RE LITTLE AND COMMISSIONER OF STATE REVENUE (VIC)

Members:
GAA Nettle M

Tribunal:
Victorian Administrative Appeals Tribunal

Decision date: 21 December 1995

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GAA Nettle

This is an application to review the disallowance of an objection against the Commissioner's assessment to stamp duty of a transfer of land from GC Properties Pty Ltd to the Applicant, Deborah Jane Little. The Applicant claims that the transfer is exempt from duty by reason of Exemption (10)^[1] Any instrument for the conveyance of real property that is subject to a trust to a beneficiary of the trust, if the beneficiary was a beneficiary when the real property was first vested in a trustee of the trust and the trust was not created by a declaration of trust by the person in whom the real property was vested immediately before it vested in the trustee and the conveyance is— (a) to the beneficiary absolutely; or (b) to that beneficiary, as trustee of another trust of which all the beneficiaries are natural persons who were beneficiaries of that other trust when the real property was first vested in a trustee of the first-mentioned trust— if, when the real property was first conveyed to a trustee of the first-mentioned trust, the conveyance was duly stamped under this Act or was not liable to duty. or Exemption (17)^[2] Any instrument for the conveyance of real property from a nominee or trustee to the person beneficially entitled thereto where such person has contributed the purchase money therefor and a duly stamped conveyance has been executed in respect thereof to such nominee or trustee. under Heading VI of the Third Schedule of the Stamps Act 1958. There is also a subsidiary issue about the application of Exemption (20). The Applicant contends that the property was purchased and held by GC Properties Pty Ltd as bare trustee for her. The Commissioner contends that GC Properties Pty Ltd was beneficially entitled to the property or at least that GC Properties Pty Ltd purchased and held the property principally for the benefit of someone other than the Applicant.

2. The question which I am required to decide is therefore principally one of fact: did GC Properties Pty Ltd hold the property beneficially for the Applicant or did it hold the property beneficially for itself or principally for the benefit of someone other than the Applicant? However, despite the apparent simplicity of that question, and the ease with which the Applicant should have been able to establish the facts of the matter, the hearing has taken the better part of two days and the conduct of the Applicant's case has been anything but productive of clarity.

3. When the hearing began on 8 December 1995, Mr Mowbray, a solicitor who appeared on behalf of the Applicant, announced that in addition to an agreed bundle of documents he intended to adduce evidence in the form of statutory declarations of the Applicant and her former husband. However those declarations were comprised of assertions of an argumentative nature - that it had always been intended that the land should be held by GC Properties Pty Ltd for the Applicant - and made no reference to any of the facts upon which those contentions were presumably thought to be based. Mr Boaden of counsel, who appeared for the Commissioner, therefore objected to the declarations on the basis that they were not in proper form, and also on the basis that neither deponent was available for cross examination, and I upheld his objection on both grounds. In the result, at the end of Mr Mowbray's presentation on the first day of the

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hearing I was little better informed about the facts of the matter than I had been at the outset.

4. Perhaps unwisely I told Mr Mowbray as much, and he then applied to adjourn the further hearing of the matter in order that he might make arrangements to call a number of witnesses. In accordance with his request I adjourned the further hearing of the matter to 18 December 1995 but on the basis that I would entertain sympathetically any application for costs of the adjournment which might later be made by the Commissioner.

The witnesses

5. When the hearing of the matter resumed on 18 December 1995 Mr Mowbray announced that he intended to call only two witnesses: the first was Mr Robert Toth, a solicitor who had previously practised as a member of the firm of Messrs Toth and Gauld, and in that capacity as solicitor both for the Applicant and GC Properties Pty Ltd; and the second was the Applicant's former husband, Mr Graeme Little. Surprisingly, the Applicant was not called to give evidence and, apart from a veiled reference to the disharmony which existed between the Applicant and the Applicant's former husband, no explanation of her absence was forthcoming.

6. Mr Toth appeared not to have had much time in which to consider the evidence he was to give. He deposed that the Applicant and her former husband had separated in November 1990, and at that time consent orders were made by the Family Court for the payment by the husband to the Applicant of a sum of $100,000, and he deposed that so far as he knew that $100,000 had been paid. He also said that discussions later continued between the Applicant and her husband with a view to reaching agreement for the husband to confer some additional benefit on the Applicant. But Mr Toth said his knowledge of those discussions was imperfect and that such knowledge as he possessed was derived only from what he had been told about the discussions by the Applicant. Mr Toth expressed the view that some sort of arrangement was ultimately reached, and his recollection was to an extent confirmed by the documentary evidence with which I will later come, but Mr Toth was unable to say when that arrangement reached its final form and he said that so far as he knew it may not have reached its final form until some time after GC Properties Pty Ltd had acquired the property.

7. The evidence given by Mr Little was little more illuminating. He gave evidence confirming that he had separated from his wife in November 1990 and that the Family Court orders had been carried into effect. He also recounted how he had thereafter entered into protracted negotiations with the Applicant with a view to inducing her to return to Melbourne from her family home in Balranald, New South Wales, and he said that he had done so in order that he might more conveniently have access to the children of the marriage. He deposed that as a result of the negotiations with the Applicant he had ultimately agreed to provide funds for the purchase of a home in Melbourne for the Applicant and the children of the marriage, and he said that whilst he had begun by proposing an arrangement under which he would have been able to exercise a degree of control over that property, he was progressively worn down by the Applicant's demands to the point where, to use his words, he ``went to water'' on almost every point. Like Mr Toth, however, the Applicant's recollection of times and details was considerably less than perfect. He may have done his best to remember the facts so far as he could, but he was unable to recall any more than some of the details. He did not have a precise recollection of the timing of events and he had no apparent recollection of mechanics ultimately employed to effect the purchase of the property by GC Properties Pty Ltd and its later transfer to the Applicant. He made clear that he had been worn down to the point where he agreed to fund $300,000 of the total purchase price of $350,000, on condition that the Applicant would fund the remaining $50,000 (whereas previously he had proposed that he would fund $250,000 of the purchase price and that the Applicant would fund the remaining $100,000) and he inclined to the view that he made the last move, from $250,000 to $300,000, either on the day of settlement or perhaps one or two days before settlement on 10 September 1992. But further than that he could not go.

The documentary evidence

8. The documents which were tendered in the course of the hearing included the agreed bundle to which I have already referred, some further documents tendered by Mr Mowbray in the course of examination of the witnesses and a copy of a letter from Mr Mowbray to Mr Little dated 10 July 1992, a copy of which was

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produced by Mr Toth at my request. The following emerges from them.

9. On 10 October 1991 the Applicant's husband sent by fax to the Applicant a document headed ``Outline Proposal'', as follows:

``To assist in your move back to Melbourne, I would be prepared to facilitate the following:

• 1. ACQUISITION OF HOME
  • • Greenchip [a company controlled by the husband] would provide funding up to $250,000 including costs of acquisition.
  • • DS [the Applicant] would pay small rent to Greenship which would be offset by additional maintenance payment by LG to DS.
  • • Combined with existing $100,000 paid to DS, a substantial home should be acquired.
  • • Greenchip to cover rates/taxes/maintenance unless DS has another partner.
  • • House would be held on trust for DS 50%; AL 25%; CL 25% [AL and CL are the children of the Applicant and her husband].
  • • Legal transfer after say 5 years.
  • • Cost of Greenship borne by GL's share of business.
• 2. CAR
  • • Greenchip would leave vehicle up to value of $30,000 plus cover maintenance, insurance.''

10. I infer that the Applicant sought Mr Toth's advice on the proposal, because on 15 November 1991 Mr Toth wrote to the Applicant as follows:

``We refer to our recent discussion and to the proposal outlined by Graeme [Mr Little] and make the following comments which we trust will be of assistance to you:-

• 1. The proposal whereby the properties are to be placed in the name of the company gives you no direct benefit because if the company faces difficulties in the future, the property would be an asset of the company which creditors would be able to attempt to recover against.
• 2. The proposal means that although you have an ultimate beneficial entitlement of 50%, whilst the property is in the name of the company you would, of course, be unable to deal with the property to further mortgage the property or seek any loans against the value of the property and generally deal with it as if it were your own.

  If the matter were to proceed we would suggest that a formal declaration of trust be executed whereby the company declares it holds the property purely in its capacity as a trustee for the ultimate beneficiaries and that declaration of trust should then be lodged with the Registrar of Titles, pursuant to Section 33 of the Transfer of Land Act . This would not affect the Title as the registered proprietor would still be seen to be Greenchip Pty Ltd, however, registering the declaration of trust gives you some security as the ultimate beneficiaries and restricts the company from dealing the property in any way adverse to the interests of beneficiaries.

We firmly believe that the settlement already put into effect as a result of which you received $100,000 for your interest in the matrimonial home should not in any part be part of this additional proposal.

In respect to the review of reopening of property matters by reason of your husband's `windfall', we note that the court has power by Section 79A to vary or set aside Orders made by the Court. On such review by reason of a recent decision of the High Court, in the matter of Harris v Caladine it was held that the Court could take into account all relevant factors in respect to property matters between as result of which a Court may make an alteration of property different to that agreed to between the parties. However, there is no guarantee that despite the windfall (depending upon the circumstances of the windfall) that you would require additional information from your husband to be able to determine whether there would be any benefit in reopening matters as to property between your and the cost of making such enquiries and investigations would, of course, be substantial.

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In our view, provided the legal transfer of the title to you would be within a reasonable period of say two years and provided within that time the Declaration of trust was registered with the Registrar of Titles to protect your interest under the trust. We believe you should accept the proposal.

As indicated, the alternative more direct benefit would be to purchase the property in your name and you could declare a trust on the basis of holding a 50% share in the property for the children.

We note however you would not wish to be made liable as a Mortgagor on any mortgage loan which may be taken out by your Husband to finance the purchase of the property, particularly in circumstances where the payment of the loan may be made by his company.

We trust the above information is of assistance to you. If you wish to discuss any aspect of the matters raised in more detail, please do not hesitate to contact Mr Toth of our office.''

11. I also infer that the Applicant spoke to Mr Little about that letter, because on 13 May 1992 GCW Holdings Pty Ltd, a company controlled by Mr Little, entered into a contract to purchase the property at a price of $350,000 and, according to minutes of meeting of directors of GCW Holdings Pty Ltd which were tendered without objection, it was resolved by the directors on 11 May 1992 that GCW Holdings Pty Ltd enter into the contracts on 11 May 1992 that GCW Holdings Pty Ltd enter into the contract of sale expressly on behalf of the Applicant and that GCW Holdings Pty Ltd or its nominee deal with the property on such terms as the Applicant may from time to time specify.

12. If the matter had stopped at that point it may have seemed that, consistently with Mr Toth's advice, the Applicant had insisted on a property being acquired for her benefit and that, in accordance with her wishes, her husband had arranged for that to be done through GCW Holdings Pty Ltd. But the matter did not rest there, because on 10 July 1992 Mr Mowbray, who appears then to be acting for the Applicant's husband, wrote to the husband as follows:

``Instructions have been received to advise in the following circumstances:

The taxpayer (`the taxpayer') has agreed with his estranged wife (`the wife') that he will make accommodation available to her on the following basis:

• (i) A property (`the property') will be purchased for a consideration of $350,000.
• (ii) The taxpayer will provide finance of $250,000 towards the purchase price of the property. The company will not provide the property as security in obtaining this loan.
• (iii) The wife will provide $100,000 towards the purchase price. This may be provided directly by the wife or indirectly through an entity controlled by the wife.
• (iv) The property will be transferred to the wife when the taxpayer has paid out his debt of $250,000.

The parties desire to secure the maximum taxation advantages for the taxpayer while ensuring that the wife's security is not jeopardised.

The writer has suggested that the following approach might be considered in relation to this matter.

• 1. The property will be purchased through a company or a trust (collectively referred to as `the company') controlled by the taxpayer.
• 2. A lease of the property will be granted by the company to the wife for a period of say, 999 years. This lease will be registered on the title in priority to any other interests.
• 3. The wife or an entity under the wife's control will lend $100,000 to the company secured by a registered mortgage over the property. The lender will not have recourse to any asset of the borrower other than the property.
• 4. The wife will pay rent to the company under the terms of the lease. This rent will be deducted annually from the loan made to the company. Where the loan has been made by an entity under the wife's control a portion of the loan will annually be repaid to enable the wife to make the rental payment.

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As a consequence of the foregoing:

• 1. The wife's interest in the property is secured in 2 respects:
  • (i) She personally holds the possessory interest in the property under the terms of the lease.
  • (ii) The mortgage secures the reversionary interest to her or the entity through which she has made the loan, in priority to all other possible claimants.
• 2. The company will be able to claim as an allowable deduction all interest costs incurred with respect to the borrowing of the $250.00 [sic] as the property is an income producing asset.
• 3. In due course the property may be transferred to the wife or at her direction. As a result of the longterm lease, the value of the property would be expected to be less than the cost base.

  Accordingly, upon transfer at market value, the company will incur a capital loss of the difference between the nominal costs base of the property and the consideration received.

  The non-recourse nature of the loan made by the wife or the entity under her control ensures that the remaining assets of the company are free from claim.

Please consider whether the foregoing meets the requirements of both parties to the transaction. In the event that you wish to clarify any aspects of the transaction further please contact the writer at your convenience.''

13. Following Mr Mowbray's letter of advice of 10 July 1992, on 10 August 1992 GCW Holdings Pty Ltd nominated GC Properties Pty Ltd, another company controlled by Mr Little, as a substitute purchaser under the contract of sale ``to take a transfer or conveyance in lieu of the Purchaser'' and according to minutes of meeting of directors of GC Properties Pty Ltd held on 13 August 1992 it was resolved that GC Properties Pty Ltd enter into the contract as ``nominee'' for the Applicant.

14. Mr Mowbray's letter of 10 July 1992 seems also to have been communicated to the Applicant, because on 9 September 1992, the day before the contract of sale was due to settle, Mr Toth wrote the Application's husband as follows:

``We confirm that Debbie will be providing a bank cheque in the sum of $50,000.00 for settlement on Thursday at 11.30am.

We confirm Debbie is agreeable to the arrangement as set out in the letter of Mr Mowbray dated the 10th July, 1992 on the understanding that the property shall be transferred to her as at the 31st December, 1994 at which time the balance of $50,000.00 shall be secured against the property which is to be repaid by Debbie without interest in the event of her at any time selling the property.

To enable us to effect settlement tomorrow and to lodge the relevant documentation, please provide us with the following bank cheques :-

• 1. $264,552.13 payable to the ANZ Bank.
• 2. $17,200.00 payable to the State Revenue Office.
• 3. $1,049.00 payable to Titles Office (lodging fees).

We also require your part of the Contract of Sale which we forwarded to you on the 12th June, 1992.

We would be grateful if you could confirm the above arrangements in writing and instruct Mr Mowbray to prepare the necessary Lease, Mortgage and, if appropriate, Terms Contract.

To formalise the transaction we shall prepare additional Consent Orders for filing with the Family Court to clearly evidence the arrangement and which may assist in respect to the imposition of Stamp Duty at the time the property is transferred to her.''

(Emphasis added.)

15. On the following day, the Applicant paid $50,000 the Messrs Toth and Gauld to be applied towards the purchase price of the property and a further $300,000 was provided by GC Properties Pty Ltd out of funds advanced by that company to Mr Little and lent back by Mr Little to the company expressly for the purposes of the purchase.

16. Contrary to the suggestion made in Mr Toth's letter of 9 September 1992 no lease, mortgage or terms contract appears ever to have

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been brought into existence and no further consent orders were ever filed with the Family Court. But on 15 January 1993 the Applicant lodged a caveat on title to the property claiming an estate in fee simple ``as beneficiary pursuant to a resulting trust'' and on 26 April 1993 Mr Toth wrote in response to a requisition from the Registrar of Titles that the Applicant claimed her interest in the property as arising from her contribution to the acquisition of the property and from "the intention of the Proprietor that the Caveator ultimately become the sole beneficiary of the property". (Emphasis added.) Finally, on 30 May 1994 the property was transferred to the Applicant.

The basis of acquisition

17. Mr Little was asked a number of times during the course of his evidence, both by counsel for the Commissioner and by me, why the purchasing vehicle was changed from GCW Holdings Pty Ltd to GC Properties Pty Ltd, but he gave no satisfactory answer. He made a suggestion at one point that the change was undertaken in order to shield the property from the creditors of GCW Holdings Pty Ltd, but he expressed no sense of conviction about the accuracy of that suggestion and it seemed less than likely given other evidence that GCW Holdings Pty Ltd was the holding company for the group and thus of GC Properties Pty Ltd.

18. I am therefore left in a state of some uncertainty as to what the change was intended to achieve and, in particular, whether GC Properties Pty Ltd did acquire the land as trustee for the Applicant or alternatively for itself or on behalf of some other person. Unfortunately, nothing said by Mr Toth or Mr Little helps to resolve that problem. The thrust of the evidence given by both witnesses was that the Applicant ultimately obtained the beneficial interest in the property. But neither of them was able to say, or to point to any fact or document which makes clear, that the property was acquired for the benefit of the Applicant as opposed to being acquired by GC Properties Pty Ltd for itself and later transferred to the Applicant in accordance with some broader arrangement.

19. In those circumstances I place principal reliance on the documentary evidence, and on the basis of the documentary evidence I am inclined to think that, although the original intention was that GCW Holdings Pty Ltd acquire the property as trustee for the Applicant (as is evidenced by the minutes of meeting of 11 May 1992), it later became the objective of the Applicant's husband (as is evidenced by the transmission to the Applicant of Mr Mowbray's letter of 10 July 1992) that the property be acquired by GC Properties Pty Ltd for itself, using funds lent to it by the Applicant and her husband, and so that GC Properties Pty Ltd could claim as an income tax deduction the costs of borrowing those funds and, by the creation of a lease in favour of the Applicant, reduce any capital tax payable on a subsequent disposal of the property. I am also inclined to think that that became the objective of the Applicant, and largely the basis on which the transaction was finally structured (as is evidenced by Mr Toth's letter of 9 September 1992 and by evidence given by Mr Toth that when the contract of sale was settle on 10 September 1992 he believed that it was upon the basis set out in his letter of 9 September 1992). Mr Toth's letter to the Registrar of Titles goes some way to confirm that.

20. I appreciate that view of the matter may appear to be inconsistent with the minutes of meeting of the directors of GC Properties Pty Ltd of 13 August 1992, because of the resolution recorded in those minutes that GC Properties Pty Ltd acquire the property as nominee for the Applicant. But I am not convinced that the expression ``nominee'' was intended to convey that GC Properties Pty Ltd hold the property as trustee for the Applicant and, as I have said already, I take the view that even if at one time there were an intention on the part of the GC Properties Pty Ltd to acquire the property on trust for the Applicant, that intention was displaced by a subsequent arrangement evidenced by the acceptance by Mr Toth's letter of 9 September 1992 of the proposal outlined in Mr Mowbray's letter of 10 July 1992, that GC Properties Pty Ltd would purchase the land in its own right using loans from the Applicant and her husband in order that the company might both claim a deduction for the costs of borrowing and minimise capital gains tax liability attaching to any subsequent disposal.

21. The thought that GC Properties Pty Ltd acquired the property beneficially may also appear to be inconsistent with a statutory declaration of John Madgwick, a chartered accountant, in which it was deposed that:

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``At no time did the company (scil. GC Properties Pty Ltd) claim any beneficial interest in the property as evidence (sic.) by the accounts dated 1993/4, a copy of which in annexed to and referred to as `Annexure B'.''

and with the accounts annexed as ``Annexure B'' including a balance sheet as at 30 June 1994 of GC Properties Pty Ltd as trustee for the GC Properties trust in which no reference is made to property. But even if full weight is given to Mr Madgwick's declaration, I think that whether or not the company at any time claimed a beneficial interest is not determinative of the question of whether the company had a beneficial interest and that the balance sheet as at 30 June 1994 would not be expected to include any reference to the subject property, because by 30 June 1994 the property had been transferred to the Applicant. It is also unclear that the only assets ever held by GC Properties Pty Ltd were those which it held as trustee for the GC Properties trust and the fact that Mr Madgwick was not available for cross examination means that the position remains uncertain.

22. In the result it seems to me that what most probably happened is that the property was purchased by GC Properties Pty Ltd for itself, using loans made to it by the Applicant, in the amount of $50,000, and by the Applicant's husband, in the amount of $300,000, and on terms or on the basis of an understanding that on or before 31 December 1994 GC Properties Pty Ltd would transfer the property to the Applicant free of charge other than for an obligation on her part to pay $50,000 to GC Properties Pty Ltd in the event in that she ever re-sold the property.

Exemptions (10) and (17)

23. If the property were acquired on that basis, the arrangement might possibly have had the effect of creating an equity in favour of the Applicant, in the sense that an agreement of GC Properties Pty Ltd to transfer the property to the Applicant on or before 31 December 1994 may have been susceptible to an order for specific performance: see
Bahr v Nicolay [No 2] (1988) 164 CLR 604 at pp. 612 and 645-646. But I doubt that the arrangement imposed on G & C Properties Pty Ltd a binding obligation to transfer the property to the Applicant and, even if it did, the arrangement would not have constituted GC Properties as trustee of the property for the Applicant, other than in the qualified sense that an unpaid vendor under a contract of sale is regarded as a trustee: see
Chang v Registrar of Titles (1976) 137 CLR 177 at pp. 184-185 and at pp. 189-190. Moreover, any equity in favour of the Applicant could not have matured into a full beneficial interest, with GC Properties Pty Ltd holding as bare trustee, so long as GC Properties Pty Ltd's obligation to transfer the property to the Applicant remained subject to an unfulfilled condition:
McWilliams v McWilliams Wines Pty Ltd (1964) 114 CLR 656 at p. 661;
Brown v Heffer (1967) 116 CLR 344 at pp. 349-350. And as I read Mr Mowbray's letter of 10 July 1992, and the acceptance of most of its terms by Mr Toth's letter of 9 September 1992, any obligation imposed on GC Properties Pty Ltd was subject to an unfulfilled condition that the Applicant first enter into a lease of the property for 999 years.

24. It follows, in my view, that neither Exemption (10) nor Exemption (17) has been shown to be applicable. Either the property was acquired on the basis which I have outlined, in which case I consider that neither exemption would apply, or alternatively it was acquired on some other basis, about which I am uncertain, and in those circumstances I cannot say whether either exemption does apply.

Exemption (20)

25. That leaves the question of Exemption (20)^[3] Any instrument for the conveyance of real property from one person to another person, from two persons to one of those persons or from one person to himself and another person where— (a) both the persons are married to each other; or (b) both the persons have been married to each other and the Comptroller of Stamps is satisfied that the instrument was made by reason of the breakdown of the marriage; or (c) the persons are a man and a woman who— (i) are living together on a permanent and bona fide domestic basis; or (ii) have been living together on such a basis and the Comptroller of Stamps is satisfied that the instrument was made by a reason of the breakdown of the relationship— and no other person takes or is entitled to take an interest in the property in pursuance of the instrument. , which was raised by Mr Mowbray for the first time on the second day of the hearing (even though he had said on the first day of the hearing that it was no part of his case that Mr Little ever had any beneficial interest in the property). As the submission on Exemption (20) was formulated it was that even if Exemptions (10) and (17) were found to be inapplicable, it should be held that Exemption (20) was applicable, because the arrangements which were made were made by reason of the breakdown of the marriage between the Applicant and her former husband.

26. If the application of Exemption (20) depended solely upon being satisfied that the arrangements which were made were the result of marital breakdown there would be reason to think that the exemption was applicable. However, because I take the view that the land was most probably acquired by GC Properties Pty Ltd as beneficial owner, I consider that there is no room for the application of

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Exemption (20). I had reason to deal with Exemption (20) in
Re McClelland and Comptroller of Stamps (1989) 3 VAR 403 at pp. 410-411. I reached the view there that in order that a transfer come within Exemption (20) it must be a transfer which has the effect of transferring an interest in property from one party to a marriage (existing or past) to the other. Mr Mowbray made no submission to the contrary. If the land were held by GC Properties Pty Ltd beneficially the transfer the subject of this reference did not have the effect of transferring an interest in the property from the Applicant's husband to the Applicant, and if the land were not held by GC Properties Pty Ltd beneficially I am unable on the evidence to determine on whose behalf it was held.

Orders

27. In these circumstances the orders of the Tribunal will be that:

• (1) The assessment under reference is affirmed.
• (2) The Applicant shall pay the Respondent's costs of the reference on Country Court Scale B to be taxed in default of agreement.