Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Gu v Chief Commissioner of State Revenue [2020] NSWCATAD 75 Hearing dates: 26 February 2019. 27 March 2019 Date of orders: 05 March 2020 Decision date: 05 March 2020 Jurisdiction: Administrative and Equal Opportunity Division Before: S Higgins, Senior Member Decision: (1) The decision of the Chief Commissioner, made on 23 April 2018, is varied by a reduction of 20% being the concealment component of the penalty. (2) In all other respects the decision of the Chief Commissioner is confirmed. Catchwords: TAXES AND DUTIES – administrative review of a decision of the Chief Commissioner of State Revenue to assess the applicants as liable to pay duty under Part 4 of the Duties Act 1997 (NSW) – whether the exemption under s 163B of the Duties Act 1997 (NSW) applied – whether the exercise of the discretion in s 163H of the Duties Act 1997 (NSW) should be exercised TAXES AND DUTIES – whether appropriate to remit penalty and interest – increased penalty for concealment Legislation Cited: Administrative Decisions Review Act 1997 (NSW) Duties Act 1997 (NSW) State Revenue Legislation Amendment Act 2017 (NSW) State Revenue Legislation Amendment Act 2014 Taxation Administration Act 1996 (NSW) Cases Cited: Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19 Milstern Nominees Pty Ltd v Chief Commissioner of State Revenue [2015] NSWSC 68 Winston-Smith v Commissioner of State Revenue [2018] NSWSC 773 Texts Cited: None cited Category: Principal judgment Parties: Qing Rong Gu (First Applicant) Ying Zhang (Second Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: J King (Second Applicant) K Lord (Respondent) Solicitors: First Applicant (Self Represented) ClearSky Legal (Second Applicant ) Crown Solicitor (Respondent) File Number(s): 2018/00296970 Publication restriction: Nil Reasons for decision Introduction 1. In these proceedings, the applicants, Qing Rong (David) Gu (the first applicant or Mr Gu) and Ying (Annie) Zhang (the second applicant or Ms Zhang) seek review of a Duties Notice of Assessment (the reviewable decision) of the respondent, the Chief Commissioner of State Revenue (the Chief Commissioner), made on 23 April 2018. 2. Mr Gu and Ms Zhang were husband and wife. They were formally divorced in January 2017. 3. Mr Gu is a property developer. He commenced his property development business around 2011 when he and his business partner incorporated D & A Property Group Pty Ltd (DA Property Group) as the corporate vehicle that would acquire land for development. Mr Gu and his partner were each issued 100 ordinary shares in DA Property Group. The company subsequently purchased two blocks of land in Crows Nest for development as residential units. 4. The Chief Commissioner's Duties Notice of Assessment relates to the 2014 acquisition by Mr Gu and Ms Zhang, as trustees of the Gu Family Trust, of 99 shares Mr Gu held in DA Property Group. The subject shares were acquired under the terms of a Memorandum of Transfer of Shares Mr Gu and Ms Zhang executed. The Memorandum is dated 18 March 2014. However, the evidence of the applicants is that the Memorandum was in fact executed some time between 4 and 7 May 2014. The Chief Commissioner has accepted that the transfer of Mr Gu's shares in DA Property Group occurred on 6 May 2014. 5. The Chief Commissioner's Duties Notice of Assessment is made up of three parts. In the first part of the Duties Notice of Assessment decision, the Chief Commissioner assessed Mr Gu and Ms Zhang, as trustees of the Gu Family Trust, to be liable to pay landholder duty in regard to the 2014 acquisition. That duty was assessed under Chapter 4 of the Duties Act 1997 (NSW) (the Duties Act). Mr Gu and Ms Zhang each argue that the acquisition is exempt under s 163B of the Duties Act, as the transfer was made for the purpose of dividing matrimonial property because their marriage had broken down and they were living separate and apart. Alternatively, Mr Gu and Ms Zhang argue that the application of Chapter 4 to the 2014 acquisition would not be just and reasonable and the discretion vested in the Chief Commissioner, under 163H of the Duties Act, to grant a full or partial exemption should be exercised. 6. The second and third part of the Duties Notice of Assessment decision, relates to the payment of interest and penalty tax in regard to the acquisition: Taxation Administration Act 1996 (NSW) (TA Act), ss 25 and 30. However, these parts only arise if the first part of that Assessment is found by the Tribunal to be the correct and preferable decision: Administrative Decisions Review Act 1997 (NSW) (ADR Act). 7. In this application, the onus (TA Act, s 100(3)) is on Mr Gu and Ms Zhang to prove that: 1. their 2014 acquisition is exempt under s 163B of the Duties Act, or 2. the application of Chapter 4 to their 2014 acquisition would not be just and reasonable and the discretion, in s163H, to grant a full or partial exemption should be exercised. 1. The same applies in regard to the amount assessed in interest and penalty tax. Relevant legislation Duties Act 1997 1. The Duties Act imposes stamp duty 'dutiable transactions', which include transfers of shares and transfer of property such as land. The Duties Act also creates a number of exemptions from stamp duty. 2. In this case, the relevant duty is that contained in Chapter 4 of the Duties Act, which creates and charges a duty in regard to the acquisition by a person of a 'significant interest' in a 'landholder' (including a company landholder) where that landholder has holdings of land, within NSW, that have a threshold value of $2,000,000 or more: the Act, s 146. 3. In Winston-Smith v Commissioner of State Revenue [2018] NSWSC 773, at [2] – [24], Emmett AJA, set out a comprehensive legislative history of the Duties Act, in particular the provisions of Chapter 4 of that Act. 4. At [41], Emmett AJA explained that the 'evident policy of the land rich regime' in Chapter 4 of the Duties Act was: … [to] bring to tax the acquisition by a person of shares or interests in a landholding entity, where that transaction would have been chargeable with duty had there been a transfer of land instead. It has been said that its primary purpose was to tax transactions that resulted in a change of "beneficial ownership" of dutiable property and the dispensing power was granted in aid of furthering that primary purpose. 1. In this case, it is accepted that the transfer and acquisition of Mr Gu's shares in DA Property Group occurred on 6 May 2014. Hence, in some respects, it is the provisions of the Duties Act that applied at that time, which apply in this case. 2. There is no dispute that DA Property Group is a 'landholder' falling within the terms of s 146 of the Duties Act. 3. The term 'relevant acquisition' is defined in s 149 of the Duties Act. At the relevant time, that section provided as follows: 149 What is a "relevant acquisition"? (1) For the purposes of this Chapter, a person makes a relevant acquisition if the person: (a) acquires an interest in a landholder: (i) that is of itself a significant interest in the landholder, or (ii) that, when aggregated with other interests in the landholder held by the person or an associated person, results in an aggregation that amounts to a significant interest in the landholder, or (iii) … 1. The term 'associated person' is defined in clause 2 of the Dictionary. That clause relevantly provides: 2 Meaning of "associated person" (1) For the purposes of this Act, an associated person means a person who is associated with another person in accordance with the following provisions: (a) persons are associated persons if they are related persons, … 1. The term 'related persons' is defined in cl 1 of the Dictionary and, on 18 March 2014, included: (d) a natural person and a trustee are related persons if the natural person is a beneficiary of the trust (not being a public unit trust scheme) of which the trustee is a trustee, 1. This definition was amended in cl 8, of Sch 1, of the State Revenue Legislation Amendment Act 2014 (NSW) with the words 'or discretionary trust' being inserted in the brackets after the words 'trust scheme'. That amendment came into force on 20 May 2014, some two weeks after the transfer of Mr Gu's shares. In this application, the applicants have not pressed their earlier arguments that, in light of this legislative change, there was a strong argument for granting an exemption under s 163H of the Duties Act. Accordingly, I have not considered it further, but I do note that in 2017, the meaning of 'associated person' was amended in cl 43 of Schedule 1 of the State Revenue Legislation Amendment Act 2017 (NSW). The effect of that amendment was to preserve the position that applied before the 2014 amendment. 2. Section 150 of the Duties Act defines what is meant by the terms 'interest' in and a 'significant interest' in a landholder. That section relevantly provides: 150 What are "interests" and "significant interests" in landholders? (1) For the purposes of this Chapter, a person has an interest in a landholder if the person, in the event of a distribution of all the property of the landholder, would be entitled to any of the property distributed. (1A) … (2) A person who has an interest in a landholder has a significant interest in the landholder if the person, in the event of a distribution of all the property of the landholder immediately after the interest was acquired, would be entitled to: (a) in the case of a private landholder—50% or more of the property distributed, or (b) in the case of a public landholder—90% or more of the property distributed. 1. Section 148 of the Duties Act provides that a liability of duty under Chapter 4 of the Act arises when a 'relevant acquisition' is made. 2. Section 152(1) of the Duties Act provides that a person who has made a relevant acquisition must prepare an 'acquisition statement' and lodge it with the Chief Commissioner within 3 months after the acquisition is made. Section 152 also sets out what must be included in such statements as follows: 152 Acquisition statements (1) … (2) The acquisition statement is to be prepared in an approved form and must contain the following information: (a) the name and address of the person who has acquired the interest, (b) in relation to each interest acquired, the date on which it was acquired, (c) if the relevant acquisition results from the aggregation of the interests of associated persons, particulars of the interests acquired by the person and any associated persons on the date of the relevant acquisition, (d) particulars of the total interest of the person and any associated person in the landholder at that date. (3) The acquisition statement must also contain the following additional information: (a) the unencumbered value of all land holdings and goods in New South Wales of the landholder as at the date of the relevant acquisition and, if the landholder is a private landholder, as at the date of acquisition of each interest acquired in the landholder during the statement period, (b) such other information as the Chief Commissioner may require. (4) The additional information referred to in subsection (3) is not required in relation to any exempt acquisition. (5) The statement period is the period commencing 3 years before the date of the relevant acquisition and ending on the date of the relevant acquisition. 1. Section 154 of the Duties Act provides that the persons making the acquisition are liable to pay the duty (in this case Mr Gu and Ms Zhang as trustees for the Gu Family Trust). 2. Section 155 of the Duties Act provides that duty is charged on relevant acquisitions in a private landholder based on what is disclosed in an acquisition statement. In this regard s 155(7) provides: (7) Duty is not chargeable under this section on the acquisition of an interest in a landholder that is required to be disclosed in an acquisition statement if the acquisition is an exempt acquisition. 1. In this case, the relevant exemptions relied on by Mr Gu and Ms Zhang are those contained in ss163B and 163H of the Act, which provide: 163B Exemption—break-up of marriages and other relationships (1) An acquisition by a person of an interest in a landholder is an exempt acquisition: (a) if the interest was acquired by the parties to a marriage that is dissolved or annulled, or in the opinion of the Chief Commissioner has broken down irretrievably, or by either of them, or by a child or children of either of them or a trustee of such a child or children, as a result of a transfer made in accordance with: (i) a financial agreement made under section 90B, 90C or 90D of the Family Law Act 1975 of the Commonwealth that, under that Act, is binding on the parties to the agreement, or (ii) an order of a court made under that Act, or (iii) an agreement that the Chief Commissioner is satisfied has been made for the purpose of dividing matrimonial property as a consequence of the dissolution, annulment or breakdown of the marriage, or … … (5) A party to a marriage, de facto relationship or domestic relationship may provide a declaration, in an approved form, to the Chief Commissioner to the effect that: (a) in the case of a marriage: (i) the party intends to apply for a dissolution or an annulment of the marriage, or (ii) the parties to the marriage have separated, and there is no reasonable likelihood of cohabitation being resumed, or (b) … (6) The Chief Commissioner is required to have regard to any such declaration in exercising his or her functions under this section. (7) Subsection (6) does not limit the functions of the Chief Commissioner under section 72 of the Taxation Administration Act 1996. … (8) In this section: marriage includes a void marriage. matrimonial property of a marriage means property of the parties to the marriage or of either of them. party to a marriage includes a person who was a party to a marriage that has been dissolved or annulled, in Australia or elsewhere. relationship property of a de facto relationship or domestic relationship means property of the parties to the relationship or of either of them. 163H Discretion to grant exemption or concession (1) The Chief Commissioner may, if satisfied that the application of this Chapter to an acquisition in a particular case would not be just and reasonable: (a) grant a full exemption in respect of the acquisition, or (b) grant a partial exemption in respect of the acquisition. (2) If the Chief Commissioner grants a full exemption in respect of the acquisition, the acquisition is an exempt acquisition. (3) If the Chief Commissioner grants a partial exemption in respect of the acquisition, the Chief Commissioner may make any reduction in the duty chargeable in respect of the acquisition that the Chief Commissioner considers just and reasonable in the circumstances. 1. I have dealt with these exemptions in more detail below. Taxation Administration Act 1. Part 5 of the TA Act makes provision for interest and a penalty tax to be paid in respect of tax defaults. The term 'tax default' is defined in s 3(1) of the TA Act to mean: tax default means a failure by a taxpayer to pay, in accordance with a taxation law, the whole or part of tax that the taxpayer is liable to pay. 1. Division 1 in this Part contains provision in regard to interest. Section 21(1) in this Division provides that if a tax default occurs, the taxpayer is liable to pay interest. The prescribed interest rate is the sum of the 'market rate component' and the 'premium component': TA Act, s 22(1). The terms 'market rate component' and 'premium component' are defined in s 22(2) and (3). 2. Section 25 in this Division provides: 25 Remission of interest The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount. 1. Division 2 of Part 5 of the TA Act penalty tax where there is a tax default. Section 26 in this Division sets out when a penalty tax is payable. That section is in the following terms: 26 Penalty tax in respect of certain tax defaults (1) If a tax default occurs, the taxpayer is liable to pay penalty tax in addition to the amount of tax unpaid. (2) Penalty tax imposed under this Division is in addition to interest. (3) Penalty tax is not payable in respect of a tax default that consists of a failure to pay: (a) interest under Division 1, or (b) penalty tax previously imposed under this Division. 1. Section 27 prescribes the amount of penalty tax that is payable in respect of a tax default. That section is in the following terms: 27 Amount of penalty tax (1) The amount of penalty tax payable in respect of a tax default is 25% of the amount of tax unpaid, subject to this Division. (2) The Chief Commissioner may increase the amount of penalty tax payable in respect of a tax default to 75% of the amount of tax unpaid if the Chief Commissioner is satisfied that the tax default was caused wholly or partly by the intentional disregard by the taxpayer (or a person acting on behalf of the taxpayer) of a taxation law. (3) The Chief Commissioner may determine that no penalty tax is payable in respect of a tax default if the Chief Commissioner is satisfied that: (a) the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law, or (b) the tax default occurred solely because of circumstances beyond the taxpayer's control (or if a person acted on behalf of the taxpayer, because of circumstances beyond either the person's or the taxpayer's control) but not amounting to financial incapacity. 1. Sections 28 and 29 make provision for the reduction in penalty tax where the taxpayer has made a written disclosure to the Chief Commissioner, prior to any investigation or during an investigation, that contains sufficient information to enable the nature and extent of the tax default to be determined. 2. Section 30 makes provision for an increase in penalty tax on the basis of concealment. That section provides as follows: 30 Increase in penalty tax for concealment (1) The amount of penalty tax determined under section 27 is to be increased by 20% if, after the Chief Commissioner has informed the taxpayer that an investigation is to be carried out and before the investigation is completed, the taxpayer took steps to prevent or hinder the Chief Commissioner from becoming aware of the nature and extent of the tax default in whole or part. (2) For the purposes of this section, a taxpayer takes steps to prevent or hinder the Chief Commissioner if the taxpayer: (a) deliberately damages or destroys records required to be kept under the taxation law to which the investigation relates, or (b) refuses or fails (without reasonable excuse) to comply with a requirement made by the Chief Commissioner under Division 2 of Part 9 for the purposes of determining the taxpayer's tax liability, or (c) hinders or obstructs an authorised officer exercising functions under that Division for that purpose. 1. The Note to s 30 contains the following Table, which summarises the penalty amounts contained in ss 27 to 30. 2. Section 33 gives the Chief Commissioner the power to remit penalty tax. That section is in the following terms: 33 Remission of penalty tax The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount. 1. Again, I have dealt with these provisions in more detail below. Material before the Tribunal 1. The applicants jointly lodged this application for external review. Initially, Hu Solicitors represented both Mr Gu and Ms Zhang. However, prior to the hearing, Ms Zhang obtained separate legal representation and Mr Gu ceased being legally represented. 2. Nevertheless, Mr Gu and Ms Zhang agree that the evidence that they relied on and gave at the hearing, should be treated as the evidence of the other. 3. In this regard Mr Gu relied on a witness statement he made, on 25 January 2019. Mr Gu also gave oral evidence at the hearing and was cross-examined by counsel representing Ms Zhang and counsel representing the Chief Commissioner. 4. At the hearing Ms Zhang relied on a statement she made, on 25 February 2019 and a subsequent statements she made, on 26 March 2019. Ms Zhang also relied on a statement Xun Xu, made on 24 January 2019. She also tendered into evidence a copy of the transcript of the hearing on 26 February 2019. 5. Ms Zhang gave oral evidence at the hearing, on 27 March 2019, and she was cross-examined by counsel for the Chief Commissioner. 6. The Chief Commissioner tendered into evidence the following material: 1. a bundle of documents filed pursuant to s 58 of the Administrative Decision Review Act 1997 (NSW); and 2. an affidavit, sworn on 19 February 2019, by Betty Sarkissian, solicitor employed in the office of the NSW Crown Solicitor. Exhibited to the affidavit of Ms Sarkissian were copies of documents produced under a summons, by Kam & Beadman Charter Accountants, relating to that firm's dealings with Mr Gu and Ms Zhang during the relevant years. That summons was issued by the Tribunal, at the request of the Applicants. 1. Ms Sarkissian was not required for cross-examination and neither party called Robert Kam (Mr Kam) of Kam & Beadman Chartered Accountants (Kam & Beadman) to give evidence and be cross-examined. Mr Kam was the applicants' accountant at the relevant time. 2. Neither party objected to this material being placed before the Tribunal and submitted that it was for the Tribunal to determine what weight should be given to that material. The Chief Commissioner asserted that as the onus was on the applicants to prove their case, they bore the onus to call Mr Kam to give evidence. However, in light of a dispute having arisen between the applicants and Kam & Beadman in regard to what advice was or was not given to Mr Gu and Ms Zhang, it is understandable that he was not called as a witness in their case. 3. While the Chief Commissioner did not bear an onus in establishing that his assessment decision was the correct and preferable decision, in my view, he nevertheless did bear an evidential onus in regard to those matters on which he sought to rely. Again, I understand why Mr Kam was not called to give evidence, but in the absence of Mr Kam being called to give evidence and be cross-examined by the applicant, I have placed little weight on what is asserted in the material produced by Kam & Beadman. 4. At the second day of the hearing, Mr Gu sought to tender a historical valuation report for the Crows Nest properties owned by DA Property Group. The Chief Commissioner objected to that tender as Mr Gu had ample opportunity to provide such a report before the commencement of the hearing. I upheld that objection on the grounds that no explanation was given why that report had not been filed and served earlier. This does not however, prevent the Chief Commissioner from having regard to it, should he consider it appropriate to do so. 5. Written submissions were filed and served by the legal representatives of Ms Zhang and the Chief Commissioner. After hearing oral submissions at the conclusion of the hearing of the evidence, I reserved my decision. At the request of counsel for Ms Zhang, I also made an order for the filing and serving any further written submissions in regard to s 163H and the issue of intent to avoid duty. Background to these proceedings 1. Mr Gu and Ms Zhang were married in 1999 and have two children. 2. Mr Gu was initially employed as an Information Technology Manager and in 1999 he established his own IT business, which he incorporated in early 2001. 3. Ms Zhang is a certified accountant. 4. In 2011, Mr Gu met David Chen (Mr Chen), who resided in China. Mr Gu and Mr Chen decided to commence a property development business. They identified two blocks of land, in Crows Nest, that were suitable for development into residential units for sale. They named the project as the 'Aster Project' and formed the private company, DA Property Group, which became the vehicle through which the land at Crows Nest was acquired and developed. Mr Gu and Mr Chen were each issued 100 ordinary shares in DA Property Group. 5. Mr Gu, Ms Zhang, Mr Chen and Mr Chen's wife were each appointed as a director of DA Property Group. 6. The two blocks of land in Crows Nest were purchase separately in 2011 and 2012. Each block was purchased with a mortgage from the National Australia Bank and cash, that was equally contributed to by Mr Gu and Mr Chen. In order to meet his share of the cash amount, Mr Gu borrowed his share from individual lenders, Mr Liming Zhu and Ms Xiaofeng Li and Ying Zhan. Security for such loans was the family home of Mr Gu and Ms Zhang and the other properties they had acquired since their marriage. 7. The value of each block of land acquired by DA Property Group exceeded $2,000,000. 8. In February 2013, Mr Gu identified another two blocks of land, in Hornsby, which he considered to be suitable for development. On this occasion, Mr Gu's business partners were Mr Liming Zu and Mr Wei Zhu and the project was called the 'Lux Project'. Mr Gu and his business partners formed a private company, Sonar Investment Pty Ltd (Sonar Investments), which became the vehicle through which the land at Hornsby was acquired for development. Sonar Investments issued 200 ordinary shares, 50 of which were issued to Mr Gu. 9. In April 2013, Sonar Investments exchanged contract for the purchase of the Hornsby land. That purchase was for an extended six-month settlement period. While the contract for sale was subsequently novated, with the agreement of the vendor, to two contracts, to complete the purchase and to fund the 'Lux Project', the Sonar Investment shareholders were required to contribute $10 million. Mr Gu's share of this amount was $2.5 million. Mr Gu, was unable to borrow this amount from an institutional lender. However, a friend of Mr Gu, a Mr Lam, offered to loan him this amount, but with a high interest rate. 10. Mr Gu contends that, when he told his wife about the conditions of Mr Lam's loan offer, she became very worried and would not sign the loan agreement until she received advice from their accountant, Robert Kam (Mr Kam). 11. In August 2013, Mr Gu sought advice from Mr Kam in regard to establishing a family trust as he had heard from others that they were using family trusts. That advice was also sought for his business partners, Mr Chen and Mr Liming Zhu. Mr Chen and Mr Zhu said they did not wish to proceed with a family trust. However, on 3 September 2013, Mr Gu instructed Mr Kam to prepare a family trust deed for his family. A Trust Deed was prepared but not executed. 12. In October 2013, Mr Gu accepted Mr Lam's offer of a loan and he and Ms Zhang signed a loan agreement with Sherryland Investment Pty Ltd. That loan was secured by way of an unregistered second mortgage over two properties owned by Mr Gu and Ms Zhang and a personal guarantee given by Ms Zhang for the loan. 13. In early 2014, Mr Gu identified another property in Burwood which was suitable for development. That property was a neighbouring property to a property he and Ms Zhang had purchased 2008. Mr Gu named this development as the 'Stanley Street Development' and he instructed Mr Kam to set up a new private company that would purchase the land and develop it and to amend the Gu Family Trust, that included Ms Zhang as a trustee and nominator. 14. On 18 March 2014: 1. Mr Gu and Ms Zhang signed the Gu Family Trust Deed. The Trust was a discretionary trust of which Mr Gu and Ms Zhang were the nominated trustees. Under the terms of the Trust there were two classes of beneficiaries, nominated beneficiaries and eligible beneficiaries. Mr Gu and Ms Zhang were the nominated beneficiaries and the eligible beneficiaries were the nominated beneficiaries and their respective families; and 2. ZGG Holdings Pty Ltd (ZGG Holdings) was incorporated, with the issued shares in this company being allocated to the Gu Family Trust. Mr Kam had arranged for the incorporation of this private company, which subsequently acquired the Stanley Street land for development. 1. It is the contention of Mr Gu that: 1. some time between 4 and 9 May 2014, he and Ms Zhang went into the offices of Mr Kam and signed the Memorandum of Transfer of Shares in DA Property Group that is the subject of the Chief Commissioner's 2018 Duties Notice of Assessment; 2. he and Ms Zhang signed the Memorandum of Transfer of Shares on the advice of Mr Kam in that if Mr Gu only transferred 49.5% of his shareholding in DA Property Group to himself and Ms Zhang as trustees of the Gu family trust, this acquisition would not attract landholder duty; and 3. neither he nor Ms Zhang, backdated the date of execution of the Memorandum to 18 March 2014; 1. On 9 May 2014, the Memorandum of Transfer was presented to the Office of State Revenue for stamping. It was presented as a marketable security transfer, without any further information. General duty was paid on the Memorandum; 2. On 19 February 2016, Ms Zhang filed an initiating application in the Family Court of Australia. In that application Ms Zhang sought financial (property and/or maintenance) orders. At [27] of that application, Ms Zhang stated that the date of final separation was '06/08/2014'. 3. On 26 February 2016, Bindu Jacob (Mrs Jacob), Senior Operations Officer of the Office of State Revenue, gave Notice to Ms Zhang, pursuant to the TA Act, that an investigation was being conducted to determine if the correct amount duty had been paid in regard to her acquisition in DA Property Group. The Notice made reference to Chapter 4 of the Duties Act and requested that Ms Zhang provide records and information as outlined in the attachment to the Notice. 4. On 30 March 2016, Mr Victor Wong (Mr Wong), of Kam & Beadman Chartered Accountants, responded to the Chief Commissioner's Notice, on behalf of Ms Zhang. In that response he provided a copy of the March 2014 Memorandum of Transfer of Shares and the Trust Deed of the same date. In his response, Mr Wong said that further information would be provided. 5. After several extensions of time within which to provide the requested additional information, on 9 May 2016, Mr Jacobs sent an email to Mr Wong in which he said: … [Further] to our discussion, we note that the share transfer dated 18 March 2014, where [Mr Gu] transferred 99 shares (49.5%) to [Mr Gu] and [Ms Zhang] as trustee for The Gu Family Trust was stamped with share duty under OSR Ref Id: … Based on the above, the 49.5% interest acquired by the Gu Family Trust is a relevant acquisition through the associated persons provision of the Duties Act 1997, and is liable for the landowner duty. i.e. [Mr Gu's] interest of 1 share (being the 0.5%) is aggregated with the above 49.5% interest acquired by the Gu Family Trust to meet the significant interest of 50% in the [DA Property Group] (Landholder). But duty is only chargeable on the 49.5% interest acquired by the Gu Family Trust on 18 March 2014. We further note your enquiry, whether exemption is applicable if the 49.5% interest acquired by the Gu Family Trust was as a result of marriage of [Mr Gu] and [Ms Zhang]. Based on the information you have provided, an exemption does not apply in accordance with either section(s) being s 68(1) and 163B of the Duties Act 1997 in respect of the share duty and the landholder duty. Therefore, to progress this matter, please provide the following by 23 May 2016: • A valuation report by a 'suitably qualified' valuer of the unencumbered value of all the landholdings of [DA Property Group] as at 18 March 2018 (acquisition date0. … • A completed Acquisition Statement in respect of the 49.5% interest acquired by the Gu Family Trust on 18 March 2014. Please note, the acquirer is liable for Interest and Penalty Tax on any late payment of duty in accordance with the Taxation Administration Act 1996. 1. Following receipt of this email, Ms Zhang engaged a NSW State tax specialist, Angela Melick (Ms Melick), to respond to Mr Jacobs on their behalf. On 24 June 2016, Ms Melick made a submission to Mr Jacobs on behalf of Mr Gu and Ms Zhang. She argued that landholder tax was not due and payable by Mr Gu and Ms Zhang. 2. On 9 August 2016, Ms Melick forwarded to Mr Jacob a statutory declaration of Mr Gu and Ms Zhang that were dated the previous day. In his statutory declaration, Mr Gu said: 2. In about January 2013, after 13+ years of marriage, our relationship came to an end. We started our separation (same house but sleeping in different bedrooms). In July 2014 I became aware that my wife Annie was seeing lawyers about a divorce and about sorting out family property matters, so I went to my lawyer, …. To help me (and look after my interests) in case I received any documents or any proceedings were started by Annie, in relation to a divorce or in relation the (sic) family assets (including land). However, as no documents were received or proceedings commenced by Annie, no action was taken by me or by my lawyers for me, at this time. 3. We lodged an application for divorce in Feb 2016 and, in the papers that were filed , we stated our official separation date was 6/8/2014. However, prior to that date, we already separated. … 1. In her statutory declaration, Ms Zhang said: 1. [Our] marriage broke down early 2013. David and I initially separated under the same roof in January 2013. … 2. …[We] had lots of arguments in terms of finance. I believed that we could not as husband and wife anymore. In January 2013, we discussed separation (living under the same roof). As David controlled all the assets of the family and the companies, there were no assets in my hand, I wanted to make sure I had some assets on hand. So our accountant Robert KAM suggested to us that we set up a family trust, and transferred the majority of David Gu's shares in D & A Property Group Pty Ltd to the family trust (Gu family trust) on 18 March 2014. 3. David and I reconciled in April 2014. 4. In July 2014 our marriage relationship got worse again. I found that David had a girlfriend in Shanghai CHINA, this seriously damaged our relationship. David and I agreed to separate again (live under the same roof) in July 2014. However divorcing brought shame to my family and children so we hid the fact of divorcing from our friends and relatives. Also in July 2014 I sought advice from lawyers, … 1. On 9 September 2016, Mr Gu and Ms Zhang executed a settlement agreement under Part VIII of the Family Law Act 1975 (Cth). That agreement was for the settlement of 'all financial matters in dispute between them and in relation to their respective claims for an adjustment of property interests following breakdown of marriage.' At [E] of the recitals to the agreement, it is stated that Mr Gu and Ms Zhang separated in January 2013 under the same roof and that Mr Gu moved out of the family home in March 2016. At [P] and [Q] of the recitals, reference is made to the potential joint liability to the NSW Office of State Revenue for stamp duty in regard to the March 2014 acquisition of Mr Gu's shares in DA property Group. 2. On 14 September 2016, Mr Gu and Ms Zhang lodged an application for divorce in the Federal Circuit Court of Australia. On the following day, the Court, made an order, by consent, in terms of the abovementioned settlement agreement. Under the terms of that agreement, an order was made that Ms Zhang was to take all necessary steps to resign as a nominator of the Gu Family Trust and have herself declared as an 'excluded beneficiary' under the Trust Deed. Ms Zhang subsequently complied with this order and resigned as a nominator and declared herself as an excluded beneficiary. 3. In late December 2016, Mr Jacob sought internal technical advice in regard to whether the exemptions in ss 163B or 163H applied to the 2014 acquisition of Mr Gu's shares in DA Property Group. That advice (written) was given in early June 2017. The advice was that the claim for exemption should be rejected and an assessment for landholder duty should proceed. On 1 November 2017, Mr Jacob wrote to Ms Melick and advised the s 163B or s 163H exemptions had not been satisfied. He also set out the reasons why they were not satisfied and advised that duty would be charged on 49.5% of the unencumbered value of DA Property Group as at the date of transfer. Mr Jacob also requested that a retrospective valuation of the DA Property Group landholding. No retrospective valuation was provided. 4. On 23 February 2018, Mr Jacob issued a Notice, under s 72(1)(c) of the TA Act, to the Relationship Executive – Property of the Commonwealth Bank of Australia, requiring the production of the latest valuation reports for the Crows Nest properties that were owned and being developed by DA Property Group. 5. As noted above, on 23 April 2018, the Chief Commissioner of State Revenue issued his Duties Notice of Assessment decision that is the subject of this application. Mr Gu and Ms Zhang lodged an objection to that assessment, which they were entitled to do. The Chief Commissioner considered their objection and determined to disallow disallowed it. Was the 2014 acquisition exempt under s 163B of the Duties Act? 1. It is not disputed that the 2014 transfer of Mr Gu's shares in DA Property Group, by Mr Gu and Ms Zhang as trustees of the Gu Family Trust (the Trust), was a 'relevant acquisition', by the Trust, under s 149(1)(a)(ii) of the Duties Act. 2. Nor is it disputed that when the 99 shares (49.5% interest in DA Property Group) acquired by Mr Gu and Ms Zhang as trustees of the Gu Family Trust, are aggregated with the 1 share Mr Gu continued to hold (0.5% interest in DA Property Group) this satisfied the 'significant interest' requirement in s 150(2)(a) of the Act. 3. The real matter in issue in regard to the s 163B exemption is largely factual in nature; namely - whether, at the time of the transfer of Mr Gu's shares in DA Property Group into the Trust: 1. the marriage of Mr Gu and Ms Zhang had broken down irretrievably; and 2. the transfer was made in accordance with an agreement they made, for the purpose of dividing matrimonial property as a consequence of the breakdown of their marriage. 1. In my view it does not matter whether the Memorandum of Transfer of Shares came into effect on 18 March 2014 (the date on the document itself) or sometime in early May, but prior to 9 May, when the Memorandum was stamped. 2. Since 2016, when Mr Jacob commenced his investigation into the transfer, Mr Gu and Mr Zhang have asserted that at the time of the transfer of Mr Gu's shares in DA Property Group into the Trust, they were living separately and apart under the same roof and that the transfer was made for the purpose set out in s 163B. 3. In his written submissions, counsel for Ms Zhang contended that, on the evidence before the Tribunal, either applicant could have made an application, under s 90AF or s 114 of the Family Law Act, seeking interim preservation of the matrimonial assets. 4. The Chief Commissioner contends that, on the evidence before the Tribunal, I could not be of the opinion that the marriage of Mr Gu and Ms Zhang had broken down irretrievably or that, as a consequence of the breakdown, the transfer of Mr Gu's shares in DA Property Group was for the purpose of dividing matrimonial property. 5. I agree that either applicant could have made an application under the provisions of the Family Law Act, as contended by counsel for Ms Zhang. However, other than mere assertion by Mr Gu and Ms Zhang, there is no contemporaneous record before the Tribunal of either applicant having considered an application of this kind until 2016, when Ms Zhang lodged her initiating application in the Family Court. 6. While in her evidence, Ms Zhang said that she consulted lawyers in June 2014. This was after the transfer of Mr Gu's shares and there is no evidence of exactly what that consultation entailed other than Ms Zhang having concerns, which she did not pursue further. 7. Nevertheless, I accept the evidence of Mr Gu and Ms Zhang that from early 2103 their marriage was strained in that the argued a lot about Mr Gu's business ventures. I also accept that in the course of their arguments Ms Zhang may have spoken about divorce and at the relevant time they were sleeping in separate rooms. 8. Ms Zhang's concerns about Mr Gu's property business interests is understandable. As she explained in her evidence, she was concerned that Mr Gu's business interests were all in his name and not in joint names, yet Mr Gu had borrowed very heavily against their family home and other properties they jointly owned and had acquired prior to the incorporation of DA Property Group. 9. However, on the evidence before the Tribunal, I am not persuaded that, at the time of the transfer of Mr Gu's shares in DA Property Group, their marriage had broken down irretrievably. That they argued and that they may have slept in separate rooms does not of itself mean that they had in fact separated and there was no likelihood of cohabitation being resumed. 10. Their own evidence of a short reconciliation in April and May 2014 contradicts this to be the case. As does the evidence of Ms Zhang where she stated, in her statutory declaration of 9 August 2016, that, from 2013 until early 2016, she and Mr Gu continued to present as a couple to friends and family. While I understand that a marriage break down might be looked down upon within their family and wider community, I do not accept that married couples whose marriage had broken down irretrievable would nevertheless continue to present as a couple in the same manner they had previously. 11. It is also difficult to accept that their marriage had broken down irretrievably when, after having agreed to give a personal guarantee for Mr Gu's loan in regard to the 'Lux Project', Ms Zhang went on to support the creation of the Trust and the incorporation of ZGG Holdings for another new development project, 'Stanley Street'. 12. As noted in the background, in August 2013, it is the evidence of Mr Gu that he had a discussions with Mr Kam about the setting up of a family trust for his family and that of his partners. In his statement of 25 January 2019, at [45], Mr Gu said that after his meeting with Mr Kam: 45. … [I] discussed Robert's advice with Annie. We agreed that we would purchase a Trust for possible future use in property development projects. 1. At [48] and [49] of his statement, Mr Gu said the following in regard to the 'Stanley Street Project' and the creation of a family trust: 48. In about 2008, Annie and I purchased the property at 70 Stanley Street, Burwood. In early 2014 I worked out that there was a potentially good property development project which involved this property (Stanley Street Project). The project would also involve purchasing the neighbouring property. I discussed it with Annie. Annie said It is better to use the family trust for the project. I want to be a joint trustee with you. Can you talk to Robert and instruct him to change the trust so that I am a joint trustee? I said; OK. I am agreeable to that. 49. Following this conversation I contacted Robert Kam and advised him in relation to the Stanley Street Project, and that Annie and I wished to use the Trust for this project. I instructed him to amend the Trust documents so that Annie and I would be joint Trustees and joint 'Nominators'. …. 1. In her statement of 25 January 2019, at [44] to [46], Ms Zhang said: 44. In February 2014 I had a conversation with David in words to the following effect: David: Two of the properties next to our house at Staley Street have come onto the market. I would like to buy them. I think it would be a good development. I said: David. Where can you get the money from? Aren't we fully mortgaged already? David: I will look for some business partners. 45. Following this conversation, I had a conversation with Mr Kam in which I said to Mr Kam words to the effect of: David has found a new project at Stanley Street (Stanley Street Project). I want you to make sure that this goes into family trust. Please amend the trust deed to make me a joint trustee and a joint nominator. Robert said: I will check with David. If he agrees, then that will be fine. 46. A few days later I had a conversation with David in words to the following effect: David: I spoke to Robert Kam today and I told him that I agree to you being a joint trustee and a joint nominator under the family trust. Robert is going to amend the trust deed and let me know when it is ready to sign. 1. At [49] of her statement, Ms Zhang said that after she had signed the Trust Deed she remained worried and concerned about the risks associated with Mr Gu's property development projects and wanted to ensure that their assets were preserved 'in case they got divorced'. She also said that she told Mr Gu the following: I want to have all our assets under both names and in the Trust. 1. While Ms Zhang may have said that, in case of a divorce, she wanted to have all their assets under both names and in the Trust, this does not mean that there was an agreement, the purpose of which was to divide matrimonial property. As noted by counsel for the Chief Commissioner, the Trust did not divide matrimonial property. In my opinion, on the evidence before the Tribunal, the purpose for creating the Trust was to ensure that the assets of any future property development adventure of Mr Gu would be jointly held by him and Ms Zhang as trustees of the Trust, so that Ms Zhang would have an interest in and some control over the assets that belonged to such ventures. That is, to use the words of counsel for the Chief Commissioner, the purpose of the Trust was to collectively pool matrimonial property as opposed to a division of matrimonial property. 2. The first project for which the Trust was used was the 'Stanley Street Project'. 3. However, it is clear, on the evidence, that from the beginning Mr Gu and Ms Zhang had considered using the Trust to collectively pool the matrimonial assets of existing projects, such as the 'Aster Project'. In his evidence, Mr Gu acknowledged that a transfer of his shares in DA Property to a family trust would attract landholder duty under Chapter 4 of the Duties Act, unless the transfer was made as part of a divorce. There was no divorce, but it is clear from the evidence, that, at the relevant time, Mr Gu and Ms Zhang remained committed to a collective pooling of matrimonial property so that Ms Zhang had an interest in and control over the assets of Mr Gu's development businesses. 4. I accept that Mr Gu was either advised or informed that a transfer of 99 of his 100 shares in DA Property Group would not be subject to landholder duty and given his commitment to and Ms Zhang's demands for a collective pooling of matrimonial assets, they instructed the transfer to proceed. Hence, the purpose behind the transfer of Mr Gu's shares to the Trust was exactly the same as what had occurred in regard to the 'Stanley Street Project' a few months earlier. That is, the agreement of Mr Gu and Ms Zhang to transfer these shares to the Trust was not an agreement to divide the matrimonial property between them. 5. Accordingly, for the reasons set out above, I do not accept the explanation of Mr Gu or Ms Zhang that, at the time of the 2014 transfer of Mr Gu's shares in DA Property Group, their marriage had either broken down irretrievably, or that the transfer was made for the purpose of dividing the matrimonial property, let alone as a consequence of a marriage break down. 6. The Chief Commissioner contends that the credibility of Mr Gu should be questioned. While I have not accepted his explanation of events, or that of Ms Zhang, I do not find that they have been deliberately untruthful in their evidence. The relevant events occurred almost eight years ago and it is understandable that their recollections of exactly what was said and done have faded over time, or become confused with more recent events. This is particularly so when no proper records were made at the relevant time, which should have occurred and which was the responsibility of the applicants to do. 7. In conclusion, for the reasons set out above, I find that the applicants have failed to establish that the exemption in s 163B applies. Is an application of Chapter 4, to this case not just and reasonable? 1. Section 163H, or the Duties Act more generally does not give any express guidance as to when it might be considered just and reasonable for a full or partial exemption to be granted in respect of an acquisition. 2. In Winston-Smith v Chief Commissioner of State Revenue (supra), at [47] to [49], Emmett AJA said (citations omitted)(emphasis added): 47. The primary purpose of a dispensing power such as s 163H is to avoid the need to specify the minutiae of every circumstance where the tax burden is to be relieved. In some circumstances, the question of whether it is just and reasonable to exercise the dispensing power would be satisfied by considering whether the application of the section is anomalous or abnormal. However, the statutory test is not whether application of the relevant provisions to the facts of a particular acquisition would be anomalous or abnormal but rather whether the application of the provisions to a particular acquisition would not be just and reasonable. 48. In forming an opinion as to that question, it is necessary to consider everything that may bear relevantly and prohibitively both for and against the exercise of the discretion but to do so by reference to the statutory criteria. One requirement is that consideration be given to the question of whether the application of Ch 4 to the circumstances would come within the policy that Ch 4 is intended to cover. In that regard, care must be taken to ensure that some other test is not substituted for that which the legislature has chosen as the basis upon which a taxpayer may be treated favourably or to narrow the breadth of the statutory inquiry that is called for. In that context, it may also be relevant to have regard to the policy and effect of the corporate reconstruction relief provided in Pt 1 of Ch 11. 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 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 dutiable property other. 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. That is not to say that the discretion ought to be exercised in a particular way, but that it is not an irrelevant consideration to have regard to whether there has been a change in underlying practical or economic interest. … 1. In Milstern Nominees Pty Ltd v Chief Commissioner of State Revenue [2015] NSWSC 68, at [29], White J made a similar observation as to how the discretion in s163H should be exercised: 29. … [The] discretion is to be "guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it." (citations omitted). The criteria of what is just and reasonable require a consideration of all of the circumstances of the case (Federal Commissioner of Taxation v Swift (1989) 20 ATR 1434 at 1449 and cases cited). As in the legislation considered in Federal Commissioner of Taxation v Swift it can be said in this case that: "Instead of endeavouring to spell out the circumstances in which burdens imposed by the legislation might be lifted, the parliament has provided for a dispensation that is capable of exercise by reference to the widest range of factors. … The dispensing power is incidental and ancillary to the primary object of the legislation." (at 1451). 1. The Chief Commissioner contends that s 163H does not apply to the circumstances of this case. 2. The applicants put forward the following reasons as to why, in this case, the Tribunal could be satisfied that the application of Chapter 4 to the acquisition, by the Trust, of Mr Gu's shares in DA property Group would not be just and reasonable and that a full or partial exemption should be granted under s 163H. In summary, the reasons are: 1. this was an unusual transaction where following a marital breakdown, the parties adopted a certain course, on the advice of their accountant, with the purpose of preserving assets pending divorce; 2. there had been no real change in ownership in that Ms Zhang effectively only acquired a 25% interest in DA Property Group for a finite time and during that time her interest were frozen; 3. there was no intention to avoid duty 1. It is accepted that the circumstances surrounding the acquisition in issue is a relevant matter to take into account in determining whether the application of Chapter 4 to that acquisition would not be just and reasonable. However, as noted by Emmett AJA in Winston-Smith, where there is a transfer within a family that is alleged to be a consequence of a breakup of a marriage or de facto relationship, but which is found not to satisfy the requirements of s 163B, it is not open to argue that the same circumstances of the transfer in the context of the alleged marriage is nevertheless exempt under s 163H. It is accepted that if s 163H were to be applied in this way, it would expand the operation of s 163B, which the legislation clearly does not permit. This does not mean that other aspects surrounding the transfer are not relevant. 2. While the applicants contend that the transaction was unusual, I do not see how this can be. The fact that the applicants acted on the advice does not make it unusual. I imagine that many taxpayers in similar circumstances would seek and act professional advice. In this case, I accept Mr Gu acted on advice or information he received, but I make no finding that it was Mr Kam who gave that advice, or that the advice was in terms as asserted by Mr Gu. However, I accept that Mr Gu understood the advice or information that he received to be that if he transferred all but one of his shares in DA Property Group it would not attract landholder duty. That this advice was incorrect, or was incorrectly understood, does not, in my view, amount a finding that an application of Chapter 4 to the transaction is not just or unreasonable. 3. The applicants' contention that there was no real change in ownership was based on the short period of time that Ms Zhang was a trustee of the Gu Family Trust. Ms Zhang asserts that from the time of the acquisition in 2014 and up to the September 2016 property settlement, her shares were effectively frozen warranting a partial exemption of duty under s 163H. 4. In my view, this contention should also be rejected. First, as a matter of law, there was an effective change in the ownership of the shares in DA Property Group. It is accepted that a change in underlying practical or economic interest is a relevant consideration in determining whether the application of Chapter 4 to the subject transaction is not just or reasonable: Winston- Smith (supra), at [49]. However, in this case, the Trust, added another layer of ownership in regard to the shares in DA Property Group, and thereby materially altered the legal structure of that ownership. 5. As noted by counsel for the Chief Commissioner, during the time Ms Zhang was a trustee of the Trust, the transfer of Mr Gu's shares, in DA Property Group, into the Trust did not protect them from the claims of the lenders to the 'Aster Project'. Hence it cannot be said that her interest was frozen. 6. Finally, in regard to the applicants' contention that there was no intention to avoid tax, the applicants rely of the fact that they did not initially proceed with the transfer of Mr Gu's shares in DA Property Group as they were aware that it would attract land holder duty under Chapter 4. The only reason they did transfer the shares was because they had received advice that if 99 of the 100 shares Mr Gu held in DA Property Group this would not attract land holder duty. It was also noted that, given Mr Gu's financial circumstances at that time it, was highly unlikely that Mr Gu would have committed to pay ad valorem stamp duty on a direct transfer of his shares. 7. It is accepted that no intent to avoid duty is insufficient, on its own, to enliven the discretion in s 163H. In Milstern Nominees Pty Ltd (supra), at [31] and [32], White J agreed with the proposition of the plaintiff in that matter, that s 163H 'should be exercised where there is no intent to avoid duty and where the relevant acquisition' of the shares in the company 'would have no practical consequence to the way in which' the land held on trust 'would be appointed and enjoyed'. 8. I accept the submissions of counsel for the Chief Commissioner that Ms Zhang's wish to have Mr Gu's shares in the DA Property Group transferred to the Trust with herself as a co-trustee was directly related to the fact that the company was the owner of the Crows Nest land. That is, she wanted to have some control of how the shares of this property development company were owned so that any profits from the project, once completed, could be preserved in her favour if ever they became divorced. Hence, the transfer did have a practical consequence to the way in which the land held on trust would be appointed and enjoyed (i.e. the second part of the proposition accepted by White J is not satisfied in this case). 9. It is the contention of the Chief Commissioner that the applicants have failed to establish that they had no intention to avoid the duty. While I have not found that the applicants intended to avoid tax, this does not mean that I am satisfied that there was no intention to avoid tax. 10. As I have already noted, on his own evidence, Mr Gu said he fully understood that landholder duty was payable on a transfer of his shares in DA Property Group. He also understood that a transfer of his shares as part of a divorce settlement would not be liable for landholder duty. Yet he accepted, without question or further enquiry, advice or information that if he transferred all but one share he held in DA Property Group to the Trust, that transfer would not be subject to landholder tax. Regardless from whom he received that advice or information, in my opinion, a person with experience in business and property development such as Mr Gu would not only question such advice or information, but would seek confirmation in writing of that advice or information before any transfer occurred. Yet Mr Gu acted on it immediately, without question and without any written confirmation of what he understood he was being told. Similarly, Ms Zhang, who states that she has accounting experience, did not question what she was told. 11. In the circumstances and in the absence of any evidence of Mr Gu or Ms Zhang having made any further enquiries, sought expert advise or obtained confirmation in writing of what they were told, it cannot be said that they acted so as to ensure that no duty was payable on a transaction where all but one of Mr Gu's shares were transferred to the Trust. This is particularly so, when Mr Gu and Ms Zhang both knew that the transfer of all Mr Gu's shares would have attracted landholder duty. 12. Accordingly, I find that the applicants have failed to prove that the discretion in s 163H applies. Interest 1. As I have noted above, the Chief Commissioner has accepted that the transfer date of Mr Gu's shares in DA Property Group was 6 May 2014 and not 18 March 2014. As a consequence, the Chief Commissioner has conceded that some adjustment will be made in regard to the interest and penalty. The Chief Commissioner does not otherwise concede that there is a basis to remit interest or penalty. 2. In regard to interest, the applicants argue that, as the Notice of Investigation did not issue until 2 years after the date of the 2014 transfer of Mr Gu's shares and there was a further 18 month delay in considering the submission of Ms Melick, there should be a remission of both components of interest (i.e. premium and market rate components) during these periods. These periods being between: 1. 9 May 2014, when the transfer was stamped, and 29 February 2016 when Mr Jacobs wrote to Ms Zhang to informer her of the investigation; and 2. 24 June 2016, when Ms Melick forwarded her submissions on behalf of the applicants, and 1 November 2017 when Mr Jacobs wrote to the applicants confirming that the 2014 acquisition was not exempt. 1. The Chief Commissioner has published a fact sheet as to the circumstances in which his discretion to remit interest and penalty. In regard to interest, the fact sheet states: Can interest be remitted? Yes, the Chief Commissioner has a discretion to remit the interest imposed by any amount.The only occasion where the Chief Commissioner will exercise the discretion to remit both market and premium rate is where there is evidence that's that takes default what's caused outside the control of the taxpayer. For example, official postal and DX delays, natural disasters, and in circumstances where it is impossible to submit a return or pay on time (excluding financial incapacity).The premium rate of interest may be remitted if there is evidence that's a taxpayer talk reason ball here or a voluntary disclosure was made before the commencement of an investigation.A request for remittance should be made in writing doc… 1. In Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19, at [60] and [61], the Appeal Panel of the former Administrative Decisions Review Tribunal made the following remark in regard to the remission of the market rate component of interest (i.e. the primary rate of interest) and the premium rate component of interest: 60 In our view the primary interest rate (the market rate component) is intended to compensate the Commissioner (on behalf of the Government of New South Wales) for not having the benefit of the tax payment from the time it was due. So a rate is set which fluctuates, and is connected to an external rate, the Reserve Bank's Accepted Bill rate. This, as we see it, is a component that could rarely, if ever, be waived as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time. The Tribunal made the observation at [50] that to justify any remission of the market rate component of interest, it would be necessary to show that in some way the Commissioner contributed to the default. We agree with this observation. 61 On the other hand, the premium rate is a form of penalty. Its purpose, as we see it, is to provide an additional economic deterrent against taxpayers failing to meet their obligations on time. The 'market rate' component approximates ordinary lending interest rates. Taxpayers may withhold tax simply to invest the money in schemes and projects that have a higher potential earnings; and may be content to carry the late payment surcharge were it only at the market rate. The 'premium rate' is intended as we see it to operate as the key disincentive to delaying tax payments. For that reason, the TA Act imposes both the market rate component and the premium rate component in respect of late payment. … 1. The Chief Commissioner contends that there is no basis to remit interest for the periods contended by the applicants. On the basis of my findings and the relevant provisions of the Duties Act, I agree. 2. First, there was in fact no delay in the commencement of the investigation. That investigation was undertaken as part of the Chief Commissioner's 2015/2016 Landholder Duty Audit Project and not on the basis of what had been presented for stamping on 9 May 2014. What was presented for stamping was the Memorandum of Transfer and there was no information contained within that Memorandum that indicated the Transfer was one that attracted landholder duty under Chapter 4. It was only through ASIC data that the Chief Commissioner became alerted to there being a potential liability for landholder duty. 3. As I have noted, regardless of whether the applicants believed the transfer would not attract landholder duty, it gave rise to a 'relevant acquisition' under s 149 of the Duties Act and s 152(1) of that Act placed an obligation on the applicants to prepare and lodge with the Chief Commissioner, an 'acquisition statement' regardless of whether the acquisition was exempt. That statement was required to be lodged within 3 months of the acquisition having been made. In this case, while I have not found that the applicants intentionally sought to avoid the landholder duty, the fact is that, under s 152(1), they were required to do so, by 8 August 2016. Hence, any delay in the commencement of the investigation was clearly of the applicants making and not the Chief Commissioner. 4. In regard to the second period, 22 June 2016 to 1 November 2017, the applicants' declarations were not provided until 9 August 2016 and even after repeated requests for a historical valuation, the applicants failed to provide one. The latter is a specific requirement under s 152(3). As noted above, Mr Jacob eventually obtained a valuation from the Commonwealth Bank, in February 2018. 5. Accordingly, I do not accept that the Chief Commissioner contributed to the applicants' default as it was largely due to their own delays and failure to comply with the requirements of s 152. 6. In Incise Technologies Pty Ltd (supra), at [62] and [63], the Appeal Panel said: 62 The Tribunal did not have the benefit of a detailed statement of the considerations relevant to the s 25 discretion as seen by the Commissioner. Moreover, the Commissioner has not developed any public guidelines going to the exercise of this discretion, in contrast to the position that applies in Victoria. Before the Appeal Panel, the Commissioner nominated four cumulative criteria for the circumstances where the premium component of interest should be remitted, namely: (1) all principal tax that is owing and not in dispute has been fully paid; (2) there has been co-operation by the taxpayer in providing relevant information to the Commissioner so as to enable the Commissioner to issue assessments; (3) such co-operation by the taxpayer has occurred prior to any investigation being commenced by the Commissioner (voluntary disclosure) or, at the very least, within reasonable time after requests for information have been made by the Commissioner – i.e. the taxpayer has taken reasonable care; and (4) there has been no wilful default by the taxpayer in not paying tax on time. 63 The first of these criteria could be clarified to 'all principal tax that has been assessed and is not in dispute has been fully paid at the time of the request for remission of interest'. With this change, we agree that these four cumulative criteria are relevant and appropriate to the question of the circumstances in which the Commissioner should remit the premium component of interest. There may also be other circumstances where it could be appropriate to remit the premium component such as, as previously noted, where the Commissioner has in some way contributed to the tax default. 1. In my view, for the reasons set out above, there is also no basis warranting the exercise of the discretion in s 25 of the TA Act to remit the premium rate component of interest. Penalty tax 1. The applicants contend that no penalty tax was payable as they 'took reasonable care' to comply with the taxation law: TA Act, s 27(3). In this regard, Mr Gu relies on the advice he said he had received from Mr Kam and Ms Zhang said she had no reason to doubt what she had been told by Mr Gu, or Mr Kam. 2. Alternatively, the applicants contend that they disclosed sufficient information during the investigation to warrant a reduction of the penalty tax determined, under s 27, by 20%: TA Act, s 29. 3. Finally, the applicants contend that, during the Chief Commissioner's investigation, they did not take any steps to prevent or hinder him that warranted an increase in penalty for concealment: TA Act, s 30 (concealment). Did the applicants take reasonable care? 1. The Chief Commissioner's published fact sheet provides the following explanation on what constitutes reasonable care: What is reasonable care?When determining whether reasonable care was taken, the Chief Commissioner takes into consideration whether the taxpayer, in appropriate circumstances:- kept complete and accurate records- make diligent effort to understand and comply with the law- sought expert advice on uncertain or complex matters- was honest in their dealings with us.Other factors considered:- the taxpayers knowledge of the law- commercial experience- access to expert advice.Note: the above are indicative only.Meeting one or more of these criteria does not necessarily mean that reasonable care has been taken. All factors leading to the tax default taken into consideration when determining a reasonable care 1. I agree with the Chief Commissioner that, in this case, having regard to the respective knowledge, experience and qualifications of Mr Gu and Ms Zhang, they have failed to establish that they took reasonable care to comply with Chapter 4 of the Duties Act in regard to the 2014 transfer. 2. The evidence is that, by 2014, Mr Gu and Ms Zhang had considerable commercial experience. They operated Mr Gu's IT business for many years prior to 2011, when Mr Gu commenced his property development business. They were also directors of several companies, including DA Property Group. Additionally, Ms Zhang was qualified as an accountant and had practiced in this field previously. They also knew, absent a divorce, landholder duty was payable on a transfer of Mr Gu's entire shareholding in DA Property Group (i.e. 100 shares) into the Trust. In such circumstances and in the absence of any evidence from Mr Kam, for them to have acted on what they assert was oral advice that a transfer of every share but one would not attract landholder duty, in my opinion, demonstrates a failure to take reasonable care. 3. Accordingly, I am not satisfied that the applicants have established s 27(3) of the TA Act applies. Did the applicants disclose sufficient information during the investigation? 1. In my opinion, a reduction in penalty tax under s 29(1) of the TA Act does not apply because the applicants failed to lodge an acquisition statement within 3 months of the transfer of Mr Gu's shares in DA Property Group: Duties Act, s 152. 2. Section 29(2)(a) of the TA Act provides that the reduction in penalty tax under s 29(1) does not apply where the tax default involved a failure to lodge a 'return' as required under the relevant tax law. 3. The word 'return' is defined in s 3(1) of the TA Act to mean: return means a return, statement, application, report or other record that: (a) is required or authorised under a taxation law to be lodged by a person with the Chief Commissioner or a specified person, and (b) is liable to tax or records matters in respect of which there is or may be a tax liability. 1. In this case, the relevant 'return' is the acquisition statement and there is no dispute that the applicants failed to lodge a return, in the prescribed form, in regard to the 2014 transfer, as required under s 152 of the Duties Act. Was there concealment? 1. The Chief Commissioner contends that an increase in penalty was warranted under s 30 of the TA Act because the applicants had prevented or hindered him in becoming aware of the nature and extent of the default in landholder duty in the following manner: 1. failing to provide an acquisition statement as requested by Mr Jacob on 29 February 2016 and subsequently; 2. failing to provide a historical valuation of the landholdings of DA Property Group as requested by Mr Jacob on 29 February 2016 and subsequently; and 3. concealing the true nature date of the 2014 transfer. 1. The applicants contend that they did not at any time prevent or hinder the Chief Commissioner, or conceal the true nature of the transfer. 2. In this regard, as I have noted in the background, on 30 March 2014, Mr Wong, of Kam & Beadman, provided Mr Jacob with a copy of the 2014 Memorandum of Transfer of Shares and the Trust Deed. He also provided Mr Jacob with some financial documentation in regard to DA Property Group and advised that further information would be provided. Further information, in particular the statutory declarations of the applicants, was subsequently provided by Ms Melick. In my view, while the applicants failed to complete an acquisition statement in the prescribed form, or provide a historical valuation, there is no evidence that the applicants tried to conceal the true nature of the 2014 transfer. The essence of the 2014 transfer was nevertheless disclosed in the material provided by Mr Wong and Ms Melick, both of whom had been instructed by the applicants to respond to the Chief Commissioner's request. 3. While there was a delay in responding to Mr Jacob's 26 February 2016 request and a failure by both applicants to provide a historical valuation and a completed pro-forma acquisition statement form, I am not persuaded that the delay and failure was intentional so as to prevent the Chief Commissioner from determining their tax liability, which Mr Jacob nevertheless determined without this information. If anything, the failure of both applicants to provide this documentation may have been to their disadvantage. 4. Nor am I persuaded that the applicants hindered or obstructed Mr Jacob in exercising his investigative functions that are prescribed in Division 2 of Part 9 of the TA Act. As I have noted above, there were delays in Mr Jacob's investigation. However, these delays were not entirely attributable to the applicants'. 5. Accordingly, I am not satisfied, that during the investigation undertaken by Mr Jacob, the applicants intentionally took steps to prevent or hinder the Chief Commissioner from becoming aware of the nature and extent of the tax default in whole or part. Consequently, in the circumstances, I am satisfied that the penalty amount assessed by the Chief Commissioner should be varied by a reduction of the 20% increase amount by reason of s 30 of the TA Act. Conclusion and orders 1. In summary, for the reasons set out above, I am not satisfied that: 1. the 2014 transfer of 99 shares, held by Mt Gu in DA Properties Group, to Mr Gu and Ms Zhang as trustees for the Gu Family Trust: 1. was an exempt acquisition under s 163B of the Duties Act; or 2. or an acquisition to which the application of Chapter 4 of the Duties Act would not be just and reasonable warranting an the exercise of the discretion in s 163H of the Duties Act; 1. the interest, as assessed by the Chief Commissioner should be remitted under s 25 of the TA Act; or 2. no penalty is payable by the applicants under s 27(3) of the TA Act, or that there be a reduction in penalty under s 29 of the TA Act. 1. However, I am satisfied that there should be a remission of penalty to the extent that penalty has been increased by 20% under s 30 of the TA Act. 2. On the basis of these findings, I find that the 23 April 2018 decision of the Chief Commissioner to assess Mr Gu and Ms Zhang as being liable to pay: 1. landholder duty, under Chapter 4 of the Duties Act, in regard to the 2014 transfer of Mr Gu's shares in DA Property Group; 2. interest ,under s 21 of the TA act; and 3. penalty, under s 26 and 27(1) of the TA Act is the correct and preferable decision and should be confirmed: ADR Act (s 63). 1. However, I am not satisfied that the decision of the Chief Commissioner to assess Mr Gu and Ms Zhang as being liable for an increased amount of penalty for concealment under s 30 of the TA Act, is the correct and preferable decision. Hence, it is appropriate to vary the decision of the Chief Commissioner by reducing the penalty by the amount that represents the 20% increase for concealment. 2. Accordingly, I order: 1. The decision of the Chief Commissioner, made on 23 April 2018, is varied by a reduction of 20% being the concealment component of the penalty. 2. In all other respects the decision of the Chief Commissioner 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 Amendments 28 May 2020 - Typographical errors corrected at paragraph 41, 42, 43, 44, 64 and 111 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: 28 May 2020