NSW Duty – Winston-Smith v Chief Comr of State Revenue- NSW ‘landholder’ duty applied because it was ‘just or reasonable’ and the s163H discretion to exempt the transfer of shares did not apply

The taxpayer applied for a private ruling on the question of whether the Commissioner would be satisfied that the transfer of 75,000 shares would be an exempt acquisition under s 163H(3)of the Duties Act 1997(NSW). This is part of Chapter 4 (Acquisition of Interests in Landholders), Part 4 – Exemptions and Concessions, which includes exemptions for things like primary production and break down of marriage. Section 163H gives the Commissioner a discretion to exempt a transfer from duty or reduce the duty, if applying land holder duty ‘would not be just and reasonable’.

• The taxpayer received a notice of assessment notifying him that duty had been assessed in respect of the transfer of shares – the assessment totalled $2,016,548.49, being duty of $1,805,246.60 and interest of $211,301.89.
• The assessment set out the amount owed and agreed to remit the premium component of interest if the duty and market rate component of interest were paid in full.
• The taxpayer did not pay the duty or any interest by the stated due date.

The first decision under review was the Commissioner’s decision not to grant an exemption under s 163H of the Duties Act in respect of the transfer of shares, and the second decision under review was the Commissioner’s decision not to remit the market rate or premium component of interest under s 25 of the Taxation Administration Act 1996(NSW).

The facts involved transactions undertaken to give effect to the will of the deceased, which involved land in two companies, that the deceased had owned or owned indirectly. The Judgement starts reciting the background from para 25. The deceased owned all the shares in one company: TCL and 50% of the shares in another company: Macs. The other 50% of Macs was owned by TCL. There was an agreement to give effect to the will, which involved the taxpayer taking all of the deceased’s shares, and then liquidating TCL, which involved the dutiable transfer of the Macs shares to the taxpayer. Macs was a landholder company and the transfer of shares was prima-facie subject to landholder duty, but the taxpayer argued that the discretion ought be exercised, as he already was the ultimate shareholder and the liquidation transfer was simply a rearrangement of his existing indirect ownership.

The Court did not agree that the discretion should be exercised and it was not relevantly ‘[un]just or [un]reasonable’, by reference to what the reasons for landholder duty (to subject indirect transfers to the same duty as direct transfers) and the scope of the express exemptions from landholder duty and direct duty. Direct duty could on a transfer of land, could only be exempted, if it were part of the reconstruction of a wholly owned group of companies (where the peak entity had to be a company, not an individual). And the exemptions from landholder duty only exempted transfers of shares on the breakdown of marriage.

The Court, in reviewing the second decision, said there were 4 criteria as to the circumstances when the premium component of interest should be remitted: 1, all principal tax owing has been paid in full, 2, the taxpayer has co-operated in providing information to the Commissioner, 3, such co-operation occurred prior to any investigation commencing, 4, there was no willful default in not paying the tax on time.

The Court accepted that the taxpayer satisfied the first 3 criteria. The question regarding the fourth criterion was whether the taxpayer’s failure to pay on time constituted a willful default. There was no evidence that the taxpayer had any basis for believing that he was not liable to pay duty, and the Court found that his default was a decision “to accept the risk that he would be unsuccessful in any objection or review in respect of the Commissioner’s decision not to exempt the transfer”. The Court held that there was no basis for remitting interest and the proceedings were dismissed.

(Winston-Smith v Chief Comr of State Revenue [2018] NSWSC 773, NSW Supreme Court, Emmett AJA, 1 June 2018.)

FJM 15.6.18

Study questions (answers available)

1. Was the main issue in the case the scope of a discretion to exempt a transfer of shares, from NSW landholder duty, if imposing that duty were not ‘just or reasonable’?
2. Did the case involve an arrangement, to transfer 50% of the shares in a ‘landholder’ from the shareholder, as part of the liquidation of the shareholder company?
3. Was the issue of what was ‘just and reasonable’ approached by reference to the purpose of the landholder provisions and the scope of exemptions that might have otherwise applied?
4. Was the transfer of land, to shareholder, as an in-specie distributions, exempt from duty?
5. Was there an exemption from transfers of shares in landholders, to individuals?
6. Was the taxpayer successful in seeking review of the Commissioner’s refusal to exercise the discretion to exempt the transfer from landholder duty?
7. Did the taxpayer succeed in his other application to have the interest rate reduced?