Significant Legal Cases 2013-14

Land Tax Act 2005

Buyer/seller – deemed ownership of land

Commissioner of State Revenue v Oakbee Pty Ltd & Ors [2013] VSC 672

This matter concerned the land tax liability for the 2009 assessment year in respect of two vacant land properties owned by the taxpayer. The taxpayer entered into contracts of sale in respect of each property before 31 December 2008. As it transpired one contract settled in early 2009, and one contract was not completed. The basis of the taxpayer’s objection was that the purchasers of each of the properties had taken possession of the land after entry into the contracts of sale, and as such by the operation of the deemed ownership provisions in the Act the respective purchasers were liable for any land tax for the 2009 assessment year.

At first instance, the Tribunal found the purchasers of each of the lands had not taken possession of the lands after entry into the contracts of sale. The Tribunal, however, set aside the assessment of the taxpayer’s land tax liability for the properties, having construed s. 16(3) of the Act, as having a separate and distinct operation from s. 16(1), in that s 16(3) is not dependant on the requirement for the purchaser to have “taken possession”.

The Commissioner successfully appealed the Tribunal’s order to the Supreme Court. The Court held the Tribunal misconstrued s. 16(3) as having a separate and distinct operation from s.  16(1) and held that s. 16(3) must necessarily be read subject to s. 16(1). The Court also articulated the meaning of ‘taken possession’ under s16, concluding that becoming “entitled” to possession was not sufficient for the purchasers to “take possession” as required by that section. Based on the factual findings, the Court ultimately held the purchasers had not taken possession of the properties by the relevant date, and therefore the land tax assessment was correct.

Temporary absence from principal place of residence

Wloszczowski v Commissioner of State Revenue [2014] VCAT 532

This matter concerned four land tax assessments issued to the taxpayer (subsequently deceased) in respect of the property for the 2009 to 2012 land tax years. The principal place of residence (PPR) land tax exemption applied to the property until 2008. In June 2008 the taxpayer vacated the property and entered an aged care facility. From January 2009 the property was continuously leased. At issue before the Tribunal was whether s. 54(1)(a) (‘PPR exemption’) and s. 56(1) (‘temporary absence from PPR’) of the Act applied to exempt the property from liability for the years in dispute.

The Tribunal held that, based on the objective evidence which was not disputed, the taxpayer left to go into an aged care facility and never returned to the property, which was leased.  Accordingly, s. 56 re temporary absence did not apply to exempt the property from land tax liability for the 2009 to 2012 years. The taxpayer’s legal personal representative pursued this matter on a misapprehension that the Tribunal can overturn assessments on the basis of fairness of justice. The tribunal member concluded: ‘I have no discretion in this matter in relation to fairness or justice. My duty is to interpret the Act and find facts and apply those facts to the law. That is the justice in this case. I am not given any discretion – put another way I am not closed with any principles of equity – for this particular matter.’

Mortgagee in possession – primary production land

Thomas Love v CSR [2014] VCAT 476

This land tax matter concerned whether the subject land, of which a mortgagee was in possession, qualified for a primary production land (PPL) exemption, and whether that land should be aggregated with the applicant’s other properties for the purpose of calculating land tax for the 2012 land tax year.

The Tribunal found in favour of the Commissioner on the basis that the subject land was not being used as PPL at the relevant time, being midnight 31 December 2011.  After termination of an agistment agreement in place between the applicant and his bank (as mortgagee in possession), the applicant had no right to carry out further activities on the subject property.  The Tribunal also affirmed that whether or not primary production is being conducted is to be determined objectively, and not by reference to the subjective attitude of the applicant.

Further, s. 43 deals only with the ‘rate’ of land tax to be paid when a mortgagee is in possession.  It does not deal with what the use and tax consequences may have been had the mortgagor remained in possession.

Notwithstanding a mortgagee was in possession, there was no reason for the subject land not to be aggregated with the applicant’s other landholdings for the calculation of land tax in accordance with s. 36.

Duties Act 2000

Motor Vehicle Duty – Taxation Administration Act  –  Penalty tax - interest

Driver Group Pty Ltd v Commissioner of State Revenue [2013] VCAT 1151

This matter concerned the availability of the exemption from motor vehicle duty contained in s. 237 of the Duties Act 2000 (DA) in relation to 43 buses, which were each first registered by the taxpayer in South Australia (where duty is not payable) and subsequently registered in Victoria within 12 months.

The taxpayer conceded motor vehicle duty was payable on some buses which operated exclusively in Victoria. The Tribunal held that s. 237 did not apply to exempt duty on the remaining buses and concluded that ‘the initial registration in South Australia was…clearly for a tax avoidance purpose.’  The taxpayer was, therefore, liable to pay motor vehicle duty for all 43 buses.

The Tribunal held the taxpayer did not take reasonable care to comply with s. 237 and fixed penalty tax at 25 per cent, and reduced it by 80 per cent under s. 31(1) of the TAA for voluntary disclosure before the commencement of the investigation. It affirmed that interest was chargeable at the market rate from the date of the original assessments.

Duties – Transfer of leases

Simpson v Commissioner of State Revenue [2014] VCAT 533

This matter concerned an objection to duty assessed on the transfer of three 99-year leases of land to the taxpayers. The principal issue was whether the transfer of the leases was a dutiable transaction under s. 7(1)(b)(va), which was in force from 21 November 2008.

The Tribunal found in favour of the Commissioner and, in doing so, rejected the taxpayers’ argument that s. 7(1)(b)(va) did not apply in cases where the contract leading to the transfer was executed before 21 November 2008. This was because ‘the plain words of the section fix on the transfer or assignment as the transaction, not on the contract to transfer or assign’. In this case, although the contract was entered into before 21 November 2008, the transfer had occurred well after that date.

Payroll Tax Acts 1971 and 2007

Grouping: Inter-use of employees - franchises

Bank of Queensland Limited v Commissioner of State Revenue (Review and Regulation List) [2013] VCAT 1966

This matter involved an objection to a decision of the Commissioner to group the Bank with its owner-managed branches (OMBs) because of the use of common employees under s. 9A of the 1971 Act and s. 71 of the 2007 Act.

The Commissioner decided the arrangements between the Bank and OMBs amounted to inter-use of employees. The Bank objected on the basis the arrangement was a franchise arrangement and the OMBs conducted their own business, separate from the Bank’s business, and should not be grouped.

The Tribunal set aside the Commissioner’s decision. In doing so, it found the arrangements between the Bank and the OMBs were franchise arrangements which gave rise to a common law agency arrangement. The Tribunal held a business is no less a business because it entailed the person or entity acting solely as agent, and that control in itself does not exclude the possibility that there is a separate business being conducted by the franchisee.

Taxation Administration Act 1997

Declaratory relief – specialised procedure - statutory referral scheme

Summit Grain Investment Australia Pty Ltd v Attorney-General for the State of Victoria & CSR [2013] VSC 383

This matter arose from an investigation then afoot by the Commissioner under the Act into whether an acquisition of shares by the plaintiff was liable for duty under the Duties Act 2000.  The plaintiff sought declaratory relief from the Supreme Court against the Attorney-General and the Commissioner in respect of issues that would impact on the outcome of the investigation.

The plaintiff's principal argument was that this course of action was appropriate as progression of the matter pursuant to the statutory scheme of the TAA would likely involve a costly valuation dispute, as well as a protracted dispute concerning whether various items of property were chattels or fixtures.

The Supreme Court found the plaintiff had not made out the existence of circumstances that would favour the granting of declaratory relief, having regard to the specialised procedures and remedies available to the plaintiff under the TAA.