COMMISSIONER OF STATE REVENUE (VIC) v KONANN PTY LTD & ANOR

Judges:
Hansen JA
Tate JA
Robson AJA

Court:
Supreme Court of Victoria, Court of Appeal

MEDIA NEUTRAL CITATION: [2015] VSCA 278

Judgment date: 16 October 2015

Hansen JA

Introduction

1. The Commissioner of State Revenue seeks leave to appeal from the orders of a judge in the Trial Division whereby three assessments issued by the Commissioner of State Revenue ( ' the Commissioner ' ) to Konann Pty Ltd ( ' Konann ' ) were set aside. The assessments were: first, an assessment dated 24 April 2012 issued under the Duties Act 2000 ( ' the Duties Act ' ) for $ 2,143,313.14 (including penalty at 60 per cent) ( ' the Duties Assessment ' ), and, secondly, two assessments issued under the Land Tax Act 2005 ( ' the Land Tax Act ' ) dated 21 September 2012 for $ 267,637.50 and 1 February 2013 for $ 610,132.50 respectively ( ' the Land Tax Assessments ' ).

2. As will be seen, the Commissioner ' s decision to issue the Duties Assessment was based upon an instrument of transfer of the land the subject of the assessments, by brothers Peter Everett White ( ' Peter White ' ) and Garry Richard White ( ' Garry White ' ), to Konann on 7 July 2006, and an associated statutory declaration made by Peter White on 30 August 2006, considered in the light of other evidence.

3.

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The land comprises some 200 acres situated at 805 Berwick-Cranbourne Road, Cranbourne North. The property is called Tulliallan, and is hereafter referred to as ' the land ' or ' Tulliallan ' . The established use of the land is for primary production. At all material times that activity was conducted by Annacott Pty Ltd ( ' Annacott ' ).

4. Initially, the Commissioner treated the 7 July 2006 transfer as exempt from duty under s 33(3) of the Duties Act. Subsequently, other evidence led the Commissioner to the view that the transfer was not entitled to exemption from duty, and the Duties Assessment was issued accordingly, to correct the apparent error. The question is whether, in the light of the relevant facts and circumstances - to which reference is made below - the transfer was exempt from duty.

5. The understanding of the facts concerning the Duties Assessment is important in the consideration of the Land Tax Assessments. These assessments concern the question whether the exemption from land tax in s 67(2)(b) of the Land Tax Act is applicable. The central question is whether the exemption is engaged in the circumstances which include that Annacott carried on the business of primary production on the land.

Reference to VCAT

6. Konann lodged written objections to the assessments including the grounds thereof as required by s 97(1) of the Taxation Administration Act 1997 ( ' the TAA ' ). The Commissioner having delayed in determining the objections, Konann requested that the matters be referred to the Victorian Civil and Administrative Tribunal ( ' the Tribunal ' ) for review. [1] TAA s 106(1)(b). On such a review the Tribunal may ' confirm, reduce, increase or vary the assessment ' . [2] Ibid s 111(1).

7. Prior to the hearing of the review, Annacott was added as a party to the proceeding. Annacott and Konann had a common interest and were, and continue to be, represented by the same solicitors and counsel. Annacott ' s involvement is explained below.

8. The parties duly filed and served submissions. The Commissioner ' s submissions, entitled ' Respondent ' s Contentions ' , and dated 29 May 2014, constituted the Commissioner ' s reasons for disallowing Konann ' s objections.

Dispositions below

9. The review was heard by Senior Member Davis. He upheld the assessments. As to the Duties Assessment, he confirmed that the land was dutiable at the full rate of duty, varied the penalty from 60 per cent to 40 per cent of the dutiable amount, adjourned the proceeding in relation to the value of the land, and made orders accordingly. [3] Konann v Commissioner of State Revenue (Review and Regulation) [ 2014 ] VCAT 1024 ( ‘ the Tribunal ’ s Reasons ’ ).

10. Konann sought leave to appeal from those orders to a judge in the Trial Division on the following questions of law:

11. The application was heard by Croft J who granted leave, allowed the appeal, set aside the orders of the Tribunal, declared that Annacott was and had at all material times been

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the beneficial owner of the land, set aside each assessment and ordered the Commissioner to pay the costs of Konann and Annacott. [4] Konann v Commissioner of State Revenue [ 2015 ] VSC 23 ( ‘ the Judge ’ s Reasons ’ ).

Appeal to the Court of Appeal

12. Now the Commissioner seeks leave to appeal, and if leave be granted, appeals from the orders of Croft J. The grounds of appeal are pithily stated, yet reflect Croft J ' s conclusions. They state:

13. The Commissioner seeks the setting aside of Croft J ' s orders and in lieu thereof an order that the application for leave to appeal, or the appeal, from the Tribunal to his Honour be dismissed with costs.

Facts

14. The primary facts are referred to in the judgments below and in an agreed summary provided for the present application, and are not in dispute. The following is drawn from those sources.

15. In 1973 a discretionary trust called the Peter White Family Trust ( ' the PWFT ' ) was established for the benefit of Peter White ' s family. The trustees were Peter and Garry White.

16. Annacott was incorporated in May 1994, shortly after which it was acquired by Peter White to act as a corporate beneficiary of the PWFT.

17. On 1 August 1994 Peter White signed a contract for the purchase of Tulliallan for $ 3 million. The contract provided that the purchaser was ' Peter White and/or nominee ' .

18. On 5 September 1994 Peter White sent a handwritten note to his conveyancing solicitor, Mr L Donaldson ( ' Donaldson ' ), in which he gave the following instructions in relation to the conveyance of Tulliallan:

Confirming purchaser Peter White Family Trust. Confirming trustees PE White and GR White.

19. On 8 September 1994 the trustees of the PWFT received legal advice from counsel which confirmed that they had power under the trust deed to make distributions to a corporation (such as Annacott) all of the shares in which were held by primary beneficiaries of the PWFT. This was for the purpose of Annacott purchasing the land.

20. On 14 September 1994, Peter White and Garry White made a Declaration of Trust by which they declared that they held the land on trust for Annacott. It is to be noted that the Tribunal did not allow an unstamped copy of this Declaration of Trust to be admitted into evidence.

21. On 26 September 1994, Peter White signed a Sale of Real Estate Nomination Form ( ' the Nomination ' ) by which he nominated himself and Garry White as purchasers of the land. The Nomination did not state expressly the capacity in which Peter and Garry White were nominated as purchasers, in particular as to whether it was in the capacity of trustees for Annacott or as trustees for the PWFT.

22. Settlement of the purchase occurred on 2 November 1994, and Peter and Garry White were registered as joint proprietors for the land on 8 November 1994. Donaldson wrote to Peter White confirming registration of ' the Transfer by which you and Garry as Trustees of the [ PWFT ] have purchased " Tulliallan " ' .

23. The Tribunal found - and it is not challenged - that Annacott paid the purchase price for the land from distributions and loans

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from the PWFT. The Tribunal further found that Peter and Garry White held the land on resulting trust for Annacott. Annacott also expended monies on improvements to the land and, as mentioned earlier, conducted a farming business on the land.

24. On 12 October 1998, Peter and Garry White retired as trustees of the PWFT and were replaced by Konann. Title to the land remained registered in the names of Peter and Garry White.

25. In May 2004, Garry White became ill and requested his name be removed from the title to the land. This led Peter and Garry White to seek to resign as trustees and to be removed as registered proprietors of the land. Around this time Donaldson was informed by Peter White that he and Garry ' are trustees [ of the land ] for Annacott … the purchaser of Tulliallan not the [ PWFT ] . Why did you conclude property in the name of [ PWFT ] ? '

26. In November 2004, Donaldson prepared a transfer of land by which the land was transferred from Peter and Garry White to Annacott pursuant to its ' Entitlement in Equity ' ( ' the 2004 Annacott transfer ' ). In a related statutory declaration made on 25 November 2004 Peter White referred to the Declaration of Trust made 14 September 1994 by which it was ' agreed and evidenced ' that the land was purchased by Peter and Garry White as trustees for Annacott ' as the beneficial owner of the Land, and on whose behalf the Transferors [ Peter and Garry White ] would subsequently hold the Land only as proprietors of the legal estate ' .

27. The transfer and statutory declaration were lodged with the State Revenue Office with accompanying documents on 2 December 2004.

28. On 21 January 2005, the State Revenue Office wrote to Donaldson requesting specified kinds of documentary evidence to show that Annacott was the ' real purchaser ' of the land. Ultimately, on 27 February 2006, Donaldson informed the State Revenue Office that its evidentiary requirements could not be met, and asked that the 2004 Annacott transfer be impounded. That is, the land should remain registered in the name of Peter and Garry White. The State Revenue Office agreed to impound the transfer and associated documents pursuant to s 275 of the Duties Act.

29. Subsequently, Donaldson advised Peter White that the land was ' deemed ' by law to be an asset of - that is, held in trust for - the PWFT. After receiving that advice, Peter White informed Donaldson that the trustee of the PWFT was Konann and that ' [ t ] he title should be in this name ' .

30. On 30 June 2006, Peter White, as the sole director of Konann, signed resolutions that Konann would assume trusteeship of the PWFT, and execute a transfer of the land to secure registration of Konann as registered proprietor and rated owner of Tulliallan in its capacity as trustee of the PWFT.

31. On 7 July 2006:

32. On 30 August 2006, Peter White made a declaration for duty purposes stating that the transfer had arisen ' solely as the result of the appointment of Konann as trustee of ' the PWFT, and that -

33. Relying upon the statutory declaration, the Commissioner stamped the transfer to Konann as ' exempt from duty ' on 4 September 2006. The transfer was registered on 7 September 2006.

34. Peter White gave evidence that the 2006 Konann transfer was not intended to transfer the beneficial interest of the land to Konann or otherwise affect the beneficial interest in the land. His evidence as to the reasons for the 2006 Konann transfer was that he and Garry White ' no longer wished to be registered proprietors and trustees of the property and wanted a new trustee to hold the property in place of us ' , and that ' the steps that Garry and I took in transferring the title to Konann were taken only in order to change the trustees of Tulliallan without affecting the beneficial ownership of the property ' .

35. In 2009 the State Revenue Office commenced a duty and land tax investigation. On 2 September 2009, in connection with the investigation, Peter White made a statutory declaration in which he stated that it was his belief that he and his brother had held the land for Annacott, that a number of documents, including his statutory declaration of 30 August 2006, were mistaken, and that the 2006 Konann transfer to Konann occurred by mistake, based on mistaken legal advice. Ultimately, the Duties Assessment, by which Konann was assessed for duty on the 2006 Konann transfer and the Land Tax Assessments were issued.

The questions and grounds

36. The questions of law raised before Croft J, and the grounds of appeal raised in this Court, conveniently identify the areas of disputation. It is convenient to make some observations concerning them.

37. Questions 1 - 5 and grounds 1 - 4 and 6 relate to the Duties Assessment while question 6 and ground 5 relate to the Land Tax Assessments.

38. As to the Duties Assessment grounds, those concerning dutiable value and penalty may be considered separately, each from the other and from the first three grounds which are concerned with the primary question whether the s 33(3) exemption applies. It is only if the exemption does not apply, with the result that the transfer was dutiable, that it is necessary to consider the matters of dutiable value and penalty.

39. It is therefore convenient to deal first with grounds 1 - 3 as their determination will answer whether the exemption applies.

40. Two further points should be clarified. First, it will be noted that ground 1, concerning the indefeasibility of Konann ' s title under the Transfer of Land Act 1958 , is not referred to in the questions of law raised before Croft J. How, then, is it that it comes to be ground 1 in this Court, and, indeed, was presented to us at the forefront of the Commissioner ' s submissions? The answer lies in this. At [ 25 ] of the Commissioner ' s Contentions document which constituted his grounds of disallowance and submissions to the Tribunal, it was stated that ' it is difficult to see how Konann ' s indefeasible Torrens title is vulnerable to any claim capable of giving rise to a resulting or constructive trust ' for Annacott. This was directed to an argument that Konann held the land for Annacott beneficially. During the hearing at the Tribunal the Commissioner abandoned the point. However, during the hearing before Croft J, the Commissioner was permitted to rely upon the point. Croft J rejected the Commissioner ' s contention. [5] Judge ’ s Reasons [ 59 ] .

41. The second point concerns question 3 as to which some of the Tribunal ' s findings of fact were successfully challenged before Croft J. Before this Court the Commissioner challenged only one of Croft J ' s findings which had overturned a finding of the Tribunal.

42. Croft J found that before and after the 2006 Konann transfer the land was held beneficially for Annacott and that the sole reason for the transfer was to change the trustee. The Tribunal had reasoned to the contrary, namely that, objectively considered, the intention had been not merely to change the trustee but also ' to secure the registration of Konann as trustee for PWFT ' . [6] Tribunal ’ s Reasons [ 72 ] . This meant that the sole purpose test in s 33(3) of the Duties Act was not satisfied, and thus the exemption did not apply. Separately, the Tribunal refused to find what the beneficial ownership was after the 2006 Konann transfer. Croft J held that the Tribunal had erred in these findings and that

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Annacott remained the beneficial owner of the land after the 2006 Konann transfer.

43. Turning now to grounds 1 - 3, it is convenient to commence with ground 3, and to then deal with ground 2 which will establish the factual context in the light of which ground 1 may be considered.

Ground 3: Section 33(3) - Construction

44. Section 33 of the Duties Act provides:

45. Section 10(1) provides that an estate in fee simple is ' dutiable property ' . The 2006 Konann transfer was a transfer of the fee simple interest in the land.

46. The Commissioner submits that for the exemption to apply a transfer must be preceded by a change of trustee. Emphasis is placed on the words ' in order ' in s 33(3)(b) as indicating a temporal requirement of a change of trustee prior to the relevant transfer, here the 2006 Konann transfer. Absent such change, paragraph (b) cannot be satisfied. Hence, as in this case there was not a prior change of trustee, the exemption could not apply.

47. The Tribunal found that the 2006 Konann transfer was not executed ' solely ' because of the change of trustee; therefore s 33(3)(a) was not satisfied. Thus, the question whether paragraph (b) was otherwise satisfied did not arise. [7] Ibid [ 76 ] – [ 77 ] . Nevertheless, in the light of the parties ' arguments the Tribunal proceeded to consider, and made findings as to, whether Konann had made out s 33(3)(b).

48. In that consideration the Tribunal expressed two conclusions.

49. First, to a submission of Konann that following the 2006 Konann transfer it held the legal title to the land as trustee under a pre-existing trust in favour of Annacott, the Tribunal said ' that prior to signing the transfer and at the time thereof, Konann needed to have been trustee for Annacott ' . [8] Ibid [ 81 ] . The Tribunal concluded that there was

not sufficient evidence … to be satisfied that [ at ] a time immediately prior to signing the transfer … Konann was the trustee for Annacott … the objective evidence tends to point the other way. [9] Ibid.

That is, the evidence pointed to Konann being trustee for the PWFT.

50. In so finding as to the construction and operation of s 33(3)(b) the Tribunal relied in particular on the following passage in the judgment of Maxwell ACJ in Commissioner of State Revenue v Lend Lease Funds Management Ltd: [10] (2011) 33 VR 204 .

To satisfy the second limb, the transfer in question must vest the property ' in the trustees for the time being entitled to hold it ' . The phrase ' the trustees for the time being ' can only mean the trustees of the trust in respect of which the relevant ' change of trustees ' has taken place , being the trustee(s) in office after the change. It follows that the exemption cannot have application where a trust is terminated, since in that event there are no ' trustees for the time being entitled ' to the property the subject of the transfer. That the transferee might hold the property on a different trust would not, of course, suffice. [11] Ibid 210 – 11 [ 24 ] (emphasis added).

51. Secondly, and again with reference to the above statement of Maxwell ACJ, the Tribunal stated that the exemption would not apply ' if the transferee held the property on different trusts ' before and after the transfer. [12] Tribunal ’ s Reasons [ 85 ] . This is a different point from the first and is not the issue raised by ground 3. The Tribunal found that such a circumstance would constitute a second reason why s 33(3)(b) would not be enlivened. That would be because, as the Commissioner suggested:

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[ I ] f Annacott was beneficial holder of the land subsequent to the [ 2006 Konann ] transfer, it was beneficial owner of the land pursuant to a different trust as [ that ] prior to the transfer. [13] Ibid [ 88 ] .

The Tribunal said that the prior trust was a resulting ' payment ' trust while the latter was a resulting ' mistaken ' trust. [14] Ibid [ 86 ] , [ 88 ] . However, the Tribunal then went on to say that it was not necessary

to go into the exact nature of the type of resulting trust [ on ] which the property was held subsequent to the transfer. It is sufficient to say that it is clearly a different type of trust to which it was held prior to the transfer. That being the case, and applying what Maxwell ACJ said in the Lend Lease case, that s 33(3)(b) has not been enlivened. Thus the exemption does not apply. [15] Ibid [ 88 ] .

52. Croft J took a different approach. His Honour accepted a submission of Konann that, in broad terms, the Duties Act did not intend to impose duty on transfers that did not involve a change in the beneficial ownership of dutiable property. [16] Judge ’ s Reasons [ 31 ] . His Honour rejected the Tribunal ' s finding that it was necessary for Konann to have become trustee for Annacott at ' a time immediately prior to signing the transfer ' . [17] Ibid [ 60 ] . The terms of s 33(3)(b) contained no foundation for that requirement. Further, Konann ' s contentions as to the proper construction of s 33(3) were supported by the language of the provisions, the clear purpose or object underlying the Duties Act as identified by Konann, and the authorities referred to. [18] Ibid [ 45 ] .

53. Croft J held that it was sufficient to satisfy the causal requirement in s 33(3)(a) that a transfer take place solely because of the retirement of a trustee. The intention to retire motivated or provided the reason for the transfer, even if the requirement was not completed until or upon execution of the transfer. Croft J considered that any other interpretation would ' impose artificial formality in the process of transferring property to a new trustee ' , [19] Ibid [ 41 ] . and an ' artificial and unduly limited approach ' to determining the causation and purpose of any transaction ' . [20] Ibid [ 45 ] . Section 33(3)(b) would be satisfied because the transferee would be entitled to hold the property as a constructive trustee or trustee de son tort for the person beneficially entitled.

54. Further, Croft J determined that it had been critical for the Tribunal to determine whether the land continued to be held for Annacott after the 2006 Konann transfer; wrongly, the Tribunal declined to make a finding on that issue. [21] Ibid [ 44 ] ; Tribunal ’ s Reasons [ 74 ] , [ 76 ] , [ 82 ] , [ 130 ] . Croft J found that, in fact, Konann took title ' subject to the existing trust for Annacott and Annacott was able to enforce the beneficial interest under that trust against [ Konann ] ' . [22] Judge ’ s Reasons [ 58 ] . There was no moment in time in which Konann held the beneficial interest in the land in its own right or on trust for anyone other than Annacott. [23] Ibid [ 60 ] . On this basis, Konann must be regarded as having become trustee for the time being entitled to hold the land immediately upon the 2006 Konann transfer being effected.

55. The point that immediately arises for determination is whether on its proper construction s 33(3) requires as a condition for the engagement of the exemption that there has been, prior to the transfer, a change in the trustee entitled to hold the land. Counsel for the Commissioner submitted that the condition is implied into s 33(3); reading paragraphs (a) and (b) together, the prior change of trustee is the cause of ( ' because of ' ) the transfer which is made ' in order ' to vest title in the trustee already appointed to that office. In the present case, the Commissioner submitted that the change of trustee of the resulting trust in favour of Annacott resulted from the 2006 Konann transfer, not by a prior appointment, and thus not in the order stipulated by the implication contended for.

56. In aid of this submission, and indeed in wider explanation of the exemption, the Commissioner referred to several authorities. These authorities commenced with my judgment in Perpetual Trustee Co Ltd v Commissioner of State Revenue , [24] (2000) 44 ATR 273 ( ‘ Perpetual ’ ). which concerned the construction of the predecessor provision of s 33(3) in the Stamps Act 1958 , and judgments in this Court which have agreed with my observations, Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd [25] (2000) 46 ATR 61 ( ‘ Victoria Gardens ’ ). and Commissioner of State Revenue v Lend Lease Funds Management Ltd ; [26] (2011) 33 VR 204 ( ‘ Lend Lease ’ ). counsel also referred to a further judgment of mine in

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Trust Company of Australia Ltd v Commissioner of State Revenue . [27] (2006) 15 VR 1 .

57. Before referring to passages in Perpetual and Lend Lease that the Commissioner relied on, it is important to record that the Commissioner ' s counsel frankly stated that the Commissioner has not previously argued for the temporal condition now pressed. It is important to bear that in mind when considering statements in Perpetual and Lend Lease which the Commissioner pressed upon us as founding, at least in strong part, the submission.

58. In Perpetual , the exemption from duty was contained in an item in the Third Schedule to the Stamps Act 1958 . The exemption was somewhat differently worded and structured, a critical difference being the phrase ' solely in consequence of ' rather than the present ' solely … because of ' . I said:

In my view the purpose of the exemption is clear. It is to exempt from stamp duty a transfer of real property given in the context of a change of trustee of a pre-existing trust in order to vest the real property of the trust in the name of the trustee for the time being. In such a case the transfer is not given in consequence of a sale or other disposition of the real property for valuable consideration. In such circumstances it would be unreasonable to charge the instrument of transfer to duty. The beneficial interest has not changed. There has been a mere change in the registered proprietor (in a case such as the present which concerns land under the Transfer of Land Act 1958 ) consequent upon and because of the change in the office of trustee and the need for the trust property to be conveyed into the name of the trustee for the time being.

It is also clear why the legislature has considered it appropriate to use the word ' solely ' in conjunction with the words ' in consequence of ' . It aids in the achievement of the purpose. It does that by confining the operation of the exemption to instruments solely of the type described. The Oxford Dictionary includes as meanings of the word ' solely ' : (a) a single person or thing, without any other; without aid or assistance; (b) only, merely, exclusively. In its common understanding in its present context the word ' solely ' in conjunction with the words ' in consequence of ' means that the exemption will apply only if the instruments of transfer were executed in consequence of the change in trustee and in order to vest the real property of the trust in the name of the new trustee and not in consequence of any other factor. The object is to protect the revenue when an instrument of transfer is the consequence of another factor or factors. The use of the word ' solely ' indicates the extent of the legislature ' s concern in that regard. If the word ' solely ' had not been used, the question would merely have been whether the transfers were a consequence of the change of trustee in the sense of it being sequential or following on from it. It would not matter if the transfers were also a consequence of another factor or factors. In my view however this construction, which was contended for by Perpetual, cannot stand in face of the qualifying word ' solely ' . The expression ' solely in consequence of ' requires that for the exemption to apply it must be established, as a matter of fact, that the transfer of real property of the trust was executed only in consequence of a change of trustee and in order to vest the real property of the trust in the name of that new trustee. The consequence is that the legislature has imposed a rigorous test of a factual nature which a taxpayer must surmount for the exemption to apply. [28] Perpetual (2000) 44 ATR 273, 286 – 7 [ 53 ] – [ 54 ] .

59. These passages were referred to with approval in Victoria Gardens and Lend Lease . In his judgment in Lend Lease Maxwell ACJ observed that it was common ground in that case that the change of language in the exemption to ' solely because of ' was immaterial. [29] Lend Lease (2011) 33 VR 204 , 214 [ 43 ] . It is in this context that the Commissioner submitted that ' solely in consequence of ' carried the temporal requirement contended for. As mentioned, this is a new argument. In this circumstance the ' common ground ' in Lend Lease was not, on analysis, common ground in the present case. That was not only because the Commissioner was raising a new point, which naturally required an assessment of the proper interpretation of the exemption, but because the argument was not presented in that way. Rather, and certainly from Konann ' s

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side, it concentrated on the current expression of ' because of ' which had to be understood in context, and in the light of the evident purpose of the exemption.

60. It is important to bear in mind the dominant importance of the language in which the exemption is granted, read in the context of the Duties Act, and considered in the light of the evident policy to save from duty transfers of land made ' solely because of ' a change in trustee. Without overlooking the full terms of s 33(3), that is the nub of it, or the broad policy involved.

61. If upheld, the Commissioner ' s submission could have a curious result. If the true position be that Konann took the transfer as new trustee under a pre-existing trust for Annacott, it might be thought odd if the transfer was dutiable. Why would the legislature have intended such a result? What feature of the facts and circumstances in the present case, apart from the absence of a prior appointment of the new trustee, would have warranted the exclusion of the exemption? The logic, let alone fairness, of that position is not readily discernable. Indeed, the exemption can quite sensibly and readily be applied in such a case, without any damage to the achievement of the substantive purpose of the exemption.

62. Konann submitted that no actual prior change of trustee followed by a subsequent transfer of land is stipulated for; nor is there a textual foundation for this interpretation. Nor was it explained how the Commissioner ' s interpretation advanced the statutory purpose. Konann submitted that the intention to change the trustee to Konann, and the execution of the transfer, satisfied paragraph (a).

63. To read the provision as Konann submits is still to confine its operation to cases of a transfer made solely because of the retirement/appointment of a trustee in order to vest the property in the new trustee, that is, where there is no change to the beneficial ownership of the land. That would accord with the policy to exempt such a transfer from duty. This was the view of construction favoured by Croft J. That view should be accepted. It is not precluded by the express terms, or by necessary intendment, of s 33(3), whether considered alone or in the context of the Duties Act as a whole. Nor should it be regarded as inconsistent with statements in Perpetual and later cases as to the effect of the phrase ' solely in consequence of ' or ' solely because of ' . As mentioned, the present issue has not previously arisen and what has been previously said as to the effect of that expression must be considered in the prior context. Further, the present s 33(3) is in somewhat different terms, and the expression ' because of ' is of sufficient potential in application to include the present case.

64. Accordingly, and in the sense that it intends, ground 3 is rejected.

Ground 2: No basis for a constructive trust

65. Ground 2 attacks as wrong the declaration that Annacott is and has at all material times been the beneficial owner of the land. The declaration was consequent upon Croft J ' s finding. The Commissioner contended that the contrary conclusion of the Tribunal had been correct. It is not necessary to repeat what has already been stated as to the Tribunal ' s reasons. Nor is it necessary to repeat the facts and circumstances mentioned in the chronology set out above.

66. However, a little recapitulation assists. Subsequent to Peter White ' s handwritten instruction to Donaldson referring to the PWFT as purchaser, the Declaration of Trust in favour of Annacott was executed on 14 September 1994. The evidence explains that the declaration was prepared by, and on advice from, Peter White ' s accountant, Mr Lean of Mann Judd Accountants, who, together with another person in his office, witnessed its execution. Donaldson was not involved in and was not aware of that process, and was not informed of the Declaration of Trust until 4 June 2004. Quite simply, he did not know of it. There is nothing sinister in this: Peter White was a very busy person and the information was just not communicated to Donaldson.

67. It is important to make this point as it seems evident that in subsequent events Donaldson ' s mind remained influenced by his initial instruction that the land was purchased for the PWFT. Indeed, the Tribunal found that Donaldson ' assumed matters that he should not have and acted in a way where he should have insisted upon talking to those that set up the company structure around Mr White ' . [30] Tribunal ’ s Reasons [ 103 ] . The

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Tribunal found that ' Mr White has been misled by his legal advisers ' , [31] Ibid [ 105 ] . which must have been a reference to Donaldson.

68. As already mentioned, the Tribunal rejected the tender of a copy of the Declaration of Trust; the Tribunal did so in the exercise of its discretion. That is not challenged. That is because the parties have been prepared to proceed on the basis, which the Tribunal found, that the land was held on a resulting trust for Annacott, at least until the 2006 Konann transfer.

69. A raft of evidence was placed before the Tribunal that went to the question whether, as Konann submitted, the proposition that the land was (ever) held for the PWFT was a mistake, Konann and Annacott contending that the mistake derived from Donaldson having misapprehended that the land was held for the PWFT. The evidence was of two types, broadly speaking, being documentary and Peter White ' s evidence explanatory of the course of events and the intention in relation to the 2006 transfer to Konann. The Declaration of Trust was an important part of this explanation as it showed that from the outset the object of the trust was Annacott.

70. The Tribunal approached the task of ascertaining the fact as to the identity of the true beneficial owner by concentrating on, indeed confining attention to, the words on the face of the documents; so regarded, the objective intention, the Tribunal held, was not just to change the trustee, but also to change the beneficiary. [32] Ibid [ 76 ] . That finding constituted a rejection of Konann ' s case, expressed by Peter White, that the intention was merely to change the trustee with Annacott remaining the beneficial owner.

71. Immediately before making that finding the Tribunal referred to the documents that were relied on for the purpose. [33] Ibid [ 75 ] . The Tribunal commenced with the statement that ' the objective documents going back to 1994 suggest that PWFT was in fact the beneficiary of the property ' ; that included the memorandum of 5 September 1994 from Peter White to Donaldson stating that the property would be in the name of the family trust. There was also a memorandum to counsel on 5 September 1994, and a letter to Peter White from Donaldson following completion of the purchase on 10 November 1994 stating that the Whites were trustees for the PWFT. [34] See Tribunal ’ s Reasons [ 71 ] – [ 75 ] . As to these, it may be interpolated that the Tribunal ignored the Declaration of Trust; it is as though it never existed. The Tribunal continued by noting that Peter White had not objected to Donaldson ' s 1994 letter. Then, the 2004 transfer to Annacott - to ' call in ' any trust - was not proceeded with; as to that, the Tribunal said it was not to the point that that was done on ' wrong legal advice ' , as Peter White stated. [35] Ibid [ 75 ] . In addition, the Tribunal relied on the 2006 Konann transfer and associated documents; these documents ' clearly indicated that the PWFT was to be the beneficiary ' . [36] Ibid [ 72 ] . As to this also, it was ' not to the point ' that Peter White acted on the advice of the lawyer Donaldson. [37] Ibid [ 73 ] . It is important to note that nowhere in this consideration did the Tribunal acknowledge, or take into account as relevant, the observations later made concerning Donaldson referred to at [ 67 ] above.

72. Croft J approached the matter differently. In holding that the land was always held for Annacott, he had regard to the whole of the evidence. That included the Declaration of Trust. However, he proceeded on the basis, which was common ground, that at least up to the 2006 Konann transfer the land was held on a resulting trust for Annacott.

73. His Honour was correct to approach the evidence as he did. As he said, that was consistent with the ' broad inquiry ' required by s 33(3). [38] Judge ’ s Reasons [ 56 ] . See Perpetual (2000) 44 ATR 273 , 287 [ 55 ] , 287 – 8 [ 58 ] (Hansen J); Lend Lease (2011) 33 VR 204 , 217 [ 48 ] , [ 51 ] (Maxwell ACJ). By contrast, the Tribunal ' s approach was narrow and deflected it from an overall consideration of the evidence.

74. Although the Tribunal found that the intention was to change the beneficiary to the PWFT, the Tribunal declined to find for whom the land was held beneficially after the 2006 Konann transfer. Yet this was a fact that went to the core of the issue. It was one thing to find that the intention was to change the beneficiary, but what if the fact was that no such change occurred? The Tribunal suggested that, if the beneficial ownership remained with Annacott, the nature of the trust may have changed. But no ultimate finding was made. That is, the Tribunal did not make a finding as to whether Annacott remained the beneficial owner of the land following the 2006 Konann transfer, and

ATC 17692

whether the land was held on the same trust before and after that transfer.

75. The failure to make these findings was a serious omission, as Croft J considered. [39] Judge ’ s Reasons [ 55 ] . For one thing, if it was the fact that Annacott remained the beneficial owner, was that a relevant consideration in the earlier fact finding exercise? The judge was critical of the Tribunal on this matter, and rightly so. It must be said, however, to be fair to the Tribunal, that the Commissioner had submitted - as he did in this Court - that it was not necessary to make a finding of the beneficial ownership after the 2006 Konann transfer. The Commissioner ' s position was that s 33(3) did not apply even if the 2006 Konann transfer gave rise to a constructive trust between Konann and Annacott. It is evident that the Tribunal was led by this submission to decline to make a finding of the beneficial ownership after the 2006 Konann transfer.

76. Croft J held that in so declining the Tribunal acted on an erroneous assumption that the 2006 Konann transfer would have given rise to a resulting ' mistaken ' trust. In fact, his Honour held, Konann took title to the land subject to the existing trust for Annacott, and Annacott was able to enforce the beneficial interest under the trust against Konann. [40] Ibid [ 58 ] .

77. In concluding Croft J said:

[ I ] t is clear that Annacott remained the beneficial owner of the Land after the 2006 transfer … Having regard to the finding by the Tribunal that Annacott was the beneficial owner of the Land prior to the 2006 transfer … no other factual finding is open on the evidence properly before the Court in the present proceeding. [41] Ibid [ 63 ] .

78. With respect, Croft J was surely correct in these conclusions and findings. When one steps back and regards the evidence overall, it becomes apparent that the intention of Peter and Garry White throughout was that the land be held beneficially for Annacott. Their sole intention in executing the transfer to Konann was to change the trustee, not also to change the beneficial interest. How then did all the difficulty with the aborted 2004 Annacott transfer and the 2006 Konann transfer come about? The answer seems tolerably clear that it was due to a mistaken apprehension of Donaldson that the land was - from its purchase - an asset of the PWFT whereas in truth it was held by Peter and Garry White under a separate express trust in favour of Annacott. That was then the intention and understanding of Peter and Garry White, who also intended that the trust in favour of Annacott continue. It is evident, however, that Donaldson did not so understand the position. That is, he was mistaken as to the identity of the beneficiary of the trust under which the land was held. Donaldson was thus affected in his approach to the transfer in 2004, his advice that the land was an asset of the PWFT and the 2006 Konann transfer. It should be added that evidence was available to support the 2004 Annacott transfer, but it was not advanced.

79. It is important to return to some things that were said by the Tribunal in dealing with the matter of penalty. [42] See [ 67 ] above. These matters were not said by the Tribunal when dealing with the issue as to the beneficial ownership of the land. Doubtless that is because of the way in which, as mentioned, the Tribunal had regard only to certain documents as indicating relevant intention. In dealing with the matter of penalty - and this is referred to below - the Tribunal referred to the failure of Peter White ' s legal and accounting advisers to confer, in the sense of being a matter relevant in explaining how the alleged tax default occurred. The Tribunal also observed, as mentioned below, that while it was wrong to blame Peter White ' s advisers entirely for what had happened, ' it is equally clear that Mr Donaldson for example has assumed matters that he should not have and acted in a way where he should have insisted upon talking to those that set up the company structure around Mr White ' . [43] Tribunal ’ s Reasons [ 103 ] . The Tribunal further referred to Peter White having being misled by his legal advisers.

80. In summary then, the purpose of the 2006 Konann transfer was to change the trustee of the resulting trust in favour of Annacott from Peter and Garry White to Konann. It did not include the purpose of changing the beneficiary, which remained Annacott. For these reasons, and in view of the contention, it was appropriate to make the impugned declaration.

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Ground 4: Dutiable property

81. As mentioned earlier, the finding that the 2006 Konann transfer is exempt from duty means that it is not necessary to consider the matter of the ' dutiable value ' of the land. Indeed, the better course is not to consider it. It is nevertheless appropriate to outline the issues raised: that is, of course, on the premise that the exemption does not apply.

82. The Duties Act provides that an estate in fee simple in land is ' dutiable property ' . [44] Section 10(1)(a)(i). Duty is charged upon a transfer of ' dutiable property ' (a ' dutiable transaction ' ). [45] Duties Act 2000 s 7(1)(a). More particularly, duty is charged on the ' dutiable value ' of the ' dutiable property ' the subject of the ' dutiable transaction ' , [46] Ibid s 18. subject to the concessions and exemptions from duty provided for. Relevantly, the ' dutiable value ' is the ' unencumbered value of the dutiable property ' . [47] Ibid s 20(1)(a) and (b). The ' unencumbered value ' is ' the amount for which the property might reasonably have been sold in the open market … at the time the dutiable transaction occurred - free from any encumbrance to which the property was subject at that time. ' [48] Ibid s 22(1)(b).

83. Annacott submitted to the Tribunal that the dutiable value was nil. That was by reason of taking account of Annacott ' s equitable proprietary interest, enforceable against the holder of the land. The Tribunal rejected the submission, holding that the duty was to be assessed on the full unencumbered value without any reduction on account of Annacott ' s interest.

84. Annacott repeated its submission before Croft J. Although, in view of his finding that the s 33(3) exemption applied, it was not necessary to determine the issue of dutiable value, his Honour did so.

85. Croft J discussed the nature of an equitable interest vis a vis that of a legal owner of land, and referred to authorities, some of which he distinguished, preferring the reasoning in Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue . [49] (2004) 12 VR 351 . His Honour concluded that the valuation had to take account of Annacott ' s equitable interest; it would be ' absurd ' not to - Annacott could call for title. [50] Judge ’ s reasons [ 75 ] . Further, the reference to ' dutiable property ' in s 10(1)(a)(i) should be understood as referring to only the legal estate in fee simple. [51] Ibid [ 75 ] . Further, for the purpose of s 22, the equitable interest of a beneficiary under a trust is not an ' encumbrance ' which must be disregarded when determining market value. Thus it was that Croft J declared that the dutiable value of the land was nil.

86. In this Court the Commissioner submitted that there was a long line of authority that established that the interest of a beneficiary under a trust, although proprietary in nature, does not qualify or diminish the trustee ' s title in nature or value; rather, the trustee has the rights of an absolute owner but is bound to exercise those rights in the interests of the beneficiary. The Commissioner also relied on the following points: that textually, one is valuing the ' estate in fee simple ' (s 10(1)(a)(i)); s 22(1) assumes a sale in the open market between a desirous purchaser and a not unwilling vendor; it is hard to discern a legislative policy behind the construction that would ignore mortgages but consider equitable interests; and the exemptions from duty on transfers between trustees and between trustees and beneficiaries would be unnecessary if the transfer was dutiable at nil value.

87. The question arises whether in the present circumstance this Court should deal with this important issue. On principle, the matter being unnecessary, anything we said would be obiter dicta. Of course that is the position also with Croft J ' s analysis. With respect, the matter is best left for consideration when its resolution is truly necessary.

Ground 1: Indefeasibility

88. Under this ground the Commissioner submitted that the indefeasibility of the title of a registered proprietor of land under s 42(1) of the Transfer of Land Act constituted a complete answer to Konann ' s case that it held the land as constructive trustee for Annacott. On the matter of indefeasibility, counsel referred to Frazer v Walker ; [52] [ 1967 ] 1 AC 569 , 585. Breskvar v Wall ; [53] (1971) 126 CLR 376 , 384 – 5. and Bahr v Nicholay [ No 2 ] . [54] (1988) 164 CLR 604 .

89. The Commissioner submitted before Croft J that the ' in personam ' exception to indefeasibility did not apply. [55] See Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [ 1998 ] 3 VR 133 , 146 – 57. Croft J held that it did, holding that Konann took title ' subject to the existing trust for Annacott ' which was able to enforce its beneficial interest against Konann, [56] Judge ’ s Reasons [ 58 ] . as to which see Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd . [57] [ 1998 ] 3 VR 133 , 146 – 157. Noting that

ATC 17694

Konann was a volunteer who had perpetrated no wrong, and relying on Barnes v Addy principles, [58] Barnes v Addy (1874) LR 9 Ch App 244 . See Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 . the Commissioner submitted on the appeal that the ' in personam ' exception did not apply.

90. It is not to overlook the full extent of the parties ' submissions that the ground may be answered shortly. Annacott ' s beneficial interest in the land derives, not from the application of the principles in Barnes v Addy, but from the pre-existing resulting trust for Annacott whose beneficial interest, following the 2006 Konann transfer, would be protected by equity by means of a resulting or constructive trust. As Croft J pointed out, Konann, as transferee, provided no consideration and had actual or constructive notice - Peter White being the director of each company - of Annacott ' s interest. [59] Judge ’ s Reasons [ 53 ] . It is also to be noted that the case was not put on the basis of a breach of trust; the transfer was motivated by the need to change trustees and the issue arose because the PWFT was mistakenly named as beneficiary.

91. His Honour continued:

Consequently, it is not accurate to suggest [ as the Commissioner has ] that a constructive trust arises only ' as a consequence of the transfer, automatically, in order to preserve the interest of the beneficiary ' . The situation is, for the preceding reasons, more accurately characterised as one in which the existing trust continues and is enforceable against the transferee of trust property. It follows that Annacott is entitled to enforce this trust directly against the plaintiff and not merely through Peter White as the surviving former trustee. It is both unnecessary and contrary to equitable principle to erect a resulting ' trust upon a trust ' between the plaintiff and Peter and Garry White. Additionally, there is no basis for the classification of such a trust as a ' resulting " mistake " trust ' , nor as a ' different type of trust ' . Thus, the 2006 transfer did not involve any change of trust nor any change of beneficial ownership in the Land. Both before and after the 2006 transfer, the Land was held subject to the same trust in favour of Annacott as the beneficial owner. [60] Ibid (citations omitted).

92. Furthermore, it is implicit that Konann acknowledges that it holds the land beneficially for Annacott.

93. For these reasons, his Honour was correct to reject the Commissioner ' s indefeasibility argument.

Ground 5: Section 67 - Construction

94. The question here is whether, on its proper construction and in the light of the relevant facts and circumstances, s 67(1) and (2) of the Land Tax Act operate to exempt the land from land tax. The Tribunal held that the exemption did not apply; Croft J held that it did and set aside the land tax assessment. Section 67 is contained in Part 4 - Exemptions and Concessions in the Land Tax Act. It provides:

95.

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The following sections are to be noted. Section 3 provides that ' trust ' does not include any implied or constructive trust, except where expressly provided.

96. Part 2 - Imposition of Land Tax provides that land tax is imposed each year on taxable land, [61] Land Tax Act s 7. and that the owner of taxable land is liable to pay the tax on that land. [62] Ibid s 8. Provision is then made as to who is the owner of land: relevantly, it is ' a person entitled to land for a freehold estate in possession ' . [63] Ibid s 10(1)(a). In Glenn v Federal Commissioner of Taxation , [64] (1915) 20 CLR 490 . it was held that the expression ' estate of freehold in possession ' in the definition of ' owner ' is s 3 of the Victorian Land Tax Assessment Act 1910 - 1914 referred to a person who had a present right of beneficial enjoyment of the land.

97. It is common ground that the land is in an urban zone in Greater Melbourne. It is also common ground that Annacott used the land solely or primarily for primary production within the definition of that expression in s 64(1).

98. Then, one moves to s 67(2)(b). Annacott submits that it is the ' owner ' of the land and that each element of paragraph (b) is satisfied. Croft J accepted that this was so. His Honour further held that s 67(6)(b) was not engaged because, by reason of the definition of ' trust ' , the expression ' beneficiary of a trust ' does not include a beneficiary of an implied or constructive trust. [65] Judge ’ s Reasons [ 92 ] . (For this purpose an implied trust comprehends a resulting trust.) It is of course on the basis of an implied or constructive trust - and not on the basis of an express trust - that the case has been decided.

99. This would produce the position that the exemption applies, and Croft J so held. The Commissioner, however, submitted that the analysis ignored the registered proprietor, Konann, which is an owner (s 10(1)(a)) and can be assessed as owner including where it is an implied or constructive trustee (ss 46L and 46M). [66] The Commissioner ’ s submission is set out in full at [ 93 ] of the Judge ’ s Reasons. Further, Konann did not engage in primary production. If both Konann and Annacott are to be considered as the ' owner ' , Konann could not be ignored for the purpose of satisfying s 67(2)(b). Each owner had to satisfy the requirements. It was further submitted that the ' owner ' referred to the registered proprietor only.

100. Sections 46L and 46M are contained in div 2B - Land held on implied or constructive trust, contained in pt 3 - Assessment of Land Tax. Section 46L(1) provides that a person who is the owner of the land as trustee of an implied or constructive trust is liable for land tax on the land. Section 46M provides for the trustee ' s right to recoup the amount of tax from the affected trust property. The Commissioner emphasised that other than these provisions the Land Tax Act did not recognise implied or constructive trusts; and that s 67(6)(b) was consistent with that. It was submitted that the Land Tax Act should be read as a whole.

101. The Tribunal agreed with the Commissioner. [67] Tribunal ’ s Reasons [ 125 ] – [ 128 ] . In summary, looking at the Land Tax Act as a whole: apart from ss 46L and 46M, implied or constructive trusts were not recognised; the registered owner of land is liable for land tax; Konann as registered proprietor is, and Annacott as beneficiary is not, the ' owner ' ; and Konann did not conduct primary production; and s 67 did not exempt it from tax.

102. Croft J disagreed. He held that the requirements of s 67 were satisfied, and that ss 46L and 46M were concerned with the assessment of land tax, and had no application on the separate question of exemption. Further, s 67(6)(b) gave rise to an implication that, but for the express exclusion, a beneficiary of a trust can be ' an owner of land ' for the purpose of s 67. And:

As Annacott is not excluded by s 67(6)(b), Annacott remains the ' owner ' of the Land within the meaning of s 10(1)(a) for the purpose of s 67(1)(b) and (2) ' . [68] Judge ’ s Reasons [ 94 ] .

For these reasons, the Tribunal erred in finding that the Land Tax Act made no recognition of implied or constructive trusts and that Annacott was not the owner for the purpose of s 67 exemption.

103. In this Court the Commissioner submitted that these reasons did not deal with his arguments that construed in context the expression ' [ t ] he owner ' in s 67(2) referred to the registered proprietor, and that if there were two owners each had to satisfy the requirements of s 67(2).

104.

ATC 17696

It is, however, clear from the judge ' s reasons that he did not accept the construction argument; the answer was that Annacott came within the defined meaning of ' owner ' for the reasons mentioned earlier. That being so, and Annacott not being excluded by s 67(6)(b), and otherwise satisfying the conditions for the application of the exemption, the exemption applied. There was thus no need to consider the position of Konann. Croft J ' s decision in this respect should be upheld. Ground 5 thus fails.

Ground 6: Penalty

105. As previously mentioned, as the s 33(3) exemption applies, the matter of penalty tax imposed by the Commissioner is not required to be considered. However, it is appropriate to be clear as to the issues. The matter is sufficiently summarised as follows.

106. The TAA provides for the imposition of penalty tax. The amount of penalty tax payable in respect of default is 25 per cent of the tax sum paid. [69] TAA s 30(1). The Commissioner may increase the amount of penalty tax payable to 75 per cent

if the Commissioner is satisfied that the tax default was caused wholly or partly by the intentional disregard by the taxpayer … of a taxation law ' . [70] Ibid s 30(2).

It is further provided that the amount of penalty tax so determined

is to be reduced by 20 % if [ before completion of an investigation into a known or suspected tax default ] the taxpayer voluntarily discloses to the Commissioner, in writing, sufficient information to enable the nature and extent of the default to be determined ' . [71] Ibid s 31(2).

Finally, in circumstances considered appropriate the Commissioner may remit penalty tax by any amount. [72] Ibid s 35.

107. As mentioned earlier, the Commissioner imposed penalty tax at 60 per cent, a reduction from 75 per cent. In advising Konann of the penalty the Commissioner stated in its letter dated 24 April 2012 that ' in providing false and misleading information in order to obtain an exemption, Konann has intentionally disregarded a taxation law. '

108. Before the Tribunal Konann submitted that it had acted bona fide and on legal advice throughout, and had not intentionally disregarded the law. On the other hand, the Commissioner submitted that Peter White ' was prepared at all times to say whatever was necessary in order to avoid stamp duty ' , and in this respect pointed to statutory declarations made on 26 September 1994 and 30 August 2006 made for the purpose of attracting the s 33(3) exemption.

109. After referring to these matters the Tribunal ' s reasons proceeded with some observations concerning the circumstances in which the tax default occurred. In summary, the point of substance was that there was a failure of Peter White ' s ' legal advisers not talking to each other including not talking to Mr White ' s accountant ' . The reason for that may have been ' complete foolishness on the part of ' Peter White in not wishing to spend money. [73] Tribunal ’ s Reasons [ 102 ] . The Tribunal then said:

Taking these matters into account, I think it is wrong to blame Mr White ' s advisers entirely for what has happened. However, it is equally clear that Mr Donaldson for example has assumed matters that he should not have and acted in a way where he should have insisted upon talking to those that set up the company structure around Mr White. [74] Ibid [ 103 ] .

110. In those circumstances, the Tribunal said, ' a considerable penalty should apply ' , and determined that the penalty tax be reduced by 40 per cent. [75] Ibid [ 104 ] .

111. The Tribunal concluded by stating that in the exercise of discretion pursuant to s 35 of the TAA the following matters have been taken into account: ' the dishonesty ' pointed out by the Commissioner and ' the way Mr White has been misled by his legal advisers ' . [76] Ibid [ 105 ] . The combination of those matters led to the reduction in penalty.

112. For reasons that may be briefly stated, Croft J set aside the Tribunal ' s orders. First, the power to increase the amount of penalty tax to 75 per cent was conditioned on the requirement that the Commissioner be satisfied that the tax default was caused wholly or partly by the intentional disregard of the taxpayer. That is, it was a jurisdictional fact. The Tribunal did not expressly find that the tax default was so ' caused ' . Nor, having regard to the seriousness of such a finding was it lightly to be

ATC 17697

inferred as having been made, and Croft J was not prepared to infer such a finding from the Tribunal ' s reasons.

113. Secondly, at their highest, the Tribunal ' s findings as to the failure of Peter White ' s advisers to confer, Peter White ' s related foolishness in not spending money, and Donaldson ' s role, amounted to findings of negligence rather than ' intentional disregard ' .

114. Thirdly, in exercising the discretion to remit penalty tax under s 35 of the TAA, the Tribunal took into account the dishonesty pointed out by the Commissioner. However, the discretion under s 35 only arose after the amount of penalty tax had been determined under s 30. Accordingly, ' this passing reference [ of the Tribunal ] cannot be treated as a finding of the requisite state of satisfaction for the purpose of s 30(2) ' . [77] Judge ’ s Reasons [ 88 ] .

115. Fourthly, the reference to ' dishonesty ' cannot necessarily be equated to the ' the intentional disregard of a taxation law ' .

116. Fifthly, the Commissioner ' s assertion that Peter White was prepared to say whatever was necessary in order to avoid stamp duty, was countered by the consideration that a desire to reduce or avoid liability to duty did not of itself amount to an intentional disregard of a taxation law.

117. Sixthly, the two statutory declarations did not necessarily involve an intentional disregard of a taxation law.

118. In these circumstances, Croft J held the power to increase the amount of penalty tax to 75 per cent did not arise. The Tribunal acted beyond jurisdiction.

119. In this Court the Commissioner complained that, while the Tribunal ' s reasons were not as clearly expressed as they might have been, they should not have been scrutinised with a fine tooth comb. [78] See Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 , 271 – 2, 291. So much may be accepted, but the relevant context is that a finding of ' intentional disregard ' is a serious matter. As to that, we were referred to decisions in the Federal Court of Australia which indicate the seriousness of a finding of intentional disregard. These decisions arose under the Income Tax legislation, in particular the Income Tax Administration Act 1953 (Cth) which provided for the imposition of penalty where a tax shortfall resulted from ' intentional disregard ' of a taxation law. The requirement was considered in Price Street Professional Centre Pty Ltd v Commissioner of Taxation [79] (2007) 66 ATR 1 , 19 [ 43 ] (Collier J) ( ‘ Price ’ ). and Russell v Commissioner of Taxation . [80] [ 2009 ] FCA 1224 , [ 180 ] – [ 182 ] (Logan J) ( ‘ Russell ’ ).

120. In Russell , Logan J said that guidance as to what constitutes ' intentional disregard ' was offered by Collier J in Price where her Honour observed that it

requires, inter alia, an understanding by the taxpayer of the effect of the relevant legislation or regulations, an appreciation by the taxpayer of how that legislation or regulation applies to the circumstances of the taxpayer, and finally, deliberate conduct of the taxpayer so as to flout the [ Act ] or regulations. The legislation treats ' intentional disregard ' differently from, and more seriously than, negligence … or recklessness … [81] Ibid [ 180 ] , citing Price (2007) 66 ATR 1 , 19 [ 43 ] .

121. It is to be noted that the legislation specified gradations of increasing severity of a taxpayer ' s conduct, ' intentional disregard ' being the most serious.

122. While the TAA does not provide for gradations of seriousness, yet, plainly, ' intentional disregard ' is at the highest level, and would properly be understood as Collier J stated. That is consistent with the provision for penalty tax up to 75 per cent. It is also relevant to note the provision in s 61 of the TAA which provides for an offence of tax evasion, thus:

61 Tax evasion

A person must not, by a deliberate act or omission, evade or attempt to evade tax.


Penalty: 1000 penalty units in the case of a body corporate;
  200 penalty units or imprisonment for 2 years or both in any other case.

123. While the present case does not involve that offence, yet a case that satisfies the jurisdictional requirement of ' intentional disregard ' in the TAA must be at risk of constituting the offence. This serves further to reinforce, as Croft J said, that a finding of ' intentional disregard ' ought not be lightly made.

124.

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The Tribunal did not discuss the meaning and operation of the ' intentional disregard ' provision in the TAA, or refer to authority as to that meaning. Nor, in the context of the true meaning of ' intentional disregard ' , did the Tribunal consider how intentional disregard could be found in the light of the facts concerning the professional failure which misled Peter White.

125. The purpose of raising these matters is to emphasise the importance of the issue of penalty, indeed, the potentially high seriousness and consequence of a finding of intentional disregard, and the inadequacy of the Tribunal ' s considerations. Croft J was correct to set aside the Tribunal ' s decision. Accordingly, if it were necessary, ground 6 must fail.

Conclusion

126. For these reasons the Commissioner has failed on each ground. While it is appropriate in the circumstances to grant leave to appeal, the appeal should be dismissed.

Footnotes

[1] TAA s 106(1)(b).
[2] Ibid s 111(1).
[3] Konann v Commissioner of State Revenue (Review and Regulation) [ 2014 ] VCAT 1024 ( ‘ the Tribunal ’ s Reasons ’ ).
[4] Konann v Commissioner of State Revenue [ 2015 ] VSC 23 ( ‘ the Judge ’ s Reasons ’ ).
[5] Judge ’ s Reasons [ 59 ] .
[6] Tribunal ’ s Reasons [ 72 ] .
[7] Ibid [ 76 ] – [ 77 ] .
[8] Ibid [ 81 ] .
[9] Ibid.
[10] (2011) 33 VR 204 .
[11] Ibid 210 – 11 [ 24 ] (emphasis added).
[12] Tribunal ’ s Reasons [ 85 ] .
[13] Ibid [ 88 ] .
[14] Ibid [ 86 ] , [ 88 ] .
[15] Ibid [ 88 ] .
[16] Judge ’ s Reasons [ 31 ] .
[17] Ibid [ 60 ] .
[18] Ibid [ 45 ] .
[19] Ibid [ 41 ] .
[20] Ibid [ 45 ] .
[21] Ibid [ 44 ] ; Tribunal ’ s Reasons [ 74 ] , [ 76 ] , [ 82 ] , [ 130 ] .
[22] Judge ’ s Reasons [ 58 ] .
[23] Ibid [ 60 ] .
[24] (2000) 44 ATR 273 ( ‘ Perpetual ’ ).
[25] (2000) 46 ATR 61 ( ‘ Victoria Gardens ’ ).
[26] (2011) 33 VR 204 ( ‘ Lend Lease ’ ).
[27] (2006) 15 VR 1 .
[28] Perpetual (2000) 44 ATR 273, 286 – 7 [ 53 ] – [ 54 ] .
[29] Lend Lease (2011) 33 VR 204 , 214 [ 43 ] .
[30] Tribunal ’ s Reasons [ 103 ] .
[31] Ibid [ 105 ] .
[32] Ibid [ 76 ] .
[33] Ibid [ 75 ] .
[34] See Tribunal ’ s Reasons [ 71 ] – [ 75 ] .
[35] Ibid [ 75 ] .
[36] Ibid [ 72 ] .
[37] Ibid [ 73 ] .
[38] Judge ’ s Reasons [ 56 ] . See Perpetual (2000) 44 ATR 273 , 287 [ 55 ] , 287 – 8 [ 58 ] (Hansen J); Lend Lease (2011) 33 VR 204 , 217 [ 48 ] , [ 51 ] (Maxwell ACJ).
[39] Judge ’ s Reasons [ 55 ] .
[40] Ibid [ 58 ] .
[41] Ibid [ 63 ] .
[42] See [ 67 ] above.
[43] Tribunal ’ s Reasons [ 103 ] .
[44] Section 10(1)(a)(i).
[45] Duties Act 2000 s 7(1)(a).
[46] Ibid s 18.
[47] Ibid s 20(1)(a) and (b).
[48] Ibid s 22(1)(b).
[49] (2004) 12 VR 351 .
[50] Judge ’ s reasons [ 75 ] .
[51] Ibid [ 75 ] .
[52] [ 1967 ] 1 AC 569 , 585.
[53] (1971) 126 CLR 376 , 384 – 5.
[54] (1988) 164 CLR 604 .
[55] See Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [ 1998 ] 3 VR 133 , 146 – 57.
[56] Judge ’ s Reasons [ 58 ] .
[57] [ 1998 ] 3 VR 133 , 146 – 157.
[58] Barnes v Addy (1874) LR 9 Ch App 244 . See Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 .
[59] Judge ’ s Reasons [ 53 ] .
[60] Ibid (citations omitted).
[61] Land Tax Act s 7.
[62] Ibid s 8.
[63] Ibid s 10(1)(a).
[64] (1915) 20 CLR 490 .
[65] Judge ’ s Reasons [ 92 ] .
[66] The Commissioner ’ s submission is set out in full at [ 93 ] of the Judge ’ s Reasons.
[67] Tribunal ’ s Reasons [ 125 ] – [ 128 ] .
[68] Judge ’ s Reasons [ 94 ] .
[69] TAA s 30(1).
[70] Ibid s 30(2).
[71] Ibid s 31(2).
[72] Ibid s 35.
[73] Tribunal ’ s Reasons [ 102 ] .
[74] Ibid [ 103 ] .
[75] Ibid [ 104 ] .
[76] Ibid [ 105 ] .
[77] Judge ’ s Reasons [ 88 ] .
[78] See Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 , 271 – 2, 291.
[79] (2007) 66 ATR 1 , 19 [ 43 ] (Collier J) ( ‘ Price ’ ).
[80] [ 2009 ] FCA 1224 , [ 180 ] – [ 182 ] (Logan J) ( ‘ Russell ’ ).
[81] Ibid [ 180 ] , citing Price (2007) 66 ATR 1 , 19 [ 43 ] .

 

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