The vast majority of the decisions we make each year are undisputed by our customers, but inevitably there are situations where litigation is required to resolve an issue. The following case summaries, by revenue line, illustrate some of the types of taxation cases conducted in 2018-19.
Land Tax Act 2005 (LTX Act)
Trust surcharge
J.D.S. Paris Constructions Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2019] VCAT 615
Background
This matter involved the 2013 land tax assessment issued to the taxpayer at the trust surcharge rate. The director of the taxpayer agreed that the taxpayer owned the disputed lands in its capacity as trustee of a trust, however, it claimed that it had notified the Commissioner of its unit holdings under s46C of the LTX Act prior to 2006 and the disputed lands should therefore be assessed only at the general rate of land tax and not at the trust surcharge rate.
Decision
On 30 April 2019, the tribunal handed down its decision in favour of the Commissioner.
The tribunal found that the taxpayer had failed to discharge its onus of proof that the relevant nomination was lodged with the Commissioner for the purposes of s46C of the LTX Act and confirmed the assessment.
Principal place of residence exemption
Esparon v Commissioner of State Revenue (Review and Regulation) [2019] VCAT 870
Background
The matter involved the 2013 and 2014 land tax assessments issued to the taxpayers for land tax in respect of vacant land. The assessments were issued on the basis that the taxpayers did not use and occupy the land as their principal place of residence (PPR) for the purposes of sections 53 and 54 of the LTX Act.
Decision
On 12 June 2019 the tribunal found that the taxpayers were not lawfully entitled to use the caravan on the land as their PPR, as they did not hold the required council permit. By virtue of s53(1)(b), a building that is not lawfully used as a place of residence is taken not to be occupied as a place of residence. Accordingly, the taxpayers could not satisfy the requirements of the PPR exemption in s54(1)(a) of the LTX Act.
Charitable institutions and purposes – exemption (s.74)
Lions Club of Northcote Inc. v Commissioner of State Revenue (Review and Regulation) [2019] VCAT 75
Background
This matter concerned whether land used as an opportunity shop in Thornbury was exempt under s74 of the LTX Act if it was used by a charitable institution exclusively for charitable purposes. The issue before the tribunal was whether the taxpayer itself was a charitable institution, which required consideration of all of its purposes and activities, particularly those purposes or activities of benefit to its members.
Decision
On 16 January 2019, the tribunal ruled in the Commissioner’s favour and found that the club engaged in certain activities designed to further objects such as uniting its members in good fellowship and encouraging high ethical standards in public and private endeavours. Neither of these purposes or activities could be characterised as a means to a charitable end. These purposes were found to be substantial and independent objects for which it was established (i.e. not ancillary or incidental to a charitable purpose) and so prevented the taxpayer from being a charitable institution for the purposes of s74 of the LTX Act.
'Lease' of Crown lands
Living and Leisure Australia Ltd v Commissioner of State Revenue [2019] HCA Trans 056 Summary of hearing of application for special leave to appeal
(The High Court does not publish formal reports of its reasons and decisions for special leave applications and only publishes a hearing transcript - the above citation identifies the transcript only.)
Background
This case concerns the land tax liability for the 2010 to 2015 years for Crown lands comprising the Falls Creek and Mount Hotham alpine resorts, occupied by the taxpayer under various agreements.
The issue was whether the relevant agreements are leases. The taxpayer submitted the agreements did not amount to a lease as they did not grant exclusive possession as they allowed the public significant freedom in accessing the lands. The Commissioner’s position was that exclusive possession was granted because the access allowed to the public is crucial to the commercial and public purposes of the alpine resorts and is in any event sufficiently limited.
Supreme Court decision
On 1 December 2017, Croft J decided in favour of the Commissioner, confirming that each agreement in issue was a lease.
Court of Appeal decision
On 15 January 2018, the taxpayer brought an application for leave to appeal from the decision of the Supreme Court. On 17 September 2018, the Court of Appeal handed down a majority decision in favour of the Commissioner.
High Court decision re taxpayer’s application for special leave
On 22 March 2019, the High Court refused the taxpayer’s application for special leave.
Duties Act 2000 (Duties Act)
Property passing to beneficiaries of discretionary trusts (s.36A)
Astakhov v Commissioner of State Revenue (Review and Regulation) [2018] VCAT 1363
Background
The taxpayer, as trustee of a family trust, transferred the beneficial interest in the residential property to himself. He claimed that the transfer was exempt under s36A of the Duties Act on the basis that he received it as a beneficiary of the trust. The Commissioner held that the transfer was not exempt on the basis that it had been made for consideration and did not meet the criteria in sub-section (1)(e) of the exemption.
Decision
On 4 September 2018, the tribunal decided in favour of the Commissioner, holding the exemption did not apply as there was consideration for the transfer in the form of waiver, by conduct, of the loans owing by the trust to the beneficiaries. The tribunal alternatively found that given the taxpayer chose not to provide any financial statement or other information relating to the winding up of the trust, the taxpayer had failed to discharge its onus to show that there was no such consideration.
Property passing to unitholders in unit trust schemes (s.36B)
Lincara Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2018] VCAT 1060
Background
Over an 11-year period between 1985 and 1996, a trustee acquired three properties as trustee of a unit trust. In April 2016, the trustee transferred the properties to the taxpayer. At the time of the transfers, the taxpayer was the sole unitholder of the trust, and held its units in its capacity as trustee of a super fund since 2007. The super fund had been established in 1995.
The Commissioner disallowed the objection on the basis that the requirements of s.36B(1)(b) of the Duties Act were not satisfied as the taxpayer was not a unitholder at the relevant time, being when the properties were acquired by the unit trust.
Decision
On 9 July 2018, the tribunal found in favour of the Commissioner, holding that the exemption in s36B did not apply to the transfers, accepting the Commissioner’s submission that the ‘relevant time’ should be interpreted in accordance with its ‘plain and ordinary meaning’, being ‘when the Trustee acquired each of the Relevant Properties’.
Deceased estates (s.42)
Ford v Commissioner of State Revenue (Review and Regulation) [2019] VCAT 405
Background
The matter concerned the transfer of a property from a deceased estate. Prior to the transfer, it was agreed that although the property had been bequeathed to the taxpayer’s sister, a half interest in the property would be transferred to the taxpayer in return for him transferring to his sister $290,000, which was funded by cash distributions he received as part of his entitlement in the estate of the deceased. The other half share was held by his niece and her husband.
The issue was whether s42 of the Duties Act exempted the transfer of the property to the taxpayer.
Decision
On 25 March 2019, the tribunal held that the transfer was not exempt as two key requirements of s42(3) of the Duties Act were not met. The tribunal found that:
- The evidence was consistent with the transfer to the taxpayer having been made for valuable consideration.
- The transfer could not have been in satisfaction of any entitlement the taxpayer had under the will of the deceased as any such entitlement had already been satisfied when the taxpayer received distributions from the estate (which did not include the property).
Acquisition of interests in a landholder
Zarpat Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2019] VCAT 306
Background
The issue was whether the taxpayer’s acquisition of a 25% interest in a unit trust constituted a ‘relevant acquisition’ within the meaning of s78 of the Duties Act. This turned on whether the transaction had breached the terms of a trust deed and whether a resulting trust arose over the units so that no beneficial interest could be conveyed to the taxpayer.
Decision
On 4 March 2019, the tribunal decided the matter in favour of the Commissioner. Among other things, it held that irrespective of whether there was a breach of trust, a resulting trust could not have arisen in the circumstances. Among other things, there was no transfer to a trustee on a trust that either failed or was incomplete. The transfer was also purportedly made by way of a capital distribution. This was similar to a gift, which falls outside the scope of a presumed resulting trust.
Payroll Tax Act 2007 (PTX Act)
Employment agency contracts – chain of on-hire (s.41)
Kelima Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2019] VCAT 404
Background
One of the taxpayer’s major clients was DB Results Pty Ltd (DBR) which operated an IT consultancy business. DBR’s clients, in turn, relevantly included SPI Electricity Pty Ltd (AusNet), which was the ultimate client in the arrangement between the taxpayer and DBR.
The Commissioner assessed the taxpayer in respect of payments made in the two financial years to IT workers whose services the taxpayer provided to DBR.
The case turned on two questions:
- Whether the DBR was an employment agent in its own right, thereby giving rise to a case of chain of on-hire.
- If yes to 1, whether the payroll tax liability should then lie with DBR and the taxpayer be excused, by either application of s41 of the PTX Act or under the Revenue Ruling PTA-027 ‘Employment Agency Contracts – Chain of on-hire’ (Ruling).
Decision
On 25 March 2019, the tribunal handed down its decision in favour of the Commissioner.
For the 2015 financial year assessment, the tribunal determined that DBR was not an employment agent as its contractual arrangements with its own client, AusNet, did not meet the description of an employment agency contract for the purposes of the PTX Act. The taxpayer, accordingly, could not be relieved of liability.
For the 2016 financial year assessment, due to the change in contractual arrangements, it was accepted that DBR was an employment agent for the purposes of that tax year. However, the tribunal determined that the taxpayer was not relieved of payroll tax liability under either s41 of the PTX Act or the Ruling, because:
- Section 41 did not apply as DBR had not paid payroll tax (a mandatory requirement in s41).
- The Ruling sets out an administrative practice only and cannot provide the basis for a discretion to relieve the taxpayer of liability where such a discretion does not exist in the legislation itself.
First Home Owner Grant Act 2000 (FHOG Act)
Prior grant and penalty for dishonesty
Lu v Commissioner of State Revenue (Review and Regulation) [2019] VCAT 542
Background
The Commissioner reversed his decision to pay a first home owner grant of $7,000 to the applicant on the basis that she had applied for and received an earlier grant with her former husband, which had not been repaid, and was thereby ineligible under s10 of the FHOG Act to apply for a later grant. The Commissioner also imposed a penalty of 50% of the amount of the grant under s48(2) as a result of the applicant's dishonesty in applying for the later grant.
Decision
On 17 April 2019, the tribunal handed down its decision in favour of the Commissioner, confirming the Commissioner's decision on all grounds.
The tribunal was satisfied that the applicant falsely declared that she had not previously received a grant and that it was on the basis of this false declaration that the Commissioner paid the later grant.