Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Winston-Smith v Chief Commissioner of State Revenue [2019] NSWCA 75 Hearing dates: 15 February 2019 Decision date: 16 April 2019 Before: Meagher JA at [1]; Payne JA at [40]; Sackville AJA at [45] Decision: Appeal dismissed with costs. Catchwords: TAXES AND DUTIES – Duties Act 1997 (NSW), s 163H – where appellant taxpayer liable for duty at "general rate" in respect of acquisition of 50% shareholding interest in a private landholder company – where Chief Commissioner of State Revenue declined to grant exemption – whether application of Ch 4 of the Duties Act 1997 (NSW) to acquisition not just and reasonable Legislation Cited: Taxation Administration Act 1996 (NSW), ss 27, 97 Duties Act 1997 (NSW), ss 32, 33, 146, 149, 150, 151, 155, 157, 158, 159, 163A, 163H Cases Cited: Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue of the State of New South Wales (2011) 245 CLR 446; [2011] HCA 41 Milstern Nominees Pty Ltd v Chief Commissioner of State Revenue (2015) 89 NSWLR 43; [2015] NSWSC 68 House v The King (1936) 55 CLR 499; [1936] HCA 40 Warren v Coombes (1979) 142 CLR 531; [1979] HCA 9 Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181 Norbis v Norbis (1986) 161 CLR 513; [1986] HCA 17 Minister for Immigration and Border Protection v SZVFW [2018] HCA 30; (2018) 92 ALJR 713 Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd [2019] NSWCA 61 Category: Principal judgment Parties: Michael William Winston-Smith (Appellant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: B Sullivan SC, C Peadon, D Lewis (Appellant) J Hmelnitsky SC, M Sealey (Respondent) Solicitors: Piper Alderman (Appellant) Crown Solicitor's Office (Respondent) File Number(s): 2018/192317 Publication restriction: N/A Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2018] NSWSC 773 Date of Decision: 01 June 2018 Before: Emmett AJA File Number(s): 2017/314929 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] headnote [This headnote is not to be read as part of the judgment] The Chief Commissioner of State Revenue declined to grant the appellant taxpayer an exemption under Duties Act 1997 (NSW), s 163H from liability for duty charged at the "general rate" under Chapter 4 of that Act in respect of his acquisition of a 50% shareholding in Mac's Pty Ltd (Mac's), a "private landholder" company. Section 163H confers a discretion on the Chief Commissioner to grant such an exemption "if satisfied that the application of [Chapter 4] to an acquisition in a particular case would not be just and reasonable". Following a distribution of his mother's estate, the appellant held 50% of the shares in Mac's and 100% of the shares in Town & Country Lands Pty Ltd (TCL), which in turn held the remaining 50% of the shares in Mac's. That bequest was conditional on the appellant making certain payments to a sister. He was advised that those payments could be funded by a "tax effective approach" of liquidating TCL and selling its pre-CGT assets. The appellant, acting in accordance with that advice, caused TCL to be wound up, and the liquidator of TCL transferred its 50% shareholding in Mac's to the appellant. The Chief Commissioner determined that duty in respect of that acquisition was to be assessed under Chapter 4, and declined to grant an exemption under s 163H. The Chief Commissioner also declined to remit any of the interest charged. Following an unsuccessful objection to the notice of assessment giving effect to those decisions, the appellant applied to the Supreme Court for a review of them. The primary judge confirmed each of those decisions, and dismissed the application for review. By his amended notice of appeal, the appellant challenges that judgment in relation to the Chief Commissioner's first decision. The appellant argues that his Honour erred in not deciding to exercise the dispensing power where there was no intent to avoid duty, and where the acquisition had no practical impact on the way in which the land held by Mac's was enjoyed. Held (Meagher JA, Payne JA and Sackville AJA agreeing), dismissing the appeal: 1. The acquisition produced a change in the appellant's underlying practical and economic ownership in the relevant land. His 50% indirect interest held via TCL was foregone for a further 50% direct interest, with the consequence that TCL's liabilities and expenses could no longer affect the appellant's ability by that shareholding interest to acquire ownership of the land, or distribute dividends from its income. Furthermore a necessary consequence of TCL's liquidation was the extinguishment of the 50% indirect interest which was replaced by the further 50% direct interest, ensuring that the appellant would retain a 100% practical and economic interest in the Mac's land: at [15], [21], [22], [27], [29], [40], [42], [45]. Milstern Nominees Pty Ltd v Chief Commissioner of State Revenue (2015) 89 NSWLR 43; [2015] NSWSC 68 distinguished. Judgment 1. MEAGHER JA: This is an appeal from an order dismissing the appellant taxpayer's application for review of a decision of the Chief Commissioner of State Revenue (Chief Commissioner) under Duties Act 1997 (NSW), s 163H. By that decision, the Chief Commissioner declined to grant the appellant an exemption from liability for duty charged under Chapter 4 of that Act in respect of his acquisition of a 50% shareholding interest in Mac's Pty Ltd (Mac's), a "private landholder" company: Winston-Smith v Chief Commissioner of State Revenue [2018] NSWSC 773. 2. Section 163H confers a discretion on the Chief Commissioner "if satisfied that the application of [Chapter 4] to an acquisition in a particular case would not be just and reasonable" to grant a full or partial exemption from the duty charged. On 3 May 2017, the Chief Commissioner rejected the appellant's application for an exemption. The taxpayer's objection to the notice of assessment giving effect to that decision was also unsuccessful. Under Taxation Administration Act 1996 (NSW), s 97(1), a taxpayer may apply to the Supreme Court for "review" of a decision that has been the subject of an unsuccessful objection. In the determination of that review, the Supreme Court is to address afresh the questions before the Chief Commissioner having regard to the material before the Court. In this case, those questions included whether the Court was relevantly "satisfied": Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue of the State of New South Wales (2011) 245 CLR 446; [2011] HCA 41 at [12]–[20]; applied in Milstern Nominees Pty Ltd v Chief Commissioner of State Revenue (2015) 89 NSWLR 43; [2015] NSWSC 68 at [4] (White J, as his Honour then was). 3. Two decisions of the Chief Commissioner were the subject of the appellant's application to the Supreme Court. The first was the decision not to grant the exemption. The second was the decision not to remit, under Taxation Administration Act, s 25, any of the interest charged. The primary judge (Emmett AJA) confirmed each of those decisions, and dismissed the application for review. As to the first, he was not satisfied that the charging of duty at the "general rate" (Duties Act, ss 32, 155(1)) in accordance with Chapter 4 would not be "just and reasonable": Judgment [76]. As to the second, he characterised the relevant tax default as "wilful" and, there being no evidence that the taxpayer had a basis for believing that he was not liable to pay duty under Chapter 4, rejected the claim to any remission of interest. The appellant, by his amended notice of appeal, challenges the first of those holdings, but not the second. For the reasons which follow, his appeal should be dismissed. 4. The condition for the exercise of the discretionary power conferred by s 163H is a state of satisfaction. The principal issue in this appeal is whether in undertaking his review under s 97, the primary judge erred in not reaching that required state of satisfaction. At the commencement of oral argument, the Court inquired whether the standard of appellate review applicable is the deferential standard in House v The King (1936) 55 CLR 499; [1936] HCA 40, or the correctness standard reaffirmed by the majority in Warren v Coombes (1979) 142 CLR 531; [1979] HCA 9. The parties accepted that the former standard applies, as was held by this Court in Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181 at [46], the requirement that the Chief Commissioner (and the Court on a review) be "satisfied" involving a value judgment in respect of which there is "room for reasonable differences of opinion, no particular opinion being uniquely right": Norbis v Norbis (1986) 161 CLR 513 at 518; [1986] HCA 17 (Mason and Deane JJ); and Minister for Immigration and Border Protection v SZVFW [2018] HCA 30 at [49]; (2018) 92 ALJR 713 (Gageler J). 5. Accordingly for the appellant to succeed in his appeal, he must establish first that there was error of the kind described in House v The King at 505 (Dixon, Evatt and McTiernan JJ) and secondly that this Court, re-exercising the discretionary power under s 163H should grant a full exemption, it being satisfied that the application of Chapter 4 would not be "just and reasonable". As to the relevant general principles in appeals of this kind, see the recent discussion in Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd [2019] NSWCA 61 at [2], [3] (Bathurst CJ and Leeming JA). The appellant submits, relying on White J's decision in Milstern Nominees esp at [31], [32], that the exempting power is engaged and to be exercised in circumstances where there was no intent to avoid duty and the relevant acquisition of shares would have no practical consequence to the way in which the land held by the private landholder would be enjoyed. 6. Before addressing the challenges to the primary judge's conclusion made by the nine grounds of appeal that are pressed, it is necessary first to consider the relevant acquisition and the circumstances in which it occurred. What becomes apparent is that the acquisition did produce a change in the appellant's underlying practical and economic interest in the relevant land. Although before the acquisition he had a combined direct and indirect holding of 100% in Mac's, that position could not continue, his indirect holding of 50% via Mac's' parent company necessarily coming to an end on the liquidation of that company. The acquisition was intended to and did replace that indirect interest with an additional direct holding of 50% in Mac's. The relevant acquisition 1. By a transfer dated 11 December 2015, the liquidator of Town & Country Lands Pty Ltd (TCL) transferred in specie 75,000 shares in Mac's, being 50% of its shareholding, to the appellant. Mac's was a private company with land holdings in New South Wales of more than $2,000,000, and accordingly a "private landholder" (Duties Act, s 146). At the time of that transfer, the appellant already owned all the shares in TCL and 50% of the shares in Mac's, those shares having been transferred to him in September 2013, as a distribution from the estate of his mother, Helen Selle (the Deceased) who died on 14 September 2012. At the time of that distribution, TCL held the remaining 50% shareholding in Mac's. 2. By that distribution from his mother's estate, the appellant acquired a "significant interest" in two landowner companies, Mac's and TCL. TCL was a "private landholder" (Duties Act, s 146), including by reason of the land holdings of its wholly owned subsidiary, Mac's, the latter being a "linked entity" of the former, relevantly the "principal entity" (Duties Act, s 158). By those transfers, the appellant "acquired" a "significant interest" in those companies as landholders, and accordingly made "relevant [albeit "exempt"] acquisitions" under Chapter 4 (Duties Act, ss 149, 150, 151, 163A(1)(d)). Following those acquisitions, the appellant held a 50% interest in Mac's which owned land with an estimated value of $69.87 million, and a 100% shareholding interest in TCL, which in turn was taken for the purposes of Chapter 4 to hold an interest in the same land by reason of its 50% shareholding in Mac's (Duties Act, s 158). The Chief Commissioner's assessment 1. The share transfer was lodged for stamping on 22 December 2015, together with a submission that the transfer was a dutiable transaction liable for duty under Chapter 2 at marketable security rates (Duties Act, s 33) and exempt from landholder duty under Chapter 4. The duty calculated as due under Chapter 2, and paid at this time was $183,294, based on the 50% shareholding having a dutiable value of $30,549,000. The duty payable under Chapter 4 as at the date the relevant acquisition was made (stated in the transfer to be 30 November 2015) was $1,805,246.60, based upon a valuation of the unencumbered Mac's land holdings of $71.45 million. 2. On 3 May 2017 the Chief Commissioner issued a notice of assessment in the sum of $2,016,548.49, being the duty payable under Chapter 4 and interest of $211,301.89. By the letter accompanying that assessment, the appellant was advised that upon payment by 24 May 2017 of $1,805,246.60 and the market rate component of interest of $41,890.06, the Chief Commissioner would remit the remaining premium component of interest of $169,411.83. The appellant taxpayer did not pay the amount of duty or any interest until 27 September 2017. During the intervening period the appellant objected to that assessment and the rejection of that objection was notified by the Chief Commissioner on 4 September 2017, leading to the commencement of the proceedings at first instance on 18 October 2017. The argument made to the Chief Commissioner for an exemption 1. The appellant's argument in support of an exemption was summarised as follows in its request for a private ruling on the application of s 163H made on 26 July 2013: 22. … [The appellant] will both before and after the Acquisition, have an underlying economic interest in 100% of the landholdings of Macs. There is no change in that underlying economic interest pre-Acquisition and post-Acquisition. The underlying economic interest in the landholdings is just held in a different way. Before the Acquisition the 100% underlying economic interest is held by [him] through his 50% direct shareholding in Macs and his indirect shareholding in the other 50% in Macs held by [TCL] of which he is the 100% shareholder. After the Acquisition, the 100% underlying economic interest is held by [the appellant] through his 100% direct shareholding in Macs. The Acquisition merely changes [his] holding from a combined direct and indirect holding of 100% in Macs to a direct holding of 100% in Macs. 23. The Acquisition is clearly not motivated by avoidance of stamp duty. The Acquisition is not effecting a conveyance of the underlying land owned by Macs because in effect there is merely a transfer of that land from [the appellant to the appellant] so there is in effect no change in the beneficial ownership of that land. And, earlier: 16. … there may be a split second in time where the [appellant's] interest in Macs when aggregated with the interest of [TCL] in Macs ceases to be 100%. This would be the point at which the shares held by [TCL] in Macs are transferred from [TCL] to [the appellant]. At this point [the appellant] will go from having an interest in Macs that when aggregated with an associated person is 100% to only holding an interest of 50% and then immediately to a direct 100% immediately thereafter. The circumstances resulting in the relevant acquisition 1. Reference to the appellant's request in July 2013 for a private ruling also explains why the in specie transfer of TCL's 50% shareholding in Mac's to the appellant occurred. It shows that the relevant acquisition was made necessary because of the appellant's earlier decision to liquidate TCL so as to maximise the value of the Deceased's residuary estate for the interested beneficiaries, who included one of the appellant's sisters and the Deceased's grandchildren. Irrespective of whether the relevant transaction occurred, a consequence of the winding up of TCL was that the appellant would cease to have a 50% economic interest in Mac's via TCL. 2. As noted above, at the time of her death, the Deceased held 50% of the shares in Mac's, and all of the shares in TCL which held the remaining 50% interest in Mac's. Each of those companies held real property and a portfolio of shares. By cl 5.1 of the Deceased's will, the appellant's entitlement to a bequest of the real property of Mac's and share portfolio of TCL, including its shares in Mac's, was expressly dependent on the appellant first entering into a deed of agreement with the executors of her estate to procure that TCL would pay to the other of his sisters amounts equal to the value of the real property of TCL, and the value of the public share portfolio of Mac's, in each case the valuation day to be that of the Deceased's death. The will did not require that TCL be liquidated, or that TCL's shares in Mac's be transferred to the appellant taxpayer, in order for that condition to be satisfied. Nor did the deed of release and indemnity subsequently entered into on 12 September 2013 between the appellant, TCL, and Mac's on the one part, and the executors of the Deceased's estate on the other, contain such a requirement. That deed recited the agreed values of the real property of TCL and Mac's' public share portfolio and contained promises by Mac's and TCL to make payments totalling $18,008,750 to the sister within 12 months. The appellant also made separate promises to procure that those payments be made. No promise was made that prevented them being funded from the sale of assets of Mac's. The "creation" of that agreement satisfied the condition of the Deceased's bequest of her shareholdings in TCL and Mac's to the appellant (cll 5.1 and 5.3 of the will), and resulted in the distribution and transfer of the relevant shares in September 2013. 3. Thus, under the terms of the will, the appellant had 12 months from the date of his mother's death in which to bind himself to such an agreement. In that context, in April 2013, he received taxation and other advice as to the way in which the payments to be made to his sister might be funded. At that time, he was informed by his accountants of the advantages of placing TCL into liquidation. Specifically, he was advised that the payments to be made could be funded by liquidating TCL and that as part of that liquidation its pre-CGT properties could be sold and the proceeds used to fund the payments. Its other pre-CGT assets could then be distributed to the shareholders of TCL, in other words to him. This was described as a "tax effective approach that will maximise the value of the residuary estate for the residuary beneficiaries" and that other "potential options will reduce the amount of the residuary estate". The value of the commercial benefits likely to be achieved by the pursuit of this course is not revealed by the evidence. The appellant instructed his advisers that TCL should be wound up. The application for the private ruling followed in July 2013, and the ruling that the discretion would not be exercised was given on 11 September 2013. The appellant was not deterred and on the following day entered into the deed of release and indemnity. 4. An inevitable consequence of the winding up of TCL was that the appellant would cease to be a shareholder in that company which in turn would cease to be a shareholder in Mac's, thereby terminating his existing "significant interest" in TCL as a "landholder" in relation to Mac's' land holdings. To maintain his 100% beneficial or economic interest in those land holdings, it was necessary that TCL transfer to him its 50% shareholding in Mac's. In the result, to achieve what was regarded as a "commercially necessary or desirable" outcome, the appellant caused TCL to be wound up, knowing that he would thereby forego his 50% indirect interest in Mac's, and acquired an additional 50% direct interest in Mac's. The decision of the primary judge and grounds of appeal 1. His Honour traced the legislative history of Chapter 4 at Judgment [2]—[9]; and summarised the relevant scheme and provisions of the Duties Act as presently applicable at Judgment [10]—[24]. Neither party takes issue with the correctness of any part of that history or summary. Having set out the factual background, his Honour then addressed at Judgment [41]—[76] the question whether or not to grant an exemption under s 163H. 2. In doing so, he described the policy and purpose of the legislation in the following terms, which are accepted by the parties to be an accurate statement of the purpose of the legislation and the rationale behind the exemption in s 163H (Judgment [49]): The purpose of s 163H is to enable the Commissioner to relieve a taxpayer from the duty consequences attaching to a relevant acquisition in circumstances where Ch 4 brings within its operation an acquisition that Ch 4 was not intended to capture. The primary purpose of the Duties Act is to tax transactions that result in a change, indirectly, in the underlying practical or economic interest in dutiable property, as distinct from [a change in] the mere legal or equitable proprietary interest, by providing for duty to be charged on transactions that result in a change of such underlying practical or economic interest, as well as on direct transfers of [other] dutiable property. The fundamental basis for taxation under the Duties Act, including Ch 4, is a change of the underlying practical or economic interest, as well as direct beneficial ownership, whether legal or equitable. The dispensing power is in aid of furthering the primary purpose of that basis. Whether or not there has been a change of underlying practical or economic interest, including beneficial ownership, is an entirely relevant consideration in the exercise of the dispensing power. 1. In support of his position, both before the primary judge and in this Court, the appellant relied heavily on White J's decision in Milstern Nominees. As the primary judge recorded at Judgment [57], quoting from White J in that case at [31]: His Honour accepted that the purpose of Ch 4 is to charge duty on "the acquisition of beneficial or economic ownership of land" through the acquisition of marketable securities and that the dispensing power in s 163H should be exercised where "there was no intent to avoid duty" and where the relevant acquisition of shares "would have no practical consequence as to the way in which the land held … would be appointed or enjoyed" 1. The primary judge considered the appellant's reliance on Milstern Nominees was misplaced, concluding at Judgment [58]–[62] that in "the light of the somewhat complex circumstances that were before White J, I do not consider that his Honour's observations are of assistance in resolving the question presently before me". In so concluding, the primary judge made clear that he did not disagree with White J's "conclusion and the reasoning that led to that conclusion". 2. Grounds of appeal 1, 2 and 8 contend, in reliance upon that decision, that the primary judge erred in not applying Milstern Nominees, and holding that the dispensing power should be exercised in the present case where "there was no intent to avoid duty and where the relevant acquisition of shares would have no practical consequence to the way in which the land held by the landowner … would be enjoyed". 3. The primary judge's analysis focussed on whether there had been a "change" in the appellant's underlying practical or economic interest in the Mac's land holdings, measured by reference to his power and capacity as controlling shareholder to acquire ownership of those land holdings, and to cause dividends to be received out of the income of that land. Accepting that both before and after the relevant acquisition, the appellant had a 100% "underlying beneficial ownership and control" of the land owned by Mac's, the "change" which the primary judge focussed upon was the conversion of the appellant's partly indirect interest in Mac's "before" the acquisition to a wholly direct interest "after": Judgment [53]—[54], [65]. 4. His Honour concluded that the relevant acquisition changed the appellant's underlying practical or economic interest of the land to his advantage. A "layer of legal and beneficial ownership that had existed" was removed, one consequence being that "there would no longer be a possibility that the financial position of TCL, such as liabilities to third party creditors, could interfere with the capacity of the [appellant] to ensure that he received all of the income derived from the land owned by Mac's": Judgment [66], [71]. That last finding is not challenged. However, by ground 3A it is contended that his Honour failed to find that the appellant was in a position both before and after the acquisition to take such steps as he considered appropriate to cause the land to be transferred to himself. 5. His Honour's conclusion is challenged by grounds 3, 4, 5 and 6 which contend that he took into account considerations that were not relevant, and ground 7 which in effect contends that he gave excessive weight to the matters which are the subject of those four earlier grounds. Determination of the appeal Failure to apply Milstern Nominees (grounds 1, 2 and 8) 1. The primary judge was right to consider that the circumstances of the present case were quite different from those in Milstern Nominees and that they did not support a conclusion that the exempting power should be exercised in this case. Mrs Phillips was the controller of Milstern Nominees, the company that wholly owned the corporate trustee of the Landsell Trust, a discretionary trust owning land. She also controlled the Appointor and Guardian of that trust, of which Milstern Enterprises was one of eight discretionary objects. For that reason, it was taken to own the property of the Landsell Trust (Duties Act, s 159(1), (2)). Mrs Phillips also controlled Milstern Enterprises, via a third company, Mamark Holdings Pty Ltd, which held all of its A class ordinary shares, which conferred control of the voting power. 2. Unless exempted, the resultant "relevant acquisition" was by Milstern Nominees of eight of the nine ordinary shares in Milstern Enterprises, those shares entitling the holder to distributions of property of the company, so as to thereby convey a "significant interest" (s 150). The resultant "relevant acquisition" (s 149) by Milstern Nominees was chargeable to duty under Chapter 4 at the "general rate" (ss 32, 155, 157) on eight ninths of the unencumbered value of the deemed land holdings of Milstern Enterprises. Although there was taken to be an acquisition of a significant interest, that acquisition did not convey to or create in Milstern Nominees any beneficial or economic ownership or control in the trust's land. Milstern Enterprises did not have that power or control before the acquisition, and that remained the position after it. 3. Acceptance of the correctness of the proposition in [18] above justified White J's conclusion that the dispensing power should be exercised in favour of Milstern Nominees. There was no intent to avoid duty and the relevant acquisition had no practical consequences for the way in which the land held by the Landsell Trust would be controlled or enjoyed. Mrs Phillips controlled both the discretionary object of the trust and the trust, and that was the position before the acquisition and continued to be the position after it, in circumstances where the acquisition had no practical consequence for either of those matters. 4. There remains to be considered the appellant's reliance on that decision in the present case. It may be accepted that the appellant had no intention to avoid duty. It may also be accepted that it was commercially necessary or desirable to liquidate TCL to make funds available to meet the appellant's obligations under cl 5.1 of the will, and that the in specie distribution maintained the appellant's 100% underlying beneficial interest and effective control of Mac's. However, the appellant's submission that the acquisition had no practical consequence for the use and enjoyment of the land, and did not confer economic benefits on him, must be rejected. The relevant acquisition conferred on the appellant a further 50% direct interest in Mac's in circumstances where his existing 50% indirect interest held via TCL would necessarily have come to an end as a consequence of the winding up of TCL. 5. The appellant maintains that it is sufficient for the inquiry called for by s 163H that he had "100% [of the] underlying beneficial ownership and control of the land through corporate entities prior to the Acquisition, and that [the] Acquisition did not alter or affect that". This contention assumes, contrary to the fact, that the applicant's existing underlying beneficial ownership and control of the Mac's land would have continued but for the relevant acquisition, and then directs attention to whether that acquisition altered or affected what would otherwise have been the position. The primary judge's analysis proceeds on that basis, his Honour concluding that it did, and to the benefit of the appellant. However, when regard is had to the winding up of TCL and its inevitable consequence that the appellant's existing 50% indirect interest would terminate, it is clear that the effect of the acquisition is to confer a further 50% direct interest in Mac's' land holdings. 6. Two things follow from the preceding analysis. The first is that the primary judge did not err in regarding the circumstances of this case as distinguishable from those in Milstern Nominees. For that reason grounds 1 and 2 must be dismissed. The second is that in my view this Court, re-exercising the discretionary power under s 163H, could not be satisfied that the application of Chapter 4 to the relevant acquisition would not be "just and reasonable". That acquisition ensured that the appellant would retain a 100% practical and economic interest in the relevant land in circumstances where 50% of that interest would otherwise be lost as a result of the appellant's decision to liquidate TCL to fund the payments to his sister. It follows that ground 8 and the appeal must be dismissed, even if there was error in any of the respects contended for by grounds 3, 3A, 4, 5, 6 or 7 because any such error would not be material and result in the setting aside of the orders made by the primary judge. I will nevertheless address those remaining grounds of appeal, albeit briefly. Failure to find appellant able to transfer land (ground 3A) 1. Ground 3A as formulated should be dismissed. The primary judge found (Judgment [66]), contrary to the assertion made by this ground, that before and after the acquisition the appellant was in a position to obtain title to the Mac's land holdings. In oral argument it was submitted, apparently in support of this ground, that his Honour's statement at Judgment [53] that it was only after the acquisition that the taxpayer was in a position to procure the distribution of the whole of the land owned by Mac's to himself was wrong because the appellant could have secured such an outcome even with TCL owning half of the shares in Mac's by altering its constitution to permit a differential distribution in specie or a differential dividend. That argument was not put to the primary judge, could have been the subject of evidence, including as to the terms of the relevant constitution, and is not within this ground of appeal. For those reasons, it cannot be made in the appeal. Relevance of removal of interposed company (TCL) (ground 5) 1. It is accepted that "an entirely relevant consideration" (Judgment [49]) was whether there had been a change in the appellant's underlying practical or economic interest in the Mac's land holdings. The primary judge concluded that the appellant's measure of control in his favour was altered by the removal of TCL in circumstances where, in the absence of any evidence as to its financial position at the time of the transfer on 11 December 2015, there remained the "possibility that the financial position of TCL … could interfere with the capacity of the [appellant] to ensure that he received all the income derived from the land owned by Mac's" (Judgment [71]). 2. Two arguments are made in support of the contention made by this ground that his Honour's analysis in this respect was directed to an irrelevant consideration, notwithstanding that it was concerned with whether there had been a change in the appellant's "underlying practical or economic interest". First it is said that Chapter 4 adopts a "look-through" approach to interests in land held by corporate groups or linked entities (Duties Act, s 158) and that his Honour's analysis was manifestly inconsistent with that approach. Secondly, it is said that to the extent such an analysis also has regard to the liabilities of individual companies in a corporate group when assessing the ability of a controlling shareholder to achieve distributions of property and dividends, it is also inconsistent with the scheme of Chapter 4 (esp ss 150, 155) which provides that duty is to be charged by reference to the unencumbered value of the relevant land holdings, and without reference to the liabilities of the corporate or other landholder. 3. His Honour noted these arguments at Judgment [69], [70] and rightly treated these provisions as having no bearing on the inquiry whether the relevant acquisition affected the actual, as opposed to deemed, underlying beneficial or economic ownership and control of the relevant land (see Judgment [58]). To proceed on that basis was wholly consistent with the analysis and outcome in Milstern Nominees. Sections 158 and 159 are deeming provisions directed to ensuring that land held by downstream entities is taken into account in acquisitions of interests in parent companies, thereby operating as an anti-avoidance measure which in turn is subject to the discretion in s 163H, as noted by White J in Milstern Nominees at [52]. Sections 150 and 155 concern the calculation of the duty to be charged following the operation of Chapter 4, including s 163H when engaged. For these reasons, ground 5 should be dismissed. Taking into account other irrelevant considerations (grounds 3, 4 and 6) 1. In undertaking the process of statutory construction the primary judge was correct to consider the relationship between Chapters 2 and 4 of the Duties Act (ground 3) and the application of any specific exemptions to the application of Chapter 4 (ground 4), to the extent that they may inform the scope and purpose of the general discretion under s 163H. The primary judge undertook the latter analysis at Judgment [55] and [56], noting that the corporate reconstruction and corporate consolidation exemptions (Duties Act, ss 273B—273E) did not operate for the benefit of natural person shareholders, or corporate shareholders outside the relevant group of companies. 2. Ground 6 is directed to the primary judge's observation at Judgment [75] and maintains that his Honour erred in taking into account as a relevant consideration against the exercise of the dispensing power that a direct transfer of 50% of the land held by Mac's was an available alternative to the relevant acquisition, and that in that event the appellant would have been liable to duty at the general rate under Chapter 2. That observation was made in response to the appellant's submission, recorded at Judgment [73], that "a test that involves a comparison with the duty payable on a hypothetical direct transfer of land will not be an appropriate comparison yardstick in all cases". The appellant's contention was that it was not such an appropriate comparison in the present case, because the shares in Mac's were "not acquired by [him] to achieve the substantive effect of transferring the ownership of the land owned by Mac's". 3. In response to that submission, his Honour reasoned at Judgment [74] that where "the amount of duty payable under Ch 4 would not be greater than the amount that would have been payable on a direct transfer of the underlying land, that would be a good reason for not exercising the dispensing power conferred by s 163H if the subject acquisition produces similar economic benefits to that that would be obtained by the transfer of the land". In this context, the relevance of his Honour's observation was that a direct transfer of the land was an "appropriate comparison yardstick" if the subject acquisition produced similar economic benefits to those that would have been obtained by such a transfer. In so reasoning, his Honour did not take any irrelevant matter into account in assessing whether the application of Chapter 4 would not be just and reasonable. Each of grounds 3, 4 and 6 should be rejected. Error in assessing weight to be given to various considerations (ground 7) 1. Ground 7 contends that the primary judge, having taken account of the matters which are the subject of the grounds 3 to 6, should have concluded that the condition for the exercise of the exempting power was satisfied. No error has been identified in relation to his Honour's treatment of the subject matter of those four earlier grounds. In that circumstance, it not being submitted that there is any more specific basis for this Court to conclude that the discretion has been wrongly exercised, this ground should be dismissed. Conclusion 1. In the result the position is as described by counsel for the Chief Commissioner in argument: [There] was an acquisition here, Mr Winston-Smith obtained 50% of the shares in Mac's. It may well be that prior to the liquidation of TCL he had other interests in TCL that economically gave him much the same thing, from his point of view, but by reason of this transaction he got something, being the very thing that the Act intends to treat as a proxy for the acquisition of land, and he got a 50% interest in the landholder. 1. The appeal should be dismissed with costs. 2. PAYNE JA: I have read the judgment of Meagher JA in draft. I agree with his Honour's reasons. These brief additional observations are not intended to be inconsistent with anything his Honour has said. 3. As Meagher JA explains at [17], the purpose of the legislation and the rationale of the exemption in s 163H of the Duties Act 1997 (NSW) was described by the primary judge in terms that both parties embraced. In addressing this issue, however, the appellant sought to rely upon a description by this Court of the statutory purpose of the now-repealed land rich provisions of the Stamp Duties Act 1920 (NSW): Chief Commissioner of Stamp Duty v Lee [2000] NSWCA 246; 45 ATR 130 at [9] per RP Meagher JA (with whom Priestley and Clarke JJA agreed). Seeking to apply statements made about the legislative purpose of different (and in this case repealed) legislation is not helpful. 4. To the extent that the taxpayer chose in these proceedings to disclose the commercial rationale for the transaction here in issue, Meagher JA has described the relevant reasons at [13]-[14]. The transaction whereby the liquidator of TCL transferred to the taxpayer a 50% shareholding in Mac's had the inevitable consequence that the taxpayer forwent his 50% indirect interest in Mac's and acquired an additional 50% shareholding in Mac's. This transaction removed any potential liabilities that might exist arising from the taxpayer's 50% indirect interest in Mac's. The removal of those potential liabilities was a thing of substance. It meant that there had been a change in the underlying practical or economic ownership of the land. To the extent that TCL may have had a liability or an expense that reduced its distributable profit, the existence of those liabilities or expenses would have affected the amount it was able to distribute. The primary judge was correct to conclude that this was a sufficient basis to dismiss the taxpayer's application. 5. The taxing rationale of Ch 4 of the Duties Act is to treat an acquisition of shares in a company (in this case the shares in Mac's) which owns land as an acquisition of the underlying land itself. The reason that duty is imposed here, in the way that it is and the amount that it is, is because the legislation intends to treat the acquisition of shares in Mac's as equivalent to the acquisition of the underlying land. As Meagher JA explains, nothing said in Milstern Nominees is inconsistent with this conclusion. 6. I agree with the orders proposed by Meagher JA. I also agree with the additional observations of Sackville AJA. 7. SACKVILLE AJA: I agree with the orders proposed by Meagher JA and with his Honour's reasons. I add the following observations. 8. Under the Deceased's will, the appellant's entitlement to a bequest of the Deceased's shares in TCL and Mac's was dependent on the appellant entering into a Deed of Agreement with the executors whereby the appellant procured that: * TCL would give the appellant's sister the monetary equivalent of the value of two properties owned by TCL, valued at the date of the Deceased's death; and * Mac's would give the appellant's sister the monetary equivalent of Mac's' share portfolio, also valued at the date of the Deceased's death. 1. The will did not require TCL to be liquidated or TCL's shares in Mac's to be transferred to the appellant. Nor did the Deed of Agreement. 2. Upon execution of the Deed of Agreement, the Deceased's shares in TCL and Mac's were transferred to the appellant. 3. At that point, the appellant's economic interest in the land owned by Mac's was not unconditional. It was subject to an obligation imposed by the Deed of Agreement to procure Mac's to pay the appellant's sister $5.24 million. Mac's share portfolio at the date the Deed of Agreement was implemented (or on the date the Deed was executed) may or may not have been sufficient of itself to pay the $5.24 million. As far as the evidence goes, it is possible that the entire share portfolio could have been sold before TCL's liquidation, for reasons unconnected with the obligation to pay the appellant's sister. Potentially, therefore, the appellant's economic interest in Mac's' land prior to the liquidation of TCL was subject to his personal obligation to ensure that Mac's paid $5.24 million to the appellant's sister. 4. The liquidation of TCL enabled its pre-CGT assets to be sold and the proceeds of sale used to pay out the appellant's sister, with the balance being distributed to the shareholders of TCL (that is, the appellant). 5. The in specie transfer of TCL's shares in Mac's to the appellant was an integral part of a transaction, that altered his economic interest in the land owned by Mac's. Instead of the appellant being potentially liable to have recourse to Mac's' land to fund the payment due to his sister under the Deed of Agreement, his economic interest in the land was freed from any such potential liability. 6. The transaction, of which the transfer of TCL's shares in Mac's to the appellant was an integral part, changed the appellant's economic interest in Mac's' land. In my view it is precisely this sort of case that the legislation is intended to catch. 7. If it matters, the appellant could have complied with his obligation under the Deed of Agreement simply by causing Mac's to sell its land in order to provide funds for the payment of $5.24 million to his sister. Had he done this, full ad valorem duty would have been payable on the transaction. By electing to use funds from TCL to pay his sister, the appellant avoided the need to have recourse to the assets of Mac's. Because he was relieved of that burden, his economic interest in Mac's' land was materially changed as the result of the liquidation of TCL and the transfer to him of TCL's shares in Mac's. ********** 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: 16 April 2019