In brief

Appropriate valuation methodology is highly contentious in stamp duty matters

Following the RCF decision earlier this year, two recent developments in Western Australia (WA) illustrate that determining ‘market value’ is one of the most hotly contested areas in stamp duty matters. On this front there is both positive and negative news.

In detail

1. Valuation victory for taxpayer

On 4 November 2014, Commissioner of State Revenue v Hazel Holdings Pty Ltd [2014] WASCA 203 (Hazel Holdings) was handed down by the Court of Appeal in the Supreme Court of WA (Court of Appeal).

Hazel Holdings concerned the reassessment of duty payable on a single sale of 32 lots of subdivided land. The WA Commissioner of State Revenue (the Commissioner) looked to charge duty on the basis of aggregating individual lots of land sold to hypothetical separate purchasers, while disregarding various transaction costs and the actual circumstances of the sale.

Hazel Holdings objected to the Commissioner’s assessment and relied on evidence provided by an external valuer, which adopted the ‘one line sale basis’. The ‘one line sale basis’ uses what a prudent purchaser would pay for all the lots, assuming the purchaser markets and sells the lots at a retail price. It takes into account a commercially realistic risk weighted return that reflects the prevailing soft market conditions for vacant land in the location.

The Court of Appeal upheld the WA State Administrative Tribunal decision and dismissed the Commissioner’s appeal. The ‘one line sale basis’ of valuation was appropriate in the circumstances.

The takeaway

In determining the dutiable value of relevant assets involved in a dutiable transaction, the ‘hypothetical purchaser’ test still requires you to properly consider the context and circumstances of the transaction.

2. Mining information

The WA Government recently introduced the Taxation Legislation Amendment Bill (No. 2) 2014 (WA) (the Bill) through the Legislative Assembly on 23 October 2014.

The Bill contains amendments targeting the definition of ‘unencumbered value’ in the Duties Act 2008 (WA) (Duties Act). The Bill focuses on taxpayers who continue to attempt to shift value away from dutiable property (such as land and chattels) to other assets that do not attract duty.

These situations most commonly occur in relation to the transfers of interests in mining companies. Attempts to minimise the value of dutiable mining tenements are made by arguing that a significant portion of a transaction's value should be attributed to items such as mining information.

The Bill seeks to ‘improve’ the operation of the valuation provisions of the Duties Act to prevent situations where taxpayers can base arguments on attributing significant value to information. The Bill clarifies  that, when valuing dutiable property, information relating to the property should be regarded as an attribute of the property and not a separate item to which an independent value can be ascribed.

A similar approach has been taken in income tax law in relation to non-resident capital gains tax rules and in the South Australian landholder provisions.

The takeaway

If the Bill is passed and assented to, any consideration provided in an arms length transaction relating to mining information is likely to be attributed directly to the mining tenement with no recourse under the Duties Act to argue that value should be attributed to other assets – potentially ignoring commercial realities.