Pitard and Others v Commissioner of State Revenue (Review and Regulation) [2019] VCAT 1074 demonstrates some of the perils a party may face for failing to consider potential stamp duty consequences in a sale of land transaction. This decision also serves as a reminder that the discretion conferred on the Commissioner of State Revenue is not a panacea for all unforeseen stamp duty woes and that this discretion is rarely if ever, used.
Background to the Steller case
Four of the applicants were related entities collectively known as the Steller Group, and the fifth applicant was an individual named Mr Pitard, a registered domestic and commercial builder and a principal of the Steller Group (Applicants). The Applicants purchased land with the intention of on-transferring the land to certain related entities (Transferees) under separate sub-sale agreements (Sub-sale Agreements).
The assessment of duty
After entering into the contracts of sale for the land, but before the Transferees were nominated, applications were made for planning permits to develop the purchased land. It was not in dispute that the making of these applications gave rise to duty consequences to be borne by the Applicants and the Transferees on the basis that:
- the making of the applications amounted to 'land development' as defined in section 3(1) of the Duties Act 2000 (Vic); and
- the applications were made between the date of entry into the contracts of sale and the date on which the Transferees were nominated.
Together, these events enlivened the application of Part 4A of the Duties Act, which imposes additional duty on sub-sale agreements. Consequently, the Commissioner issued assessments to the Applicants for duty, penalty and interest in the amount of $3,781,681.78.
Essentially, two amounts of duty were payable on the dealing with the relevant land on what was effectively just one transaction:
- first, duty was payable on the contract for sale itself by the Applicants under that contract, and
- then, separately by the Transferees under the land transfer form.
The Applicants filed an objection requesting that the Commissioner exercise his discretion not to issue an assessment to them on the basis that Part 4A of the Duties Act should only apply to arrangements under which parties seek to derive a profit. The Commissioner disallowed the objection, after which the Applicants had the matter referred to the Victorian Civil and Administrative Tribunal for a review of the merits.
Questions for the Tribunal to consider
Member Tang addressed three central questions in turn:
- Does the Commissioner have a discretion not to issue an assessment where a liability to duty arises under the Duties Act?
- If the Commissioner has such discretion may the Tribunal exercise this discretion on review of an assessment under the Taxation Administration Act 1997 (Vic) (TAA)?
- If the Tribunal may exercise this discretion, should it do so?
Does the Commissioner have a discretion not to issue an assessment?
The Tribunal answered the first question in the affirmative. Member Tang placed significant weight on the language of the relevant section of the TAA, which states that "the Commissioner may make an assessment of a tax liability of a taxpayer" [emphasis added]. The Tribunal cited the Interpretation of Legislation Act 1984 (Vic) which provides that the word "may" is indicative of a discretionary power.
May the Tribunal exercise this discretion on review?
The Tribunal determined that it was not entitled to exercise the Commissioner's discretion on review. Member Tang found that the TAA prohibits a challenge to the due making of an assessment once a notice of assessment is produced. Thus, any challenge sanctioned by the TAA is limited to challenging the substantive liability under the assessment. In reaching this conclusion the Tribunal agreed with the Commissioner that the making of a valid objection presupposes the existence of any assessment.
Should the Tribunal exercise this discretion?
The Tribunal considered in obiter that it should not exercise this discretion even if it were hypothetically empowered to do so.
The Applicants argued that the imposition of the additional duty was contrary to the policy rationale underlying Part 4A of the Duties Act. The Applicants referred to extrinsic materials which suggested that the relevant provisions were intended to apply to a commercial sale or arrangement, whereas the Applicants attempted to argue that their Sub-sale Agreements lacked an element of profit or "commerciality". However, the Tribunal decided that the language of the relevant provisions in Part 4A was sufficiently clear, and this obviated the need to consider extrinsic materials. Nevertheless, Member Tang rejected the contention that it is necessary to read into Part 4A a requirement to consider commerciality as a relevant matter.<
Furthermore, the Tribunal noted that this was not a case involving a single inadvertent error which was promptly disclosed to the revenue authority. Rather, there were 35 transactions over a two and a half year period, and the error was not voluntarily disclosed; instead, the issue was discovered in the course of an investigation by the Commissioner.
Key takeaways for land transfers
- The failure to obtain appropriate stamp duty advice can give rise to unforeseen liabilities.
- Although the Commissioner has an ability to exercise a discretion not to raise an assessment in respect of dutiable transactions, it is rare for the Commissioner to do so to relieve a taxpayer of a stamp duty liability. In particular, a taxpayer who failed to obtain advice, and therefore structured a transaction in a way which caused more liability than was expected, cannot look to the Commissioner to exercise his discretion to help the taxpayer out of the mess.