Winston-Smith v Chief Commissioner of State Revenue [2018] NSWSC 773

Background

In these proceedings the plaintiff sought review of a landholder duty assessment issued by the Chief Commissioner in the amount of $2,016,548.49 in respect of the plaintiff’s acquisition of shares in Macs Pty Ltd (“Macs”) from Town and Country Land Pty Ltd (“TCL”) on 30 November 2015 (the “Acquisition”). The plaintiff contended that the “not just and reasonable” landholder duty exemption contained in s. 163H(1) of the Duties Act 1997 (“Duties Act”) should be available to exempt the Acquisition, and that the interest imposed should be remitted.

The Statutory Framework

Section 163H(1) of the Duties Act provided (in part):

1. The Chief Commissioner may, if satisfied that the application of this Chapter to an acquisition in a particular case would not be just and reasonable:
   1. grant a full exemption in respect of the acquisition, or
   2. grant a partial exemption in respect of the acquisition.

Submissions

The plaintiff’s principal submission was that the Acquisition did not result in a change in the “underlying beneficial or economic ownership of land”. This submission was based on the plaintiff’s contention that both before and after the Acquisition, the plaintiff at all relevant times maintained “control” over the land held by Macs. Before the Acquisition the plaintiff maintained control through his ownership of TCL (being an intermediary company, which in turn owned Macs), and after the Acquisition the plaintiff maintained control through his direct ownership of Macs.

Decision

Emmett AJA noted that in determining whether it was “not just and reasonable” to tax a transaction, “the taxing authority must be guided and controlled by the policy and purpose of the legislation, so far as that is manifest in the legislation” (at [44]). In this regard his Honour made the following key observations:

1. “The evident policy of the land rich regime was to bring to tax the acquisition by a person of shares or interests in a landholding entity, where that transaction would have been chargeable with duty had there been a transfer of land instead” (at [41]);
2. “The purpose of s 163H is to enable the [Chief] Commissioner to relieve a taxpayer from the duty consequences attaching to a relevant acquisition in circumstances where Ch 4 brings within its operation an acquisition that Ch 4 was not intended to capture” (at [49]); and
3. “The primary purpose of the Duties Act is to tax transactions that result in a change, indirectly, in the underlying practical or economic interest in dutiable property, as distinct from the mere legal or equitable proprietary interest … as well as on direct transfers of dutiable property” (at [49]).

His Honour considered the following factors to be relevant in finding that the “not just and reasonable” exemption was not available in this case:

1. whether or not “there has been a change of underlying practical or economic interest, including beneficial ownership” was a relevant consideration (at [49]), but it was not “dispositive of the question before [his Honour]” (at 62]). In this regard his Honour noted that it was important to bear in mind the “clear distinction recognised both at law and in equity between the persona of a corporation” and its shareholders (at [52]), and emphasised the difference in entitlement that the plaintiff would have had on a winding up of Macs as a result of the Acquisition;
2. the existence of a separate corporate reconstruction exemption in the Duties Act, which did not provide an exemption in the case of transfers, such as the one in this case, to shareholders outside a corporate group, was “indicative of a policy and purpose of the Duties Act that would be consistent with treating the application of Ch 4 to the Transfer as just and reasonable” (at [56]); and
3. if the land held by Macs had been transferred to the plaintiff, rather than the shares in Macs being transferred, full ad valorem duty would have been payable under Chapter 2 on the land transfer, with no exemption. Accordingly, the imposition of landholder duty would not result in a greater amount of duty payable in this case.

In relation to the remission of interest, Emmett AJA found there was no basis for a remission of interest in this case. In this regard his Honour characterised the relevant tax default as “wilful”, on the basis that the plaintiff was aware that the Chief Commissioner had assessed the Acquisition to duty under Ch 4, and the plaintiff had not paid that duty. In seeking a remission of interest, the plaintiff sought to rely on the fact that he had obtained tax advice prior to the Acquisition. However, his Honour refused to draw an inference that the plaintiff acted in good faith in circumstances where the plaintiff elected not to disclose the contents of the tax advice he had received prior to the Acquisition. His Honour noted that the position in respect of interest “might have been different if there were evidence that the Taxpayer had been advised that there were good prospects of persuading the Commissioner that he should be satisfied as to the application of s 163H” (at [86]).

Orders

Accordingly, Emmett AJA ordered that the proceedings should be dismissed, and the plaintiff should pay the Chief Commissioner’s costs.

Link to decision

Winston-Smith v Chief Commissioner of State Revenue [2018] NSWSC 773