Regis Investments Pty Ltd v Commissioner of State Revenue [2012] VSC 115 (2 April 2012)


IN THE SUPREME COURT OF VICTORIA		Not Restricted

REGIS INVESTMENTS PTY LTD (ACN 093 102 277) (AS TRUSTEE OF THE REGIS INVESTMENTS TRUST)	Appellant

v

COMMISSIONER OF STATE REVENUE	Respondent

JUDGE:	Pagone J
WHERE HELD:	Melbourne
DATE OF HEARING:	6 March 2012
DATE OF JUDGMENT:	2 April 2012
CASE MAY BE CITED AS:	Regis Investments Pty Ltd v Commissioner of State Revenue
MEDIUM NEUTRAL CITATION:	[2012] VSC 115

STAMP DUTY – Land rich provisions - Appeal against assessment by the Commissioner of State Revenue - Acquisition by trustee of shares in a land rich company - Application of relevant provisions of the Duties Act 2000 (Vic) before and after 13 May 2004 – Distinction between “entitlement” and “beneficial entitlement” – Whether the trust is a “person” who acquired an “interest” within the meaning of s 76 the Duties Act 2000 (Vic) – Duties Act 2000 (Vic) ss 76, 77, 78, 79 – Commissioner of State Revenue v Landrow Properties Pty Ltd (2010) 79 ATR 800 – Challenger Listed Investments Ltd (as trustee for Challenger Diversified Property Trust 1) v Commissioner of State Revenue (Vic) 2011 ATC 20-278 – Court bound to adopt a construction of provisions consistent with the Court of Appeal.

PENALTY AND INTEREST – Leave sought to add additional grounds of objection - Taxpayer bears the burden of proof on an appeal – Whether taxpayer exercised “reasonable care” – Exercise of the Commissioner’s “general power of remission” – The complexity of a provision is not sufficient to establish reasonable care nor for an exercise of the Commissioner’s discretion under the general power of remission - Taxation Administration Act 1997 (Vic) ss 30(3) and 35.

APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr M Flynn	King & Wood Mallesons

For the Respondent	Mr J D Merralls QC with Mr A Dinelli	Solicitor for the Commissioner of State Revenue

1 This appeal is the next in the litigation concerning land rich assessments including Commissioner of State Revenue v Landrow Properties Pty Ltd (“Landrow”)[1] and Challenger Listed Investments Ltd (as trustee for Challenger Diversified Property Trust 1) v Commissioner of State Revenue (Vic) (“Challenger”).[2] The Commissioner of State Revenue has raised an assessment against Regis Investments Pty Ltd (“Regis”) which the latter contended cannot be maintained under the land rich provisions of the Duties Act 2000 (Vic) and in light of the decisions in Landrow and Challenger. The Commissioner, in contrast, made a formal submission that the decisions of Landrow and Challenger were wrongly decided but contended that in any event the decisions do not govern the assessment of duty to Regis.

2 Regis is the trustee of the Regis Investment Trust (“the Regis Trust”), and in that capacity acquired shares in Retirement Properties of Australia Pty Ltd (“RPA”) being a land rich company within the meaning of the relevant provisions in Chapter 3 of the Duties Act 2000 (Vic). Those provisions impose duty on the acquisition of certain beneficial interests in “land rich” companies. The shares initially acquired by Regis were not assessed for duty because Regis applied for, and was granted, relief under the corporate reconstruction exemption. The first acquisition was of 10,644,025 shares on 28 June 2002. That gave Regis 40.64% of the issued shares in RPA. Regis continued to acquire shares between 2 July 2002 and 2 July 2007 by which time it had acquired 100% of the issued shares in RPA. On 23 January 2004 Regis acquired a parcel of 2,450,000 shares which increased its total shareholding from 49.98% (as it stood at 16 January 2004) to 54.07%. At that point the relevant provisions of the Duties Act 2000 (Vic) were different from those applied in Landrow and Challenger. The relevant provisions changed with effect from 13 May 2004 at which point the shareholding in RPA had increased by a further 316,523 shares bringing the total shareholding in RPA as at 13 May 2004 to 55.13%. The remaining shares in RPA were acquired by Regis after 13 May 2004 during which time the provisions in the Duties Act 2000 (Vic) were as applied in Landrow and Challenger. The Commissioner contended, however, as I have indicated, that the assessment to Regis may be maintained for reasons other than those which prevailed against the Commissioner in those cases.

3 It may be desirable to consider first the assessment insofar as it depends upon the acquisitions after 13 May 2004. Those acquisitions were by far the greatest both in number and value, and accounted for the bulk of the assessment. There was no dispute between the parties about the amounts apart from whether the acquisitions exposed Regis to duty under the relevant statutory provisions. The duty on the shares acquired by Regis before 13 May 2004 was $19,948. The total duty for the shares acquired after that date was assessed by the Commissioner at $1,091,928. The Commissioner also imposed a penalty of $272,942 and interest totalling $130,491.

4 Section 78 of the Duties Act 2000 (Vic), both before and after 13 May 2004, provided that liability for duty charged under Part 2 of Chapter 3 arose when a relevant acquisition is made. Section 79(1), after 13 May 2004, identified a “relevant acquisition” for those purposes in the following terms:

The combined effect of ss 78 and 79 was to impose duty upon “a relevant acquisition” as identified in s 79. The latter section provided that a relevant acquisition was made by a person when the person acquired an “interest” in a land rich landholder amounting to a significant interest in the landholder. Section 76 identified what constituted “interests” and “significant interests” in landholders, and s 77 dealt with how an interest may be “acquired”.

5 Section 76 provided that a person had “an interest” in a landholder if the person had a “beneficial entitlement”, whether directly or through another person, to a distribution of property from the landholder on a winding up of the landholder or otherwise. The Commissioner had argued in Landrow that “beneficial entitlement” for these purposes did not require the person acquiring an interest to be acquiring a beneficial interest for the acquiring person’s own benefit as long as what was acquired was “a beneficial entitlement”. On that construction the section was seen not to apply to the mere change of legal title but as applying to acquisitions by trustees where the trustee’s acquisition of legal title resulted in the acquisition of the beneficial interest by others.[3] The Commissioner’s argument in Landrow construed “beneficial interest” in s 76(1) as referring to the interest being acquired rather than the basis upon which the person may hold the interest after the acquisition. A trustee, on that argument, could acquire a beneficial interest (for the beneficiaries) within the meaning of the section even though the beneficial interest was acquired for the beneficiaries of the trust rather than for the benefit of the acquiring trustee. That construction of the provision might be thought to be consistent with the object of the land rich provisions and would exclude from duty the acquisition by trustees where beneficial ownership did not change but would make dutiable the beneficial acquisitions of interests by beneficiaries through trustees. That argument, whatever its merits, was rejected by the Court of Appeal notwithstanding the consequence, as stated by the Court of Appeal in Landrow, that its rejection might undermine the purpose of the land rich provisions.[4] The argument was advanced again by the Commissioner in Challenger when the Court of Appeal was invited to reconsider its earlier decision in Landrow. A differently constituted Court upheld the earlier decision for the same reasons as had been given in Landrow. The Commissioner is seeking special leave to appeal the decision in Challenger in the High Court, however the Commissioner accepts that he is bound by the two decisions of the Court of Appeal and must accept their correctness in this proceeding.

6 In this proceeding the Commissioner relies upon an argument not raised in either of the two previous decisions but which may be inconsistent with the outcome in both cases. Senior counsel for the Commissioner contended that the additional argument is open to the Commissioner in these proceedings notwithstanding that it was not raised in the two previous decisions. He submitted that the fact that it was not raised in the two previous decisions is to be explained by forensic decisions made in the conduct of those proceedings and did not reflect upon the strength of the argument itself. I accept that submission and that the strength of the arguments to be relied upon in this proceeding are to be evaluated on their own terms although the decisions in Landrow and Challenger need to be taken into account.

7 The Commissioner’s new argument is that Regis is a “person” (within the definition of that word in s 76 of the Duties Act 2000 (Vic)) who acquired an “interest” in RPA under s 76(1) by reason of sub-s 76(3). Subsection 76(3) was not considered in Landrow or Challenger. Section 76 of the Duties Act 2000 (Vic) provided (after 13 May 2004):

It was that section, and in those terms, which was applicable in Landrow and Challenger. It was set out by the Court of Appeal in its reasons although in Landrow sub-s (3) was not set out and was not relevant to the argument as put in that case.^[5] In this case the Commissioner contended that Regis is a person because the definition of “person” in s 76(3) includes a landholder, and “landholder” is defined in s 71(1)(a) to include a private unit trust scheme such as Regis.

8 Section 71(1) of the Duties Act 2000 (Vic) at the time dealt with the meaning of “landholder” by providing:

Section 3(1) contained the general definitions applicable to the Act as a whole including definitions of “interest”, “person”, “private unit trust scheme”, “public unit trust scheme”, “unit trust scheme”, and “wholesale unit trust scheme”. A “private unit trust scheme” was defined to mean a unit trust scheme that was not a public unit trust scheme or a wholesale unit trust scheme. For present purposes it is clear that the Regis Investment Trust is a “private unit trust scheme” because it is a “unit trust scheme” that is not excluded from the definition of “private unit trust scheme” and therefore is within the meaning of “landholder” in s 71(1)(a). It follows, according to the Commissioner’s argument, that the Regis Trust is a person within the meaning of s 76(3) and, therefore, that the Regis Trust of which Regis is trustee is a person having an “interest” in RPA within the meaning of s 76(1). The consequence of the argument, if accepted, would result in the trustee of a trust being liable for duty in circumstances like those in Landrow and Challenger but for a reason which was not considered or expressly rejected in either case.

9 The parties both sought to rely for their competing contentions upon the interpretation of the provisions that did not depend upon the impact of the decisions in Landrow and Challenger. It seems to me that the Commissioner’s argument has force if the decisions in Landrow and Challenger are disregarded. Section 76(3) requires that a “person” in s 76(1) include a landholder. A landholder is defined by s 71(1)(a) to include a private unit trust scheme. A private unit trust scheme includes a unit trust scheme that is a public unit trust scheme. The Regis Trust, of which Regis is the trustee, is a private unit trust scheme and, therefore, is a person within the meaning of s 76(1). Plainly the Regis Trust, if a person within the meaning of s 76(1), has a beneficial interest in the sense accepted in Landrow and Challenger.

10 Regis contended in response, that the Regis Trust was not a person within the meaning of s 76(1) for three reasons. The first was that the definition of “person” in s 76(3) applied only within the operation of s 76 and not more generally within the relevant Part or the Act as a whole. The general definition of “person” in s 3 defined person to include “an unincorporated association and a partnership” but not a trust (whether a unit trust or any other trust). However, the definition in s 76(3) was intended to apply for all purposes in which s 76(1) was intended to apply. It would be curious if the “person” whose interest was, or whose significant interests were, to be determined under s 76 was to be different under s 79 or under the other provisions in Chapter 3. The provisions in the Part were intended to apply together, and s 76 is specifically intended to operate with ss 78 and 79. It would be curious if a trust (through the definition of landholder) was by s 76 to be treated as having an interest within the meaning of s 76 but not to be treated as acquiring an interest within the meaning of s 77 or as making a relevant acquisition for the purposes of s 79. It is difficult to see any reason or policy for such a disconformity between the provisions as the argument for Regis would in my view involve. The adoption of the Commissioner’s construction would, in my view, also accord with the evident policy of the land rich provisions.

11 The Commissioner’s construction, however, would not sit conformably with the outcomes in Landrow and Challenger. Plainly, I should adopt a construction of the provisions consistent with that adopted by the two differently constituted Courts of Appeal in the two recent decisions of Landrow and Challenger. The application of the relevant provisions in the Duties Act 2000 (Vic) is made more complicated, perhaps, by the legislature’s use of drafting techniques which may make it easier for a reader to lose sight of the purpose and effect of a provision. The extended meaning of the word “person” in s 76(3) to include a landholder is expressed to apply to “this section”, namely s 76. The definition is not in express terms made to apply to ss 77 or 79. Accordingly, accepting the Commissioner’s submission that the word “person” for the purposes of s 76(1) includes the Regis Trust, does not necessarily compel the result that the Regis Trust is also a person for the purposes of s 77 or s 79. For those provisions to apply, consistently with the reasoning and outcome in Landrow and Challenger, it must be Regis, and not the Regis Trust, that must acquire an interest or make a “relevant acquisition”. Regis did not itself make a relevant acquisition because it did not acquire a significant interest for itself within the meaning of s 79, although the Regis Trust was otherwise a person who may be regarded as having a significant interest in RPA within the meaning of s 76(2) as extended by s 76(3) and s 71(1)(a). It follows that the Commissioner’s assessment would need to be set aside.

12 The two other arguments advanced on behalf of Regis against the Commissioner’s submissions need not be considered but may be dealt with briefly. The second argument was that the assessment would fail (even accepting the Commissioner’s argument) because the assessment was made against Regis and not against the Regis Trust itself. I would reject this argument if I had been required to consider it because any assessment must impose liability upon a legal person and the trust is not itself a legal person. A charge upon its assets can only be by imposition of a liability upon the trustee who may then seek to recover from the assets of the trust. The third argument was that s 76 had been the subject of detailed analysis by the Court of Appeal in both Landrow and Challenger and that if the argument had merit it was unlikely to have been overlooked in those two decisions. I would have rejected this argument for the reasons I have previously explained, namely, that it was not the subject of argument or consideration in either case. I accept the submission by senior counsel that the absence of consideration of the argument in those cases may be explained as a forensic decision made by counsel with the carriage of those cases and their evaluation of the strength of the arguments they elected to put which evaluation, in the event, proved unjustified.

13 It is next necessary to consider the assessment on the basis of the position before the amendments on 13 May 2004. The substance of the arguments for the assessment in relation to the earlier period is substantially the same as that for the period after 13 May 2004 but the statutory provisions were in somewhat different terms. The provisions as they stood at that time were not directly in issue in Landrow and Challenger however the prior provisions were mentioned in the reasons of the Court of Appeal. For this pre 13 May 2004 period of the assessment, the Commissioner called in aid certain passages in both Landrow and Challenger suggesting that the amendments that were made on 13 May 2004 effected a relevant change to the provisions which explained the outcome in those cases but which (as the Commissioner’s argument contended) required a different conclusion in this case on the earlier terms of the legislation. In both Landrow [6] and Challenger[7] the Court of Appeal observed that the amendments made in 2004 had gone well beyond clarifying the effect of the previous terms of s 77. The Commissioner’s contention was that the observations of the Courts in Landrow and Challenger had adopted a construction of the provisions before their amendment to the effect that an acquisition by a trustee was dutiable upon the acquisition. Regis contended in response that the observations, if relevant, applied only to s 77 and not to s 76 as it existed before the 2004 amendments, and that, in any event, the decisions in both cases required the same outcome on the assessments in this appeal.

14 The general scheme of the land rich provisions before the 2004 amendments were substantially the same after the amendments. Section 78 created a liability for duty when a relevant acquisition was made. Section 79 provided for when a relevant acquisition was made by reference to the acquisition of an “interest”. Section 76 provided for the meaning of interests and s 77 provided for how an interest may be acquired.

15 The Commissioner’s first argument in respect of the acquisition by Regis of shares in RPA was that the terms of s 76 were materially different before the 13 May 2004 amendment from their terms after the amendment and that the observations in Landrow and Challenger confirmed that to be the case. Significantly, s 76(1) had provided that a person had an interest in a private corporation if the person had an “entitlement” as distinct from the equivalent provision in s 76(1) after the amendment which provided that a person had an interest where the person had “a beneficial entitlement”. The terms of s 77 before and after the 13 May 2004 amendments dealt with how an interest may be acquired and the 2004 amendment added sub-s (1) which provided:

An equivalent provision did not exist in s 77 itself before the amendment and it was this amendment which the Courts of Appeal in Landrow and Challenger said went well beyond clarifying the effect of the previous provision.

16 Both judgments of the Court of Appeal regarded the addition of the new s 77(1) as significant in reaching their conclusions. The Courts plainly regarded the introduction of the provision in s 77(1) as a substantive change going beyond clarifying the effect of the previous provision and a reason for the conclusion that the land rich provisions required the acquisition of a beneficial entitlement by a person other than as trustee for another. Neither Court, however, was called upon to construe the earlier terms of the provision. Neither Court appears to have had its attention drawn to the definition of “entitled” in s 3(1) of the pre 13 May 2004 provisions bearing upon the meaning to be given to that word in Chapter 3. “Entitled”, before the 2004 amendments, was defined to mean “beneficially entitled”. That definition might suggest that the effect of the amendments in 2004 might have been less significant than might otherwise have appeared.

17 It is not, however, s 77 that is in issue in this proceeding but s 76(1). Section 76(1) relevantly provided:

It may be accepted that s 77 before the 2004 amendment did not refer to entitlement and that their Honours’ observations in both Courts about the impact of the amendment was about an impact upon s 77 and not about the proper construction of s 76. However, s 76 before the 2004 amendment must be read in conjunction with the definition of “entitled” as it existed at that time in s 3(1). Section 76(2), at that time, relevantly provided:

Section 76 before the 2004 amendments, unlike s 77 before the amendments, did operate by reference to the meaning of entitled. The definition of entitled in s 3(1) was provided to mean “beneficially entitled”. Section 76(2) also required reference to the interest of a person contemplated by sub-s 76(1), which again, incorporated the definition of entitled in s 3(1) to mean “beneficially entitled”. In each case there was necessarily incorporated into the operative effect of s 76 the same considerations as gave rise to the construction and outcome in both Landrow and Challenger. It follows that the same reasoning adopted by the Court of Appeal in those cases in relation to s 77 after the amendments in 2004 apply to the construction of s 76 before the amendments.

18 The Commissioner’s second argument in respect of the pre 13 May 2004 acquisitions was to the same effect as that previously considered about the construction of “person” in s 79 as I have considered above. The argument was, in short, that the Regis Trust was a “person” who acquired an interest in the landholder for reasons similar to, but not exactly the same as, those considered after the 2004 amendments. For the reasons I have set out above I am unable to accept those submissions. The taxable event occurs by reference to ss 78 and 79 to the “person” contemplated in s 79. There was a definition of “person” in s 76(4) which included a “private corporation” within the meaning of “person” in that section but that definition was not expressly made to apply beyond that section. Person was defined in s 3(1) to include “an unincorporated association and a partnership” but not a trust. “Private corporation” was given a wider meaning in s 71 to extend to a “private unit trust scheme” which, in turn, was defined in s 3(1) to mean a “unit trust scheme that [was] not a public unit trust scheme” (as defined). In my view the Commissioner’s argument has merit but for the reasons previously given cannot be accepted in light of Landrow and Challenger.

19 The final matter to consider is the amount of interest and penalty, if any, that might have been applicable if the Commissioner’s contentions had succeeded. It is not necessary to consider those arguments in light of my other conclusions but it may be desirable to make the following observations. The taxpayer bears the burden of proof on an appeal [8] and in such an appeal is limited to the grounds of objection.[9] The appellant’s grounds of objection raised, as the only ground in relation to interest and penalty, that the penalty tax assessed was unduly punitive. Leave was sought, and was given, at the hearing to add two additional grounds of appeal in conformity with the submissions which had been filed on 10 February 2012. The additional grounds were that the Commissioner should have reduced the penalty to nil either (a) on the basis that the taxpayer had exercised reasonable care under s 30(3) of the Taxation Administration Act 1997 (Vic) or (b) on the basis of an exercise of the general power of remission under s 35. The taxpayer, however, led no evidence capable of supporting a contention on either ground and led no evidence that it had exercised reasonable care.[10] In the end the only submission capable of being made on behalf of the appellant on the question of interest and penalty was that the relevant statutory provisions imposing the primary duty were “complicated”. That, however, would not suffice alone to establish the exercise by the taxpayer, or by its advisors, of reasonable care or alone justify the exercise of the general power of remission. The complexity of a provision might be a reason or incentive to exercise reasonable care but it is not sufficient to establish reasonable care. Nor would it suffice alone to provide a foundation for an exercise of the Commissioner’s discretion under the general power of remission. Accordingly, had it been relevant for me to do so, I would have rejected that part of the taxpayer’s grounds of objection.

20 The orders I propose to make are to set aside the Commissioner’s assessment for the reasons I have given and to remit the assessment to the Commissioner for redetermination in accordance with these reasons.

^[3] See State Taxation Acts Amendment Act 2007 (Vic) s 5(1) amending Duties Act 2000 (Vic) s 77(2) inserting (2AA).

^[5] Commissioner of State Revenue v Landrow Properties Pty Ltd (2010) 79 ATR 800, 804–5 [9] (Neave, Harper and Hansen JJ).

^[10] Cf. Snowy Hydro Ltd v Commissioner of State Revenue (2010) 79 ATR 118, 135 [81]–[82] (Davies J); Challenger Listed Investments Ltd (as trustee for Challenger Diversified Property Trust 1) v Commissioner of State Revenue (2010) 80 ATR 630, 643–5 [30]–[34] (Pagone J); Pharmos Nominees Pty Ltd v Commissioner of State Revenue [2012] SASC 24 [132]–[139] (Gray J).

Supreme Court of Victoria

Regis Investments Pty Ltd v Commissioner of State Revenue [2012] VSC 115 (2 April 2012)