Plaintiff v Defendants

Supreme Court of Victoria|2010-12-17|Before: Davies J

PRACTICE & PROCEDURE - Application for leave to appeal from VCAT - Whether question of law identified in the proposed notice of appeal - Jurisdiction of the Court under s 148 of the Victorian Civil and Administrative Tribunal Act 1998.

DUTIES ACT - "Just and reasonable" exemption in s 85 of - Scope of the dispensing power - Whether permissible to take into account that no change in beneficial ownership on a relevant acquisition - No error of law -

The Solicitor for the Commissioner of State Revenue

1 The Commissioner of State Revenue ("the Commissioner") assessed the defendants ("the taxpayers") to duty on a "relevant acquisition" under the "land rich" provisions contained in Chapter 3 of the Duties Act 2000 (Vic) ("the Act"). The relevant acquisition was a 90% interest that STIC (Aust) Pty Ltd ("STIC"), as trustee for the STIC Australia Discretionary Trust ("the STIC Trust"), acquired in the Salta Office Property Trust ("SOPT"), a unit trust of which RE Funds Management Ltd ("RE") is trustee.[1] The taxpayers did not dispute that STIC's acquisition of units in SOPT were a "relevant acquisition" but made a submission to the Commissioner that the acquisition should be exempted from duty under the "just and reasonable exemption" contained in s 85(2) of the Act. Section 85(2) provides:

An acquisition by a person of an interest in a landholder is an exempt acquisition if the Commissioner so determines, being satisfied that the application of this Part to the acquisition in the particular case would not be just and reasonable.[2]

2 The Commissioner was not satisfied that the application of the land rich provisions would "not be just and reasonable" and raised the assessment. An objection to the assessment was disallowed by the Commissioner. The taxpayers sought review of the Commissioner's disallowance by the Victorian Civil and Administrative Tribunal ("the Tribunal").

3 The Tribunal held that it "would not be just and reasonable" to apply the land rich provisions to the taxpayers and set aside the assessment. The Commissioner now seeks leave under s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) ("VCAT Act") to appeal the decision of the Tribunal and for the appeal to be allowed. The application for leave was treated as the hearing of the appeal as the only matter for determination is whether the Tribunal erred in law in exempting the relevant acquisition under s 85(2).

4 The SOPT was established by deed in October 2006 to operate as a wholesale investment vehicle for external wholesale investors wanting to invest in property and is a "unit trust scheme" for the purposes of the Act. It was set up with an initial unit holder, Taras Nominees Pty Ltd ("Taras") as trustee of the Lorimer Street Trust, to hold units until external investors subscribed for units. The intention was to attract nine investors each holding a 10% interest in SOPT. The other 10% was to be held by the STIC Trust which had been established for that purpose, with the same beneficiaries as the Lorimer Street Trust.

5 In January 2007, RE as trustee for SOPT acquired land in Victoria and became a "land rich" landholder for the purposes of the Act. In March 2007 RE applied to the Commissioner for registration of the unit trust scheme as a "wholesale unit trust scheme". The effect of registration as a wholesale unit trust scheme is to enable "qualified investors" to acquire up to a 50% interest in the unit trust without triggering a liability to pay duty on the acquisition.[3] In May 2007, the Commissioner approved registration of the unit trust scheme as an "imminent wholesale unit trust scheme" - namely, as a unit trust scheme that "will meet the criteria for registration as a wholesale unit trust scheme within 12 months after the day on which the first units in the scheme were issued to a qualified investor".[4]

6 Taras redeemed its units on the closing for subscription. SOPT was only able to attract one investor, despite initial displays of enthusiasm for the offering, to which 10% of the units were allocated and SOPT issued the remaining 90% of the units to the STIC Trust with the intention that its unit holding would be "sold down" to qualified investors in the ensuing 12 month period. However that was not able to be achieved. The failure to meet the criteria for registration within the relevant 12 month period constituted a "disqualifying circumstance" with the statutory consequence that the unit trust scheme was taken to have been a private unit trust scheme from the date on which the 12 month period had commenced to run[5] and a unit holder held a "significant interest" in the trust if the unit holder had 20% or more of the units.[6] The fact of disqualification did not bear however on whether STIC made a "relevant acquisition" when it took up the 90% interest or on whether a liability for duty then arose, as the "significant interest" threshold was met regardless of the characterisation of the unit trust scheme. The taxpayers sought exemption from tax under s 85(2) which was refused.

7 The taxpayers argued before the Tribunal that the acquisition "would not be just and reasonable" principally for the reason that the underlying beneficial interests in the STIC Trust were held by the same persons who held the underlying beneficial interests in the Lorimer Street Trust. The Tribunal was satisfied that it would not be just and reasonable for the application of the land rich provisions to apply to the acquisition. The Tribunal reasoned as follows:

[93] In my view the broad sweep of the provisions with which we are dealing which can be traced back to their ancestors in the Stamps Act 1958 dating from 1987 is to bring to charge changes in beneficial interests in land in Victoria which are effected not through the conveyance of interests in the land itself but by transfer of interests in the share capital or unit trust structure of a landholder entity. To conclude therefore that it would not be just or reasonable to levy duty where there was no change in the underlying beneficial interests is not to my mind fundamentally inconsistent with the policy of the relevant provision.

[94] It is also relevant I think to the exercise of the discretion to note that the relevant entities were seeking to avail themselves of exemptions deliberately created by the Duties Act in a manner consistent with what appears to have been in the contemplation of Parliament. To put it another way, there were no 'contrived' transactions aimed at achieving a result different from what Parliament apparently intended.

[95] It is also appropriate to notice that STICT and related entitles were at pains through their solicitors to keep the Commissioner advised of events as they unfolded. There was no pretence or concealment.

[96] Finally it is to be noted that the taxpayers have been held liable to duty upon a transaction (viz. the transfer of 90% of the units in SOPT to STICT) the duty significance of which was missed initially not only by the taxpayers but also by the Commissioner's office itself. The correspondence which failed to advert to this matter emanated from a unit in the State Revenue Office specialising in the duty levied under Part 2 of Chapter 3. In the Commissioner's adjudication on the issue of penalty in rejecting the objection to the imposition of the penalty he accused the taxpayers of 'negligence'. It would seem however that the taxpayers were in good company.

[97] Generally revenue law applies to taxpayers whether they know about it or not. The Commissioner referred to my remarks in Laverton Property Developments Pty Ltd v Commissioner of State Revenue [2010] VCAT 35 [106]. A taxpayer generally cannot advantage its position by ignorance. In the most unusual circumstances of the present case however, I believe that the fact that this taxpayer has fallen into a pit unknowingly can be given some weight as a factor supporting a favourable exercise of the Section 85(2) discretion.

[98] It is also of some but by no means great significance to note that the Salta Group could have achieved its ends subject to obtaining certain waivers relative to Taras Nominees Pty Ltd in a manner not commercially dissimilar from what was actually done but which would have attracted no duty.[7]

8 The Commissioner seeks to challenge "errors" in the Tribunal's reasoning. The question of law on which leave to appeal is sought is:

Whether, on a proper construction of the Act, it is to be implied from its subject matter, scope and purpose that in exercising the power under s 85(2) of the Act, the Tribunal was bound not to take into account:

(a) that the beneficiaries of the Lorimer Street Trust, which was the sole unit holder in the Trust before the acquisition was made, were the same as the beneficiaries of the STIC Australian Discretionary Trust, the trustee of which, STIC, made the acquisition ("the first matter");

(b) that the "relevant entities were seeking to avow themselves of exemptions deliberately created by the Duties Act in a manner consistent with what appears to have been in the contemplation of Parliament" ("the second matter");

(c) that the STICT and related entities kept the Commissioner advised of events as they unfolded such that there was no "pretence or concealment" on the part of the respondents ("the third matter");

(d) that the Commissioner initially "missed" the duty consequences of the acquisition ("the fourth matter"); and

(e) that the respondents did not know of the duty consequences of the acquisition ("the fifth matter").[8]

9 As I am not satisfied that the notice of appeal raised any question of law on the second to fifth matters, despite the formulation of the question, it is desirable to say something about the jurisdiction of the Court that the Commissioner seeks to enliven. The jurisdiction of the Court to hear an appeal from VCAT is conferred by s 148 of the VCAT Act, which permits an appeal only on a question of law. The right of appeal conferred by s 148 is of a limited nature only. In Osland v Secretary to the Department of Justice,[9] the High Court recently affirmed that the Court's jurisdiction conferred by s 148 to hear an appeal from the Tribunal is enlivened only if there is a question of law, which is not merely a qualifying condition to ground the appeal but which is to constitute the subject matter of the appeal.[10] Parliament, by creating a statutory right of appeal to a party to a proceeding before the Tribunal in the narrow terms of s 148, has disclosed an intention to limit the role of the Court on an appeal from the Tribunal and to limit the capacity of the Court to re-determine facts or re-exercise discretions. The legislative purpose of s 148 is to discourage parties from challenging the correctness of a decision of VCAT, except where legal error is demonstrable. An appeal before the Court under s 148 is not a merits review nor is it an appeal that merely involves a question of law. The matter comes before the Court solely by way of judicial review for the Court to correct errors of law by the Tribunal but not to examine the record of the Tribunal to determine whether some different decision could have been made. As Mason J stated in Minister for Aboriginal Affairs v Peko- Wallsend Ltd:[11]

The limited role of a court reviewing the exercise of an administrative discretion must constantly be borne in mind. It is not the function of the court to substitute its own decision for that of the administrator by exercising a discretion which the legislature has vested in the administrator. Its role is to set limits on the exercise of that discretion, and a decision made within those boundaries cannot be impugned.

The role of the Court is limited to reviewing the legal limits of the exercise of power. "Merits" review resides with the Tribunal and the Court is not to intervene in an essentially evaluative matter.

10 The requirement that the leave of the Court be obtained in order for a party to appeal a decision of the Tribunal also evidences the legislature's intention that the question of law as framed must be one that is supported by the proposed grounds of appeal. In other words, the proposed notice of appeal must disclose that the Court's jurisdiction to hear the appeal from VCAT is enlivened by the notice of appeal. The leave requirement is a safeguard that the appeal is on a pure question of law and that the grounds supporting the question of law articulated for determination by the Court do found the subject matter of the appeal. The question of law is framed by the grounds. Where the grounds do no more than indicate that the subject matter of the proposed appeal invites reconsideration of the merits of the decision, the jurisdiction of the Court is not enlivened, even though the question of law identified may be expressed in judicial review terms. The proposed notice of appeal must identify that the issues sought to be agitated on the appeal raise a question of law. If the question of law, properly analysed, is not a question of law, the form of its expression does not turn it into a question of law.

11 The question of law identified is expressed in judicial review terms. The expression of the "errors" in terms as to whether the Tribunal "was bound not to consider" the matters set out gives recognition to the law that the "irrelevant considerations" ground of judicial review applies only where the decision maker has acted outside the legal limits of the power exercised by taking into account a matter that the decision maker was not permitted to take into account. In Minister for Aboriginal Affairs v Peko-Wallsend Ltd[12] Mason J stated:

In the context of judicial review on the ground of taking into account irrelevant considerations, this court has held that, where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard[13]

As Gummow and Hayne JJ stated in Abebe v Commonwealth of Australia[14] it is the limits imposed on the exercise of power by the relevant statute, not the particular facts taken into consideration by the decision maker, which determines whether the decision maker properly applied the law.[15] Thus, the question of law as framed correctly formulates the irrelevant considerations ground by reference to the matters that the tribunal was bound not to consider by reference to the subject matter, purpose and object of the Act.

12 Nonetheless, consideration of the grounds supporting the second, third, fourth and fifth matters shows, in my view, that there is no question of law capable of supporting an appeal from the decision of the Tribunal. Specifically, the grounds specified amounted, in effect, to a merits review challenge which cannot be agitated in this Court and did not support relevant question cast in terms that the Tribunal was "bound not to take into account" those matters.

13 The ground specified on the second matter is that it was irrelevant whether STICT satisfied the criteria for registration as a wholesale unit trust scheme as the relevant acquisition was dutiable by s 79 of the Act. The ground states that "That the STICT had applied for registration as a wholesale unit trust scheme is irrelevant to the dutiability of an acquisition of a 90% interest in a land rich landholder. It does bear [sic] upon the question as to whether the application of Part 2 of Chapter 3 to an acquisition is not just and reasonable".

14 The ground specified on third matter is that compliance with the obligations on taxpayers to inform the Commissioner of certain things is mandatory - "That a taxpayer does no more than what the Act requires of it cannot be a matter to be taken into account" and "is irrelevant" to the question of whether it would not be just and reasonable".

15 The ground specified on the fourth and fifth matters is that these matters "are irrelevant" as "Part 2 of Chapter 3 applied to charge the acquisition irrespective of whether or not the respondents were aware of the duty consequences of the transaction".

16 The question of law framed by those grounds is an invitation to the Court to conduct a rehearing on the merits. The matters sought to be agitated cannot be the subject of appeal and leave to appeal on the second, third, fourth and fifth matters should be refused on that basis.

17 Furthermore, leave to appeal should be refused because no legal error in the exercise of the dispensing power has been demonstrated.

18 Section 85(2) does not express any limit on the exercise of power other than that the decision maker must be satisfied that the charging of duty on the relevant acquisition "in the particular case would not be just and reasonable". The power is circumscribed only by the terms of the section itself and the scope, purpose and subject matter of the Act.

19 The specific language of s 85(2) does not confine the exercise of discretion other than by reference to the content of the requirement that it would not be "just and reasonable" for duty to be charged on the relevant acquisition. They are relative terms which import the requirement to consider the circumstances of the case as a whole.[16] That is made clear by the requirement that the exercise of the dispensing power be directed to the "particular case", importing the requirement that the individual merits of the particular case are to be considered. Both the conferring of the discretion on the Commissioner and the width of the discretion is deliberate. These kinds of dispensing powers have been considered in many cases and should not be narrowly construed. In Challenger Listed Investment Ltd v Commissioner of State Revenue[17] Pagone J stated:

What the Commissioner is compelled to consider is everything which may bear relevantly and probatively both for and against the exercise of the discretion and to do so by reference to the statutory criteria.

...

It is a feature of modern taxing legislation that the basis of tax is at times expressed more broadly than the policy underlying the tax requires and that the language used to impose the tax is expressed less precisely than may be desirable in every case. The discretion in the Commissioner to relieve a taxpayer from the burden of tax is a means by which the legislature has entrusted to the Commissioner the duty to administer the tax legislation by reference to its terms to the extent that they are consistent with the policy they express. The exercise of the discretion is a matter for the Commissioner but a matter that may be relevant to its exercise is the extent to which the assessment brings to tax "changes in beneficial ownership in land".[18]

It is clear that Parliament provided a dispensing power that is capable of exercise by reference to the widest range of factors, leaving it to the decision-maker to weigh all the circumstances, guided and controlled by the object and purpose of the Act.[19]

20 Next, the legislative context of the section[20] does not limit the matters that the Commissioner (or Tribunal) may take into consideration in determining whether a relevant acquisition should be exempt from duty under the "just and reasonable" provision. The discretion in s 85(2) is not fettered by s 85(1). In s 85(1), Parliament has prescribed specific circumstances where a relevant acquisition shall be an exempt acquisition, without regard to any exercise of discretion on the part of the Commissioner. The clear legislative purpose of the dispensing power in s 85(2) is otherwise to leave to the Commissioner, in the administration of the Act, the function of determining whether a taxpayer should be exempted.

21 Next, each of the second, third, fourth and fifth matters are plainly matters for consideration by the Commissioner in the exercise of his duty to administer the Act. The proposition can be tested in this way. The specific provisions of the Act disclose an evident policy to impose duty on a transaction which would have been chargeable but for a tax avoidance scheme (the second matter);[21] to promote full disclosure by a taxpayer to the Commissioner (third matter);[22] and to impose obligations on taxpayers in relation to compliance with the Act.[23] In my view it was plainly permissible for the Tribunal to take into consideration whether the taxpayers had acted in accordance with the spirit of the Act and in accordance with their obligations under that Act.

22 I therefore concluded that each of the second, third, fourth and fifth matters are legitimate considerations for the exercise of the dispensing power.

23 I am also of the view that the first matter was a lawful consideration. Counsel for the Commissioner argued that the Tribunal was bound not to take into account in exercising the power under s 85(2) that the beneficiaries of the Lorimer Street Trust were the same as the beneficiaries of the STIC Trust. It was argued that the scheme of the Act is to charge duty on a transfer of dutiable property, whether or not the transfer results in a change of beneficial ownership, except where the Act otherwise expressly provides. Reference was made to s 35 and s 41 of the Act, both of which appear in Chapter 2 of the Act. Under s 35, a transfer of dutiable property that is made by the transferor to a trustee or nominee to be held solely as trustee or nominee of the transferor without any change in the beneficial ownership of the dutiable property is not chargeable with duty. Under s 41 a transfer of land from an individual to the trustee of a complying superannuation fund of which the individual is a beneficiary is not chargeable with duty if it is made without monetary consideration. For the purposes of s 41(1), sub-s 3 provides that the transfer of property "does not ... effect a change in the beneficial ownership of the property". It was argued s 77(2AA), in contrast, which appears in Chapter 3 of the Act, underlined the purpose or policy of the land rich provisions to charge duty where a relevant acquisition is made by a trustee, irrespective of the underlying beneficial interests. It was argued that the scope of the charging provisions of Chapter 3 of the Act is not limited to transactions where there has been a change of beneficial interest in land.

24 It was also argued that the evident policy of the Act was to have conformity of taxing treatment between Chapter 2 and Chapter 3 of the Act. The relationship was said to be expressed in s 85(1)(a) which provides an exemption from duty where there is an acquisition by a person of an interest in a landholder:

If the means by which the person acquired the interest would have resulted in no ad valorem duty being payable under Chapter 2 had the subject of the acquisition been a transfer of the land of the landholder to the person.

In Challenger Listed Investment Ltd v Commissioner of State Revenue, Pagone J stated:

The operation of this exemption contemplates the postulation of an hypothetical transaction in which the subject of the acquisition is a transfer of the whole or part of the land of the landholder rather than the interest in the landholder which was actually acquired. In other words, the section requires one to ask whether duty would have been payable if, instead of a transfer of an interest in the land, the means by which the person acquired the interest had, rather, been a transfer of the land of the landholder instead.[24]

The exemption is explicable as the purpose of the land rich provisions in Chapter 3 is to prevent the use of private companies and unit trusts to reduce the rate at which duty would otherwise be payable on transfers of land and to treat such transfers of shares and units as equivalent to a transfer of land for duty purposes.[25]

25 I reject the argument that Chapter 2 exhaustively prescribes those transactions where no duty is chargeable where there has not been a change in the beneficial ownership so that the Commissioner is bound not to take that factor into consideration in the exercise of his dispensing power under s 85(2). That submission fails to give due regard to the evident policy of Chapter 3 itself, which is to bring to tax the acquisition by a person of shares or units in a land holding entity where that transaction would have been chargeable with duty had there been a transfer of land instead. It therefore makes sense that there is a specific exemption in s 85(1)(a) to ensure that Chapter 3 does not bring to tax transactions that would not otherwise have been taxable under Chapter 2 had the subject of the acquisition been a transfer of the land, not an acquisition of shares or units.

26 In my view, the evident purpose of s 85(2) is to enable the Commissioner to relieve a taxpayer from duty consequences attaching to a relevant acquisition in circumstances where Chapter 3 operates on its terms to bring within its operation transactions that Chapter 3 was not intended to capture. In my view, it is entirely consistent with the scope, purpose and object of the Act that the Commissioner take into consideration, in exercising the dispensing power under s 85(2), that the underlying beneficial ownership of the units in SOPT continued to be held by the same persons before and after the relevant acquisition was made by STIC. The primary purpose of the Act is to tax transactions that result in a change of beneficial ownership of dutiable property, by providing for duty to be charged on transfers of dutiable property and on other transactions that result in a change of beneficial ownership of property. There are exceptions, such as may be found in ss 35, 41 and 77A(2), but the fundamental basis for taxation under the Act is a change of beneficial ownership and the dispensing power is in aid of furthering that primary purpose. Whether there has been a change of beneficial ownership is an entirely relevant consideration in the exercise of the dispensing power, in my view. That is not to say that the discretion ought to be exercised in a particular way, but it is not an irrelevant consideration in the judicial review sense. The submission that the Tribunal was bound not to take into account that there had been no change in beneficial ownership must be rejected.

27 Finally, counsel for the Commissioner submitted that the Tribunal erred in determining the relevant policy of the Act and specifically Chapter 3 of the Act in concluding that the "broad sweep" of Chapter 3 is to bring to charge changes in beneficial interests in land in Victoria which are effected by transfers of interest in shares or units and not through the conveyance of the land itself. It was submitted that the Tribunal's focus was too narrow as the scope of the charging provisions was not limited to transactions where there has been a change of beneficial interest in land. Once it is acknowledged, as it must be, that the purpose of Chapter 3 is to bring to charge changes in beneficial interests in land effected through the transfer of interests in the share capital or unit trust structure of a landholder entity, it follows that it is a legitimate consideration for the exercise of the dispensing power that no change of beneficial interest has been effected.

28 The Commissioner has failed to show that there was any legal error on the part of the Tribunal in reaching its conclusion that the dispensing power should be exercised in favour of the taxpayers. Accordingly leave to appeal is refused.

I certify that this and the 12 preceding pages are a true copy of the reasons for Judgment of Davies J of the Supreme Court of Victoria delivered on 17 December 2010.

[1] Section 82 of the Duties Act 2000 (Vic) imposes the liability to pay duty chargeable under the land rich provisions jointly and severally on the entity that makes the relevant acquisition and the trustee of the landholder, if the landholder is a unit trust.

[2] The Tribunal stood in the shoes of the Commissioner: Fletcher v Commissioner of Taxation (1988) 19 FCR 442.

[7] STIC (Australia) Pty Ltd & Anor v Commissioner of State Revenue (Taxation) [2010] VCAT 1057 (15 June 2010).

[8] There were other proposed appeal grounds but they were abandoned.

[10] Ibid at [21] citing with approval TNT Skypak International (Aust) Pty Ltd v FCT [1988] FCA 119; (1988) 82 ALR 175, 178 (Gummow J).

[15] Ibid 579; see also Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323, 347-348.

[16] Federal Commission of Taxation v Swift [1989] FCA 413; (1989) 20 ATR 1434, 1448 (French J).

[17] [2010] VSC 464 (19 October 2010).

[19] Giris Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia [1969] HCA 5; (1969) 119 CLR 365; Deputy Commissioner of Taxation of the Commonwealth of Australia v Truehold Benefit Proprietary Limited [1985] HCA 36; (1985) 158 CLR 678; Federal Commissioner of Taxation v Swift [1989] FCA 413; (1989) 20 ATR 1434.

[20] K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd [1985] HCA 48; (1985) 60 ALR 509.

[21] Duties Act 2000 (Vic) Part 6, Chapter 2.

[23] Tax Administration Act 1997 (Vic) ss 29, 30, 32.

[24] [2010] VSC 464 (19 October 2010) [21].

[25] Commissioner of State Revenue v Landrow Properties Pty Ltd [2010] VSCA 197, [3].

Civil and Administrative Tribunal Act 1998

Administration Act 1997

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