Cohen v Chief Commissioner of State Revenue

Part C - The facts

1. There is no dispute about the facts. The following outline is taken from Mr Cohen's affidavit affirmed on 21 February 2024 (Ex A1) and the documents lodged with the Tribunal by the Chief Commissioner under s 58 of the ADR Act (Ex R1).
2. Harry Cohen was the previous owner of the Property. Harry died on 28 April 2016. In his will Harry appointed his wife, Daphne Cohen, and his son Peter as the executors of his will and the trustees of his estate.
3. In clause 7 of his will, Harry left the Property to his 3 children in equal shares, but subject to Stephen's right: … to occupy that part of the premises he currently occupies rent free for a period of five (5) years from the date of my death but subject to him maintaining the premises in good repair condition and order and to him paying and maintaining all insurances on the whole of the building and paying all rates and taxes. For the benefit of my children and executors any rent received from other tenants occupying the buildings on the land is to be paid to my said children in equal shares.
4. At the time of Harry's death, Stephen and his wife Sue operated, in part of the Property, a business of selling, servicing and repairing caravans and trailers, and an accessories business selling spare parts and accessories for caravans and trailers.
5. Also at the time of Harry's death a separate automotive parts and accessories business, operated by a third party under the name Auto One Goulburn, was operated at the Property. Prior to Harry's death, Stephen had been negotiating the sale of his accessories business to Auto One Goulburn.
6. In July 2016, and on behalf of the executors, independent valuers determined the market value of the Property at the date of Harry's death as $1,300,000. Stephen accepted that valuation and it seems his siblings Peter and Wendy accepted it as well, at least in principle.
7. Stephen wanted to acquire each of his siblings' interests in the Property; at the same time he was negotiating with Auto One for the sale of his accessories business and the lease of additional space to Auto One as the new owner of that business.
8. Stephen decided to offer each of his siblings $433,333.33, being one-third of the independent valuation of the Property, to buy them out. The offer wasn't accepted immediately, seemingly because of some uncertainty as to the quantum of Peter's and Wendy's entitlement to the future rent to be paid by Auto One. Eventually, Stephen offered his siblings an additional $100,000 each to secure the deal.
9. Stephen deposed as follows (Ex A1, [25]-[26]): [25] On Wednesday 11 January 2017 I met with both Peter and Wendy early in the evening for the purposes of discussing my offer. Agreement was reached that I would pay Peter and Wendy $433,000 each; being the value of their share in the building and another $100,000.00 each. I was to meet the costs of documenting our agreement and transfer of land. [26] On Monday 16 January 2017 I dropped past [my solicitor's] office and left a message at the reception that I had reached agreement with Peter and Wendy.
10. In due course, on 21 April 2017, the executors as vendors and Stephen as purchaser entered into a contract for the sale of the Property. The price of the Property was shown as $1,599,000. The contract contained Special Condition 45 in the following terms: 45 Estate late Harry Cohen The parties agree that the Vendors are selling the subject premises in their capacity as Executors of the estate of the late Harry Cohen. The parties acknowledge that the Will of the late Harry Cohen provides for the subject premises to be bequeathed to his children, namely Peter Gregory Cohen, Wendy Margaret Cohen and Stephen Ross Cohen in equal shares. It is further agreed between the parties that on completion of this matter the Vendors will only be entitled to receive the sum of $1,066,000.00 plus or minus the usual adjustments on the basis that the Purchaser is entitled to an equal one third (1/3rd) share as beneficiary of the estate of the late Harry Cohen.
11. On 10 May 2017 Stephen's solicitor forwarded a copy of the contract, including Special Condition 45, to the Office of State Revenue NSW in Wollongong along with this comment: Our client is beneficially entitled to a 1/3rd share of the subject property as a Beneficiary of his late Father's Estate, and as such we have estimated the Duty payable by him at $44,140.00.
12. On the following day, 11 May 2017, the contract was assessed as liable for ad valorem duty on the reduced dutiable value of $1,066,000, in the amount of $44,140.00.
13. On 20 July 2017, a transfer of the Property was executed.
14. On 21 March 2022, the Chief Commissioner issued a Notice of Investigation to Mr Cohen in respect of a potential additional duty liability for the contract. The investigation culminated in a decision that duty had been underpaid.
15. The Chief Commissioner wrote to Mr Cohen on 2 May 2022 (nine days before time would have run out in accordance with TA Act s 9(3)) explaining that the dutiable value, on which duty should have been paid in 2017, was the full price shown in the contract, $1,599,000, and not the reduced value of $1,066,000. The Chief Commissioner issued a Duties Notice of Assessment indicating a further duty liability of $29,315.00, plus interest. (Interest has since been remitted.)
16. It is that reassessment, resulting in a further duty liability of $29,315.00, that is the subject of the Tribunal's review.

Part D - Mr Cohen's case

1. Mr Cohen submits the circumstances are covered by s 63(2) of the Duties Act 1997 (NSW), which provides: 63 Deceased estates … (2) If a transfer of dutiable property is made by a legal personal representative of a deceased person to a beneficiary under an agreement (whether or not in writing) between the beneficiary and one or more other beneficiaries to vary the trusts contained in a will of the deceased person or arising on intestacy, the dutiable value of the dutiable property is to be reduced by the portion of the dutiable value that is referable to the dutiable property to which the beneficiary had an entitlement arising under the trusts contained in the will or arising on intestacy.
2. Mr Cohen submits that to qualify for a reduction in the dutiable value under s 63(2), the following 2 elements must be satisfied: 1. There must be a transfer of dutiable property by a legal personal representative of a deceased person to a beneficiary; and 2. The transfer must be made under an agreement between the beneficiary and one or more other beneficiaries to vary the trusts contained in the will of the deceased person or arising on intestacy. If both elements are satisfied then the dutiable value of the dutiable property the subject of the transaction is to be reduced by the specified portion.
3. Mr Cohen submits both elements are satisfied here.
4. As to the first element, he says it is uncontroversial that there was a transfer in respect of the whole of the Property between the executors of the estate as transferors and himself as transferee.
5. As to the second element, he submits there was an agreement between himself and Peter and Wendy to vary the trusts contained in Harry's will. Specifically, he submits: 1. Stephen, Peter and Wendy agreed for the executors (Peter and Daphne) to transfer the Property to Stephen under the contract rather than to the 3 siblings in equal shares, as provided for in the will; 2. Stephen, Peter and Wendy agreed that Stephen was to pay an amount to Peter and Wendy that was greater than the value of Peter's and Wendy's entitlement under the will; and 3. Stephen, Peter and Wendy agreed to vary the terms of the trusts under the will by agreeing that Stephen was solely entitled to the rent for that part of the building the tenant was occupying that Stephen had been occupying as at the date of Harry's death.
6. Mr Cohen submits the circumstances bear an 'uncanny resemblance' to the example given by Parliamentary Secretary Tanya Gadiel in the second reading speech for the Bill that became the State Revenue Legislation Amendment Act 2008 (NSW), by which s 63(2) was introduced. (In fact the speech referenced by Mr Cohen was not the second reading speech but it was almost identical to it. The actual second reading speech was provided by Parliamentary Secretary Henry Tsang in the Legislative Council.) The example given in the second reading speech is as follows (New South Wales, Second Reading Speech, Legislative Council, 25 June 2008, 9258 (Henry Tsang, Parliamentary Secretary)): The bill makes two significant extensions to the duties concession for transfers out of a deceased estate. … The second [extension] is where the beneficiaries agree to vary their entitlements under the will. For example a beneficiary who is entitled to a one half interest in a house might agree to buy the house from the estate for a purchase price of one half its value. The amendment will only impose duty on the transfer of the one half interest in the house that is in excess of the beneficiary's entitlement.
7. Mr Cohen submits that no further duty is payable beyond the $44,140.00 initially paid.
8. Mr Cohen is aware of the Chief Commissioner's position, outlined in Part E below, which includes reliance on Chief Commissioner of State Revenue, Revenue Rulings - Deceased Estates (DUT 046, 12 February 2020) (Revenue Ruling DUT 046). Mr Cohen notes that DUT 046 was issued on 12 February 2020, more than 2½ years after Revenue NSW stamped the contract and transfer under review here. Mr Cohen does not accept that the reassessment in May 2022 was made in accordance with the legal interpretations and assessment practices generally applied by the Chief Commissioner in May 2017 when the tax liability arose (as required by s 9(2) of the TA Act). He submits the Tribunal should not place any weight on DUT 046 since to do so would amount to a retrospective application of the Chief Commissioner's current view.
9. Mr Cohen also notes that if Revenue NSW had initially assessed duty on the full value of the Property, he may have had remedies available to him which could have reduced his duty liability. He says he could have sought to rescind the contract and undertaken the transaction in a different way but that opportunity has now passed. He submits the delayed reassessment of duty denies him access to those possible remedies, and he would like the Tribunal to take that into account in the review of the reassessment.

Part E - The Chief Commissioner's position

1. The Chief Commissioner accepts that s 63(2) applies to a transfer from a legal personal representative to a beneficiary, but not to an agreement for sale.
2. The legislative background to that position is that s 8 of the Duties Act imposes duty on certain transactions concerning dutiable property, including on a transfer of dutiable property (s 8(1)(a)) and on an agreement for the sale or transfer of dutiable property (s 8(1)(b)(i)). Each of those is a dutiable transaction for the purposes of the Act (s 8(2)).
3. Section 9(1) provides that the duty charged on a dutiable transaction is to be charged as if each such dutiable transaction were a transfer of dutiable property. But it doesn't follow that an agreement for sale or transfer is a transfer. All it means is that duty is charged as if that were the case.
4. A liability for duty arises when a transfer of dutiable property occurs (s 12(1)). By operation of the table in s 9(2), and where the dutiable transaction is an agreement for sale or transfer, the transfer of the dutiable property is taken to have occurred when the agreement is entered into (s 9(2)(c)).
5. Now, what happened in this case, is that Mr Cohen purchased the Property by means of both the contract for sale and a memorandum of transfer, each of which is a separate dutiable transaction liable for duty. As the contract is not a transfer of dutiable property, s 63(2) of the Duties Act does not apply, and the contract is liable to ad valorem duty. The dutiable value is the greater of the consideration for the dutiable transaction, and the unencumbered value of the dutiable property (s 21(1)(a)). (As the transfer was made in conformity with the contract, the duty charged on the transfer is $10 pursuant to s 18(2).)

Revenue Ruling DUT 046

1. As indicated above, Revenue Ruling DUT 046 was issued by the Chief Commissioner on 12 February 2020. Relevant parts of it are set out below (footnotes omitted): [3] Section 63(2) of the Act provides that, if a transfer of dutiable property is made by a legal personal representative of a deceased person to a beneficiary under an agreement (whether or not in writing) between the beneficiary and one or more other beneficiaries to vary the trusts contained in the will of a deceased person or arising on intestacy, the dutiable value of the dutiable property is to be reduced by the portion of the dutiable value that is referable to the dutiable property to which the beneficiary had an entitlement arising under the trusts contained in the will or arising on intestacy. … [8] Where a deed of family arrangement is entered into to vary the trusts of the will or arising on intestacy, a transfer to give effect to that arrangement will not be a transfer under and in conformity with the trusts of the will or arising on intestacy. Duty will be payable in accordance with section 63(2) of the Act, on the difference between the value of the beneficiary's entitlement to that dutiable property under the will or on intestacy and the dutiable value of that dutiable property. … [11] Section 63(2) of the Act will not apply if there is no agreement (oral or written) between the beneficiary receiving the entitlement and one or more of the other beneficiaries to vary the trusts contained in the will or arising on intestacy. … [18] Section 63(2) requires the reduction in the dutiable value of the dutiable property to be based on the proportion of the particular beneficiary's entitlement "arising under the trusts contained in the will". It does not require the value of the estate as a whole be included in the calculation. … [27] Section 63 does not extend to agreements for sale or transfer. If a legal personal representative enters into a contract with a beneficiary, the contract will be liable to ad valorem duty on the higher of the consideration or value of the dutiable property the subject of the contract.
2. The Chief Commissioner claims, in response to Mr Cohen's submission at [31] above, that DUT 046 does not represent a change in position. The Chief Commissioner's position even before the issue of DUT 046 was that a contract could not be taken to be a 'transfer of dutiable property' for the purposes of s 63 of the Duties Act. This is made clear, it is said, by Watts v Chief Commissioner of State Revenue [2017] NSWCATAD 320, where the Tribunal stated at [64]: The Chief Commissioner provided detailed submissions to the effect that deeming provisions such as s 9(1) [of the Duties Act] are required to be construed strictly and narrowly by reference to certain matters. The Chief Commissioner's argument was that the Contract could not be seen to be a 'transfer of dutiable property' and the concessions in s 63 could not apply to the Contract.
3. Finally, the Chief Commissioner submits that Mr Cohen's argument, outlined in [32] above, is really an 'economic equivalence' argument, which does not assist Mr Cohen since the Chief Commissioner is required to assess duty on what happened, not on what might have happened if things had been done differently.

Part F - Consideration

1. There are 2 fundamental problems with Mr Cohen's case.
2. The first is that, as the Chief Commissioner's submissions correctly emphasise, s 63(2) of the Duties Act applies in its terms only to transfers. It does not also apply to agreements for sale, which are treated in the Duties Act as a distinct category of dutiable transaction: see ss 8(1) and 8(2). A concession that applies to transfers is of no assistance where, as here, the relevant dutiable transaction is an agreement for sale.
3. The second fundamental problem is that there is no transfer that answers the description in s 63(2) in any event. I accept, based on Mr Cohen's evidence, that there was an agreement between the beneficiaries (the 3 siblings) to vary the trusts contained in their father's will, but that is not the agreement under which the Property was transferred. On the contrary, the Property was transferred under the agreement between the executors and Mr Cohen. That is not a circumstance that attracts the concession in s 63(2).
4. In relation to Mr Cohen's submission outlined in [31] above, I don't accept that the reassessment in May 2022 was made other than in accordance with the legal interpretations and assessment practices generally applied by the Chief Commissioner in May 2017 when the tax liability arose. The excerpt from Watts at [64], quoted at [39] of these reasons, puts paid to Mr Cohen's claim.
5. Finally, and while it may appear unfortunate that Mr Cohen was initially (but mistakenly) led to believe that the reduced dutiable value would apply to the contract, the Chief Commissioner was entitled, and indeed obliged, to administer the Act correctly. The original assessment could not stand once the facts had been properly analysed.

Conclusion

1. Mr Cohen has not satisfied me that the reassessment of duty is incorrect.

Order 1. The reassessment of duty in May 2022 is confirmed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 May 2024