Kamirice Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2017] VCAT 2087

1. Pursuant to Section 119 of the Victorian Civil and Administrative Tribunal Act 1998, paragraph [88] of the Tribunal's order in Application Z479/2017 dated 14 December 2017 is corrected to read as follows:

[88] However, this situation is entirely different. This is not a question of statutory interpretation, as it was in Mould's case, it is simply applying the Guidelines to the considerations in the statute. Further, the Guidelines specifically refer to 'passive property investor'.

1. Section 119 of the Victorian Civil and Administrative Tribunal Act 1998 provides that the Tribunal may correct an order made by it if the order contains:
   • (a) a clerical mistake;
   • (b) an error arising from an accidental slip or omission;
   • (c) a material miscalculation of figures or a material mistake in the description of any person, thing or matter referred to in the order; or
   • (d) a defect of form.

I am satisfied that a mistake or error has occurred here, comprising a clerical error, in paragraph [88] of the decision and find it appropriate to authorise a correction of the order.

1. This is an application to review the respondent's determination, dated 25 October 2016, disallowing the applicant's objection, dated 23 August 2016, to the respondent's assessment in relation to land tax pursuant to the Land Tax Act 2005 (the Act).
2. The applicant, being a foreign-owned corporation, was assessed with an absentee owner surcharge pursuant to the provisions of s.3A and s.35 of the Act for the Land Tax Year of 2016. It is in respect of the respondent's refusal to use his discretion to grant an exemption pursuant to s.3B of the Act, in relation to the surcharge, that the applicant has sought to review. The assessment was in relation to a property at 500 Collins Street, Melbourne (the Property) on which is built a 27-storey building containing offices and shops.
3. The issue for determination is whether the discretion of the Treasurer, delegated to the Commissioner and to the Tribunal now "standing in the shoes" of the Commissioner, should be exercised pursuant to s.3B(2) of the Act, to grant an exemption to the foreign owner of the applicant (E & H Australian Holdings Ltd (E & H)), so E & H is taken not to hold an absentee controlling interest in the applicant.
4. The applicant (Kamirice) is a wholly-owned subsidiary of E & H. E & H is a company incorporated outside Australia in the British Virgin islands and is therefore "an absentee corporation" and "absentee person" within the meaning of the Act.

1. Kamirice was incorporated in Victoria 1996. It is 100% owned by E & H, which is domiciled in the British Virgin Islands as trustee for two Bermuda Trusts (each with 4 appointors). Kamirice has an entirely Australian Board of Directors, whose autonomy has never been interfered with by E & H, in relation to investment decisions.
2. The board of Kamirice consists of 4 non-executive Directors and the Managing Director, Mr Paul Martin, who made a statement in these proceedings, which was not challenged by the respondent.
3. All directors of the applicant are Australian residents. The Chairman is Sydney-based and has been a director of Kamirice since 1997 and its Chairman since 2004.
4. Kamirice's Board of Directors (the Board) approves all major financial decisions including investments. E & H does not attempt to influence the decisions of the Board. The Chairman of Kamirice holds a proxy by which he represents E & H at Kamirice's Annual General Meeting each year.
5. Since the acquisition of the property, E & H has never removed a director, or actively participated in the operations or investment decision-making of Kamirice.
6. Once the investment strategy of Kamirice is approved by its Board, along with a general update of Kamirice's performance for the year, it is presented by the Managing Director to the Directors of E & H at a meeting held in October each year.
7. Mr Martin in his witness statement at [13] and [14] relevantly stated as follows:

[13] There has been one resignation from the Board since I have been Managing Director and one new appointment. If a member of the Board of Kamirice intends to retire, it is up to the Board to identify potential candidates. Prior to Peter Kenny and Paul Healy's formal appointment in 2004 and 2016 respectively, each met with E&H in Hong Kong by way of formality only. During my time as a Director, E&H has never attempted to influence this process, nominate a director, remove a director or request a nominee be replaced.

[14] E&H are interested in the performance of Kamirice, but in my experience, have never sought to influence it or its operations. Kamirice operates independently of E&H.

1. Kador Group Holdings Pty Ltd (Kador) manages the day-to-day business affairs of Kamirice pursuant to a service agreement between the two Companies. The Board of Directors of Kador is identical to Kamirice's. Kador also operates from the same premises (the Property).
2. At paragraph [16] of Mr Martin's statement he describes the relationship between Kamirice and Kador in the following terms:

[16] Kamirice does not employee its own staff. However, it utilises Kador's employees to provide certain services in relation to the management and operations of Kamirice's properties for which Kamirice pays an agreed fee. The relationship between Kamirice and Kador is one of company and independent service provider only. All day-to-day decisions of Kamirice are approved by myself as Managing Director. Since December 2013, the relationship between Kamirice and Kador has been regulated by a Services Agreement between Kador and Kamirice.

1. The service agreement to which Mr Martin refers, relevantly provides:
   • (e) The parties agree that employees provided by Kador to Kamirice are seconded to Kamirice while providing the Services and will be acting under the direction and control of Kamirice;
   • (f) All personnel seconded to Kamirice are, during the period of secondment, under the direction and supervision of Kamirice and are indemnified by Kamirice as though they were employees and have full benefit of insurance;
   • (g) Kamirice's services include provision of Directors to the Board of Kamirice and services associated with the Kamirice Board eg conducting Board meetings.
   • (h) The services also include all commercial assessments and general strategic business direction.
2. Kamirice purchased the property in 2002 for $61.9m.
3. After the purchase of the property, Kamirice spent approximately $70m in capital improvement.
4. In 2011, there was a further $8m in capital expenditure made by Kamirice in relation to the property. In the last 3 years, Kamirice has undertaken a major lift upgrade project of around $3m. There are over 50 tenants in the property and, as a result, Kamirice incurs regular upgrades on carpet, lighting, painting and other expenses. Gross property expenses for 2016, 2015 and 2014 income years for the property were $5,045,719, $4,405,031 and $3,834,135 respectively. An estimated $7.9m in capital expenditure and upgrades is expected over the next 5 years.
5. Kamirice also owns some other properties in Australia, but no other properties in Victoria.
6. Kamirice's investment philosophy is described in a document attached to the witness statement of Mr Martin being TJM7 (Upgrade Project -Retail, Office Floor, EOT) at [4]:

Kamirice is a long term investor. While income is an important component of the total return, Kamirice will not measure the property's performance on short term results alone, and is willing to make short term sacrifices for long term gain. The relationships we establish and maintain with our tenants are strong and highly valued.

1. Over 100 service contractors, are involved in the service of the building on the property and keeping it up to a proper lettable standard.
2. The Annual Financial Report of Kamirice for the year ending 30 June 2015 relevantly states as follows:

... Principal activities of the company during the course of the financial year were ownership of tenanted properties and investment monies...

The company continued its property and investment operations. There was no new acquisitions or disposals of investment property during the course of the year.

Property values across its portfolio substantially increased...

The company will continue to pursue its policy of property investment and maximisation of returns...

Investment property refers to real estate assets which are held either to earn rental income or for capital appreciation or for both....

The bank loans are secured by registered first mortgage over investment property of the company to the extent of $67,500,000...

The related party loan of $192,899,726 (from E & H) bears interest of 5.59%. The loan is covered by a loan agreement over a period of ten years from 1st July 2009.

1. It is noted, that no interest has ever been paid on the loan of $192,899,726 by Kamirice to E & H.

1. Pursuant to the Act as amended in 2015, an 'absentee owner' is liable for land tax at a surcharge rate: See s.35(1) together with Part 4 of Schedule 1.
2. 'Absentee owner' is defined in s.3(1) of the Act as an absentee person who is an owner of land. An absentee person as defined in s.3(1) means -

1. 'Natural Person Absentee' is a natural person who is not an Australian citizen or resident, who does not ordinarily reside in Australia, and who was either absent from Australia on 31 December in the year immediately preceding the tax year or was absent from Australia at least 6 months in the preceding year.
2. 'Absentee Corporation' is defined in s.3(1) and the words mean -

(a) a corporation that is incorporated outside Australia; or

(b) a corporation in which an absentee person has an absentee controlling interest.

1. Section 3A of the act defines when an absentee person holds an absentee controlling interest in a corporation. In this particular instance, it is conceded that E & H's holding of Kamirice comes within the meaning of s.3A of the Act. Section 3B confers a discretionary power on the Treasurer (or his delegate) to exempt a person who has a/the controlling interest in a corporation, so that the corporation will not be an absentee corporation for the purposes of the absentee owner surcharge. S.3B relevantly provides:

Exemptions from holding absentee controlling interests

(1) Despite section 3A, an absentee person is taken not to hold an absentee controlling interest in a corporation if the absentee person holds an exemption under subsection (2).

(2) The Treasurer, for the purposes of subsection (1), may, in writing, exempt an absentee person who holds an absentee controlling interest in a corporation if the Treasurer is satisfied that, having regard to any one or more of the following matters, the absentee person should not be taken to hold that interest -

(a) the nature and degree of ownership and control the absentee person, or that person acting together with another absentee person, has in the corporation;

(b) the practical influence the absentee person, or that person acting together with another absentee person, exerts to determine or influence, directly or indirectly, the outcome of decisions about the corporation's financial and operating policies;

(c) any practice or behaviour of the absentee person, or that person acting together with another absentee person, which affects the corporation's financial or operating policies;

(4) The Treasurer must issue guidelines for the exercise of the power of exemption under subsection (2).

(6) Guidelines issued under subsection (4) are not a Legislative Instrument within the meaning of the Subordinate Legislation Act 1994.

1. On 11 August 2015, the Treasurer issued guidelines pursuant to s.3B(4) of the Act (the Guidelines). A full copy of the Guidelines is attached as a schedule to this decision.
2. The Guidelines reflect the Treasurer's intention as to the circumstances in which he (or his delegates) will exercise the discretionary power to grant an exemption from an absentee owner surcharge, and the circumstances in which such an exemption will not be granted.
3. In addition to addressing each of the considerations to which the Treasurer may have regard under ss.3B, (2)(a)(b) and (c), the Guidelines set out additional 'relevant circumstances' for the purpose of s.3B(2)(d).
4. The Guidelines state the general policy intention as follows:

The corporations that are not intended to be captured under the absentee owner surcharge from 1 January 2016 are corporations which conduct a commercial operation in Australia and whose commercial activities make a strong and positive contribution to the Victorian economy and community by engaging local labour and utilising local materials and services. All other taxes that are usually imposed on the corporation will remain in place.

1. It is noted, that the Parliamentary debates relating to the absentee surcharge, also relate to an increase in duty on the acquisition of property via absentee owners. Insofar as the Duties Act provision is concerned, that provision only deals with residential property. The debates do not appear to make any distinction between the residential property to which the Duties Act provisions refer and both the residential and commercial properties to which the Land Tax Act refers. It is clear, from the debate, it was intended to place foreign owners of a corporation that own a land holding corporation in Australia such as the present, at a disadvantage to owners that are resident in Australia.

1. It is important to remember that in construing legislation primacy should be given to the words of the statute. The High Court stated in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41 at 47;

Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of the legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy.

1. It does follow, that primacy in this particular situation must be given to the actual words of s.3B of the Act. That is, the Treasurer may exempt an absentee owner who holds an absentee controlling interest in a corporation if he is satisfied that, having regard to any one or more of the matters referred to in s.3B(2)(a), (b), (c) and (d), the absentee person should not be taken to hold that interest.
2. I will use the Guidelines as consideration of general principles of the relevant circumstances in which I should have regard by reference to the statutory considerations set out in s.3B(2).
3. The Guidelines are in fact a statement of Government policy, and therefore I should have regard to and apply the Guidelines in the exercise of the discretion conferred by s.3B(2), unless there are '....reasons that warrant departure from those policy guidelines' see Re Drake v Minister for Immigration and Ethnic Affairs (No.2) (1999) 2 ALD 634 and 641, also Neat Domestic Trading Pty Ltd v AWB Ltd (2003) 2016 CLR 277 at 298 [24] (Leeson C J).
4. It is clear the discretion given by s.3B of the Act can be exercised by having regard to 'any one or more' of the matters set out in s.3B(2), In my view, it is appropriate, in this particular case, to have regard to each of the specified matters that are raised in the subsection, and consider them in light of the relevant guidelines that have been supplied by the Treasurer.
5. Put differently, Mr Horan QC and Mr O'Gorman, Counsel for the respondent stated at [29] of his submissions:

More generally, the discretion s.3B should be exercised in light of the policy and purpose of the statutory provisions (Finance Facilities Pty Ltd v Federal Commissioner of Taxation [1971] HCA 12; [1971] 127 CLR 106 at [134]) in so far as that can be properly ascertained from the text of the statute and any relevant extrinsic materials in which it is permissible to have regard in accordance with ordinary rules or statutory construction.

1. In my view, the outcome of the case does not directly turn on the question of statutory construction, but rather, it involves the exercise of discretionary power conferred by the statute. That discretionary power to grant an extension is properly informed by the purpose and policy of the absentee provisions. The Guidelines elaborate on the matters that may be considered when deciding whether or not to grant an exemption. The matters set out in s.3B(2), interpreted in light of the Guidelines, are considerations to which I may have regard when exercising the discretion grant or refuse the exemption.

Nature and Degree of Ownership and Control: Section 3B(2)(a)

1. Section 3B(2)(a) allows me to have regard to 'the nature and degree of ownership and control the absentee person, or that person acting together with another absentee person, has in the corporation'.
2. In relation to s.3B(2)(a) the Guidelines set out the following principles and relevant circumstances:
   • (a) "Nature and degree of ownership and control the absentee person, or that person acting together with another absentee person, has in the corporation."
   • (b) "The degree of day-to-day control into the decisions of the absentee corporation that the absentee person may have."
   • (c) "Whether the controlling interest is predominantly held by one absentee person or whether it is fragmented among a number absentee persons. If the latter, whether those persons are related or connected."
3. Before looking at the Guidelines in relation to s.3B(2)(a), it is important to note, that the nature and degree of ownership, of E & H in relation to Kamirice, is 100% ownership.
4. During the hearing, I had discussions with Ms Batrouney QC who appeared with Mr Tisher of Counsel on behalf of the applicant, in relation to the effect of 100% ownership by the absentee corporation. Ms Batrouney was of the view that the fact of 100% ownership was not of significant importance. I disagree with that view, because the section specifically refers to the nature of the ownership. In this particular instance, the nature of the ownership is the highest possible ownership that can be held. This is a statutory matter, and is something to which I should give considerable importance.
5. It is clear from the evidence of Mr Martin, that the day-to-day control is in the hands of the Australian Board of Kamirice. While there are factors, which would enable the absentee corporation to take over control of Kamirice, in the time since the property has been acquired, since 2002 that has not happened. However, it is noted that a representative from E & H, attends both the General Meeting and the Board Meeting and has input into the decision-making although does not actually take part in the decision- making itself. Further, on the two occasions where new directors have been appointed, it is apparent that those directors each made a visit to Hong Kong, said to be 'as a matter of courtesy' to meet the directors of E & H. As I pointed out to Ms Batrouney during the hearing, it is difficult to understand why those directors would have made the journey to Hong Kong just for a purpose of 'courtesy'. I posed the question to Ms Batrouney as to what would have happened if those directors were not approved by the Hong Kong entity? However, there is no evidence upon which I can act which would suggest that the appointment would have been overturned.
6. Mr Horan QC with Ms O'Gorman, Counsel for the respondent, pointed out, that if the property was directly held by E & H as a foreign corporation, it would attract the absentee owner surcharge regardless of any level of management in Australia. There would be no scope for any exemption from the absentee owner's surcharge - irrespective of the level of capital expenditure incurred in managing the property, or any contractors or consultants engaged in Australia or Victoria.
7. It was therefore submitted by the respondent that the imposition of a wholly owned subsidiary as a vehicle for the management of an investment in Victorian property does not provide a strong basis on which to grant an exemption from the surcharge that would otherwise be applicable to E & H as an absentee owner.
8. In my view, the submission of the respondent in this regard has considerable force and is a matter that I should take into account in considering whether or not to exercise the discretion in s.3B.
9. In relation to the second point, in the Guidelines referring to the controlling interest it was conceded by the Counsel for Kamirice, that E & H owned 100% of the applicant and consequently had a controlling interest which was not fragmented amongst other absentee owners.
10. I have already dealt with the position of a lesser than 100% interest by the absentee owner but more than a 50% interest and I do not need to deal with that again.

Practical Influence in relation to Decisions about Financial and Operating Policies

1. Section 3B(2)(b) allows me to have regard to 'practical influence the absentee person .... exerts to determine, directly or indirectly the outcome of decisions about the corporation's operating policies'.
2. In this regard, the Guidelines set out the general principles and relevant circumstances: s.3B(2)(b) provides:

...The practical influence the absentee person, or that person acting together with another absentee person, exerts to determine or influence, directly or indirectly, the outcome of decisions about the corporation's financial and operating policies...

1. That is to say, whether the person acquired its controlling interest as part of an investment strategy solely for the purpose of obtaining an income stream and the level of influence of the absentee person in the investment decisions of the absentee corporation.
2. In regard to this particular item, the respondent submissions at [47] - [49] state as follows:

The Commissioner accepts that his factor (in contrast to S3.B(2)(a) is directed to practical influence that is in fact exerted by the absentee person; in other words, it is concerned with actual influence rather than theoretical capacity to influence.

On the evidence before the Tribunal, there does not appear to have been a significant degree of practical influence exerted by E & H over the outcome of the decisions of the financial and operating policies of Kamirice.

Nevertheless, E & H has made a significant inter-company loan to Kamirice, and is therefore Kamirice's largest creditor as well as its owner. The obligation to pay withholding tax on interest payments demonstrates that an entitlement interest was accrued, and it is immaterial whether the amount has been paid or remitted by Kamirice to E & H.

1. It is clear that Kamirice, has not made any payment, distribution or return of funds to E & H since 2002.
2. Given the circumstances, that at no time E & H has ever sought to alter the investment strategy or alter any decisions of the Board of Kamirice, I find, that E & H has no practical influence to determine, directly or indirectly, the outcome of the decisions of Kamirice.

Ability to influence the outcome of financial decisions: Section 3B(2)(c ).

1. Section 3B(2)(c) allows the Tribunal to have regard to:

...Any practice or behaviour of the absentee person, or that person acting together with another absentee person, which affects the corporation's financial or operating policies.

1. In this regard, the Guidelines set out the following general principles and relevant circumstances;

The ability to influence the outcome of financial and operating decisions of the corporation.

Whether the directors of the absentee corporation are required to follow the directions of the absentee person.

The relationship between the persons responsible for the day-to-day operation of the absentee corporation and the absentee person.

In the case where the controlling interest is held by a number of absentee persons, the number of those persons and whether they ordinarily act together to influence the outcome of decisions of the absentee corporation.

1. Mr Horan QC and Ms O' Gorman submitted that by reason of both, the 100% ownership of E & H in Kamirice and by E & H being a creditor to Kamirice in the sum of $192.9 million, E & H has the ability to influence Kamirice's financial decisions.
2. Kamirice answers this submission, by pointing out, that the loan from E & H is covered by a loan agreement which expires on 30 June 2019. And therefore, it is not required to repay the loan until the expiry of the same. The applicant further relies on the fact that Kamirice has not been required to return any funds to E & H since 2002. Further it is said, by Ms Batrouney, that E & H has never sought to influence the decisions of Kamirice.
3. Ms Batrouney drew a parallel from the loan to Kamirice from E & H and the loan of $67.5m owing to the NAB, she said that both loans should be treated in a similar manner.
4. In dealing with s.3B(2)(c) it is noted, that the statute refers to 'the ability to influence' whereas the Guidelines refer to 'the absentee corporations are required to follow'. Clearly, where there is a difference between the Guidelines and the statute, the statute must prevail. Therefore, I will treat this issue, as to whether E & H has an 'ability' to influence the decision of Kamirice.
5. In my view, the fact that Kamirice is 100% owned by the absentee corporation, indicates, that the absentee corporation does have the ability to influence the decisions of the applicant. Clearly, at any time E & H, could enlivened provisions, that would enable it to sack the Board of Kamirice. The fact that it has not done so does not take away from its ability. In relation to the loan from E & H to Kamirice, it is clear that no interest has been paid. Therefore, at any time E & H could demand the payment of interest at the required rate from the commencement of the loan to the present time. That may indeed put Kamirice in a very difficult situation. Also, there was no evidence led to suggest that Kamirice would be able to obtain finance in the equivalent amount of the loan from E & H from any other lender should the money be called in on 30 June 2019.
6. All the above matters, in my view, give E & H the ability, although not exercised, to influence the outcome of the financial and operating decisions of Kamirice.
7. In relation to the second item in Guideline 3 Ms Batrouney stated:

The persons responsible for the day-to-day operation of Kamirice have no direct relationship with E & H, whether personal, commercial or familiar. Kamirice has an entirely independent board of directors that makes decisions for the company.

1. While the statement of Ms Batrouney may be in fact correct, it does not take account of the lack of explanation as to why a member of the Board of E & H, has input into the decisions of both the Board and Directors' Meetings of Kamirice, and the fact that the two new directors appointed during Mr Martin's time, visited the Hong Kong directors, for no apparent reason other than a matter of courtesy and formality.

Section 3B(2)(d) and other relevant circumstances

1. Section 3B(2)(d) allows the Tribunal to have regard to 'any other relevant circumstance'. The Guidelines have identified some of the 'other relevant circumstances' for the purposes of s.3B(2)(d). These circumstances include:
   • Impact on the economy
   • Whether the absentee corporation's business activities significantly contribute to the Victorian economy
   • Whether the absentee corporation carries on a substantial activity in Victoria
   • Whether it is merely a passive property investor competition
   • Whether the absentee corporation is able to compete fairly in the relevant market place or whether there are wider consequences for Victoria
   • Whether the Australian-based absentee corporation will be at a competitive disadvantage in providing an equivalent service or product
   • Impact on the community
   • Nature and extent of absentee corporations business activities in Victoria
   • The extent to which the absentee corporation uses local labour (employees and contractors) or local resources, such as material or services
   • Satisfaction of foreign investment review board requirements
   • Whether the absentee corporation has notified the Foreign Investment Review Board (FIRB) for the purposes of purchasing property for development either as part of its 'annual programme' or otherwise
   • The nature of the approval that has been provided by the FIRB for the purpose of purchasing property for development
   • Whether the FIRB has imposed any conditions on the absentee corporation
   • Character of absentee corporation
   • The extent to which the absentee corporation operates in a transparent manner and the extent to which it is subject to adequate and transparent regulations and supervision
   • The corporate governance practices of the entity
   • Independent of management
   • The location of the absentee corporations central management and the ability for the management to make decisions independent of the absentee person that holds the controlling interest in the corporation.
2. The Commissioner submitted that neither E & H nor Kamirice conducts a commercial operation in Australia that makes a strong contribution to the Victorian economy. He stated that Kamirice is essentially a landlord and the activities of it are described in the 2000 Annual Report as 'ownership of tenanted properties and investment of monies', and the directors addressed 'likely developments', by stating it would 'continue to pursue its policy of property investment maximisation of returns'. It further says that the expenditure it incurs of local contractors, service providers and agents is done so in the capacity of landlord.
3. Mr Horan submitted, that Kamirice does not employ its own staff, instead it has engaged a third party company, Kador Group Holdings Pty Ltd and entered into a commercial contractual arrangement by which is uses Kador's employees to provide services in respect of management operations of Kamirice's properties in return for the payment of agreed fees.
4. Mr Horan further submitted that, capital expenditure by Kamirice was in order to maintain the value of its land holdings and does not change the character from that of landlord, nor does it provide evidence of substantial business activity that contributes to the Victorian economy. Mr Horan pointed out, that most landlords would be required to employ local contractors and agents and to spend amounts of money in maintenance and refurbishment of their property investments.
5. Mr Horan noted that in the financial year ending 30 June Kamirice had a capital expenditure of less than $1.7m. He thus concluded for the first half of the 2016 Land Tax Year, Kamirice expended less than $1m in capital expenditure in relation to the property. He compared this to the acquisition cost of the property which was $61.9m and the value of the property of $149m as at 30 June 2015. He thus concluded, that the activities involved a relatively minimal capital expenditure in the relevant tax year in question.
6. He stated that it was necessary to consider the exercise of the discretion in light of the circumstances that pertain to each tax year.
7. The fact that a property owner may have carried on a substantial business activity in Victoria and may have made a contribution to the Victorian economy in past years does not necessarily mean that the ownership be exempt from absentee owner surcharge in the current tax year.
8. Mr Horan also noted, that Kamirice's role occupies one of a passive investment, which simply holds the assets for the purpose of generating an income stream for the benefit of E & H, instead of using assets to operate commercial business that utilises local labour and makes a strong contribution to the Victorian economy.
9. Kamirice submitted, that it carries on a very substantial business activity that makes significant contribution to the Victorian economy. Ms Batrouney pointed out that between 2002 and 2016, Kamirice invested over $60m to convert the property into a 5 green star rated building (it is noted that most of that expenditure occurred between 2003 and 2011).
10. Ms Batrouney pointed out, that in the 2015 accounts of Kamirice, its revenue was $43,512,000, rental income $19,360,000, expenses $6,175,000, profit before tax $23,246,000, income tax expenses $8,088,000, total assets of $336,521,000 and cash reserves of $18,873,000. These figures included other properties in other States other than the property that is the subject of this application. In relation to this property, there were rates and taxes and other levies paid which amounted to $5,045,719. She suggested that these figures show that Kamirice's business of acquiring, maintaining and refurbishing leasing properties is substantial. She further denied it was appropriate to look at the expenses relative of the size of Kamirice's land holdings. Ms Batrouney also pointed out, that describing Kamirice as "essentially a landlord" should be rejected because it was an inaccurate and incorrect conclusion about Kamirice's business of acquiring maintaining and refurbishing and leasing properties. She referred to Mould v Commission of State Revenue [2014] VSC 268 [84] where Ginnane J found that the taxpayer's activities in renting 23 mostly inner suburban properties amounted to a business.
11. Ms Batrouney further stated that reference to all the contractors and service providers that Kamirice used in relation to the property, being over 100, indicated that it provided a strong commercial operation and made a contribution to the Victorian economy.
12. Ms Batrouney further denied, that Kamirice was a passive investor. She again referred to Mould's case [191] - [203] where, the Victorian Court of Appeal did not accept the applicant's contention that the existence could be tested by whether the relevant activities were 'passive' or 'active' and that it did not resolve the statutory question before the Court (namely whether the sole business of the tax payer was primary production of the type carried out on the land).
13. Ms Batrouney further stated that, the applicant's investments were not speculative, because the property had been owned since 2002, and it was used for the purposes of capital gains and income. Not for the purpose of reselling for a profit.
14. She further stated, that the fact that Kamirice did not employ its own staff was irrelevant. The relationship between Kamirice and Kador was one of company and independent service provider. And that Kador staff were seconded to Kamirice when providing services to Kamirice.
15. Ms Batrouney relied upon the statement of Mr Martin, for the proposition, that if the surcharge was applied, Kamirice would be at a competitive disadvantage to other land holders in Victoria.
16. Ms Batrouney made the point that Kamirice had used over 106 Victorian contractors and thus it conducts a business in Victoria using labour and resources.
17. Ms Batrouney noted, that the FIRB was notified of Kamirice's acquisition of the property and approved it on condition it was a commercial property and not for residential use. Further Kamirice has never been prevented from acquiring property in Australia by the FIRB.
18. Ms Batrouney stated, that Kamirice was a Victorian company which took corporate governance very seriously and has undertaken an independent review of its corporate governance from time to time. And further, Kamirice's central management is located in Australia, and in fact operates its business from level 26 of the property. All five current directors reside in Australia and previous directors and secretaries of the company also resided in this country.

**_CONCLUSIONS AS TO GUIDELINES RELATING TO SECTION 3B(2d)

1. Although, Mr Martin produced figures in relation to the expenditure of Kamirice in relation to the property, there was no expert evidence given as to the impact that this expenditure would have on the economy of Victoria. In my view, doing the best I can without such expert evidence, while the figures seem large, they do not appear, to be of such a level as to have created significant employment in this state. It was pointed out during submissions, that a number of absentee owners, have properties in which they conduct businesses such as retail outlets or manufacturing establishments. Clearly, such type of businesses do employ a considerable amount of Victorians. Far more than Kamirice would have in carrying out an operation of improving, maintaining and leasing office and retail space in the city of Melbourne.
2. It is noted, that it is likely that whoever owned the property whether it be an absentee landlord or a local landlord, there would be considerable expenditure involved in maintaining and upgrading a business such as that on the property.
3. Without expert evidence, I am unable to make a specific finding as to the contribution to the Victorian economy and I note, that section 110 of the Taxation Administration Act requires that the tax payer has the onus of proving the case.
4. In relation to the question of whether the investment by Kamirice in the property is a passive or active investment, I note that the Court of Appeal as Ms Batrouney noted that [191] - [203] in Mould's case, found that it did not resolve the question of whether the sole business of the tax payer was primary production carried out on the land.
5. However, this situation is entirely different. This is not a question of statutory interpretation, as it was in Mould's case, it is simply applying the Guidelines to the considerations in the statute. Further, the Guidelines specifically refer to 'passive property investor'.
6. As this is not a question of statutory interpretation, I do not believe I need to find precisely whether the investment by Kamirice in the property, is a passive or active investment. However, in my view, it has always been considered that a passive investor is one that aims to maximise returns over the long period by keeping the amount of buying and selling to a minimum. If this is correct, then that is precisely what Kamirice is doing in relation to this property.
7. In any event, the activities that Kamirice are carrying on are clearly far less active than the type of situation which I described above, where an absentee taxpayer purchases land in Victoria for the purpose of operating a retail outlet or a manufacturing enterprise.
8. In my view, it is unnecessary to make a specific finding as to whether the applicant is carrying out a passive investment or otherwise, because I am dealing with guidelines which are simply helping me interpret the statute. It is more useful to look at the precise business as compared with other businesses that may be conducted by absentee landlords. And thus from that, one can clearly draw a conclusion as to whether or not the business enterprise is assisting the Victorian economy which seems to me the very thing that I am bound to consider.
9. I do believe that this is a comparative exercise where one should look at the situation that if the absentee owner were not present what would happen? In this particular situation I can infer, in all probability, if the absentee owner did not own the property, it would be owned by a local owner who would be doing precisely the same things with the property as the absentee owner has done. That is, it would either by its own staff, or through contractual arrangements, utilise service providers for an agreed fee in precisely the way that Kamirice has done here.
10. Further, a local landlord is likely to have incurred some capital expenditure in a built property of this nature. It is not beyond the realms of likelihood, that its incurring $70m worth of capital expenditure would at least increase the value of the property by that amount of money. For, capital expenditure changes the character of the type of business that the applicant carries on that is being a landlord. There was argument before me, as to the amount of weight I should place on the capital expenditure of $70m in relation to the property, as the same took place largely between 2003 and 2011. It was submitted by the Commissioner that I should look at the tax year in regard to the capital expenditure. That is 2016. It is noted, that s.36 of the Act, requires that the assessment be made on the 31 December of the preceding year. However, the cases have made it clear that one should look at a not over long and not over short period of both the preceding year as well as the tax year. However, in this particular instance, in my view it is important that I note, what has happened over a continuing period in relation to expenditure on capital and maintenance items. This may not be so in every case but in this particular instance it is appropriate. However, the further back that the expenditure occurred the less weight I should put on it. In this case, the bulk of the capital expenditure occurred on or before 2011. There has been capital expenditure since that time but not to the extent that it was before that time. It has been suggested by Mr Martin in his witness statement that there are plans for further capital expenditure. That may be so; but that is a matter that could change at any time.
11. It is noted, that I have taken a different approach, as to what is taken in 'use of land cases involving s.36 of the Act', which approach I have described above. I take that different approach, as the matters that I am now considering appear in the Guidelines rather than in an actual statute. In taking this approach, I note that it is stated in the guidelines that:

The exemption will continue to apply subject to there being no material change to the circumstances that give rise to the exercise of discretion.

1. I note, that Kamirice does little on its own behalf, but outsources everything that needs to be done in relation to the property to Kador. The applicant, submitted that this makes no difference because the investment is still causing people to be employed in Victoria and helping the Victorian economy. While this may be so, the outsourcing of its operations to Kador, suggests, that Kamirice is acting like most other landlords and employing agents to basically do the work of managing the rental property.
2. Ms Batrouney noted that, the applicant, paid in the year 2016 some $5,045,719 in rates and taxes and levies (excluding income tax). I do not believe that the payment of these items takes me any further, as each and every landlord is required to pay these items. Put differently, whoever owned the property would be paying these particular items.
3. There was a dispute in argument before me on the question of relativity. That is, Mr Horan submitted, that the maintenance and capital expenditure was no greater than any other landlord would pay having regard to the value of the property at $149m. Ms Batrouney submitted that the question of relativity was not relevant to my considerations.
4. I disagree with Ms Batrouney's submission because as I have already stated, it is likely, that a landlord whether it be local or absentee, would maintain the property and improve it so that the income will continue to flow.
5. It is also important, to note that expenditure must relate to the value of the investment. To look at the expenditure in isolation to the value of the investment, is likely to mislead. The owner of a small retail shop, is clearly going to spend far less money than the owner of a city property with a large building. While I appreciate, that the sums that are being spent are large amounts of money entering the Victorian economy, nonetheless it is important to realise, that the larger the investment the more money that needs to be spent. Having regard to the purpose of the statute, which appears to be to encourage foreign investment where it will assist the Victorian economy, I have taken the view that, relativity is important.

1. Mr Martin has stated, that the surcharge, will affect Kamirice's competitiveness with other landlords in the area. And consequently have a deleterious effect on Kamirice.
2. At paragraph [31] of Mr Martin's statement, it is stated:

Kamirice will be placed at a competitive disadvantage compared to other owners whose Boards are also located in Australia, if the discretion is not exercised. If Kamirice is liable to the surcharge, where it is passed on to tenants, will disadvantage their businesses. Where it is not, it will encourage Kamirice to invest outside of Victoria.

1. While I accept that the surcharge may indeed effect Kamirice's competitiveness, but, having regard to what I said previously in relation to the fact that if Kamirice did not own the property some other local landlord would, I do not believe that this is an appropriate matter to be given a lot of weight.
2. In relation to whether the surcharge is passed on to the tenants or not, will of course depend on whether the tenants are retail tenants or not. Clearly, the higher floors in the building and any tenant occupied by a public company is liable to have the surcharge passed on, if the leases provide for such. However, I am able to infer that expenses would only be passed on to the tenant as to the extent that the market would bare. If a landlord were to do otherwise, the tenant would eventually leave the premises and rent other premises. Thus, while I take the question of competitiveness into account, I do not believe it should be given a lot of weight in these circumstances.

1. While, Kamirice is using Victorian labour and resources as I have previously stated, it is likely that if Kamirice did not own the property and operate it for leasing, another landlord would. Thus, I do not believe the imposition of the surcharge is likely to have a disadvantage on the Victorian community.

1. It is clear that the applicant, has notified the FIRB and has applied for approval. There is no suggestion that it is operating in any way contrary to the FIRB requirements.

1. There seems no doubt, that Kamirice takes its corporate governance very seriously and is a good corporate citizen. It complies with State and Federal regulations and the Board is committed to transparency and environmental sustainability.

1. There is un-contradicted evidence, that Kamirice operates independently of E & H, and that E & H does not interfere with the decisions made by the Board of Kamirice. The Board of Kamirice was always and still is comprised of residents of Australia. There is nothing to suggest that this is likely to change.

1. I have weighed up all the matters, that I have considered above in relation to s.3B(2) and applied those matters with the assistance of the Treasurer's Guidelines. Clearly not all matters which I have considered carry the same weight. It is not a question of 'box ticking' as was suggested by Ms Batrouney. This subsection and the Guidelines should be looked at as a whole giving appropriate weight to each of the matters referred to therein.
2. For example, it is clearly more important to look at matters such as control and the benefit to the Victorian economy than matters, such as competitiveness.
3. The weight to be given to each of these matters will depend on the circumstances of each particular case. Having considered all the matters which I have discussed above, I have come to the conclusion that the discretion should not be exercised, so as to exempt Kamirice from the payment of the surcharge. While there are factors that support both sides of the argument, on balance, I have decided that it would be inappropriate in this circumstance to exercise the discretion. In coming to this conclusion, I have taken into account the nature of the investment that Kamirice has made, as well as, the financial input it has had into the community.

1. Thus I will make an order confirming the decision of the respondent. The decision of the respondent is confirmed.