Appeal Panel - Internal CITATION: Sanders v Chief Commissioner of State Revenue (RD) [2003] NSWADTAP 22 APPLICANT PARTIES: Basil Charles Sanders RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 029058 HEARING DATES: 21/05/2003 SUBMISSIONS CLOSED: 05/21/2003 DATE OF DECISION: 06/26/2003 Sanders v Chief Commissioner of State Revenue [2002] NSWADT 251 DECISION UNDER APPEAL: BEFORE: O'Connor K - DCJ (President); Verick A - Judicial Member; Bennett C - Member CATCHWORDS: statutory interpretation MATTER FOR DECISION: Principal matter FILE NUMBER UNDER APPEAL: 026013 DATE OF DECISION UNDER APPEAL: 11/29/2002 LEGISLATION CITED : Duties Act 1997 Darcy v Commissioner of Stamp Duties, 11 September 1967 CASES CITED: Vickery v Woods (1952) 85 CLR 336 Watt v Commissioner of Stamps (1900) 19 NZLR 123 APPLICANT REPRESENTATION: In person RESPONDENT T Thawley, barrister ORDERS: Appeal dismissed 1 The taxpayer, Basil Charles Sanders, is now the owner of his late father's home at Hornsby (the family home). He and his two siblings were the only beneficiaries of his late father's real estate, the home at Hornsby being the principal asset. The will contained a clause dealing with the possible disposal of the real estate to one of the siblings. The taxpayer acquired the family home pursuant to that clause. The clause provided for the trustees to sell the property to one of the children at the price which represented the 'medial figure' between two independent valuations. The will then provided for the sum payable to be reduced by the expected distribution that the prospective purchaser would have received from the sale of the property and payment of those proceeds into the residue of the estate. 2 As the taxpayer had a 40 per cent entitlement in respect of the residue, that meant that he was obligated to find 60 per cent of the purchase amount, which was set (without dispute) at $335,000. This was described by the Commissioner in his submissions and by the Tribunal as an obligation to pay the full consideration subject to a right of set off from the estate in respect of 40%. We agree with that analysis. 3 When the conveyance from the trustees to the taxpayer was presented for stamping, duty was assessed at $10,656 in respect of a consideration of $335,000. The taxpayer contends that the proper basis for assessment is a consideration of 60 per cent of $335,000, i.e. $201,000. 4 The Chief Commissioner rejected the contention, as has the Tribunal below. The taxpayer now appeals. 5 Ordinarily, and the taxpayer accepts, stamp duty is payable in respect of a transfer of land on the whole amount expressed as consideration for the transfer in the instrument of transfer. But the taxpayer contends that his situation falls within the circumstances allowing for relief from transfer duty contained in s 63 of the Duties Act 1997, which are, as relevant: ' 63 Deceased Estates Duty of $10 is chargeable in respect of: (a) a transfer of dutiable property not made for valuable consideration by the legal personal representative of a deceased person to a beneficiary, being: (i) a transfer made under and in conformity with the trusts contained in the will of the deceased person or arising on an intestacy, or (ii) a transfer of property the subject of a trust for sale contained in the will of the deceased person, …'. 6 The taxpayer in his notice of appeal contends that the Tribunal below erred in its construction of this provision and in its application to the present facts. In his notice of appeal and before the Tribunal the taxpayer suggested that the Tribunal should in considering s 63 take into account 'the substance and circumstances' of the entire transaction. 7 The Tribunal considered the commentary on the provision in a standard service (Hills Duties Legislation) which referred to a Court of Appeal decision (unreported) in Darcy v Commissioner of Stamp Duties, 11 September 1967. The Tribunal also referred to Vickery v Woods (1952) 85 CLR 336. Both of these cases dealt with whether particular circumstances involved transactions that were 'in conformity with the trusts contained in the will'. 8 In the present case there is a trust for sale of the real estate expressed as follows: 'If at the date of my death I stand possessed of any real estate, such is to be sold for the best price reasonably obtained and the proceeds to be paid to my trustees upon the trusts in this my will'. It can be seen that this is a general trust for sale. The clause then contains a proviso which gives in effect a first option to purchase to one of the children. It says 'Provided that in the event that either [of the three named beneficiaries] wish to purchase any of such real estate the property is to be valued … and sold by my trustees … to such named beneficiary …'. This reads, on its face, as simply a direction to the trustees as to how they are to exercise their powers in respect of the general trust for sale if one of the beneficiaries wants to buy the property. 9 The critical dicta in Darcy's case are referred to in the decision of the Tribunal at [14]. They are: 'The transfer must be both under and in conformity with the trusts upon which the property is held. It is not sufficient that the transfer not be inconsistent with those trusts. Where there has been a family arrangement to vary the trusts of a will, a transfer to give effect to that arrangement will not be a transfer under and in conformity with the will.' 10 The Tribunal then said: '16 The Applicant in this case has advanced a contention, which in my view is fundamentally incorrect. He argues that he had an entitlement to 40% of the property and so that in purchasing the whole property he purchased in reality 60% only. In fact and pursuant to the will he had an entitlement to residue but not to the real property, which was bequeathed to the trustees on trust for sale. The transfer to him of the property was not in conformity with the trusts of the will although it was arguably not inconsistent with the trusts of the will. On this basis the transfer cannot comply with subsection (i) of section 63(a) of the Act. The possibility that subsection (ii) might apply was not raised by either party. 17 In any event, each of subclauses (i) and (ii) can in its terms apply only to a transfer without consideration. The Applicant argued that he has paid consideration for 60% only and thus should not have paid duty in respect of the remaining 40% of the property. It is my view that the Applicant's contention does not accord with the relevant clause. On a proper analysis the Applicant as purchaser was obliged to pay the whole value for the property ($335000) but against which he was given a right to set off what he would receive from his share of the residue in consequence of the sale of the property; put in other words he was given the right to utilise a part of his residue entitlement by way of set off against the purchase consideration payable. Where a person makes a payment by set off he nonetheless makes a payment in accordance with principles of general law; (see "Payment Obligations in Commercial Transactions" by Professor Goode). This being so, there can be no doubt, in my view, that the Applicant gave full consideration for the property. The Supreme Court directions are consistent with this analysis and so for that matter is the transfer, which despite the Applicant's contentions to the contrary, was in fact the instrument pursuant to which he received the property from the trustees. 18 It follows then that section 63 can have no operation since each of the subsections on which the Applicant might seek to rely cannot operate where there is consideration, and as I have said, there was full consideration in respect of the whole of the property.' 11 We agree with these reasons, in particular that this was a transfer for valuable consideration (and therefore the transfer does not meet the general requirement affecting both (i) and (ii)). 12 In the submissions to the Appeal Panel, the Commissioner referred to a New Zealand case, Watt v Commissioner of Stamps (1900) 19 NZLR 123. In that case the deceased estate was left on trust for sale with the proceeds to be converted into four equal parts for the four children. The estate included some real property. One son elected to retain the property. A family arrangement was made under which the son acquired the property in return for a payment of about 8000 pounds more than his quarter share. The total transfer amount was 98,925 pounds. The Court held that stamp duty was payable on the whole amount. The court was satisfied that this was a sale for consideration, and was not a case of property passing direct to the son under the trusts of the will. Stout CJ said at 128: 'The estate was not vested in the appellant and his sister as devisees – they were only entitled to their shares of the proceeds of the sale; and one of the legatees, with the consent of the others, became the purchaser.' 13 The taxpayer has consistently asserted that in substance his was a case where there was a disposition to him by the will of a fractional interest. We note that there is a Revenue Ruling SD 126, 17 February 1989 going to situations where there is a disposal only of a fractional interest. This ruling refers to this as an issue which can arise in sales by auction, by mortgagees or pursuant to family law proceedings. The Chief Commissioner's ruling is that if an agreement provides that a portion only of the expressed consideration is passing, stamp duty will be assessed on the unencumbered value of the fractional interest or the portion of the consideration passing, whichever is the greater. 14 This was not, for the reasons given by the Tribunal and elaborated further here, a situation which involved such a devolution. ORDER 15 Appeal dismissed. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.