Introduction

The recent Victorian Civil and Administrative Tribunal (VCAT) decision in Pascu v Commissioner of State Revenue (Review and Regulation) [2016] VCAT 668 (Pascu) highlights the need for careful drafting of legal documents in a stamp duty context, as well as ensuring that the stamp duty position being argued is supported by evidence.

In Pascu, VCAT ruled in favour of the Victorian Commissioner of State Revenue (Commissioner) in deciding that certain transfers of land did not satisfy the requirements of the exemptions under the Duties Act 2000 (Duties Act) relied upon by the taxpayers. VCAT held that, amongst other things, the evidence did not support a conclusion that the joint venture participants had provided the purchase moneys for the properties (in order for an equitable interest to arise for the purposes of the apparent purchaser exemption in section 34 of the Duties Act), and separately there had been a trust resettlement for which no duty had been paid (such that the trustee to beneficiary transfer exemptions in sections 36 and 36B of the Duties Act could not apply).

Implications From VCAT's Decision

VCAT's decision highlights the importance of commercial documents and records (eg joint venture agreements, company tax returns, and accounting and financial materials) being consistent with the stamp duty position being argued by taxpayers. For example, where moneys are provided by joint venture participants to the joint venture manager, the venture's accounts should accurately reflect whether such moneys are in the nature of a loan or a contribution of equity for use by the manager to purchase properties acquired as joint venture assets.

In addition, the Pascu decision reiterates the importance of carefully considering the effect that amendments to documents will have on existing declarations of trust. Specifically, care needs to be taken to ensure that no new trust is unintentionally created, and that any amendments do not give rise to a redeclaration or resettlement of trust which may attract ad valorem duty (and may also have adverse capital gains tax consequences).

Background

In Pascu, the taxpayers entered into a joint venture agreement in May 2007 (2007 JV Agreement) relating to a Victorian property to be developed into 8 units to be sold to third parties or (at the election of the joint venture parties) transferred to the joint venturers, on completion. The taxpayers submitted that they contributed to the purchase price of the property and legal title to the property was held by the joint venture manager on trust for the joint venturers. Subsequently, one of the joint venturers decided to transfer a portion of his participating interest to another entity which the joint venturer controlled, and the joint venturers and the joint venture manager executed an updated joint venture agreement in April 2009 (2009 JV Agreement). No duty was paid on the 2009 JV Agreement.

The 2009 JV Agreement stated the revised participating interests of the joint venturers but was otherwise identical to the 2007 JV Agreement. Significantly, the 2009 JV Agreement restated clause 22 of the 2007 JV Agreement (which provided that it superseded, cancelled, and rendered void and of no further force or effect any prior agreement, arrangement or undertaking made or reached by or between the parties).

In late 2009, the joint venture manager executed transfers of land in order to effect a transfer of some of the completed units to the joint venture participants. The consideration stated in each transfer of land instrument was "In consideration of [the 2009 JV Agreement]".

The taxpayers sought to rely upon two categories of exemptions under the Duties Act being section 34 (property vested in an apparent purchaser), and sections 36 and 36B (property passing to beneficiaries of fixed trusts, and property passing to unitholders in unit trust schemes, respectively).

The two key issues were:

1. Whether contributions made by the joint venturers to the purchase and development of the joint venture properties were contributions by way of:

  1. payment of purchase price and development of the project, or
  2. loans to the joint venture manager.

If (a) applied, the section 34 apparent purchaser duty exemption was available on the basis that the transfers were made from the joint venture manager to the joint venturers as a result of being owners in equity.

If (b) applied, the section 34 duty exemption was not available as the transfers would be taken to be made in consideration in lieu of repayment of loans made to the joint venture manager by the joint venturers.

2. Whether the 2009 JV Agreement cancelled the 2007 JV Agreement thereby terminating any trust that may have existed there under. If this was the case, no duty had been paid on the trust newly created by the 2009 JV Agreement (which was a key exemption requirement for both sections 36 and 36B).

Tribunal’s Decision

VCAT found in favour of the Commissioner and made the following findings:

First Issue: The taxpayers had not discharged the onus of proving that their contributions to the joint venture manager were not loans to the joint venture manager. The result being that they had not contributed to the purchase of the land or the building of the units so that the section 34 exemption did not apply.

The taxpayers had stated that the joint venture manager's financial statements and tax returns mistakenly showed such amounts as loans but VCAT was not persuaded by this argument. In particular, VCAT held that the taxpayers:

  • had not taken any steps to correct such 'mistakes';
  • had not called the accountant (a "crucial" witness) to give evidence on the issue; and
  • having regard to the fact that the accounting treatment may have resulted in other financial benefits for the parties, could now not change their position to obtain a duty advantage.

Second Issue:

The 2009 JV Agreement brought an end to any trust created by the 2007 JV Agreement so that the taxpayers could not rely on the relevant exemption under sections 36 or 36B. This is because the transferred property was property of the 2009 trust and on which duty had not been paid.

VCAT held that the words of clause 22 in the 2009 JV Agreement were clear and unambiguous and as such the words must be given their ordinary meaning. The ordinary meaning was sufficient and clear to cancel and render void and of no further force or effect the 2007 JV Agreement so that the 2007 trust was brought to an end.

You should get specific advice on the stamp duty and tax consequences of any changes to trust deeds.