "the fact that the agreements were commercially related and in a commercial sense may be said to be part of one transaction is quite beside the point".[34]

The Respondent relied upon the interlinking of clause 31.1 of the Final Land Contract and 7.1 of the Final Home Building Contract to establish that the contracts were interdependent and conditional upon another. Each of these clauses states that if the other contract is rescinded or terminated the original contract is taken to be rescinded. This argument appears to be based on an interpretation of these clauses as conditions precedent or subsequent, however they do not deflect the "two contract" analysis because failure of a conditional clause does not necessarily mean that the contract is void ab initio, rather than a party's performance is dependent upon the prior satisfaction of the condition.[35] Failure to comply with either of clauses 31.1 or 7.1 may have the consequence that a party's obligation to perform his or her obligation under that particular contract is affected but it does not necessarily lead to the conclusion that those clauses effect a combined agreement.

Interlocking contracts are common without leading to any conclusion that they are in substance the same contract. An obvious and common example is the circumstances where a purchaser enters a contract for the purchase of a particular property where that contract is made conditional upon a successful application for finance from a particular bank. The contract for the purchase of the property is explicitly dependent upon the success of the application for finance. The application for finance with the particular bank is made explicitly dependent upon settlement occurring in respect of the purchase of the particular property for which the money is agreed to be lent. The bank values the particular property, does its title search etc and determines whether it will, or will not, lend the money to the purchaser for that particular property over which it takes a mortgage. The bank is not agreeing to lend the money for the purchase of any other property and if default occurs in the settlement of purchase of the particular property to which the loan contract related then the loan contract also terminates.

In this example both contracts are interdependent upon the other and the termination of one of the contracts brings about the termination of the other. But this does not mean that the contracts are "in substance the same contract" or are in essence a single agreement.

Moreover, even if it is established as a matter of proper interpretation that the parties, or at least some of the parties, intended that the contracts would form a combined agreement, it is still open to the Tribunal to find, as a matter of fact that there are two distinct matters for the purposes of assessing stamp duty.[36]

The fact that the contracting parties are different in the two instruments is a critical factor that weighs against the combined agreement argument.

This issue was dealt with at length in Paul v the Commissioner of Inland Revenue[37] ("Paul") which concerned three test cases brought before the Court of Session regarding the stamp duty payable on proximate contracts for the sale of land and the construction of housing. The Lord President's analysis in that case was adopted in Bambro.[38] The Lord President made the following comments about the significance of differing contracting parties. In these comments, the term "feu" refers to the land and the term "superior" refers to the land owner.

While the question is ... one of fact, there must be materials from which the inference can be drawn that the two contracts, one of feu and the other for building, in reality embody one bargain. Before that inference can legitimately be drawn, it is necessary that the facts should establish, first, that the superior and the building contractor were one and the same person, or that one was the agent or the nominee of the other; and secondly that the contracts are so interlocked that, if default is made on either, the other is not enforceable by either side. If these two conditions are not present ... it is impossible to say that there is but a single bargain expressed in the two contracts. If there is no connection between the superior and the building contract there can be no unity in the bargain. [39]

Applying the Lord President's test to the present case, as stated above, the builder and party to the Final Home Building Contract is Crace Developments which is a separate legal entity to the LDA, the vendor of the land under the Final Land Contract. Publicly available information indicates that Crace Developments is a consortium involving Canberra Investment Corporation Ltd as its project manager. Although no evidence was presented in the hearing concerning the shareholding of Crace Developments, it is clearly a separate legal entity to the LDA. Although there may be commercial linkages between the LDA and Crace Developments for the purpose of developing the Crace estate, there is no evidence that Crace Developments acted as the agent or nominee of LDA on entering into the Final Home Building Contract. Nor can such a relationship be inferred from the surrounding circumstances which appear to support a conclusion that the vendor of the land and the building of the home operated independently, even though their performance of the contracts was interlinked.

The Lord President's reasoning in Paul [40]makes it clear that even if the LDA and Crace Developments were associated together for the purpose of developing the building estate upon which the land was situated, such an association does not imply that the building of the house has anything to do with the conveyance of the land or that the building contractor was the nominee of the owner of the land.

In the present case, the LDA owned the land and as such had the right to sell it to the Applicants. But the LDA did not own the house that sat upon its land at the relevant date nor had any interest (for the purposes of the Act) in the contractual promises made by Crace Developments to construct the house pursuant to the Final Home Building Contract. The LDA had not funded the purchase of the house but rather had simply permitted a third party, Crace Developments, to construct the house at its own cost on the land in accordance with a second contract between Crace Developments and the Applicants.

Similarly, Crace Developments had a contract with the Applicants to construct the house and for which the Applicants were required to pay. The LDA was not privy to this contract.

The second limb of the Lord President's test in Paul requires an examination of whether the contracts are so interlocked that, if default is made on either, the other is not enforceable by either side. It is highly doubtful that the second limb is satisfied in the case of the present contracts. For example, a default by Crace Developments would not necessarily deprive the Applicants of a remedy against any action by LDA to terminate the contract for the sale of the land. Further, a default by the LDA in refusing to transfer the title to the Applicants after Crace Developments had handed over possession of the premises at practical completion would not necessarily deprive Crace Developments of its remedies against the Applicants.

The authorities referred to the Tribunal by the Respondent, i.e. Lindquist[41] and Bambro,[42] as well as subsequent authorities that cited those cases, such as Davis v Commissioner of Stamp Duties (NSW),[43] are all distinguishable from the current case. In those cases the contracts were bilateral and the vendors either acted as builders themselves or appointed builders as agents in order to fulfil the vendor's obligations under the building contract. Moreover, in both Bambro[44] and Davis[45] the relevant courts found as a matter of fact that the building work was due to commence only after the conveyance of the land which is not relevant to the current case. The Tribunal was unable to locate any case law where duty was found to be leviable over a housing contract where the vendor and the builder were separate entities and had entered into separate contracts.

The Respondent referred to an alternative basis whereby the duty is payable over the combined value of the house and the land i.e. that the transferee had entered into both contracts under an "arrangement" that constitutes an agreement for the purposes of the Act. [46] There is no evidence of an arrangement between the transferee, the LDA and Crace Developments. In the Tribunal's view, proof of an arrangement would require evidence of consensus on the part of the Applicants. The evidence clearly refutes this, since at its highest, the Applicants were passive recipients of the amendments to the contracts, which were given to them in circumstances where they were unable to seek legal advice and unable to negotiate the proposed changes. Although the amendments clearly form the terms of the Final Land Contract and the Final Home Building Contract, it is not plausible to conclude that the final contracts, including the amended terms, prove the existence of an independent "arrangement" that constitutes an agreement for the purposes of the Act.

The consequence of the separate contracts analysis

As stated above, the fundamental point is that the LDA cannot transfer what it does not own and in this case it can only transfer the title to the land. The value of the improvements comprised by the house is not value that is transferred by LDA pursuant to the Final Land Contract. Therefore, pursuant to sections 7 and 10 of the Act only one of the contracts i.e. the Final Land Contract contained "an agreement for the sale or transfer of dutiable property", that is, land in the ACT.[47] The "property agreed to be sold or transferred" under Table 8 of section 8 of the Act is the land only. The value that was transferred under the Final Home Building Contract is not dutiable per se and in these circumstances section 26 of the Act applies to reduce the dutiable component to that of the land.

The above is germane to the fundamental issue posited by the Court of Appeal in Bambro, namely the identification of the "dutiable property" that is to be transferred to the Applicants. As stated above, the Court of Appeal in Bambro found that the contracts for the construction of the house and the sale of the land were "distinct matters" for the purpose of charging and assessing stamp duty, even though several parts of the agreement were interwoven or interlocked as one entire bargain. Sugarman J stated:

Were the result otherwise than as I have stated, the consequence must be an indirect imposition of ad valorem duty upon agreements for the erection or construction of buildings or works which the Stamp Duties Act does not in terms make liable to ad valorem duty. Such an agreement not being itself chargeable with ad valorem duty, it would need clear words to lead to the result that it becomes so chargeable, in effect, merely because in the contractual sense it is involved in one transaction with a sale of land without, however, this involvement affecting the content of what is agreed to be thereby to be "sold or conveyed".[48]

The reference to the New South Wales provision i.e. "what is agreed to be sold or conveyed" is analogous to Table 8 Section 8 of the ACT Act which refers to the "property agreed to be sold or transferred".

In accordance with the reasoning set out above, the Tribunal rejects the alternative submission made by the Respondent that the unencumbered value of the dutiable property pursuant to section 20 of the Act is the amount payable by the transferee for the land with the dwelling constructed upon it. Similarly, it is not necessary for the Tribunal to express an opinion on the operation of section 22 of the Act in the present case.

There are two separate and distinct contracts in existence notwithstanding that they are interlocked to some degree.

The contract for the construction of the house is not dutiable per se. The value of the house only becomes dutiable if it constitutes an improvement to the land that is sold or transferred by the LDA under the contract for the sale of the land.

The LDA did not have any title to the improvements constituted by the house and so could not, and did not, transfer the value of those improvements to the Applicants. Thus the dutiable property for the purposes of section 7(1) is the value of the land only.

Section 26 of the Act applies to exclude the value of the house from the assessment of duty for the reasons given above.

RESPONDENT: COMMISSIONER FOR ACT REVENUE

TRIBUNAL MEMBER/S: Professor Spender, Presidential Member

DATE/S OF HEARING: 12, 14 July 2010 PLACE: CANBERRA

DATE/S OF DECISION: 3 November 2010 PLACE: CANBERRA

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

[18] Section 31 and the Dictionary of the Duties Act 1999

[22] Section 16A of the Duties Act 1999

[23] Section 16B of the Duties Act 1999

[28] Bambro (No2) Pty Ltd v Commissioner of Stamp Duties [1963] S.R. (NSW) 522 at 528

[29] Minister for Immigration v Kurtovic [1990] FCA 22; (1990) 92 ALR 93

[30] Coles Myer Ltd v Commissioner of State Revenue [1998] VR 728 at 746

[31] TEC Desert Pty Ltd & Anor v Commissioner of State Revenue (WA) (2007) ATC 4001 Note that the decision of Simmonds J was overturned by the Court of Appeal in Commissioner of State Revenue v TEC Desert Pty Ltd & Anor (2009) ATC 20-120, [2009] WASCA 128 but his reasoning on this aspect was not disturbed.

[32] TEC Desert Pty Ltd & Anor v Commissioner of State Revenue (WA) (2007) ATC 4001 at [214]; see Fleetwood-Hesketh v Inland Revenue Commissioners [1936] 1 KB 351, per Romer LJ, at 360, quoted with approval in Fitch Lovell Ltd v Inland Revenue Commissioners [1962] 3 All ER 685, Wilberforce J (as he then was), at 691

[33] TEC Desert Pty Ltd & Anor v Commissioner of State Revenue (WA) (2007) ATC 4001 at [216]

[34] Davis v Commissioner of Stamp Duties (NSW) (1995) 30 ATR 405 at 410

[35] Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537 at 552

[36] Bambro (No2) Pty Ltd v Commissioner of Stamp Duties [1963] S.R. (NSW) 522 at 529

[38] Bambro (No2) Pty Ltd v Commissioner of Stamp Duties [1963] S.R. (NSW) 522 at 527

[39] Paul v the Commissioner of Inland Revenue [1936] SC 443 at 452

[40] Paul v the Commissioner of Inland Revenue [1936] SC 443 at 453, upholding the findings of fact in one of the three test cases, Span v Inland Revenue

[41] Re Ian Lindquist and Stephanie Jane Lindquist and the Commissioner for ACT Revenue [2004] ACTAAT 12

[42] Bambro (No2) Pty Ltd v Commissioner of Stamp Duties [1963] S.R. (NSW) 522

[43] Davis v Commissioner of Stamp Duties (NSW) (1995) 30 ATR 405

[44] Bambro (No2) Pty Ltd v Commissioner of Stamp Duties [1963] S.R. (NSW) 522 at 529

[45] See Spender J's judgment in Davis v Commissioner of Stamp Duties (NSW) (1995) 30 ATR 405 at 410-411

[48] Bambro (No2) Pty Ltd v Commissioner of Stamp Duties [1963] S.R. (NSW) 522 at 529

Law (Sale of Residential Property) Act 2003

Home Owners Grant Act 2001

Administration Act 1999

ARAGHI and DORSETT AND COMMISSIONER FOR AUSTRALIAN CAPITAL TERRITORY REVENUE (Administrative Review) [2010] ACAT 78 (3 November 2010)

At a glance

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Judgment (191 paragraphs)

ARAGHI and DORSETT AND COMMISSIONER FOR AUSTRALIAN CAPITAL TERRITORY REVENUE (Administrative Review) [2010] ACAT 78 (3 November 2010)

Legislation Cited (3)

Cases Cited (3)