Hannagan v Chief Commissioner of State Revenue

Relevant Statutory Provisions 11Duty is charged under s 8(1)(a) of the Duties Act on a 'transfer of dutiable property'. Various other transactions, including 'an agreement for the sale or transfer of dutiable property', are also liable to duty under s 8(1)(b). It is immaterial whether or not a dutiable transaction is effected by a written instrument or by any other means, including electronic means: s 10. 12In the case of a transfer effected by a written instrument, liability to duty arises under s 12(2) of the Duties Act when the instrument is executed. Generally, the duty is payable by the transferee: s 13. The transferee who is liable to pay duty in respect of a dutiable transaction must, within 3 months after the liability arises, lodge with the Chief Commissioner the written instrument that effects the dutiable transaction: s 16. If the duty is not paid within 3 months a 'tax default' occurs for the purposes of the interest and penalty provisions found in the Taxation Administration Act 1996. 13Various concessions and exemptions from duty charged under the Duties Act 'are dealt in Parts 6, 7 and 8' of Chapter 2. In particular and relevant to this matter, sections 67 and 68 in Part 7 provide exemptions from duty of certain transfers. 14So far as its is relevant, under s 67 no duty is chargeable on a transfer, or agreement for the sale or transfer, of dutiable property if it is proved to the satisfaction of the Chief Commissioner that, as a result of the transfer or agreement, the property is or will be held by a married couple or de facto partners as joint tenants or as tenants in common in equal shares, and the dutiable property is land that has erected on it a private dwelling house and was solely or principally used, as at the date of transfer, as the principal place of residence of the married couple or de facto partners. 15Relevantly, s 68 provides that no duty is chargeable on a transfer, or agreement for the sale or transfer, of matrimonial property if the transfer or agreement is effected by or in accordance with an order of a court under the Family Law Act 1975.

Submissions 16The Applicant's case was simply that "the levying of duty was wrong because pursuant to s.68 and s.67 of the Duties Act there were agreements between the relevant parties that were exempt from duty. In the first instance and relevant to s.68, the agreement between Julian Kenny and Kimberley Hannagan is evidenced by the consent orders of the Manly Local Court under the Family Law Act 1975 . In the second instance and relevant to s.67, the agreement between Kimberley Hannagan and Kurt Huneke (who were married at the time of the agreement to transfer the property) is evidenced by their affidavits". 17It was also submitted by the Applicant that under s 63 of the Administrative Decisions Tribunal Act 1997, in determining an application "the Tribunal is to decide what the correct and preferable decision is having regard to the material then before it". It was submitted that the material before the Tribunal "includes the evidence of the Applicant that she was advised by departmental staff that ' it didn't matter ' whether the application for transfer as per the agreements between the parties was effected on the one transfer application or not" and that the Applicant "received correspondence from the Department that the submission of the application on the one form was ' nothing other than an innocent mistake '". 18The Respondent's case was that the "requirement in s 68(1)(a) has not been satisfied in the present case" because the "Transfer was not only to the Applicant, but to the Applicant and Mr Huneke, in circumstances where Mr Huneke was not a party to the marriage that was dissolved or annulled nor a child or children of either of the parties to the marriage or as a trustee of such a child or children". 19It was further submitted that the exemption in s 67 did not apply because "the Transfer provides that the transferor is Mr Kenny, who at the time the Transfer was executed and stamped, was not married to the Applicant". 20It was also submitted that if the ' it didn't matte r' "advice was given (which is not conceded), it is not relevant to the present dispute, which is concerned only with whether the assessment was made in accordance with the Duties Act : see s 101 of the Taxation Administration Act 1996 (NSW)" and that the "Chief Commissioner can not be estopped from assessing the Applicant's liability in accordance with the Duties Act : Federal Commissioner of Taxation v Wade (1951) 84 CLR 105 at 117; Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 510; Oamington Pty Ltd v Commissioner of Land Tax (1997) 98 ATC 5051; ISPT Nominees Pty Ltd v Chief Commissioner of State Revenue [2003] NSWSC 697 at (70)-(76) and Stature Pty Ltd v Chief Commissioner of State Revenue [2003] NSWADT 271 at (11)."

Consideration and Reasons 21The issue in this matter relates, in my opinion, to two transactions rather then a single composite transaction as understood by the Respondent. The first transaction was between Julian Kenny and the Applicant, which was considered by the Respondent on 19 February 2010. This was the transfer by Julian Kenny of his interest in the property to the Applicant and was ruled by the Respondent as being a transaction within the exemption provided by s 68. It was stamped by the Respondent with a 'No Duty Payable' stamp. This was the transaction that was carried out pursuant to the order made on 12 February 2010 by the Local Court at Manly. The transfer was not dated. 22The transfer document was amended by the Applicant as the principal beneficiary to share her interest from Julian Kenny with her current husband, Kurt Huneke as 'tenants in common in equal share'. The amended document was dated 26 February 2010 and lodged with the Respondent on 9 March 2010. The respondent stamped the document with an 'Alteration Noted' stamp and made no changes to the exemption previously stamped. 23The Respondent's case was essentially that it was a single composite transfer and that by including Kurt Huneke as a transferee, the transfer was not entitled to the exemption under s 68 of the Duties Act. The transfer was also not entitled to the exemption under s 67 because when it was executed Julian Kenny was 'was not married to the Applicant'. 24It is implicit in s12 of the Duties Act that a liability for duty charged 'arises when a transfer of dutiable property occurs'. The Respondent erred in law to treat the transactions as a single composite transfer. In my opinion, as indicated above, there were clearly two transactions and independently each transaction constituted a transfer in terms of s 12 of the Duties Act. 25The first transaction occurred when Julian Kenny transferred his interest to the Applicant. That was, as correctly ruled by the Respondent, a transfer pursuant to an order of a court under the Family Law Act and exempt under s 68(1)(b)(ii). 26The second transaction, which occurred on or about 20 February 2010, was the transfer by the Applicant of 50% of her interest she acquired under the first transaction to her current husband. This was a unilateral action taken by the Applicant and Julian Kenny was not a party to the transaction. Unless exempt under s 67, it was a transfer of dutiable property in terms of s 12 of the Duties Act and a liability for duty charged arose as a result of the transfer. I do not think there is any provision in the Duties Act that prevents a beneficiary under one transfer to make changes to the transfer to include any other nominated person as another beneficiary. Where changes are made, effectively it is a different transfer and its liability is to be determined quite independently. 27The exemption under s 67 is only available if all the requirements set out in the section are satisfied. Section 67 sets out a number of requirements. The principal requirement in section 67 requires that as a result of the transfer or agreement, the property is or will be held by a married couple as joint tenants in common in equal shares. 28However, in this matter, this strict requirement was clearly not satisfied. Prior to the transfer by Julian Kenny of his interest in the property to the Applicant, the Applicant and Julian Kenny each held a 99/200 share in the property and Kurt Huneke held a 2/200 share in the property. As a result of both the transfers, the Applicant became entitled to a 148.5/200 share in the property. On the other hand, Kurt Huneke became entitled to only a 51.5/200 share in the property. Accordingly, as a result of the two transfers the Applicant and her husband did not hold the property as joint tenants or tenants in common in equal shares. The exemption was therefore not available to the transferee in relation to the second transaction. 29A liability to duty arose in those circumstances to the value of the share transferred by the Applicant to her husband. The Applicant only transferred a 49.5/200 share in the property to Kurt Huneke. That was 50% of the share previously held by Julian Kenny. The dutiable value, accepted by the Respondent, was $408,375 for the 100% share transferred by Julian Kenny. In respect of the dutiable transaction, the transferee, Kurt Huneke was therefore liable to 50% of that value because only 50% was transferred to him. The Applicant as the transferor was not liable to any duty. 30In view of the conclusion I have reached, it is not necessary to consider the Respondent's submission that the Chief Commissioner is not bound by any advice given to a taxpayer by one of the Chief Commissioner's officers. Whilst it is well established law that the Chief Commissioner cannot be estopped from administering the law in accordance with the precise terms of the law, there ought to be a system available to taxpayers which, provides them with some certainty as to the application of the law to their particular cases. The Commonwealth tax system has for some years adopted a binding system for advice given and rulings issued. A similar system for state revenue laws is long overdue.

Order The assessment is set aside and the matter is remitted to the Respondent to issue an assessment to Kurt Huneke on a dutiable value of $204,187.50.

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: 08 February 2012