The SA Supreme Court has dismissed a taxpayer’s appeal against a stamp duty assessment in respect of an agreement, which was assessed on the basis that there had been a conveyance of property under either s 71(3)(a)(iii) or s 71(3)(b) of the Stamp Duties Act 1923 (SA).
The matter concerned negotiations between 2 parties in relation to assets (principally a commercial property) held in a trust of one of those parties, which occurred in late 2005 and early 2006. The first party wished to realise the value of the assets held in that trust and to distribute the proceeds of that realisation to the beneficiaries of the trust. The second party (which controlled the taxpayer) was interested in taking control of the assets of the trust. At the relevant time, the assets had a value of $7m and carried a debt of $4m (a mortgage). It was intended that the taxpayer would become a beneficiary of the trust.
The Court noted 2 main agreements (dated 23 December 2005 and 24 February 2006), which aimed to give effect to the wishes of the parties. The arrangements were complex. Essentially, they involved a series of steps to enable control of the trustee to pass from the first party to the second party – including issuing new shares to the second party, appointing a new director, secretary or public officer of the trustee, and buying back existing shares. The steps were subject to a “bond” being paid before settlement (24 February 2006).
The first agreement contained a requirement that the taxpayer pay $7m, after which the trustee would issue a “bond” giving priority to the taxpayer as “bondholder” to the distribution of income and capital in priority to all other beneficiaries.
The second agreement, which the Court inferred was a variation of the first, reduced the amount payable to $3m. The Court noted that relevant mortgages were refinanced (and registered in April 2006) showing the trustee under the control of the second party as mortgagor. (Note that the Court expressed concern that it was not in possession of all documents relating to the overall transactions, but nevertheless, it made findings about the substantive effect of the transactions by drawing what it considered to be reasonable inferences.)
The Court noted the Commissioner became aware of the transaction on 10 July 2008 “as a result of routine compliance activity”. In April 2009, the Commissioner assessed stamp duty of around $377,000 together with interest and penalty tax.
The Court concluded the 24 February 2006 agreement was an instrument chargeable as a conveyance. The Court also concluded that the value of the property conveyed may be treated as equal to the market value. It also affirmed the Commissioner’s decision to impose of penalty tax at the rate imposed in the circumstances.
(Pharmos Nominees Pty Ltd v Comr of State Taxation [2012] SASC 24, SA Supreme Court, Gray J, 29 February 2012.)
[LTN 97, 22/5]