CITATION: Port Stephens Holiday Park Pty Ltd and HRCP Pty Ltd v Chief Commissioner of State Revenue [2007] NSWADT 232 DIVISION: Revenue Division APPLICANT PARTIES: Port Stephens Holiday Park Pty Ltd and HRCP Pty Ltd RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 066142 HEARING DATES: 4 July 2007 SUBMISSIONS CLOSED: 4 July 2007 DATE OF DECISION: 2 October 2007 BEFORE: Hole M - Judicial Member CATCHWORDS: Duties Act - sale of business that includes land-related property MATTER FOR DECISION: Principal matter Corporations Act 2001 (Cth) LEGISLATION CITED : Duties Act 1997 Interpretation Act 1987 Land Tax Management Act 1956 A Home Away Pty Ltd & Ors v Commissioner of Corporate Affairs (1980) 5 ACLR 299 CASES CITED: H A Rencoule v Hunt [1967] 2 ITR 475 at 478 Haracos v Chief Commissioner of State Revenue 2003 ATC 4348 Kenmir Pty Ltd v Frizzell [1968] 1 All ER 414 APPLICANT G Farnsworh, Solicitor REPRESENTATION: RESPONDENT R Seiden, Barrister ORDERS: The Tribunal affirms the decision of the Chief Commissioner of State Revenue REASONS FOR DECISION 1 This application is made by two companies in respect of Vendor Duty assessed by the respondent on the transactions whereby the companies transferred a business, including land, to a third party. The applicants contend that the entirety of the transactions are such that the exemption provided in s162T of the Duties Act 1997 ("the Act") should be applied. 2 The transactions relate to shares in a time share resort which were summarised by the respondent as follows: "1. The Village Resort ("the Resort") is a holiday resort of 32 bungalows built on land situated at 288 Hastings River Drive, Port Macquarie, which is Lot 1 in DP 707988 ("the Resort Land"). The Resort is part of a "time share" scheme in which participants in the scheme purchase a right to a one week holiday at the resort subject to an annual fee. 2. The Resort Land is subject to an 80 year lease held by Village Resort Vacations Limited ("the Lessor"). 1632 shares were issued in the Lessor (calculated on the basis of 51 weeks occupancy in 32 bungalows). Each share entitles the shareholder to occupy a bungalow for one week per annum. 3. The title to the Resort Land was divided into 1632 separate and identifiable certificates of title. The Respondent understands that the titles were originally owned by Village Resort Pty Ltd ("Village") and some were individually sold to participants in the time share scheme. A time share unit comprises one share in the Lessor and one title to the Resort Land. 4. At the time of the relevant transactions, approximately 800 time share units had been sold in the scheme to retail customers. In order to exercise their annual occupancy rights under the time share scheme, participants pay a levy to the Lessor. 5. Adjoining the Resort Land at 284 Hastings River Drive, Port Macquarie (Lot 5 in DP 247687) ("the Manager's Land") is a house which is occupied by the person who is employed as the Resident Manager of the Resort. 6. Nolan Investments Pty Limited ("Nolan") held the rights to manage the Resort on behalf of the Lessor under a Management Agreement dated 5 May 2001 ("the Management Agreement"). 7. On 16 August 2004 Nolan and its associated entities entered into a series of transactions to transfer rights in connection with the Resort. 8. On 16 August 2004 the following agreements were entered into: (a) HRCP Pty Ltd and Port Stephens Holiday Park Pty Ltd ("the Applicants") entered into a contract for the sale of the Manager's Land ("the Manager's Land Contract") with Holiday Club Developments Pty Limited ("HCD"); (b) Nolan entered into an agreement with Vacation Management Services Pty Limited ("VMS") to sell Nolan's rights under the Management Agreement to manage the Resort ("Rights Agreement"); and (c) Village, entered into an agreement with HCD to sell the remaining portion of the Resort Land and the shares in the Lessor which had not already been transferred to participants in the time share scheme ("Resort Interest Agreement"); together "the Relevant Agreements". 9. In order to understand the nature of the relevant transactions and their consequences under the Duties Act 1997 (NSW) ("the Act") it is useful to identify the various participants and their relationship both prior to and after the relevant transactions took place. 10. The pre-transaction parties were as follows: Nolan is the ultimate holding company of the Applicants and Village. It is also the Resort Manager under the Management Agreement; The Applicants were the vendors under the Manager's Land Contract and are wholly owned subsidiaries of Nolan; The Lessor is responsible for the running of the Resort and granted the management rights to Nolan under the Management Agreement; and Village was the owner of the following land and shares: 701 Certificates of Title over the Resort Land; 697 shares in the Lessor ("Resort Shares"); 21 Certificates of Title which are the subject of loans or mortgages or otherwise imperfect interests over the Resort Land ("Imperfect Land Interest"); and 24 shares in the Lessor which are the subject of loans or mortgages or otherwise imperfect interests ("Imperfect Share Interest") (collectively "the Resort Interest"). 11. After the transactions, the Resort was owned and operated by the following entities: HCD is the owner of the Manager's Land and the Resort Interest; VMS is the Resort Manager; and Individual scheme participants own the remaining interest in the Resort Land and shares in the Lessor." 3 The applicants' representative provided the following description of the parties involved in the various transactions relating to the Village Resort at 288 Hastings River Drive Port Macquarie: "1. The Village Resort – 288 Hastings River Drive Port Macquarie. 2. Village Resort Vacations Pty Ltd – The Lessor – holder of an 80 Year lease over the Resort Land. 3. Nolan Investments Pty Ltd – Nolan – Manager of the Resort under a Management Agreement with Lessor dated 5 May 2001 (the Management Agreement). Holding company of the Applicants and Village Resort Pty Ltd. 4. Village Resort Pty Ltd – Village – original owner of the titles in the Resort Land. 5. HRCP Pty Ltd and Port Stephens Holiday Park Pty Ltd – the Applicants and owners of the land at 284 Hastings River Drive, PM (the Managers Land), acquired pursuant to Nolan's obligations under the Management Agreement. 6. Holiday Club Developments Pty Ltd – HCD – purchaser of the Managers Land from the Applicants (the Manager's Land Contract) and purchaser of the Resort Interest from Village (Resort Interest Agreement). 7. Vacation Management Services Pty Ltd – VMS – purchaser of the Nolan's rights under the Management Agreement (the Rights Agreement)" 4 The following key is set out for ease of reference: Applicants = HRCP Pty Ltd and Port Stephens Holiday Park Pty Ltd HCD = Holiday Club Developments Pty Limited Lessor = Village Resort Vacations Limited Management Agreement = the agreement to manage the Resort on behalf of the Lessor Manager's Land = 288 Hastings River Drive, Port Macquarie Manager's Land Contract = contract for sale of the Manager's Land Nolan = Nolan Investments Pty Limited Resort = The Village Resort Resort Interest Agreement = the agreement to sell remainder of the Resort Land and the shares in the Lessor not already transferred to participants in the scheme Resort Land = 288 Hastings River Drive, Port Macquarie also referred to as the Manager's Land Resort Shares = shares in the Lessor Relevant Agreements = the Manager's Land Contract, the Rights Agreement and the Resort Interest Agreement Rights Agreement = Nolan's rights under the Management Agreement Village = Village Resort Pty Ltd VMS = Vacation Management Services Pty Limited 5 When the Agreement for sale of land (exchanged 16 August 2004) in respect of the Manager's Land was presented for stamping, Vendor Duty pursuant to S 146 of the Act was assessed and paid. The Director of the applicants applied for a refund of the Vendor Duty, relying on s162T of the Act, by letter to the respondent dated 21 March 2006. 6 The respondent considered the request for refund and refused by letter dated 27 March 2006 relying on s162T of the Act in that "none of the 3 agreements sent by you relates to the sale of a whole of a business". A series of letters ensued between the Director and the respondent, a final letter from the respondent dated 3 November 2006 preceded this application. Evidence 7 Mr Wolfe, a director of each of the applicants, gave evidence and provided an affidavit which comprehensively set out the sequence of the transactions and annexed supporting documents disclosing the sale of the applicants' interest in the business. Legislation 8 Section 146 of the Act (which was applicable as at 16 August 2004): "146 Transactions on which vendor duty is charged (1) Vendor duty is chargeable on the following: (a) a transfer of land-related property that occurs before 2 August 2005, (b) the following transactions, but only if the transaction occurs before 2 August 2005: (i) an agreement for the sale or transfer of land-related property, (ii) a declaration of trust over land-related property. (2) Such a transfer or transaction is a "vendor duty transaction" for the purposes of this Act. …" 9 Section 149 of the Act defines land-related property as: "149 What is "land-related property"? "Land-related property" is any of the following: (a) land in New South Wales, (b) a land use entitlement, (c) an interest in any land-related property referred to in paragraph (a) or (b), except to the extent that: (i) it arises as a consequence of the ownership of a unit in a unit trust scheme and is not a land use entitlement, or (ii) it is, or is attributable to, an option over land-related property." 10 Section 162T of the Act provides: "162T Sale of business that includes land-related property An agreement for the sale or transfer, or a transfer, of land-related property is not chargeable with vendor duty if the Chief Commissioner is satisfied that: (a) the agreement or transfer forms part of an arrangement for the sale of the whole of a business under which both land-related property and other dutiable property connected with the business (including business assets) are transferred to a transferee, and (b) the dutiable value of the land-related property comprises less than 60% of the total dutiable value of the land-related property and other dutiable property." Applicant's submissions 11 The exemption available pursuant to s162T of the Act is applicable if the Sale of Land Contract in respect of the property at 284 Hastings River Drive ("the property") satisfies the following: "(a) form part of an arrangement for the sale of the whole of a business; and (b) under which both land-related property and other dutiable property connected with the business are transferred to a transferee; and (c) the dutiable value of the land-related property comprises less than 60% of the total dutiable value of the land-related property and other dutiable property." 12 The requirement that the transaction form part of an arrangement for the sale of the whole of a business was satisfied by the sale by HRCP Pty Ltd and Port Stephens Holiday Park Pty Ltd as vendors of the property, taken together with the sale of the rights under the Management Agreement referred to at paragraph 2 item 8(a) and the sale of the remaining part of the Resort Land and the shares not already transferred in the time share scheme referred to at paragraph 2 item 8(c). 13 The requirement that both land-related property and other dutiable property connected with the business are transferred to a transferee was satisfied by the sale of the three interests referred to in paragraph 2 item 8. 14 The requirement of s162T of the Act is satisfied as the Sale of Land Contract was for the dutiable value of $350,000 and the Sale of Time Share Contract was for the dutiable value of $850,000; thus the dutiable value of the Sale of Land Contract was less than 60% of the total dutiable value. 15 The whole of the business was owned by Nolan in that the business was "resort management and time share" conducted by Nolan through itself and its wholly owned subsidiaries or related parties. That the applicants are wholly owned subsidiaries of Nolan. 16 The requirement that there be a transfer of the whole of a business would be satisfied if a business had been transferred. This required the identification of "the business"; the business is "resort management and time share". It was necessary for Nolan to procure, through its subsidiaries, the transfer of the property at 284 Hastings River Drive to house the resort manager. 17 The submission was made that: "It is the Applicants' case that so much of the Resort time share management business as Nolan controlled, it transferred to interests associated with Holiday Club Developments Pty ltd (HCD). It is the Applicants' case that HCD and Vacation Management Services Pty ltd (VMS) are associated and related entities …" 18 The provision of s8(b) of the Interpretation Act 1987, that a reference to the singular includes a reference to the plural, subject to any contrary intention and that in s162T of the Act there was no contrary intention evident. 19 The applicants are wholly owned subsidiaries of Nolan. 20 In response to submissions made by the respondent that the shares in the Lessor included a "land use entitlement", thereby rendering them "land-related property" and thus the total dutiable value of the land-related property exceeded the permissible 60% the applicants submitted that:- the "tenant in common" aspect of the "land-related property" was subject to a 70 year lease for which $1 rent had been paid which extrapolated to the present value of the land as less than 5% of the consideration or approximately $43,000. The balance of the contract for the sale of shares amounted therefore to $807,000. 21 The Memorandum and Articles of the Lessor provide: "Art 7.1 No member shall be entitled to occupy any specific bungalow in the Resort but will occupy such Bungalow as the Manager may, in its absolute discretion, allocate to the member. Art 7.2 Notwithstanding anything in these Articles contained or implied no member shall be entitled to exclusive occupancy of any Bungalow and any rights or residence shall be by way of licence and shall not create any relationship of landlord and tenant." and that therefore the shares conveyed no land use entitlement as occupation remained at the discretion of the manager. So that where the total dutiable transaction was $1,200,000 the property related amount was $350,000 plus $43,000 which was still within the allowable amount set out in s162T(b) of the Act. 22 Attention was drawn to the second reading speech for the Act 23 June 2004 at page 84 when the amendment to include the words "the whole of a business" was described as being to clarify "that the exemption for the disposal of land-related property as part of the sale of a business only applies where the whole of a business is sold". That is, this intention was in contrast to a sale merely of assets or part of a business. The test for determining whether "the whole of a business" was sold as opposed t the transfer of assets of a business is as set out in Kenmir Pty Ltd v Frizzell [1968] 1 All ER 414 ("Kenmir"): "In deciding whether a transaction amounts to the transfer of a business, regard must be had to its substance rather than its form, and consideration must be given to the whole of the circumstances, weighing the factors which point in one direction against those which point in another. In the end, the vital consideration is whether the effect of the transaction is to put the transferee in possession of a going concern, the activities of which he could carry on without interruption; and [that the Court or Tribunal should adopt] a broad view of the circumstances as a whole." and further that the absence of an assignment of goodwill, stock in trade, premises or outstanding contracts: "will not be conclusive if the particular circumstances of the transferee nevertheless enable him to carry on substantially the same business as before." 23 The applicant submitted that the three interdependent agreements transferred the whole of the business of Nolan (and its wholly owned subsidiaries or related companies) was transferred to HCD (and its related companies, subsidiaries or nominees). It was further submitted that the absence of a transfer of any goodwill or other specific business asset was irrelevant or inconclusive. The vital question was whether the purchaser is put in possession of a going concern as a business and that the purchaser from Nolan was put in the same place as Nolan with respect to the resort management and time share business and could carry on that business with unbroken continuity. 24 The applicant submitted that: "Nolan (itself and through its subsidiaries and/or controlled entities) conducted the business of resort management and time share at the Village Resort. The entirety of that business was transferred to an identifiable transferee (Holiday Club Developments Pty Ltd and Vacation Management Services Pty Ltd) pursuant to the three interdependent contracts." and that therefore the whole of Nolan's business of time share and resort management at the Village Resort was transferred from one group of companies to another group of companies. 25 The applicants further submitted that Nolan was the owner of a "resort management and time share business" and it had transferred that to HCD and its associated and related entity VMS, the association of HCD and VMS being evidenced by ASIC Historical Company Extracts disclosing that they share a common address and one common director. No further evidence was provided to support the contention that HCD and VMS were associated companies or related companies. Respondent's submissions 26 The representative of the respondent made comprehensive submissions concerning the various entities and relating to the relevant transactions. 27 The applicants had entered into the three Relevant Agreements on 16 August 2004 and each of those agreements included terms that indicated they are interdependent. Although the respondent accepts that the agreements may be interdependent, the respondent submitted that the transactions amount to a sale of two distinct and separate, although related, businesses and the assets of those businesses. 28 Attention was drawn to the analysis of the law arising out of the decision in Kenmir by the applicants in support of the submission that not all of the assets of a business must be transferred in order for there to be the transfer of the "whole of the business". The representative of the respondent submitted that this was not the issue in this matter; rather, that the issue was whether one business or two separate businesses were transferred. 29 It was submitted that consideration of the interpretation of the term "business undertaking" in A Home Away Pty Ltd & Ors v Commissioner of Corporate Affairs (1980) 5 ACLR 299 provided guidance that the business that was under consideration involved activities undertaken by the entity that owned the time share business constituted a separate business undertaking, albeit one undertaken in connection with other businesses (per Jenkinson J at page 316). Further it was submitted that in A Home Away Pty Ltd & Ors that the activities which amounted to a business undertaking were held to be the following: "Procurement of co-operation of the other persons operating the scheme; Sale of shares in the fee simple estate in a parcel of land; Establishing "associated properties" and "associated trusts"; and Preparation of legal instruments including a trust deed, management agreement and lease." 30 The representative of the respondent submitted that it may have been that Nolan and its subsidiaries operated the Resort loosely as one business prior to 16 August 2004, however the Act requires that the whole of a business be identified, not the businesses operated by a vendor and related parties. The Resort had been owned and operated by several entities who each conduct separate but related commercial enterprises. 31 The interpretation of the business/es of the respondent were that: HCD became the owner of the Resort having purchased the Manager's Land under the Manager's Land Contract (the one upon which Vendor Duty was assessed) having purchased the Resort Interest, being the remainder of the Resort Land and the shares in the Lessor which had not already been sold to participants in the time share scheme, and thus having obtained the right to nominate 3 directors to the Board of the Lessor. The Lessor is responsible for managing the Resort these responsibilities were contractually assigned to the Resort Manager under the Management Agreement the Lessor retains responsibility for payment of all liabilities of the Resort and receives payment of the fees from the share scheme participants. HCD has the right to use the accommodation and facilities of the Resort, similar to the other participants in the scheme, subject to the Memorandum and Articles of the Lessor and the Regulations of the Resort. Holiday Club Pacific Limited, a parent entity of HCD, holds an Australian Financial Services Licence to enable at law it to sell time share units in the Resort to retail customers. 32 The respondent drew attention to the business activity of the Resort Manager required pursuant to the Management Agreement concluding that the Resort Manager carried on a business in association with the Resort Owner, but that business is an independent and separate business from the other business of the resort. 33 The respondent concluded further that the two businesses referred to in the previous paragraph were those as sold by Nolan and its subsidiaries. Reliance was placed on the lack of evidence supplied by the applicant as to the manner in which the business/es were conducted prior to 16 August 2004. Attention was drawn to the reference to the principle of continuity being indicative of transfer of the whole of a business as considered in Kenmir as referred to in H A Rencoule v Hunt [1967] 2 ITR 475 ("Rencoule") at 478, being: "a smooth and unbroken continuity between what was happening before and after the transfer". 34 It was submitted that the applicant's view was that the whole of the business was of "resort management and time share" and this business was transferred in part to HCD and the other part to VMS, thus there were two independent transferees in the absence of sufficient evidence of a relationship between VMS and HCD. 35 Insofar as the construction of s162T, the respondent submitted that if the intention of Parliament had been that the exemption applied to transfers to multiple transferees then the section would have concluded with the word "transferred", all words after that being otiose. In order to give meaning to the words the transfer of the whole of a business must be to only one transferee. 36 The respondent submitted that if it was considered that the requirements of s162T had been satisfied regarding "whole of a business" and a "transferee", then the issue of land-related and other dutiable property must be considered. It was further submitted that the only other item that would satisfy "other" dutiable property would be the shares in the lessor. 37 The Dictionary of the Act describes land use entitlement as: "An entitlement to occupy land in New South Wales 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." 38 Further, the Commentary on the Act suggests that the "provisions could apply to "time share" arrangements where rights of occupancy are granted as a result of the acquisition of a share or unit". Relying on the definition of occupation as set out in the judgement of Gzell J in the context of the Land Tax Management Act 1956 in Haracos v Chief Commissioner of State Revenue 2003 ATC 4348 at 4351-4351, the value of the shares must be considered in order to determine the threshold requirement in s162T(b). The respondent considered that there was no evidence provided as to that value. Reasons for decision 39 Section 162T permits an exemption from the vendor duty provisions of the Act where the Chief Commissioner is satisfied that the agreement or transfer forms part of an arrangement whereby the whole of a business including land-related property and other dutiable property connected with the business are transferred to a transferee. 40 The business in this matter is contended to be that of "resort management and time share" and that it was owned by Nolan and its subsidiaries, and that this business as a whole was transferred to HCD and VMS by way of an arrangement evidenced by three interdependent contracts dated 16 August 2004. The applicants, being the vendors of the business, contended that as they were wholly owned companies of Nolan that Nolan had agreed to transfer the whole of that ownership to a transferee being NCD and VMS, being associated or related companies. As a consequence, the exemption then applied. The evidence relied upon by the Applicants to support the contention that NCD and VMS were associated or related companies is insufficient to satisfy to satisfy the requirements of s50 or s50AAA or s50AA of the Corporations Act 2001 (Cth). 41 There is no dispute that Nolan is the owner of the applicants and that, provided that the whole of the business was owned by Nolan then the requirement of "whole of a business" as described in s162T is satisfied. 42 The intention of the introduction of imposition of Vendor Duty on transactions as set out in Part 5 of the Act was to levy duty on the Vendor in respect of those transactions. The exemption set out in s162T was clarified to apply to where a business was "sold" as a whole. It is questionable whether a business is sold "as a whole" if separate parts of that business is sold to unrelated individuals/companies. 43 The applicant has submitted that the two purchasing companies of the distinct parts of the business are related in that they share a common address and director. This is insufficient to conclude that they are related or associated. 44 The business may only be considered to be sold as a whole if that business is able to continue operating as a whole after the transfer in accordance with the principle of continuity as described in Rencoule and considered in Kenmir. 45 Both the applicant and the respondent made comprehensive submissions relating to the land-related and other dutiable property provisions. However, as the business cannot be considered to have been sold as a whole, it is unnecessary to address these provisions. 46 In the event that the business could be considered to have been sold as a whole to the two purchasing companies then the issue would have been whether the provisions of s162T(b) could have been satisfied. 47 In this regard if the sale had been of the whole of a business to a transferee then the requirements of s149(a) would have been satisfied and, as the Manager's Land was to be transferred for less than 60% of the total dutiable value as required by s162T, then the exemption would have applied. 48 If the sale had been of the whole of a business to a transferee and it had been held that the transferee could continue the business as a whole albeit the transferee comprised more than one entity then consideration of the land use entitlement referred to in s149(b) as it related to s162T(b) would have been required, in which case the submissions of the applicant as to the value of the time share availability of the entitlement to use of part of the property would have been required to have been supported by satisfactory evidence. 49 The application to disallow the objection of the Applicants to the refusal by the Respondent must fail as the result of the transactions is that two separate businesses were sold, each being capable of being operated separately. The transferees were not associated or related companies and had each purchased a separate part of Nolan's businesses. ORDER The Tribunal affirms the decision of the Chief Commissioner of State Revenue. 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.