Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Esplanade Wollongong Unit Trust v Chief Commissioner of State Revenue [2017] NSWCATAD 157 Hearing dates: 24,25,26,29 and 30 August 2016 Date of orders: 19 May 2017 Decision date: 19 May 2017 Jurisdiction: Administrative and Equal Opportunity Division Before: R Deutsch, Senior Member Decision: 1 The decision under review is set aside. 2 In respect of the Second Disputed Transfer, ad valorem duty is payable based on a transfer value of $16,130,000 at the premium rate of duty and interest is payable by the Applicant based on the following factors: (a) only the market rate component of interest is to be charged for the period from 23 January 2011 to the date of payment on a transfer value of $ 16,130,000; and (b) interest is only to be applied to the amount being the duty that would have been payable on 22 January 2011 if the duty had been calculated at ordinary rates (ie not at the premium rates arising as a result of the application of s32A of the Duties Act). Catchwords: stamp duty- trusts – mistake - valuation – hypothetical development v direct comparison methods – interest remission Legislation Cited: Administrative Decisions Review Act 1997 (NSW) Duties Act 1997 (NSW) Tax Administration Act 1996 (NSW) Cases Cited: Byrnes v Kendall (2011) 243 CLR 253 Chief Commissioner of State Revenue v Incise Technologies Pty Ltd 2004 NSWADTAP 19 Korda v Australian Executor Trustees (SA) Ltd (2015) HCA 6 Lindfield Developments Pty Ltd v Shuangxing Development Pty Ltd (2016) NSWSC 68 McEvoy v McEvoy 2012 NSWSC 1494 Metricon Qld v CCSR 2016 NSWSC 332 Texts Cited: Ford and Lee, Law of Trusts Category: Principal judgment Parties: Esplanade Wollongong Unit Trust (Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: K J Young (Applicant) S Balafoutis and R Clark (Respondent) Solicitors: Dormer Stanhope (Applicant) Crown Solicitor's Office (Respondent) File Number(s): 2017/00049673, 136077 REASONS FOR DECISION Facts 1. On 17 January 2002 a contract for the purchase of a large parcel of real property situated in NSW which included land currently the subject of dispute was entered into by Belmore Developments Pty Limited (Belmore) and Waterviews Developments Pty Ltd (Waterviews) as tenants in common in equal shares (as Purchasers) for an agreed consideration of $11.5m. 2. At that time, the land currently the subject of dispute, did not have an independent title but was part of a larger land holding that was purchased jointly. 3. It is common ground that the purchase by Belmore of its half share purchased in 2002 (the 2002 Half Interest) was a purchase by Belmore in its own right and that Belmore and Waterviews were in a joint venture in relation to the development of all the land but were otherwise unrelated to one another. 4. Settlement of the purchase occurred on or around 16 April 2002. 5. On 28 October 2003, the land purchased was formally subdivided and thereby created a separate holding in respect of the land the subject of this dispute which was and is Lot 2 DP 1059775 also known as 72-74 Cliff Road Wollongong (the Property). 6. It is asserted by the Applicant that on 11 February 2006, the Belmore Developments Unit Trust Deed was executed the effect of which was to create a trust (the Belmore Trust) the details of which are as follows: Name of Trust Belmore Developments Unit Trust Settled Sum $100 Settlor Anthony Geoffrey Pickham Beneficiaries Mr Peter Taranto as trustee for the PT Trust No 2 Mr Alex Pupovec as trustee for the AP Trust No 2 1. On 16 February 2006 a contract for the sale of property was entered into by Waterviews (as Vendor) and Belmore (as Purchaser) in respect of the half share interest which Waterviews held in the Property (the 2006 Half Interest). 2. Settlement of that purchase occurred later that year with a transfer being executed transferring the 2006 Half Interest from Waterviews to Belmore (the First Disputed Transfer). 3. The purchase by Belmore of the 2006 Half Interest was financed by means of a facility to Belmore provided by Capital Finance and dated 12 December 2006 for an amount of $8.2m. The loan was secured in three ways as follows: * A mortgage over the Property; * A charge over Belmore; and * Guarantees provided by Mr Taranto and Mr Pupovec, the two main individuals connected to Belmore. 1. That facility was subsequently refinanced to St George Bank Limited (St George) through Kiera Developments Pty Ltd, another of Mr Taranto and Mr Pupovec's companies. The mortgage to Capital Finance was discharged and a new mortgage over the Property was registered to St George. 2. On 15 December 2009, a company called Esplanade Wollongong Pty Ltd was registered and on 22 October 2010 further Deeds were entered into whereby: * the Belmore Trust was renamed the Esplanade Trust; * the Esplanade Trust was amended to ensure that the trustee of the trust could not be a beneficiary of the Trust; and * Belmore was replaced by Esplanade as the trustee of the now renamed Esplanade Trust. 1. On 22 October 2010, a transfer was executed transferring the Property from Belmore to Esplanade (the Second Disputed Transfer) although it seems that that date was not affixed to the Second Disputed Transfer until 14 December 2010. 2. The result was that the registered owner of the Property was now Esplanade in its capacity as trustee of the Esplanade Wollongong Unit Trust (EWUT) 3. On 21 December 2010, FGC Investments (Aust) Pty Limited (FGC) provided a $5m unsecured loan to Esplanade and on 23 December 2010 Commonwealth Bank of Australia (CBA) provided a similar $10m loan with the FGC loan being subordinated to the CBA loan. 4. On 18 January 2011: * the St George mortgage was discharged; * the Second Disputed Transfer from Belmore to Esplanade was registered; and * the CBA mortgage was registered. 1. The Second Disputed Transfer was initially stamped for nominal duty of $50 (fifty dollars) under s 54 of the Duties Act 1997 (NSW) (the Duties Act) on the basis that it merely reflected a change in trustees and nothing more. 2. However, following an investigation by the Office of State Revenue (OSR), a Duties Notice of Assessment was issued on 19 February 2013 by which Esplanade as trustee of the EWUT was assessed to duty on the Second Disputed Transfer in the amount of $1,364,740.37 based on a transfer value of $20m (the First Notice). 3. On 18 April 2013, Esplanade as trustee of the EWUT objected to the First Notice (the First Objection). 4. On 23 October 2013, the OSR disallowed the First Objection on the ground that the Second Disputed Transfer was "clearly for the whole property": see Tab 55 s 58 Documents. 5. On 12 December 2013, Esplanade as trustee of the EWUT filed an application for review in the NSW Administrative Decisions Tribunal as it was then known. 6. In March 2014 the Property was refinanced from the CBA to National Australia Bank (NAB). 7. On or about 10 December 2015, the Respondent issued a revised Notice of Assessment (the Second Notice) which differed in two material respects to the First Notice namely: * First, it applied premium duty to the Second Disputed Transfer pursuant to s 32A of the Duties Act with the amount of duty being calculated using the relevant premium rates; and * Secondly, it used a transfer value of $18.5m rather than $20m. 1. On or about 4 February 2016, Esplanade objected to the Second Notice (the Second Objection). 2. On or about 22 March 2016, the Respondent disallowed the Second Objection. The grounds were said to be the same as in respect of the First Objection with the added ground that s 32A of the Duties Act applied because the land was residential land for the purposes of s 32A and consequently s 32B did not apply. 3. Esplanade remains dissatisfied with the decision of the Respondent and seeks review in this Tribunal. The witnesses 1. During the course of the five day hearing oral evidence was given by a number of witnesses as follows: * Mr Anthony Pickham – Accountant for the Applicant * Mr Alex Pupovec – Director of the Applicant * Mr Peter Taranto – Director for the Applicant * Mr Staltari – Valuation Expert for the Applicant * Mr Adlington – Valuation Expert for the Respondent The filed evidence 1. At the hearing 24 Exhibits were accepted each of which were identified with a different combination of letters and numbers. Where relevant and referred to in this decision the appropriate letter number combination has been used throughout. Issues 1. This dispute turns on a number of matters that can be broken down into 12 discrete issues. In some cases, the need to resolve a given issue depends on the answer given to an earlier issue. 2. I will first list the issues and how they are reliant on one another and will then turn to a more detailed consideration of each issue. The first disputed transfer Issue 1 1. Did Belmore purchase the 2006 Half Interest as a result of the First Disputed Transfer as trustee for the Belmore Developments Unit Trust or in its own right? Issue 2 1. If the answer to Issue 1 is in its own right, did the 2006 Half Interest become impressed with trust obligations under the EWUT sometime after the time of the First Disputed Transfer but before the Second Disputed Transfer? Issue 3 1. If the answer to Issue 1 is that the purchase was by Belmore as trustee or to Issue 2 is that the 2006 Half Interest became impressed with trust obligations, can the Second Disputed Transfer, though in form one instrument, nonetheless effect two separate, severable and distinct transactions namely: * a transfer from Belmore to Esplanade of the 2006 Half Interest being an interest held by Belmore as trustee; and * a transfer from Belmore to Esplanade of the 2002 Half Interest being an interest held by Belmore in its own right Issue 4 1. If the 2006 Half Interest was trust property or relevantly became trust property and it can be split into 2 transactions, do the apportionment provisions in s 27 and s 294 of the Duties Act apply such that: * The transfer of the 2006 Half Interest is subject to nominal $50 duty only; and * The transfer of the 2002 Half Interest is subject to ad valorem duty. Issue 5 1. If the interest was trust property or relevantly became trust property and it can be split into 2 transactions and the apportionment provisions apply, can the change of trustee provisions in s 54(3) be engaged such that nominal duty is charged on the change of trustee in respect of the 2006 Half Interest? Issue 6 1. If the interest was trust property or relevantly became trust property and it can be split into 2 transactions and the apportionment provisions apply but ad valorem duty is payable on the transfer of the 2006 Half Interest, is the value of the dutiable property negligible on the basis that there is an equitable interest grafted on and the Applicant as transferee takes subject to the existing equitable interest. The second disputed transfer Issue 7 1. Was the Second Disputed Transfer a mistake in that it was intended only that Belmore transfer the 2006 Half Interest as it believed that only that interest was the subject of the Belmore Trust? Issue 8 1. If the Second Disputed Transfer was a mistake, does the transfer of Property under mistake give rise to an equitable interest in the property on the part of Belmore? Issue 9 1. If the Second Disputed Transfer was a mistake and the mistake gives rise to an equitable interest in the Property on the part of Belmore, was the value of the half share of the Property transferred by mistake negligible in value owing to the existence of the equitable interest? General Issue 10 1. What is the dutiable value of the Property as at 22 October 2010? Issue 11 1. Does s 32B apply such that the Premium Rate of duty is not payable or is reduced if an apportionment needs to be made? Issue 12 1. Whether interest should be applied in whole or in part? The first disputed transfer Issue 1 Did Belmore purchase the 2006 Half Interest as a result of the First Disputed Transfer as trustee for the Belmore Developments Unit Trust or in its own right? 1. It is fundamental to a resolution of this matter that the Tribunal determine in relation to the purchase of the 2006 Half Interest whether there was in fact an intention to create a trust over the 2006 Half Interest on the terms of the Belmore Trust. 2. Essentially, the 2006 Half Interest could have become subject to trust in one of 2 ways: * First, it may be the case that there was a transfer to Belmore with the intention that Belmore is to hold the 2006 Half Interest on trust as declared in the Belmore Trust; * Secondly, Belmore at some point declares that it holds the 2006 Half Interest as trustee. Such a declaration of trust can be made in writing, orally, by conduct or by a combination of such matters. 1. The key issue in both cases is whether there is a sufficiently clear intention to create a trust in respect of the 2006 Half Interest and this can be demonstrated by the language or the conduct of the parties involved: McEvoy v McEvoy [2012] NSWSC 1494 at 3. 2. The intention must be judged by reference to the objective intentions of the relevant parties rather than by reference to any subjective intention they might assert they had. Thus in Byrnes v Kendall (2011) 243 CLR 253 at 17-18 the High Court states: "But subjective intention is irrelevant both to the question of whether a trust exists and what its terms are" 1. Similarly, in Korda v Australian Executor Trustees (SA) Ltd (2015) HCA 6 "Absent, as in this case, an explicit declaration of such intention, the court must determine whether intention is to be imputed. It does so by reference to the language of the documents or all dealings having regard to the nature of the transactions and the circumstances attending the relationship between the parties. " The Respondent's main arguments 1. Both the Applicant and the Respondent have put forward matters which they each consider to be relevant in this regard and I will deal with them sequentially dealing with the Respondent's points first. 2. The Respondent raised three matters in particular as follows: * The communications with the financier, Capital Finance relating to the funding of the purchase by Belmore of the 2006 Half Interest; * The letter of 31 March 2007 from Mr Taranto to the Office of State Revenue relating to the purchase of the 2006 Half Interest; and * The Contract of Sale between Waterview and Belmore relating to the sale of the 2006 Half Interest Communication with Capital Finance 1. In this context it seems reasonable to proceed on the basis that in determining whether a particular party had purchased property in its own right or in its capacity as a trustee, one must first look at the contemporaneous documentation that came into existence at the time of the acquisition. 2. Belmore had sought and received finance from Capital Finance in order to purchase the 2006 Half Interest. 3. Without exception, the contemporaneous documentation which came into existence consistently made no mention of the existence of a trust of any description whatsoever. 4. Of particular note here are the following: 1. The very first correspondence sent to Capital Finance seeking to explain the refinancing arrangements explained that Belmore had purchased the 2006 Half Interest from Waterview and that Belmore would assume all of Waterview's obligations. In that correspondence no mention whatsoever was made of a trust. 2. A statutory declaration of Mr Peter Taranto on behalf of Belmore was completed and signed on 29 August 2006 and this stated categorically that "The Company (ie Belmore) does not act as Trustee of any Trust Fund or settlement" 1. Under rigorous cross-examination, Mr Taranto indicated that he had signed the statutory declaration without reading it, apparently, according to his own testimony, not even in the context of these proceedings. He also provided more general evidence to the effect that his normal practice was that he signed the statutory declaration without reading them despite knowing that swearing a statutory declaration is a serious matter. 2. I find this evidence to be wholly unconvincing particularly in the context of a businessman with many years of experience that seems to understand very clearly the serious nature of the effect of signing a false statutory declaration. I also find it all too convenient that having made a statutory declaration indicating categorically that Belmore does not act as trustee of any trust fund or settlement that Mr Taranto now seeks to sidestep the consequences of the making of that statement by suggesting that he never read it the first place. 3. The Master Loan Agreement between Capital Finance and Belmore made no mention of any trust whatsoever. 4. All the documents dated 12 December 2006 being * the Mortgage; * the Fixed and Floating Charge over Belmore's assets; and * the guarantees made by both Mr Peter Taranto and Mr Alex Pupovac 1. failed to make any mention whatsoever of a trust being involved in relation to the acquisition of the 2006 Half Interest 2. At the time of the first drawdown of money under the loan arrangement with Capital Finance, there was only one Belmore account and the monies were paid into that account. There was no separate account created for the so-called Belmore Trust. This would seem to be most unusual particularly in circumstances where Belmore was also acting in its own right. One would have thought that the participants would recognise the need to segregate the assets of Belmore in its own right from the assets of Belmore acting as trustee. 3. In a number of the documents relating to the financing arrangement provided by Capital Finance there was included a schedule of trust details to be provided. These parts of the relevant schedules were left entirely blank leading obviously to the conclusion on the part of Capital Finance that there was no trust in existence in relation to the purchase of the 2006 Half Interest. To the extent that these references in the various schedules were left blank it is tantamount to Mr Taranto and Mr Pupovac declaring that no trust exists in relation to the 2006 Half Interest. The letter to the OSR 1. On 31 March 2007 Mr Taranto provided a written letter to the OSR in relation to the purchase of 2006 Half Interest from Waterviews. This letter was not only signed by Mr Taranto but it was hand written by him and stated without any qualification whatsoever that " … Belmore Developments P/L … Has in its own right purchased 72 Cliff Road, Wollongong in December 2006. 1. In addition, attached to that handwritten letter was an OSR standard form which asked a number of questions including "Is the land owned by a Trust?" 1. The categorical unqualified response was "No" 1. The use of the phrase " in its own right" by Mr Taranto in his covering letter is not a matter without significance. It certainly reveals that Mr Taranto well understood the distinction between a property purchased in one's own right as opposed to a property purchased as trustee. He clearly used the phrase to positively assert that the 2006 Half Interest is not purchased on trust. 2. Sometime later Mr Taranto informed the OSR that he was incorrect both in the letter and in his answer to the specific question asked of him about the land being owned by a trust. Interestingly, that subsequent correspondence with the OSR was after the initiation by the Respondent of these proceedings. The timing clearly detracts from whatever credibility Mr Taranto's evidence on this point may otherwise have had. The Contract of Sale 1. Finally, that the contract of sale dated 16 February 2006 by which the 2006 Half Interest was sold by Waterview to Belmore makes no mention of the fact that Belmore as purchaser was purchasing on trust. 2. In addition, the Special Conditions to the relevant Contract of Sale make reference to the pre-existing obligations which Belmore had to Capital Finance and in so doing refers to Belmore as the "Purchaser". Curiously, Belmore as trustee of the Belmore trust had no pre-existing obligations to Capital Finance that trust having only just been created based even on the arguments being put by the Applicant. The reference in the Special Conditions is clearly a reference to Belmore in its own right and not as trustee of the Belmore Trust. The Applicant's main arguments 1. The Applicant drew attention to a number of matters which it asserts supports the existence of an intention to purchase the 2006 Half Interest on trust, namely: * The execution of the Belmore Unit Trust Deed; * The resolution of the Belmore directors; * The creation and execution of the Heads of Agreement; * The financial records of both Belmore and the Belmore Trust; and * The registration for GST of the Belmore Trust. The execution of the Belmore Unit Trust Deed 1. The Applicant places great emphasis on the fact that this Deed bears the date 11 February 2006 and that Belmore entered into the contract to purchase the 2006 Half Interest on 16 February 2006. This the Applicant submits is evidence that the 2006 Half Interest was intended to be subject to the Belmore Trust. 2. Even if it is the case that the Deed was signed on 11 February 2006 nothing more than a broad inference can be drawn from the dates referred to above. 3. The fact that the Deed is dated 11 February and the contract to purchase is dated 16 February is hardly evidence that the property is necessarily the subject of the Belmore Trust. 4. In any event, the Respondent goes even further and suggests that the preponderance of evidence suggests that the Belmore Trust was not created until well after February 2006 namely that it was created sometime in 2007. The resolution of the Belmore directors 1. On 13 February 2006 the Applicant passed certain resolutions which the Applicant claims supports the conclusion that Belmore intended to acquire the 2006 Half Interest on trust. 2. The evidence provided by Mr Pickham, in particular, was to the effect that Mr Pupovac and Mr Taranto came back to his office two days after the rest of the trust documents had been signed. Two days before a number of documents had been signed and these included other resolutions relating to the purchase. 3. It seems odd, to say the least, that the most vital of resolutions which refers to and reflects the critical fact that Belmore did purchase the 2006 Half Interest on trust had not formed part of the original package and had not been prepared by the lawyers acting for Belmore at that time. 4. Apart from that unusual situation, it is clear from the evidence that was presented at the hearing that Mr Pickham had no independent recollection as to when the resolution was executed and relied solely and exclusively on the date which he now found on the resolution in question. He made a rather odd remark to the effect that the handwriting reflected in the date on the document was not his and that he thought 'it looked like that of a 'girl'. He indicated that he had no idea who had dated the resolution except that it was not as far as he could tell someone within his office. Mr Pupovac also indicated that he did not have an independent recollection as to when the documents had been signed although Mr Taranto did claim to have such an independent recollection. The creation and execution of the Heads of Agreement 1. The Heads of Agreement prepared by Mr Pickham contemplated a more formal joint venture agreement which never came into existence. This Heads of Agreement was dated 20 June 2007 more than a year after the Belmore Trust was apparently made and well after the 2006 Half Interest had been transferred it. 2. It is not at all clear how much weight or significance should be given to this Heads of Agreement having regard to the fact that it was prepared by Mr Pickham in contrast to the normal situation which involved legal documents being prepared by the lawyers for Belmore. 3. In my view the existence of the Heads of Agreement provides no independent evidence of an intention in the period up to December 2006 to transfer the 2006 Half Interest to Belmore on Trust as opposed to Belmore in its own right. The financial records of both Belmore and the Belmore Trust 1. The records in question were prepared by Mr Pickham and it seems from their own testimony that those records were rarely if ever reviewed by Mr Taranto and Mr Pupovac. 2. The relevant intention regarding the existence of the trust is the intention of the directors of Belmore rather than the intention of the accountant, Mr Pickham. 3. In any event the financial records do not uniformly point to the existence of a trust and as indicated previously there are issues regarding the $100 settlement sum and how it has been recorded in the accounts. 4. It is also interesting to note that even after the Second Disputed Transfer, Mr Pickham as the Applicant's accountant continued to record a one half share of the Property remaining with Belmore even though after the transfer was effected the whole property was owned by the Applicant. Mr Pickham sought to explain this anomaly by indicating that he was recording "where it was supposed to be owned". Clearly however, financial statements do not record what is supposed to have happened. They record what has happened. This adds to the confusion that has been created by the way in which the financial records have been maintained and underscores the fact that very little reliance should be placed upon such financial records in reaching any conclusions in relation to these proceedings. The registration for GST of the Belmore Trust 1. Somewhat belatedly the Applicant has provided new evidence in favour of the Applicant's case in the form of evidence as to the GST registration of the Belmore Trust. 2. Clearly the extract which has been provided indicates that the ABN details were last updated on 14 September 2011 and that the records were extracted on 3 September 2012. The document also indicates that the entity known as the Belmore Developments Unit Trust was registered for GST purposes from 31 October 2006. 3. This evidence clearly supports the conclusion that the Belmore Developments Unit Trust existed from 31 October 2006 but casts no light whatsoever in and of itself on the question as to whether that Trust was the entity that purchased the 2006 Half Interest. The Tribunal's Consideration and conclusion 1. The issues raised by the parties call for consideration under 2 separate headings namely: * Did the Belmore Developments Unit Trust exist as at 16 February 2006 when the 2006 Half interest was transferred? * If it did exist, was the 2006 Half Interest purchased by Belmore as trustee or by Belmore in its own right? 1. As to the first matter raised above, the evidence provided by the ABN /GST registration details is sufficient to establish that the trust existed from at least 31 October 2006 and possibly at some earlier time. The evidence is unclear as to whether it existed as early as 16 February 2006. 2. However, even if the trust existed at 16 February 2006, it is the view of this Tribunal that, based on the current documents available, the 2006 Half Interest was not purchased by Belmore as trustee but rather in its own right. 3. In considering the totality of the available evidence, it is, in the view of this Tribunal, not possible to conclude that the Trust existed as at 16 February 2006 and it cannot be concluded that the 2006 Half Interest was purchased by Belmore as trustee. There are a number of reasons why the Tribunal so concludes. 1. First, the Applicant asserts that there was trust property in the form of the $100 settled sum which apparently was paid over in cash. In this context, it is one of the requirements for the existence of a trust that there must be trust property. 2. One of the difficulties in this case is that the $100 initial settled sum was apparently handed over in cash and consequently there are no bank statements as evidence in support of the fact that the payment came out of the settlor's (ie Mr Pickham's) account. There is also no evidence that the cash payment was deposited into a Belmore account on or around 11 February 2006. 3. Secondly, there are no financial records for the Belmore Trust for the year ending 30 June 2006. The very first accounts prepared for the Belmore Trust were for the year to 30 June 2007 and those records indicate that the $100 settled sum was not paid until sometime in the 2007 financial year. On its own this suggests that there was no independent trust property (ie other than possibly the 2006 Half Interest) prior to 30 June 2006. 4. Thirdly, Mr Pickham took great care to ensure that certain payments that were made in the year to 30 June 2006 were recorded in that year thus demonstrating great care in delineating between payments made in the year to 30 June 2006 and those made in the year to 30 June 2007. 5. Fourthly, Mr Pickham suggested that the failure to record the settled sum in the year to 30 June 2006 was an error made by the previous accountant who should have recorded it in that year. However, the suggestion that this was some minor slip up by the previous accountant overlooks the fact that the first set of financial records prepared for the Belmore Trust was in fact prepared by Mr Pickham. Prior to the year ended 30 June 2007 there were no financial records so the error was somewhat larger than Mr Pickham was willing to concede. 6. Fifthly, stamping of the Belmore Unit Trust Deed occurred on 7 June 2007 almost 16 months after the Deed is said to have been executed. The Duties Act 1997(NSW) calls for such deeds to be signed within 3 months of their execution. 7. Mr Pickham gave evidence to the effect that he ensures that documents for which he takes responsibility are stamped well within time but could provide no explanation as to why that had not occurred on this occasion. The Respondent speculated that this may well be because the Deed was not signed in February 2006 but later at some time in early 2007 but backdated to ensure that it was created before the 2006 Half Interest was acquired. This would explain to some extent the uncharacteristic late stamping. 8. The Tribunal makes no finding specifically on the question of back-dating of the Deed but accepts the relevance of the argument put by the Respondent in this context. 9. The witnesses were somewhat equivocal about their recollections of the date on which the Deed was signed. None of them seemed to have an independent recollection without relying on the date shown on the Deed. In their affidavits they testified with certainty as to the date of execution but under cross-examination it became quite apparent that they had no independent means of verifying the date. Some asserted that their position on the date of execution was based on certain diary and file note entries but when pressed could not be specific and the Applicant did not seek to tender such diaries or file notes in evidence. 10. Interestingly, 11 February 2006, which appears to be the date asserted by the Applicant that the Deed was signed, was a Saturday. This appears odd because no one seemed to recall doing it on a weekend and Mr Pickham indicated that he never worked on Saturdays before changing his mind on this point. 11. The Deed records the address of the Belmore Trust as the address of the former accountant but that address remained the address of the Trust until 17 April 2007. The address does not help one way or another in relation to the date on which the Deed was executed. 1. The Tribunal concludes that, based on all the evidence presented both in writing and through oral testimony and having regard to all the circumstances outlined above, it cannot be satisfied that the 2006 Half Interest was purchased by Belmore on trust. It was purchased as has been suggested by all the relevant contemporaneous documentation by Belmore in its own right. Issue 2 If the answer to Issue1 is in its own right, did the 2006 Half Interest become impressed with trust obligations under the EWUT sometime after the time of the First Disputed Transfer but before the Second Disputed Transfer? 1. Becoming impressed with trust obligations would require that either formally, by way of written declaration, or less formally, by way of conduct, there is what amounts to a declaration of trust. 2. In looking for such an effective declaration the Tribunal could have regard to all the relevant facts and circumstances such as; * the way funds are sourced and whether they come from a different account to the normal Belmore account suggesting that a trust may exist; * whether instructions to lawyers and responses from lawyers make reference to prevailing trust arrangements; * whether other communications such as with lenders references trust arrangements; * entries in the accounts. 1. In this case all that there is evidence provided by Mr Pickham, Mr Pupovac and Mr Taranto to support the argument that the 2006 Half Interest became impressed with trust obligations after the First but before the Second Disputed Transfer. This is subjective evidence designed to support the conclusion they now argue for but it is hardly independent evidence of the kind needed to sustain the position they wish to take. 2. No one else speaks of trust property in the way contemplated above. Indeed, Mr Taranto specifically characterised the acquisition as one which was a purchase by Belmore in its own right and nothing that has transpired since would appear to challenge that outcome in any serious way. 3. The Respondent comments that of course it is not required by law that there be reference to the existence of a trust in documentation prepared for a company which is arguably acting in a trust capacity. While that is no doubt true, it is nonetheless a matter for the Applicant to demonstrate to the satisfaction of this Tribunal that in the particular, somewhat unusual, circumstances of this case a trust in respect of the 2006 Half Interest somehow came into existence at some stage between the First and the Second Disputed Transfers. It can do that as indicated above in a number of different ways and while it is true that legally there is no requirement to refer to the trust, the lack of such a reference inevitably diminishes the Applicant's capacity to successfully argue that a trust came into existence at the relevant time. This is not intended to be critical of the failure to refer to the trust but merely to reflect the fact that there is no independent objective basis for suggesting the existence of such a trust. 4. In the circumstances, the Tribunal is not satisfied that the 2006 Half Interest became impressed with trust obligations after the time of the First Disputed Transfer but before the Second Disputed Transfer. Issue 3 If the answer to Issue 1 is that the purchase was by Belmore as trustee or to Issue 2 is that the 2006 Half Interest became impressed with trust obligations, can the Second Disputed Transfer, though in form one instrument, nonetheless effect two separate, severable and distinct transactions namely: 1. a transfer from Belmore to Esplanade of the 2006 Half Interest being an interest held by Belmore as trustee; and 2. a transfer from Belmore to Esplanade of the 2002 Half Interest being an interest held by Belmore in its own right. Issue 4 If the 2006 Half Interest was trust property or relevantly became trust property and it can be split into 2 transactions, do the apportionment provisions in s 27 and s 294 of the Duties Act apply such that: * the transfer of the 2006 Half Interest is subject to nominal $50 duty only; and * the transfer of the 2002 Half Interest is subject to ad valorem duty. Issue 5 If the interest was trust property or relevantly became trust property and it can be split into 2 transactions and the apportionment provisions apply, can the change of trustee provisions in s 54(3) be engaged such that nominal duty is charged on the change of trustee in respect of the 2006 Half Interest? Issue 6 If the interest was trust property or relevantly became trust property and it can be split into 2 transactions and the apportionment provisions apply but ad valorem duty is payable on the transfer of the 2006 Half Interest is the value of the dutiable property negligible on the basis that there is an equitable interest grafted on and the Applicant as transferee takes subject to the existing equitable interest. 1. As the Tribunal has found that the 2006 Half Interest was neither purchased by Belmore as trustee nor did it become impressed with trust obligations, Issues 3, 4, 5 and 6 do not arise for consideration. The second disputed transfer Issue 7 Was the Second Disputed Transfer a mistake in that it was intended only that Belmore transfer the 2006 Half Interest as it believed that only that interest was the subject of the Belmore Trust? 1. The Applicant argued that in relation to the Second Disputed Transfer an error was made in that Belmore did not intend to convey the entirety of the Property to the Applicant. In making such an assertion it is implying that the 2002 Half Interest which it purchased in its own right should have remained unaffected by the Second Disputed Transfer and it was included in error by the parties. 2. The implication, if this assertion were to be fully accepted, is that after the Second Disputed Transfer, the Property would be held: * as to one half by Belmore in its own right; and * as to one half by the Applicant. 1. With respect, I find such a proposition to be fanciful having regard to all the contemporaneous documentation that exists particularly in relation to the Second Disputed Transfer. 2. In particular, I draw attention to the following matters: 1. in a Property Information Memorandum dated March 2010 ('the March 2010 PIM') (which was to be used for various purposes including attracting third-party investors into the project) a number of comments were made which suggested very clearly that the Property in its entirety was intended at all relevant times after the Second Disputed Transfer to be held by the Applicant in its capacity as trustee. There was no suggestion in any of the statements made in the March 2010 PIM to suggest that there would be two forms of ownership in relation to the Property. Thus, at page 50 the following commentary is to be found: "[T]he present owner wishes to introduce investors to participate in a private syndication site and proceed with Stage II of the development. Title to land is currently held by Belmore Developments Pty Ltd as trustee for the Belmore Developments Unit Trust by resolution Esplanade Wollongong Pty Ltd has replaced Belmore Developments Pty Ltd as trustee and title is currently being transferred to the new trustee." Further, at page52: "Ownership or registered owner: Esplanade Wollongong Pty Ltd as trustee for the Esplanade Wollongong Unit Trust formally known as Belmore Developments (sic) Trust' Further, at page 60: "[T]he property is currently owned within a unit trust structure. This structure allows investors to loan a proportion of the entity based upon the number of units in the unit trust investors hold as a percentage of all trust units on issue… There will be a total of 15 million $1 units to be issued, one half of the total units have been issued and these are owned by AP No 2 and PT No 1 entities, controlled by Alex Hoopoe bank and Peter Taranto respectively. The remaining 7,500,000 units, 50% of the development entity, are being offered to select investors in 20 multiples of 375,000 units each… Upon full subscription to the syndication the unit trust will have cash funds in the bank of $1.5 million. These funds will be used to pay preliminary costs prior to commencement of construction… 1. Clearly even this document misunderstood the position before the Second Disputed Transfer inasmuch as, even on the Applicant's arguments, the whole of the Property clearly was not held on trust at that time. 2. Be that as it may, what is clear from the March 2010 PIM is that it was intended at all relevant times that the Applicant would hold the Property on trust after the Second Disputed Transfer. Indeed, that was the entire point of the rearrangement that would lead to the new structure. Investors were to gain beneficial ownership of the Property by way of the issue of units in the unit trust which owned the Property beneficially. 3. If it had been the case that Belmore was intended to retain a half share of the Property in its own right, investors would only have been able to receive interests in half the asset they expected to get because the Applicant would only have held half the Property beneficially. 4. Indeed, that position was confirmed in subsequent correspondence with the Commonwealth Bank of Australia in August 2010 ( MFI 1 -14 p 73 – 76) 5. The Applicant indicated that the syndication approach to which the March 2010 PIM related had fallen away so the Applicant asserts that what was said in that Memorandum was of no relevance. However, this overlooks two important facts. 1. First, it overlooks the fact that even though the syndication never occurred, the way in which the proposed ownership was described is still relevant in gaining an understanding as to what the relevant parties thought was the then current position and the proposed structure after the syndication; 2. Secondly, when the CBA finally made the offer in relation to a loan to the Applicant in October 2010, the syndication was no longer in contemplation and yet the CBA sought no security over any assets held by Belmore in its own right. If it was intended that Belmore in its own right would continue to hold half the Property, there is no doubt that the CBA would have sought a mortgage over that share as well as a mortgage over the share which was held by the Applicant. The fact that CBA would have sought such additional security is borne out by the fact that the CBA indeed sought security for the loan from other properties which were held by companies related to Mr Taranto and Mr Pupovac. 1. It seems clear that the CBA did not seek security over assets held by Belmore in its own right because at no time did anyone connected with the Applicant suggest that Belmore in its own right would continue to own a half share of the Property after the transfer. Clearly that was because it was Mr Taranto's and Mr Pupovac's intention at the time that the Property in its entirety would be held by the Applicant as trustee. 2. At the hearing Mr Taranto gave evidence that the CBA had made a mistake and that he knew it was a mistake but that he chose not to correct it because: "Commonwealth Bank makes $8 billion a year, I think they're big boys, they can work it - work something out" (T265.21-24) 1. This somewhat churlish explanation is inconsistent with the facts, lacks credibility and reflects very poorly on Mr Taranto in connection with his dealings with the bank. 2. In December 2010, a further Product Information Memorandum ('the December 2010 PIM') was produced in which a new structure involving a joint-venture rather than a syndication was proposed. Nonetheless, the position regarding ownership of the Property remained precisely the same, namely: "[T]he trustee of the Unit Trust that owns the property has been changed to a new entity, Esplanade Wollongong Pty Limited… which has no prior trading history. Title to the land is currently being transferred from the name of the prior trustee to the new trustee. The name of the unit trust is also being changed from the Belmore Developments Unit Trust to the Esplanade Wollongong Unit Trust to more appropriately reflect the title of the development." 1. Thus, even under this revised proposal the intended outcome remained precisely the same. 2. Thus, both the March 2010 Memorandum and the December 2010 Memorandum were consistent in respect of one critical fact - the proposed owner of the Property after the Second Disputed Transfer was intended to be, at all times, the Applicant as trustee. 3. On 7 and 8 December 2010 two further letters of offer were made by the CBA and again in both letters of offer no security was sought over any assets held by Belmore in its own right. 4. A draft Deed of Loan prepared for FGC dated 21 December 2010 contained warranties provided by Mr Taranto, Mr Pupovac and the Applicant which stated that: "[T]he trustee (separately defined as Esplanade) is the registered proprietor and the legal owner of the property and the unit holders are the sole beneficial owners of the property as at the date of this deed. 1. For the sake of clarity, it is noted that the property referred to in those warranties separately defined as "the Property." This makes it abundantly clear that the warranty pertained to the whole of the Property and not, on any argument, to only a half interest in the Property. 2. There were other items of correspondence such as instructions sent to the Applicant's lawyers requesting them to draft the relevant documentation to affect the transfer in 2010 all suggested without qualification that the Applicant was to hold the Property in its entirety on trust following the transfer. 3. In the face of all these pieces of contemporaneous documentation that indicate consistently that the intention throughout was to transfer the Property to the Applicant as trustee, the Tribunal is unable to conclude that there was a mistake made in transferring the Property and that only the 2006 Half Interest was meant to be the subject of the Second Disputed Transfer. 4. It is true that the financial records have now been prepared on the basis of the ownership position reflecting the fact that Belmore continues to own half the Property in its own right. However, this appears to be no more than a somewhat belated attempt, primarily by Mr Pickham, to have the financial records reflect what he and others associated with Belmore wished the position would be. 5. Financial records are not maintained so as to reflect what certain parties wish the position was. Rather, they are maintained so as to reflect the actual position. 6. In this respect the financial records cannot be treated as being reliable and should be ignored. 7. In conclusion, the Tribunal finds that there was no mistake in respect to the Second Disputed Transfer. Issue 8 If the Second Disputed Transfer was a mistake, does the transfer of Property under mistake give rise to an equitable interest in the property on the part of Belmore? Issue 9 If the Second Disputed Transfer was a mistake and the mistake gives rise to an equitable interest in the Property on the part of Belmore, was the value of the half share of the Property transferred by mistake negligible in value owing to the existence of the equitable interest? 1. As the Tribunal has found that the Second Disputed Transfer was not a mistake, issues 8 and 9 do not arise. General Issue 10 What is the dutiable value of the Property as at 22 October 2010? 1. Even before considering the appropriate basis upon which a valuation of the Property should be made, the Applicant has raised a preliminary matter which needs resolution. 2. According to the Applicant, the Respondent should not be allowed to depart in any way from Revenue Ruling DUT 012 (the Ruling) which was issued on 18 March 1999 and remains extant. The Applicant also indicates that the Tribunal should make its decision consistently with the Ruling. 3. Without delving into the intricacies of section 9 of the Tax Administration Act 1996 (NSW) ('TAA') and its interaction with section 65 of the Administrative Decisions Review Act 1997 (NSW) which the parties spend much time and effort in considering, I will go straight to the issue requiring resolution. The Applicant asserts that the Ruling limits the Respondent to accepting the Valuer-General's valuation essentially because paragraph 15 of that Ruling is to the following effect: "Where the property is vacant and unimproved land, the most recent notice of valuation by the Valuer-General for rating purposes would be acceptable." 1. The Property was vacant and unimproved land at the relevant time and accordingly, says the Applicant, the Valuer-General's valuation must be accepted. 2. To put it very briefly, to suggest that something would be acceptable is not in any way whatsoever suggesting that it must be accepted. The mere fact that the Valuer-General's valuation would be acceptable does not mean that only this valuation can be used and that it must be accepted if it is provided. 3. The circumstances in which paragraph 15 would have relevance is if there are no other valuations available and the Property otherwise satisfies all relevant criteria referred to in the Ruling, then, a valuation by the Valuer-General would be acceptable and no other valuation would be called for or required. 4. However, in circumstances such as those which are now before the Tribunal where the Tribunal has detailed valuations undertaken by registered real estate valuers, it would be in my view a dereliction of duty for this Tribunal to now close its eyes to those valuations and to ignore them. 5. The Valuer-General's valuation will be relevant and will need to be taken into account. However, if there are other valuations which are more reliable because they have, for example, involved comprehensive site inspections by the valuer or have more fully taken into account development consents and costings, the Respondent and as a result of these proceedings this Tribunal, must have regard to them. 6. In relation to the Property there were a number of valuations of the unencumbered value which were all provided to the Tribunal as follows: Date Valuer Purpose Valuation 9.9.09 Landmark White First Mortgage Security $10m 20.11.09 MMJ Belmores Request $20m 24.3.10 CBA First Mortgage Security $20m 2.9.10 V-G $11.4m 22.10.10 John Dignan $4.6m 22.10.10 Adlington These Proceedings $18.5m 22.10.10 Staltari These Proceedings $10.95m 15.8.11 V-G $11.4m 1. Clearly the eight identified valuations give rise to a wide range of possibilities and it is quite frankly surprising that even on the same day namely 22 October 2010 the three valuations all dated that day are so very different. 2. Each valuation needs to be considered and evaluated in the context of these proceedings. The Landmark White valuation 1. This valuation was prepared on the basis of a proposal for the Property to be subdivided into six blocks of land - three with conventional street frontages and three with no direct street access being battle axe parcels of land. It was proposed that each of these six blocks would then be sold off separately in their then current state. 2. As between Mr Adlington and Mr Staltari there appeared to be agreement that this proposal would not be the most effective use of the land and that there was some likelihood that council would not look favourably on the proposal having regard to the developments in the surrounding area. 3. It is clear that this valuation was based on a wholly different set of assumptions regarding the development of the land to that which were adopted in all the other valuations. 4. Accordingly, this valuation needs to be excluded as it is not based on assumptions which were the same or very similar to those upon which the other valuations have been prepared. The assumptions on which those other valuations have been prepared more accurately value the Property having regard to the actual proposed development. The MMJ valuation 1. This Report was prepared on specific instructions from Belmore and the Tribunal accepts that it was largely based on sales data that cannot be confirmed as being comparable and that there are cogent arguments to suggest that there was some over estimate of income in the figures used. 2. It is difficult in the circumstances to rely on these figures as the valuers: * were not engaged specifically for the purposes of these proceedings; * were not called to give evidence; * were not be tested through cross-examination in the way Mr Adlington and Mr Staltari were; * have not complied with the Tribunal's Code of Conduct for experts; and * have not prepared their reports in compliance with that Code The CBA valuation In regard to this valuation it is important to note that: 1. according to Mr Adlington the valuers who undertook this valuation had extensive experience in the Wollongong area; 2. according to Mr Adlington the valuation was "quite well reasoned and sound in its approach"; 3. the valuation of $4,485 per square metre by means of the direct comparison method did include appropriate adjustments for the size of the Property given that a number of properties from which that figure was derived had far larger land values – in excess of $6,000 per square metre. An appropriate adjustment does appear to have been made. 4. In applying the direct comparison method this valuation, Mr Staltari and Mr Adlington essentially ended up using the same properties within the Wollongong area; 5. Mr Staltari's criticism of this valuation was largely based on the fact that the valuation referred to the sale of apartments outside of the Wollongong area this criticism appears to be limited to the hypothetical development approach undertaken in the CBA valuation only. Ultimately this valuation did not seek to rely upon the hypothetical development approach. The Valuer-General valuations 1. The Respondent sought to explain at some length why Revenue Ruling DUT 012 should not be read as providing some hard and fast rule that any valuation placed upon the Property by the Valuer-General should be accepted as the final word in relation to the valuation issue. 2. The Tribunal fully accepts that notwithstanding the arguments the Applicant has put, the Valuer-General's valuation is not the final word on the matter. 3. Having said that, it is also difficult to conclude that the Valuer-General's valuation should be entirely ignored. 4. The Valuer- General has provided not one but two valuations in respect of the Property and the two valuations are almost 12 months apart in time but identical in terms of the estimated valuation. Both put a value on the Property of $11.4 million which is considerably less than the Adlington and CBA valuation and a little more than the Staltari valuation. 5. On the other hand, there is no clear explanation for what methodology is adopted by the Valuer-General in reaching his $11.4 million valuation. Such calculations do not generally have the benefit of site specific information and often do not take into account development consents and costings. Whether in this case the Valuer-General's valuation took into account site specific information or the existence or non-existence at the relevant times of development consents and costings is unclear as neither party provided any detail on these matters. 6. As mentioned, the evidence that was led by the parties did not address the basis upon which the Valuer-General's estimate of value was determined. However, it cannot be doubted that the Valuer-General is an important participant in the property market and a consistent estimated valuation cannot and should not be ignored unless very specific evidence is led to indicate why the value put on the Property by the Valuer-General is incorrect or irrelevant. Neither party has led evidence to suggest that the Valuer-General's estimated value is incorrect or irrelevant although the Applicant has made some generalised comments, as has Mr Adlington, as to why the Valuer-General"s estimated value should be ignored. I do not accept that these generalised comments provide a sufficient explanation to enable the Valuer-General's valuation to be completely ignored. The Dignan valuation 1. There are a number of problems with this valuation which include the following matters: 1. the value placed on the Property by this valuation in 2010 was less than the total purchase price of the Property (combined with other properties) in 2002; 2. the value placed on the Property by this valuation in 2010 was less than the purchase price of the 2006 Half Interest in 2006; 3. the value placed on the Property by this valuation was significantly less than the loan made by CBA and secured by a mortgage over the Property; 4. the valuation makes no reference to sales evidence or any detailed analysis for the purposes of the direct comparison valuation method; 5. the valuation makes no reference to the development approval which attached to the Property and it seems that it was based on an assumption that no such development approval existed; and 6. the valuation contains no hypothetical development valuation of the Property. 1. When one considers the totality of these deficiencies it is apparent that reliance on this valuation would be dangerous and is unwarranted. The Adlington and Staltari Valuations 1. These two valuations were provided by the two valuers who were secured as expert witnesses for each of the two protagonists in this case. Mr Adlington appeared as expert witness for the Respondent and Mr Staltari as expert witness for the Applicant. 2. Both witnesses gave evidence that in reaching their valuations they have had regard to both the direct comparison method and the hypothetical development method. 3. The direct comparison method looked at comparable sales in the same or similar area and both Mr Adlington and Mr Staltari considered that 40 Cliff Road and 7 Bourke Street were comparable properties. 4. In relation to 40 Cliff Road the actual sale price per square metre was $6598.54. Both experts considered that whilst 40 Cliff Road was a comparable property the amount realised per square metre should be discounted in looking to the Property to take account of the fact that that Property was much larger in size. 5. There was not complete agreement between the experts as to the size of the discount that should be applied in seeking a valuation of the Property as compared to the per square metre realisation for 40 Cliff Road. Mr Staltari argued for a reduction of 40% and Mr Adlington 35%. As a result of these different reductions Mr Adlington's adjusted market rate per square metre was $4289 and Mr Staltari's an adjusted market rate of $3959 per square metre. 6. In relation to 7 Bourke Street the actual sale price per square metre was $4820. 7. Again, there was some disagreement between the experts as to any adjustment which needed to be made. 8. Mr Adlington considered that an adjustment to the downside was warranted having regard to: 1. the inferior location of 7 Bourke Street compared to the Property; 2. the inferior views of 7 Bourke Street as compared to the Property; and 3. the fact that the Property had a pre-existing development consent. 1. Going the other way was the fact that the Property was smaller in size. 2. Taking all these matters into account Mr Adlington was of the view that a 5% reduction was warranted and accordingly would give rise to an adjusted price in respect of the Property of $4579 per square metre. 3. Though a little vague at times it seems that at the end Mr Staltari would make the same adjustment namely a 5% reduction to the 7 Bourke Street value. 4. As a result of applying the direct comparison method, the Adlington valuation came in at around $18,500,000 and the Staltari valuation considerably less. 5. As the name suggests the hypothetical development method does not look to comparable sales but rather to the value determined having regard to the hypothetical development that can be conducted on the Property. 6. From the relevant authorities it appears to be generally agreed that: * valuations based on hypothetical development methodologies are inherently more subjective than direct comparison valuations; * valuations based on hypothetical development methodologies are based on many more assumptions than is the case with direct comparison valuations; * valuations based on hypothetical development methodologies should not generally be relied upon if valuations based on direct comparison valuation is available. Lindfield Developments Pty Ltd v Shuangxing Development Pty Ltd (2016) NSWSC 68 at (98) – (101). 1. In this case, the direct comparison method is clearly available. Therefore, having regard to the comments above, this Tribunal should not rely upon any valuations pursuant to the hypothetical development method unless there is some unusual feature that would suggest otherwise. I do not believe there is such a feature present in this case and certainly neither party suggested otherwise. 2. Nonetheless, both experts have confirmed, and I agree, that the outcome of valuations determined utilising the hypothetical development method can and should be used as a check on the direct comparison method. The logic of utilising this process is that if upon making such a check there was a wide discrepancy between the valuation determined under the direct comparison method and the valuation determined under the hypothetical development method some doubt would be cast upon the outcome determined under the direct comparison method. 3. Mr Adlington's valuation pursuant to the hypothetical development method was $18 million however Mr Staltari's determination of valuation pursuant to the hypothetical development method was $9.7 million. 4. In reviewing the application of the hypothetical development methods adopted by the two experts, it is clear that Mr Adlington's proposed realisation figures take into account the size and the location of each of the individual apartments and the commercial units that would be developed. In contrast, it seems that Mr Staltari's figures simply apply an average realisation figure for all two-bedroom units, three-bedroom units and so on without regard to their differing sizes and locations. This is clearly a less accurate approach and makes Mr Staltari's valuation based on the hypothetical development method less reliable than that which was adopted by Mr Adlington. 5. Furthermore, in applying the hypothetical development method Mr Staltari's calculations gave rise to some odd outcomes whereby one apartment which was 333 m² and had five bedrooms was only attributed a value which was $25,000 more than another apartment which was 162 m² and had only three bedrooms. 6. I should also note that Mr Adlington's hypothetical development realisation figures were much closer to the figures which were included in the March PIM provided by Belmore to its investors and these importantly were the figures which the Applicant and Belmore were prepared to put into the market as accurate estimates. 7. Mr Staltari has conceded that some of his calculations in respect of the hypothetical development method were inaccurate but beyond that did not agree with the calculations that were adopted by Mr Adlington. 8. Having regard to all the above the Tribunal cannot accept the hypothetical development method valuation determined by Mr Staltari and prefers that which was determined by Mr Adlington. Conclusions on Valuation 1. The best estimate of value is to be ascertained by reference to the Adlington and to a lesser extent the CBA valuations. However, notwithstanding the robust arguments of the Respondent to the contrary, some account must be taken of the Valuer-General's valuations. 2. The Adlington valuation puts the value around $18,500,000 and for all the reasons outlined above, I accept that as the appropriate starting point. However, in view of the consistently lower Valuer-General valuations which I have indicated I am not in a position to entirely ignore, the Adlington valuation must be discounted to take into account the Valuer-General's valuation. In doing so, I must give greater weight to the Adlington valuation which is specific to the task at hand and therefore pays more thorough regard to the specific circumstances. 3. The Tribunal is of the view, having regard to all the above a valuation of $16,130,000 is fair and reasonable as that figure is approximately the amount that is the Adlington value less one third of the difference between the Adlington and the VGs valuation (ie $18,500,000 minus one third of ($18,500,000 - $11,400,000)). 4. By so positioning the value accepted by this Tribunal, greater reliance is placed upon the Adlington valuation of $18.5m but at least some reliance albeit significantly less is placed upon the Valuer-General's valuation of $11.4m. 5. So as to provide a complete picture, I also note that on the conclusions I have reached in relation to the preceding questions, on 22 October 2010 the Second Disputed Transfer effected a transfer by Belmore (acting entirely in its own right) of the Property to Esplanade (acting entirely in its capacity as the trustee of the EWUT). As a result, there were no relevant equitable interests that existed before the Second Disputed Transfer that could be said to reduce the value of the Property below that which I have accepted. Issue 11 Does s 32B apply such that the Premium Rate of duty is not payable or is reduced if an apportionment needs to be made? 1. It is agreed that the Property satisfied the definition of residential land as set out in s 32A. However, what is in dispute is whether s 32B applies so as to preclude the application of a premium rate of duty. 2. The Applicant contends that the premium rate of duty does not apply because the Property was not used for residential purposes but was used as stock in trade for the business conducted by Belmore. 3. The critical issue therefore is whether the Property was used as stock in trade by Belmore. 4. As at 22 October 2010 the Property was not treated as trading stock by Belmore. At that time, it was treated as a "land bank" which is a term commonly used in the industry to refer to property which the owners have not yet decided to develop: MFI 1-14 para 34. 5. It was only from 30 April 2011 onwards that the Property was treated as stock in trade. 6. What is also clear from all the evidence is that no activity was occurring on the Property on or around 22 October 2010. Mr Taranto gave evidence to the effect that the Property was "vacant and improved" in the entire period from 1 July 2009 to 30 June 2011 and that during that time the Property only contained conveyor pegs and a fence: MFI 1-13 paragraph 5. 7. The Applicant points to a development application which was approved in 2002, modified once in 2005, a second time in 2011 and a third time in 2014. It also points to the construction of a site office in November 2011. 8. These matters while not irrelevant do not actually go to the critical issue of how the Property was being used. They go more to the question of what might have been intended for the future. 9. The Applicant has suggested that there were relevant activities including the construction of a site office and the approval and modification of certain development applications. 10. However, apart from the fact that these were at best marginal activities which are unlikely to amount to sufficient activity to deal with the point, none of these activities took place at or around the relevant time, namely October 2010. 11. The parties both relied for different purposes on the decision of the NSW Supreme Court in Metricon Qld v CCSR 2016 NSWSC 332 ('Metricon'). 12. That case involved NSW land tax which is a materially different context to that which applies here. 13. Of relevance is the fact that in Metricon, White J held that use need not mean physical use but that use does require that something be done with the land whether by physically putting it to use or simply by turning it to advantage for example by letting it. 14. Most importantly, White J held that a developer did not "use" land simply by reason of the fact that the developer was holding the said land as part of its trading stock. Trading stock is used when it is sold – not merely when it is held pending sale. 15. In this case it cannot even be said that the Property or any part of it was held pending sale but even if that were the case, according to White J that would not be enough. 16. Accordingly, both on ordinary principles but even having regard to Metricon, the Tribunal concludes that the Property was not used at the relevant time as stock in trade by Belmore. 17. Accordingly, the premium rate of duty applies to the whole of the unencumbered value of the dutiable property in accordance with section 2(1) of the Duties Act. Issue 12 Whether interest should be applied in whole or in part? 1. In circumstances where there is a clear failure to pay duty which is due and owing, a tax default has occurred under s 3 of the TAA and the taxpayer is then required to pay interest. The interest is calculated on a daily basis from the end of the last day for payment up until the day it is actually paid at a rate which is comprised of: * A market rate component; and * A premium component. 1. The market rate component compensates the Respondent in any given case for not having the benefit of a tax payment from the time it was due: Chief Commissioner of State Revenue v Incise Technologies Pty Ltd 2004 NSWADTAP 19 2. By contrast, the premium component is a deterrent to taxpayers failing to meet their tax obligations on time and is designed so as to prevent taxpayers using the duty as a cheap form of funding which could at times be cheaper than the going market rate. 3. In this case the relevant transfer was dated 22 October 2010 and accordingly having regard to s 17 of the Act when read in conjunction with s 12(2) duty was payable by 22 January 2011. Interest would then be accruing from 23 January 2011 until the date it is paid. 4. The Applicant describes this as a unique case where remission of the interest in full or in part is appropriate. The Applicant has not detailed the precise circumstances which makes this a unique case in this context of interest to be charged. Nonetheless, it does seem to this Tribunal that there are two features which make this case somewhat unusual: 1. there were significant, and at times inexplicable, delays in the preparation and progress of this case on both sides and much of the blame for the tardy progress lies at the feet of both parties; 2. the Respondent changed its position in two material respects as late as 10 December 2015 – first, by adjusting down the transfer value form $20m to $18.5m and second, by seeking to apply the premium rates of duty under s 32A of the Duties Act. 1. In the circumstances, the imposition of interest as envisaged by the Respondent is, in the view of this Tribunal, unfair and unwarranted. 2. It should be, and is, varied so that: 1. only the market rate component of interest is to be charged for the period from 23 January 2011 to the date of payment on a transfer value of $ 16,130,000; and 2. interest is only to be applied to the amount being the duty that would have been payable on 22 January 2011 if the duty had been calculated at ordinary rates (ie not at the premium rates arising as a result of the application of s32A of the Duties Act). Decision 1. The decision under review is set aside. 2. In respect of the Second Disputed Transfer, ad valorem duty is payable based on a transfer value of $16,130,000 at the premium rate of duty and interest is payable by the Applicant based on the following factors: 1. only the market rate component of interest is to be charged for the period from 23 January 2011 to the date of payment on a transfer value of $ 16,130,000; and 2. interest is only to be applied to the amount being the duty that would have been payable on 22 January 2011 if the duty had been calculated at ordinary rates (ie not at the premium rates arising as a result of the application of s32A of the Duties Act). ******** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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. Decision last updated: 19 May 2017