Lanzon v Chief Commissioner of State Revenue [2004] NSWADT 118

CITATION: Lanzon v Chief Commissioner of State Revenue [2004] NSWADT 118 DIVISION: Revenue Division APPLICANT PARTIES: Peter Jude Lanzon RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 036027 HEARING DATES: 5/03/2004 SUBMISSIONS CLOSED: 03/05/2004 DATE OF DECISION: 06/09/2004

BEFORE: Hole M - Judicial Member APPLICATION: Duties Act - no ad valorem duty MATTER FOR DECISION: Principal matter Duties Act 1997 LEGISLATION CITED : State Revenue Legislation Amendment Act 2000 State Revenue Legislation Amendment Act 2002 CASES CITED: APPLICANT REPRESENTATION: Peter Jude Lanzon RESPONDENT Chief Commissioner of State Revenue ORDERS: Assessment by the Commissioner of State Revenue is affirmed.

REASONS FOR DECISION Introduction 1 The applicant has, with Ingrid Joana German, obtained an interest in a property at 2/5 Tuam Place Killarney Vale ("the property"). The Chief Commissioner of State Revenue has assessed ad valorem duty on the transfer of the property. The applicant has applied to have the assessment reviewed as he believes he has paid the duty already. History 2 The respondent supplied a chronology disclosing the sequence of events leading to the assessment of ad valorem duty and it is useful to reproduce part of that chronology here: 15.1.99 : 4 Tuam Place Pty Limited ("the company") ACN 085888213 registered Company Meeting held – resolved that shares be issued as follows: Jane Margaret Mercer – 1 redeemable preference share Jason Brian Hones – 1 redeemable preference share 19.2.99:Company Meeting held Redeemable preference shares redeemed 423 540 ordinary shares issued to Desmond Samuels and Cheryl Samuels (as joint tenants) 423 540 ordinary shares issued to Peter Lanzon and Ingrid German (as joint tenants) Contract executed for purchase of 4 Tuam Place Killarney Heights NSW FI 1/874800 ("the property") by the company for $813 000.00 – Torrens title – Vendors: Paul Wellard and John Wellard Joint Venture Agreement dated. 24.3.99: Company changes its name to 5 Tuam Place Pty Limited 26.3.99: Ad Valorem stamp duty paid on contract dated 19.2.99 of $32 075.00 based on purchase price of $813 000.00 – purchaser's name changed to 5 Tuam Place Pty Ltd Transfer stamped with nominal duty of $2.00 1.4.99: Date of Settlement of sale of property to 5 Tuam Place Pty Limited 5.4.99: Applicant and Ms German move into property 7.4.99: Date of Registration of transfer of property into Company name 1.11.01: Property converted into strata title – Lots 1 & 2 SP 66185 Company becomes registered proprietor of Lots 1 & 2 SP 66185 Lot 1 has one unit entitlement – Lot 2 has one unit entitlement 6.12.02 : Two transfers executed each as follows 1. Transfer of Lot 1 from the company to D Samuels 2. Transfer of Lot 2 from the company to P Lanzon 15.12.02: Company deregistered by ASIC under s. 601AB Corporations Act 2001 Company cease to exist and all property vested in ASIC under s. 601AD 3 Following the conversion to Strata and the preparation of the Transfer of Lots 1 and 2 to the A and B shareholders of the company the transfers were submitted to the respondent (together with statutory declarations noting the history) for marking. 4 The respondent requested further information and on supply thereof advised the applicant's solicitor that the transfers did not attract the benefit of section 64 of the Duties Act 1997 and that ad valorem duty was payable. 5 The exemptions provided in section 64 are that $10.00 duty is payable where:- "64 Conversion of land use entitlement to different form of title The duty chargeable on the transfer of a lot within the meaning of the Strata Schemes (Freehold Development) Act 1973 or a lot in a deposited plan is $10 if: (a) the transferee, immediately before registration of the strata plan or deposited plan, held a land use entitlement in respect of the land or part of the land the subject of the strata plan or deposited plan, and (b) the transfer is part of an arrangement under which the transferee will take an interest in the lot similar in effect to and in substitution for the interest the transferee had under the land use entitlement immediately before registration of the strata plan or deposited plan, and (c) one of the following applies: (i) ad valorem duty was paid at the time the land use entitlement was acquired by the transferee, (ii) section 55, 57 or 63 applied to the acquisition of the land use entitlement by the transferee, and duty was paid as provided for by the section that applied, (iii) no duty was chargeable on the acquisition of the land use entitlement by the transferee because of section 68." 6 Section 64(c)(i) was inserted in 2000 by State Revenue Legislation Amendment Act 2000 No. 51 and section 64(c)(ii) and (iii) was inserted in 2002 by State Revenue Legislation Amendment Act 2002 No. 108. 7 Following the supply of further information from the applicant's solicitors the respondent reviewed the decision and concluded that there was no payment of ad valorem duty at the time that the land use entitlement was acquired by the applicant. 8 The representative of the Commissioner submitted that the Joint Venture Agreement provided: - that the Company purchase the land, - that the applicant pay an amount of non-refundable stamp duty as a deductible expense; - that the Company attend to payment of "… stamp duty … in respect of the purchase of the land"; - that on completion of the transfer of the property to the Company then the Joint Venture Agreement was at an end. 9 There was no evidence provided as to the stamping of the Joint Venture Agreement. 10 The conversion of the property to Strata was then undertaken during the period from April 1999 to November 2001. 11 Section 64 of the Duties Act 1997 was amended in August, 2000. This application is in reference to land formerly comprised in Lot 1 DP874800, Lot 2 in DP874800 was also subdivided by a strata plan and transferred from 4 Tuam Place Pty Limited where the transfer was stamped on 27 June 2000. 12 The interpretation placed on section 64(c)(i) by the respondent is that ad valorem duty must have been paid on the instrument whereby the transferee (the applicant) acquired the land use entitlement. 13 To satisfy the requirement of s64(c)(i) it was necessary, as at November 2001, to show that ad valorem duty was paid on behalf of the applicant either on the transfer of shares or on a transfer from the Company to the applicant. Section 136 requires that a statement disclosing the consideration for the shares where a land use entitlement is acquired be lodged at the time of lodging that instrument for stamping. 14 The respondent's representative submitted that there were two dutiable transactions, one being the transfer from the Wellards to the Company and then the transfer of the shares in the Company (or of the property) to the applicant. The ad valorem duty on the contract for sale and transfer to the Company was paid by cheques of the applicant which had been provided through his solicitor to the solicitor acting for the Company and subscribers and made out to Office of State Revenue (this amount being his proportion of the deductible expenses under the Joint Venture Agreement being $13,400.00), together with other cheques making up the amount of $32,079.00. 15 The applicant's representative submitted that the duty was payable on the allocation of the shares and that the Joint Venture Agreement was stampable as an issue of shares and that pursuant to the Joint Venture Agreement there was an obligation for the Company to execute the contract for sale. That as and from the completion of the Joint Venture Agreement, then the shareholders were the owners of the company and that the company owned the land. 16 The Company was, as and from the settlement date of 1 April 1999, the owner of the land. 17 As and from 19 February 1999 the applicant was a shareholder of the Company and pursuant to clause 25.5 of the Company Constitution the applicant was entitled to exclusive right to use, enjoy, lease or licence and occupy "the Lot … which appears opposite that number in Columns 2 and 3 of Schedule 2 …". 18 Schedule 2 is reproduced in full: SCHEDULE 2 LOT ENTITLEMENT TABLE Lot No.: 1 No. of Shares of Share Group 1 Proportion of Share Group 50% Distinctive Share Certificate Numbers: 1 Lot No.: 2 No. of Shares of Share Group Proportion of Share Group 50% Distinctive Share Certificate Numbers: 2 Proportion of Share Group: 100% 19 The material in Schedule 2 does not allow easy allocation of the Lots to a particular shareholder. The applicant's representative submitted to the Commissioner of State Revenue that the combined effect of clause 25.5 and Schedule 2 is that the share group holder has the right to exclusive use of each of the two units. Schedule 3 to the Joint Venture Agreement includes a diagram which does not describe 2 discrete lots. 20 Section 64(c) refers to "the land use entitlement" acquired "by the transferee". The "land use entitlement" is defined by the Act as: ""Land use entitlement" means an entitlement to occupy land within NSW conferred through an ownership of shares in a company or an ownership of units in a unit trust scheme, or a combination of a shareholding or ownership of units together with a lease or licence."" 21 The Joint Venture Agreement does not effectively separate the interest in the Company assets so that the lots may be allocated to specific shareholders. 22 An allotment of shares is dutiable pursuant to s132 of the Act and pursuant to s134 the applicant was liable for duty as at 19 February 1999. The money paid, which he believed was stamp duty, pursuant to the Joint Venture Agreement was for duty on the purchase by the Company, it was not for the allotment of shares. 23 The property was acquired by the Company on 19 February 1999 the applicant acquired the shares conferring the use of the property of the Company on 19 February 1999, the applicant acquired the liabilities (including the requirement to pay stamp duty) on 19 February 1999, the Company acquired the obligation to pay stamp duty on 19 February 1999. The subscribers caused the Company to be liable for (i.a.) the stamp duty on the purchase of the property on 19 February 1999. If the Strata Plan had been registered on 19 February 1999 (or prior) then presumably there would have been a contract between the Vendors and the shareholders direct and only one amount of ad valorem duty could have been considered. The difficulty occurs because the subdivision by strata and the purchasing has occurred as a joint venture and the transfer is after the amendments to the Duties Act 1997. 24 In this particular instance the actions giving rise to an obligation to pay ad valorem duty all occurred at the same time - Wellings sold to the Company - the Company allotted shares - the Company issued shares to the applicant, and in the event that the transfer to the applicant, after registration of the Strata Plan, had occurred before the amendment of Section 64 then it may be that the result may have been different. 25 This application was adjourned on 17 October, 2003 to allow the applicant to seek reinstatement of the Company which had been deregistered by ASIC. Following re-instatement the matter proceeded to hearing. 26 The applicant submitted that: - he had paid stamp duty on his acquisition of the entitlement to occupy the property pursuant to the provision in the Joint Venture Agreement which was entered into on the 19 February 1999, - the Joint Venture Agreement could have been stamped after 19 February 1999, and that at that time the duty of $32,077.00 would have been paid on that agreement and the contract marked at the rate of $10.00, - the subsequent transfer to him from the company (as registered proprietor of the land) would have been marked with nominal duty, - the title was converted from company title to strata title - there was no change in the person having the ownership of the shares and to the person entitled to a transfer from the company of the strata unit in accordance with the share allocation. 27 Section 64(c)(i) provides that there is an exemption from ad valorem duty if "ad valorem duty was paid at the time the land use entitlement was acquired by the transferee," Land use entitlement is defined as (inter alia) 'an entitlement to occupy land through an ownership of shares in a company'. The section does not prescribe who should pay the duty, the ad valorem duty must be paid at the requisite time. The applicant acquired the land use entitlement pursuant to the Joint Venture Agreement. The company paid the stamp duty on the purchase of the real estate pursuant to the agreement. The share allocations were made on the date of the agreement. The transfer of the shares was registered at ASIC on 19 February 1999, this transfer was liable at that time to stamp duty assessment. Following the amendments to the Duties Act 1997 in 2000 the situation then became that the transfer of shares which conferred a land use entitlement was excluded from s33 and included the transfer of those shares as liable under s8(1)(a). 28 The unfortunate consequences of the amendment to the Duties Act in 2000 and the non stamping of the Joint Venture Agreement has led to the situation where the transaction may be construed as : 1) A Joint Venture Agreement dated 19 January 1999 between the parties named therein including an allotment of shares to the applicant which has not been assessed for duty as an issue of shares pursuant to s136, 2) A contract for sale dated 19 February 1999 which has been assessed for duty and upon which duty has been paid whereby the property was transferred from one party to the company, 3) A transfer from the company to the applicant (including a land use entitlement) which is liable to ad valorem duty pursuant to s8(1)(a) as a transfer of dutiable property as and from the 2000 amendment. 29 The applicant obtained his interest by the allotment of shares on 19 January, 1999, as and from the amendment of the Duties Act 1997 in 2000 to enable him to obtain the benefit of s64(c)(i) it was necessary for him to show that he paid ad valorem duty for his allotment of shares as at 19 February 1999. This is the cumulative effect of: - s132 – liability for duty when a land use entitlement is acquired by an allotment of shares and - s137 – duty assessable on a share allotment providing a land use entitlement is at the general rate - s11(1)(c) – defines dutiable property as including a land use entitlement. 30 The harsh operation of the relevant provisions of the Duties Act 1997 applicable in November 2001 results in the requirement of the statute that the transfer to the applicant is liable to assessment at ad valorem rates. 31 I direct that the exhibits may be returned and order that the assessment by the Commissioner of State Revenue is affirmed.