This update provides an analysis of recent judicial decisions and legislative reforms to the stamp duty law across several Australian states, including two recent Court of Appeal cases and the introduction of landholder duty regimes in Queensland and South Australia.
In Epic Energy (Pilbara Pipeline) Pty Ltd v Commissioner of State Revenue (WA)  WASCA 228, the Western Australia (WA) Court of Appeal has provided highly useful guidance on the stamp duty treatment of "fixtures" and held that certain pipelines and associated infrastructure constituted "land" for WA landholder duty purposes.
In Chief Commissioner of State Revenue v Centro (CPL Limited  NSWCA 325, the NSW Court of Appeal adopted a broad, purposive interpretation of the specific anti-avoidance provisions in section 24 of the NSW Duties Act that held the Commissioner was entitled to disregard a concurrent 300-year lease in determining the value of a property for duty purposes.
EPIC ENERGY - PIPELINES AND WA LANDHOLDER DUTY
This was an appeal from the Western Australian State Administrative Tribunal.
The first taxpayer, Epic Energy (Pilbara Pipeline) Pty Ltd (EEPP) and the second taxpayer, Epic Energy (WA) One Pty Ltd (EEWA) were owners of pipelines and associated pipeline infrastructure located in WA. The pipelines were the subject of pipeline licences granted under the Petroleum Pipelines Act 1969 (WA), which provided that the pipelines remained the property of the licensee. Unlike some infrastructure legislation the pipelines legislation did not change the legal nature of the pipelines from fixtures to chattels.
On 2 June 2004, Epic Energy Pty Ltd acquired all of the issued shares in both EEPP and EEWA. The Commissioner of State Revenue (WA) assessed the taxpayers' duty on the acquisitions under the previous WA land-rich duty provisions of Pt IIIBA of the Stamp Act 1921 (WA)(Stamp Act), on the basis that EEPP and EEWA were "landholders" for the purposes of these provisions.
The Commissioner contended that pipelines and associated infrastructure owned by EEPP and EEWA comprised "land" under s76(1)(b) of the Stamp Act as "anything fixed to the land including anything that is, or purports to be, the subject of ownership separate from the ownership of the land."
The Commissioner's disallowance of the taxpayer's objections was upheld by the State Administrative Tribunal.
The taxpayers appealed to the Court of Appeal.
Details of the decision
The Court of Appeal dismissed the taxpayer's appeal, concluding that the pipelines constituted land for WA landholder duty purposes.
Upon detailed consideration of the definition of land in Pt IIIBA of the Stamp Act, the Court agreed with Commissioner's fallback construction on the treatment of "fixtures" as land under the Stamp Act, with McLure P stating:
"If a corporation has a beneficial entitlement to land and a beneficial entitlement to a thing fixed to that land, the value of the corporation's beneficial entitlement to the thing is included in the calculation of value under s 76AP(2) regardless of the basis or source of the beneficial entitlement to the thing."
It was not in contention that EEPP and EEWA held an interest in land in the relevant properties, being easements, subleases and certain licences. In addition, under the Petroleum Pipelines Act, the taxpayers also owned a beneficial interest in the pipelines. Accordingly, the Court held that since EEPP and EEWA owned a beneficial interest in both the relevant land and the pipelines attached to that land, the pipelines constituted "land" for the purposes of Pt IIIBA of the Stamp Act. It did not require that the landholders' interests in the pipelines be sourced from their interest in the relevant land.
The Court also provided guidelines on the interpretation of "land" in the Stamp Act more generally, such as:
- The definition of "land" in the Stamp Act is not exhaustive and should be interpreted broadly.
- The modern approach to statutory construction is purposive, with the statutory text the surest guide to the Parliament's intention.
- The word "fixed" in the definition of land in the Stamp Act is intended to refer only to a physical connection between the item and the land - it is not confined to fixtures in the general law sense.
Impact for taxpayers
The Stamp Act has since been replaced with the Duties Act 2008 (WA), which also introduced a "landholder" duty regime to replace the previous land-rich duty regime. In addition, the definition of land in the Duties Act was recently amended on 12 September 2011 to specifically include "a pipeline, as defined in the Petroleum Pipelines Act 1969 section 4(1), constructed on land under the authority of a licence under that Act."
Nonetheless, the principles outlined in the Epic Energy decision will still be relevant in determining whether fixtures and other assets fixed to land will constitute "land" for the purposes of the stamp duty provisions in WA and other states. Taxpayers should take into account this judgment when considering the stamp duty implications of transactions involving land and fixtures, in particular for infrastructure and related projects.
CENTRO - DISREGARDING 300-YEAR LEASE IN VALUING LAND
The Government Superannuation Office of Victoria (Super Office) and GPT Management Ltd (GPT) were the owners of the Bankstown Square Regional Shopping Centre (Centre), as tenants in common in equal shares. The Centre was subject to a number of commercial leases.
GPT granted CPT Custodian, as trustee of the Centro Bankstown Sub Trust No 1, a 300-year lease (Long Lease) in respect of GPT's interest in the Centre, for a lease premium of $175,950,000. The Long Lease was subject to and concurrent with the existing commercial leases. At that time, lease premiums were subject to duty at lease duty rates (0.35%) rather than transfer duty rates (up to 5.5%), which is currently the case.
Separately, GPT and Centro entered into a put-and-call option over GPT's reversionary interest in the Centre. The exercise price was $50,000. On 21 July 2004, GPT exercised its put option and a contract of sale (Contract) for the reversionary interest was executed on the following day.
The Commissioner assessed duty on the Contract on the basis that the Long Lease was to be disregarded in determining the value of the reversionary interest acquired by Centro, pursuant to section 24 of the Duties Act 1997 (NSW) (Duties Act), which increased the duty liability from $765 to over $9.6m.
Centro objected to the assessment, which was disallowed by the Commissioner. Centro subsequently sought review by the Supreme Court of NSW. At first instance, Gzell J held that the Commissioner was not entitled to disregard the Long Lease under section 24. In particular, his honour held that the reversionary interest acquired by Centro was not "transmogrified" by the grant of the Long Lease from other dutiable property it was to acquire; that is, Centro always intended to acquire the worthless reversionary interest and not the full freehold, thus the Long Lease could not be considered to have reduced the value of the reversionary interest.
The Commissioner appealed to the NSW Court of Appeal.
Court of Appeal decision
The Court of Appeal (Sackville AJA, Giles and Macfarlane JJA agreeing) adopted a broader interpretation of the scope of section 24 and allowed the appeal, holding that the Commissioner was entitled to disregard the Long Lease in determining the dutiable value of the interest acquired by Centro under section 24 of the Duties Act.
The Court agreed that, prima facie, the Long Lease was not an encumbrance and could thus be taken into account when determining the dutiable value of the Centre, subject to the application of the specific anti-avoidance provisions in section 24.
In respect of section 24(1), the Court held that no contemporanity is required between the dutiable transaction and the interest/transaction that reduces the dutiable value - it is sufficient that the other interest/transaction is "in respect of" the dutiable property. The Court construed the term "in respect of" broadly and held that the grant of the Long Lease was "in respect of" the reversionary interest acquired by Centro since the very grant of the lease defined and delimited the freehold estate subject to that interest.
In addition, the Court held that section 24(1) requires only a comparison of the dutiable value of the dutiable property on the assumption that the relevant interest had never been granted. It does not require consideration of the "alternate postulate"; ie a hypothetical scenario of what would have happened if the relevant interest was not granted. Since the Long Lease had the effect of reducing the dutiable value of the reversionary interest, that was sufficient for section 24(1) to apply.
Section 24(1) was subject to section 24(2), which provides that an interest was not to be disregarded if the Commissioner was satisfied that the interest was not granted for as a part of an arrangement or scheme with a specified collateral purpose. The Court held that this subsection required a comparison of the actual transactions and the "alternate postulate"; ie what would have occurred "but for" the grant of the relevant interest.
A key point raised by the Court of Appeal was that the Contract identified the relevant dutiable property as GPT's freehold interest in the Centre, even though the freehold interest was sold subject to the existing leases (including the Long Lease.) Thus, the Court concluded that, but for the grant of the Long Lease, the freehold estate would have been sold to Centro or another member of the Centro Property Group. Thus, the Court held that there was a reduction in the dutiable value due to the scheme/arrangement.
In addition, the Court held the requisite "collateral purpose" was still present even though the reduction in duty was obtained by a different party (ie CPT Custodian) to the taxpayer (ie Centro). Accordingly, the Court held that the Commissioner was correct not to be satisfied that the arrangement or scheme was not for a collateral purpose of reducing duty otherwise payable on the dutiable transaction.
The Court also held that the Trust Company case was not directly applicable to this case since Trust Company was decided on a previous version of section 24, which was materially different to the current structure and language of section 24.
Impact for taxpayers
The Court of Appeal has adopted a broader interpretation of the scope of section 24 of the Duties compared to that adopted by Gzell J at first instance. The Court's interpretation was based on a detailed and cogent analysis of the specific anti-avoidance rules in section 24 of the Duties Act.
Taxpayers should consider the potential application of section 24 in light of the Court's decision and be aware that transactions or interests that result in a reduction in dutiable value of dutiable property may still be disregarded under section 24, even where different parties obtain the relevant interest and the dutiable property.
In addition, taxpayers will need to be aware of the general anti-avoidance rules in the NSW stamp duty legislation, which was introduced from 1 July 2009.
LAND HOLDER DUTY UPDATE
The decision in Epic Energy was based on the previous land-rich duty provisions in WA, which were replaced with a "landholder duty" regime from 1 July 2008. Landholder duty applies to majority acquisitions (50% or more) in entities that hold land in WA valued at $2 million or more. The key difference from land-rich duty is that the entity's land assets do not need to compromise a certain percentage of its total assets for landholder duty to apply.
In recent years, all Australian states and territories, excluding Victoria and Tasmania, have shifted from a land-rich duty regime to a landholder duty regime. Most recently, Queensland and South Australia adopted a landholder duty regime from 1 July 2011. Key highlights of the recently enacted landholder duty provisions in Queensland and South Australia include:
- No land percentage test – an entity will be a "landholder" provided that it owns land of sufficient value in the relevant state (being $1 million in South Australia and $2 million in Queensland.)
- In South Australia, acquisitions in listed and unlisted companies and also listed and unlisted unit trusts are subject to the landholder duty regime. Queensland is similar, except that unlisted trusts are excluded from the landholder duty regime - the existing transfer duty provisions that apply to dealings in unlisted unit trusts that own dutiable property in Queensland will continue to apply.
- For listed landholders, an acquisition of 90% or more will trigger landholder duty.
- For listed landholders, an acquisition of 90% or more will trigger landholder duty. However, the amount of duty is reduced to 10% of the duty payable for acquisitions in unlisted landholders.
- In Queensland, landholder duty is levied on the unencumbered value of the landholder's land assets located in Queensland, multiplied by the proportional interest acquired in the landholder.
- In South Australia, if landholder duty applies, it will be levied on the unencumbered value of the landholder's land assets and goods/chattels located in SA, multiplied by the proportional interest acquired in the landholder.
- The definition of land has been expanded in respect of fixtures, especially in SA, to include any item fixed to land, even if not a fixture at law or legally separate to the land under another law. For example, it is common for infrastructure legislation to statutorily sever fixtures from the land, so they are owned separately to the land. Thus, the expanded definition aims to bring such assets back into the definition of land for landholder duty purposes.
- In a recent Public Ruling - DA167.1.1, the Queensland Office of State Revenue confirmed that the reference to "anything fixed to the land" in the definition of "land" does not require the item to be a fixture on the land (ie under the common law principles.) Also refer to judgement of McLure P in Epic Energy in respect of items "fixed" to land.
Below is a brief summary of the key thresholds of the current land-rich / landholder duty provisions in Australia (as at 1 July 2011):
|STATE / TERRITORY||LAND VALUE THRESHOLD||ASSET % THRESHOLD||ACQUISITION THRESHOLD||LISTED ENTITIES DUTIABLE?i||GOODS DUTIABLE?|
|ACT||–||–||50% / 20%ii||–||✓|
|VIC||$1 million||60%||50% / 20%||–||–|
The Victorian State Government recently announced in its 2011-2012 State Budget that Victoria will also adopt a landholder duty model from 1 July 2012. A consultation paper in respect of the proposed landholder duty regime was released on 8 September 2011, with key features being:
- Relevant acquisitions in listed companies and unit trusts would be taxable, although the rate of duty would be limited to 10% of the duty payable on private landholders.
- The 60% asset percentage test would be removed.
- The $1 million land ownership threshold would be retained.
- The acquisition thresholds of 50% for companies and 20% for unit trusts would be retained. The acquisition threshold for listed entities would be 90%.
- The definition of "interest" will be updated.
- The definition of "fixtures" will be expanded along the lines of SA and/or QLD.
- The tracing provisions will be updated to apply to listed entities.
- Aggregation rules for "interests" will be updated.
- There will be removal of discretionary relief from landholder duty where not "just and reasonable".
- The landholder duty rules will not apply to goods.
i For listed entities, 90% acquisition is required to trigger landholder duty.
ii Currently, in ACT and Victoria, a 20% acquisition in a "land- rich" unit trust will trigger land-rich duty.
iii Landholder provisions in Qld only apply to corporations and listed unit trusts. Other unit trusts will continue to be subject to the existing transfer duty provisions in Part 8 of Chapter 2 of the Duties Act (Qld).
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