Bottle Tower Investments Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 172 | Case summary

The Applicant's Case 6In addition to the affidavits by Mr and Mrs McCullagh, the Applicant relied on the s. 58 documents, written submissions dated 28 July 2014 ("AS1"), written submissions in reply dated 11 September 2014 ("AS2") and oral submissions by Mr Richards during the course of the hearing. 7The Applicant submitted in AS1 at [12] that the dispute was firstly whether the Oral Agreement "formed part of the "dutiable value" of the Property on 3 July 2009" and secondly whether the Oral Agreement was an "encumbrance". At [18] and [19] the Applicant also submitted that the dutiable value of the Property as at 3 July 2009 was $4,800,000; that $1 million payable as a consequence of the application of the Deed was not assessable by the Chief Commissioner; and that the Oral Agreement was not "property". 8In AS2, in response to the Respondent's written submissions, and in addition to the submissions in AS1, the Applicant submitted that the Deed had been stamped by the Chief Commissioner, the stamping was not a reassessment of the Transfer, and that the contingency principle relied on by the Chief Commissioner had no application to the determination of duty payable pursuant to the Duties Act 1997 ("Duties Act"). The Respondent's Case 9The Respondent's case was outlined in written submissions dated 27 August 2014 ("RS") and oral submissions by Mr Gerard during the course of the hearing. The Respondent relied on the s. 58 documents and referred to the affidavit of Mr McCullagh who also gave oral evidence before the Tribunal. 10In summary the Respondent submitted at [29] in RS that the subject of the application for review "is the reassessment of duty payable". The Respondent also submitted at [30] to [32] that duty was correctly assessed on $5,800,000; agreed that: "the dutiable value of the Property was not $5.8 million because the contingent amount of $1 million, payable under the terms of the oral agreement for transfer, was an "encumbrance" within s. 22(l) of the Duties Act $4,800,000" and submitted that having regard to the application of the contingency principle in respect of the contingent consideration: "the dutiable value of the Property was correctly reassessed at $5.8 million. The contingent amount of $1 million, payable under the contractual terms oral agreement for transfer, was contingent consideration which is dutiable." Onus and standard of proof 11Section 100(3) of the TA Act states "The applicant has the onus of proving the applicant's case in an application for review." The requisite standard of proof in reviews by the Tribunal is the "balance of probabilities" B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187, (2008) 74 NSWLR 481 at [104]. There is no dispute as to the onus or standard of proof. Consideration 12The Duties Act creates and charges a number of duties. Each duty is dealt with in a separate Chapter of the Act (s. 3). Chapter 2 sets out provisions imposing duty on certain transactions concerning dutiable property and includes the following: "8 Imposition of duty on certain transactions concerning dutiable property (1) This Chapter charges duty on: (a) a transfer of dutiable property, and (b) the following transactions: (i) an agreement for the sale or transfer of dutiable property, ... (2) Such a transfer or transaction is a "dutiable transaction" for the purposes of this Act. "10 What form must a dutiable transaction take? It is immaterial whether or not a dutiable transaction is effected by a written instrument or by any other means, including electronic means" 13Section 11(1)(a) includes "land in New South Wales" in the definition of "dutiable property". Accordingly the Property is dutiable property for the purposes of Chapter 2 of the Duties Act. 14The liability for duty arises when a transfer of dutiable property occurs. If the transfer is effected by a written instrument, liability arises when the instrument is first executed (s. 12). The transferee of the dutiable property is the person principally liable to pay duty charged by Chapter 2 (s. 13). 15Sections 15 and 16 require that if a dutiable transaction that is liable to duty is not effected by written instrument then the transferee must make a written statement, lodge the statement with the Chief Commissioner and pay duty in respect of the statement. Provision is made for dutiable transactions effected by more than one written statement. 16The rate of duty charged on the dutiable value of dutiable property subject to a dutiable transaction is determined in accordance with s. 19 and Part 3 of Chapter 2. 17There was no dispute between the parties in relation to the interpretation of the above provisions of the Duties Act. 18The determination of both the relevant dutiable value and the relevant consideration in respect of the events in 2009 and 2011 were live issues in the proceedings. "Dutiable value" and "consideration" are dealt with in sections 21 and 22 of the Duties Act. The relevant provisions are: "21 What is the "dutiable value" of dutiable property? (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) the unencumbered value of the dutiable property. (2)..." "22 What is the consideration for the transfer of dutiable property? (1) The consideration for the transfer of dutiable property is taken to include the amount or value of all encumbrances, whether certain or contingent, subject to which the dutiable property is transferred. (2) The consideration for the transfer of the interest of a transferee under an uncompleted agreement for the sale or transfer of dutiable property is taken to include the balance of the amount or value of the consideration that would be required from the transferee under the agreement in order to complete it in accordance with its terms. (3)..." 19The initial objection by the Applicant was "the Deed is not a transfer of dutiable property". (Objection at page 2). The Disallowance Letter contained an acknowledgement by the OSR that the Deed "does not constitute a transfer of dutiable property and therefore no duty is payable on the Deed". This is not an issue for the Tribunal. 20There is no dispute that, disregarding the sale of the Property to the Applicant and the Oral Agreement, the dutiable value of the Property as at 3 July 2009, if it was then the subject of an unconditional transfer, was $4,800,000. The Transfer was stamped on that basis. 21The Disallowance Letter referred to sections 21 and 22 of the Duties Act and said "the consideration for the transfer of dutiable property is taken to include the amount of value of all encumbrances, whether certain or contingent, subject to which the dutiable property is transferred". The Chief Commissioner initially regarded the additional $1 million consideration as a contingent encumbrance of the purchaser agreed at the time of the transfer. During the course of the hearing counsel for the Chief Commissioner conceded that the Oral Agreement did not constitute the creation of an encumbrance. There is no need to deal further with that ground of the Applicant. However it is not relevant to my findings below. 22I observe that there were some discrepancies in the evidence as to the relevant date or period for determining the change in value of the Property for the purpose of the Oral Agreement. (1)Mr McCullagh's sworn affidavit referred to the determination of an increase in value "within two years of the transfer" to the Applicant. That is, within two years of 3 July 2009. (2)The Deed, signed by Mr McCullagh, provided at [1] an open ended time frame after 3 July 2011for a relevant increase in value of the Property. The recitals and operative part of the Deed are set out below. Mr McCullagh is referred to as "PJM" and Mrs McCullagh as "NPM". "Background On 3 July 2009, PJM and NPM sold the property located at 6 Northview Road, Palm Beach, NSW 2108, Certificate of Title Folio Identifier 1/584675 (the Property) to Bottletower for cash consideration of $4,800,000. The parties agreed, at the time of the original sale of the Property, that the consideration payable by Bottletower to PJM and NPM for the Property would be increased if certain conditions were met. This deed formally documents the parties' agreement as to the terms and conditions under which the consideration payable by Bottletower to PJM and NPM for the Property will be increased. The parties agree The parties agree that: 1) If and to the extent that the value of the Property at any time after 3 July 2011, as evidenced in writing by a valuation undertaken by a third party expert (Current Value), is greater than $4,800,000 Bottletower must pay to PJM and NPM an amount equal to the difference between the Current Value and $4,800,000, up to a maximum amount of $1,000,000; 2) Bottletower must pay any amounts required to be paid by it under paragraph 1 of this deed in immediately available funds within 30 business days after the date on which PJM and NPM give Bottletower evidence of the Property's Current Value; and 3) Bottletower must pay all taxes, stamp duties and any related fines and penalties in respect of this deed, the performance of this deed and any increase in the consideration payable for the Property pursuant to this deed." (3)The 2011 valuation, which appears at pages 20-23 of the section 58 documents is dated 9 June 2011 and sets out the valuer's opinion "that the current approximate market value of the property around (sic) $6,500,000". 23Neither party objected to the 2011 valuation evidencing the value of the Property for the purposes of the Oral Agreement on the basis of which additional consideration of $1 million was payable by the Applicant to the vendors. I accept the 2011 valuation for that purpose. 24The Applicant argued that two separate agreements were made in 2009 in relation to the Property (Mr McCullagh affidavit at [4]). (1)The first agreement, evidenced by the Transfer, provided that the Applicant would purchase the Property from Mr and Mrs McCullagh at its then value. (2)The second agreement, which at the time was purely oral (the "Oral Agreement"), was to the effect that if the Property increased in value within two years of its transfer to the Applicant then the Applicant must pay the vendors the increase in value up to a maximum of $1 million. 25The Chief Commissioner determined that what the Applicant submitted were two separate agreements were in reality two limbs of a single transaction pursuant to which the Property was transferred to the Applicant for a total consideration of $5,800,000 payable in two tranches. The first tranche was $4,800,000 and the second tranche, up to $1 million, was contingent depending on the subsequent value of the Property. 26Mr McCullagh's evidence at [4] of his affidavit includes his decision that the Applicant should purchase the Property at its then current value. However he goes on to say that he believed at that time that the property market was in a distressed state and because he wished to financially protect Mrs McCullagh, the Applicant would pay up to an additional $1 million "if the property had increased in value within two years of its transfer". 27There is no compelling evidence to support the submission that Mr McCullagh's reasoning and decision in relation to a possible total payment of $5,800,000 by the Applicant for the acquisition of the Property should involve two separate transactions. There is no evidence as to the reason for the transfer taking place in 2009 rather than being delayed for two years by which time Mr McCullagh's opinion was, that if the market were to recover from its 2009 distressed state, it would have done so. Presumably this delay would also have financially protected Mrs McCullagh. 28I also observe that there was no contract for sale of the Property, no contemporaneous minutes were created of a determination by Mr McCullagh as the sole director of the Applicant, and the Oral Agreement was not documented until 2011 in the form of the Deed. Nor is there any explanation as to why Mr McCullagh did not inform his solicitors of the whole of his decision regarding the Property when instructing them in about May or June 2009 to start the process to transfer the Property. 29Having regard to the evidence before me I find that what the Applicant submitted were two separate agreements in 2009 are one single agreement with two limbs. 30It may well be that if Mr McCullagh's decision that the Applicant should pay an additional amount to himself and Mrs McCullagh because of an increase in value of the Property, was made in 2011 after the value had increased, there would then have been two separate agreements. However that was not the evidence Mr McCullagh gave to the Tribunal. 31The transfer of title for the Property occurred in 2009. However the total consideration to be paid by the Applicant for the Property was not determined until 2011. Accordingly, as at the end of 2009, the 2009 Transaction was "an uncompleted agreement" to use the terminology of s. 22(2) of the Duties Act. The vendors, Mr and Mrs McCullagh had done everything required on their part to transfer the Property to the Applicant. However the Applicant had a contingent obligation to pay them up to an additional $1 million subject to a relevant change in the value of the Property within an agreed period. 32Section 22(2) provides: "The consideration for the transfer of the interest of a transferee under an uncompleted agreement for the sale or transfer of dutiable property is taken to include the balance of the amount or value of the consideration that would be required from the transferee under the agreement in order to complete it in accordance with its terms." 33The total consideration for the dutiable transaction was known by 2011 to be $5,800,000. The unencumbered value of the Property in 2009, when transferred, was $4,800,000. In accordance with s. 21(1) of the Duties Act the "dutiable value" was the greater of the amount of monetary consideration and the unencumbered value of the Property, namely $5,800,000. 34The question then arises as to how the change in consideration from $4,800,000 to $5,800,000 should be dealt with in accordance with the revenue legislation. 35The Disallowance Letter stated "the Chief Commissioner re-assessed the 2009 transfer for ad valorem duty of $346,490 based on the consideration of $5,800,000. As the original transfer was already lodged with Land and Property Management Authority, the Chief Commissioner stamped the Deed for the re-assessed duty as evidence of payment of duty". 36The Applicant's submissions at [19] in AS2 assert that while the Respondent "claims that he has reassessed the Transfer it does not matter what the Respondent thinks he has done. Rather it is a question of what he has done." The Applicant continued at [20] to [24] as follows: "20 If (as appears to be the case) the Respondent did stamp the Deed (rather than reassess the Transfer) quite clearly he should not have stamped the Deed (and the Applicant's appeal should be allowed). If on the other hand he reassessed the Transfer, the proper approach is to include within the dutiable value of the Property, the value of the Agreement (see section 21(1)(a) of the Duties Act 1997) as at the date of execution of the Transfer (that value is nil the Agreement not being marketable). 21 That the Respondent stamped the Deed rather than reassessing the Transfer is evidenced first by the stamp placed by the Respondent on the Deed,10 and the application to that stamping of section 288 and section 297 of the Duties Act 1997. 22 Section 288 of the Duties Act 1997 states: "The Chief Commissioner must stamp an instrument in respect of which duty is chargeable under this Act, or that effects or evidences a dutiable transaction, and that has been lodged for stamping with the Chief Commissioner if the duty, and any interest or penalty tax under Part 5 of the Taxation Administration Act 1996 is paid in full." 23. Section 297 of the Duties Act 1997 states: "(1) For the purposes of the Taxation Administration Act 1996, the stamping of an instrument by the Chief Commissioner is taken to constitute an assessment of the duty payable under this Act in respect of the instrument or the dutiable transaction effected or evidenced by that instrument. (2) If the Chief Commissioner does not issue a notice of assessment at the time that the instrument is stamped, the stamped instrument is taken, for the purposes of the Taxation Administration Act 1996, to be a notice of assessment." 24. That is it is the stamping of the Deed which is the assessment to be considered by the Tribunal." 37It is common ground that at the time the Transfer was submitted to the Chief Commissioner for stamping the Applicant had not informed the Chief Commissioner of all relevant facts and circumstances concerning the 2009 Transaction sufficient to enable the Chief Commissioner to determine the relevant duty payable in respect of the dutiable transaction. This failure by the Applicant, whether deliberate or negligent, induced the Chief Commissioner to assess the dutiable transaction as if the consideration was $4,800,000. The Chief Commissioner was not apprised of all relevant facts and circumstances (as require by s. 10(1) of TA Act) until his receipt of the Covering Letter, the Deed and a cheque in the amount of $70,000 on 13 December 2011. 38In 2012 the Chief Commissioner, in accordance with the repeated request of the Applicant's solicitors, stamped the Deed with $346,490 duty on a consideration of $5,800,000 including premium rate duty, as a re-assessment of duty payable in respect of the 2009 Transaction, and issued a receipt for $70,000. The Applicant submitted that there was no proper reassessment and the $70,000 should be refunded to the Applicant. 39Relevantly the law in relation to assessment and reassessment includes the following excerpts from the TA Act: 3 Definitions (1) In this Act: "assessment" means an assessment made by the Chief Commissioner under Part 3 of the tax liability of a person under a taxation law, and includes: (a) a reassessment and a compromise assessment under Part 3, and (b) an assessment by the Supreme Court or the Civil and Administrative Tribunal on an application for a review. 8 General power to make assessment (1) The Chief Commissioner may make an assessment of the tax liability of a taxpayer. (2)... 9 Reassessment (1) The Chief Commissioner may make one or more reassessments of a tax liability of a taxpayer. (2) A reassessment of a tax liability is to be made in accordance with the legal interpretations and assessment practices generally applied by the Chief Commissioner in relation to matters of that kind at the time the tax liability arose except to the extent that any departure from those interpretations and practices is required by a change in the law (whether legislative or non-legislative) made after that time. (3) The Chief Commissioner cannot make a reassessment of a tax liability more than 5 years after the initial assessment of the liability, unless: (a) ..., or (b) at the time the initial assessment or a reassessment was made, all the facts and circumstances affecting the liability under the relevant taxation law of the person in respect of whom the assessment or reassessment was made were not fully and truly disclosed to the Chief Commissioner and, as a result, the tax liability was assessed at a lower amount than the Chief Commissioner would otherwise have assessed it, or (c) ....or (d) .... 11 Information on which assessment is made (1) The Chief Commissioner may make an assessment on the information that the Chief Commissioner has from any source at the time the assessment is made. (2) If the Chief Commissioner has insufficient information to make an exact assessment of a tax liability, the Chief Commissioner may make an assessment by way of estimate. 14 Notice of assessment, reassessment or withdrawal of assessment (1) The Chief Commissioner may issue a notice of assessment (showing the amount of the assessment). (2) If the Chief Commissioner has not issued a notice of assessment of the tax liability of a taxpayer, the Chief Commissioner must issue the notice if a request to do so is made by the taxpayer within 5 years after the liability arose. (3) If the Chief Commissioner makes a reassessment, the Chief Commissioner must issue a notice of assessment (showing the amount of the reassessment). (4) If the Chief Commissioner withdraws an assessment, the Chief Commissioner must issue a notice of withdrawal of assessment. (5) The notice is to be in a form approved by the Chief Commissioner. 119 Evidence of assessment Production of a notice of assessment, or of a document signed by the Chief Commissioner purporting to be a copy of a notice of assessment, is: (a) conclusive evidence of the due making of the assessment, and (b) conclusive evidence that the amount and all particulars of the assessment are correct, except in objection or review proceedings when it is prima facie evidence only. 40I accept that the Chief Commissioner is of the opinion that what has occurred by stamping the Deed for duty of $346,490 based on consideration of $5,800,000 is a reassessment. I also have regard to the submission by the Applicant that it is "the stamping of the Deed which is the assessment to be considered by the Tribunal". 41There was no evidence before the Tribunal of any formal notice of assessment (showing the amount of the reassessment) in accordance with s. 14 of the TA Act other than the stamp duty imprint on the Deed. 42The Duties Act provides at s. 10 "It is immaterial whether or not a dutiable transaction is effected by a written instrument or by any other means, including electronic means" and at s. 15: "15 Necessity for written instrument or written statement (1) If a dutiable transaction that is liable to ad valorem duty under this Chapter is not effected by a written instrument, the transferee must make a written statement in an approved form. (2) The written statement must be made within 3 months after the liability arises. (3) (Repealed) (4) If a dutiable transaction is completed or evidenced by a written instrument within 3 months after the date on which the dutiable transaction occurs, the requirement to lodge a statement and pay duty in respect of the statement may be satisfied by the lodgement of and payment of duty on the written instrument within 3 months after the date on which the dutiable transaction occurs." 43The dictionary of the Duties Act provides that ""instrument" includes a written document and a written statement" and the Interpretation Act 1987 states at s. 21(1) "In any Act or instrument: "document" means any record of information, and includes: (a) anything on which there is writing.." 44As the Applicant pointed out, s. 288 of the TA Act requires the Chief Commissioner to "stamp an instrument.that effects or evidences a dutiable transaction, and that has been lodged for stamping". 45I observe that s. 16 of the TA Act provides "The validity of an assessment is not affected because a provision of a taxation law has not been complied with." 46Notwithstanding any formal failure to issue a notice of assessment in respect of the reassessment of duty applicable to the relevant dutiable transaction I find that the Deed is a document, and hence an instrument that effects or evidences a dutiable transaction and that was lodged for stamping. I find that the Chief Commissioner stamped the Deed by way of reassessment of duty payable in respect of the relevant dutiable transaction. 47I observe that the Applicant conceded at [10] in AS1 that the Chief Commissioner could have reassessed the Transfer. The Chief Commissioner informed the Applicant in the Disallowance Letter that it was not practical to stamp the Transfer as the original document had been lodged with Land and Property Management Authority accordingly the Deed was stamped for the reassessed duty. 48The reassessment of duty, informal or otherwise, resulted in the correct duty being assessed in respect of the relevant dutiable transaction. The Applicant cannot use its failure to comply with its statutory obligations to assert that the Chief Commissioner cannot impose duty in accordance with the law. 49Section 49 of the Duties Act was also the subject of submissions by both parties. This section provides a procedure for an interim assessment by way of estimate and appropriate stamping if in the Chief Commissioner's opinion the full dutiable value of dutiable property cannot be immediately ascertained. "49 Interim payment of duty (1) If the full dutiable value of dutiable property subject to an agreement for sale or transfer cannot, in the Chief Commissioner's opinion, be immediately ascertained, the Chief Commissioner may make an assessment by way of estimate under section 11 (2) of the Taxation Administration Act 1996. (2) A written instrument effecting or evidencing the sale or transfer may be stamped "interim stamp only". 3) The Chief Commissioner must, when the full dutiable value of the dutiable property has been ascertained, reassess the duty payable in respect of the instrument. (4) If no further duty is payable, the interim stamp is to be cancelled and any amount paid in excess of the amount assessed is to be refunded. (5) If further duty is payable, liability for the further duty arises when a notice of assessment is issued, despite any other provision of this Act. (6) On payment of the balance of the duty (and any interest or penalty tax), the instrument is to be stamped with the amount of the balance and marked to indicate that duty has been duly paid." 50I find that the s. 49 procedure was not applied as the Applicant failed to disclose all relevant facts to the Chief Commissioner when the Transfer was lodged for stamping in 2009. 51The parties made written and oral submissions in relation to what was referred to as 'the contingency principle". Mr Gerard referred to several authorities in the United Kingdom and in other states of Australia to support his submission that the contingency principal, which he described as a long standing common law principle the application of which is well recognised in Australian superior court authorities, applied in the present circumstances. 52Mr Gerard referred to Lionore Australia (Avalon) Pty Ltd v Commissioner of State Revenue [2006] WASAT 250 ("Lionore Australia"). At [75] Eckert J said: "Briefly, the contingency principle provides that where there is a sum payable on a contingency, that is on an event that is yet to happen and may in fact never happen, then duty is levied on the maximum sum payable, so long as that amount is quantifiable and regardless of however unlikely it is to become payable. For the purposes of assessment of stamp duty, the Commissioner is entitled to ignore the contingency and assess the instrument on the total amount referred to in the relevant instrument." 53Importantly Eckert J continued: "There was some argument as to the applicability of the West Australian case of Hill 50 Gold Mine NL v Commissioner of State Taxation. In my view that case can be relied on for the statement by Nicholson J (4882) that the authorities relating to contingency payments "establish that, subject to the statutory regime creating liability, a contingency will be dutiable and, where a maximum amount is stated for the contingency, duty will be levied upon that amount". Although that case eventually turned on the application of s 65 of the Act, Nicholson J held that the contingency principle applied to revenue law but that it could not override the specific statutory charging provision in s 65 of the Act. 54Mr Richards submitted that any application of the contingency principle would be "dependent on the terms of the applicable taxing statute and not determined as a matter of general principle". He also said "in the present instance the Respondent is obliged to assess duty by way of application of those rules contained within the Duties Act 1997." 55Mr Gerard and Mr Richards each informed the Tribunal during the hearing that the contingency principle has not previously been the subject of a judicial or tribunal decision in New South Wales in relation to a revenue statute. Having regard to my above findings there is no need to deal further with the possible application of the contingency principle in this matter.

Bottle Tower Investments Pty Ltd v Chief Commissioner of State Revenue

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