Introduction

The recent Western Australian State Administrative Tribunal (WASAT) decision in the Alacer stamp duty case marks a departure from the generally accepted valuation methodologies of land and chattels (including mining tenements) for landholder duty purposes.

WASAT has ruled in favour of the Western Australian Commissioner of State Revenue deciding that the Commissioner assess landholder duty on a land and chattel value of $1.14 billion using a 'top-down' valuation method (as opposed to a $382 million value based on a 'bottom-up' valuation method argued by the taxpayer).

We anticipate the decision will be appealed and it is not binding on other revenue offices. However, it may nonetheless have precedential value and may influence how the revenue offices assess duty. In particular the revenue offices may consider the equity consideration is the dominant factor in determining the land and chattel value for landholder duty purposes.

Implications From Tribunal's Decision

The Tribunal’s decision may have implications for our clients in the Western Australian mining industry (and to a lesser extent, mining industries in other states) as well as to other industries more broadly. It is particularly relevant to clients who enter into takeover arrangements and a control premium or synergy premium can be inferred when the implied purchase price is compared with the land and chattel value.

The Tribunal's decision focuses on the consideration for the equity transaction. Unlike for transfer duty purposes (ie asset transfers) where duty is calculated on the dutiable value (being the higher of the consideration for the transaction and the market value of the dutiable property), consideration has much less significance when calculating landholder duty. This is because the dutiable value for landholder duty purposes is the unencumbered value of the land (and goods in some jurisdictions) and not the consideration or price paid for such assets. While the consideration for the equity transaction may provide an insight into the value of the landholder's land, in our experience it is of limited utility.

The Tribunal found that Avoca Resources Limited (the target) had no non-current intangible assets (such as goodwill or contractual rights). While mining information was seen as having a value, the Tribunal held that the value of such information formed part of the land and chattel value.

In our experience, the revenue offices accept a 'bottom-up' approach whereby each asset is valued individually and a going concern valuation is not appropriate. Indeed, the preferred approach has been that each asset of the landholder is valued, and valued in isolation from the other assets. It is acknowledged that the ownership of some property can enhance the value of other property, but that they do have separate values which must be identified.

In light of the decision, and pending any appeal, we recommend that all of our clients in the mining industry (and in other industries more broadly) involved in takeover negotiations consider the potential duty exposure to their transactions. Taxpayers need price certainty for a transaction, and to de-risk their tax cost, and as such should factor in a range of dutiable values and corresponding duty outcomes for their transaction.

Background

In Alacer Gold Corp and Hill 51 Pty Ltd (formerly Alacer Gold Pty Ltd) v Commissioner of State Revenue [2016] WASAT 31, Avoca Resources Limited and Anatolia Minerals Development Limited entered into a scheme of arrangement under which a subsidiary of Anatolia (Alacer) would acquire all of the shares in Avoca.

Avoca was entitled to land and chattels comprising certain mining interests in Western Australia. The Commissioner assessed the dutiable value of the land and chattels to be approximately $1.14 billion. Alacer objected and argued the value was $382 million.

The issue between the parties was what was the dutiable value (being the unencumbered or market value) of Avoca's land and chattels at the relevant date.

The Commissioner, using a 'top-down' approach, argued that the best evidence of the value of the land and chattels was the price paid by Alacer to acquire indirect ownership of them as calculated below:

  1. Consideration for Avoca equity: $1,146,335,000.
  2. Add liabilities of Avoca: $107,140,000.
  3. Deduct excluded assets: $114,110,000.
  • Consideration for land and chattels (and therefore the dutiable value): $1.14 billion.

The taxpayer, using a 'bottom-up' approach, argued that the valuation should be based on adjusted discounted cash flow (DCF) forecasts as follows:

  1. Calculate the value of each mine at the relevant date based on the net present value (NPV) of each project's cash flow forecast, adopting the key mining, processing, operating and capital costs profiles included in mining technical expert reports and overlaying taxation, macroeconomic and discount rate assumptions.
  2. Adopt the estimated time period and cash outlays (other than cash outlays in respect of mining information) required to re-establish mining operations at each location.
  3. Adjust the annual production, operating and capital cost profiles adopted in step (1) above to reflect the time delays factors determined at step (2) above.
  4. Calculate the unencumbered value of land and chattels associated with mining operations based on the NPV of each project's adjusted cash flow forecasts.
  5. Adopt asset values in respect of mineral interests not captured in the project cash flows as set out in the mining technical expert report.
  • Total unencumbered value of the land and chattels (dutiable value): $382 million.

Tribunal’s Decision

The Tribunal found in favour of the Commissioner and ordered a reassessment of the duty.

The Tribunal heard from many valuation experts including mining technical experts and restoration experts. It referred to the general valuation principle in Spencer v Commonwealth of Australia ie that the true value is the price which a willing but not anxious vendor could reasonably expect to obtain and a hypothetical willing but not anxious purchaser could reasonably expect to pay after proper negotiations between them have been concluded.

In addition, the value is the value to the seller (here Avoca, as the landholder company) of the property (as per Abrahams v Federal Commissioner of Taxation).

The Tribunal made the following findings:

  • As there had been an actual sale under which a price had been paid for indirect ownership of the land and chattels in issue, that price represented the value of the land and chattels.
  • Avoca's only assets comprised land and chattels in Western Australia and the 'excluded assets' (eg cash, receivables, gold (trading stock)).
  • While mining information is not property, it does have a value and that value was reflected in the value of the chattels containing that information.
  • Any synergy value (eg the value of all of the assets together being greater than the sum of the value of the individual assets) was captured in the land and chattels.
  • As the DCF valuations were commissioned for the purposes of the Tribunal proceedings, they were not contemporaneous with the acquisition and therefore of limited use.
  • That a willing but not anxious seller would not allow for a discount to the price as suggested by the 'restoration methodology' (ie the cost and time delay of replicating certain assets to establish an operating business).