TSAI MEI-LAN LEE v CHIEF COMMISSIONER OF STATE REVENUE (NSW)

Members:
Sperling J

Tribunal:
Supreme Court of New South Wales

Decision date: Judgment delivered 17 November 1998

Sperling J

Division 30, Acquisitions of company and unit trust interests dutiable as conveyances of land, was introduced into the Stamp Duties Act 1920 by the Stamp Duties (Amendment) Act 1987. This is anti-avoidance legislation. The mischief sought to be avoided, so far as is presently relevant, is the avoidance of stamp duty by, in effect, transferring interests in land by the allotment or transfer of shares in a company, thereby attracting stamp duty in a much lower amount than would apply to a conveyance of the land as such.

That this was the objective of Division 30 is established by the title of the Division (see above), by a reading of the provisions themselves and by the speech in support of the Bill on its second reading in the Legislative Assembly. The following are extracts from that speech:

``Tax administration fails in its duty, and honest taxpayers become rightfully resentful, if avoidance and evasion of taxation become entrenched and widely practised by those already wealthy enough to afford high-priced lawyers and accountants.

...

Mr Speaker, I now turn to the Bill itself.

As I have already said, the major aim of this Bill is to eradicate devious and artificial tax avoidance arrangements.

...

The Bill also deals with the other avoidance scheme I mentioned in my announcement on the 21st November 1986 namely, the sale of shares masking the sale of land.

...

(D)uty on share transfers is paid on the value of the shares which normally on the net value of the Company while duty on a transfer of land is calculated on the unencumbered value of the land.

Thus, if a company's only asset is land worth $5 million and it is mortgaged for $4.9 million, share transfer duty would be charged on only $0.1 million - it requires little imagination to envisage an `overnight' mortgage being arranged to minimise duty.

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However, duty on the conveyance of the land would be charged on the full $5 million regardless of encumbrances.

...

A rapid response was necessary because so- called tax experts are already giving seminars on stamp duty pointing openly to the duty savings available through the use of this scheme.

The provisions in the Bill are not simple, but I make no apology for this because of the need to be one jump ahead of the tax avoiders.

...

(A) transfer will be taxed at conveyance rates if the following conditions exist:

  • 1. If the company or unit trust has more than 80 per cent of its assets as land, wherever situated and;
  • 2. Land held in New South is worth $1 million or more; and
  • 3. An interest of more than 50% in that company or unit trust is acquired.

...

Duty will be payable only on the interest acquired in the 3 years prior to a 50% interest being acquired or on every acquisition if a greater than 50% interest is already held.

...

Anti-avoidance provisions ensure that purchases by related parties will be aggregated to ensure that tax avoiders cannot get around the 50% provision by splitting the acquisition between several related parties.''

I provide the following resumé of relevant parts of Division 30. The key provisions are ss 99E and 99F. So far as is relevant, these sections provide as follows:

``Statement of entitlement concerning designated landholder

99E(1) If a person-

  • (a) acquires a majority interest;
  • (b) acquires an interest which results in the person having a majority interest;
  • (c) acquires an interest which, together with the interest of a related person, is a majority interest; or
  • (d) having a majority interest (including an interest which, together with the interest of a related person, is a majority interest) acquires a further interest,

in a designated landholder, the person shall lodge with the Chief Commissioner a statement in respect of the acquisition.

...

99E(5) The statement shall, for the purposes of this Act, be deemed to be an instrument and is chargeable with ad valorem duly in accordance with section 99F.

Assessment and payment of duty - statement of relevant acquisition of an interest etc.

99F(1) A statement lodged under section 99E is chargeable with duty at the rates specified in paragraph (1) under the heading `Conveyances of Any Property' in the Second Schedule on-

  • (a) in the case of a relevant acquisition of an interest in a designated landholder and where there are no prior acquisitions of interests in the designated landholder - the amount calculated by multiplying the unencumbered value of all land in New South Wales to which the designated landholder is entitled at the date of the relevant acquisition by the percentage of the interest acquired by the relevant acquisition and required to be included in the statement; or
  • (b) in the case of a relevant acquisition of an interest in a designated landholder and one or more prior acquisitions of interests in the designated landholder - the aggregate of-
    • (i) in respect of the relevant acquisition - the amount calculated in accordance with paragraph (a); and
    • (ii) in respect of each prior acquisition - each amount calculated by multiplying the unencumbered value of all land in New South Wales to which the designated landholder was entitled at the date of the prior acquisition by the percentage of the interest acquired by the prior acquisition and required to be included in the statement.

...

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99F(3) If the Chief Commissioner is satisfied that it would not be just and reasonable in the circumstances, the Chief Commissioner may determine that an amount calculated in accordance with subsection (1)(b)(ii) and specified in the Chief Commissioner's determination shall not be aggregated for the purposes of this section.

...

99F(5) If duty is chargeable under this section on a statement in respect of a relevant acquisition acquired by a person and any prior acquisition acquired by a related person, the person and the related person are jointly and severally liable for the duty.''

The terms used in these sections are defined in s 99A(1), ``unless inconsistent with the context or subject matter''. A ``designated landholder'' includes a private company entitled to land with an unencumbered value of not less than $1m and which comprises not less than 80% of the unencumbered value of all its assets. There are specific exceptions. These include liquid assets of various kinds such as cash. They also include assets which the landholder (ie the company) cannot satisfy the Commissioner were obtained otherwise than in order to circumvent the operation of the Division by reducing the ratio between the value of the land to which the landholder is entitled and the value of all its assets.

An ``interest'' in such a company is an interest which, after the relevant acquisition, would entice the person acquiring the interest to participate (otherwise as a creditor) in a distribution of the property of the company, if the company were wound up immediately after the acquisition of the interest.

A ``landholder'' , so far as is material, means a private company which owns land.

An ``acquisition'' of such an interest includes an acquisition by means of purchase, gift, allotment or issue of shares.

A ``prior acquisition'' means an acquisition by a person or a related person on or at any time during the period of 3 years before the date of a relevant acquisition but not earlier than 21 November 1986.

A ``relevant acquisition'' means the acquisition of an interest which requires the lodgment of a statement.

I should give the definition of ``majority interest'' in terms. It is as follows (again, ``unless inconsistent with the context or subject matter''):

```majority interest' means an interest... in a landholder which, if the landholder were to be wound up:

  • (a) in the case of an interest acquired by a single acquisition - immediately after that acquisition; or
  • (b) in the case of an interest acquired by 2 or more acquisitions - immediately after the later or latest of those acquisitions,

would entitle the person who acquired the interest or that person together with any related person to participate (otherwise than as a creditor or other person to whom the landholder was liable at the time of the acquisition) in a distribution of the property of the landholder to an extent greater than 50 per cent of the value of the property distributable to all the holders of interests in the landholder;''

Where a person acquires an interest which would entitle that person together with any related person to more than 50% of the company's property on a hypothetical winding- up, it is the interest of the person in question, rather than the aggregate interest of that person and any related person, which constitutes a ``majority interest'' within the meaning of the definition.

Further definition provisions follow in other subsections of s 99A. Persons are related persons if they are partners, husband and wife or parent and child: s 99A(8). Siblings are not related persons.

Section 99B provides as follows, so far as is relevant:

``Acquisitions to which this Division does not apply

99B(1) ...

99B(2) This Division does not apply to or in respect of an acquisition if the Chief Commissioner is satisfied that it would not be just and reasonable in the circumstances for the Division to apply.''

(See also s 99F(3), quoted previously, for another discretionary provision.)

The Division assimilated the acquisition of shares in a land-rich private company to the

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conveyance of an interest in land for stamp duty purposes. There are limits to its operation: eg the $1m limit and the 80% limit. But, insofar as the Division operates, that is what it does. The purpose is, so far as the Division operates, to prevent avoidance of stamp duty by, in effect, conveying interests in land through a company structure. There are then provisions to prevent avoidance of that function: eg provisions relating to related parties and to staggered acquisitions. These too have their limitations: the class of related parties, the 3 year limit. But, insofar as these anti-avoidance provisions operate, that is their purpose.

The facts

The private company Ai Ho International Pty Limited, was incorporated in 1987. Without disrespect, it is convenient to refer to members of the Lee family by initials. In 1987, two brothers, HJL and HML became shareholders in the company, holding 500 shares each with a par value of $1.

On 19 September 1988, further shares in the company were issued and allotted. The brothers, HJL and HML, each received a further 99,500 shares. Their father, THL, their mother, TML, and their sister, HHL, received 100,000 shares each. Accordingly, the company, having previously been owned by the brothers in equal shares, was now owned by five members of the family (including them) in equal shares. The members of the family other than the mother, TML, were, in relation to her, related persons. These allotments of shares came about in the following circumstances.

On 29 September 1988, the company completed the purchase of a property at Bankstown. The purchase price was $886,000. The contract for sale had been entered into prior to 19 September 1988.

On 26 September 1988, the company completed the purchase of a property at Enfield. The purchase price was $383,000. The contract for sale was entered into on 30 June 1988, that is, prior to 19 September 1988.

It is reasonable to suppose that the share issue was to fund the property acquisitions, in whole or in part (as was stated to have been the case by O Pang & Co, accountants, in a letter dated 6 April 1997).

In 1991, HJL returned to Taiwan. In order to avoid the ``thin capitalisation'' provisions of the Income Tax Assessment Act, he transferred 30,000 of his shares to his mother, TML. That was on 30 June 1991.

A statement was filed on 25 November 1991, following a request to do so made on 17 October 1991. The statement was accepted as having been filed within time.

By letter dated 19 February 1996, the Commissioner of State Revenue made an assessment of stamp duty in respect of the transfer of the 30,000 shares on 30 June 1991. Duty on the statement was assessed at $26,998.82, after credit for duty on the share transfer of $180. Duty paid was recorded at $1,620, leaving a balance of duty assessed on the statement of $25,558.82. To that, there was added a 100% fine, making the total duty and fine outstanding $51,117.64. Pursuant to the statute, TML was one of the persons liable to pay the duty and fine.

More than one objection was lodged. The relevant objection was lodged on 7 July 1997. By arrangement, this was treated as being within time. On 10 October 1997, the Commissioner disallowed the plaintiff's objection.

The proceedings

By summons filed on 14 November 1997, TML has appealed against the determination of the Minister disallowing the objection.

It is common ground that an appeal lies to the Supreme Court pursuant to s 96 of the Taxation Administration Act 1996, and that Pt 51A of the Supreme Court Rules applies to such an appeal. Neither the Act nor the Rules specify the nature of the appeal. However, there is a body of law as to the nature of appeals from an administrative decision where there is no express statement in the relevant legislation as to the nature of the appeal. Authorities relating to appeals from taxation decisions are conveniently cited in
Denham Constructions Limited v Chief Commissioner of State Revenue (Studdert J, 13 October 1998, unreported). In
Avon Downs Pty Limited v FC of T (1949) 9 ATD 5; (1949) 78 CLR 353, Dixon J said at ATD 10; CLR 360:

``... His decision [referring to the Commissioner's decision to disallow objections], it is true, is not unexaminable. If he does not address himself to the question which the sub-section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into

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consideration or excludes from consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review. Moreover, the fact that he has not made known the reasons why he was not satisfied will not prevent the review of his decision. The conclusion he has reached may, on a full consideration of the material that was before him, be found to be capable of explanation only on the ground of some such misconception. If the result appears to be unreasonable on the supposition that he addressed himself to the right question, correctly applied the rules of law and took into account all the relevant considerations and no irrelevant considerations, then it may be a proper inference that it is a false supposition. It is not necessary that you should be sure of the precise particular in which he has gone wrong It is enough that you can see that in some way he must have failed in the discharge of his exact function according to law.''

In
Commr of State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd 81 ATC 4576; (1981) 12 ATR 406, Bird CJ (with whom Kennedy J agreed) said at ATC 4578; ATR 410:

``The appeal was argued before us upon the basis that should it appear upon the material before the Commissioner he fell into error because he did not address himself to the question which was formulated by that subsection or if his lack of satisfaction can be seen to have been affected by some mistake of law or by his taking into consideration some extraneous reason or by his excluding from consideration some factor which he ought to have taken into account - Avon Downs Pty Ltd v FC of T (1949) 78 CLR 353, per Dixon J at p 360 - then his decision can be examined by this Court. And if on the material before the Court it should appear that in that sense the decision of the Commissioner had been affected by error then the Court should reach its own conclusion....''

Reference was also made in Denham Constructions to
Kolotex Hosiery (Australia) Pty Limited v FC of T 75 ATC 4028; (1975) 132 CLR 535 and
Minister for Immigration v Guo (1997) 144 ALR 567.

The plaintiff claims orders that the decision disallowing the objection be set aside, that the objection be allowed, and that the assessment be set aside, or such further or other order as the court thinks fit.

The summons, as required by Pt 51A, incorporates grounds of appeal. The first three paragraphs constitute the first ground of appeal. This ground was not pressed. However, I include it below because Ground 4 refers back to it. Ground 4 was amended in the course of the hearing; I reproduce it as amended. The reference to s 99D(3) in Ground 5 is a mistake for s 99F(3); the case was argued on that basis; I will treat the ground as amended accordingly.

Grounds of appeal

1. The plaintiff agreed to acquire the 30,000 shares in the issued capital of the company from her son.

2. The company is the beneficial and legal owner of certain real estate. The total real estate assets owned by the company presently have an unencumbered value in excess of $1,000,000.00.

3. The acquisition aforesaid took place at a time when the company was not a designated landholder. It follows that the interest held at that time did not constitute an interest as defined for the purposes of Division 30 of the Act.

4. Further or alternatively if it be established that it was such an interest or that the plaintiff is otherwise required to lodge a statement in terms of s 99E of the Act (which is denied) the plaintiff should not be assessed in terms of the Division because, by virtue of the aggregation of the interests of other members of her family, she together with related persons already held 100% of the issued capital. All shareholders in the company are related persons for the purposes of Division 30.

5. Further or alternatively if it be held, notwithstanding the terms of paragraphs 3 and 4 hereof, that the plaintiff is liable to duty on an acquisition within the meaning of the Division, then the defendant erred in not exercising the discretion vested in him in terms of s 99B(2) and/or s 99D(3) of the Act to determine in the exercise thereof that the acquisition should not be liable to duty in terms of the Division and the discretion has not been properly exercised.

6. The penalty amount should be remitted to an extent and in an amount greater than it has

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presently been remitted (if it has been remitted at all) and the Chief Commissioner has not exercised the discretion reposed in him with respect to remission of penalty either properly or at all.

7. (a) Further or alternatively the defendant, in determining (``the decision'') not to exercise his discretionary powers as set forth in paragraphs 5 and 6 hereof:-

(b) (i) There was no proper exercise of discretion by the defendant and/or his delegate when making the decision; and/or

(ii) The decision was taken by a person purporting to be the delegate of the Commissioner but to whom the decision- making function was not properly and validly delegated.

The basis of the assessment

Although it is for the plaintiff to establish error, it is first convenient to record the bases on which the Commissioner must have assessed the duty. They are as follows.

Ground 4: Further or alternatively if it be established that it was such an interest or that the plaintiff is otherwise required to lodge a statement in terms of s 99E of the Act (which is denied) the plaintiff should not be assessed in terms of the Division because, by virtue of the aggregation of the interests of other members of her family, she together with related persons already held 100% of the issued capital. All shareholders in the company are related persons for the purposes of Division 30.

The ``interest'' referred to towards the beginning of this ground refers back to Ground 3, where the word is used as meaning an interest within the meaning of Division 30. (The assertion in Ground 3 that the plaintiff did not have such an interest was not pressed.)

The argument advanced by counsel for the plaintiff, ostensibly under Ground 4, was that the plaintiff was not required to lodge a statement pursuant to s 99E(1). Strictly speaking, the ground will not accommodate that argument. However, there having been no objection to the argument being advanced (and properly so, because leave would have been given), I will treat the ground as accommodating the argument.

The argument by counsel for the plaintiff was that neither para (c) nor para (d) of s 99E(1) applied.

The argument in relation to para (c) of s 99E(1) was as follows. Paragraph (c) did not apply to an acquisition by a person such as the

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plaintiff who, with related persons, had a majority interest. A majority interest cannot be acquired - so the argument ran - by a person who, with related persons, already had a majority interest.

The objective of the sequence of paragraphs in s 99E(1) is clear. A ``majority interest'' is defined in a way that takes into account the interests of related persons and as meeting a test relating to entitlements on a hypothetical winding-up. The paragraphs in the subsection proceed in logical sequence. Paragraph (a) catches the acquisition of an initial interest in the company which is a majority interest. Paragraph (b) catches a supplementary acquisition by a person who already has an interest in the company which was not but is now a majority interest. Paragraph (c) catches a supplementary acquisition where the person's interest, after that acquisition, is a majority interest, that is, irrespective of whether the majority characteristic existed beforehand. Paragraph (d) catches a supplementary acquisition where the person had a majority interest (as defined) before the new acquisition.

There is obvious overlap between these paragraphs. Their purpose is to make it abundantly clear that it does not matter in what circumstances a conjunction arises between an acquisition and a majority interest as defined. The conjunction is enough. The person making the acquisition can have no prior interest (paragraph (a)) or a prior interest which is not a majority interest (paragraph b)), it does not matter what, if any, interest the person had before the subject acquisition (paragraph (c)), or the person can have had a prior majority interest (paragraph (d)). The subsection operates just the same.

Construed in this way, there can be no objection to an assessment based on paragraph (c) on the ground that the person already had a majority interest. Paragraph (c) applies irrespective of what, if any, interest the person had prior to the subject acquisition, provided only that after the acquisition the person had a majority interest.

The argument in relation to paragraph (d) was that the paragraph did not apply to a person such as the plaintiff who, with related persons, owned 100% of the company, because a ``further'' interest cannot be acquired by a person who, alone or with others, already has a 100% interest.

This argument must also be rejected. The plaintiff did not have a 100% interest in the company. She had a statutory ``majority interest'' because of the notional aggregation of the interests of related persons. Her interest was not a 100% interest in fact, and nothing in the statute deemed it to be so. Paragraph (d) operated in this case according to its terms. The plaintiff acquired a further interest, being a person who, beforehand, had a majority interest. And that is that.

No error is established under Ground 4, as argued. It fails.

Ground 5: Further or alternatively if it be held, notwithstanding the terms of paragraphs 3 and 4 hereof, that the plaintiff is liable to duty on an acquisition within the meaning of the Division, then the defendant erred in not exercising the discretion vested in him in terms of s 99B(2) and/or s 99F(3) of the Act to determine in the exercise thereof that the acquisition should not be liable to duty in terms of the Division and the discretion has not been properly exercised.

Ground 7: (a) Further or alternatively the defendant, in determining (``the decision'') not to exercise his discretionary powers as set forth in paragraphs 5 and 6 hereof:-

(b) (i) There was no proper exercise of discretion by the defendant and/or his delegate when making the decision; and/or

(ii) The decision was taken by a person purporting to be the delegate of the Commissioner but to whom the decision- making function was not properly and validly delegated.

I include Ground 7 here insofar as it relates to Ground 5.

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Consideration of these grounds of appeal requires examination of how the Commissioner dealt with the objection, including the content of internal documents. It is necessary to quote extensively. For ease of reference I will number the extracts in one series.

The report by Senior Assessor, Mr M Druery, dated 2 June 1997, includes observations concerning the exercise of discretion under ss 99F(3) and 99B(2). The report includes the following passages.

``(1) It was the transfer of 30 June 1991 that triggered the liability under the Division. According to Mr Pang [the plaintiff's accountant], what had precipitated this transfer was that the redevelopment of the company's Blacktown property had not proved successful, and the transferor (Hong Jeng Lee) had decided to return to Taiwan. (The Lees had migrated here in 1987.) Mr Pang was concerned that this change of residency could trigger the `Thin Capitalisation' provision[s] under the Income Tax Assessment Act. In order to meet [the requirements of these provisions] the son [Hong] resolved to transfer 30,000 shares to his mother. The transfer was only for the preservation of the company's deduction of interest expense under the income tax law, but we must stress that it was not to avoid the income tax liability. In my view whether the intention was to avoid the income tax liability or merely to ensure that it was not increased, this hardly qualifies as a reason for exercising the discretion.

(2) That the redevelopment of the property had not been all that successful is demonstrated by the fact that the shares were transferred at their then par and market value of $1 each. But the aim of Division 30 is to ensure that with land rich companies the taxpayer does not obtain a stamp duty advantage by acquiring shares in the company instead of acquiring an interest in the land itself. In the present case if the land had been owned by the shareholders personally instead of by the company, and the son had transferred a 6% interest in the land to his mother, duty would be assessed on the unencumbered value of that interest, irrespective of whether the owners of the land had any equity in the property at all.

(3) Mr Pang also mentions that the purpose of the allotments of 19 September 1988 was to enable the company to complete the purchase of the land. (It did not have enough money to settle without a further injection of shareholders' funds.) Whilst I think this is a relevant factor, I don't think it is sufficient to justify a favourable exercise of the discretion in this case. After all, the company did buy the land, and the allottees thereby obtained the full benefit of the shares allotted to them.

(4) Related to this, it is true that there is a substantial retrospective element in this assessment, in that acquisitions of shares which were not dutiable under the Division at the time they occurred (because the company was not yet a designated landholder) became dutiable because of a subsequent acquisition within the three year period (after the company had become a designated landholder). But clearly this result was intended by Parliament - otherwise it would not have provided for the assessment of duty on relevant and prior acquisitions (as defined). As Smart J put it in Mertune 94 ATC 4458 at p 4466):

`... S. 99F(1)(b), with the aid of the definitions of ``relevant acquisition'' and ``prior acquisition'', focuses upon acquisitions within three years. It is designed to aggregate these for stamp duty purposes and to ensure that ad valorem duty is paid when, within this short period, land acquisitions of the requisite value occur.'

(5) In summary, I consider that my assessment under Division 30 was within both the letter and the spirit of the Division.''

On 4 June 1997 Assistant Director, Ms T Tacadena, endorsed the report by Senior Assessor, Mr M Druery, as follows:

``(6) I agree that the assessment under Division 30 was according to the law and spirit of the provisions. There are no grounds in the information presented which could justify exercise of discretion under ss 99B(2) or 99F(3). Referred for your consideration.''

The report by Mr Druery was further endorsed, presumably by a more senior officer. The endorsement reads as follows:

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``(7) Assessment under Division 30 agreed. Discretion under the provisions of ss 99B(2) and 99F(3) not warranted in this case. Perhaps I can consider reduction in penalty if paid within fourteen days.''

The Commissioner's letter of 10 October 1997, disallowing the objection, contained the following passages:

``(8) It is considered that, as long as section 99E requires a statement to be lodged (because a relevant acquisition of an interest in a designated landholder has occurred) it is permissible to go back and seek out any prior acquisitions in the company by the person who has acquired the relevant acquisition or any person related to that person within the meaning of Division 30 of the Act. In other words it does not matter whether or not the company was a designated landholder at those prior times so long as it was a landholder at those times.

(9) It has been decided that there are no grounds, on the information presented, that would justify the Chief Commissioner to exercise his discretion under sections 99B(2) and 99F(3) of the Act, in this instance.''

Counsel for the Commissioner submitted that the discretion under s 99B(2) or s 99F(3) could not be exercised inconsistently with the intention of the Parliament as disclosed by the provisions of the statute. I agree. However, it has to be recognised that the intentions of the Parliament included the exercise of the discretion in a proper case.

That such a discretion was necessary is patently clear. The substantive provisions of the legislation would produce draconian results but for the discretion. This was illustrated in argument. The examples need not be reproduced here. The present case is example enough. The Commissioner did not aggregate the interests of related persons with those of the plaintiff pursuant to s 99F(1)(b)(ii). Had he done so, the plaintiff would have been assessed as liable for duty on a transfer representing 6% of the share capital of the company (the transfer of 30,000 shares on 30 June 1991), as if virtually the whole of the share capital of the company had been transferred to her (being the 499,000 out of 500,000 issued shares, allotted to her and related persons on 19 September 1988). As it was, the Commissioner chose to limit the aggregation of prior acquisitions to the allotment of shares to the plaintiff herself on 19 September 1988, with the result that the duty on a transfer of 6% of the issued capital was assessed as if the plaintiff had, on that occasion, received shares representing 26% of the capital of the company (that is, 100,000 shares on 19 September 1988 and 30,000 shares on 30 June 1991).

This was a recognition that the strict application of s 99F(1)(b)(ii) would have been unjust. The spotlight then falls on the operation that was allowed to s 99F(1)(b)(ii). Can that stand?

The first submission advanced by counsel for the plaintiff was that the Commissioner had failed to take into account that, prior to the transfer of shares on 30 June 1991, the family already owned 100% of the company.

Implicit in this submission was the argument that the transfer of shares between family members, who effectively own a company, are outside the purview of the Division. I disagree. The conveyance of an interest in land from one family member to another is dutiable at land rates on unencumbered value. Where such a transfer is, in effect, made through a company structure, that is quintessentially one of the situations which this legislation was designed to cover. The terminology of the legislation covers such a case, and there is no reason why that terminology should not be given full effect.

It is apparent from the passages I have quoted that the Commissioner (or his delegate) was alert to the factual situation in this respect. He properly regarded it as irrelevant.

The second submission was that the Commissioner erred in failing to recognise as a relevant consideration that the duty assessed on the transfer of 30 June 1991 was grossly disproportionate to the duty which would have been payable on a conveyance of a similar interest in land. The third submission was that the assessment was so unreasonable that no reasonable decision-maker could have made it. I will deal with these last two submissions together.

Section 99B(2) empowers the Commissioner to disregard an acquisition. Section 99F(3) empowers the Commissioner to disregard a prior acquisition for the purpose of aggregation under s 99F(1)(b)(ii). In both cases, the discretion turns on a finding by the Commissioner that it would not be ``just and

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reasonable'' to do otherwise. What is just and reasonable depends on the context. In this instance, the context is legislation having as its purpose to assimilate share acquisitions in land- rich companies to a corresponding conveyance of land for stamp duty purposes (so far as the legislation goes in that direction) and also to prevent avoidance of that objective by provisions such as those in respect of related persons and prior share acquisitions.

The discretionary provisions are there because, without the exercise of such discretions, the legislation would over-shoot the mark in many instances, as I have previously mentioned. Without seeking to define the ambit of the discretions unnecessarily, the paradigm case for the exercise of these discretions is where the substantive provisions of the legislation would otherwise result in an assessment of duty grossly disproportionate to that which would be payable on a conveyance of a corresponding interest in land. Having regard to the purpose of the legislation, where such a dichotomy arises, the Commissioner could not be other than satisfied that a strict application of the substantive provisions would be unjust and unreasonable, absent some special reason for a different view.

In the present case, the share transfer of 30 June 1991 corresponded with the conveyance of a 6% interest in the land owned by the company. An assessment which corresponded with a conveyance of a 26% interest in the land owned by the company was grossly disproportionate.

There was no justification for aggregating the prior acquisition of 19 September 1988. It had nothing to do with the prior share acquisition. It did not form part of the same transaction. The transfer of 30 June 1991 was not a deferment of part of that transaction. It had a completely dissociated purpose. The prior share acquisition was for the purpose of putting the company in funds to acquire the land. The later share acquisition was not related to that in any way.

Having regard to the purpose of the legislation, no reasonable decision-maker could fail to be satisfied that to aggregate the prior acquisition for the purposes of s 99F(1)(b)(ii) would be unjust and unreasonable in the circumstances of this case. The Commissioner erred in failing to exercise his discretion pursuant to s 99F(3), and the assessment must accordingly be set aside.

The process by which the Commissioner's decision was reached and the reasons disclosed for it bear examination. They provide further grounds for interference with the result.

In (1) above, it was said that the precise purpose of the transfer on 30 June 1991 was not a reason for the exercise of the Commissioner's discretion. I agree. But what is lacking is consideration of a relevant question, namely, whether the later acquisition was associated in any way with a transaction that corresponded not merely with a conveyance of a 6% interest in land but a 26% interest in land. The precise purpose of the 30 June 1991 transfer was not relevant but that its purpose was unrelated to the earlier allotment of shares to the plaintiff was. That was not appreciated. In this respect, a relevant consideration was not taken into account.

The observations in (2) are, in my view, unexceptional. The transfer of 30 June 1991 corresponded with a conveyance of a 6% interest in land.

Item (3) identifies the purpose of the prior acquisition. It records a view that this was not a reason for exercising the Commissioner's discretion. Relevance was acknowledged but not the true relevance, namely, that the respective purposes of the prior and subsequent acquisitions were unrelated. The same relevant consideration was not taken into account as in (2).

Item (3) goes on to treat as relevant that the company bought the land in 1989 and that the allottees (who included the plaintiff) obtained the full benefit of the shares allotted to them. It was recorded in (4) that the allotment of 19 September 1988 was not dutiable in itself. No argument was advanced to justify the assessment on the basis that the Commissioner's understanding in that regard was wrong.

Now it cannot be said that receiving a benefit from the prior acquisition which corresponded with an interest in land is an irrelevant consideration in itself when it came to the exercise of the Commissioner's discretion. But an error was made in taking this to be a justification for allowing a non-dutiable acquisition to be dutiable pursuant to s 99F(1)(b)(ii). What was said in (4) fails to recognise the purpose and function of the discretionary provisions. The fact that a prior acquisition is picked up by s 99F(1)(b)(ii) does

ATC 4054

not mean that, in every such case, the legislature intended that there should be an aggregation. That is to write s 99F(3) out of the statute. This was an error in construing the legislation.

The decision in Mertune does not support the approach in (4). No question arose in that case concerning the discretionary provisions in the legislation.

The conclusion in (5) that the assessment was within both the letter and the spirit of the Division was wrong for the reasons I have given.

The observation in (6) that there were no grounds in the information presented which could justify exercise of discretion under s 99B(2) or s 99F(3) was wrong. It involved a misconstruction of the legislation.

Thus, not only was the aggregation of the prior acquisition with the subsequent one manifestly erroneous, but there were also the vitiating errors I have identified in the process which led to an assessment on an aggregated basis.

The decision disallowing the objection must be set aside for these reasons.

Should this Court substitute its own determination of the objection or should the objection be remitted to the Commissioner for determination according to law?

I have held that an assessment based on the transfer of 30 June 1991 alone would be appropriate. I am however not equipped to make an assessment of duty on that basis. Part of the problem in that regard is the payment of duty recorded in the Commissioner's assessment. In these circumstances, I should remit the matter to the Commissioner for redetermination according to law, unless some other specific course is agreed or demonstrated to be appropriate.

Ground 6: The penalty amount should be remitted to an extent and in an amount greater than it has presently been remitted (if it has been remitted at all) and the Chief Commissioner has not exercised the discretion reposed in him with respect to remission of penalty either properly or at all.

Ground 7 relates. I will not requote it.

Neither s 99B(2) nor s 99F(3) applies to fines, but there is a discretion to remit a fine vested in the Commissioner by s 25(3A) of the Act.

In a report dated 9 October 1997, the day before the letter disallowing the objector, Mr G Meijer said:

``Basically the accountant has objected to the imposition of a 100% penalty ($25,558.82) on the grounds that the Commissioner should either remit the fine in full or reduce the same due to the circumstances of this case.

The accountant has been aware of the outstanding duty since 1992 and has made no attempt to pay the ad valorem duty assessed on the section 99E statement despite a number of letters issuing from this office advising of the duty outstanding and allowing additional time to pay without the imposition of a fine.

The taxpayer's advisers were co-operative in responding to our correspondence save for a hiatus period between July 1996 and April 1997, during which period legal action to recover the outstanding duty and fine was in progress.

As no attempt to pay the outstanding duty has been made, I see [no] reason why the fine should be remitted or reduced.

However, it is noted that the Commissioner has accepted the notice of objection as having been lodged within time, so perhaps the Commissioner may wish to negotiate a lesser fine with the accountant in order to reach a compromise to bring this long outstanding matter to an end.''

There is an endorsement on the report dated 9 October 1997 which I assume to be that of the Commissioner or a duly appointed delegate. It reads as follows:

``I can see no justification for reducing the penalty. The liability has been there for some considerable time and no effort has been made to pay. I may be prepared to reconsider fine if client was to pay outstanding duty immediately subject to further representations justifying position.''

ATC 4055

Counsel for the plaintiff submitted that no penalty should have been imposed because the objection was bona fide and, assuming it was wrong, was nonetheless a close call on the substantive issue; that is, apart from the discretion point, the applicability of the statute was doubtful. I disagree. Apart from the discretion point, I think the position was and is clear.

Secondly, it was submitted that, if the arguments in relation to discretion were insufficient to displace the assessment of the primary duty, they were sufficient to displace the decision to impose a penalty.

The decision as to penalty cannot stand in view of my decision in relation to the primary assessment of duty. The question of penalty now arises in a totally different context.

Again, the objection insofar as it relates to penalty, should be remitted to the Commissioner unless some other specific course is agreed or demonstrated to be appropriate.

I will make no formal orders at this stage. The matter will be relisted. Counsel should bring in short minutes of order incorporating their mutual or respective positions as to how this judgment should be implemented in terms of the orders to be made.

 

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