Watts v Chief Commissioner of State Revenue [2017] NSWCATAD 320

Date of judgement 06 November 2017 Proceeding No. 2017/00030681
Judge(s) NS Isenberg, Senior Member
Court or Tribunal New South Wales Civil and Administrative Tribunal
Legislation cited Administrative Decisions Review Act 1997

Duties Act 1997

Taxation Administration Act 1996
Catchwords REVENUE LAW – Duties Act 1997 – interest of beneficiary in deceased estate – duty assessed on agreement for sale of land to beneficiary for full consideration - transfer under and in conformity with the trusts in a will – transfer of property the subject of a trust for sale – dutiable transaction
Cases cited B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187, (2008) 74 NSWLR 481

Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25

Dix v Burford 19 Beav 409

Sanders v Chief Commissioner of State Revenue [2002] NSWADT 251

Sanders v Chief Commissioner of State Revenue [2003] NSWADTAP 22

Background

On 27 November 2015, Mr Watts (the “Applicant”) was granted probate by the Supreme Court of NSW for the administration of the estate of his late father, Mr Noel William Watts. The Property was included in the inventory of property of the estate subject to the grant of probate, valued at $502,000.

Pursuant to clause 1 of the codicil to the last will and testament of the Applicant’s father, his estate was bequeathed as follows:

“After payment of my funeral and testamentary expenses I give the rest and residue of my estate upon the following trusts:

  • as to one third to my son Kendall Jonathan Watts;
  • as to one third to my son Andrew William Watts;
  • as to one third to my daughter Catherine Louise Watts.”

Pursuant to clause 3 of the codicil, he directed that the following clause 7 be inserted into his last will and testament:

“I direct that my son Kendall Jonathan Watts may purchase my house known as 37 Rowthorne Way, Port Macquarie NSW from the Trustee at a price equivalent to the known market value of the property as determined by an independent valuation, and that any other gift or distribution under this my Will may be adjusted to account for payment of all or part of the purchase price to the Estate.”

A valuation of the Property was obtained, valuing it at $502,000.

On 30 May 2016, by contract for the sale of land the Applicant, in his personal capacity, purchased the Property from Kendall Jonathan Watts as executor of the estate of the late Noel William Watts, for the amount of $502,000.  As above, the contract was assessed as liable for ad valorem duty of $18,080 and the Transfer assessed as liable for nominal duty of $10.

On 6 July 2016, the Applicant lodged an objection to the assessment of duty on the contract on the basis that he had only purchased the remaining two thirds share of the property from the other beneficiaries and therefore, stamp duty ought only to have been paid on the two thirds share of the valuation amount.

On 21 November 2016, the Chief Commissioner determined that the concession in s. 63 of the Duties Act 1997 only applies to “a transfer of dutiable property” not to an “agreement for sale or transfer of dutiable property”.  As no other concession applied, the contract was a dutiable transaction and thus liable to ad valorem duty.

The Statutory Framework

Duty is imposed on certain transactions concerning dutiable property pursuant to s. 8 of the Duties Act 1997, which provides, inter alia, as follows:

  1. This Chapter charges duty on:
    1. a transfer of dutiable property, and
    2. the following transactions:
      1. an agreement for the sale or transfer of dutiable property.

Section 9 of the Duties Act 1997 provides that:

  1. The duty charged by this Chapter (2) on a dutiable transaction referred to in section 8(1)(b) is to be charged as if each such dutiable transaction were a transfer of dutiable property.

Section 63 of the Duties Act 1997 provides for concessional rates of duty for deceased estates. Section 63(1) provides, inter alia:

  1.  
    1. Duty of $50 is chargeable in respect of a transfer of dutiable property by the legal personal representative of a deceased person to a beneficiary, being:
      1. a transfer made under and in conformity with the trusts contained in the will of the deceased person or arising on an intestacy, or
      2. a transfer of property the subject of a trust for sale contained in the will of the deceased person.

Submissions

The Applicant submitted that the Duties Notice of Assessment was incorrect on the following grounds:

  1. At the date of the Contact the Applicant owned a beneficial interest of one third of the Property, with the consequence that duty on the transaction should be assessed at $50 and assessed on an ad valorem basis at $10,551.50 on the transfer of the remaining two thirds of the Property;

  2. The contract ought to receive concessional treatment pursuant to s. 63 of the Duties Act 1997, imposing a duty of $50. Alternatively, the Assessment should be cancelled on the basis that the contract is a failed instrument for the purposes of s. 293 of the Duties Act 1997 and accordingly not chargeable and so entitling the Applicant to a refund of $18,100; and

  3. That from the date the Property vested in the Applicant (29 April 2016), the Applicant held the Property as trustee, and on the date of the contract (30 May 2016) the Applicant held the Property as trustee for sale or an act of assent had occurred. The Estate had no notable liabilities nor were there any claims by any creditor on assets of the estate that required sale of the property to satisfy debts. 

The Chief Commissioner submitted in response to those grounds:

  1. The concessional rate was of duty in s. 63(1)(a) of the Duties Act 1997 was not engaged because the transaction was not a transfer of dutiable property but an agreement for sale liable to ad valorem duty. The Applicant had a testamentary option to purchase the Property at market value from the estate, and the Applicant had done so by virtue of two dutiable transactions, namely, a contract for sale and a memorandum of transfer. The dutiable property is an estate in fee simply and not a two thirds interest only. No transfer occurred for the purposes of s. 63 of the Duties Act 1997;

  2. The Applicant was a residuary beneficiary who had the benefit of a testamentary option granted to him by a will and paying full consideration for the whole property. Therefore considerations of substantial economic equivalence, rather than by reference to an accurate characterisation of the instrument, should be rejected; and

  3. There is no material difference in relation to the facts in Sanders v Chief Commissioner of State Revenue [2002] NSWADT 25 and the Applicant’s case whereby both were residuary beneficiaries who had the benefit of testamentary options granted to them by a will; each claiming that they held a beneficial interest in the relevant property and each acknowledging they had received a transfer of the whole interest in the property and both either receiving or paying full consideration for the whole property.

Decision

Senior Member Isenberg found that the concessions under s. 63(1) of the Duties Act 1997 could not apply to the contract. Senior Member Isenberg:

  1. found that the Applicant did not hold any beneficial interest in the Property prior to the execution of the contract;

  2. accepted the Chief Commissioner’s submission that there was no material difference in relation to the facts in Sanders v Chief Commissioner of State Revenue [2002] NSWADT 25 and the Applicant’s matter. The Applicant had the benefit of a testamentary option to acquire the property from the estate by purchasing the Property from the Trustee at a price equivalent to the known market value of the Property, as determined by an independent valuation. The Applicant and his siblings were beneficiaries of the residue of the estate;

  3. found that the Applicant failed to discharge his statutory onus to prove his case on probative evidence as to the extent of the liabilities of the estate and the use to which the proceeds of the sale of the Property were put; and

  4. rejected the submission that the Property was at the time of the transaction transferred to the Applicant as trustee rather than as executor disposing of an estate asset in order to pay debts of the estate.

Orders

Senior Member Isenberg affirmed the Chief Commissioner’s decision.

Link to decision

Watts v Chief Commissioner of State Revenue [2017] NSWCATAD 320

Last updated: 30 November 2017