Rankin v Chief Commissioner of State Revenue [2007] NSWADT 223

CITATION: Rankin v Chief Commissioner of State Revenue [2007] NSWADT 223

DIVISION: Revenue Division

APPLICANT PARTIES: Therese Helen Rankin RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 076062

HEARING DATES: 14 September 2007

SUBMISSIONS CLOSED: 14 September 2007

DATE OF DECISION: 26 September 2007

BEFORE: Verick A - Judicial Member

CATCHWORDS: Duties Act - refinancing of loans - concession

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Duties Act 1997

Blue Metal Industries Ltd v Dilley (1969) 117 CLR 651 CASES CITED: Chief Commissioner of State Revenue v Group and General Finance Pty Limited (RD) [2004] NSWADTAP 14 Deposit & Investment Co Ltd v Greenway [1969] VR 714

APPLICANT P Rankin, agent REPRESENTATION: RESPONDENT H El-Hage, solicitor advocate

ORDERS: The objection decision under review is affirmed

REASONS FOR DECISION 1 The applicant in this matter seeks a review of a decision made by the respondent under the Duties Act 1997 ("the Duties Act") requiring the applicant to pay duty with respect to a mortgage registered over a property situated at 8 Beech Road, Redhead, New South Wales ("the property"). 2 The essential issue in dispute is whether the applicant is entitled, in respect of a refinancing mortgage, to the exemption from payment of duty under s 220 of the Duties Act. The respondent has taken the view that the applicant is not entitled to the exemption and disallowed her objection to that decision. Factual Background 3 The factual background in relation to this matter, which is not in dispute, has been usefully summarised by the respondent in his written submissions as follows: "4 In November 2004, the applicant and her husband, Phillip Norman Rankin, obtained finance from the National Australia Bank ("NAB"). The borrowings were secured by way of a mortgage over the property to NAB ("Earlier Mortgage"). As sole owner of the property, the applicant was the mortgagor under the Earlier Mortgage. 5 The total amount borrowed under the Earlier Mortgage was $900,000.00. That amount was provided by NAB to the applicant and Phillip Rankin by way of four different facility agreements. The first facility agreement was for a limit of $500,000.00. The second facility agreement was limited to $100,000.00. The third facility agreement was limited to $200,000.00. The fourth facility agreement was limited to $100,000.00. 6 There is no dispute that under each of the facility agreements, Phillip Norman Rankin and Therese Helen Rankin were the borrowers. 7 In December 2006, the applicant, as the sole borrower, entered into two loan agreements with St George Bank, signed on behalf of the Bank on 6 December 2006. The first loan agreement was for an amount of $300,000.00. The second loan agreement was for an amount of $400,000.00. 8 The advances from St George Bank were secured by way of a registered mortgage over the property ("Subsequent Mortgage"). Again, the applicant was the mortgagor. 9 The advances from St George Bank were used to pay most of the amount outstanding under the loans from NAB. The balance of $193,246.19 was provided from another account. 10 On 17 January 2007, the Subsequent Mortgage was stamped as being liable for duty in the amount of $2,741.00. 11 On 30 January 2007, the applicant lodged an application for an exemption from mortgage duty available for the refinancing of loans. 12 By letter dated 5 February 2007, the Chief Commissioner refused the application for exemption for the refinancing of loans, available under s. 220 of the Duties Act. 13 By letter dated 6 February 2007, the applicant objected to the refusal of her application for an exemption. In her letter, the applicant explained that she was advised by NAB and St George Bank not to include her husband as a borrower or a guarantor under the loans from St George Bank. 14 On 22 March 2007, the Chief Commissioner disallowed the applicant's objection. The Chief Commissioner concluded that the borrowers under the Earlier Mortgage and the Subsequent Mortgage were not the same, and therefore, s. 220 of the Duties Act could not apply. 15 On 26 April 2007, the applicant filed an application for review of the Chief Commissioner's decision." 4 Besides the documents provided by the respondent under s 58 of the Administrative Decisions Tribunal Act 1997, Phillip Rankin who represented the applicant, explained why he was not a party to the Subsequent Mortgage. Because of his other business financial commitments to NAB, he was not permitted by NAB to be a party to the loan arrangement/refinancing transaction with St George Bank. Relevant Legislative Provisions 5 Chapter 7 (sections 204 – 228) of the Duties Act charges a mortgage duty on instruments that fall within the definition of a mortgage. Relevantly for this application, under s 205, an instrument is a mortgage if it is: "(a) a security by way of mortgage or charge over property wholly or partly in New South Wales at the liability date." 6 So far as is relevant for this matter, an "advance" is defined in s 206 as follows: "In this Chapter, advance means the provision or obtaining of funds by way of financial accommodation, by means of: (a) a loan, being: (i) an advance of money, or (ii) the payment of money for or on account of, or on behalf of, or at the request of, any person, or (iii) a forbearance to require the payment of money owing on any account whatever, or (iv) any transaction (whatever its terms or form) that in substance effects a loan of money." 7 Under s 207, the person liable to pay mortgage duty is the mortgagor or the person bound. 8 Section 220 exempts a refinancing mortgage in certain circumstances. It provides as follows: " 220 Refinancing of loans (1) In this section: land used for aquaculture means land subject to an aquaculture permit (within the meaning of the Fisheries Management Act 1994) refinancing mortgage means a mortgage that: (a) secures the amount of the balance outstanding under an earlier mortgage that is discharged or to be discharged as part of the arrangements for the new mortgage, and (b) is created to secure an advance to the same borrower as under the earlier mortgage, and (c) is over the same property as the earlier mortgage. (2) For the purposes of subsection (1), mortgages are created to secure an advance to the same borrower if, either directly by the mortgages themselves or indirectly through one or more collateral arrangements, the same person obtains the advances secured by them. (3) A refinancing mortgage is taken to have been stamped with ad valorem duty as a mortgage in respect of the duty-free refinancing amount, except as provided by subsection (5). (3A) For the purposes of this section, the duty-free refinancing amount is the lesser of the following amounts: (a) the maximum amount payable under or secured by the earlier mortgage (being an amount in relation to which mortgage duty has been paid or in relation to which an exemption from duty has been obtained), (b) $1,000,000. (3B) However, if the refining mortgage is over land used for primary production or land used for aquaculture, the duty-free refinancing amount is the maximum amount payable under or secured by the earlier mortgage (being an amount in relation to which mortgage duty has been paid or in relation to which an exemption from duty has been obtained). "Land used for primary production" is defined in the Dictionary. (4) If an advance is refinanced by more than one lender, so that mortgages given to the lenders together secure the balance outstanding under an earlier mortgage, the definition of refinancing mortgage in subsection (1) is to be construed as though: (a) the reference to a mortgage securing the outstanding balance were a reference to the aggregate of such mortgages, and (b) the reference to property were a reference to the property securing the aggregate of refinancing advances made by the lenders under their combined mortgages, to the intent that, if the requirements of the definition as so construed, are satisfied, each lender is taken, for the purposes of this section, to be holder of refinancing mortgage. (5) If, as provided by subsection (4), each of a number of lenders is the holder of a refinancing mortgage, a refinancing mortgage held by each lender is taken to have been duly stamped with ad valorem duty as a mortgage in respect of an amount equal to the same proportion of the duty-free refinancing amount as the amount secured by that mortgage bears to the total amount secured by the refinancing mortgages held by all the lenders. (6) If each of two or more refinancing mortgages severally secures the same advance: (a) the provisions of subsection (3) or (5), as the case may be, apply to such one of the mortgages as the Chief Commissioner determines, and (b) no duty is chargeable in respect of any of the others. (7) (Repealed) (8) Duty at the rate of $4 per $1,000 or remaining part of $1,000 is payable on the amount by which the advance made under a refinancing mortgage (not being a mortgage on which, by virtue of subsection (6) (b), no duty is chargeable) exceeds: (a) the duty-free refinancing amount, or (b) the proportion of that amount referred to in subsection (5), in the case of a refinancing to which subsection (4) applies. (8A) If a borrower is a related body corporate of a borrower under an earlier mortgage, the firstmentioned borrower is taken to be the same borrower or the same person for the purposes of subsection (1) or (2). (9) If a borrower under an earlier mortgage dies, or is a party to a marriage that has been dissolved or annulled or, in the opinion of the Chief Commissioner, has broken down irretrievably or is a party to a de facto relationship that, in the opinion of the Chief Commissioner, has been terminated, the remaining borrower is, or the remaining borrowers are, taken to be the same borrower or the same person for the purposes of subsection (1) or (2). (10) A party to a marriage or de facto relationship may provide a statement to the Chief Commissioner, in the form of a statutory declaration, to the effect that: (a) in the case of a marriage: (i) the party intends to apply for a dissolution or an annulment of the marriage, or (ii) the parties to the marriage have separated, and there is no reasonable likelihood of cohabitation being resumed, or (b) in the case of a de facto relationship, the de facto relationship has been terminated. The Chief Commissioner is required to have regard to any such statement in exercising his or her functions under subsection (9). (11) Subsection (10) does not limit the functions of the Chief Commissioner under section 72 of the Taxation Administration Act 1996." Submissions 9 The applicant's case is simply that she "was the mortgagor and the owner of the security property for both loans" and as such she has "fulfilled the requirements for a full reimbursement of the mortgage stamp duty paid on the refinancing of the original loan" pursuant to the provisions of s 220 of the Duties Act. 10 The applicant further states that advice from "both NAB and the new lender St George, suggested to not include" her husband "as a borrower or as a guarantor" in respect of the refinancing arrangements because of "his circumstances as a guarantor in other loan transactions with the National Australia Bank". Mr Rankin confirmed at the hearing that he was prevented by NAB to be a party to the refinancing arrangements with St George because of his business financial obligations with NAB. 11 The respondent has submitted that for "the exemption in s. 220 of the Duties Act to apply in this case, the applicant must establish that all of the following requirements in s. 220(1) are satisfied: (a) the Subsequent Mortgage secures "the same amount of the balance" under the Earlier Mortgage; and (b) the Subsequent Mortgage has been created to secure "an advance to the same borrower as under" the Earlier Mortgage; and (c) the Subsequent Mortgage is over the same or substantially the same property as the Earlier Mortgage." 12 The respondent accepts that the requirements in s 220(1)(a) and (c) have been satisfied in this case but has submitted that the Subsequent Mortgage did not secure an advance to the "same borrower" as under the Earlier Mortgage for the purposes of s 220(1)(b). 13 The respondent relies on the following submissions: "26 The term "borrower" is not defined for the purposes of s. 220 of the Duties Act . It is submitted that "borrower" in that section simply means a 'person to whom money is lent, or advanced'. Borrowing necessarily implies repayment at some time and some circumstances: see definition of "borrower" in Butterworths Australian Legal Dictionary, Butterworths, 1997; see also Deposit & Investment Co Ltd v Greenway [1969] VR 714, at 718 (discussed further below). That meaning of 'borrower' was accepted by the parties in Group and General Finance Pty limited (RD) v Chief Commissioner of State Revenue [2003] NSWADT 221, at para. [18]. 27 In Chief Commissioner of State Revenue v Group and General Finance Pty Limited (RD)[2004] NSWADTAP 14 ("Group and General Finance"), at paras. [34] & [36], the Appeal Panel stated as follows in relation to the operation of s. 220(2): "Section 220 (2) sets out the test for deciding whether a mortgage is created to secure an advance to the 'same borrower' as obtained an advance under an earlier mortgage. The test fixes upon the person who obtains the advance secured by the mortgage claimed to be the refinancing mortgage. …. Nor does the section fix upon the totality of the amount that the taxpayer may have to pay in certain contingencies. That may be, as it is in this case, quite different from the advance that is made to the borrower which is giving the mortgage. It is the identity of the person who obtains the advance that matters." (emphasis added) 28 The applicant's submission that s. 220(1)(b) does not refer to 'borrowers' is not to the point. It is a well established rule of statutory construction that words in the singular include the plural: see s. 8(b) of the Interpretation Act 1987 (NSW); see also Pearce & Geddes, Statutory Interpretation in Australia, 6th ed., 2006, at paras. [6.38] – [6.40]. 29 As the Privy Council in Blue Metal Industries Ltd v Dilley (1969) 117 CLR 651 at 656: "It follows that the mere fact that the reading of words in a section suggests an emphasis on singularity as opposed to plurality is not enough to exclude plurality. Words in the singular will include the plural unless the contrary intention appears . But in considering whether a contrary intention appears there need be no confinement of attention to any particular section of an Act. It must be appropriate to consider the section in its setting in the legislation and furthermore to consider the substance and tenor of the legislation as a whole." (emphasis added) 30 The decision in Deposit & Investment Co Ltd v Greenway [1969] VR 714 is a case in point. It concerned a loan made to the defendant and five other persons. In considering the meaning of the words "the borrower" in the relevant legislation, the Court made the following observations (at 718): "The words 'the borrower' are, in my view, apt and intended to describe or denote the party to whom the money lent, whether that party consists of one person or several persons. They mean, I think, the person or persons, as the case may be, who borrow. In the case of a loan to one person, that person, and in the case of a loan to several persons, those persons. Each of those persons may be said to be 'a borrower' but 'the borrower' is all of them . Accordingly, in my opinion, where a loan is made to several, the note or memorandum of contract is not signed by the borrower … unless it is signed by each of the persons." (emphasis added) 31 It follows that the term 'borrower' in s. 220(1)(b) is to be read to mean "borrowers" when there are two or more borrowers under the relevant mortgage. Similarly, the word "person" in s. 220(2) is to be read to mean "persons" where there are two or more borrowers. Thus, where there are two or more borrowers under an earlier mortgage, those same persons must be the borrowers under a refinancing mortgage in order to satisfy s. 220(1)(b). 32 It is common ground that the applicant and her husband were the borrowers under the Earlier Mortgage. However, the applicant is the sole borrower under the Subsequent Mortgage. Thus, the Subsequent Mortgage was not created to secure an advance to the same borrowers as under the Earlier Mortgage, ie, the advances under the Earlier Mortgage and Subsequent Mortgage were not secured by the same person. On that basis, s. 220(1)(b) has not been satisfied. 33 It is not the point that the applicant was the sole owner of the security under both the Earlier Mortgage and the Subsequent Mortgage. As the Appeal Panel in Group and General Finance pointed out, s. 220(1)(b) is concerned with the identity of the borrower, ie, the person or persons who obtains the advance secured by the relevant mortgage." Conclusions and Decision 14 In order to obtain the exemption under s 220 of the Duties Act, the applicant had to establish that: (a) the Subsequent Mortgage with St George Bank secured "the same amount of the balance" under the Earlier Mortgage with NAB; and (b) the Subsequent Mortgage with St George Bank was created to secure " an advance to the same borrower" under the Earlier Mortgage with NAB; and (c) the Subsequent Mortgage was over the same or substantially the same property or part of the property as the Earlier Mortgage with NAB. 15 The respondent, correctly, concedes that the requirements (a) and (c) have been satisfied in this matter but that the Subsequent Mortgage with St George Bank did not secure an advance to the "same borrower" as under the Earlier Mortgage with NAB as required by s 220(1)(b). 16 The Tribunal agrees with the respondent's submissions (and adopts the reasoning advanced) that to be entitled to an exemption from duty, s 220(1)(b) requires that the refinancing mortgage to secure an advance is created for the same borrower as under the earlier mortgage. In the present matter the original borrowers with NAB were the applicant and her husband and to be entitled to the exemption, the refinancing mortgage transaction also had to secure an advance to them jointly. The refinancing transaction with St George Bank was, however, created to secure an advance to only the applicant. 17 The respondent is correct that the rules of interpretation allow the word "borrower" found in s 220(1)(b) to be read in the plural when there are two or more borrowers. In this matter, the applicant and her husband were the "borrowers" in respect of the earlier mortgage with NAB and to be entitled to the exemption, they both had to be parties to the refinancing mortgage with St George Bank for purposes of s 220(1)(b). 18 In drafting the exemption, it was recognised that a couple through marriage or by way of a de facto relationship in respect of the earlier mortgage may not, because of a divorce or permanent separation or the death of one of the parties, be together when the refinancing mortgage is created. In those circumstances, pursuant to subsection (9) of section 220 the remaining borrower is taken to be the same borrower or the same person for the purposes of subsection (1) and (2) of s 220. Unfortunately, for the applicant these special provisions do not apply to her factual situation. 19 The facts of this matter are in a sense within the policy intent of s 220. A similar situation to those recognised in subsection (9) of s 220, as was the case in this matter, would arise where one of the two is prevented to be a party to the refinancing arrangement because of commercial or other reasons beyond the control of the relevant party. Effectively, the refinancing mortgage in this matter was for the financial benefit of both the applicant and her husband. Because of his other financial obligations to the NAB, the applicant was not permitted by NAB to be a party to the refinancing mortgage with St George Bank. Under both, the Earlier Mortgage and the Subsequent Mortgage, it was the applicant's property, the family home, that was used as the security property. 20 The law as presently drafted, offers no relief to the applicant. There is no discretion with the respondent to allow any concession including even a partial exemption to the applicant. 21 In any future review of the scope of the exemption found in s 220, this fairly inequitable lacuna in the law should be addressed. Meanwhile, the Tribunal is, as was the respondent, bound by the current provisions of the law and has to confirm the decision made by the respondent to reject the applicant's application for exemption under s 220. Order The decision under review is affirmed.