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[2024] NSWSC 249
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Golden Age and Hannas the Rocks Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 249 (14 March 2024)
Last Updated: 15 March 2024
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Supreme Court
New South Wales
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Case Name:
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Golden Age and Hannas the Rocks Pty Ltd v Chief Commissioner of State
Revenue
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Medium Neutral Citation:
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Hearing Date(s):
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18 May and 25 July 2023
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Date of Orders:
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14 March 2024
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Decision Date:
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14 March 2024
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Jurisdiction:
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Equity - Revenue List
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Before:
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Richmond J
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Decision:
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Appeal upheld. Defendant's objection decision set aside to the extent of
the decision not to remit the premium component of interest,
the plaintiff's
liability to premium component of interest is remitted under s 25 of the
Taxation Administration Act 1996 (NSW). The defendant to pay the plaintiff's
costs of the proceedings. |
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Catchwords:
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TAXES AND DUTIES — administration — interest — remission
— principles governing remission
TAXES AND DUTIES — dutiable
transactions — dutiable transfer — agreement for lease
TAXES AND
DUTIES — review — Supreme Court — objection
determination
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Legislation Cited:
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Cases Cited:
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Category:
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Principal judgment
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Parties:
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Golden Age and Hannas the Rocks Pty Ltd (Plaintiff)
Chief Commissioner
of State Revenue (Defendant)
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Representation:
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Counsel:
D Lewis (Plaintiff)
D Woods
(Defendant)
Solicitors:
Maddocks (Plaintiff)
Crown Solicitors
Office (Defendant)
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File Number(s):
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2022/192410
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Publication Restriction:
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Nil
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JUDGMENT
- The
plaintiff, Golden Age and Hannas the Rocks Pty Ltd (Golden Age), entered
into an agreement for lease (Agreement for Lease) on 25 May 2018 with
Place Management New South Wales (PMNSW) in relation to land located at
85 Harrington Street, The Rocks NSW 2000 (the Land). It seeks the
remission of the premium interest imposed on it as a result of late payment of
the duty assessed on the Agreement
for Lease under the Duties Act 1997
(NSW) (Duties Act).
- The
parties are in agreement that this proceeding is an appeal for the purposes of s
75A of the Supreme Court Act 1970 (NSW): Taxation Administration Act
1996 (NSW) s 97 (TAA). The Court’s jurisdiction is founded on
Pt 10 Div 2 of the TAA, and the Court hears the ‘appeal’ by way of
rehearing, and may exercise afresh any discretionary powers
of the Commissioner:
Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue (2011) 245 CLR
446; [2011] HCA 41 at [18]–[22]. The Court may make a decision in place of
the Commissioner’s decision, confirm that decision, remit the matter
to
the Commissioner, or make an order requiring the payment of any amount of tax
(inclusive of interest) that has been assessed as
payable but has not been paid:
TAA s 101(1).
The assessments
- On
23 August 2021, the Commissioner issued a duties notice of assessment to the
plaintiff which assessed for duty an agreement for
lease in the sum of
$2,168,696.50 and interest of $579,590.97 for late payment. The total liability
of the plaintiff was therefore
$2,748,287.47. No penalty amount was imposed on
the plaintiff. The interest was made up of a market rate component in the sum of
$60,539.35 and a premium component (at 8 per cent per annum) in the sum of
$520,007.03.
- The
plaintiff paid the duty amount, but none of the interest, on 25 August 2021.
Additional interest had accrued on that amount in
the sum of $955.41, with the
effect that the interest amount outstanding at the time of payment was
$580,546.38. By letter dated
27 August 2021 the plaintiff objected to the
assessment on the basis that it was the leases granted pursuant to the agreement
for
lease rather than the agreement for lease itself which was the relevant
dutiable transaction so that interest did not arise. In the
alternative, the
plaintiff sought remission of the premium component of the interest under s 25
of the TAA. The plaintiff no longer presses the first ground.
- On
12 March 2022, the Commissioner disallowed the objection and affirmed its
assessment. The circumstances in which the plaintiff
incurred the tax liability
are outlined below.
Evidence
- The
plaintiff read the affidavits of:
(1) Ms Alicia Albury (Ms Albury), a partner at the law firm Maddocks in
the property group who had primary carriage of the matter within Maddocks;
(2) Mr Leigh Baring (Mr Baring), a partner at Maddocks in the taxation
group who was the stamp duty specialist who provided stamp duty advice on the
transaction
to Golden Age;
(3) Ms Bianca Kelly, an employed solicitor of Maddocks;
(4) Mr Trevor Bolic (Mr Bolic), the general counsel of Golden Age; and
(5) Mr Tim Price (Mr Price), a director of Time & Place Management
Pty Ltd (Time & Place), a property development manager engaged by
Golden Age for the transaction.
- All
the plaintiff’s witnesses barring Ms Bianca Kelly were required for cross
examination.
- The
Commissioner read the affidavits of Ms Leah Homer.
Relevant
statutory provisions
Duties Act
- Section
8(1)(b)(viii) read with s 8(2) of the Duties Act provides that a dutiable
transaction includes:
A lease in respect of which a premium is paid or agreed to be paid.
- The
term “lease” is defined in s 8(3) to mean “a lease of land in
New South Wales or an agreement for a lease of land in New South
Wales”.
- There
is a non-exclusive definition of “premium” in subs (3), but it is
not relevant in the present case.
- Under
s 9(1) of the Duties Act, the duty charged on a lease under
s 8(1)(b)(viii) is charged as if it were a transfer of dutiable property,
and on the basis that the lessee is taken to be the transferee, the property
transferred is taken to be the leased property, and the transfer is taken to
have occurred when the “lease” is entered
into.
- As
to the timing of the liability to duty, where the “lease” is
effected by an instrument, as in the present case, liability
for duty arises
when the instrument is first executed: s 12(2). By virtue of s 12(3), the
liability for duty in respect of the “lease” arises even if the
leased property is not in existence at the time
that the transfer is taken to
have occurred, or the instrument effecting the transfer is first executed, as
the case requires.
- Under
s 16, the duty charged on a dutiable transaction is payable by the transferee,
being in this case the lessee.
- The
concept of a “dutiable transaction” also extends to a surrender of
an interest in land in New South Wales: s 8(1)(b)(iii) and s 8(2). In the case
of a surrender, the liability for duty is imposed on the person to whom the
property is surrendered (in the case of a
lease, being the lessor) when the
surrender takes place: s 9.
- Duty
in respect of a dutiable transaction is chargeable by reference to the dutiable
value of the dutiable property involved in the
dutiable transaction at the rates
set out in s 32. The expression “dutiable value” is defined in s
21(1) to mean the greater of the consideration (if any) for the dutiable
transaction (being the amount of a monetary consideration or the
value of a
non-monetary consideration) and the unencumbered value of the dutiable property.
In the case of the dutiable transaction
arising under s 8(1)(b)(viii), the
dutiable value is taken to be the amount of the premium paid or payable in
respect of the lease: s 21(5).
- The
person liable to pay duty in respect of a dutiable transaction must, within
three months after the liability arises, lodge with
the Chief Commissioner the
instrument that effects the dutiable transaction: s 16(1)(a). A tax default does
not occur for the purposes of the TAA if duty is paid within three months after
the liability to pay the duty
arises: s 17(1).
Imposition and
remission of interest
- Section
21 of the TAA provides:
(1) If a tax default occurs, the taxpayer is liable to pay
interest on the amount of tax unpaid calculated on a daily basis from
the end of
the last day for payment until the day it is paid at the interest rate from time
to time applying under this Division.
(2) Interest is payable under this section in respect of a tax
default that consists of a failure to pay penalty tax under Division
2 but is
not payable in respect of any failure to pay interest under this Division.
- The
expression “tax default” is defined in s 3(1) of the TAA to mean
“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”.
- Section
22 of the TAA deals with the interest rate applicable to interest on tax
defaults and provides relevantly as follows:
(1) The interest rate is the sum of –
(a) the market rate component, and
(b) the premium component.
(2) The market rate component is –
(a) unless an order is in force under paragraph (b), the Bank
Accepted Bill rate rounded to the second decimal place (rounding
0.005 upwards),
or
(b) the rate specified for the time being by order of the
Minister published in the gazette.
(3) The premium component is 8% per annum.
- Section
25 provided for remission of interest in the following terms prior to 1 February
2024:
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.
- Section
25 was re-enacted by Treasury and Revenue Legislation Amendment Act 2023
with effect from 1 February 2024, so that it now reads as follows:
(1) The Chief Commissioner may remit interest.
(2) The Chief Commissioner may issue guidelines setting out
how interest must be remitted under this division.
(3) If guidelines are issued, interest must be remitted only
in accordance with the guidelines.
(4) The imposition or remission of penalty tax is not relevant
to the imposition or remission of interest.
- No
guidelines have been issued under the new s 25(2).
- While
the claim for remission is being determined after the re-enactment of s 25 I
have proceeded on the basis that there is no relevant change at the present time
in the nature of the discretion conferred by that
section except potentially the
matter referred to in s 25(4) to which I have not had regard in any
event.
Facts
Initial transaction
- On
1 September 2014, Golden Age as purchaser entered into a contract with Sandhurst
Trustees Limited as vendor to purchase the leasehold
interest in the Land held
by the vendor under a 99-year lease granted by PMNSW, then called the Sydney
Cove Redevelopment Authority
(the Original Lease). The purchase price was
$50 million. The agreement was stamped with duty in the amount of $2,735,490 on
1 December 2014. At this
time HWL Ebsworth acted for Golden Age. On 17 March
2015, a transfer of the leasehold interest in favour of Golden Age was executed
and stamped with nominal duty of $10.
- The
Original Lease provided that the permitted use of the land was as a commercial
office building with retail, restaurant, associate
car parking and such other
special uses as the lessor may agree to. The term of the Original Lease was 99
years, commencing on 31
October 1989, and expiring on 30 October 2088.
Hence, the unexpired term at the time of the sale to Golden Age was 74 years.
- In
late 2015, Golden Age appointed Time & Place as its development manager and
HWL Ebsworth as its solicitors for its redevelopment
of the Land. The
redevelopment which Golden Age envisaged was the demolition of the existing
office building on the Land and the
construction of a mixed use residential,
retail and commercial development, including residential apartments that would
be leased
to occupiers under 99-year strata leaseholds pursuant to a leasehold
strata scheme. As this redevelopment was not permitted under
the Original Lease,
Mr Price of Time & Place engaged in negotiations on behalf of Golden Age
with PMNSW, which led to Golden
Age and PMNSW entering into a heads of agreement
in late August 2017.
- The
heads of agreement, which is expressed not to be legally binding, required PMNSW
and Golden Age in good faith to negotiate and
finalise an agreement for lease
between PMNSW as lessor and Golden Age as lessee under which:
(a) Golden Age would be permitted to develop the land by demolishing the
existing building and replacing it with a new mixed-use
development, including
residential, retail and commercial uses;
(b) The agreement for lease would include a mechanism under which Golden Age may
subdivide the site in accordance with a proposal
made by it and approved by
PMNSW. A leasehold strata scheme would be created for the residential
apartments. The retail and commercial
components would be two separate stratum
lots;
(c) The form of the new long-term leases to be granted would be attached to the
agreement for lease. This form of new long-term leases
would be negotiated and
agreed prior to execution of the agreement for lease. It was to be expected that
there might be different
forms of leases to cater for residential, commercial
and retail components, but in any case the leases would be for a term of 99
years and provide for the payment of nominal rent (if any);
(d) The Original Lease would be surrendered on the date of Financial Close
(being the date when certain specified conditions were
satisfied). Golden Age
would indemnify PMNSW for any stamp duty payable on the surrender of the
lease;
(e) PMNSW would grant a licence to Golden Age for the purpose of developing the
Land equal to the rent otherwise payable under the
Original Lease, expiring on
the date new leases were granted unto the agreement for lease;
(f) Golden Age would pay PMNSW a lump-sum payment of $31 million plus GST on a
date to be agreed before lease commencement;
(g) PMNSW would ‘grant’ new leases on completion of the development
works which would be included in the agreement for
lease; and
(h) Golden Age would be liable for all duty implications arising out of this
transaction.
- Importantly,
there would be two dutiable transactions under this proposal, the surrender of
the Original Lease, and the grant of new
leases under the proposed new agreement
for lease. Golden Age sought advice from its then solicitors, HWL Ebsworth, in
early 2017
regarding its duty liability from the proposed development, though it
is doubtful that it ever provided the heads of agreement to
them in this
process. This is explained by the fact that the heads of agreement was not
entered into until around six months later,
and at the earlier stage when HWL
Ebsworth’s advice was sought, the mechanism for the grant of new leases
had not been thought
through.
HWL Ebsworth’s taxation
advice
- On
17 March 2017, the solicitor at HWL Ebsworth who was acting for Golden Age on
the transaction, Mr Peter Garrett (Mr Garrett) instructed a colleague in
the taxation group to provide advice on the duty implications of the new
approach to the development of
the Land. Those instructions were in the
following terms:
Our client is in negotiations with its landlord regarding the grant of a new
lease which will permit it to redevelop the site for
mixed uses as retail,
commercial and residential property.
In the course of this process it has been suggested that our client will
surrender the current lease, enter into a license [sic]
during the building
period, and pay a $30 million premium to Place Management for the grant of the
new lease on completion of the
redevelopment.
- The
instructions provided by Mr Garrett do not mention an agreement for lease.
- On
31 March 2017, Ms Sedaghat, a partner at HWL Ebsworth, provided preliminary
advice to Mr Price and Mr Richard Huynh (Mr Huynh) who was employed by
Time & Place and assisted Mr Price on the transaction, that any premium paid
for the grant of a lease would
be subject to duty, and that duty may also be
payable on the surrender of the lease if the lease has market value even if the
surrender
Is made for no consideration.
- On
22 April 2017, a further ‘finalised’ advice of the ‘stamp duty
and tax team” on duty implications was provided
by Mr Garrett to Mr
Price and Mr Huynh, which stated that (a) the Landlord would be liable to duty
on the surrender of the original
lease on the greater of the consideration paid
for the surrender and the market value of the lease at the time of the
surrender;
and (b) the payment of an amount for the grant of the new lease would
be subject to duty as a premium. It is clear from the advice
that the focus at
this stage was on how the ‘proposed’ $30 million payment by Golden
Age to PMNSW should be structured,
and it was pointed out that it would be
dutiable as a premium if allocated to the grant of the new lease, rather than
the surrender
of the Original Lease.
- Following
the receipt of this advice that there was the potential for duty on the
surrender of the Original Lease by reference to
its market value. Mr Garrett
provided further information to Mr Huynh in May 2017 directed at how to go about
determining the market
value of the unexpired term of the Original Lease. This
included commentary and revenue rulings on duty implications from the surrender
of a lease.
- Mr
Price and Mr Huynh were also concerned about the potential for ‘double
duty’. Mr Huynh sent an email to Mr Garrett
on 16 May 2017, with a copy to
Mr Price, which stated:
Duty on new lease – presumably if the Lessor is paying duty on surrender
of the existing lease, will the Lessee then have to
pay duty again when entering
into the new lease? This seems outrageous if that was the case as the Lessee
(GAHTR) already paid duty
when they entered into the existing lease. Also,
through the proposed process of surrender of the existing lease and then
entering
into new lease, the Lessor and Lessee are the same parties so there is
clearly continuity demonstrated. Please see attached sketch
showing process. If
continuity existed, then surely the duty is then payable on the difference in
value of the existing lease vs
the new lease. Please advise on this matter in
layman terms so we are clear.
- On
20 May 2017, Mr John Caravousanos (a member of HWL Ebsworth’s stamp duty
team) responded to that question by email, which
relevantly stated:
If a premium (ie a lump sum up front) is paid for the new lease, then duty will
be paid on this amount. If we know the value of the
old lease we are
surrendering (based on the above principles), we can work out the optimal
payment arrangement so that duty is minimised.
Engagement of Maddocks
- In
or around August 2017, the plaintiff, represented by Mr Price of Time &
Place, approached Ms Albury of Maddocks to take over
the matter from HWL
Ebsworth. Ms Albury is a partner in the property team at Maddocks who had worked
with Mr Price on property transactions
for mutual clients in the past. From this
time Mr Price was the principal person at Time & Place who instructed Ms
Albury in
relation to the transaction. Time & Place was responsible for the
day to day management of the development of the Land on behalf
of Golden Age,
including the conduct of negotiations with PMNSW and the dealings with Ms
Albury.
- In
an email dated 31 August 2017, from Ms Albury to her colleagues in
Maddocks’ taxation team, Mr Baring and Mr Andrew Wright
(Mr
Wright), Ms Albury noted the following:
Our client (Golden Age) has bought a ground lease of property in the Rocks in
Sydney – it is a long term lease from what used
to be called the Sydney
Harbour Foreshore Authority and which is now called Place Management NSW. The
lease allowed for commercial
office use. Our client is proposing to knock down
the existing office building and build a mixed use resi/ retail/ commercial
development
in its place. Place Management NSW is agreeable to this and will
accept a surrender of the existing lease and will grant a new 99
year lease.
Our client paid duty on the transfer to it of the existing lease (we
didn’t act on that so I’ll need to find out more
about this). Under
the heads of agreement for the new lease Place Management NSW requires a duty
indemnity in respect of the surrender
of the existing lease – it is as yet
unclear to me whether any consideration is payable in relation to the
surrender.
Under the heads of agreement for the new lease Place Management NSW requires an
upfront payment of $31 million – I haven’t
yet seen the documents
and how this is characterised but it is likely a premium and no doubt if it is
and it is dutiable, then our
client will need to pay duty on it.
HWL has been acting up until now but the client has not been happy with them so
we are taking over. Apparently there is a duty advice
from HWL that they would
like us to re-visit and confirm/ comment on. One of their issues with HWL is
that the client finds the advice
hard to understand so we’ll need to be
clearer than they are.
- On
5 September 2017, Ms Albury emailed Mr Baring and Mr Wright seeking a fee
estimate on the provision of duty advice in the matter.
Attached to this email,
amongst other documents, was the advice provided by HWL Ebsworth in the emails
described at [30]–[35] above. Ms Albury stated that Golden Age was looking
to them for a review of those HWL Ebsworth advices, and any creative solutions
to managing the duty more effectively than “the current proposal that has
them paying duty 3 times”. She then described
the three dutiable events as
follows:
1. Duty on acquisition of the existing lease of 99 years with approximately 72
years left to run (Existing Lease) – this has been paid already.
2. Duty on surrender of Existing Lease (based on the value of the 73 years left
to run) – not yet surrendered so not yet paid
– all there is at
present is a heads of agreement proposing to surrender
3. Duty on premium paid to enter into new lease of 99 years from commencement
(New Lease) – not yet granted so not yet paid
- In
this email Ms Albury describes the payment of $31 million referred to in her
earlier email as a premium to enter into a new 99-year
lease and while it
references the heads of agreement it did not mention that an agreement for lease
was contemplated. The heads of
agreement was not included in the attachment
provided by Ms Albury. Mr Baring said in cross-examination that shortly after
Ms Albury’s
email he reviewed the HWL Ebsworth advice of 22 April
2017 and provided feedback to her to the effect that he agreed that the proposed
transaction as described in her email involved two dutiable transactions, being
duty on the surrender of the original lease and duty
on the grant of the new
lease or leases.
- On
31 October 2017, Ms Albury sent Mr Huynh, on behalf of Golden Age,
Maddocks’ costs agreement and standard terms of appointment.
The costs
agreement described the work to be performed by Maddocks as “act for
[Golden Age] in relation to the review, negotiation
and completion of an
agreement for lease and lease from [PMNSW] in accordance with the agreed heads
of terms”. It is clear
both from the description of the work in the
engagement letter and the evidence in cross-examination of Ms Albury,
Mr Baring and
Mr Bolic that the expectation of both Maddocks and Golden Age
was that Maddocks’ role included advising Golden Age on its obligations
to
lodge the agreement for lease and lease for stamping under the Duties
Act.
2 November 2017 meeting
- On
2 November 2017, Mr Baring, Ms Albury, Mr Price, Mr Huynh, Mr Chris Crighton
(Golden Age’s chief operating officer) (Mr Crighton), and Mr Bolic
had a telephone conference. Mr Bolic and Ms Albury each recorded a file note of
the meeting, but Mr Baring did not.
All relevant witnesses, and both file notes,
indicate that Mr Baring suggested that the transaction be restructured as an
amendment
to the Original Lease in order to avoid a surrender of the Original
Lease, and that someone at the meeting (most likely Mr Price)
said that PMNSW
had indicated that it could not vary the term of the original lease from 73 to
99 years.
- Mr Bolic
gave evidence that he was advised at this meeting by someone from Maddocks that
Golden Age would be liable for stamp duty
upon the registration of the new lease
provided by PMNSW. Mr Bolic’s file note starts by recording the following
under “HOA”
(which was a reference to the heads of
agreement):
- GA liable for duty
- surrender of existing lease
- rego of new lease
→ looking at most efficient way to approach it.
- Later
in Mr Bolic’s file note he records that the “existing
proposal” involved an agreement for lease with the “existing
lease
[to be] surrendered” and that “5 different leases → all get
created at same time”. The words “payment
for this = dutiable ($31
m)” appear under an arrow pointing to the words “5 different
leases”. I accept Mr Bolic’s
evidence that at the meeting advice was
given by either Mr Baring or Ms Albury (but most likely by the former) that
under the proposed
structure at that time as reflected in the heads of
agreement, Golden Age would be liable to pay stamp duty at two points: the first
was on and at the time of the surrender of the existing lease, and the second
was on and at the time of registration of the new leases
that would be executed
under the transaction documents yet to be entered into. Mr Bolic’s
evidence was also that no mention
was made at the meeting that the agreement for
lease would be liable to duty, which I also accept as it is consistent with his
file
note.
- Ms
Albury’s file note does not record this advice being given, and her
evidence in cross-examination was that she did not give
Golden Age advice on the
timing of its obligation to pay stamp duty on the transaction at this meeting.
However, that does not detract
from Mr Bolic’s evidence as it was not put
to her that Mr Baring did not provide that advice.
- Mr
Baring recalled that he participated in the conference call but could not recall
what was discussed, except that there was a general
discussion about the
structure of the transaction, including that it involved a surrender of the
existing lease and possible alternatives
to that surrender to mitigate the duty
implications of the surrender, which was a matter on which he was asked to give
advice following
the meeting. Given that Mr Baring had already by the time of
the meeting reviewed and indicated his agreement with the HWL Ebsworth
advice of
22 April 2017, Mr Baring’s evidence is not inconsistent with Mr
Bolic’s recollection of what was discussed
at the meeting. At the time of
the meeting, Golden Age had a concern that the proposed transaction involved a
liability to double
duty, and it is likely that at the outset of the meeting
this exposure to double duty was referred to before moving to a discussion
as to
how to mitigate that exposure. This is what Mr Bolic’s contemporaneous
file note records.
Subsequent advice
- On
5 December 2017, Mr Baring provided a draft memorandum of advice by email to Mr
Price, Mr Crighton, Mr Huynh, and Ms Albury (Memorandum). It was copied
to Mr Bolic around the same time. This memorandum addressed Golden
Age’s request for advice “as to how
it can undertake the Development
on the Property in a manner that minimises any adverse duty implications”.
The Memorandum
sets out a proposal to vary, rather than surrender, the Original
Lease so that duty on the surrender contemplated by the heads of
agreement would
not arise, and also the variation of the Original Lease to allow Golden Age to
call for new leases on registration
of a strata plan and the payment of
consideration for the right to call for those new leases. The Memorandum did not
contemplate
a new agreement for lease. The substance of the advice was that
there would be no dutiable surrender of lease and duty would only
be payable
when new leases were granted on registration of the strata plan on completion of
the development by reference to the consideration
payable for the right to call
for those leases. The focus was on avoiding what Golden Age regarded as double
duty (ie. ad valorem
duty on the surrender and the grant of new leases).
Ultimately, this proposal would be rejected by PMNSW in January 2018.
- The
Memorandum includes a summary of the Duties Act and notes the
following:
4.2 Relevantly, section 8 charges duty on the following:
...
4.2.3 a lease in respect of which a premium is paid or agreed
to be paid.
4.3 ‘Lease’ and ‘premium’ are defined
in section 8 of the Duties Act as follows:
4.3.1 ‘lease’ means a lease of land in New South
Wales or an agreement for a lease of land in New South Wales...
4.5 ... Section 21(5) of the Duties Act provides that the
dutiable value of the leased property transferred by way of lease is taken to be
the amount of the premium paid
or payable in respect of the lease.
- The
Commissioner submits that the inclusion of these definitions is important in
circumstances where the recipients of the advice
were actively engaged in
negotiations with PMNSW regarding the agreement for lease and were aware that
the transaction would involve
a premium being payable for the new leases. The
Commissioner says that it would have been or ought reasonably to have been
apparent
to Golden Age, Ms Albury and Time & Place when reading the
Memorandum that the agreement for lease they were negotiating would
be a
dutiable transaction.
- I
reject that submission. It is true that the Memorandum does draw attention to
the fact that a lease is a dutiable transaction and
that the term
“lease” includes an agreement for lease. However, the Memorandum
also goes on to make the following observation
(albeit in the context of the
proposal under consideration which was a variation to an existing
lease):
4.6 Whilst section 8 of the Duties Act does not specifically
refer to a ‘grant’ of a lease in respect of which a premium is paid
or agreed to be paid, we are
of the view that this section can only apply to
impose duty in respect of a grant of a lease in respect of which a premium is
paid
or payable. We say this because:
4.6.1 the common-law definition of a ‘premium’ is a
personal promise to pay money in consideration of a lease being
granted (Hill
v Booth [1930] 1 KB 381 and restated in Westpac Funds Management Ltd v
Chief Commissioner of State Revenue[ 2008] NSWSC 1245).
4.6.2 as the common-law definition of ‘premium’ is
defined to be in respect of a grant of a lease and the duty payable
on a lease
under section 8 is based on the premium payable, in our view, it follows that
the dutiable transaction that results in a lease being dutiable is
in respect of
a grant of a lease in respect of which a premium is paid or payable.
- This
is significant because the inference could reasonably be drawn from this
statement that while an agreement for lease is a dutiable
transaction, if the
agreement provides for the premium to be paid for the grant of leases under the
agreement, rather than as consideration
for entering into the agreement itself,
duty would only be payable on that premium in respect of the separate dutiable
transaction
arsing when leases were subsequently entered into. In that
situation, the agreement for lease would not be a dutiable transaction.
For this
reason, the Memorandum is consistent with Mr Bolic’s understanding of the
advice given by Maddocks during the conference
call on 2 November 2017. I
return to this point below.
- On
8 February 2018, Ms Albury emailed to Mr Huynh a document entitled
‘Agreement for Lease – 75-85 Harrington Street,
The Rocks Table of
Key Dates’, after Mr Huynh had asked for such a document “so we can
plug into our program for PMNSW”
(which I infer is the feasibility study
referred to below). The document is in the form of a table which outlines
various milestones
that are to occur according to the then draft agreement for
lease being negotiated by the plaintiff and PMNSW. Each entry is identified
by
reference to the clause in the draft agreement. Ms Albury referred to this
as a ‘wayfinder’ document in her evidence.
It did not change in any
relevant respect after the Agreement for Lease was signed.
- Item
14 of the table identified the time at which Golden Age was to give PMNSW a
stamped LPI form of surrender of lease. Items 32
and 34 of the table identified
the time at which Golden Age was to “procure any necessary stamping”
in relation to the
proposed new leases, by reference to the number of business
days prior to the proposed lodgement of documents for registration with
the LPI
or the Date of Practical Completion. In other words, stamping was to occur in
relation to those leases shortly before they
were granted rather than by
reference to when the Agreement for Lease was entered into. Ms Albury’s
evidence was that this
reflected her understanding of the stamp duty
implications of the grant of the new leases. While it is true that, as the
Commissioner
submitted, the wayfinder document was directed to the time for
compliance with Golden Age’s obligations under the Agreement
for Lease,
the important point is that the document was entirely consistent with advice
previously and subsequently given by Maddocks
to the effect that the agreement
for lease was not a dutiable transaction.
- On
around 30 March 2018, Time & Place created a detailed feasibility and cash
flow analysis for the development which it provided
to Golden Age in the form of
an Excel spreadsheet with multiple tabs. One of those tabs, entitled “Land
and Authority”
sets out the timing of expenditure on various matters,
including “acquisition costs”, and “statutory authority
costs”. The version of this document created on 30 March 2018 included a
line item “stamp duty on Lease Surrender and
Premium at new lease”
of $3,500,000 which was forecast to be payable as to $1 million in December 2018
and $2,500,000 in June
2020. The timing of these payments reflected the timing
indicated by Ms Albury’s wayfinder document. Time & Place revised
this document from time to time, but the timing of these payments remained
unchanged.
- On
24 April 2018, Mr Andrew Melhem of Time & Place emailed Ms Albury and
requested advice as to the timing of the stamp duty liability
for the surrender
of the lease. Ms Albury replied on 27 April 2018 to the effect that the stamp
duty liability would need to be paid
within 3 months of the date for financial
close, which was 30 June 2019.
Agreement for lease
- On
25 May 2018, PMNSW and Golden Age entered into the agreement for lease
(Agreement for Lease). Recital B identified the basic scheme of the
Agreement for Lease, being that the plaintiff would surrender its existing
lease,
undertake the development and PMNSW would grant new leases. Relevant
provisions of the Agreement for Lease included the following:
(a) Clause 6 of the Agreement for Lease dealt with Financial Close. Among other
things, the "Financial Close Conditions" included
the plaintiff procuring vacant
possession of the Land and the release of encumbrances on its leasehold interest
and its entry into
one or more building contracts.43 On the Date of Financial
Close, the plaintiff was to give PMNSW a stamped LPI form of Surrender
of Lease
(cl 6.5(a)) and the plaintiff surrendered its leasehold interest (cl 6.8(a)).
(b) Clause 7 of the Agreement for Lease dealt with the grant by PMNSW to the
plaintiff of licences to access the Land after the surrender
of the plaintiff's
leasehold interest for the carrying out of the plaintiff's development works.
(c) Clause 9.2 of the Agreement for Lease provided that, at least 20 business
days before the "Date of Practical Completion (general)",
the plaintiff was to
pay to PMNSW the Agreed Sum of $38,778,053 subject to indexation and adjustment
in accordance with that clause.
(d) Clause 24.2 of the Agreement for Lease provided that PMNSW was to grant the
new leases. In the case of the Strata Leases, these
were to take effect from
the date of registration of the Strata Documents. In the case of the Commercial
Lease and Retail Lease,
these were to take effect from the ‘Date of
Practical Completion (general)’.
(e) Clause 24.5 of the Agreement for Lease dealt with the various things that
the plaintiff was required to do in relation to the
proposed lodgement of the
Strata Documents for the creation of the Strata Leases. Paragraph (b) provided
that the plaintiff must
procure any necessary stamping of the Strata Leases.
(f) Clause 24.7 of the Agreement for Lease dealt with the various things that
the plaintiff was required to do in relation to the
creation of the Commercial
Lease and the Retail Lease. Paragraph (b) provided that the plaintiff must
procure any necessary stamping
of each of those leases.
- On
31 May 2018, Ms Albury provided an updated version of the table of key documents
to Mr Melhem, and stated:
There are a number of actions that need to be taken within the first 90 days
after the date of the AFL (being the date it was signed
by the Minister) so
please focus on these at first instance.
- This
document did not include any action item for the stamping of the Agreement for
Lease or payment of duty thereon and is consistent
with the advice previously
given that duty in respect of the grant of the new leases would be payable at
the time they were granted.
- On
8 June 2018, this version of the table was forwarded to Mr Bolic by
Mr Price. In cross-examination, Mr Bolic accepted that the
purpose of the
document was a summary of the terms of the Agreement for Lease. However, this
does not detract from the fact that
the document is entirely consistent with the
advice previously given by Maddocks to Mr Bolic at the meeting on 2 November
2017.
- By
25 August 2018, the plaintiff had not presented the Agreement for Lease to the
Commissioner for stamping and the payment of duty.
This amounted to a tax
default as three months had passed since entry into the Agreement for Lease:
Duties Act s 17(1).
- On
12 November 2018, Ms Albury sent an email to Mr Baring attaching the agreement
for lease and requesting advice on the amount of
duty payable on the surrender
of the original lease. Relevantly, the email said:
Nearly a year on from the draft duty advice you kindly provided and government
has rejected any restructure of the deal and the parties
have signed the AFL and
are moving on towards financial close. I understand the intention is to be ready
to achieve financial close
at the end of this month.
Our client now has a development consent to construct a mixed use development on
the site and we are now nearing the time to surrender
the long term lease (that
expires on 30.10.2088). I attach a link to a copy of the lease and the surrender
of lease that needs to
be marked with duty.
I also attach a link to the signed AFL and draw your attention, in particular to
clause 6, which sets out the mechanism and timing
in relation to financial close
and the surrender of the long term lease.
Can you please assist with determining the amount of duty payable on the
surrender of lease? You may recall that the developer is
responsible for all
duty arising from all components of the transaction regardless of who is liable
under the Duties Act.
The money flow is:
● No consideration was payable on entry into the AFL and
none is payable by either party to the other in respect of the surrender
of the
long term lease.
● Following the surrender of the long term lease the
Developer continues to occupy the site, but under a construction licence
(see
clause 7 of the AFL). The licence fee payable has been calculated as the same
amount that would have been payable as rent under
the lease.
● Following practical completion of the works, the
developer will pay to Property Management the “Agreed Sum”
which is
$38,778,053 subject to indexation and adjustment in accordance with clause 9.2.
Property Management will then grant the
various strata leases in accordance with
clause 24.
● Rent of $1 is payable under the residential leases and
the commercial/retail leases.
Please let me know what else, if anything you need to know (or have from me/the
developer) in order to determine the duty payable
on the surrender of lease
form.
- Mr
Baring responded by email on 15 November 2018 as follows:
The position is quite straight forward. Duty is payable on the greater of the
consideration given for the surrendered lease or the
market value of the
surrendered lease at the time of its surrender.
What is the market value of the existing lease?
- Following
internal discussions within Maddocks as to the nature of the valuation required
for the calculation of the plaintiff’s
duty liability, Mr Price emailed
Ms Albury on 3 December 2018 to obtain advice on the ‘[d]uty
valuation requirement’.
On 17 December 2018, Ms Albury emailed Mr Price
with the requested advice.
- On
6 March 2019, Mr Price emailed Mr Baring and Ms Albury stating ‘we really
need this duty clarification please’. I infer
that the duty clarification
sought was as to the amount of duty that would be payable on the surrender of
the Original Lease and
the grant of the new leases. On 7 March 2019, Mr Baring
replied and stated:
In my opinion the stamp duty ramifications that arise from the Surrender of the
Lease and the Grant of the Strata Leases will be
as follows:
1. The Surrender of Lease will be subject to duty at 5.5% of
the market value of the Existing Lease. You should have your valuer
prepare a
valuation of the Existing Lease ASAP.
2. the grant of the Strata Leases will be dutiable at the rate
of 5.5% of the Agreed Sum ($38,778,053) as modified in accordance
with clause
9.2 of the Agreement to Lease.
- The
Commissioner submits that the Court should infer that this email was not
provided to the plaintiff and was only provided to Mr
Price. Mr Price did not
have a recollection of providing that advice to Mr Crighton but expected that he
would have communicated
the advice verbally to an employee of the Plaintiff. I
accept that evidence.
- On
12 April 2019, Golden Age executed a surrender of the Original Lease. On 18
April 2019, Ms Albury arranged for the stamping of
the document, along with the
payment of duty in the sum of $1,690,490.00. The stamped document was lodged for
registration on 2 May
2019.
- The
development of the Land subsequently progressed, and by March 2021 steps began
to be taken for the preparation of strata leases.
On 2 March 2021, Ms Albury
forwarded Mr Baring’s advice excerpted at [64] to Ms Paola Di
Beradino of Time & Place, and stated:
We will talk to our stamping agent – the assessment for duty and physical
stamping will need to be built into the timeline
– this step needs to
occur before the strata plan and strata leases can be lodged for registration.
- This
reflects and reiterated the advice contained in Mr Baring’s email of 7
March 2019 that Golden Age’s obligation to
pay duty would only arise on
the grant of the strata leases.
Duties assessment and subsequent
appeal
- On
7 June 2021, PMNSW issued a tax invoice for the agreed sum under cl 9.2 of the
Agreement for Lease, which amounted to $39,694,294.94.
- On
28 July 2021, Ms Albury sent a letter to the Commissioner and attached the
Agreement for Lease for stamping. The letter stated
that “we accept that
the AFL and Leases are dutiable on the basis that the Agreed Sum payable is a
premium for the AFL and
the Leases”. Ms Albury did not attach the strata
and other leases that were envisioned by the Agreement for Lease. On
4 August
2021, Ms Albury wrote to the Commissioner requesting that the
assessment be conducted on an urgent basis.
- On
23 August 2021, the Commissioner issued a duties notice of assessment with a
total amount of $2,748,247.47. As noted at [3] above, this consisted of a duty assessment of
$2,168,696.50, a market interest component of $60,539.35, and a premium interest
component
in the sum of $520,007.03.
- On
25 August 2021, the plaintiff paid the duty component of the assessment, but not
the interest component.
- On
27 August 2021, Mr Baring wrote a letter to the Commissioner objecting to the
assessment of premium and market interest on the
following bases:
(1) there was no premium paid in respect of the Agreement for Lease, but rather
the sum paid to PMNSW was in relation to the leases
that were subsequently
entered into; or
(2) alternatively, the premium rate of interest should be remitted on the basis
that the taxpayer took reasonable care or made a
voluntary disclosure before the
commencement of an investigation. The taxpayer took reasonable care by engaging
advisors on the dutiable
aspects of the transaction and received reasonable
advice that the liability would only arise at the later date.
- This
objection was not correctly filed with the Commissioner until 10 December
2021, which is outside the 60-day period to raise objections.
Nevertheless, on
14 December 2021, the Commissioner confirmed that a review officer would review
the objection.
- On
12 March 2022, the Commissioner disallowed the objection, with the review
officer forming the view that the initial assessment
was correct. In respect of
the portion of the objection relating to the remission of interest, the
objection determination stated
(emphasis in original):
A remission of interest is considered based on the circumstances of the case and
particularly what action was taken by the Taxpayers
and their representative.
Firstly, in respects to market interest imposed these amounts can only be
remitted in exceptional circumstances
which were beyond the taxpayer’s
control such as fires, floods, earthquakes, or other natural disasters; key
personnel not
being available because of sudden resignation, ill health or
death; and, Computer system breakdowns, including third party systems
such as
electronic funds transfer systems. The Taxpayers have not stated any exceptional
circumstances contributing to the tax default
therefore, the remission of market
rate of interest is not applicable.
The premium interest may be remitted where sufficient evidence is provided that
the default was within the taxpayer’s control,
but the taxpayer (or their
representative) has taken reasonable care. In the case of RVO Enterprises Pty
Ltd as trustee for the R M O’Mara Family Trust v Chief Commissioner of
State Revenue [2004] NSWAFT 64, factors which indicate that a taxpayer
failed to take reasonable care include oversight or forgetfulness to meet
with
obligations, failure to maintain adequate records and procedures to prevent
errors from occurring, not seeking professional
advice and errors in complying
with the law.
In Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue;
International Hotel Services Pty Ltd v Chief Commissioner of
State Revenue
[2019] NSWSC 657 at [298-299], Ward CJ [sic] outlines that simply engaging
in or retaining a professional representative is not sufficient to consider as
reasonable
care. Ward CJ accepts that it is a factor that (taken with others)
might demonstrate reasonable care to comply with the taxation
law, however, what
would be more relevant would be the seeking of professional advice or the making
of inquiries to the relevant
taxing agency or others directed to the issue or as
to the structuring of arrangements with a view to ensure that any tax liability
would be met. Importantly the reasonable care standard applies to both the
taxpayer and their adviser.
In these respects, merely engaging a legal representative does not satisfy the
reasonable care standard. The Taxpayer did not engage
Revenue NSW within 3
months from the execution date nor make any efforts to make payment during this
time. Therefore, I find no grounds
for the remission for the premium component
of interest and the imposition of full interest is confirmed.
- On
1 July 2022, the plaintiff filed a summons commencing these
proceedings.
Plaintiff’s submissions
- The
plaintiff submitted that the starting point for the discretion is to understand
the purpose of the imposition of the premium component
of interest. The premium
component of interest is a form of penalty that is imposed in order to deter
conscious and willing tax defaults,
in order to dissuade taxpayers who may
otherwise defer payment of taxation in order to invest the money elsewhere to
earn a return
above the market interest component: Adams Bidco Pty Ltd v
Chief Commissioner of State Revenue [2019] NSWSC 702 at [157]–[158];
Chief Commissioner of State Revenue v E Group Security Pty Ltd (No 2)
[2022] NSWCA 259 at [101]. That underlying policy guides the Commissioner in
the exercise of the discretionary power to remit premium interest: Giris Pty
Ltd v Federal Commissioner of Taxation [1969] HCA 5; (1969) 119 CLR 365 at 384; [1969] HCA
5.
- The
plaintiff contended that the principles that govern remission of the premium
component of interest were stated by the Appeal Panel
of the Civil and
Administrative Tribunal in Chief Commissioner of State Revenue v Incise
Technologies (2004) 56 ATR 82; [2004] NSWADTAP 19 at [62]–[63].
- The
plaintiff submitted that the Appeal Panel’s statement is reflective of the
current approach to the exercise of the Commissioner’s
discretion, and has
been applied in this Court on multiple occasions: Winston-Smith v Chief
Commissioner of State Revenue (2018) 108 ATR 63; [2018] NSWSC 773 at
[81]–[86]; Antegra Pty Ltd v Chief Commissioner of State Revenue
(2021) 112 ATR 777; [2021] NSWSC 107 at [177]–[180]; E Group (No 2)
at [105]–[107].
- The
plaintiff submitted that there is no basis for the Commissioner’s
contention that a failure to take reasonable care should
be regarded as an
additional criterion to the Incise Technologies criteria. This is because
the standard for remission should not be higher than the conduct that is
intended to be deterred by the
imposition of premium interest, which is
conscious and wilful default. Making the test a failure to take reasonable care
would mean
that the premium component of interest would be capturing a far
broader set of conduct. Further, the introduction of a criteria to
take
reasonable care would render the fourth Incise Technologies criterion
nugatory, as there would be no circumstance where a taxpayer took reasonable
care but was otherwise in wilful default.
- In
relation to the fourth criterion identified by the Appeal Panel in Incise
Technologies at [62] of ‘wilful default’, the plaintiff
submitted that there will generally be a wilful default where the taxpayer
does
not pay tax once assessed, as the taxpayer is taking the risk that it may be
unsuccessful in any review proceedings to challenge
the impost of the tax:
Winston-Smith at [84]–[85]; Antegra at [180]. However, where
the taxpayer has received advice that it has good prospects of challenging the
assessment, there may not
be a wilful default: Winston-Smith at [86].
That case is even stronger where the taxpayer was unaware of their liability,
and upon being notified by the Commissioner
of the liability promptly pays the
tax. In the circumstances, the imposition of the premium component cannot
disincentivise deferral
of payment because the taxpayer was unaware of the
liability. Here, the plaintiff honestly and reasonably believed, on the basis
of
legal advice, that it was not required to pay duty upon entry into the Agreement
for Lease, and that the interest charged from
that time is not payable.
- The
plaintiff submitted that it was the failure of Maddocks to advise it as to the
requirement to pay duty upon entry into the Agreement
for Lease that was
causative of its tax default. The plaintiff had done all that it needed to do in
order to obtain duty advice on
the transaction, having asked first HWL Ebsworth
and then Maddocks for taxation advice.
- In
relation to the specific advices given by Maddocks post-engagement, the
plaintiff submitted:
(1) Despite the basic transaction structure being provided to HWL Ebsworth, it
was never brought to the plaintiff’s attention
that duty would be payable
upon execution of the Agreement for Lease. Maddocks was specifically engaged to
review that advice and
did not bring it to the plaintiff’s attention that
duty would be owed sooner than expected. In particular, the sketch provided
by
Mr Huynh on 16 May 2017 asked expressly when duty was payable, and no comment
was ever made on this issue.
(2) Mr Bolic’s evidence should be accepted that he was positively advised
by Maddocks at the meeting on 2 November 2017 that
duty would only be payable
upon the registration of the leases.
(3) The 5 December 2017 advice, outlined at [47]–[49] above, while including the extended definition of
lease at [4.3.1], was directed towards an alternative transaction structure and
did not contain any specific advice that duty was payable upon entry into the
Agreement for Lease.
(4) The ‘wayfinder’ documents, whilst not a specific advice on
dutiable liabilities, did include dates regarding the
plaintiff’s
liability to duty and when viewed in context it was reasonable for the plaintiff
to assume that any duty obligation
would be raised in that document.
(5) The 7 March 2019 advice, excerpted at [64], from Mr Baring that included that statement that
‘the grant of the Strata Leases will be dutiable at the rate of 5.5% of
the Agreed Sum’ indicated Maddocks’ view that duty was only payable
upon the grant of the leases and not the Agreement
for Lease.
- The
plaintiff submitted that even if the Court finds that there was no point during
the negotiation of the Agreement for Lease where
it asked specifically for
advice on whether duty was payable on that instrument, it was sufficient that it
had engaged a firm to
advise it on the duty implications of the transaction as a
whole. The plaintiff had engaged solicitors with the purpose of being
guided
through the transaction as to its obligations and was entitled to an expectation
that any duty obligation would be proactively
raised by the solicitors. That
expectation is confirmed by the evidence of Ms Albury and Mr Baring that
they accepted that they should
have raised the timing of the plaintiff’s
liability to duty proactively.
Defendant’s
submissions
- The
Commissioner submitted that the imposition of the premium interest component has
multiple purposes. One purpose is to incentivise
the prompt payment of tax by
taxpayers. Another is as a form of penalty for the punishment of a tax default:
Incise Technologies at [61]. However, the Commissioner submits that this
is not its prime purpose when viewed in the context of the legislative scheme.
The interest provisions in the TAA are directly followed by the penalty
provisions in Pt 5 Div 2, with a range of penalties from 25% to 90%: TAA ss
27–30. By contrast, the premium component of interest is 8%, and therefore
if it is a penalty it is at the low end of possible penalties
for tax
defaults.
- The
Commissioner draws attention to practice note ‘CPN 024: Interest and
penalty tax guidelines’ (CPN 024), which was released in June 2022
and provides:
The amount of interest and penalty tax imposed depends on the degree of
culpability and are aimed at compensating the Government
for the opportunity
cost of unpaid revenue and deterring customers from defaulting on their tax
liabilities
...
The premium component is 8 per cent per annum. The premium rate is imposed to
deter non-compliance and ensure that defaulting taxpayers
are not advantaged
when compared to taxpayers who meet their taxation obligations.
- The
Commissioner submitted that contrary to the plaintiff’s submission, there
is no indication in the text of Pt 5 Div 1 of the TAA, or any extrinsic
materials that could be used to aid in the construction of the Act’s
provisions, that the
premium rate of interest is only imposed to deter and
punish conscious and willing tax defaults. I accept that submission.
- The
Commissioner noted that the discretion conferred by s 25 of the TAA is
broad and must be exercised in accordance with the circumstances of the case:
Downer EDI Engineering Pty Ltd v Chief Commissioner of State Revenue
[2019] NSWSC 743 at [185]–[186]. The Commissioner also accepted that
in order for the premium component to be remitted, the taxpayer’s conduct
must meet the cumulative Incise Technologies criteria. However, the
Commissioner emphasised that the criteria are neither exhaustive nor
determinative of the exercise of the Commissioner’s
discretion: Chief
Commissioner of State Revenue v E Group Security Pty Ltd (No 2) [2022] NSWCA
259 at [106] per Griffiths AJA; Antegra Pty Ltd v Chief Commissioner of State
Revenue [2021] NSWSC 107 at [179] per Payne JA.
- The
Commissioner submitted that other relevant circumstances include whether the
taxpayer has taken reasonable care and where the
delay in payment was the fault
of the Chief Commissioner, see eg. the Commissioner’s acceptance of a 50%
remission of the premium
interest component in Adams Bidco v Chief
Commissioner of State Revenue [2019] NSWSC 702 at [149].
- The
Commissioner’s rulings and guidelines are relevant to the exercise of
discretion in s 25 of the TAA: Adams Bidco v Chief Commissioner of
State Revenue [2019] NSWSC 702; Bayton Cleaning Company v Chief
Commissioner of State Revenue [2019] NSWSC 657. CPN 024 clearly states that
reasonable care is the primary principle guiding the Commissioner in the
exercise of his discretion to
remit interest.
- The
Commissioner accepted that the plaintiff met the first through third Incise
Technologies criteria. However, the Commissioner submitted that the
plaintiff was in wilful default of its obligations under the Duties Act.
The plaintiff’s contention that it did not know that the Agreement for
Lease was dutiable is entirely inconsistent with the
fact that the only
transaction document that was lodged for assessment was the Agreement for Lease.
The tax default was intentional.
The plaintiff intended to pay duty following
the completion of the development, and followed that course.
- The
evidence shows that the plaintiff, its development manager Time & Place, and
its legal advisors all knew that the plaintiff
would enter into an agreement for
lease involving a premium. This was either because they had seen the heads of
agreement, were involved
in the negotiations with PMNSW for the Agreement for
Lease, or were aware as a result of the discussions at the 2 November 2017
meeting.
- Mr
Bolic accepted in cross-examination that he knew that duty had to be paid within
3 months of entering into a document that gives
effect to a dutiable transaction
(T58.44-48). All the relevant personnel of the plaintiff and its advisors had
received and read
Mr Baring’s draft advice that included provisions of the
Duties Act that governed the plaintiff’s liability for duty upon
entry into the Agreement for Lease.
- The
Commissioner submitted that the plaintiff has not established its contention
that it held an honest and reasonable belief that
duty was not payable until the
grant of leases. In particular, the plaintiff was unable to discharge its burden
of proof as to the
state of mind of Golden Age. The only evidence led by the
plaintiff of its state of mind was that of Mr Bolic. He is not a director
of the
plaintiff, was General Counsel of the plaintiff from September 2017, and from
January 2021 also holds the position of chief
operating officer. Mr Bolic
accepted that he was not involved in negotiating the heads of agreement and was
not familiar with it
at the relevant time and was not involved in the
negotiations of the Agreement for Lease and was only brought in for specific
discussions.
- The
Commissioner submitted that the plaintiff’s conduct in obtaining advice
also discloses that it did not reasonably hold the
belief that duty would not be
owed until the grant of leases as:
(1) The plaintiff never provided HWL Ebsworth the heads of agreement to obtain
advice on the transaction, despite that being the
most relevant document.
(2) Following the provision of Mr Baring’s draft advice on 5 December
2017, along with the previous advice of HWL Ebsworth,
the plaintiff, Time &
Place, and Ms Albury each ought to have known that the Agreement for Lease was
dutiable. If any of the
recipients were confused or unsure of the position,
they should have obtained specific advice to clarify the position. Each of these
parties was experienced in property transactions and should have been aware of
the duty implications of the Agreement for Lease.
(3) There was no evidence that any member of the Maddocks tax group was
contacted between 6 December 2017 and 12 November 2018, in
which time the
Agreement for Lease was negotiated and concluded. There was no evidence that
Time & Place or the plaintiff requested
tax advice in this time.
(4) There were reasonable and prudent steps available to Ms Albury, Time &
Place, and the plaintiff to take at any point in this
process, such as:
(a) obtaining tax and duty advice on the date at which the relevant duty
liability arose;
(b) obtaining a private ruling from the Commissioner; or
(c) lodging the Agreement for Lease for assessment.
(5) The two key dates documents provided by Ms Albury were merely summaries of
the Agreement for Lease and never purported to be
duty advice. This is
emphasised by the fact that the items in the table always referenced the
Agreement for Lease and no other obligations,
such as a provision of the
Duties Act.
(6) Mr Baring’s email of 7 March 2019 was provided to advise on the
calculation of the amount of duty payable rather than on
the timing of the
obligation, and in any event provides no basis for the remission of interest
that had already accrued on the tax
default between August 2018 and 7 March
2019.
(7) At no point prior to the payment of the duty in August 2021 did the
plaintiff ever inquire or request advice as to the duty implications
of the
Agreement for Lease. The evidence lead by the plaintiff is insufficient to prove
that the plaintiff had a reasonable belief
that the date on which duty was
payable was the grant of the new leases in 2021.
- The
Commissioner also submitted that there was a failure by the plaintiff and its
advisors to take reasonable care to comply with
the requirements of the
Duties Act in respect of the Agreement for Lease. The size of the
transaction effected by the Agreement for Lease along with the ease of obtaining
advice from its advisors makes the failure to obtain specific advice a failure
to take reasonable care.
- The
Commissioner submitted that Mr Bolic ought to have connected the information in
Mr Baring’s 5 December 2017 advice with the Agreement for Lease and should
have sought advice from Maddocks. The mere assumption that Maddocks
would advise
the plaintiff on a question that they were never approached with is not enough
to have taken reasonable care to comply
with the plaintiff’s obligations
under the Duties Act.
- The
Commissioner also submitted that an acceptance that Maddocks failed to take
reasonable care is not sufficient to discharge a taxpayer’s
burden to take
reasonable care to comply with their taxation obligations. Engaging a
development manager or a solicitor is not enough.
The plaintiff would have had
to have shown that it provided its advisors with all relevant information,
supervised them adequately,
and sought specific advice on the duty implications
of a significant document that was being signed. The plaintiff had enough
knowledge
and advice to seek this advice, particularly bearing in mind its
experience with the initial transaction executed in 2014, described
at [25] above, where it had
an agreement for lease stamped, and then a year later when the lease was
registered had that document stamped
as a collateral
instrument.
Consideration
- Section
25 of the TAA, both before and after its re-enactment, confers on the
Commissioner (and on the Court standing in the place of the Commissioner
under s
101) a broad discretionary power which is not subject to any limit: Chief
Commissioner of State Revenue v Downer EDI Engineer Pty Ltd (2020)
103 NSWLR 772; [2020] NSWCA 126 at [151].
- In
the case of an unconfined discretionary power of this nature, the considerations
which are relevant to its exercise are determined
by reference to the subject
matter, scope and purpose of the relevant statute, including the particular
provision conferring the
discretion: Sanctuary Lakes Pty Ltd v Commissioner
of Taxation (2013) 212 FCR 483; [2013] FCAFC 50 at [227] per Griffiths J
(Edmonds J agreeing); Giris Pty Ltd v Federal Commissioner of Taxation
([1969] HCA 5; 1969) 119 CLR 365 at 384 per Windeyer J.
- In
Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004]
NSWADTAP 19, the Appeal Panel observed at [60]-[61] that the market rate
component is intended to compensate the Commissioner for not having
the benefit
of the tax payment from the time it was due, and so approximates the ordinary
lending interest rates, whereas the premium
rate is a form of penalty which
operates as a disincentive to taxpayers to delay tax payments. The view that the
premium component
is penal in nature has been accepted in later decisions, see
eg. Southern Cross Community Health Care Pty Ltd v Chief Commissioner of
State Revenue [2021] NSWSC 1317 at [443] per Emmett AJA.
- In
my view it is necessary to approach the remission question by recognising that
the premium component is penal in nature and serves
the purpose of both imposing
a penalty and deterring taxpayers from delaying payment of duty in what is
essentially a self-assessment
regime. Consequently, the culpability of the
taxpayer in failing to pay the duty liability by the due date is an important
matter
in the exercise of the discretion. I do not accept the
Commissioner’s submission that it is a penalty at the “low
end”
of the scale. Depending upon the period of the delay in payment, the
penalty arising from the premium component can be very significant
as it was in
the present case (being 24% of the duty assessed on the premium).
- In
Incise Technologies, the Appeal Panel identified (reflecting a submission
made by the Commissioner in that case) four cumulative criteria which are
relevant
to the exercise of the discretion under s 25:
(1) All principal tax that is owing and not in dispute has been fully paid;
(2) There has been cooperation by the taxpayer in providing relevant information
to the Commissioner so as to enable the Commissioner
to issue assessments;
(3) Such cooperation has occurred prior to any investigation being commenced by
the Commissioner or, at the very least, within a
reasonable time after the
request for information had been made by the Commissioner; and
(4) There has been no wilful default by the taxpayer in not paying tax on time.
- The
Appeal Panel noted in Incise Technologies at [63] that the first of these
criteria could be clarified to be “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” and that while they were all relevant and
appropriate
matters for consideration, they were not exhaustive. That the four
criteria are not exhaustive has been confirmed in subsequent cases,
eg.
Antegra Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 107 at
[179] and Chief Commissioner of State Revenue v E Group Security Pty Ltd (No
2) [2022] NSWCA 259 at [105]- [106].
- The
Court was referred to the Commissioner’s guidelines on interest and
penalty tax appearing on the Revenue NSW website, which
state:
The premium rate of interest may be reduced if there is evidence you took
reasonable care, or made a voluntary disclosure before
the commencement of an
investigation. However, for the purpose of payroll tax, the premium rate of
interest is not reduced.
...
When determining whether reasonable care was taken we’ll consider whether
you:
● kept complete and accurate records
● Made a diligent effort to understand and comply with
the law;
● Sought expert advice on uncertain or complex
matters;
● Were honest in your dealings with us.
We’ll also consider your:
● Understanding of the law;
● Commercial experience;
● Access to expert advice;
Meeting one or more of these criteria does not necessarily mean that reasonable
care has been taken. All factors leading to the tax
default are taken into
consideration.
- It
was accepted in Adams Bidco at [158]-[162] that whether the taxpayer has
taken reasonable care to comply with the taxation law is a relevant
consideration for
the exercise of the discretion under s 25; see also
Winston-Smith v Chief Commissioner of State Revenue [2018] NSWSC 773 at
[86]; Bayton Cleaning Company Pty Ltd v Chief Commissioner of State
Revenue [2019] NSWSC 657 at [301]. I agree that whether the taxpayer took
reasonable care is relevant to the remission of the premium component under s
25. In particular, it is necessary to consider whether there are factors which
mitigate the taxpayer’s behaviour in failing to
pay its tax liability on
time and, in this regard, it is necessary to consider the steps (if any) taken
by the taxpayer to comply
with the taxation law, whether those steps were
reasonable and the explanation for why, despite those reasonable steps, the tax
default
occurred.
- There
is no dispute that the first three criteria stated in Incise Technologies
are satisfied in the present case. The plaintiff paid the duty on 25 August
2021, being two days after the issue of the Notice of
Assessment and well before
the request for remission of interest. The taxpayer has cooperated with the
Commissioner in providing
relevant information for the assessment of duty on the
Agreement for Lease. While it is true that there was considerable delay in
doing
so, this delay has been explained. Further, this cooperation occurred
voluntarily by the plaintiff providing the Agreement
for Lease to the
Commissioner together with the invoice from PMNSW without the Commissioner
having commenced any investigation.
- The
fourth criterion is that there has been no wilful default by the taxpayer in not
paying the tax on time. Incise Technologies and the decisions which have
followed it have not considered in any detail the meaning of the expression
“wilful default”.
In the analogous context of a trustee’s
breach of duty, the phrase “wilful default” refers to the situation
where
a person is conscious that, in doing the act which is complained of or
omitting to do the act which it is said he ought to have done,
he is committing
a breach of his duty, or is recklessly careless whether it is a breach of duty
or not: In re Vickery [1931] 1 Ch 572 at 583; Dalrymple v Melville
[1932] NSWStRp 64; (1932) 32 SR (NSW) 596 at 602; Armitage v Nurse [1998] Ch 241 at 252.
It involves essentially consciousness of the breach or reckless indifference to
whether it will be a breach
or not. In my view, that is an appropriate meaning
of “wilful default” in this context, and is consistent with the
approach
adopted by Emmett AJA in Winston-Smith at [84]-[86]; see also
Antegra at [180].
- In
circumstances where tax has been assessed and a taxpayer fails to pay the amount
assessed before the due date, it will be difficult
for the taxpayer to avoid the
conclusion that the default is wilful: see Winston-Smith at [85]-[86].
However, that is not the present case. Here the tax default arises from the
failure to lodge the Agreement for Lease
for stamping within three months of its
execution.
- It
is apparent from the findings that are set out earlier in this judgment, that
the explanation for how the delay in lodgement of
the Agreement for Lease for
stamping and payment of the duty assessed came about is as follows:
(a) In late 2017, Golden Age engaged Maddocks to act for it in relation to the
review, negotiation and completion of the Agreement
for Lease and the leases to
be entered into pursuant to it, in accordance with the heads of agreement.
Maddocks’ role clearly
encompassed the giving of advice to Golden Age on
its obligations to pay duty in relation to that transaction.
(b) Golden Age sought and received advice on the duty implications of the
transaction, most importantly at the meeting which occurred
on 2 November 2017
at which advice was given that there would be duty payable at two points, first
on the surrender of the Original
Lease and second on the registration of new
leases pursuant to the Agreement for Lease. I infer that the reference to
“registration”
of the new leases was shorthand for the time of their
grant.
(c) That advice was then incorporated into a wayfinder document provided by
Maddocks to Time & Place and then in turn in a feasibility
study prepared by
Time & Place and provided to Golden Age.
(d) Mr Baring, the stamp duty partner at Maddocks, gave advice on 7 March
2019, which was consistent with the earlier advice that
he had provided, that
duty would be payable on the surrender of the Original Lease and the grant of
the strata leases pursuant to
the Agreement for Lease.
(e) Shortly after that email was sent, the surrender of the Original Lease was
executed by Golden Age and Ms Albury arranged for
it to be stamped with ad
valorum duty on 18 April 2019.
(f) On 2 March 2021, Ms Albury forwarded Mr Baring’s advice by the email
of 6 March 2019 to Time & Place.
(g) On 7 June 2021, PMNSW issued a tax invoice for the amount of the premium
payable under the Agreement for Lease for the grant
of the new leases, in the
amount of $39,694,294.94.
(h) On 28 July 2021, Ms Albury forwarded the Agreement for Lease for stamping on
the basis that duty of $2,167,753.50 was payable
on the Agreement for Lease
and grant of the new leases pursuant to the Agreement for Lease.
(i) Mr Bolic’s evidence which I accept was that he, in his role as general
counsel. expected that Maddocks would proactively
advise Golden Age on its duty
liability in respect of the transaction. Maddocks did, in my view, do so through
the advice given and
steps referred to above. The problem is simply that in
giving that advice and taking those steps Ms Albury and Mr Baring overlooked
the
question whether the dutiable transaction was the Agreement for Lease rather
than the grant of the leases pursuant to it.
(j) Similarly, Mr Price’s evidence was that he and Golden Age (on whose
behalf he was acting throughout) were reliant on the
tax experts, by which he
meant Maddocks.
- In
my view, Golden Age took reasonable care in the discharge of its obligations to
pay duty on the transaction by engaging Maddocks
to act for it, seeking and
obtaining advice from that firm and then acting on that advice. The failure to
pay duty on the Agreement
for Lease arose from an oversight on the part of
Maddocks, which both Ms Albury and Mr Baring candidly accepted in
cross-examination,
in failing to consider the duty implications of the Agreement
for Lease. Given that explanation for the tax default, it was not a
wilful
default by Golden Age.
- A
significant matter in considering the remission question is that the duty
implications of the transaction contemplated by the heads
of agreement and then
embodied in the Agreement for Lease were complex. First, there was a question as
to the timing and calculation
of the duty payable on the surrender of the
Original Lease. This required the valuation of the leasehold interest of Golden
Age under
the Original Lease which was not straightforward and was a matter on
which Maddocks’ advice was necessary and sought.
- Second,
the payment of a lump sum for the new leases (referred to as the Agreed Sum) to
be granted under the Agreement for Lease involved
a complex question as to both
timing and quantum. As to timing, there was a question as to whether the Agreed
Sum payable under cl
9.2 of the Agreement for Lease was properly characterised
as a premium for the Agreement for Lease or a premium for the leases to
be
granted pursuant to the Agreement for Lease. There is a respectable argument
that unless the Agreed Sum is properly characterised
as a premium for PMNSW
entering into the Agreement for Lease in favour of Golden Age, the Agreement for
Lease would not be a dutiable
transaction. If the proper characterisation of the
Agreed Sum is that it was a premium for the new leases rather than the Agreement
for Lease itself, then the Agreement for Lease would not be a dutiable
transaction because, although a lease, no premium would be
payable for it. This
is on the basis that the words “in respect of” in
s 8(1)(b)(viii) properly construed mean “for”: Westpac Funds
Management Ltd v Chief Commissioner of State Revenue (2008) 74 NSWLR 566;
[2008] NSWSC 1245 at [59].
- As
to quantum, the mechanism for calculating the Agreed Sum under cl 9.2 of the
Agreement for Lease meant that it was not known at
the date of the Agreement for
Lease what the premium would be. This was only finalised by the calculation made
by PMNSW in June 2021.
Hence, had the Agreement for Lease been lodged for
stamping in May 2018 it would seem that the Commissioner would have been
required
to make assessment by way of estimate under s 11(2) of the TAA with a
further assessment being made subsequently when the Agreed Sum was quantified.
- Ultimately,
it is not necessary to determine whether the Agreement for Lease was a dutiable
transaction for the purposes of the application
of s 25 of the TAA. The relevant
point is that the question of what duty was payable and the timing of the
liability was complex and Golden
Age sought and acted on the advice which
Maddocks gave on those questions. Both Ms Albury and Mr Baring accepted in
cross-examination
that they understood that Golden Age was looking to Maddocks
to provide advice on those questions and that the potential for duty
to be
payable on the Agreement for Lease was a matter which was overlooked by
them.
- In
Challenger Listed Investments Ltd v Commissioner of State Revenue [2010]
VSC 464 (affirmed on appeal, [2011] VSCA 272), the taxpayer was assessed for
penalty tax of 25% in respect of a tax default arising from the failure to pay
duty on a transaction
involving the public float of a land rich unit trust. The
taxpayer had sought and acted on advice from its solicitors as to the stamp
duty
issues associated with the transaction and the memorandum of advice provided by
the solicitors was tendered in evidence. It
was apparent from the memorandum of
advice that the particular section of the duties legislation which the
Commissioner relied on
had been overlooked by the solicitors. Pagone J concluded
that had the taxpayer not succeeded in overturning the assessment of duty
on
another basis, it would have plainly established that it took reasonable care
for the purposes of s 30(1) of the Taxation Administration Act 1997
(Vic), which permits a reduction in penalty where a taxpayer has taken
reasonable care. Pagone J said at [32]:
The application of taxing provisions has become increasingly complicated, and at
times uncertain, with the inevitable consequence
that taxpayers must rely upon
expert legal advisors to navigate their way through complex and difficult
provisions. The taxpayer
in this case did precisely that. The duty cast upon the
lawyers by the retainer and the law was to consider provisions which were
likely
to apply to the transactions in question. Whatever fault may be found with
the legal advisors, the taxpayers took reasonable
care to comply with the law by
seeking advice and acting upon it. The Commissioner was in error in not
considering that CLIL had
taken reasonable care to comply with the taxation law.
The evidence available to me would appear to satisfy the condition stipulated
in
s 30(3)(a) to permit the Commissioner to determine that no penalty tax was
payable.
- In
my view, these observations are apposite to the present case.
- The
Commissioner submitted that the Court should draw an inference that the
plaintiff’s failure to call Mr Crighton and Mr Huynh
is indicative of the
fact that their evidence would not have assisted its case: Jones v Dunkel
(1959) 101 CLR 298; [1959] HCA 8. Mr Crighton, who no longer works for the
plaintiff was its Chief Operating Officer at the time the Agreement for Lease
was entered
into and was included in a number of the emails passing between
Maddocks and the plaintiff, and attended the meeting on 2 November
2017. Mr
Huynh was a person at Time & Place who was involved in most of the
correspondence between the plaintiff and its legal
representatives, HWL Ebsworth
and Maddocks.
- In
my view, no adverse inference can be drawn in respect of the failure to call Mr
Crighton and Mr Huynh. The adverse inference can
only be drawn where a party is
required to ‘explain or contradict’ something, or there is evidence
‘requiring an
answer’: Schellenberg v Tunnel Holdings Pty Ltd
(2000) 200 CLR 121; [2000] HCA 18 at [51]. In the present case, the
Commissioner cannot point to any specific facts or evidence requiring an answer
from either Mr Crighton
or Mr Huynh. Further, it is not necessary for the
taxpayer to call all material witnesses in order to discharge its onus of proof:
Federal Commissioner of Taxation v Cassaniti [2018] FCAFC 212 at [88].
Nor are parties required to give cumulative evidence, and if multiple people
attend a meeting it is sufficient if one person is
called to give evidence of
that meeting: SAMM Holdings Pty Ltd v Shaye Properties Pty Ltd (2017) 345
ALR 633; [2017] NSWCA 132 at [163]. The failure to call Mr Crighton to give
evidence regarding the meeting of 2 November 2017 falls into that category.
- Taking
into account all the circumstances relating to the tax default and the
explanation for how it came about, and bearing in mind
the purpose of the
imposition of the premium component, I am satisfied that it is appropriate to
remit the premium component in full.
Orders
- For
these reasons, I will order that the plaintiff’s application for review is
allowed, that the objection decision be set aside
to the extent of the decision
not to remit the premium component of the interest, that the plaintiff’s
liability to interest
to the extent of the premium component is remitted under s
25 of the TAA and that the defendant pay the plaintiff’s
costs.
**********
Amendments
14 March 2024 - Correct typographical errors in [16], [23], [33], [37], [50],
[113], and [116]
15 March 2024 - Correct typographical errors in [99], [110], and [112]
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