List of Legislation: Duties Act 1999, ss.150A & 421 and Part 15.2

Legislation Act 2001, ss.139 & 140

ACT Civil and Administrative Tribunal Act 2008, s.92

Civil Law (Wrongs) Act 2002, s.68

Taxation Administration Act 1999, s.108A

List of Cases: CIC Insurance Ltd v Bankstown Football Club Ltd

(1995) 187 CLR 34

Solution 6 Holdings Limited & Ors v Industrial Relations Commissioner of NSW & Ors [2004] NSWCA 200; (2004) 60 NSWLR 558

List of Text /Papers: Explanatory Statement to the Duties Amendment 2006 Bill (No.2)

Minister's Introduction Speech to the Duties Amendment 2006 Bill (No.2)

AND: COMMISSIONER FOR ACT REVENUE

1. ISPT Pty Ltd ("the applicant") has sought review of a decision of the Commissioner for ACT Revenue ("the respondent") to disallow the applicant's objection to the assessment of duty made pursuant to section 421 of the Duties Act 1999 (ACT) ("the Duties Act") with respect to a lease dated 9 May 2010.
2. Jurisdiction to review the respondent's decision is conferred on the Tribunal by section 108A of the Taxation Administration Act 1999.

1. The matter was heard on 31 August 2012. The Tribunal had before it the documents provide by the respondent on which its decision was based ("the T Documents"), the Submissions and Statements of Facts and Contentions ("SFC") of the parties, witness statements and other exhibits tendered in evidence. The applicant was represented by Ms A Tsekouras of Counsel and the respondent was represented by Mr G McCarthy of Counsel.
2. Evidence for the applicant was given by Heather Kent, Jason Lourensz and Robert Scott. The respondent called no evidence.

1. On 10 September 2004, the applicant entered into Heads of Agreement ('Heads of Agreement') with the Commonwealth of Australia ("the Commonwealth") with respect to providing lease accommodation to the Commonwealth Attorney General's Department in premises to be built at 3-5 National Circuit Barton, ACT ("the property").
2. On 7 April 2006, the applicant and the Commonwealth executed an Agreement for Lease ("AFL") to which was annexed a lease with a proposed effective Commencement Date of 6 April 2009.
3. On 27 July 2007, the AFL was assessed as subject to stamp duty under the Duties Act and duty was paid in the sum of $905,236.00.
4. On or about February 2007, demolition of the existing building on the property commenced and in or about March 2009 practical completion of the leased premises was reached.
5. During the construction phase the applicant and the Commonwealth negotiated and agreed to substantial variations to the arrangements provided for under the AFL. In or about March 2009, the applicant and the Commonwealth reached the mutual view that the draft lease attached to the AFL was inadequate or inappropriate for the purpose of reflecting the arrangements between them.
6. On or about 28 March 2009, the Commonwealth took occupation of the leased premises.
7. In November 2006, the Duties Act had been amended to abolish lease duty on lease instruments executed after the date mentioned in section 150A of the Duties Act. This amendment formed part of the ACT Government's implementation of the agreement under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations to abolish certain territory taxes in response to the Commonwealth Goods and Services Tax.
8. On 9 May 2010, the applicant and the Commonwealth entered in to a Deed of Release whereby the parties agreed as and from an effective date of 5 April 2009 to mutually release the other from the obligation to grant or the obligation to take the lease ("the redundant lease") as required under the AFL.
9. As a consequence of the Deed of Release, the respondent re-assessed the AFL as being subject to partial refund of duty being the duty paid for the remaining term of the AFL that was not completed.
10. On 9 May 2010, the applicant and the Commonwealth entered into a new lease ("the new lease") with respect to the subject premises with a commencement date of 6 April 2009.
11. On 28 October 2010, the new lease was assessed as subject to duty.
12. On 21 December 2010, the applicant objected to the assessment of duty on the new lease as well as to the partial refund only of duty paid on the AFL.
13. On 2 December 2011, the respondent allowed the applicant's objection in relation to the partial refund of duty on the AFL but disallowed its objection in relation to the assessment of duty on the new lease.

1. The matter at issue was whether the new lease, having been executed after 30 June 2009, the date mentioned in section 150A of the Duties Act was nevertheless chargeable with duty.
2. Chapter 5 of the Duties Act had previously provided for the payment of duty on lease instruments. The effect of the section 150A amendment was that Chapter 5 of the Duties Act and its provisions as to the payment of duty on lease instruments expired as and from 30 June 2009. However provisions were included in the Duties Act as a consequence of the Duties Amendment Act 2006 (No 2) so as to retain the repealed provisions in certain transitional circumstances.
3. The transitional provisions were contained in Part 15.2, relevantly section 421:

1. Application of ch 5 to certain arrangements

repealed provisions means the provisions mentioned in section 150A (Expiry - ch 5) as those provisions were in force immediately before their expiry.

_(2) Despite their expiry, the repealed provisions apply to a lease instrument mentioned in repealed chapter 5 (Lease instruments) if - _

(a) the lease instrument replaces a lease instrument evidencing or

effecting a lease that was entered into before 1 July 2009; or

(b) an option was granted, or another arrangement was made,

before 1 July 2009 the only or main purpose of which was to

defer the execution of, or a variation to, the lease instrument until 1 July 2009 or later so that chapter 5 would not apply to the lease instrument.

(3) Without limiting subsection (2), the commissioner must not refund duty under section 148 (Reassessment of duty - early termination) on a lease instrument evidencing or effecting a lease of property if satisfied that the lessee or any associated person will continue to lease the property, or substantially the same property, under a new arrangement.

(4) This section is a law to which the Legislation Act, section 88 (Repeal does not end effect of transitional laws etc) applies.

1. At all material times both the AFL and the new lease were 'lease instruments' for the purposes of the Duties Act.
2. 'Lease' is defined in the Dictionary to the Duties Act in the following terms:

(a) a lease of land in the ACT or an agreement for a lease of land in the ACT; or

(b) an agreement (for example, a licence) by which a right to use land in the ACT at any time and for any purpose is given to or acquired by a person.

1. It was agreed between the parties that two issues arise for consideration as a consequence of these provisions:
   • Did the new lease 'replace' the Agreement for Lease (AFL) in terms of section 421(2)(a) of the Duties Act?
     • Was it a requirement of the transitional provisions that the 'replacement' had an avoidance purpose and if so, was that purpose present?

Issue 1. Did the new lease 'replace' the Agreement for Lease (AFL) in terms of section 421(2)(a) of the Duties Act?

1. The dispute between the parties centred on the proper construction of the word 'replace'.
2. There was no definition of 'replace' in the Duties Act.

3. The Oxford English Dictionary defines 'replace' as:

to take the place of; to provide a substitute for ; fill the role of something or someone with a substitute.

1. The Macquarie Dictionary defines 'replace', inter alia, as:
   1. to fill or take the place of; substitute for (a person or thing): [electricity has replaced gas as a means of illumination].
   2. to provide a substitute or equivalent in the place of: [to replace a broken vase].
2. The applicant argued that for one lease instrument to be said to replace another lease instrument there needs to be 'equivalence' between the 'old' lease instrument and the 'new' lease instrument (paragraph 57, Applicant's SFC; paragraph 24, Applicant's Submissions).
3. The respondent argued that replacing one lease instrument with another 'invariably involves variance between the two instruments', and that the word 'replaces' contemplates differences of some degree (paragraph 11, Respondent's SFC; paragraph 6, Respondent's Submissions).
4. It is settled law that a purposive approach to statutory construction should be adopted to determine meaning rather than a strict emphasis on the literal meaning (CIC Insurance Limited v Bankstown Football Club Limited (1995) 187 CLR 384; Solution 6 Holdings Limited & Ors v Industrial Relations Commission of NSW & Ors [2004] NSWCA 200; (2004) 60 NSWLR 558.
5. This requirement to follow a purposive approach is reiterated in the Legislation Act 2001, sections 139-140 of which provide:

139 Interpretation best achieving Act's purpose

interpretation that would best achieve the purpose

(2) This section applies whether or not the Act's

In working out the meaning of an Act, the provisions of the Act must be read in the context of the Act as a whole.

1. The Minister's Introduction Speech and the Explanatory Statement to the Duties Amendment 2006 Bill (No.2) both assist in determining that purpose.
2. In his Introduction Speech to the Duties Amendment 2006 Bill (No.2), the Minister said 'the provisions in this bill [to, inter alia, abolish lease duty by 1 July 2009] involve a fundamental shift in the tax base. Transitional provisions are required to ensure that all taxpayers are treated consistently, equitably and fairly both before and after the abolition of each tax. To limit opportunities for avoidance and to protect revenue, the transitional provisions in the bill ensure that, for each of the taxes, the provisions prior to repeal continue to apply to replacement arrangements and also to arrangements made with the only, or main, purpose of deferring transactions so they do not incur duty'. In the tribunal's view the phrase 'to limit opportunities for avoidance and to protect revenue' suggests that the transitional provisions had the objective of firstly limiting opportunities for avoidance, but also had the purpose of protecting revenue.
3. In the Explanatory Statement to the Duties Amendment 2006 Bill (No.2) the overview 'Transitional Provisions and Anti-avoidance Measures' provides that 'So all taxpayers are treated consistently, equitably and fairly, both before and after the abolition of each tax, transitional provisions ensure that the repealed provisions as in force immediately prior to repeal, continue to apply to:
   • a liability incurred prior to repeal;
   • arrangements that replace earlier dutiable arrangements; and
   • arrangements made with the only or main purpose of deferring transactions to beyond the repeal date so the repealed provisions do not apply.'

It should be noted that the second dot point deals with arrangements that replace earlier dutiable arrangements. The third dot point separately deals with the deferring of transactions so that the instrument is not dutiable; that is, the tax avoidance issue. This structure supports the view that a replacement instrument need not have any tax avoidance purpose.

1. With respect to section 421 specifically, the Explanatory Statement says in part: 'This section provides anti-avoidance measures to ensure that the repealed provisions under section 150A (including chapter 5) continue to apply to a lease instrument made to avoid the payment of duty. Where a lease instrument replaces one entered into before the abolition date, or an arrangement made for the sole or main purpose of deferring the execution of, or variation to, a lease until after the abolition date so that chapter 5 would not apply to it, will still be subject to duty.'
2. Further guidance as to the meaning of 'replace' can be drawn from the way 'replace' is used in other ACT legislation.
3. Section 92 of the ACT Civil and Administrative Tribunal Act 2008 provides that where a tribunal member is no longer available to continue to hear a matter:

(a) -

(b) allocate another member to the tribunal for the application to replace the person

(c) -

This provision contemplates a 'change' or 'difference'.

1. Section 168 of the Civil Law (Wrongs) Act 2002 enacts statutory provisions imposing liability on occupiers of premises and section 168(4) provides:

s.168(4) This section replaces the common law rules about the standard of care an occupier of premises must show to people entering on the premises in relation to any dangers to them.

This provision similarly contemplates 'change' or 'difference'.

1. It is the Tribunal's view that a lease instrument can be said to 'replace' an existing lease instrument where its purpose is to 'take the place of' or 'provide a substitute for' or 'to fill the role of' the existing lease instrument with a substitute, namely a new lease. While this 'replacement' allows for variance in the two instruments the word 'replace' does primarily suggest equivalence.
2. In her evidence in cross examination, Heather Kent, an investment manager, called on behalf of the applicant acknowledged the following equivalence:

1. there was no change in the landlord and tenant; 2. the building envelope covered by the lease stayed the same;

1. the permitted use stayed the same; 2. the rental rate for office space, basement, storage and car spaces stayed the same; 3. the term stayed the same; and 4. the option stayed the same.
2. At the same time the word 'replaces' does contemplate a measure of 'difference' to only a limited degree.
3. Evidence called on behalf of the applicant was that there were four key differences between the two instruments.
4. Premises:
   • The area of office space rented increased from the capped maximum of 20,000sqm on which duty was paid in the AFL to 20,876 sqm in the new lease. However this did not affect rent payable as rent was capped as for 20,000sqm of office space.
   • The area of basement space was reduced from 570sqm to 240sqm, and rent payable for that space was reduced from $57,000 to $24,000.
   • The area of storage space increased from 240sqm to 709.3sqm, and rent payable for that space increased from $38,400 to $113,488.
   • The number of car spaces was reduced from 410 spaces to 406 spaces, and rent payable for those spaces was reduced from $653, 950 to $647,570.
5. Operation:
   • There were changes in the arrangements between the applicant and the Commonwealth as to how the building would be managed. Principally, areas originally anticipated for the common use and enjoyment of the tenant, landlord and the public were moved into the sole control of the tenant such that there were effectively no longer any 'common areas'.
   • Management of what was previously Common Space 'atrium/wintergarden' area and what was previously car park area shifted in control from the applicant to the exclusive control of the Commonwealth. The Commonwealth installed full height glazing and security race barriers in the lobby and entrance area to separate these areas from the publically accessible lobby and similarly security barriers were erected in the basement area.
6. Use:
   • In the new lease, retail areas which were previously located within the ground floor northern wing net lettable area (NLA) were shifted in location to the atrium/wintergarden 'Common Space' area.
   • Retail areas were reduced in scope from plans for a café and other ancillary retail services (dry cleaning ATM etc) to the installation of a café area only.
   • Licences were granted to the Commonwealth over this café area and consents to the sub-licence of the café area to its operators were provided for in the new lease.
7. Configuration:
   • The location of the crèche was altered such that the internal crèche was re-sited in the north-west corner of the ground floor NLA and the outdoor crèche play area was sited in the external ground floor area
   • The Commonwealth was granted an interest as licensee in the crèche outdoor area under the new lease.

9. Further evidence was led on behalf of the applicant that commercial imperatives required a new lease so as to reflect substantially different contractual arrangements between the applicant and the Commonwealth. These differences were primarily:

1. changes to tenant's share of payment of utilities; 2. changes to the landlord's obligations to maintain and repair to reflect leased and licensed areas;

1. changes to the landlord's cleaning obligations; and

1. changes to the landlord's use and access to common areas.
2. These changes indicate variation between the AFL and the new lease. However the variations are such as to fit within the meaning of 'replace' given the continuing areas of equivalence.

1. The tribunal's view is that acknowledged equivalences between the two instruments were such that the new lease remains a replacement for the AFL. The tribunal further finds that the differences between the two instruments as regards premises and their use, operation and configuration, as well as changes to the contractual arrangements between the parties do not prevent the new lease from remaining fundamentally the equivalent of the AFL.
2. On this evidence the tribunal is satisfied that the new lease dated 9 May 2010 replaced the AFL dated 7 April 2006.

Issue 2. Was it a requirement of the transitional provisions that the 'replacement' had an avoidance purpose, and if so, was that purpose present?

1. It is agreed between the parties that the applicant did not enter into the new lease as replacement for the redundant lease in order to effect a deliberate anti-avoidance measure.
2. The Minister's comments in the Introduction Speech, and the preamble remarks in the Explanatory Statement to the Bill make it clear that the purpose of inserting Part 15.2 in the Duties Act was to address arrangements of replacing a new lease for an earlier dutiable redundant lease, as well as to address 'arrangements made with the only or main purpose of deferring transactions beyond the repeal date so the repealed provisions do not apply'.
3. Section 421(1)(a) deals with the intention neutral replacement arrangement category. The intention of the parties with respect to such arrangements is irrelevant. These replacement arrangements do not need to have an anti-avoidance character to be captured by section 421(1)(a).

1. The Tribunal finds that it was not a requirement of the transitional provisions, specifically section 421(1)(a), that all 'replacement arrangements' were required to have an avoidance purpose, and finds no such purpose in the applicant's replacement of the redundant lease with the new lease.

1. The Tribunal concludes that the new lease executed on 9 May 2010, after the date mentioned in section 150A of the Duties Act of 30 June 2009, was chargeable with duty under the transitional provisions of section 421 of the Duties Act.

1. The Tribunal confirms the decision under review to disallow the applicant's objection to the assessment of duty by the respondent.

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