SIGNIFICANT LEGAL CASES

The vast majority of the decisions we make each year are undisputed by our customers, but there are inevitably situations where litigation is required to determine a resolution.

Land Tax Act 2005 (LTX Act)

Land Tax - Principal place of residence exemption

Carvalho v Commissioner of State Revenue (Review and Regulation) [2017] VCAT 1295

Background
A husband and wife claimed the principal place of residence (PPR) exemption from land tax for the 2016 land tax year in respect of a property in Ashburton, Victoria. The husband already received a PPR exemption for a property co-owned by him in Sydney. The material before the Commissioner indicated that the Taxpayers both spent considerable time in New South Wales, and their mail was re-directed from Ashburton to the husband’s Sydney property. Utility usage at the Ashburton property was also very low.

Decision
On 21 August 2017, the Tribunal found in favour of the Commissioner, finding the Taxpayers had failed to discharge their onus of proof to show that the Ashburton property was their PPR during the relevant period. The Tribunal noted that the fact that the Taxpayers did not rent out the Ashburton property did not necessarily mean that it must have been their PPR.

Land Tax - Valuation of land

Public Transport Development Authority v Commissioner for State Revenue [2017] VSCA 266

Background
This matter concerns land tax assessments issued in respect of land comprising part of the Southern Cross Station in Spencer Street Melbourne. The sole issue in dispute was the determination of site values for that land.

The matter was initially heard by the Tribunal (constituted by its President). Garde J concluded that the site values were significantly above those contended by the Taxpayers, but also below those contended by the Commissioner. The Taxpayers sought leave to appeal from his Honour’s decision.

Decision
On 22 September 2017, the Court of Appeal found in favour of the Commissioner, granting the Taxpayers leave to appeal, but dismissing the appeal.

Broadly, the Taxpayers contended that usage of the subject land was not commercially viable because the revenues generated by uses within the station did not cover the high building costs associated with designing and developing the station and the ongoing expense of operating it. Therefore, they argued that a nominal site value should result.

The Court rejected that contention. Their Honours concluded that the subject land had real value because of its ‘potentiality’ to the State in its unique role as the provider of public transport services. A valuer must seek to put a value on that potentiality.

Land tax – trust surcharge for absentee owners

Kamirice Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2017] VCAT 2087

Background
This matter concerns the imposition of the Absentee Owner Surcharge (AOS) under sections 3A to 3C, and 35(1) of the LTX Act.

The Taxpayer, who owns land in Melbourne’s CBD, is a wholly owned subsidiary of a company which is incorporated outside Australia. That company is domiciled in the British Virgin Islands, and has two directors both of whom reside in Hong Kong, and is therefore an ‘absentee person’ within the meaning of s 3(1) of the LTX Act. Subject to the grant of an exemption under s 3B, the company holds an ‘absentee controlling interest’ in the Taxpayer.  This is because, as the holder of all of the issued shares in the Taxpayer, it can control the composition of its board (s 3A(1)(a)); is in a position to cast or control the casting of more than 50 per cent of the maximum number of votes that might be cast at a general meeting of the Taxpayer (s 3A(1)(b)); and holds more than 50 per cent of its issued share capital (s 3A(1)(c)).

The issue for determination by the Tribunal was whether the discretion under s 3B(2) of the LTX Act should be exercised to grant an exemption to the company, so that it is taken not to hold an absentee controlling interest in the Taxpayer. 

Decision
On 14 December 2017, Senior VCAT Member Robert Davis ruled in favour of the Commissioner. Having considered all the matters in relation to section 3B(2) of the LTX Act, Senior Member Davis came to the conclusion that the discretion should not be exercised so as to exempt the Taxpayer from the payment of the surcharge. 

The Tribunal held that: “This subsection and the Guidelines should be looked at as a whole giving appropriate weight to each of the matters referred to therein. For example, it is clearly more important to look at matters such as control and the benefit to the Victorian economy than matters, such as competitiveness.”[Paragraph 108]

Land Tax – Trust Surcharge

Polux Pty Ltd as trustee for Iatrou Business Trust No 2 v Commissioner of State Revenue (Review and Regulation) [2018] VCAT 528

Background
This matter concerned the imposition of land tax at the surcharge rate on land in Fitzroy, Victoria, held under a discretionary trust, which was acquired pre-2006. Only the 2017 land tax assessment was in dispute.

The key issue was whether a Nomination of Beneficiary form was ever lodged before the 30 September 2006. If the Trustees had nominated a beneficiary in respect of this land and lodged the form before 30 June 2006 (extended to 30 September 2006) – land tax at the trust surcharge rate would not have been imposed. It was accepted by the State Revenue Office that the Taxpayer had lodged the Notification of Lands Held on Trust form by 31 March 2006, however, not the Nomination of Beneficiary form.

Decision
On 19 April 2018, the Tribunal handed down its decision in favour of the Commissioner. Based on the evidence presented at the hearing of the matter, the Tribunal was not satisfied that the Nomination of Beneficiary Form was delivered to the State Revenue Office prior to 30 September 2006 and the Tribunal confirmed that the Commissioner had no power to extend time in this circumstance.

Duties Act 2000 (Duties Act)

Duties - Nature of partnership interests

Commissioner of State Revenue v Danvest Pty Ltd & Anor [2017] VSCA 382

Background
The issue for consideration was whether the acquisition by the Taxpayers of interests in a unit partnership constituted a transfer of ‘an interest in an estate in fee simple’ within the meaning of ss10(1)(a)(i) and 10(1)(ac) of the Duties Act.

Decision
On 20 December 2017, the Court of Appeal concluded that it did not. The interest of a partner in partnership property is an equitable right to a proportion of any surplus upon dissolution of the partnership once assets have been realised and debts and liabilities paid. Prior to dissolution, the interest did not confer a proprietary interest in partnership assets, including any land held by the partnership.

Duties - Dutiable property

Central Park Estate (Vic) Pty Ltd v Commissioner of State Revenue [2018] VSC 1

Background
On 6 March 2012, the Taxpayer entered into a contract for the purchase of a property in Dromana used as a wine making facility. On that same day, the Taxpayer also entered into an inter-dependent contract with a related company of the Vendor for the purchase of equipment situated on the property. The Commissioner assessed the Taxpayer for duty on the aggregated dutiable value of the land and equipment. The Taxpayer claimed the equipment consisted of goods held or used in connection with primary production, and were therefore non-dutiable under section 10(1)(d)(iv) of the Duties Act.

Decision
On 23 January 2018, the Supreme Court held that the equipment was not exempt. For s10(1)(d)(iv) to apply, primary production has to occur on the subject land itself. Also, the equipment has to be used directly in connection with that primary production activity. Both requirements were not satisfied in this case.

Duties - Transfer of dutiable property subject to a discretionary trust

Athanasios Fagridas & Ors v Commissioner of State Revenue [2018] VSC 145

Background
This proceeding was the Taxpayers’ application for leave to appeal from the earlier decision of the Tribunal to the Supreme Court. It concerned a transfer by a mortgagee in possession under s 77 of the Transfer of Land Act 1958 of the relevant property to the Taxpayers (Disputed Transfer). The primary issue in dispute was whether the Disputed Transfer was exempt from duty as property passing to beneficiaries of a discretionary trust pursuant to s 36A of the Duties Act.

Decision
On 29 March 2018, the Court found in favour of the Commissioner, refusing the Taxpayers’ application for leave to appeal from the decision of the Tribunal. Broadly, the Court confirmed the Assessment, having found no legal error in the Tribunal’s finding that the Disputed Transfer was not exempt from duty under:

  1. s 36A of the Duties Act, whether on its own terms or by applying s 36C of the Duties Act, as property passing to beneficiaries of discretionary trusts, or
  2. s 17 of the Duties Act as double duty.

Duties - Transfer of dutiable property to unitholders in unit trust schemes

Citera Investments Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2018] VCAT 519

Background
The matter concerned the transfer of land in Dandenong South from four natural persons (purportedly acting as trustees for a unit trust) to the Taxpayer (a company purportedly acting as trustee for a superannuation fund).

The issues for determination were:

  • Did the exemption in s 36B Duties Act (‘Property passing to unitholders in unit trust schemes’) apply to the transfer?
  • Alternatively, did the exemption in s 41(1) Duties Act (‘Transfers to trustees or custodians of superannuation funds or trusts’) apply to the transfer?

Decision
On 9 April 2018, the Tribunal found that neither exemption applied. In summary:

  • The Tribunal found that the transfer was not from a unit trust to a unitholder, and so the exemption in s 36B did not apply. The Tribunal also found that the transfer would in any event not satisfy the requirement in s 36B(2) due to the lack of evidence as to whether all the members of the super fund were members at the relevant time.
  • Further, the Tribunal found that as the identity of the members of the super fund was not certain, there would therefore be a change in the beneficial ownership of the property and so the Taxpayer could not fulfil the requirements of s 41.

Duties - Transfer of dutiable property to a beneficiary of a discretionary trust

Goletsos v Commissioner of State Revenue (Review and Regulation) [2018] VCAT 730

Background
This matter concerns whether or not a transfer of land was exempt under s36A of the Duties Act as a transfer of land from a trustee to a beneficiary.

Issue – Hybrid Trusts
The sole issue in dispute was the correct characterisation of the trust in question, which comprised elements of both a unit trust and a discretionary trust.

On the Commissioner’s view, the trust was properly characterised as a trust to which a unit trust scheme relates and, accordingly, could not be characterised as a discretionary trust. As a result, no exemption from duty was available because although the recipient of the land in question was defined as a beneficiary under the trust, the recipient was not a unitholder of the trust.

On the Taxpayer’s view, the trust was properly characterised as a discretionary trust because certain discretionary powers were reserved to the trustee, even though the trust was ‘unitised’. On this view, an exemption from duty was said to be available because the recipient of the land was defined as a beneficiary under the trust.

Decision
On 9 May 2018, following a detailed examination of the terms of the trust and its operation, the Tribunal found in favour of the Commissioner. The Tribunal held that the trust must be regarded as a trust to which a unit trust scheme relates. As the relevant legislative definition of a discretionary trust expressly excludes ‘a trust to which a unit trust scheme relates’, the Tribunal confirmed the Commissioner’s assessment to duty.

First Home Owner Grant Act 2000 (FHOG Act)

FHOG - Residence requirement

Abela v Commissioner of State Revenue (Review and Regulation) [2017] VCAT 1024

Background
The issues in dispute were whether the Applicant satisfied the residence requirement prescribed by s12 of the FHOG Act, and therefore was entitled to the First Home Owner Grant.

Decision
On 13 July 2017, the Tribunal handed down its written decision in favour of the Applicant. The Tribunal considered there was credible evidence from multiple witnesses during the hearing, regarding the Applicant’s occupation of the Property. However, the Tribunal stated [paragraph 9] that: “this case is not a precedent for other cases where the Tribunal may be evaluating low utility usage and other indicators of impermanent residence in the context of an applicant who after a short period of occupation parted with possession of the property.”

FHOG - Whether Grant paid as a result of the Applicant’s dishonesty

Green v Commissioner of State Revenue (Review and Regulation) [2018] VCAT 640

Background
The Commissioner imposed a penalty under s48(2) of the FHOG Act on the basis that these were paid 'as a result of the Applicant's dishonesty'. The Applicant denied she was dishonest, but rather a victim of a dishonest builder.

Decision
On 24 April 2018, the Tribunal reduced the penalty to nil because it was not satisfied that the amounts were paid as a result of the Applicant’s dishonesty.

Further, the Tribunal found it has no power to remit interest or to order repayment in instalments in First Home Owners Grant cases.