In brief: The Queensland Supreme Court has held that mining leases did not constitute an 'interest in land' for the purposes of the former land rich duty regime. While subsequent amendments to the Duties Act 2001 (Qld) mean that mining tenements are now treated as an interest in land, the decision provides much needed clarification on what amounts to an 'interest in land' for both landholder and transfer duty purposes. Partner Adrian Chek(view CV) and Associate Scott Lang outline the decision and its implications.
HOW DOES IT AFFECT YOU?
- In determining whether an entity is a landholder, only interests of a proprietary nature in land will be treated as landholdings of the entity. Mere rights, powers or privileges relating to land are not interests in land for landholder duty purposes.
- The same principle should apply for transfer duty purposes, so only interests of a proprietary nature in land should be treated as an interest in land for transfer duty. However, lesser rights relating to land may still be subject to duty on transfer if they fall within a different head of dutiable property (for instance, as an existing right or a Queensland business asset).
The decision concerned whether Sojitz Coal Resources Pty Ltd (Sojitz) was required to pay land rich duty on its acquisition of 51 per cent of the issued share capital of Minerva Coal Pty Ltd (Minerva).
Land rich and landholder duty are explained in detail in our earlier Focus: Australian landholder duty: avoid the pitfalls of an ever expanding duty base. Broadly, land rich or landholder duty can be triggered where a person (alone or with associates) acquires a 50 per cent or greater interest in a company or (certain types of) unit trust which has landholdings over a particular monetary threshold, or, having already acquired such a 50 per cent or greater interest, their interest increases.
At the time Sojitz acquired its interest in Minerva, Minerva held two mining leases granted under the Mineral Resources Act 1989 (Qld) with a combined unencumbered value of just over $2 million. The acquisition by Sojitz could only attract land rich duty if Minerva was land rich at the time of the acquisition. In turn, Minerva could only have been land rich if its mining leases constituted an 'interest in land' for the purposes of section 167(1)(a) of the Duties Act 2001 (Qld).
An editor's note at the end of s167 stated:
Editor's note –
Acts Interpretation Act 1954, section 36 –
interest, in relation to land or other property, means –
- a legal or equitable estate in the land or other property; or
- a right, power or privilege over, or in relation to, the land or other property.
Both parties agreed that the mining leases were not an 'interest in land' within the meaning of s167(1)(a), even if it was extended by paragraph (a) of the definition of 'interest' contained in the Acts Interpretation Act 1954 (Qld) (the Interpretation Act).
However, the Commissioner argued that the mining leases fell within paragraph (b) of the definition of 'interest', in that they constituted a right, power or privilege over, or in relation to, land. On that basis, the Commissioner assessed Sojitz's acquisition of Minerva as being liable to land rich duty. Sojitz objected to the assessment on the basis that the broad definition of 'interest' in the Interpretation Act did not apply to extend the meaning of the expression 'interest in land' in s167(1)(a). The Commissioner disallowed the objection and Sojitz appealed to the Supreme Court.
Justice McMurdo held that the mining leases did not constitute 'interests in land' and therefore Sojitz's acquisition of Minerva was not subject to land rich duty.1
His Honour held that, unaffected by the definition of 'interest' contained in the Interpretation Act, the expression 'interest in land' in s167(1)(a) would have its ordinary meaning and be confined to an interest of a proprietary nature in the land itself, including an estate in the land.2
Justice McMurdo also held that the Interpretation Act definition of 'interest' could not be imported into the Duties Act expression 'interest in land' because of the tension between the broad definition of 'interest' and the qualified expression 'interest in land'.3 His Honour noted that importing the definition would create obvious 'grammatical difficulty',4 could result in 'absurd or unreasonable consequences for companies whose assets could not be realistically described as land holdings in any ordinary sense',5 and would defeat the specific and unambiguous qualification of the word 'interest' in the Duties Act by the words 'in land', which have a recognised legal meaning.6
As the parties were agreed that neither of the mining leases were an 'interest in land' within the ordinary meaning of that expression,7 it followed that Minerva was not land rich at the time of its acquisition and Sojitz was not liable to pay land rich duty.
From a practical perspective, Justice McMurdo's ultimate conclusion that mining leases are not 'interests in land' for land rich (now landholder) duty purposes is of historical interest only and will have no impact on future transactions involving mining tenements. Specific amendments were made to the Duties Act so that, from 13 January 2012, 'land' for duty purposes includes any 'resource authority' (defined to include any mining tenement granted under the Mineral Resources Act).8
However, the reasoning underlying that ultimate conclusion is much more important and will have significant implications for the application of both transfer duty and landholder duty in future. The decision brings welcome clarity to the meaning of the phrase 'interest in land' by holding that not all rights, powers or privileges in relation to land are counted towards an entity's land-holdings for landholder duty purposes. To be counted as a land-holding, an interest must be an interest of a proprietary nature in the land itself, including an estate in the land. In reaching his conclusion, Justice McMurdo referred with approval to cases where tolling rights over roads and contractual licences to park cars were held not to constitute interests in land.9
Justice McMurdo's reasoning is also consistent with the approach the courts have taken in other jurisdictions, most recently the Western Australian Court of Appeal in Commissioner of State Revenue v Abbotts Exploration Pty Ltd.10 In that case, the court held that rights conferred by an option to acquire an exploration licence granted under the relevant state mining Act did not constitute an interest in land for the purposes of landholder duty. In doing so, the court held that the expressions 'estate' and 'interest' when used in relation to land 'denote a proprietary interest'.11
As the Sojitz decision centred solely on the application of the land rich duty provisions, it is unclear whether the same conclusion regarding the non-application of the broad Interpretation Act definition of 'interest' applies to limit the types of interests in land that are subject to transfer duty.12 However, there are some strong indications in the judgment that it would. In particular, while Justice McMurdo reached no express conclusion on this point, his Honour did devote a significant amount of his reasons to criticising the Commissioner's arguments that Minerva's mining leases constituted an interest in land in Queensland for the purposes of transfer duty.13
Ultimately, the decision will have the following implications:
- Landholder duty. In determining whether an entity is a landholder, only interests of a proprietary nature in land itself will qualify as landholdings of the entity for the purposes of s167(1)(a). Mere rights, powers or privileges in relation to land will not be sufficient, unless they are covered by s167(1)(b) (which was not relevant on the facts in Sojitz, but may be relevant in other cases).
- Transfer duty. The better view would appear to be that only transfers of an interest of a proprietary nature in land itself will be subject to transfer duty on the basis of being an interest in land in Queensland. However, lesser interests may still be subject to duty if they fall within a different head of dutiable property.14
The Commissioner has until Friday 27 February 2015 to file an appeal.