Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Alexander v Chief Commissioner of State Revenue [2017] NSWCATAD 180 Hearing dates: 5 April 2017 Date of orders: 09 June 2017 Decision date: 09 June 2017 Jurisdiction: Administrative and Equal Opportunity Division Before: J S Currie, Senior Member Decision: The Chief Commissioner's assessment of duty is confirmed and the decision under review is affirmed. Catchwords: REVENUE LAW- Duties Act 1997 s63(2) - transfer of real property by legal personal representative of deceased person under agreement to vary the trusts contained in the will - validity of Chief Commissioner's assessment applying that provision – identification of the decision which is the subject of review under s96 Taxation Administration Act – correctness of the assessment of the dutiable value of the dutiable property- the private and non-commercial nature of the arrangement does not affect the operation of s63(2) or the correctness of the assessment of duty. Legislation Cited: Administrative Decisions Review Act 1997. Civil and Administrative Tribunal Act 2013. Duties Act 1997. Real Property Act 1900. Taxation Administration Act 1996. Cases Cited: Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25. B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187. Chief Commissioner of State Revenue v Paspaley [2008] NSW CA 184 Category: Principal judgment Parties: Dennis John Alexander (Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: A Clark (Respondent) Solicitors: Applicant in person Crown Solicitor's Office (Respondent) File Number(s): 2016/00378464, 1610712 reasons for decision What is this matter about? 1. By his application, which was received by the Tribunal on 2 November 2016, Mr Dennis John Alexander ("Mr Alexander" or "the Applicant") asks the Tribunal to review the imposition of stamp duty of $47,770 by the Chief Commissioner of State Revenue ("the Chief Commissioner" or "the Respondent"). The duty was assessed on the basis that Mr Alexander was transferee under a memorandum of transfer of real property which formed part of a deceased estate. That estate was the estate of Mr Alexander's mother Mrs Beryl Alexander. The Chief Commissioner assessed the duty by reference to s 63 (2) of the Duties Act 1997 (NSW) ("the Duties Act"). 2. Mr Alexander says that he is not liable for duty in that amount and that s 63(2) has no application to this situation or in the alternative that the Commissioner should not have made the assessment that he did. The central issue 1. The central issue can be readily stated. It is whether the Chief Commissioner's decision on 28 May 2016 to issue a Duties Notice of Assessment to Mr Alexander in the amount of $47,770 was valid. A concomitant issue, arising from the way in which Mr Alexander has presented his case, is whether the Chief Commissioner properly applied s 63 (2) of the Duties Act in making the assessment. Uncontested facts 1. The following facts are uncontested and they provide background to the Chief Commissioner's assessment. 1. Mrs Beryl Alexander died on 24 July 2015 and probate of her estate was granted on 10 November 2015 to Mr Alexander and his sister Christine Joy Hill. 2. Mrs Alexander's estate consisted of her home in southern Sydney ("the Property"), substantial cash in a particular deposit account, other cash deposits and a reasonably substantial share portfolio. The Inventory of Property attached to the probate application indicated an estimated total value of the estate of just over $3.12 million and an estimated value of the Property of $1.8 million. 3. Probate was granted in respect of Mrs Alexander's Will made on 4 July 1986 ("the Will"). Under the Will she gave her residuary estate equally to her three children: Christine Hill, Beverley Alexander and Dennis Alexander. 4. It appears that following Mrs Alexander's death on 24 July 2015 the three beneficiaries agreed amongst themselves as to certain important matters regarding their mother's estate. The terms of their agreement were reflected in a letter dated 5 May 2016 to the Office of State Revenue signed by Christine Hill and Mr Alexander. That indicates that the siblings had agreed that: 1. the value of the estate was $2,960,292.67 and that accordingly the value of each beneficiary's share was $986,764.22; 2. for the purposes of these arrangements the three children assumed a value of the property at $1,640,000 and this assumption was apparently made in light of the saving of costs and delays which would otherwise be incurred if the Property were disposed of as contemplated under the Will; under which it would have to be sold on the market and the proceeds divided equally between the children; and 3. the Property would be transferred to Mr Alexander and in exchange he would pay the difference between the agreed value of the Property and his share of the estate to his two sisters in equal shares. 1. A Memorandum of Transfer ("the Transfer") of the Property dated 16 May 2016 was prepared and executed in the form prescribed by the Real Property Act 1900. The consideration stated on the Transfer was $653,236. That is the difference between the agreed value of the property ($1,640,000) and the agreed value of Mr Alexander's share of the estate ($986,764.22), the agreement in each case being the one between the three beneficiaries, as described in (4) above. 2. On 5 May 2016 Mr Alexander and Ms Hill submitted the Transfer to the Office of State Revenue, accompanied by a covering letter of explanation, a valuation by a registered valuer of the market value of the Property of $1,700,000 and a cheque for $50. 3. On 28 May 2016 the Chief Commissioner sent Mr Alexander a Notice of Assessment of duty of $47,827 less the $50 already paid, making a balance of $47,777. The Notice of Assessment was issued on the basis that the dutiable value of the property was $1,700,000 (as per the submitted valuation) reduced by one third in accordance with s 63 (2) of the Duties Act. 4. Mr Alexander objected to that assessment. 5. On 26 August 2016 the Chief Commissioner issued a Determination of Objection, which disallowed Mr Alexander's objection, confirmed that the assessment of duty of $47,827 was correct and provided reasons. The powers of the Tribunal on review and the onus of proof 1. Under section 96 of the Taxation Administration Act 1996 ("the TA Act") a taxpayer may apply to this Tribunal for administrative review of an assessment or other decision to which the taxpayer has objected, where the taxpayer is dissatisfied with the Chief Commissioner's determination of the objection. Under s101 (1) of the TA Act, on review the Tribunal may confirm or revoke the assessment, make an assessment or other decision in place of the Chief Commissioner's decision, make an order for payment to the Chief Commissioner, remit the matter to the Chief Commissioner for determination or make any further order as to costs or otherwise as it thinks fit. However, nothing in section 101 of the TA Act limits the operation of section 60 of the Civil and Administrative Tribunal Act 2013, which makes substantive provisions for the award of costs in proceedings in this Tribunal. 2. Under section 63 of the Administrative Decisions Review Act 1997 ("the ADR Act"), in determining the application for review the Tribunal must decide what the correct and preferable decision is, having regard to the material then before it, including any relevant factual material and any applicable written or unwritten law. For that purpose, the Tribunal may exercise all of the functions which are conferred or imposed by any relevant legislation on the administrator who made the decision: in this case, the Chief Commissioner. 3. Under s 100 (3) of the TA Act, the Applicant in proceedings has the onus of proving its case in a review by this Tribunal. The requisite standard of proof in such a review is the "balance of probabilities": Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [31] and B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187. Relevant legislative provisions 1. The following legislative provisions are relevant. Administrative Decisions Review Act 1997 63 Determination of administrative review by Tribunal (1) In determining an application for an administrative review under this Act of an administratively reviewable decision, the Tribunal is to decide what the correct and preferable decision is having regard to the material then before it, including the following: (a) any relevant factual material, (b) any applicable written or unwritten law. (2) For this purpose, the Tribunal may exercise all of the functions that are conferred or imposed by any relevant legislation on the administrator who made the decision. (3) In determining an application for the administrative review of an administratively reviewable decision, the Tribunal may decide: (a) to affirm the administratively reviewable decision, or (b) to vary the administratively reviewable decision, or (c) to set aside the administratively reviewable decision and make a decision in substitution for the administratively reviewable decision it set aside, or (d) to set aside the administratively reviewable decision and remit the matter for reconsideration by the administrator in accordance with any directions or recommendations of the Tribunal. Duties Act 1997 11 What is "dutiable property"? (1) "Dutiable property" is any of the following:. (a) land in New South Wales... 13 Who is liable to pay the duty? Duty charged by this Chapter is payable by the transferee, unless this Chapter requires another person to pay the duty. 21 What is the "dutiable value" of dutiable property? The "dutiable value" of dutiable property that is subject to a dutiable transaction is the greater of: (a) the consideration (if any) for the dutiable transaction (being the amount of a monetary consideration or the value of a non-monetary consideration), and (b) the unencumbered value of the dutiable property. 32 General rate (1) The rate of duty chargeable on a dutiable transaction is as follows: Dutiable value of the dutiable property subject to the dutiable transaction Rate of duty Not more than $14,000 $1.25 for every $100, or part, of the dutiable value More than $14,000 but not more than $30,000 $175 plus $1.50 for every $100, or part, by which the dutiable value exceeds $14,000 More than $30,000 but not more than $80,000 $415 plus $1.75 for every $100, or part, by which the dutiable value exceeds $30,000 More than $80,000 but not more than $300,000 $1,290 plus $3.50 for every $100, or part, by which the dutiable value exceeds $80,000 More than $300,000 but not more than $1,000,000 $8,990 plus $4.50 for every $100, or part, by which the dutiable value exceeds $300,000 More than $1,000,000 $40,490 plus $5.50 for every $100, or part, by which the dutiable value exceeds $1,000,000 63 Deceased estates (1) Duty of $50 is chargeable in respect of: (a) a transfer of dutiable property by the legal personal representative of a deceased person to a beneficiary, being: (i) a transfer made under and in conformity with the trusts contained in the will of the deceased person or arising on an intestacy, or (ii) a transfer of property the subject of a trust for sale contained in the will of the deceased person, or (iii) an appropriation of the property of the deceased person (as referred to in section 46 of the Trustee Act 1925) in or towards satisfaction of the beneficiary's entitlement under the trusts contained in the will of the deceased person or arising on intestacy, and (c) a transmission application by a devisee who is also the sole legal personal representative, and (d) a declaration by an executor of a will under section 11 of the Trustee Act 1925 if the Chief Commissioner is satisfied that the declaration is consistent with the entitlements of beneficiaries under the trusts contained in the will. (2) If a transfer of dutiable property is made by a legal personal representative of a deceased person to a beneficiary under an agreement (whether or not in writing) between the beneficiary and one or more other beneficiaries to vary the trusts contained in a will of the deceased person or arising on intestacy, the dutiable value of the dutiable property is to be reduced by the portion of the dutiable value that is referable to the dutiable property to which the beneficiary had an entitlement arising under the trusts contained in the will or arising on intestacy. Taxation Administration Act 1996 96 Review by Civil and Administrative Tribunal (1) A taxpayer may apply to the Civil and Administrative Tribunal for an administrative review under the Administrative Decisions Review Act 1997 of a decision of the Chief Commissioner that has been the subject of an objection under Division 1 if: (a) the taxpayer is dissatisfied with the Chief Commissioner's determination of the taxpayer's objection, or (b) 90 days (not including any period of suspension under section 92) have passed since the taxpayer's objection was served on the Chief Commissioner and the Chief Commissioner has not determined the objection…. (4) The following provisions of the Administrative Decisions Review Act 1997 do not apply to an application made under this section (or any assessment or other decision to which it relates): ..(b) section 55 (3)-(6). (5) For the purposes of section 58 (1) (a) of the Administrative Decisions Review Act 1997: (a) the obligation of the Chief Commissioner under that paragraph to lodge a statement of reasons with the Tribunal in respect of an application is limited to providing the Tribunal with a statement of reasons only in respect of the matters arising from the grounds specified in the application, and (b) if one of the grounds specified in the application relates to a matter raised in an objection determined by the Chief Commissioner-the Chief Commissioner may rely on reasons previously given to the taxpayer by the Chief Commissioner under section 93 for the determination of the objection in explanation of that part of the assessment or decision to which the objection related. 100 Provisions relating to applications for review (1) An application for review following a failure of the Chief Commissioner to determine an objection cannot be made unless the applicant has given written notice of the proposed application to the Chief Commissioner not less than 14 days before it is made. (2) The applicant's and respondent's cases on an application for review are not limited to the grounds of the objection. (3) The applicant has the onus of proving the applicant's case in an application for review. Preliminary issue: which decision is the proper subject of this review? 1. Mr Alexander's application sought a review of the Chief Commissioner's decision of 26 August 2016; that is the decision to disallow Mr Alexander's objection to the assessment of duty. It is clear from the leading case of Chief Commissioner of State Revenue v Paspaley [2008] NSW CA 184 at [28] that the proper construction of section 96 of the TA Act is that the decision which is reviewable by this Tribunal is the original decision by which an assessment was issued to the taxpayer. It is not the decision of the Chief Commissioner to disallow the taxpayer's objection. In the early stages of the hearing Counsel for the Chief Commissioner raised this point and I then explained it to Mr Alexander, who was appearing on his own behalf and without legal or other assistance. Mr Alexander indicated that he understood the point. 2. Both parties were content for the matter to proceed on the basis that the decision under review was the Chief Commissioner's decision to issue the notice of assessment dated 28 May 2016. The Chief Commissioner's Case 1. The case put by Counsel for the Chief Commissioner and in the Chief Commissioner's written submissions received on 27 February 2017 was, in summary, as follows. 1. The Transfer reflected a transfer of dutiable property, namely real estate located in New South Wales: s 11 (1) (a) of the Duties Act. 2. There was a dutiable transaction when the Property was transferred from the executors of Mrs Beryl Alexander's estate to Mr Dennis Alexander, by operation of the Transfer. 3. Under section 13 of the Duties Act Mr Alexander as transferee is liable to pay the duty arising from this dutiable transaction. 4. Under s 21 (1) of that Act, the dutiable value of the dutiable property is the greater of any consideration paid under the dutiable transaction and the unencumbered value of the property. That last phrase means the value of the property without regard to any encumbrance, for example, a mortgage. 5. The proper dutiable value of the Property was that determined by the registered valuer in February 2016 and reflected in his or her valuation as submitted by Mr Alexander and his sister to the Chief Commissioner with their letter of 5 May 2016. That value was $1,700,000. This was greater than the agreed consideration referred to in the Transfer, which was $653,236. 6. In a situation where the concessions applicable to certain dealings with deceased estates set out in s 63 (1) of the Duties Act are inapplicable (which is the case here), the duty payable on the transfer of the Property, calculated in accordance with s 32 (1) would be: $40,490 plus $5.50 per $100 applied to $700,000 (which is the dutiable value of property over $1 million), which equals $78,990. 7. However, s 63 (2) applies to reduce the stamp duty payable. By reference to s 63 (2) the dutiable value of the dutiable property must be reduced by the value of Mr Alexander's entitlement to the property under the trusts contained in the Will. So, the dutiable value of the Property is $1,700,000. 8. But that figure is to be reduced by the portion of the dutiable value which is referrable to the dutiable property to which Mr Alexander had an entitlement under the trusts in the Will. 9. In this case, the reduction amount referred to in paragraph (8) must be $566,666. The portion of the dutiable value that is referable to the dutiable property to which Mr Alexander had such an entitlement is one third. One-third of $1,700,000 is $566,666. 10. Deducting that from $1,700,000 leaves the reduced dutiable property at $1,133,333. 11. The assessment of duty (stated in whole dollars) is therefore: * $40,490 * plus $5.50 per $100 (or 5.5%) of $133,333; which is $7,333 * = $47,827. 1. This was the amount referred to in the notice of assessment. 1. Counsel for the Chief Commissioner submitted that the legal analysis in these proceedings is straightforward and that duty is payable on the Transfer in accordance with the calculations set out under the previous paragraph; that that set of calculations is proper and accurate and is the only proper calculation of the duty payable. Mr Alexander's case 1. Mr Alexander made some initial written submissions with his application and added to them in a document headed "Submissions and Evidence for Filing" which the Tribunal received in February 2017. I considered these submissions carefully and also took into account Mr Alexander's letter to the Crown Solicitor's Office dated 30 January 2017, his document headed "Reasons for Objection" dated 2 August 2016 which was annexed to the "Submissions and Evidence for Filing", Mr Alexander's brief oral submissions and his answers to my questions at the hearing. 2. On considering all those elements, it seems to me that Mr Alexander's submissions are based on 6 identifiable grounds. 1. The "non-commercial/family" nature of the transaction. Mr Alexander contends that the transfer of the Property was a family matter in his words: "an inter-generational transfer being not commercial or profit-oriented". 2. The transfer of the Property was, in Mr Alexander's words: ". in accordance with my mother's will and the powers given to the executors." I take it from Mr Alexander's written submissions that what he is suggesting is that the Tribunal should adopt a very broad notion of the concept of a "trust" as that term is used in s 63 (2). He states in section 4 of his Grounds for Application received on 2 November 2016: "The instruction, trusts, executor powers and intentions are crucial in determining what duties applicable in this family matter." I take it that Mr Alexander contends that the "real" intentions of the parties and hence the trust should determine, or be given very substantial weight in determining, the imposition of stamp duty. 3. The effect of the Chief Commissioner's assessment in this case is to impose death duty on the estate of Mrs Alexander and death duty has been abolished in New South Wales. 4. Subsection 63 (2) does not exclude the value of the estate and limit it to the property component only. I take it that Mr Alexander contends that the value of the Property for stamp duty purposes should be that agreed between him and his sisters. 5. In making a proper assessment of duty, "substance over form" should be adopted and "ordinary legal principles" should apply. There was little elaboration of this ground in the written submissions. 6. That a proper assessment should take into account the provisions of subsections 63(1)(a) (i) and 63 (2) as well as the Chief Commissioner's ruling or interpretations. Consideration and Analysis Were the elements s 63 (2) satisfied and was the assessed amount of duty of $47,740 correct? 1. On the basis of the agreed facts and the submissions I am satisfied to the requisite standard that the methodology adopted by the Chief Commissioner in formulating the assessment issued on 28 May 2016, as summarised in paragraph 11 above, was in every way correct and complete. 2. I am also satisfied to the requisite standard that the amount of assessed duty of $47,740 was correct. 3. I make those findings on the basis of the agreed facts and the detailed explanations contained in the written submissions of the Crown Solicitor. 4. Mr Alexander did not directly or expressly challenge any individual aspect or step involved in the Chief Commissioner's methodology as summarised in paragraph 11 above either during the course of pleadings or at the hearing. However I understand his case to be that regardless of any sequential logical correctness of that methodology, duty was not assessed at the correct amount for the reasons set out in his written submissions, as summarised in paragraph 14 above. Those submissions therefore merit analysis and comment. Consideration of Mr Alexander's submissions The "private, non-commercial and family" nature of the transaction 1. I accept that the arrangements between the beneficiaries of Mrs Alexander's estate and the transfer of the Property to Mr Alexander which resulted were essentially private family matters, that they did not have a commercial context and were "not-for profit". But there is nothing in the express terms of s 63 (2), the surrounding or related provisions in Part 6 or elsewhere in the Duties Act which supports the contention that the domestic, private, family or "not-for-profit" nature of a transaction or transfer affects the manner of assessment of duty under s 63(2) on a transfer of land or the quantum of duty payable. 2. Neither Mr Alexander nor Counsel for the Chief Commissioner was able to point me in the direction of any persuasive legal authority to the contrary. I am not aware of any such authority. 3. It follows that there is just no basis for restricting the application of the statutory provisions in the way in which Mr Alexander contends. 4. Subsection 63 (2) deals expressly with the situation where trusts are contained in the will and there is an agreement between the beneficiary who is the transferee and one or more other beneficiaries to vary the trust contained in the will. The subsection must of necessity applied to many non-commercial situations or that sort of situations which I understand Mr Alexander to contemplate by his use of the term "not-for-profit". The conclusion must be that the regime for assessment of duty in the given circumstances and the concessions available for deceased estates under section 63, and in particular the regime reflected by s 63 (2) are not restricted to commercial transactions and apply equally to the sort of family transactions which are involved in this case. The transfer of the Property was in accordance with the Will and the power given to the executors under the Will 1. I cannot understand the basis of Mr Alexander's contention that the Transfer was produced and effected in accordance with the Will. It is perfectly clear that the Will reflects Mrs Alexander's intention that each of her three children should take the whole of her estate in equal shares. The transfer of the Property to one child only, namely Mr Alexander, is simply not concordant with that intention. Of course, that transfer arose as a result of a separate agreement made between the three children who were the sole beneficiaries of Mrs Alexander's residuary estate. 2. If Mr Alexander intended to submit that it is within the power granted to the executors under the Will (or perhaps within the law relating to estates generally) for to the beneficiaries to make an agreement between themselves as to the distribution of the estate, then of course that is correct, but it does not help his case, because that is the very situation which is contemplated by s 63 (2) of the Duties Act. A contention to that effect does not undermine the validity of the Chief Commissioner's assessment. An attempt to impose death duty? 1. I am completely unpersuaded by Mr Alexander's submissions that the assessment of duty is invalid because it is, in his contention, some form of attempt to impose death duty, which has been abolished. The submission was not supported by any evidence. The statute must be construed according to its terms. The value of the estate as a whole should be included in the calculation 1. By its very terms, s 63 (2) requires the reduction in the dutiable value of the dutiable property to be based on the proportion of the particular beneficiary's entitlement "arising under the trusts contained in the will". The subsection clearly does not require the value of the estate as a whole to be included in the calculation. As submitted by Counsel for the Chief Commissioner, the subsection is concerned with the "dutiable property" which is a defined term under the Duties Act (see section 11) and the subject of the transfer in each case. In this case the dutiable property is the Property. I can see nothing which justifies the contention that the total estate value should be included in the calculation of duty. "Substance over form" and "ordinary legal principles" 1. At the hearing I asked Mr Alexander to explain what "substance" I should be considering and to identify the "ordinary legal principles" which he thinks I should apply in order to overturn the Chief Commissioner's assessment. Mr Alexander was not able to elucidate these matters. As indicated above at paragraphs 5 and 6, in conducting a review of this type I must decide what the correct and preferable decision is, having regard to the material then before me, including any relevant factual material and any applicable written or unwritten law. For that purpose, I may exercise all of the functions which are conferred or imposed by any relevant legislation on the administrator who made the decision: in this case, the Chief Commissioner. 2. The "substance" of the matter is provided by the relevant legislation and in this case by the Chief Commissioner's detailed explanation of the methodology involved in making the assessment. I cannot follow or see any persuasive value in Mr Alexander's submission that I should look at "substance" as opposed to "form". I not clear what he means by "form". The only hint I obtained of this was Mr Alexander's answers to my questions at the hearing in which he indicated that he had an expectation that duty would be payable on what he called the "shortfall amount" only. If Mr Alexander means that the "substance" of the private arrangement between siblings, particularly as to the value of the property, should be given precedence over the "form" of the legislation, that is not so. If he means "substance" to refer to the private, domestic, family and "not-for-profit" nature of the overall transaction, then they cannot be substituted for a proper analysis of the applicable legislation. 3. Similarly, Mr Alexander was not able to specify or describe to me the "ordinary legal principles" on which he relied I am not aware of any legal principles, which would in the circumstances of this case invalidate the methodology adopted by the Chief Commissioner in assessing the duty payable. Subsections 63 (1) (a) (i) and 63 (2) need to be considered and on a proper analysis of those sections the Chief Commissioner's assessment was incorrect. 1. I have considered the effect of subsections 63 (1) (a) (i) and 63 (2). I cannot see how they alter my conclusion that the Chief Commissioner's assessment was correct. The Chief Commissioner's explanations of the assessment methodology demonstrate to my satisfaction that detailed consideration was given to those subsections and their effect on the calculation of the correct amount of duty. I accept the methodology adopted is the correct. This submission by Mr Alexander must also fail. Conclusion and Orders 1. For the reasons detailed under the previous headings I conclude that the Chief Commissioner's assessment of duty was valid. It follows that Mr Alexander's application for review fails and that I must order that that the assessment of duty is confirmed and that the Chief Commissioner's decision under review is confirmed. ******** 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: 09 June 2017