allens arthur robinson · allens arthur robinson ... meagher gummow and lehanes equity doctrines...
TRANSCRIPT
mlpm M0111382217v2 150630 8.9.2003 Page 1
The 16th Annual Stamp Duty Symposium
Equitable Interests
Michael Perez
Tax Partner
Allens Arthur Robinson
1. Introduction
One may be justified in thinking that the relevance of equitable interests in an Australian stamp
duty context has diminished in light of the narrowing of the conveyance duty base in most
jurisdictions; ie, the movement from taxing dealings in all forms of property to taxing limited
dealings in limited kinds of property. The reality, however, is that the concept of equitable interests,
or interests which represent less than full ownership, permeate the stamp duty regime in various
ways. The relevance, therefore, of equitable and like interests, remains, albeit perhaps in a less
transparent way.
This paper looks at the nature of equitable and like interests, and discusses some of the less
obvious ways in which they may be relevant to stamp duty.
2. Nature of equitable interests
2.1 Origins of equity
As has often been said, 'the concept of beneficial ownership owes its origin to the Court of
Chancery'.1 Whilst we can leave for the moment the question of what precisely is meant by
'beneficial ownership' in this context, and assume that it is analogous to equitable
ownership or the concept of an equitable interest, the salient point is that to understand the
nature of an equitable interest it is appropriate, if not necessary, to trace back its origin to
mlpm M0111382217v2 150630 8.9.2003 Page 2
the body of law known as 'equity' developed by the Court of Chancery in England before
1873.
An excellent historical account of that body of law is to be found in the Fourth Edition of
Meagher Gummow and Lehanes Equity Doctrines and Remedies.2 A truncated version of
that history is as follows:
(a) Equity can be described as a body of law which supplemented the common law
and sought to provide remedies to overcome some of the injustices of the common
law.
(b) The first period of equity is seen during the mediaeval period (say, the 1300's and
1400's) and centred around the Lord Chancellor of England (the head of the King's
Council). The Lord Chancellor would receive petitions seeking remedies which in
most cases, would not be available at law. Put simply, petitioners would appeal to
conscience in light of the injustices of the common law. In a loose sense, the Lord
Chancellor was holding a court which had an equitable jurisdiction. That equitable
jurisdiction comprised, inter alia, the enforcement of contracts on principles
unknown to the common law, the giving of remedies unavailable at law (eg,
injunction and specific performance) and, most importantly, the recognition,
protection and development of trusts, described by Lord Diplock as the archetype
of the concept of beneficial ownership.3
(c) Until the 1400's there was really no line drawn between the common law courts
and the Court of Chancery. There were a number of reasons for this, one being
that the remedies being dispensed by the Court of Chancery were, in some cases,
already being dispensed by traditional courts. The line, however, was drawn in the
1400's when the common law courts administered the law according to the letter,
leaving 'conscience' to be dealt with in Chancery. Accordingly, the 1400's saw the
1 Ayerst v C&K (Constructions) Ltd [1976] AC 167 at 177; Sainsbury Plc v O'Connor [1991] 1 WLR 963 at 969.2 Chapter 1.3 Ayerst at 177.
mlpm M0111382217v2 150630 8.9.2003 Page 3
development of two court systems, one administering the common law and the
other the so called 'equitable jurisdiction'.
(d) The next period of equity was the formative period covering the Tudors and the
Stuarts (say, 1500's to 1600's). During that period, the separation between the
common law and equity continued. A notable aspect of this period was the
emergence of equitable doctrines. This period saw some 'jostling' between the
common law courts and the Chancery. This resulted in the common law courts
seeking to assert their supremacy and being suggestive of the common law being
subverted by the equitable remedies granted by the Chancery. The most notable
(objectionable) remedy surrounding the grant of an injunction which together with
the recognition of trusts, were stand-outs during this period.
(e) The third period was known as the period of systemisation (say 1600's to 1800's)
which saw the development of positive rules or principles (ie, precedents), as had
been developed by the common law. An example was the systematic classification
of trusts. At the end of this period, the Chancery had developed a defined
jurisdiction over particular areas and subject matters; for example, a jurisdiction
connected with forms of property recognised in equity (eg, proprietary interests
connected with trusts).
(f) The clear division between the common law and the equitable jurisdiction
dispensed by the Chancery often gave rise to disadvantages to litigants. A notable
disadvantage was the inability of common law courts to award remedies of specific
performance, declarations or injunctions. Another, most notable, the refusal of the
common law courts to recognise equitable rights, titles and interests. At a practical
level, this meant that a defendant could not raise a purely equitable defence in a
common law court and would be left with no defence if the matter could not be
transferred to equity.
(g) The division between the common law and equity was finally brought to an end in
England by the Judicature Act 1873 which, in general terms, brought about a
fusion in the administration of the common law and equity.
mlpm M0111382217v2 150630 8.9.2003 Page 4
(h) All Australian colonies at the time, except New South Wales, followed the lead of
England and enacted legislation modelled on the Judicature Act 1873. In New
South Wales, the vesting of equitable jurisdiction in the Supreme Court has a
confusing history. Suffice it to say that between 1823 and 1972, the equitable
jurisdiction of the Supreme Court was administered distinctly from the common law.
Supreme Court judges sitting in equity had no jurisdiction to administer the
common law and vice versa. Whilst, in form, and unlike the position in England at
the time, this was not a case of there being two sets of courts (ie, one
administering the common law and the other equity), in substance, it may as well
have been the case. The fusion in New South Wales appears to have occurred in
1972.4
2.2 What are 'equitable interests'? Are they different to beneficial interests?
A question which one approaches with some hesitation is whether there is any real
distinction between the concepts of 'equitable interests' and 'beneficial interests'; are they
the same thing? One suggestion is that there is no material difference in the meaning of
the words 'equitable' and 'beneficial' when used to qualify the word 'interest'. One author,
for example has described the term 'beneficial interest' as
A right of substantial enjoyment or equitable interest, as opposed to merely nominal
ownership or legal interest.5 Emphasis added.
Similarly, it has been said that the interest which a partner in a partnership has is a
beneficial interest in each asset of the partnership, that interest being an equitable interest
enforceable in equity.6 In the words of the High Court, it was:
…recognised as a beneficial interest. As such it constitutes an equitable interest and is not
a mere equity to set aside or rectify a transaction by means of a court order…7
4 Law Reform (Law and Equity) Act 1972.5 E R Hardy Ivamy, ''Mozley & Whiteley's Law Dictionary'', 1993, 11th Edition, Butterworths
6 Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 at 327-328; FCT
v Everett (1980) 143 CLR 440 at 446-447.
mlpm M0111382217v2 150630 8.9.2003 Page 5
Another suggestion, however, is that the expression 'beneficial interest' connotes
something different to an 'equitable interest'. For example, Deane and Dawson JJ in Stern
& Anor v McArthur & Anor said:
As Deane J. pointed out in Kern Corporation Ltd. v. Walter Reid Trading Pty. Ltd. (1987) 163
C.L.R. 164, at p. 191, it is not really possible with accuracy to go further than to say that the
purchaser acquires an equitable interest in the land sold and to that extent the beneficial
interest of the vendor in the land is diminished. The extent of the purchaser's interest is to
be measured by the protection which equity will afford to the purchaser.8
Perhaps in this respect, the concept of 'beneficial interest' is equated with 'beneficial
ownership'. It should also be noted, whilst on the topic of 'beneficial ownership', that the
Courts have drawn little distinction (if any) between the concept of 'beneficial ownership'
and 'equitable ownership' deciding that the two mean the same thing.9 As was said in Kent
v The Vessel "Maria Luisa" as Surrogate for the Vessels "Monika" and "Boston Bay",10
however, the real distinction is between equitable ownership and having a beneficial
interest:
Ownership, whether legal or equitable, therefore involves something greater than beneficial
interest. Equitable ownership of property is commensurate with the right to relief in a Court
of Equity: ….. If a person has contractual rights in relation to a ship which, if performed will
result in the person becoming the owner of the ship, then the person will be regarded as the
equitable owner of the ship provided that specific performance of the contract would be
decreed: KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288, 296-
297. Thus entitlement to a vesting order or equivalent relief would be necessary before AFE
could be regarded as the equitable owner of the ship as at the relevant date: Stern v
McArthur (1988) 165 CLR 489, 523-524; Chan v Cresdon Pty Ltd (1989) 168 CLR 242, 252-
253. But that does not mean that AFE does not have an interest in the trust property,
7 Canny Gabriel at 327-328. See also Grain Elevators Board (Victoria) v The Shire of Dunmunkle (1946) 73 CLR 70 at 84;Ritchie v Trustees Executors and Agency Company Limited (1951) 84 CLR 553 at 581.8 (1987-1988) 165 CLR 489 at 522.9 Sainsbury Plc at 97110 [2003] FCAFC 93 at [66].
mlpm M0111382217v2 150630 8.9.2003 Page 6
including the ship, which equity would protect regardless of whether AFE could be called the
equitable owner.
It is submitted that there is no significant difference between concepts of 'beneficial
interests' and 'equitable interests'. Both concepts have as their core characteristic an
interest in property which can be enforced in equity.11
2.3 Are equitable interests proprietary interests or personal interests?
In early times, the maxim 'equity acts in personam' was employed to connote that equitable
interests were non-proprietary and personal in the same way in which contractual rights are
personal.12 Distinguished authors have disagreed with this position. Meagher, et als, for
example conclude:13
The truth is that for most purposes Maitland's view is today wholly incorrect; equitable rights
are, for most purposes, rights in rem in the sense that they are usually proprietary rather
than contractual, assignable rather than personal, and capable of being inherited rather than
perishing with their owner.
Even though, the distinguished authors recognise that sometimes, and for limited
purposes, some equitable rights are treated as if they were purely rights in personam.
This, for example, has been so, where the issue has been to ascribe a situs to particular
rights.14
A useful explanation of the dichotomy between rights in personam and rights in rem is
provided in Mills v Ruthol Pty Ltd15 which considered the nature of the interest of the holder
of an option over land. It was said by Palmer J, before concluding that the optionholder
had an 'undoubted equitable interest' in the land, that:
Equitable, or proprietary, interests and “mere equities” alike depend for their very existence
upon the fundamental concept that equity acts in personam and that the rights which it
11 Butterworths Australian Legal Dictionary.12 Meagher, et als, at [3-220].13 at [3-230].14 Meagher, et als, at [3-235], [3-255].
mlpm M0111382217v2 150630 8.9.2003 Page 7
recognises and enforces are not rights in rem but rights in personam. So, for example, the
beneficiary of a bare trust of land is said to have an equitable interest in the land because an
equity court, acting upon the conscience of the trustee, will compel the trustee to deal with
the land in a certain way for the benefit of the cestui que trust. Likewise, the purchaser of
land under an uncompleted contract for sale is said to have an equitable interest in the
property, but only because it is tacitly assumed that a court of equity will grant specific
performance of the contract. In examples such as these, the equitable interest is
commensurate with the availability and extent of the corresponding right in personam: see
eg Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490, at 503-504 per Isaacs J;
Central Trust and Safe Deposit Co v Snider [1916] 1 AC 266, at 272; Brown v Heffer (1967)
116 CLR 344, at 349; DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties
[1980] 1 NSWLR 510 at 518ff.16
…………………..
A right enforceable in personam in equity confers an equitable, or proprietary, interest only
when there is a nexus of sufficient propinquity between the right and the specific property to
which the right relates. What is a nexus of sufficient propinquity is the conundrum. It has
been recognised that “there is some circuity involved in finding the starting point for the
existence of ... an equitable interest, the problem being to isolate as the initiating factor the
proprietary interest or the right to enforce the interest ... This problem is almost a
jurisprudential mystery”: per Kearney J in Burns Philp Trustee Co Ltd v Viney [1981] 2
NSLWR 216, at 223.17
Two observations can be made from Palmer J's statements. The first, that an in personam
right is only elevated to a proprietary interest where there is a sufficient nexus with the
property to which it relates. In this context, it has often been said that the availability of
equitable remedies to enforce an interest is a necessary indicia of the proprietary nature of
the interest; ie, without the availability of equitable remedies no equitable property can
15 [2002] NSWSC 294.
16 at [122].17 at [124].
mlpm M0111382217v2 150630 8.9.2003 Page 8
exist.18 This leads to the second observation, namely, the isolation of the initiating factor.
As was said by Windeyer J in Colbeam Palmer Ltd v Stock Affiliates Pty Ltd 19:
There is, no doubt, some circuity in saying that the protection which the Court of Chancery
gave by injunctions to plaintiffs who had acquired trade marks by use and reputation made
such trade marks a form of property--and then saying that the intervention of the Court in
such cases was based upon the protection of an equitable proprietary interest.
Perhaps an example of the 'nexus' issue raised by Palmer J can be found in C of SR (Vic)
v Victoria Gardens Development Pty Ltd.20 The taxpayer in that case was the trustee of a
trust established for the development of land by a joint venture. Three landowners (the
transferors) agreed to make their respective portions of land available to the joint venture
and executed transfers in favour of the taxpayer as trustee. The land was held by the
taxpayer on trust for the respective transferors subject, inter alia, to the terms of the joint
venture agreement. Importantly, the transferors were not entitled to a re-transfer of their
respective portions of land but rather were only entitled to the proceeds of sale referable to
their land. The transferors' entitlement solely to proceeds would survive even the
termination of the joint venture.
The Commissioner assessed the transfers to conveyance duty. One argument raised by
the taxpayer against the assessment was that the transfers were exempt from duty on the
basis that they were made to a trustee to be held solely as trustee of the transferors
without any change in beneficial ownership. The Court disagreed with the taxpayer,
relevantly, on the basis that the joint venture agreement treated the transferors' previous
ownership of the land as having been converted to income rights. Batt J stated:21
For a correct appreciation of the operation of the JVA, it is necessary to decide whether
clause 6.2 is merely a contractual provision as to the manner in which a transferor's money
entitlement is to be paid or is a substantive provision bearing on the transferor's entitlement
18 Meagher, et als, at [4-085].19 (1968) 122 CLR 25 at 3420 2001 ATC 4001.21 at 4014.
mlpm M0111382217v2 150630 8.9.2003 Page 9
in equity or in other words evidencing or constituting its proprietary rights. I have concluded
that it is the latter…………….
Further, equitable ownership is always commensurate with the right to relief in a court of
equity, and it is difficult here to think of a case where a transferor would obtain relief
declaring its interest to be in the land originally transferred by it or giving effect to an interest
so defined. In most cases the relief would be pecuniary or would define the interest in
pecuniary terms. It is artificial to view the ''payment'' provisions as separate from those
setting out how the Land Trustee holds the land
2.4 The distinction between an equitable interest and beneficial ownership
As is made clear in the recent case of Kent v The Vessel "Maria Luisa" as Surrogate for
the Vessels "Monika" and "Boston Bay22, there is a fundamental difference between the
concept of equitable (or beneficial) interests and the concept of equitable (or beneficial)
ownership. A relevant question, however, is the circumstances in which each respective
interest will be taken to exist. The dichotomy is best explained in the context of a contract
of sale.
There appears to be two competing views as to when the beneficial ownership of property
changes under a contract of sale.
One view is that the beneficial ownership changes from the vendor to the purchaser upon
the making of a contract which is specifically enforceable.23
An alternative view, which is considered to be the better view, is that whilst a purchaser
under a contract of sale of property which is specifically enforceable has a beneficial
interest in the property, it does not become the beneficial owner of the property until it has
paid in full the purchase price for the property.24 Upon payment of the purchase price, the
vendor becomes a constructive trustee of the property for the purchaser.25
22 See 2.2 above.23 K.L.D.E. Pty Ltd (in liq) v Commr of Stamp Duties (Qld) 84 ATC 4793 at 4798; R v Australian Broadcasting Tribunal; Exparte Hardiman (1980) 144 CLR 13 at 31.24 Chang v The Registrar of Titles (1976) 137 CLR 177 at 184; Kern Corporation Ltd v Walter Reid Trading Pty Ltd & Ors(1987) 4 (1986-1987) 163 CLR 164 at 191; Stern v McArthur at 521, 522.25 Chang v The Registrar of Titles at 185.
mlpm M0111382217v2 150630 8.9.2003 Page 10
In the recent case of Road Australia Pty Ltd v Commr of Stamp Duties,26 the Queensland
Court of Appeal addressed the competing views in the context of the Queensland landrich
provisions, and favoured the alternative view discussed above. In doing so, the Court
resolved the uncertainty created by cases such as K.L.D.E. Pty Ltd (in liq) v Commr of
Stamp Duties (Qld) by saying:27
The High Court did not in K.L.D.E. unequivocally accept the proposition that the making of a
contract of sale entirely divests the beneficial interest from the vendor to the purchaser. The
dogma we are invited to apply in order to reach an apparently unjust result is that merely
agreeing to buy a piece of land makes the person who has so agreed the beneficial owner.
That statement has much to commend it: simplicity, the support of authority old and new,
and a comforting ring of familiarity. Its only demerit is that it is not true.
The Court went on to say:28
With respect, the considerations to which Deane J makes reference demonstrate that while
it may be true to say that the purchaser who has not paid the price has a beneficial interest
in the land, it borders on absurdity to ascribe to the purchaser the position of having the
whole beneficial interest, i.e. having full beneficial ownership. If the latter situation obtained,
the purchaser could, treating the vendor as a bare trustee, demand an immediate
conveyance of the legal estate: Saunders v Vautier [1841] Cr & Ph 240; 49 ER 282.
That uncertainty was also to some extent resolved in the earlier case of Mt Newman Mining
Co v Commr of State Taxation where Kennedy J said:29
As was said in KLDE Pty Ltd v Commr of Stamp Duties (Qld) at ATC 4798; CLR 297, a
purchaser under a contract for the sale of land which is specifically enforceable does have a
beneficial interest in the land, but it is one which is conditional on, amongst other things,
payment of the price. It is not the entire beneficial interest in the land. The vendor also holds
a beneficial interest in the land, albeit diminished in consequence of the contract.
26 99 ATC 4877.27 at 4880.28 at 4481-4482.29 94 ATC 4141 at 4146.
mlpm M0111382217v2 150630 8.9.2003 Page 11
The position as I see it, is accurately summarised by the Full Federal Court in Gasparin v
FC of T:30
Prior to settlement, under the contracts of sale the purchasers undoubtedly acquired
interests in equity and rights to specific performance, but the vendors did not become bare
trustees for the purchasers. The vendors retained substantial interests in the allotments
which they enjoyed as beneficial owners: see Kern Corporation Ltd v Walter Reid Trading
Pty Ltd and Others (1986-1987) 163 CLR 164 at 191 per Deane J, and Stern & Anor v
McArthur & Anor (1987-1988) 165 CLR 489 at 521-522 per Deane and Dawson JJ. In the
latter case Deane and Dawson JJ observed that:
"Any right to equitable ownership on the part of the purchaser is contingent only,
being subject to the payment of the purchase money and being said to exist only so
long as the contract remains specifically enforceable at his suit.''
3. Issues arising from a simple declaration of trust
3.1 Nature of a trust and the kind of transactions caught
It is well established that a trust, as such, is not a 'person' with legal personality distinct
from the trustee and beneficiaries.31 Jacobs considers that a trust exists:32
when the holder of a legal or equitable interest in property is bound by an obligation
cognisable and enforceable in equity to hold that interest not for his own exclusive benefit
but for the benefit, as to the whole or part of such interest, of another person or persons, or
himself and such other persons, or for some object or purpose permitted by law.33
The creation of what may loosely be described as a trust interest in property is, to varying
degrees, liable to conveyance duty in all jurisdictions.
30 94 ATC 4280 at 4286-428931 Jacobs' Law of Trusts in Australia 6th Ed at [101].32 Jacobs' at [101]33 A similar description is to be found in HAJ Ford and WA Lee Principles of the Law of Trusts at [1000].
mlpm M0111382217v2 150630 8.9.2003 Page 12
3.2 Creation of trust interests in Victoria, New South Wales, Tasmania and the ACT
The position in Victoria, New South Wales, Tasmania and the ACT is broadly similar in that
conveyance duty is imposed on a 'declaration of trust' over dutiable property whether the
declaration of trust is effected orally or in writing34. Taking the New South Wales definition,
a 'declaration of trust' means:35
any declaration (other than by a will or testamentary instrument) that any identified property
vested or to be vested in the person making the declaration is or is to be held in trust for the
person or persons, or the purpose or purposes, mentioned in the declaration although the
beneficial owner of the property, or the person entitled to appoint the property, may not have
joined in or assented to the declaration.36
Some interesting observations can be made in relation to this definition which appears to
be exhaustive:
(a) The definition requires there to be a 'declaration'. The clearest example of a
declaration is where A, who is both the legal and beneficial owner of property,
declares that the property is to held on trust for B, making B the beneficial owner
with A remaining the legal owner.37 A declaration, however, may, in appropriate
circumstances, extend to trusts by transfer.38 What, however, the concept of a
'declaration' appears to require is some positive act usually in the form of words.39
On this view, a constructive trust would not fall within the concept of a declaration
of trust.
(b) The property the subject of the declaration must be 'identified' property'. There is
some uncertainty as to when property will be 'identified'. Is there a need for the
property to be actually identified with specificity at the time of the declaration, or will
it suffice if the property, whilst not actually identified, is capable of being identified
34 NSW Act section 10; Vic Act section 9; Tas Act section 8; ACT Act section 9.35 NSW Act section 8(3)36 As to comparable definitions, see Vic Act section 7(4), Tas Act section 6(3) and ACT Act section 6.37 Ford and Lee at [6070].38 Ford and Lee at [6070].
mlpm M0111382217v2 150630 8.9.2003 Page 13
or ascertained?40 In DKLR Holding Co No 2 Pty Ltd v C of SD (NSW)41 Mason J
left the question open to some extent, although he did appear to accept that a
declaration in respect of 'any property that I may hereafter acquire' would not meet
the requirement of identification.
(c) The identified property must be property vested or which is 'to be vested' in the
declarant. Much discussion surrounds the meaning of the words 'to be vested' in
this context, particularly in light of cases such as Toohey's case, DKLR and Pendal
Nominees42. Until Pendal Nominees, the issue was whether the words 'to be
vested' imported mere futurity or whether they required an inquiry as to the
intention of (possibly) the person declaring the trust.43 The point of distinction is
borne out by Toohey J in Pendal Nominees:44
''Vested'' looks to the case of a declaration of trust of property then vested in the
person who declares the trust. ''To be vested'' looks to a declaration of trust, in
advance of the vesting in the person who declares it, of property which, in the view
of Mason J., with whom Stephen J. agreed, in D.K.L.R. Holding (see at ATC pp.
4140 and 4134; C.L.R. pp. 456 and 446 respectively), it is intended to make the
subject of the trust. In the view of Gibbs C.J. and Brennan J. the words import mere
futurity (see at ATC pp. 4130 and 4149-4150; C.L.R. pp. 439 and 471 respectively).
The inquiry as to intention now seems to have fall away.45
(d) The identified property must be held on trust for 'persons' or 'purposes'. DG Hill
raises the interesting point that this requirement will not be met where the
declaration is in favour of a trust as such, for the reason that a trust is not a
39 DG Hill Practice/Duties Legislation (NSW) at [3.0270]; Stroud's Judicial Dictionary.40 DG Hill Practice/Duties Legislation (NSW) at [3.0280].41 92 ATC 4125.42 Toohey Ltd v C of SD (NSW) (1961) 105 CLR 612, DKLR Holding Co (No 2) v C of SD (NSW) 92 ATC 4125; C of SD(NSW) v Pendal Nominees Pty Ltd 89 ATC 4207.43 See the differing views of Gibbs and Brennan JJ on the one hand, and Mason and Stephen JJ on the other in DKLR.44 at 4223.
mlpm M0111382217v2 150630 8.9.2003 Page 14
person.46 The same can be said of partnerships as such, unless they are
specifically brought within the concept of a person.47 As to 'purposes', the
suggestion is that the trust, to meet this requirement, must be for charitable
purposes.48
(e) A further issue which arises is to identify precisely the nature of the property the
subject of the trust. Some difficulties may arise where prior equitable interests in
the property have been created. The point is exemplified by Upper Hunter Timbers
Pty Ltd v C of SD (NSW).49 The taxpayer, the owner of real property, agreed in
1986 to sell the property to one of its directors for $300,000 to be satisfied by way
of set-off against a debt owed by the taxpayer to the director. The sale was oral.
In 1991 the taxpayer executed a document described as a Deed of Declaration of
Trust, which declared that the taxpayer held the property as trustee for the director.
The Commissioner assessed the Deed with conveyance duty as a declaration of
trust. The taxpayer argued that the Deed was not subject to conveyance duty on
the basis that the equitable ownership of the land had passed to the director under
the oral contract of sale. The Court upheld the assessment, concluding that the
property the subject of the declaration was the taxpayer's registered proprietorship
in the property, notwithstanding that the director had equitable interests in the
property.
3.3 Position in Queensland
The Queensland provisions impose duty on the creation or termination of a trust of dutiable
property as well as trust acquisitions and surrenders, whether oral or in writing.50
45 Pendal Nominees at 4214.46 DG Hill at [3.0270].47 cf Vic Act section 3.48 Toohey's case at 612.49 93 ATC 4859.50 Qld Act section 9(1)(i) and (j); section 9(2).
mlpm M0111382217v2 150630 8.9.2003 Page 15
Focusing on the creation of a trust over dutiable property, it seems clear that the intention
is for the provision to apply to all 'expressly or intentionally created trusts, regardless of
how they are created.51 The concept, therefore, of finding a declaration is not as critical in
Queensland as it is in New South Wales. The Queensland provisions, therefore, would
support the view that a constructive trust would fall within the concept of the 'creation of a
trust'; eg, an oral contract for the sale of land. This is supported by the Explanatory Notes
to the Queensland legislation.52
3.4 South Australia, Western Australia and the Northern Territory
The imposition of conveyance duty in these jurisdictions on a declaration of trust is to be
found in the general conveyance duty provisions.53 The essential requirement is that there
be a declaration of trust, which as we have seen in the case of New South Wales, requires
some positive act. Constructive trusts, therefore, would fall outside that concept although
they may be brought back in via the clayton's contract anti-avoidance provisions.54 Also, it
would appear that declarations over future property will not be caught.
The taxing of trust declarations through the defined mechanism of a conveyance is
supplemented by other provisions specifically aimed at trust creations.55
3.5 The problem created by Pendal Nominees
Pendal Nominees highlights the risk of double duty where a contract of sale of property
recites that the property is to be acquired or held by the purchaser as trustee or nominee
for someone else. A majority of the High Court in that case had little difficulty with the
notion that a clause of this kind operates as a declaration of trust.
That exposure still exists under the current regime.
51 Qld Act section 49(1).52 See page 18.53 SA Act Schedule 2 and section 60; WA Act Item 4 and 19 Second Schedule and section 63; NT Act Item 5 Schedule 1and definition of 'conveyance' in section 4 of the NT Taxation (Administration) Act.54 See SA Act section 71E; WA Act section 31B and NT Act section 83A.55 See SA Act section 71; NT Act section 56B.
mlpm M0111382217v2 150630 8.9.2003 Page 16
4. Valuation issues
4.1 What is the value of property where commercially it is affected by other rights and
interests?
With conveyance duty typically being levied on the higher of the consideration paid for the
relevant property and the property's unencumbered value, an issue often arises as to the
value of the property dealt with. That issue is complicated where the dealing is intended
not to affect the entire ownership of the property but lesser interests in it. In that case, the
value of the property dealt with can only be determined once the precise nature of the
property the subject of the dealing is ascertained.
In DKLR, 29 Macquarie transferred land to DKLR which, pursuant to a written declaration,
DKLR agreed to hold on trust for 29 Macquarie. The New South Wales Commissioner
assessed ad valorem duty on both the transfer and the written declaration of trust. DKLR
challenged the duty assessed on the transfer on the basis that 29 Macquarie, by virtue of
the declaration of trust, retained the beneficial ownership in the land. The consequence, it
was argued, was that 29 Macquarie only transferred to DKLR a bare legal estate in the
land which had a nominal value. The High Court rejected this argument, concluding that
what 29 Macquarie transferred to DKLR was the entire ownership in the land. Once
transferred, the declaration of trust became operative to separate and vest in 29 Macquarie
the equitable interest in the land. Gibbs CJ stated56:
Assuming, as we must, for the purposes of the case, that there was an effective transfer of
the fee simple to DKLR, the latter company then became obliged to hold the land for the
benefit of 29 Macquarie. However, the property as to which the trust was declared – the
property comprised in the declaration – was the whole right of property in the land, and not
the bare legal estate, for it was not until the declaration of trust became operative that any
separate equitable estate was created. 29 Macquarie did not transfer to DKLR the bare
legal estate; indeed it could not declare itself a trustee for itself, and then transfer the bare
legal estate to another.
56 at 4142-4143
mlpm M0111382217v2 150630 8.9.2003 Page 17
DKLR bears close analogy to the earlier case of C of SD (NSW) v Perpetual Trustees Co
Ltd.57 In that case, Mr Quigley held a beneficial interest in land and transferred that interest
to Perpetual in trust for himself for life with certain remainders over in favour of others. The
question for the High Court was whether the transfer was liable to duty on the entire value
of the interest transferred or on a reduced value which took account of the interest retained
by Mr Quigley. The High Court held that Mr Quigley transferred his entire interest in the
land to Perpetual and then proceeded to create new interests including a beneficial interest
in himself. The transfer, therefore, was liable to duty on the value of the entire interest
transferred. Quigley's case was approved by the High Court in DKLR.58.
I consider that Quigley's case and DKLR stand for the proposition that where the legal and
beneficial owner transfers property with an express intention of transferring only a bare
legal title and retaining the beneficial ownership, what he transfers is the entire legal and
beneficial ownership. The fact that in the hands of the transferee the property is
immediately impressed with a trust in favour of the transferor, does not alter the effect of
the transfer.59. In these circumstances, the value of what is transferred is the commercial
value of the entire property.
Quigley's case and DKLR, however, are distinguishable from the case where a person who
merely holds the bare legal estate in property as trustee for another transfers the bare legal
estate to a third person. In that case, subject to a legislative provision to the contrary, it is
certainly arguable that the value of what is transferred is the value of the bare legal estate
in the property.
This view was adopted by LJ Curtis (President) at first instance in Perpetual Trustee
Company (Canberra) Ltd v C for ACT Revenue.60 In that case, CPC was the trustee of the
T&G unit trust. In that capacity, CPC held a leasehold in the Australian Capital Territory.
CPC was also the trustee of another unit trust known as the Empire unit trust. In 1985,
57 (1926) 38 CLR 27258 at 4132, 4136.59 See Meagher, et als, at [7-120].60 93 ATC 2063.
mlpm M0111382217v2 150630 8.9.2003 Page 18
CPC acquired all the units in the T&G unit trust and later held the units in its capacity as
trustee of the Empire unit trust. In 1989, CPC was replaced as trustee of the T&G unit trust
by Perpetual. As a consequence, a deed effected the transfer of the leasehold by CPC to
Perpetual. The Commissioner assessed the deed with duty under section 17(1)(b) of the
former ACT Legislation on the commercial value of the leasehold. Perpetual disputed the
assessment on the ground (among others) that the deed only effected a transfer of the
bare legal estate held by CPC in the leasehold. LJ Curtis decided that whilst the deed
effected a transfer of the leasehold, the duty was to be calculated on the value of the bare
legal estate held by CPC in the leasehold. As the value of that estate was nominal, the
duty on the deed was also nominal.
In his reasons, LJ Curtis distinguished DKLR:61
In the D.K.L.R. case, A transferred land to B, B having executed a declaration of trust that it
would hold the land in trust for A. The decision of the majority of the High Court in that case
turns upon the doctrine that a person cannot create in favour of self a trust out of property
which he or she owns. When the land was transferred to B, therefore, what was transferred
was the totality of the interests in that land. The trust in favour of A did not come into
existence until after the transfer took place. The case does not, however, assist in
determination of the matter to be decided in this case, that is, how is duty to be assessed.
Under the applicable N.S.W. legislation it was held that the transfer was to be assessed
under a provision which required a conveyance made for nominal consideration for the
appointment or retirement of a trustee to be charged with the duty of $1. Ad valorem duty
was charged on the declaration of trust, on the basis that the effect of it was to return to A
the whole of the beneficial interest in the land.
31. The facts in the present case are quite different. This is a case where A, as the trustee of
a lease in favour of C, agrees to the transfer of the lease to B who is to continue to hold it on
trust for C. The beneficial interest in favour of C is already in existence at the date of the
agreement for transfer. Ad valorem duty is to be charged on the value of the interest in the
land which is agreed to be transferred. Accepting that the interest to be transferred is the
interest of the registered proprietor, the fact that the interest is subject to the existing trust
61 at 2070.
mlpm M0111382217v2 150630 8.9.2003 Page 19
must be taken into account in determining its value. This is also the conclusion reached by
the editors of Tolhurst and Wallace, Australian Revenue Duties:
"However it does seem correct to argue that a transfer of property by A to B, where
an outstanding equitable interest in the property is throughout held by a third party,
cannot be valued without 'deducting' the value of that outstanding equitable
interest. Logic would suggest that, since A is not able to pass the beneficial interest
held by another to B, it is incorrect to value the transfer as so passing that interest."
(para 8.140)
32. In my view, therefore, the Commissioner was correct in treating the deed of appointment
as an agreement for the transfer of a Crown lease, but not in assessing duty on the basis
that the value of the interest in land so agreed to be transferred was the unencumbered
value of the lease of the Canberra Centre.
The decision of LJ Curtis was appealed to the Supreme Court. Whilst Higgins J in the
Supreme Court dismissed the appeal, he did so on grounds which differed to those on
which LJ Curtis decided the case. There is some uncertainty as to whether Higgins J
accepted the analysis of LJ Curtis described above. There is a faint possibility that he did.
Higgins J said: 62
Of course, this case was not one in which the instrument in question created a new
equitable interest. That would, however, have been the situation had the appellant's
contentions concerning merger been accepted.
It follows from the authorities referred to above that, in the absence of statutory provision to
the contrary, the value conveyed by an absolute owner is the commercial value of the entire
interest. If the interest is subjected to equitable obligations by virtue of the terms on which
the legal estate is to be transferred, that circumstance does not affect the value of the
interest so transferred. That is because the equitable interest is created by, not in advance
of, the conveyance. Thus, as I have noted, had it been the case that merger had occurred
and that the conveyance fell outside of the categories of exempt instruments, duty would
have been assessable on the value of the Crown Lease. It may be noted that otherwise
62 94 ATC 4001 at 4007.
mlpm M0111382217v2 150630 8.9.2003 Page 20
there would be little need to create the relevant category of exempt instruments. Emphasis
added.
Before leaving this issue, it is necessary to consider two decisions which may be seen as
casting doubt on the general proposition referred to above; viz, Farm Products Co-
operative (Tararua) Ltd v CIR 63 and O'Sullivan v C of SD (Qld).64
In Farm Products, the appellant, in consideration of £10, was granted an option to
purchase shares in a company. To protect the rights of the appellant, the vendors
transferred the shares to the appellant which in turn, held the shares on trust for the
vendors. The appellant later orally exercised the option and paid the purchase price for the
shares to the vendors. As, however, the appellant already had legal title to the shares, it
was unnecessary for it to receive a transfer of the shares. It was accepted by the parties
that the transfer of the shares by the vendors to the appellant was a conveyance of
property for the purposes of the New Zealand Stamp Duties Act. At issue was the value of
the shares transferred. The appellant argued that what was transferred to it was the bare
legal estate in the shares. This was because, at the time of execution of the transfer, the
appellant had merely held the shares in its capacity as a security holder. The Court
disagreed with this argument. The Court found that what was transferred to the appellant
was the shares. The conclusion, therefore, was inescapable that the duty was payable on
the value of the shares and not on the value of any lesser interest in the shares. The Court
said that it was:65
…meaningless to speak of the transfers as transferring the 'bare legal estate' in the shares,
or of valuing this 'bare legal estate'. The shares were property. They were transferred. He
who takes a transfer or conveyance of the legal estate in property takes a transfer or
conveyance of that property. The property of which he takes a transfer or conveyance may
be the subject of equitable interest vested in equity in another. But this does not affect the
position at law; and at law he becomes the proprietor of the property of which he has taken a
transfer or conveyance. It is the value of the property transferred on conveyance which
63 [1969] NZLR 874.64 83 ATC 4684.
mlpm M0111382217v2 150630 8.9.2003 Page 21
determines the assessment, and this is unaffected by the existence of any outstanding
equitable interest…
In DKLR, Farm Products was held to be clearly distinguishable66. In any event, whilst
DKLR distinguished Farm Products, I consider the facts in Farm Products to be closer to
those in Quigley's case and DKLR to those in the Perpetual case.
In O'Sullivan, trustees which held land transferred the land to the beneficiaries of the trust.
The Queensland Commissioner assessed the transfers with ad valorem duty on the entire
value of the land. The primary issue before the Court was the jurisdictional issue of
whether the appellant could challenge the assessment by originating summons rather than
by the case stated procedure in the Queensland Stamp Act. GN Williams J, however, also
considered, by way of obiter, the substantive issue of whether the transfer merely effected
a transfer of a bare legal estate in the land. Williams J concluded that what the trustees
transferred was the land and not just a bare legal interest in land. He states67:
It was asserted by the respondence that the transfers in question were transfers of the 'bare
legal estate' only. I cannot accept that proposition. By definition, a trust is an equitable
obligation, binding the trustee to deal with property in respect of which he has either legal
title or control, for the benefit of a beneficiary. The obligation is not only one in personam,
but also one which is affixed to the property in question. Where there is a 'bare trust', and
the beneficiary is sui juris, the beneficiary may put an end to the trust by requiring the
trustees to transfer the trust property to him (Saunders v Vautier (1841) Cr. and Ph. 240;
49 ER 282). Against that background it is not unusual for lawyers to say that the equitable
estate is vested in the beneficiary. But it must not be overlooked that at law the fee simple
in land, being trust property, is vested in the trustee, and when the trustee conveys the
property to the beneficiary, thereby putting an end to the trust, he conveys the fee simple to
him. Particularly where the land is subject to the Real Property Act there can be no transfer
of a bare legal interest as such (cf Ex parte Property Unit Nominees (No. 2) Pty Ltd (1981)
65 at 83866 at 4133.67 at 4696, 4697.
mlpm M0111382217v2 150630 8.9.2003 Page 22
Qd R 178 and DKLR Holding Co (No 2) Pty Ltd v Commr of Stamp Duties
(NSW) 82 ATC 4125; (1982) 56 ALJR 287, especially at ATC p. 4143, ALJR p 299)
4.2 The impact of Pioneer Concrete68
The taxpayer in that case purchased land occupied by a partly worked out sand quarry.
The contract of sale was interdependent with a separate document. The combined effect
of both documents was to reserve to the vendor certain rights in relation to the land. The
rights at issue were 'tipping rights' in relation to portions of the land. The price paid by the
taxpayer for the land excluded the value of the tipping rights retained in the vendor. Those
rights, however, pursuant to another arrangement, were then sold for value by the vendor
to a company related to the purchaser of the land.
The Commissioner assessed the transfer of the land on a value which included the value of
the tipping rights. The taxpayer argued that in determining the value of the land,
consideration had to be given to the tipping rights reserved to the vendor under the
contract of sale which significantly diminished the value of the land.
The High Court agreed with the Commissioner and upheld the assessment.
I have some difficulty in fully understanding the basis of the High Court's decision. On a
narrow view, the High Court can be taken as saying that rights affecting property will not
impact the value of the property unless the rights are proprietary rights which qualify the
title to the property. In this case, the tipping rights were considered to be personal rights
which rested in contract and thereby did not qualify the title to the land.69 On a broader
view, one can say that the High Court decision was not based on the personal nature of the
tipping rights but rather on an analysis, consistent with DKLR, that what was transferred to
the taxpayer was the entire fee simple which then became subject to the vendor's tipping
rights.
It would appear, certainly not without doubt, that the High Court's decision was based on
the narrow view. If so, the implications would be that personal rights created in relation to
68 Commr of State Revenue (Vic) v Pioneer Concrete (Vic) Pty Ltd 2002 ATC 4826.
mlpm M0111382217v2 150630 8.9.2003 Page 23
property will not affect the value of the property for stamp duty purposes, even where those
rights are created before the relevant dealing with the property.
Importantly, however, the High Court suggests that where property is sold subject to a pre-
existing proprietary right affecting the property, then the right must be taken into account
when determining the value of the property for stamp duty purposes. The majority said:70
The assumption upon which the argument proceeded is consistent with what was said by
Mason J in DKLR Holding. It [Bradney's case] was not a case of a transfer and a lease
back. What was sold was the freehold interest subject to a pre-existing lease; the reversion.
The pre-existing lease qualified the nature and extent of the proprietary interest that was
available to be transferred. Subject to the possibility that it might be said to be an
encumbrance, it was to be taken into account in considering the nature, and therefore the
value, of the property that was transferred.
What is the difference, one may ask, between the case of land which at the time of the
dutiable dealing is subject to a pre-existing lease and the case of land which at the time of
the dutiable dealing is subject to a pre-existing trust in favour of a beneficiary? If the land
in both cases is sold subject to the pre-existing proprietary interest, then in both cases, the
pre-existing interest should be taken to qualify the value of the land (subject, of course, to
the anti-Bradney avoidance provisions). This kind of analysis supports the position taken
by LJ Curtis in Perpetual.
5. Equitable interests and the landrich rules
5.1 What is the position with mining tenements?
The question of whether mining tenements, both petroleum and 'hard rock', are land
interests for the purposes of the relevant land rich rules is not as easy to answer as may be
first thought.
69 at 4884-4885.70 at 4886.
mlpm M0111382217v2 150630 8.9.2003 Page 24
Taking petroleum titles first, and in particular those granted under the Commonwealth
Petroleum (Submerged Lands) Act 1967, the following observations can be made:
(a) Petroleum titles do not comprise land in any State or Territory as they are located
outside the outer limits of Australia’s territorial sea and are thereby clearly outside
the geographical boundary of any State or Territory which ends at the low water
mark71.
(b) It is clear that at least in relation to exploration titles, whilst they constitute property,
they will not constitute land assets as they do not confer an interest in land72. This,
to some extent, is expressly reflected in some jurisdictions.73 But what about
production titles? In my view, they do not constitute 'land' in the ordinary sense.
One reason is because the titles are located outside the outer limits of Australia’s
territorial sea and are thereby incapable of conferring any estate or interest in
land74. Another is that the ordinary meaning of ‘land’ is the solid portion of the
earth’s surface, which does not include sea, water or, unless context otherwise
permits, the sea-bed75. Petroleum titles, being statutory rights in relation to the
sea-bed or installations comprised on the sea-bed, would not fall within the
ordinary meaning of ‘land’. It may be suggested, however, that a contrary intention
is evinced in jurisdictions like South Australia, where land extends to a right to
explore or recover for petroleum76. That right, however, is itself qualified by
reference to 'land'.
71 New South Wales v Commonwealth (1975) 135 CLR 337; Commonwealth v Yarmirr (2001) 184 AJR 113 at paragraph218; Risk v Northern Territory (2002) 76 ALJR 845 at paragraph 24. 72 Commonwealth v WMC Resources Ltd (1998) 194 CLR 1 at 20, 38-39, 66-67.73 See, for example, the Qld Act definition of 'land' in the Dictionary.74 Commonwealth v WMC Resources Ltd at 20, 38-39, 66-67.75 Risk v Northern Territory (2002) 76 ALJR 845 at paragraphs 26, 42.76 SA Act 'land asset' section 91(1)
mlpm M0111382217v2 150630 8.9.2003 Page 25
(c) An interesting issue is whether my conclusion in (b) above is affected by specific
provisions like those in the Northern Territory legislation which define land to
include mining tenements and 'interests similar to mining tenements'.77
A ‘tenement’ is something in which a person can have an estate in freehold, and
which is connected with land or incidental to land.78 ‘Mining’ tenements, in my
view, are ‘tenements’ which confer a right to extract minerals. In context, ‘mining
tenements’ are limited to those which are granted over waste lands of the Crown.
Petroleum titles are not tenements in the legal sense as they do not confer an
estate in freehold. There are not, therefore, ‘mining tenements’. Equally they are
not considered to be rights or interests 'similar in nature to mining tenements’.
Now dealing with 'hard rock' tenements, it can be observed that in some jurisdictions,
exploration permits are expressly excluded from the concept of 'land'.79 In other
jurisdictions, however, they are specifically included.80 Then we have the position in
jurisdictions like Victoria81 where mining tenements are not directly dealt with, but may be
said to be indirectly dealt with by the concept of a profit a prendre, which is specifically
excluded from the concept of 'land'.82
A profit a prendre is a right granted in a person to take something out of the soil.83
A mining lease granted under the mining legislation confers on the holder the right to
extract minerals from land; ie, 'to take something out of the soil'. I consider, therefore, that
77 NT Act section 56N(7)(a).78 Halsbury’s Laws of Australia at [355-15]; Halsbury’s Laws of England 4th Ed, Vol 39(2) at para 78.79 See, for example, Qld Act definition of 'land' in the Dictionary.79 SA Act 'land asset' section 91(1)80 See, for example, SA Act 'land asset' in section 91(1); WA Act 'land' in section 76(1).81 See also NSW Act section 108(1), ACT Act section 80(1) and Tas Act section 61(1).82 Vic Act section 73(1).83 Ashgrove Pty Ltd v DFCT 94 ATC 4549 at 4557.
mlpm M0111382217v2 150630 8.9.2003 Page 26
a mining lease granted under mining legislation is a statutory profit a prendre. This view is
supported by numerous authorities.84
The position in relation to mining leases granted under New South Wales mining legislation
is best summarised by Windeyer J in Wade v New South Wales Rutile Mining Co Pty Ltd.
In referring to mining leases granted under the 1906 Mining Act, he said:85
A mining lease of this land is really a sale by the Crown of minerals reserved to the Crown to
be taken by the lessee at a price payable over a period of years as royalties.
Consistent with that approach, the Full Federal Court in the recent case of FCT v Lamesa
Holdings BV,86 summarised the position generally as follows:87
Mining leases, whether from the Crown or private leases, might not be 'leases' in a technical
sense. They may be said to grant a profit a prendre with a right of entry. But they are
clearly direct interests in or over land to be assimilated to real property.
On the basis of these authorities, I consider that a mining lease granted under relevant
mining legislation is a profit a prendre and thereby excluded from the concept of land in
jurisdictions like Victoria.
5.2 What is the position of a purchaser under an uncompleted contract for the sale of
land
As discussed above,88 the preferred view is that a purchaser under an uncompleted
contract for the sale of land has a beneficial interest in the land but, unless the purchaser
has paid the full price for the land, is unlikely to be the beneficial owner of the land.
In Road Australia89 a purchasing company executed a contract for the purchase of land in
Queensland and paid a deposit of $50,000. The purchase price was $1.75m. Before the
84 See Gowan v Christie (1873) LR 2 Sc & Div 273 at 284; Mittagong Shire Council v Mittagong Anthracite Coal Co Ltd(1957) 3 LGRA 290 at 295-297; CSD (NSW) v Henry (1964) 114 CLR 322 at 335-337; Mills v Stockman (1966) 116 CLR 61at 71, 77 and 79; Wade v New South Wales Rutile Mining Co Pty Ltd (1969) 121 CLR 177; Unimin Pty Ltd v Commonwealth(1974) 22 FLR 299 at 306.85 at 192.86 97 ATC 4752.87 at 4760.88 See 2.2.
mlpm M0111382217v2 150630 8.9.2003 Page 27
contract of sale was completed, the taxpayer bought all the shares in the purchasing
company. At issue was whether the purchasing company had a relevant land interest in
the land and if so, the value of that interest at the time of the taxpayer's acquisition of the
shares. The Commissioner effectively argued that the purchasing company at the relevant
time had the full beneficial ownership in the land and that its value was $1.75m. The
taxpayer, on the other hand, argued that any interest of the purchasing company was less
than the full beneficial ownership in the land and its value was no greater than the deposit
paid.
The Court agreed with the taxpayer in holding that whilst the purchasing company had a
beneficial interest in the land, it bordered on absurdity to describe that interest as the full
beneficial ownership of the land. The purchasing company's interest was only a partial
interest and its value was only equal to the deposit paid. On this conclusion, the
purchasing company was not, at the relevant time, a 'landholder'.
Road Australia distinguished Mertune Pty Ltd v Commr of Stamp Duties90 and Tokyo City
Pty Ltd & Anor v Commr of State Taxation (WA).91 I would add that there must now be
some doubt as to the correctness of these decisions, particularly that of Tokyo City.92
Road Australia applied before the introduction of the Queensland landrich rules to
specifically deal with the position of a purchaser and vendor under an uncompleted
contract of sale of land.93 Importantly, those provisions not only deem the interest of a
purchaser of an uncompleted contract of sale of land to be 'land' but also, it seems, to bring
in the value of the whole land for the purposes of determining whether the purchaser is a
landholder. It is that second form of deeming which seeks to overcome the decision in
Road Australia.
89 99 ATC 4877.90 94 ATC 4458.91 98 ATC 4036.92 See, for example, the analysis in Sainsbury Plc.93 Qld Act section 167(1)(c) and 171.
mlpm M0111382217v2 150630 8.9.2003 Page 28
Interesting, the equivalent provisions in, say, Victoria and New South Wales, may not go
that far.94 Take, for example, the Victorian provision section 73(3). It provides that both
the vendor and purchaser under an uncompleted agreement for the sale of land are taken
to be separately 'entitled' to the whole of the land. 'Entitled' is defined to mean 'beneficially
entitled'.95 I will assume that the effect of section 73(3) is to deem both the vendor and the
purchaser to separately have the beneficial ownership of the entire land. To this extent,
the section creates a statutory fiction and must, therefore, be construed strictly.96 On a
strict reading, the statutory deeming of section 73(3) affects only the characterisation of the
vendor and purchaser's interest in the land and not its value.
A further observation is that section 76(3) provides that an acquisition of shares in a
company is disregarded if at the relevant time, the company did not 'hold' land in Victoria.
The Victorian legislation does not define 'hold' in this context.97 On one view, based on its
ordinary meaning, the word 'hold' connotes legal ownership and not beneficial ownership.98
Finally, the statutory deeming only applies where there is an uncompleted agreement for
the 'sale' of land. The word 'sale' is not defined in the Victorian legislation, and in its
ordinary meaning, connotes an exchange of property for money.99 Based on that ordinary
meaning, an agreement for the exchange of property for land would not fall within section
73(3).100
94 Vic Act section 73(3); NSW Act section 108(3); Tas Act section 61(4) and ACT Act section 80(3). See also corcompleteness, WA Act section 76AI(5) and NT Act section 56N.95 Vic Act section 3.96 Muller v Dalgety & Co Ltd (1909) 9 CLR 693 at 696; FCT v Comber 86 ATC 4171 at 4177-4178.97 cf SA Act section 91(1).98 Avon Downs Pty Ltd v FCT (1949) 78 CLR 353; Dalgety Downs Pastoral Co Pty Ltd v FCT (1952) 86 CLR 335.
99 See, for example, Smith v FCT (1932) ATD 72 at 75.100 cf Qld Act and the concept of 'sale agreement' and 'purchase agreement' which deals with disposals and acquisitions.
mlpm M0111382217v2 150630 8.9.2003 Page 29
5.3 What is the position when a landholding company is liquidated?
An interesting issue arises when a liquidator is appointed to a landrich company, the issue
being whether consequent upon the appointment, the beneficial ownership of any land
owned by the company at that time ceases to be vested in the company.
The issue has its source in the House of Lords decision in Ayerst (Inspector of Taxes) v C
& K (Constructions) Ltd101 which is taken to stand for the proposition that upon the making
of a winding-up order, the relevant company is divested of the beneficial ownership of its
assets. That is not to say, according to the House of Lords, that the beneficial ownership
vests in any other person but rather, the beneficial ownership is suspended.102 That
decision is in direct conflict with the High Court decision in Franklin's Selfserve Pty Ltd v
FCT103 the views of which appear to be preferred by Australian courts.104
Having said this, an interesting issue would arise in the landrich context should there be
renewed support for the position taken in Ayerst.
6. Cancellations and refunds
In those jurisdictions which impose duty on agreements for the sale of dutiable property, provision
is made for a refund (or remission) of duty where the agreement is rescinded or annulled before
completion.105 Most of these provisions are largely uncontroversial with the exception of the
Western Australian provision section 15A.
Generally speaking, the availability of a refund under section 15A requires not only that the
instrument be rescinded, but that each matter contained in it not be carried out or into effect, and
that no 'money, right, property or service in respect of the instrument' be obtained by a relevant
person.
101 [1976] AC 167.102 cf Wood Preservation Ltd v Prior [1969] 1 WLR 1077.
103 70 ATC 4079.
104 CPH Property Pty Ltd v FCT 98 ATC 4983 at 5006.
mlpm M0111382217v2 150630 8.9.2003 Page 30
One can perceive some technical difficulty is satisfying the requirement that no 'right or property' be
obtained in the case of a rescission of an uncompleted contract for the sale of land. This is
because the purchaser would, before the rescission, have vested in it a beneficial interest in the
land.
A somewhat related issue was considered in C of ST (WA) v Kitchener Mining NL.106. On 1
September 1987, three parties to a joint venture executed a letter agreement under which the full
beneficial interest of property held by two of the venturers became vested in the third venturer
(ie, the taxpayer). The letter agreement, whilst binding, was subject to a formal agreement, and
surprisingly, was stamped with nil duty. One year later, the same parties executed a formal deed
effecting the same transaction, which was assessed with ad valorem duty.
The taxpayer, who was unable to pay the duty, agreed with the other parties to rescind the deed
and sought a refund under section 15A. The Commissioner refused the refund as he considered
that benefits had passed to the taxpayer, being the beneficial ownership in the property acquired by
the taxpayer under the letter of agreement.
The Full Supreme Court disagreed with the Commissioner on the basis that the required nexus
under section 15A was between the benefit and the instrument, and not some broader transaction
or arrangement. Accordingly, whilst in this case, as part of a broader arrangement comprising the
letter agreement, the taxpayer obtained a benefit (ie, beneficial ownership in the property), no such
benefit was passed to the taxpayer by the deed. As stated by Nicholson J:107
It will be seen that in terms the Deed did nothing. It certainly did not pass any interest of a legal or
equitable nature in the mining tenements to the respondent. The Deed achieved nothing which had
not already been effected pursuant to the Letter Agreement.
A related issue arises in the context of section 50A of the New South Wales legislation which
exempts from duty a written transfer of dutiable property that is cancelled. One requirement of the
105 NSW Act section 50; Qld Act section 115; SA Act section 31(4); WA Act section 15A; ACT Act section 50; Tas Actsection 33 and NT Act section 56.106 94 ATC 4987.107 at 4997.
mlpm M0111382217v2 150630 8.9.2003 Page 31
exemption is that the transferee has not claimed any 'equitable interest' in the dutiable property the
subject of the transfer (such as, in the case of land, by lodging a caveat on the title to the property).
As noted by DG Hill, there is some uncertainty as to what would amount to a claim of an equitable
interest in the property in a case where no explicit claim is made. Will it suffice if there is a mere
vesting in the purchaser of an equitable interest under an unconditional contract for the sale of
property?108
Michael Perez
Tax Partner
Allens Arthur Robinson
4 September 2003
108 DG Hill at [3.2822].