Reported Decision : Decision Affirmed 1 October 2002 CITATION: Hoffmann v Chief Commissioner of State Revenue [2002] NSWADT 194 DIVISION: Revenue Division APPLICANT PARTIES: Franz Hoffmann & Rosemary Hoffmann RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 026001 HEARING DATES: 10/09/02 SUBMISSIONS CLOSED: 09/10/2002 DATE OF DECISION: 10/01/2002 BEFORE: Block J - Judicial Member APPLICATION: Duties Act - acquisition of interest in a land rich corporation MATTER FOR DECISION: Principal Matter Administrative Decisions Tribunal Act 1997 Duties Act 1997 LEGISLATION CITED : Income Tax Assessment Act 1936 (Cth) Stamp Duties (Amendment) Act 1987 Stamp Duties (Miscellaneous Amendments) Act 1990 Stamp Duties Act 1920 Tsai Mei-Lan Lee v Chief Commissioner of State Revenue (1999) 99 ATC 4042 CASES CITED: FC of T v Swift 89 ATC 5101 Giris Pty Limited v FC of T (1969) 119 CLR365 APPLICANT REPRESENTATION: Mr Richmond, barrister RESPONDENT Mr Mescher, solicitor ORDERS: The decision under review is affirmed 1 The decision under review is the decision by the Respondent not to exercise the discretion conferred on him by section 119(3) of the Duties Act 1997 ("Duties Act") in relation to share transfers dated 11 November 1999 in respect of all the shares in 68 Alfred Street Pty Limited ("property company") from IPL Image Group Pty Ltd (which subsequently changed its name, and is referred to as the "holding company") to the Applicants (the "Share Transfers"). 2 The Tribunal had before it; (a) The material submitted by the Respondent under section 58 of the Administrative Decisions Tribunal Act ; (b) Affidavits by Franz Hoffmann (who is one of the Applicants) dated 7 June 2002 ("first affidavit") and 10 September 2002; (c) Written submissions by each of the parties; (d) A volume containing a statement of agreed facts and accompanying documents. 3 The statement of agreed facts contains a helpful summary of the relevant facts, and moreover includes a useful chronology of relevant events; it is convenient by way of background to set out that statement in this decision as follows: STATEMENT OF AGREED FACTS AND DOCUMENTS Copies of documents referred to below, and any other relevant documents, are attached in chronological order. Date Tab Event 12 June 1998 1 Incorporation of 68 Alfred Street Pty Limited (ACN 082 966 283). The shareholders were Franz Hoffmann and Rosemary Hoffmann, with one share each. 19 June 1998 2 Contracts for the purchase by 68 Alfred Street Pty Limited of Lots 5 and 19, 68 Alfred Street, Milsons Point exchanged. Purchase price of Lot 5 was $832,000. Purchase price of Lot 19 was $618,000. 26 June 1998 3 The Hoffmann Group Pty Limited (ACN 083 160 427) incorporated, the only shareholders being Franz Hoffmann and Rosemary Hoffmann, holding 50 ordinary shares each. 28 June 1998 4 The Hoffmanns transferred their shares in 68 Alfred Street Pty Limited to The Hoffmann Group Pty Limited for one dollar each. The transfers were stamped on 24 September 1998 with total duty of $20. 22 July 1998 5 Exchange of contracts for the purchase by 68 Alfred Street Pty Limited of Lot 6, 68 Alfred Street, Milsons Point. Purchase price of Lot 6 was $350,000. 6 August 1998 6 Settlement of purchase of Lots 5 and 19, 68 Alfred Street, Milsons Point. 16 Sept 1998 7 Settlement of purchase of Lot 6, 68 Alfred Street, Milsons Point. 9 Oct 1998 2 The Hoffmann Group Pty Limited changed its name to "IPL Image Group Pty Limited". 29 Jan 1999- 98 8 Annual Return of IPL Image Group Pty Limited is lodged, showing the only shareholders as Franz Hoffmann and Rosemary Hoffmann, holding 50 ordinary shares each. 29 Jan 1999 -98 9 Annual Return of 68 Alfred Street Pty Limited is lodged, showing the only shareholder as IPL Image Group Pty Limited, holding two ordinary shares. 1 July 1999 10 Date of purchase shown on Share Transfer forms executed on 11 November 1999 (see below) 11 Nov 1999 10 Share Transfer forms executed by IPL Image Group Pty Limited, transferring its two ordinary shares in 68 Alfred Street Pty Limited to Franz and Rosemary Hoffmann as to one ordinary share each (the "Share Transfers"). The Share Transfers, which are the subject of these proceedings, have not been stamped by OSR. At the time of the Share Transfers and at all material times, Franz and Rosemary Hoffmann were married to each other. At the time of the Share Transfers and at all relevant times, Franz and Rosemary Hoffmann were the only shareholders of IPL Image Group Limited. The Share Transfers have not been registered by 68 Alfred Street Pty Limited. 17 Nov 1999 10 Letter from Sothertons (accountants for 68 Alfred Street Pty Limited) to Office of State Revenue enclosing Share Transfers for stamping, with a cheque for $40.00 in payment of the duty and penalties. 24 Nov 1999 11 Office of State Revenue requests Sothertons to furnish a statement under s.115 of the Duties Act 1997 and a current estimate of the value of the property at 68 Alfred Street, Milsons Point owned by the company. 20 Jan 2000 11 Office of State Revenue sends reminder letter to Sothertons. 25 Jan 2000 -99 12 Annual Return of IPL Image Group Pty Limited lodged, showing the only shareholders to be Franz Hoffmann and Rosemary Hoffmann, holding 50 ordinary shares each. 25 Jan 2000 - 99 13 Annual Return of 68 Alfred Street Pty Limited lodged, showing IPL Image Group Pty Limited as the only shareholder, holding 10 ordinary shares. In fact this was incorrect. IPL Image Group Pty Limited was the only shareholder, but it held 2 ordinary shares not 10. 16 Feb 2000 11 Letter from Office of State Revenue requesting further information. 22 Feb 2000 11 Letter from Sothertons to Office of State Revenue saying a response would be sent. 11 May 2000 14 Letter from Abbott Tout to Office of State Revenue confirming telephone conversation with Darren Nicholls of the Office of State Revenue on 8 May 2000, requesting the Commissioner to exercise his discretion under Section 119(3) of the Duties Act 1997 and giving reasons. 6 June 2000 2 IPL Image Group Pty Limited changed its name back to "The Hoffmann Group Pty Limited". 3 October 2000 15 68 Alfred Street Pty Limited enters into a contract for sale of Lot 19, 68 Alfred Street, Milsons Point to Kathaytex Australia Pty Limited, a company unrelated to the Hoffmanns or any of their companies, for a purchase price of $645,000. 2 Nov 2000 15 Settlement of sale of Lot 19, 68 Alfred Street, Milsons Point to Kathaytex Australia Pty Limited. 24 Nov 2000 15 68 Alfred Street Pty Limited enters into a contract for sale of Lot 5, 68 Alfred Street, Milsons Point to Karas, a person unrelated to the Hoffmanns or any of their companies, for a purchase price of $1,003,500. 22 Jan 2001-00 16 Annual Return of the Hoffmann Group Pty Limited lodged, showing Franz and Rosemary Hoffmann as the only shareholders, holding 50 ordinary shares each. 22 Jan 2001 -00 17 Annual Return of 68 Alfred Street Pty Limited lodged, showing IPL Image Group Pty Limited as the only shareholder, holding 10 ordinary shares. (This was incorrect on two scores. The name of the shareholder had been changed on 6 June 2000, and it held 2 ordinary shares, not 10 ordinary shares.) 29 Jan 2001 15 Settlement of sale of Lot 5, 68 Alfred Street, Milsons Point to Karas. 19 Feb 2001 15 68 Alfred Street Pty Limited enters into a contract for sale of Lot 6, 68 Alfred Street Milsons Point to MC2 Property Pty Limited, a company unrelated to the Hoffmanns or any of their companies, for a purchase price of $385,000. 23 March 2001 15 Settlement of sale of Lot 6, 68 Alfred Street, Milsons Point to MC2 Property Pty Limited. 2 April 2001 18 Letter from Office of State Revenue again requesting information. 10 April 2001 19 Letter from Abbott Tout to OSR referring to previous letter of 11 May 2000. 11 May 2001 20 Letter from OSR to Sothertons saying letter of 11 May 2000 never received. 22 May 2001 21 Facsimile Abbott Tout to OSR again enclosing letter of 11 May 2000. 31 May 2001 22 Letter from OSR to Abbott Tout declining exercise of ss 119(3) discretion. No reasons given for refusing to exercise the discretion. 27 July 2001 23 Notice of Objection lodged with Office of State Revenue. 22 August 2001 24 Letter from OSR to Abbott Tout requesting clarification of the shareholdings. 17 Oct 2001 25 Letter from Abbott Tout to OSR answering queries regarding shareholdings and enclosing documents. 29 Oct 2001 26 Letter from OSR to Abbott Tout clarifying an error in Abbott Tout's previous letter. 20 Nov 2001 27 Objection Submissions prepared by Yvonne Crosby of OSR, submitted to Thelma Tacadena, Manager, Review Branch, OSR. 22 Nov 2001 27 Decision by Approving Officer in handwriting on the last page of the Objection Submissions prepared by Yvonne Crosby. 26 Nov 2001 28 Letter from OSR to Abbott Tout notifying disallowance of objection. No reasons were given. 7 January 2002 Application made to Administrative Decisions Tribunal. 4 The events, which are of particular relevance for the purpose of this decision, are those dated 1 July 1999 to 24 November 1999 (inclusive). 5 Put in summary form, and in relation to all relevant periods, the holding company had an issued capital of 100 shares owned as to 50 by each of the Applicants; the holding company owned the two issued shares in the property company which in turn owned real property in Milsons Point, Sydney; ("the real property"). The property company was a land-rich company within the provisions of Chapter 3 of the Duties Act. 6 As indicated in the statement of agreed facts: a) Sothertons (the accountants to the property company and who are referred to in this decision as "the Accountants") wrote to the Respondent on 17 November 1999 enclosing the Share Transfers and a cheque for $40 in payment of duty. The duty was calculated so as to include penalties and in effect was referable as to $20 to each of the Share Transfers. b) The Respondent called for a statement under section 115 of the Duties Act; that statement was again called for subsequently; as at the date of the hearing no such statement had been submitted. c) On 11 May 2000, Abbott Tout, the solicitors to the Applicants wrote to the Respondent asking him to exercise his discretion under section 119 (3) of the Duties Act. d) The Respondent declined to exercise his discretion under section 119 (3) of the Duties Act and the Applicants lodged an objection on 27 March 2001. In clause 2 of that objection the Applicants contended that the Share Transfers were not liable to duty at ad valorem conveyance rates in accordance with Chapter 3 of the Duties Act. In clause 3 of the objection the Applicants contended that the Respondent should have exercised his discretion under section 119(3) of the Duties Act. 7 When the matter came before me on the 10 September 2002 the only issue for decision by me was that referred to in clause 3 of the objection, the Applicants having (correctly) abandoned the contentions contained in clause 2 of the objection. It is clear to me that clause 2 of the objection was without foundation and could not have been successfully argued. 8 The property company was, as I have said, a land-rich company; this is so having regard to the provisions of section 107 (1) of the Duties Act. 9 The critical and indeed the only issue is as to whether, having regard to section 119 (3) of the Duties Act the Respondent should have exercised his discretion on the basis that it was just and reasonable for him to do so; section 119 (3) reads as follows: "An acquisition by a person of an interest in a private corporation is an exempt acquisition if the Chief Commissioner, being satisfied that the application of this Part to the acquisition in the particular case would not be just and reasonable, so determines." 10 It is relevant for the purposes of this decision, to refer to the predecessor legislation; it is convenient in this context to set out the content headed "Predecessor legislation" in the Applicants' Submissions, and reading as follows: "Predecessor legislation Similar provisions to those in Chapter 3 of the Duties Act were first inserted into the Stamp Duties Act 1920 by the Stamp Duties (Amendment) Act 1987 (No.85 of 1987). However, those provisions (forming Division 30 of that Act) did not contain an equivalent of s.119(3) when originally enacted. There was a narrower discretion in subsection 99F(3): "If the Chief Commissioner is satisfied that it would not be just and reasonable in the circumstances, the Chief Commissioner may determine that an amount calculated in accordance with subsection (1)(b)(ii) and specified in the Chief Commissioner's determination shall not be aggregated for the purposes of this section." The discretion was simply to not aggregate prior acquisitions where it was not just and reasonable in the circumstances. The Explanatory Note to the Stamp Duties (Amendment) Bill, 1987 stated on page 1 of the notes: "The object of this Bill is to amend the Stamp Duties Act, 1920 - (b) to require ad valorem duty at the rate applicable to a conveyance of land to be paid on transfers of certain interests in private companies and private unit trust schemes which would otherwise be liable to duty at a lower rate than conveyances …" Nothing is said in the explanatory notes about the discretion in subsection 99F(3). The second reading speech for the Stamp Duties (Amendment) Bill 1987 made by Mr Debus in the Legislative Assembly, clearly established that the purpose of the insertion of Division 30 into the Stamp Duties Act 1920 was anti-avoidance: "A sound revenue raising ability is crucial for the provision of community services and infrastructure by governments of any political colour. This capacity to raise revenue depends on the community's willingness to comply with the tax laws. Fair tax policy and sound and efficient tax administration are the twin pillars upon which a high level of compliance is built. Tax administration fails in its duty, and honest taxpayers become rightfully resentful, if avoidance and evasion of taxation become entrenched and widely practiced by those already wealthy enough to afford high priced lawyers and accountants. I now turn to the bill itself. As I have already said, the major aim of this bill is to eradicate devious and artificial tax avoidance arrangements. Inevitably it is the wealthy taxpayers who are the ones best able to afford big ticket lawyers to invent artificial avoidance schemes, leaving the average taxpayers to meet their full tax obligations. The first amendment I wish to deal with in detail concerns one of the devices used in the Bond scheme – the Clayton's contract. The bill introduces a new division 3A to deal with this avoidance practice. The bill also deals with the other avoidance scheme I mentioned in my announcement on 21st November, 1986, namely, the sale of shares masking the sale of land. Avoidance in the same way through the use of unit trusts is also dealt with in the bill. The use of these schemes avoided duty in two ways. First, the duty rate on the transfer of shares is only 0.6 per cent, compared with the duty rate on conveyances of between 1.25 per cent and 5.5 per cent. With unit trusts no duty at all is paid because units are simply cancelled and reissued rather than being transferred. Second, duty on share transfers is paid on the value of the shares which is normally based on the net value of the company while duty on a transfer of land is calculated on the unencumbered value of the land. Thus, if a company's only asset is land worth $5 million and it is mortgaged for $4.9 million, share transfer duty would be charged on only $0.1 million. It requires little imagination to envisage an overnight mortgage being arranged to minimize duty. However, duty on the conveyance of the land would be charged on the full $5 million, regardless of encumbrances. Again, this form of tax avoidance was not available to the average taxpayer and nor was it used by the honest taxpayer. The revenue being lost through this device is difficult to estimate, but since conveyances form the largest single stamp duty tax base it is vital that any erosion be arrested without delay. A rapid response was necessary because so-called tax experts have already been giving seminars on stamp duty pointing openly to the duty savings available through the use of this scheme. The provisions in the bill are not simple, but I make no apology for this because of the need to be one jump ahead of the tax avoiders." At the end of Mr Debus' speech, there is set out a summary of the provisions of the Bill as distributed to members of the Legislative Assembly, which includes the following in relation to Division 30: "Schedule 2 This Schedule inserts Division 30 to Part III dealing with sale of shares or trust units masking the sale of land." - New South Wales Parliamentary Debates 1987 (Legislative Assembly) at p.12428-12431 Section 99B(2), the direct precursor of Section 119(3) of the Duties Act, was inserted in the Stamp Duties Act 1920 by the Stamp Duties (Miscellaneous Amendments) Act 1990 (No.95 of 1990). Section 99B(2) provides: "This Division does not apply to or in respect of an acquisition if the Chief Commissioner is satisfied that it would not be just and reasonable in the circumstances for the Division to apply." The Explanatory Note to that Act simply paraphrases the provision itself. The second reading speech made by Mr Baird in the Legislative Assembly states: "Division 30 of the Stamp Duties Act charges stamp duty at conveyance rates on certain transactions involving a change of ownership of shares or trust units which masks the transfer of land owned by the company or trust. In order to overcome any unintended consequences of the legislation, the Premier and Treasurer approved of the Act being administered on the basis that duty under Division 30 would not be payable if the Chief Commissioner is satisfied that it would not be just and reasonable in the circumstances. The bill amends the Stamp Duties Act to validate this variation to statute." New South Wales Parliamentary Debates 1990 (Legislative Assembly) at p.10189 The relevant provisions of the Stamp Duties Act 1920, and the extrinsic materials referred to above, shed light on the purpose of the Chapter 3 of the Duties Act, which is clearly to prevent the avoidance of stamp duty by a sale of shares in a company owning land to mask the sale of the land. The discretion in section 119(3) (and its precursor, section 99B(2)) was inserted because the provisions were drawn so widely that there will be cases where they overshoot the mark and catch transactions not within the mischief to which they were directed. 11 The leading case in this area even though it relates to the Stamp Duties Act 1920 ("SDA") and even though it relates to the exception in SDA which has been referred to as the "non-aggregation" exception contained in section 99F 9(3) of SDA, is Tsai Mei-Lan Lee v Chief Commissioner of State Revenue (1999) 99 ATC 4042 (Sperling J); (2000) 2000 ATC 4600 (Court of Appeal). 12 I can again with advantage draw on the content of the Applicants' Submissions under the head of "Judicial comment", and reading as follows: "Judicial comment The nature of discretion conferred on the Chief Commissioner by section 99F(3) of the Stamp Duties Act 1920 was considered in Tsai Mei-Lan Lee v Chief Commissioner of State Revenue (1999) 99 ATC 4042 (Sperling J); (2000) 2000 ATC 4600 (Court of Appeal). The facts of that case were: a) In 1987 two brothers (HJL and HML) acquired all the shares in a private company Ai Ho International Pty Ltd (the "Company"), being 500 ordinary shares each with a par value of $1. b) Prior to 19 September 1988, the Company entered into two contracts to purchase land in Sydney. The first was a contract to purchase land at Bankstown for a purchase price of $886,000. This was completed on 29 September 1988. The second was a contract to purchase land at Enfield for a purchase price of $383,000. This was completed on 26 September 1988. c) On 19 September 1988, prior to completion of the two contracts, the following allotments of shares in the Company occurred in order to fund the property acquisitions: * HJL was allotted a further 99,500 ordinary shares; * HML was allotted a further 99,500 ordinary shares; * Their father, THL, was allotted 100,000 ordinary shares; * their mother, TML, was allotted 100,000 ordinary shares; * their sister, HHL, was allotted 100,000 ordinary shares. It will be seen that TML, the taxpayer, was a related person of all the other shareholders: see s.99A(8) of the Stamp Duties Act 1920. d) On 30 June 1991, HJL transferred 30,000 of his shares in the Company to TML. This was to avoid the "thin capitalisation" provisions of the Income Tax Assessment Act 1936 which became an issue because HJL had returned to Taiwan (thereby, presumably, ceasing to be an Australian resident). Following a request by the Commissioner, a statement under the "land rich" provisions of Division 30 of the Stamp Duties Act 1920 was filed with the Commissioner on 25 November 1991. The commissioner issued an assessment of duty under Division 30 in the amount of $26,998.82 after giving credit for duty on the share transfer of $180. The assessment aggregated the 30,000 shares acquired by TML in 1991 with the 100,000 shares acquired by TML, THL and HHL in 1988. In addition, a fine of 100% was imposed. The issue was whether the Commissioner erred in failing to exercise his discretion under s.99F(3) so that the acquisition on 30 June 1991 would not be aggregated with the prior acquisitions on 19 September 1988. At first instance Sperling J made the following comments about the nature of the discretion (at 4052): "What is just and reasonable depends on the context. In this instance, the context is legislation having as its purpose to assimilate share acquisitions in land-rich companies to a corresponding conveyance of land for stamp duty purposes (so far as the legislation goes in that direction) and also to prevent avoidance of that objective by provisions such as those in respect of related persons and prior share acquisitions. The discretionary provisions are there because, without the exercise of such discretions, the legislation would over-shoot the mark in many instances, as I have previously mentioned. Without seeking to define the ambit of the discretions unnecessarily, the paradigm case for the exercise of these discretions is where the substantive provisions of the legislation would otherwise result in an assessment of duty grossly disproportionate to that which would be payable on a conveyance of a corresponding interest in land. Having regard to the purpose of the legislation, where such a dichotomy arises, the Commissioner could not be other than satisfied that a strict application of the substantive provisions would be unjust and unreasonable, absent some special reason for a different view." In the appeal from that decision (Chief Commissioner of State Revenue (NSW) v Tsai Mei-Lan Lee (2000) 2000 ATC 4600), it was held that the discretion in s.99F(3) should be exercised by the Court in favour of the taxpayer (TML). Meagher J. A. (with whom Clarke AJA agreed) stated his view as to the purpose of Division 30 as follows (at 4602): "The purpose of the Division is clear enough. It is to treat transfers of shares in a land-rich company as if they were transfers of the land itself; or, more exactly, to prevent that type of tax arrangement which consists of interposing a corporate body between the individual or individuals who own the land and the land itself, with a view to minimising the duty payable on transfers of the shares (which in reality are transfers of land)". Meagher J. A. stated his reasons for applying s.99F(3) as follows (at 4606): "There is no doubt, in my opinion, that the discretion [in s.99F(3)] ought to be exercised in the respondent's favour. There are at least three reasons why this is so. The first is that the parties to the transaction, TML and HJL, had no intention to evade any New South Wales tax or duty: there is no reason to doubt that the purpose of entering the transaction was to ensure that they were not disadvantaged by the "thin capitalisation" doctrine. The second is that, if the purpose of Division 30 was to ensure that there was no evasion of the payment of ad valorem duty in land deals, that is wholly inappropriate in the present circumstances: within three years of the transaction of 30 June 1991 no less than three lots of duty on an ad valorem basis were paid – two in respect of the Enfield property and one in respect of the Bankstown property. The third is the anomaly of being taxed as if a transaction consisted of the sale of 66% of the Company's realty whereas it was in fact only 6%. The contrary argument put on behalf of the Commissioner usually runs something like this (although I have no desire to parody it): if the Commissioner were under a duty to exercise his discretion under Section 99F(3) in all cases where it was just and reasonable to do so (as in the present case) there would be no, or virtually no, room left for Section 99F(2) to operate. There are two answers to this: the first is "tant pis"; the second is that there would still be many cases in which no reason to exercise the discretion would exist and allow Section 99F(1) to reign supreme." Priestley JA reached the same conclusion essentially on the basis that the discretion in s.99F(3) ought to be exercised at least where this was necessary to prevent an assessment of duty greater than that which would be payable if the interest in land were transferred directly rather than indirectly by a share transaction: see 2000 ATC at 4602." 13 There are two additional passages from the decision of the New South Wales Appeal Court in Lee's case, which deserve inclusion in this decision. In the first instance, the example contained in clause 30 of the judgment by Meagher JA is in my view helpful; that clause reads as follows: "An example of one such case is the following, which was given by Clarke AJA in the course of argument: company A purchases land in 1980; in 1985 a father and son, X and Y, buy 70% and 30% of the shares in company A; in 1986 company A buys real estate and becomes "land rich", and towards the end of 1987 X acquires Y's 30% interest. There is no reason one can see to apply any discretion in favour of the transaction if the Commissioner were to seek to recover duty on the basis that there had been a 100% transfer of the land. Many other examples can be imagined" In the second place I consider that the views of Priestley JA contained in clause 3 of his judgment can usefully be incorporated in this decision; that clause reads: "In the course of argument I formed the view that the following propositions might answer the question: 1. Division 30 was inserted in Pt III of the Act in 1987 to deal with a very particular kind of transaction; namely, one in which shares in a land-owning company were sold and the sale attracted less duty or tax than would have been the case if the land held by the company had been sold, the sale of the shares effecting much the same results so far as the human parties involved were concerned in substance as if the land itself had been sold. The basic idea of the Division was to ensure that transactions by way of sale of shares which had the substantive effect of transferring the ownership of land or an interest in land would bear the rate of duty that the sale of the land or the interest in land itself would have attracted. 2. Within s 99F itself, the grant of the discretion to the Chief Commissioner in subsection (3) recognised that the widely drawn provisions of Division 3O will bring within their operation transactions which the basic purpose of the Division was not aimed at. The existence of the discretion showed that the legislature (or the legislation) intended that there would be some cases which would not attract the whole duty which would be payable if the discretion were not there and were not exercised. 3. From this it seems to follow that the discretion ought to be exercised in such a way as to prevent any assessment of the amount of duty payable by the operation of Division 30 being greater than the amount that would have been payable if the land or the interest in the land had been transferred directly rather than indirectly by the share transaction. 4. When the possibility that this approach might be adopted was raised with counsel, counsel for the Chief Commissioner struggled valiantly to show that's 99F (3) gave the Chief Commissioner a greater range within which to operate the discretion than the suggested approach would give. However, he was not able, to my mind, to suggest any even broadly workable alternative. His submissions all seemed to me to lead to the conclusion that the Chief Commissioner's discretion would be absolute, which he would exercise in any way that seemed fit to him, without reference to any particular guideline at all, no matter how rough and ready. 5. Since the approach set out above seems to me to provide an at least roughly intelligible and workable criterion, which emerges naturally enough from the statutory provisions themselves, read in the light of the second reading speech (for which see Sperling J's reasons), it is in my view preferable that it should be adopted rather than that the court should accede to the Chief Commissioner's much wider and more amorphous contention. 14 It must be noted of course that the judgment in Lee's case related to the non-aggregation exemption in the predecessor statute (SDA) and not in its terms to section 119 (3) of the Duties Act. Nevertheless both parties treated that judgment (correctly in my view) as important and relevant for the purposes of this decision. 15 It should be noted moreover that the clause from the judgment of Priestley JA incorporated in this decision was clearly obiter; however it must be regarded as strongly persuasive. 16 My attention was drawn in addition to DUT 020 (Exemption from Duties- Corporate Reconstruction) clause 13 of which reads: "An eligible transaction my result in an acquisition of an interest in a land-rich private corporation that is subject to duty under Pt 2 of Ch 3 of the Duties Act 1997. If exemption is approved for a transaction under sec 281, the Chief Commissioner will determine any such acquisition to be an exempt acquisition under subsec 119(3)." It is clear of course that where a corporate reconstruction exemption application is granted that exemption may not flow through to Chapter 3 of the Duties Act thus necessitating clause 13 to ensure that duty at conveyance rates in not nonetheless attracted. 17 I accept that the Applicants owned the holding company which owned the property company which in turn owned the real property; I accept furthermore that the shares in the property company were transferred to the Applicants because a sale of the holding company (which owned a photographic imaging business) was contemplated in circumstances where it was not intended that the sale would include the real property. (As matters transpired, that contemplated sale did not eventuate; the proposed purchaser was acquired by a third party which thereafter acquired the photographic imaging business) 18 In relation to the property company and the real property; the effect of the Share Transfers was that the Applicants owned the property company directly and not indirectly through the holding company. There was considerable discussion in the hearing before me as to the fact that throughout the relevant period the Applicants were the owners in "economic" terms of the real property. This is because without the Share Transfers they owned the real property in economic terms through their ownership of the holding company and its ownership of the property company. The execution of the Share Transfers served merely to remove one corporate layer and the overall economic effect in relation to the real property did not change. 19 During the hearing terms were at times used in a fashion which could be productive of confusion. There was discussion in particular of legal and equitable interests and also of economic interests. It is, in my view important to remember that in relation to a company's assets its shareholders do not have any legal interest or any equitable interest in its assets. A company has a legal identity, which is separate and apart from that of its shareholders. The shareholders do no doubt have an economic interest in the assets of the company in which they hold shares. 20 There was also considerable discussion as to the corporate reconstruction ruling in respect of which I have quoted clause 13. Corporate reconstruction relief is available in broad term in respect of transfers between related bodies corporate and where there is a threshold 90% share ownership test. As I have said, but for clause 13 of DUT 020 duty might be attracted under Chapter 3 of the Duties Act even where the exemption is available. It was submitted that clause 13 is indicative of an intent to grant relief where there is a 90% shareholding and a fortiori where the holding is 100%. 21 As to whether the Applicants could have used DUT 020 was not clear. Had the Applicants caused the shares in the property company to be transferred to another company owned by them the latter company would not have been a related body corporate. It is possible that the property company could have been transferred to another subsidiary of the holding company where that other subsidiary would be excluded from the contemplated sale. But it is surely not necessary for me to speculate on something which might have happened but did not and was not, at least on the evidence before me ever contemplated. 22 Clauses 15 and 16 of the first affidavit read as follows: "15.We originally purchased the Properties through a company because we had plans for the apartments in the context of our business. A company structure was more flexible for the investment plans we had at that time. Our accountant Bob Webster of Sothertons, Chartered Accountants, advised us that a company structure would suit our purposes best, and we followed his advice. At no time did we intend to avoid paying stamp duty or to assist purchasers of the properties to avoid paying stamp duty. Had we intended to do that, we would have purchased each of the apartments through a separate company, to facilitate the sale of the apartments to separate purchasers, since selling three apartments together to a single purchaser is much more difficult than selling them separately. There was no stamp duty advantage to be gained from selling the shares in 68 Alfred St Pty Limited, rather than selling the underlying properties. 16. At all times, we simply followed the advice of our accountant, Mr Bob Webster, of Sothertons, Chartered Accountants. Mr Webster never advised us to structure the purchases in this way in order to avoid stamp duty and never suggested to us that the way in which the properties were purchased would facilitate avoidance of stamp duty by us or by any future purchasers." Mr Richmond said at the hearing that he did not intend to read the last two sentences of clause 15 of the first affidavit. 23 What then is to be understood by the reference to the fact that the Applicants did not intend to avoid paying stamp duty? The Accountants tendered $40 in accordance with section 33(3) of the Duties Act presumably on the basis that this was the correct duty inclusive of penalty. 24 It was conceded (correctly in my view) at the hearing that there had been a mistake or omission and that it was a relevant factor. Having regard to clause 16 of the first affidavit it would seem that the mistake or omission was by the Accountants; it is conceivable (although this is speculative) that they did not appreciate or perhaps were not aware of the implications of Chapter 3 of the Duties Act. To say that they (presumably the Applicants) did not "intend to avoid duty" is perhaps not accurate. It would be more accurate to say that they did not contemplate conveyance duty at ad valorem rates. It would not be appropriate for me to speculate on all of the implications. But one thing is clear; the Accountants acted for and on behalf of the Applicants and as their agent. I have grave doubts as to whether it is correct to characterise the relevant conduct in the manner in which they contend. The Applicants clearly did not intend to evade the duty which they thought payable; i.e. $40. But equally clearly they did not intend to pay duty at ad valorem conveyance rates; so much is clear from the fact that ex facie the objection they contended (at an earlier stage) that such duty was not attracted. I note that it does seem strange that the Applicants should seek to dispute that duty under Chapter 3 was payable, and then to seek the exercise of the section 119 (3) discretion when the situation giving rise to the attraction of duty would appear to have arisen from an error on the part of their own agent. Put in other words to ask for the grant of relief in order to cure that error does appear, on a prima facie basis to be odd. 25 Mr. Richmond referred me to authorities concerning the nature of the discretion which I must exercise. It is of course clear enough that it is a discretion which must be exercised by me standing in the shoes of the Respondent Commissioner and that I must formulate the "correct and preferable" decision. It is also clear enough that the onus is on the Applicants to establish that I should exercise the discretion in their favour. 26 In FC of T v Swift 89 ATC 5101 French J said at 5112: In the absence of any statutory direction, the Tribunal is not bound to apply the administrative policies by which the exercise of the discretion under review is regulated at the primary decision-making level. In particular, it was not bound in this case to apply taxation ruling IT2063 to which reference has already been made. It is generally entitled to take administrative policy into account as a relevant factor in the achievement, inter alia, of a desirable consistency in decision-making - Drake v Minister for Immigration and Ethnic Affairs (supra) at 591. For as Brennan J. said in Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 LD 634 at 639: "Inconsistency is not merely inelegant: it brings the process of deciding into disrepute, suggesting an arbitrariness which is incompatible with commonly accepted notions of justice." That observation is subject to the caveat that decision-makers can be consistently wrong or consistently unjust and that consistency is safely sought by reference to policy only when the policy is appropriate and acceptable - Nevistic v Minister for Immigration and Ethnic Affairs (supra) at 646 (Deane J.). This does not involve the Tribunal in reviewing policy or deciding what policy a primary decision-maker should adopt - Re Aston (1985) 4 AAR 65, 76 (Davies J.). And, as in that case, which involved the exercise of a discretion to limit the terms of fishing licences under a national quota scheme, a policy which is developed in the political arena after consultation with the relevant industry ought generally to be given great weight. Taxation ruling IT2063 does not appear to be in that category. Nevertheless, the magnitude of the task involved in carrying out original decision-making and supervising and regulating the exercise of delegated authority under the taxation laws, is a powerful indicator that appropriate guidelines are essential for the avoidance of administrative chaos and for the achievement of reasonable consistency. The need to maintain the perception and reality of equal treatment is an important factor in the administration of all laws and not least in those relating to taxation. But such considerations go to the weight to be attributed to policy and that is ultimately a matter for the Tribunal - Nevistic v Minister for Immigration and Ethnic Affairs (supra) at 647 (Deane J.); Re Aston (supra) at 78 (Davies J.). It is said to be essential that the Tribunal be fully informed of reasons for any policy involved in a decision under review. Otherwise, instead of subjecting it to rational analysis and assisting in the development of principled yet flexible decision-making, the Tribunal may "intervene incongruously to disrupt the due course administration" - Commonwealth of Australia v El Hassan (1985) 62 ALR 305, 316 (Burchett J.). That I take to be an exhortation to the parties seeking to invoke the relevant policy rather than an indication that the Tribunal should initiate its own inquiry into policies affecting the decision under review". 27 And in Giris Pty Limited v FC of T (1969) 119 CLR365 Windeyer J said at 384: The Commissioner is to ask himself whether it would be unreasonable that s 99A should apply to any particular trust estate. But the idea of reasonableness seems to be here amorphous. It is, of course, true that, as a measure in fact of time, space, quantity and conduct, reasonableness is a concept deeply rooted in the common law: and so, in such cases, is the power of a court to say whether a particular decision of that fact is or is not within the bounds of reason. But, in cases of that kind, the circumstances in which the question arises provide criteria for its solution. Here the Commissioner's discretion is apparently at large. It does not clearly emerge from the Act in respect of what matter - or whose interest, that of the taxpayer or of the revenue - he is to consider whether it would be reasonable or unreasonable to apply s. 99A in the case of any particular trust estate. He is to have regard to certain stated matters; but what weight or influence each is to have is not made clear. Moreover, the Act requires that he "shall have regard to such other matters, if any, as he thinks fit". However I assume that he is to be guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it. That would exclude from his consideration any matter which it would be unlawful for him to take as a criterion, such as the State of residence of a trustee or of the beneficiaries of a trust. It would also, I think, exclude all merely fanciful and prejudiced tests which were hypothetically suggested in argument, such as vocation, religion, colour of skin or hair. Nevertheless the statute seems to allow great latitude to the Commissioner in forming his opinion. That he has formulated certain considerations by which he is guided, and made them publicly known, may be important as showing that in the exercise of his statutory discretion he acts honestly, consistently, and, as he thinks, in accordance with the legislative purpose. That purpose I take it is to enable the Commissioner to keep s.99A as an instrument to prevent avoidance of taxation by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose. But that the purpose of an enactment is understandable, would not cure its invalidity if it were invalid. (at p384). 28 I accept then that I must have regard to the policy of the relevant statute and it is in this regard that the second reading speeches are relevant. Mr. Debus referred in 1987 to "the sale of shares masking the sale of land." Mr. Baird talked of a 'change of ownership…. Which masks the transfer of land…." 29 Assume by way of hypothesis that the Applicants had in order to exclude the real property from the contemplated sale caused the real property to be transferred to them personally. However that transfer were achieved (as a matter of causa) and whether by sale, donation (assuming that this was possible as a matter of company law) or as a distribution in specie, duty at conveyance rates would have been payable. And of course DUT 020 would not have been available. 30 In Lee's case Meagher JA speaking for the Appeal Court held in relation to the aggregation provisions that to exact duty on a transfer of 66% of the property where 6% only was transferred was unreasonable 31 The court in Lee's case seems to have agreed on this proposition; that to assess duty greater than would have been payable had the land itself been transferred would be unfair. 32 I am attracted by the rationale of Priestley JA in Lee's case and in particular clause 3 of his judgment which may be relevant also in a case such as this. It is noteworthy perhaps that the concept of "economic" ownership did not arise; nor does it appear to have arisen in the second reading speeches. 33 Mr. Richmond referred me to dictionary definitions of the words 'just" and "reasonable" but I do not think that it is necessary for me to quote them. I consider that the economic ownership factor is one which tends to favour the Applicants although it is by no means the only or even the conclusive factor. This is so also in respect of clause 13 of DUT 020. 34 The argument as to intent is not one which favours the Applicants. The fact would appear to be that there was a mistake (however unintentional) by their own agent and this is a factor against the Applicants. 35 I do not read the second reading speeches as favouring the Applicants in relation to the policy underlying the Duties Act. Whether one talks of "sale" or of "transfer" the common theme seems to have been to prevent duty being levied at marketable security rates in relation to a transfer of shares where that transfer "masked" a transfer of land. 36 The fact that the Applicants originally sought to argue that Chapter 3 did not apply can, I think, be regarded as neutral. This is arguably so also in relation to the fact that the section 115 statement has still not been produced. That statement will establish the value for duty purposes. Having regard to the amounts for which the real property was sold the value involved would appear to have been, in 1999, substantial. 37 On balance this is not a case where it is just and reasonable to exercise the discretion under section 119(3) of the Duties Act in favour of the Applicants; at the very best for them they have not discharged the onus on them. Accordingly the decision under review is affirmed. 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.