A recent NSW Administrative Decisions Tribunal case considered when the double duty/agency duty exemption under the Duties Act 1997 (NSW) (Act) would apply if the agent has not been appointed in writing.
Mr Stone was asked by Mr Scarfo to attend a property auction and bid on the property on Mr Scarfo’s behalf. There was no written agreement or appointment for Mr Stone to bid on the property on Mr Scarfo’s behalf.
After successfully bidding for the property, Mr Stone signed the purchase contract in his own name and paid the 5% deposit.
At a later date Mr Scarfo reimbursed Mr Stone for the deposit.
Before the contract completed Mr Stone gave a written direction to the vendors to prepare a transfer in the name of Mr Scarfo and provided a statutory declaration confirming that he attended the auction for and on behalf of Mr Scarfo.
The contact and transfer were stamped and section 18(3) of the Act applied in respect of the transfer.
The Office of State Revenue (OSR) conducted an audit and advised that the transfer did not fall within section 18(3) of the Act and therefore would be liable for full duty.
An objection was lodged to the assessment issued by the OSR, the objection disallowed by the Chief Commissioner of State Revenue and Mr Scarfo then sought a review of the Chief Commissioner’s decision, leading us to the Administrative Decisions Tribunal.
The Tribunal’s considerations
The Tribunal confirmed that there was no doubt as to the fact that Mr Stone attended the auction as agent for and on behalf of Mr Scarfo and was therefore agent for an undisclosed principal.
The Tribunal considered the inaccuracies in the current circumstances and the arguments made by Mr Scarfo – including the fact that there was no trust in existence between Mr Stone and Mr Scarfo at the time that the contract was signed. This is a requirement for section 18(3) to apply.
The Tribunal stepped through the provisions of section 18 and considered the requirement that the transfer by the agent to the principal must be “in conformity with” an agreement for sale or transfer of the property.
The Tribunal viewed the words “in conformity with” as being wider than circumstances where the transfer is made in favour of the person named in the contract.
The Tribunal’s decision
The Tribunal found in favour of Mr Scarfo under section 18(2) of the Act (and not section 18(3) as originally applied by Mr Stone and Mr Scarfo).
The reason for the decision was that the transfer by an agent to an undisclosed principal will be “in conformity with” the agreement for the sale or transfer of the dutiable property (i.e. the contract).
How this affects clients
This decision will affect clients who use arrangements so as not to disclose the underlying purchaser of property.
It is important that any arrangements are properly documented to take into account each state or territory’s duties legislation so that clients are not exposed to a double duty risk.
If arrangements are not documented correctly, clients may be liable for duty on the acquisition by the agent (or trustee) and also on the subsequent transfer to the principal (or beneficiary).