Milstern Nominees Pty Ltd v Chief Commissioner of State Revenue  NSWSC 68 concerned an acquisition in a landholder where the landholder was deemed to own the land (but did not own the land as matter of fact), and the acquisition did not change the control of the landholder. In such circumstances, the Supreme Court of New South Wales held that the Chief Commissioner of State Revenue should have exercised the discretion available under section 163H of the Duties Act 1997 (NSW) to exempt the acquisition from landholder duty.
The Supreme Court’s decision provides a useful example to taxpayers of when the “just and reasonable” exemption from landholder duty should be exercised by the Chief Commissioner.
The taxpayer, Milstern Nominees Pty Ltd (Nominees), acquired eight out of nine issued shares in Milstern Enterprises Pty Ltd (Enterprises). Enterprises was a beneficiary of the Landsell Trust (Trust), a discretionary trust which had land holdings in NSW valued at more than $2 million. Nominees was liable to pay landholder duty on its acquisition of the shares in Enterprises under the landholder duty provisions of the Duties Act 1997 (NSW) (Act).
The sole director and shareholder of Nominees (MP) was the holder of the ninth share in Enterprises. On the basis of MP’s control of the trustee, the appointer and the guardian of the Trust, MP could control the disposition of the Trust assets and there was nothing that the other beneficiaries of the Trust could do to influence the distribution of income or capital of the Trust.
The dispute involved whether the Chief Commissioner should have exercised the discretion under section 163H of the Act to exempt Nominees from landholder duty on the basis that it would not be “just and reasonable” for the landholder duty provisions to apply to the acquisition of the shares in Enterprises by Nominees.
Under section 159 of the Act, the beneficiary of a discretionary trust is deemed to own or otherwise be entitled to the property the subject of the trust. As a beneficiary of the Trust, Enterprises was therefore deemed to be a private landholder.
By acquiring eight out of nine shares in Enterprises, Nominees made a “relevant acquisition” of a “significant interest” in a private landholder under Part 2 of Chapter 4 of the Act. This gave rise to a liability to landholder duty.
However, section 163H confers a discretion on the Chief Commissioner to grant a full or partial exemption to the payment of duty if the Chief Commissioner is satisfied that the application of landholder duty to the acquisition would not be “just and reasonable”.
The parties’ submissions
Nominees submitted that the power under section 163H to grant an exemption should be exercised in this case because the acquirer had no intention of avoiding stamp duty and the acquisition would have no practical impact on the way in which the land held on trust could be appointed or enjoyed.
On the other hand, the Chief Commissioner argued that the focus of the landholder duty provisions is based on the concept of an acquisition of an “interest”, not on the notion of “control” over the landholder or “economic or beneficial ownership” of the landholder’s property. On this basis, the absence of any change in control did not support the exercise of the discretion under section 163H. Further, it was not necessary to consider whether the acquisition was being made to avoid duty.
The Chief Commissioner also submitted that:
- in considering the application of section 163H, it is necessary to compare the relevant acquisition with the duty that would be payable on a direct transfer of the land; and
- the discretion in section 163H was provided to avoid the imposition of “double duty”.
As a direct transfer of land in this case would be liable to duty and this was not a case where double duty would arise, the Chief Commissioner submitted that the discretion should not be exercised.
The Court’s finding
The Court held that the Chief Commissioner should have exercised his discretion to exempt Nominees from landholder duty under section 163H.
In agreeing with the taxpayer, His Honour held that no dispensation would ever be available under section 163H if one were to always assume that duty on a relevant acquisition is payable as if the acquisition were a direct transfer of land. His Honour held that the acquisition should only be considered as a direct transfer of the land if the circumstances of the case make that a reasonable postulate.
His Honour found that the discretion under section 163H should not be limited to avoiding the application of double or multiple duty by the same acquisition. Rather, the relevant inquiry is whether, in the whole of the circumstances of the case, it is not just and reasonable (having regard to the purposes of Chapter 4 of the Act) that landholder duty be payable on the relevant acquisition.
In this case, His Honour found that it was not just and reasonable that Chapter 4 apply to the acquisition by Nominees of the shares in Enterprises where Enterprises, as a matter of fact, did not own or control the land, or have any expectation of receiving the land or any proceeds of sale of any part of the land, or any income from it. That question was assessed against the background that Enterprises’ position as a discretionary object of the Trust was irrelevant to Nominees’ acquisition of the shares in Enterprises.
Some caution should be exercised when considering the implications of this case given the specific nature of the landholder (i.e. that Enterprise was a beneficiary of a discretionary trust and had no control over the land in question). However, it should be noted that this case confirms that the exemption under section 163H of the Act is not limited to avoiding the application of double or multiple duty by the same acquisition. The case further confirms that, when determining whether to exercise the discretion under section 163H:
- the focus of the query may include whether an acquirer already has an effective right to the underlying land holdings; and
- it will not always be necessary to compare the relevant acquisition with the duty that would be payable on a direct transfer of the land.