The vast majority of the decisions we make each year are undisputed by our customers, but inevitably there are situations where litigation is required to resolve an issue.
The following case summaries illustrate some of the types of cases conducted in 2021–22.
Duties Act 2000 (Duties Act)
Sub-sales
Hartman v CSR (Review and Regulation) [2022] VCAT 28
Background
In this matter, the taxpayer was the purchaser under a contract of sale of real estate. The taxpayer subsequently nominated two related entities as substitute purchasers, which took the transfer of the property at settlement. Between the contract and nomination dates, a planning permit application was lodged in respect of the property. Consequently, the Commissioner assessed the taxpayer to duty under the sub-sale provisions of the Duties Act – Transfers involving land development, together with penalty tax and interest under the Taxation Administration Act 1997 (TAA).
The taxpayer contended that he was entitled to a duty exemption under section 34 and/or section 36 (fixed trust) of the Duties Act. Alternatively, he submitted that the Tribunal could and should exercise the discretion in section 8 of the TAA not to issue an assessment in the circumstances of the matter.
Decision
On 11 January 2022 the Tribunal found in favour of the Commissioner and confirmed the assessment for the following reasons.
Firstly, in the context of a sub-sale transaction, the exemptions contained in sections 34 and section 36 are incapable of applying on a stand-alone basis. To the extent that those exemptions could be applicable through the prism of a hypothetical transaction created by section 32N(1) of the Duties Act, they do not apply here since the requisite trust relationship between the taxpayer and the vendor was not established.
Secondly, the Tribunal confirmed that in a review proceeding it did not have the ability to exercise any discretion under s 8 of the TAA not to issue an assessment.
Family farm exemption
ANO Property Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2022] VCAT 71
Background
This dispute was about the taxpayer’s acquisition of property from Mr Osborne on 19 May 2020, which the Commissioner had assessed to duty. The taxpayer was the trustee of the ANO Property Trust (Property Trust), of which the sole beneficiary was ANO Enterprises Pty Ltd as trustee for the AN Osborne Superannuation Fund (Super Fund). Mr Osborne owned and controlled both trustees (i.e. the taxpayer and ANO Enterprises Pty Ltd), was the sole member of the Super Fund and was a farmer who used the property for his farming activities.
The issue was whether the transfer was exempt from duty under section 56 (the family farm exemption) and/or section 35 (transfer to and from a trustee or nominee exemption) of the Duties Act 2000. A secondary issue was whether the Commissioner’s Determination of the Objection was invalid because of an improper delegation of power by the Commissioner to the relevant officer.
Decision
On 20 January 2022 the Tribunal confirmed the Commissioner’s assessment for the following reasons.
Firstly, the exemption in section 56 exemption could not apply as the taxpayer did not come within one of the required categories of transferees. In such circumstances, neither the Commissioner nor the Tribunal on review has discretion to waive or reduce the applicable duty.
Secondly, the exemption in section 35 exemption could not apply because the transfer gave rise to a clear change in beneficial ownership of the property.
Thirdly, it was not necessary or appropriate for the Tribunal to consider the delegation issue as the Tribunal’s function in a merits review is to make the correct or preferable decision based on the evidence before it. It does not have jurisdiction to hear matters concerning judicial review.
Corporate reconstruction exemption (CRE)
VER Custodian Pty Limited (as trustee for the VER Trust) v CSR [2022] VSC 33
Background
This Supreme Court matter concerns whether transfers on 8 August 2016 of various lands from Viva Energy Australia Pty Ltd to the taxpayer, as trustee for the VER Trust, were exempt from duty by reason of the corporate reconstruction exemption under s250B of the Duties Act.
The Transfers occurred as part of a wider restructure of the Viva group of entities, which was implemented in connection with an initial offering of approximately 414.1 million stapled securities comprising shares in Viva Energy REIT Limited (the Company) and units in a real estate investment trust called the Viva Energy REIT Trust (REIT Trust).
In broad terms, that exemption is only available where the CSR is satisfied that, among other things, the relevant transfer is, or arises out of, an “eligible transaction”, which requires the transfer to be made from one member of a corporate group to another member at the date of the transfer.
Based on the transaction documents in effect at the date of the Transfers, the CSR was not satisfied that the VER Trust remained part of the same corporate group, under the indirect ownership of VEAG through the REIT Trust, for the purposes of the exemption. This is because units in the REIT Trust were issued to selected investors before 8 August 2016. Consequently, the CSR issued a notice of assessment of duty to the Taxpayer.
Decision
On 11 February 2022, Justice Garde delivered judgment in favour of the Taxpayer, holding among other things that the grant of an exemption under s250B of the Duties Act by the Commissioner’s delegate (via the 30 June 2016 letter) was correct and appropriate. The exemption granted was valid and arose out of an eligible transaction within the meaning of s 250A of the Act.
Foreign purchaser additional duty (FPAD)
Mahan Rudd and Telka Noor v CSR (Review and Regulation) [2022] VCAT 188
Background
The taxpayers were husband and wife. Mr Rudd emigrated to Australia in 2013 and Dr Noor followed in 2014. In 2018, they acquired two properties, one which they planned to develop and live in, and another to be used as an investment property. At the time of their acquisition, Mr Rudd was a permanent resident of Australia, while Dr Noor was permitted to remain in Australia under the terms of a particular provisional partner visa. Prior to the transfer of the Relevant Properties, they each completed a Duties Form 62 – Purchaser Statement indicating that they were not a “foreign natural person”.
Following an SRO investigation, it was identified that the Dr Noor’s visa did not meet the requirement as a permanent visa within section 30(1) of the Migration Act 1958 (Cth)(Migration Act). As a result, the Commissioner reassessed the transfers for foreign purchaser additional duty (FPAD) at the rate of 7%, under section 28A of the Duties Act; and interest, at the market rate, under section 24 of the TAA.
The taxpayers submitted that Dr Noor, was not a ‘foreign purchaser’ at the relevant times because she held a Partner Provisional Visa that the Department of Home Affairs website described, on Visa Entitlement Verification Online (VEVO), as a visa with an ‘indefinite’ period of stay.
Decision
On 18 February 2022 the Tribunal found in favour of the Commissioner, upholding the FPAD but remitting the interest in full. The Tribunal:
- Determined that the Provisional Partner Visa held by Dr Noor could not be regarded as a permanent visa within section 30(1) of the Migration Act (Cth) because it was not a visa that permitted Dr Noor to remain in Australia indefinitely
- Accepted the Commissioner’s submission that the results of the VEVO Entitlement Check, which referred to an ‘indefinite’ period of stay, cannot change the legal outcome
- Dismissed the taxpayers’ ground of submission regarding estoppel. [FPAD should not be imposed because the taxpayers submitted, they were misled that Dr Noor held a permanent visa by the Department of Home Affairs (in terms of the VEVO Entitlement Check) and/or the SRO (in terms of the information on its website)– and that this resulted in them incurring FPAD which may otherwise have been avoided]. In dismissing the taxpayers’ submission the Tribunal referenced a number of authorities, including its own decision in Winnett v Commissioner of State Revenue [2019] VCAT 403, a land tax case, in which it was observed at [56] that there is ‘no estoppel against a revenue agency in collection of taxes in accordance with law.’ .
Land Tax Act 2005 (Land Tax Act)
Primary production land
Lotus Oaks Pty Ltd atf the Bozzo Family Trust v CSR [2021] VSC 388
Background
This matter concerns the land tax payable for the 2015 to 2017 land tax years (the relevant period) in respect of properties in Wyndham Vale (‘the land’) owned by taxpayer as trustee for the Bozzo Family Trust and whether the requirements of s67 of the Land Tax Act 2005 (Vic) (the Land Tax Act) were satisfied. That is:
- Whether the principal business of the taxpayer at the relevant times was primary production of the type carried on on the land, and
- Whether Mario Bozzo (a director of the taxpayer) was at the relevant times normally engaged in a substantially full-time capacity in the business of primary production of the type carried on on the land (asserted to be cultivation of canola, wheat and barley).
Decision
On the 14 July 2021 Justice Garde delivered judgment in favour of the Commissioner, finding that he was not satisfied that the taxpayer had discharged its onus of proof in relation to the requirements of the exemptions set out in ss 67(2)(d)(i) and 67(2)(d)(iii)(A) of the Land Tax Act for the relevant period.
“Given Mario’s directorships and all of his other responsibilities, it is difficult to see how the appellant can satisfy the statutory requirement. While the cultivation of crops for sale was a significant business on which Mario worked, it was only one of the appellant’s significant businesses. As I have found, by 31 December 2014, residential subdivision was a burgeoning business which was, or shortly thereafter became the appellant’s most important business.” [217].
“The livestock businesses including the grazing of cattle, the breeding of sheep, and the production of wool were also important primary production businesses carried on by the appellant…” [218].
“… Thus, while it is clear that Mario ‘regularly participated’ in the business of the cultivation of crops for sale, it has not been established that this was, in the language of Damon [Damon v Commissioner of Land Tax(1985) 17 ATR 278, 281], ‘for a considerable part’ of Mario’s time having regard to his time commitments to the other business and his director’s duties.”
As a result, the Court held that it was not satisfied that the taxpayer had shown on the balance of probabilities that the principal business of the taxpayer was of the requisite type and its director Mario was normally engaged in a substantially full-time capacity in the business of the cultivation of crops for sale, as asserted. The assessments were therefore upheld.
Trust surcharge
Tanoa Investments Pty Ltd v CSR (Review and Regulation) [2021] VCAT 1158
Background
In 2014, the taxpayer acquired a property in Mount Eliza (the Property) in its capacity as trustee of a discretionary family trust (the Trust), of which Ms Tanei Williams and her siblings were the primary beneficiaries. At all relevant times the property was occupied by Ms Williams as her principal place of residence (PPR), which she occupied with her husband, mother and brother.
The Commissioner originally assessed the taxpayer to land tax on the Property for the 2015-2018 land tax years at the general rate of land tax (set out in Part 1 of Schedule 1 to the LTA), rather than the higher surcharge rate applicable to land owned by trustees. However, in September 2019, the Commissioner commenced an investigation as to whether the Property was held by the taxpayer as trustee of a trust.
On 21 November 2019, and during an investigation conducted by the SRO, a Nomination of Principal Place of Residence Beneficiary was submitted on behalf of the taxpayer to the CSR specifying Ms Williams as the PPR beneficiary for the Trust to obtain the exemption from paying land tax at the trust surcharge rate for the Property.
On 13 March 2020, the Commissioner reassessed land tax on the Property for each of the 2015 to 2018 land tax years at the surcharge rate on the basis that the PPR Nomination only took effect for the 2019 and subsequent land tax years and issued notices of reassessment to the taxpayer accordingly (Reassessments).
The issue in this matter was whether the PPR Nomination had the effect of applying to the 2015 to 2018 land tax assessments relieving the Property from the trust surcharge rate for those years. The taxpayer argued that the PPR Nomination can have that effect because of the definition of “tax year”, while the Commissioner maintained that the PPR Nomination only has effect in the year the PPR Nomination was submitted to the Commissioner (in this instance from the 2019 tax year).
Decision
On 7 October 2021 the Tribunal handed down its decision in favour of the Commissioner, confirming the Reassessments for the 2015 to 2018 land tax years. This confirmed the Commissioner’s Determination that the PPR Nomination could not apply retrospectively to take effect for each of the 2015 to 2018 land tax years.
Principal place of residence exemption
Croxford v Commissioner of State Revenue (Review and Regulation) [2022] VCAT 62
Background
On 23 July 2015, the taxpayer became the registered proprietor of a property in Hawthorn (the Property), with the intention of demolishing the existing house and building a new family home for herself, her husband and their three children. The existing home was demolished in July 2016 and construction of the new building was completed in September 2017, following which the taxpayer and her family entered into occupation of their new home. The occupancy permit, however, was not granted until December 2019.
Between the time of acquisition of the Property and demolition of the existing home, the only use made of the Property was by a third party, who rented the existing house for eight weeks between late September and late November 2015; the taxpayer and her husband for a few nights “here and there” to get a sense of its aspect at different times of day in order to inform the design process; and by the two eldest (adult) children between December 2015 and July 2015, as an “experiment” in living on their own (noting that on some occasions, the taxpayer also stayed at the Property to keep her daughter company if her son was away).
In March 2016 the taxpayer advised the Commissioner that she had been using and occupying the Property as her PPR since 15 December 2015 and the Commissioner assessed it as being exempt from land tax under s54 of the LTA. This was later overturned in March 2020 following an investigation and the PPR exemption removed for the 2016 to 2020 land tax years.
By email dated 29 March 2020 the taxpayer objected to each of the 2016 to 2020 Assessments on the grounds that the property was eligible for the PPR exemption. The Commissioner allowed the Objection only in respect of granting the PPR exemption for the 2020 land tax year onwards.
The taxpayer requested that the 2016 and 2017 land tax assessments be referred for consideration by the Tribunal on the basis that she had purchased the Property with the intention to use and occupy the premises on the Land as her PPR once it was constructed, and therefore should be eligible for the PPR exemption.
Decision
On 18 January 2022 the Tribunal handed down its decision in favour of the Commissioner. The Tribunal finding that despite her intention to occupy the Property once construction had been completed, that she did not use and occupy the land as her PPR for both the 2016 and 2017 land tax years.