Loyalty Connection Pty Ltd v Commissioner of State Revenue [2011] VCAT 2422 | Case summary | Zoe

VICVCAT

Loyalty Connection Pty Ltd v Commissioner of State Revenue

[2011] VCAT 2422

Victorian Civil and Administrative Tribunal|2011-12-08|Before: Loyalty Connection P, Mr J

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At a glance

Source facts

Court

Victorian Civil and Administrative Tribunal

Decision date

2011-12-08

Before

Loyalty Connection P, Mr J

Source

Original judgment source is linked above.

Judgment (13 paragraphs)

[1]

For the reasons previously given I believe Her Honour's observations apply with equal force in this context for the economic interest or indirect ownership of a shareholder in the capital of an ordinary company are involved. In STIC the taxpayer was seeking to avail of an express exemption provided in the Duties Act to facilitate the sale of units to outside investors in certain circumstances. The scheme was not a commercial success. In the course of seeking to avail of the exemption the taxpayer made a number of disclosures to the Commissioner. With the commercial failure of the scheme it entered talks with the commissioner with a view to 'unwinding' what had been done without adverse duty consequences. It was in the course of this process that the Commissioner realised that the steps that had already been taken had strayed from the path which would entitle the transaction to exemption. The lack of commercial success meant that the trusts in question operated in favour only of effectively the same people as at the start. This consideration, the complexity of the provisions in question, the fact that the taxpayer 'fell into a trap' unknowingly; a trap which not even the Commissioner had immediately perceived and the meticulous disclosure, led me to regard the STIC case as a proper one for a favourable exercise of the discretion under Section 85(2). An application for leave to appeal made to the Supreme Court was dismissed by Davies J.
In the circumstances of this case should a similar exercise of discretion be made on review in favour of this taxpayer? The economic interest in the real estate remained controlled by Mrs Marantz as sole shareholder in the taxpayer company in the same way as the beneficial interests in remained with the same group of people at the end of the transactions as at the beginning. For reasons explained earlier the distinction between the shareholding interests and beneficial interests in trust estates is in this context immaterial.

Mr Grace submitted that the applicant's disclosure or lack thereof ought not be regarded as relevant to the exercise of the discretion. It occurred some 15 months after the transaction was completed. It was therefore logically irrelevant. I accept that in making a determination as to liability for duty what occurs after the execution of a document or an allegedly dutiable transaction is irrelevant to the outcome. This was a fundamental principle of stamp duty law Lucia Heights Pty Ltd v The Comptroller of Stamps [1985] VicRp 35; [1985] VR 338. Where as here the question of discretion arises this absolute rule cannot apply. Davies J in STIC found the level of disclosure made by a taxpayer was relevant to the discretion. By its nature this disclosure occurs mostly after the event. I accept the submission of Mr Rosewarne that the discretion must be exercised in light of all the relevant circumstances. Mr Marantz gave evidence that the responses to the Commissioner's investigations, the terms of the initial objection and so forth, were dealt with by the firm D and Mr J and Mr B. Because on the face of it their conduct seems to have been so unethical I felt it appropriate to anonymise their names and the name of their firm because they have not given evidence in this proceeding or had the opportunity to be heard. Mr Marantz' evidence was to the effect that he had engaged D to deal with this problem; he relied on D, Mr J and Mr B to do the right thing and simply signed whatever they put in front of him. He disclaimed knowledge of what the concept of a 'Bare trustee' was. On the other hand he agreed with me that he was acquainted with the concept of having a piece of property registered 'in the name' of one person with the true ownership residing in someone else. As an obviously experienced businessman it was unsurprising that he should have that knowledge. Whatever might be the entitlement of a director, whether relative to some statutory or equitable responsibility as director to exculpate himself by reliance on the advice of actions of consultants and advisers, I am clear that in the context of the exercise of the Section 85(2) discretion the exculpation of the taxpayer cannot be absolute. Its sole director elected to place matters entirely in the hands of consultants. The taxpayer therefore must accept some responsibility for what was done in its name and with its authority.

Parties

Applicant/Plaintiff:

Loyalty Connection Pty Ltd

Respondent/Defendant:

Commissioner of State Revenue

Cases Cited (8)

Loyalty Connection Pty Ltd v Commissioner of State Revenue (Taxation) [2011] VCAT 2422 (8 December 2011)

He referred first to Section 7(1)(b)(vi) which extends the definition of dutiable transaction to 'any other transaction that results in a change of beneficial ownership of dutiable property'. The implications which Mr Grace drew was that no transfer which did not change beneficial ownership should be regarded as a dutiable transaction.
He also referred to the exemption under Section 33(3)for transfers relative to changes in trustees under Section 34 or transfers under resulting trusts; Section 35 an exemption of transfers to and from nominees; Sections 36, 36A and 36B which he characterised as 'exemptions for transfers from a trustee to a beneficiary' and Sections 40, 41 and 41A which exempted transfers to and from trustees of superannuation funds. Section 42, transfers by an executor of a deceased estate to a beneficiary under the will. Section 85(1)(a) 'being the general exemption provision in the Land Rich provision which picks up all relevant exemptions under the transfer duty exemptions'. He referred finally to Section 89(1) providing an exemption 'from Land Rich duty for transfers of shares/units for the purpose of providing financial accommodation'.
Next he referred to the judgment of Pagone J of the Supreme Court of Victoria in Challenger Listed Investments Limited v Commissioner of State Revenue [2010] VSC 464 [5] and [29]. He referred to a Second Reading Speech relative to a version of the Land Rich provisions introduced by Mr J. Brumby as Treasurer of Victoria in the Legislative Assembly, 13 May 2004 at page 13, 14 of the relevant volume of Hansard where Mr Brumby stated:

He referred to the decision of Senior Member Davis in this Tribunal, Latitude 37 Holding Pty Ltd v Commissioner of State Revenue [2010] VCAT 1627 [71] and [74]. He referred to my own decision in STIC Australia Pty Ltd v Commissioner of State Revenue [2010] VCAT 1057 where I applied the discretion under Section 85(2) in favour of the taxpayer in circumstances where the transactions otherwise brought to charge had not altered the beneficial ownership of the underlying real estate. He noted that on an application for leave to appeal by the Commissioner against my decision, the Commissioner had submitted to the Supreme Court that I had given weight to an irrelevant consideration in attaching weight to the fact that the transactions in question had not altered the beneficial interests in the underlying real estate. That contention was rejected by the Supreme Court Commissioner of State Revenue v STIC Australia Pty Ltd (2010) 608 [23], [26] and [27] per Davies J.
Next Mr Grace referred to the decision of Senior Member Davis in Latitude 37 Holdings. In that case acquisition in question was of shares in the share capital of a company not units in a unit trust. Mr Grace noted that the learned Senior Member at [71] had noted that in those circumstances one could not say that the shareholders had a beneficial interest in the company's underlying assets. Nevertheless, the learned senior member had exercised the Section 85(2) discretion in favour of the taxpayer. Mr Grace said there was a striking similarity between these cases and the matter before Mr Davis:

Mr Rosewarne, Counsel for the Commissioner said that in light of the decisions in STIC and Challenger a finding that a transaction did not affect beneficial interests in the underlying real estate was a relevant factor for the exercise of the discretion under Section 85(2) of the Duties Act. He said however that in itself and without more it did not necessarily constitute an unanswerable claim by a taxpayer for a favourable exercise of the discretion. It was necessary, he submitted, to have regard to all relevant circumstances.
In any event said Mr Rosewarne, it could not be said in the present situation that there was a persistence of identical beneficial interests. Here the transfers in question were unlike the situation in STIC, were not of units in a unit trust but rather shares in the capital of a company. The shareholder of a company by reason of the shareholding has no beneficial interest in the company's property. He referred to Macaura v Northern Assurance Co Limited [1925] AC 619 and Ford's Principles of Corporations Law (14th Ed) page 125. He referred to a decision of the New South Administrative Decisions Tribunal in Hoffman v Chief Commissioner of State Revenue [2002] NSWADT 194 where the learned judicial member Block J said at [19]

He referred to Challenger at [27] and STIC [2010] VSC 608 at [19]. Thirdly said Mr Rosewarne 'the discretion must be exercised in a manner which is not inconsistent with the primary purpose of the legislation'. He referred to FCT v Swift [1989] FCA 413; (1989) 18 ALD 679, 696-7 per French J (as he then was); STIC Australia Pty Ltd v Commissioner of State Revenue [2010] VCAT 1057 at [89]. That purpose according to Mr Rosewarne was to be found in a statement in the joint judgment of the Court of Appeal, Neave, Harper and Hansen JJA in Commissioner of State Revenue v Landrow Properties Pty Ltd [2010] VSCA 197 at [3].

He referred to my decision in CPI Limited v Commissioner of State Revenue [2010] VCAT 34 at [61].
Mr Rosewarne on behalf of the Commissioner accepted that transactions which result in changes to beneficial ownership of land are intended to be brought to charge by the Duties Act. He submitted however that an analysis of the duties legislation both as it now stands and as it has evolved will show that this is not the sole objective of these imposts.
He noted first that a transfer of shares in a 'land rich' company did not change beneficial interests in land yet it was clearly brought to charge. He said the grant or transfer of a lease did not change the beneficial ownership of land 'regardless of the relationship between the parties'. He said if in truth Mrs Marantz had transferred the shares in question to Loyalty to hold them as Bare Trustee for her without change of ownership of the shares, that transaction might have been exempt by the combined operation of Section 35 and Section 85(1)(a) of the Duties Act. He continued:

In the remarks of Gray J in Balgra Office Enterprises Pty Ltd v Commissioner of State Taxation [2008] SASC 50; (2008) 73 ATR 495 at [8] where His Honour said:

(2001) 3 VR 520