STAMP DUTIES (TRUSTS) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 10 April 2008. Page 2423.)

The Hon. R.I. LUCAS (20:30): I rise on behalf of Liberal members in the Legislative Council to support the second reading of the Stamp Duties (Trusts) Amendment Bill. In doing so, I must admit that I had a sense of deja vu about this particular piece of legislation as the second reading does refer to previous endeavours by this parliament to close off a particular loophole first identified in 1999 (I think) by way of a High Court decision—the case of MSP Nominees Pty Ltd v the Commissioner of Stamps. Hansard shows that the then treasurer on 5 December 2000, one Hon. R.I. Lucas MLC, said the following:

The fourth amendment operates to restore the stamp duty base to that existing prior to the High Court decision in the case of MSP Nominees Pty Ltd vs Commissioner of Stamps (1999) 166 ALR 149 ('the MSP Case').

In the decision in the MSP case handed down on 30 September 1999, the High Court decided that a redemption of units in a unit trust is not liable to duty under the Act, as a redemption does not constitute a release or surrender of a beneficial interest in the trust fund or in the underlying property of the trust. Previously it had been long standing and accepted interpretation and practice that such transactions were liable to ad valorem conveyance duty.

After receiving advice from the Crown Solicitor in relation to the High Court’s decision, it became apparent that if no action was taken to protect the revenue base as a result of the decision, a significant amount of revenue would be lost, which will have a significant impact on the Government’s budgetary situation.

The proposed amendments operate to ensure that the transfer, issue and redemption of units in unit trusts that own (through the trustee) South Australian property are liable to ad valorem conveyance duty based on the value of the South Australian property 'conveyed' as a result of the transfer, issue or redemption.

This is achieved by amending the definition of what constitutes a transfer in the Act, clarifying the types of transactions that are deemed to be voluntary dispositions inter-vivos and inserting new territorial provisions which will ensure that RevenueSA can continue taxing the transactions that were considered to be dutiable prior to the MSP case.

The second reading explanation goes on. I will not read all of it. Further on it states:

The levying of duty in relation to property in South Australia visa-vis property outside South Australia necessitates apportionment provisions being included in the bill. These provisions do no more than confirm the current assessing practices adopted by RevenueSA.

The Crown Solicitor is of the view that the provisions of the bill effectively counter the decision by the High Court in the MSP case to re-instate the pre-existing status quo.

The bill was initially drafted to operate retrospectively to validate all ad valorem assessments issued prior to the decision in the MSP case in relation to the redemption provisions. However, after wide consultation was undertaken with industry bodies the view was strongly put forward by these bodies that the provisions as drafted were inequitable. A compromise position has therefore been reached.

The provisions will now operate retrospectively prior to 30 September 1999 except in situations where valid objections or appeals (that are yet to be determined) have been lodged within 60 days of the assessment. The provisions will also operate from the date of introduction of the bill into Parliament.

This compromise provision will significantly protect the revenue base (although it does involve some repayment of stamp duty to taxpayers), whilst at the same time accommodating many of the concerns raised by industry bodies.

As I said, the introduction of this bill led me to quickly recall the debates of almost eight years ago. I therefore had a look at some of the contributions that were made by members in this place—the Hon. Mr Holloway and the now Treasurer Foley in the House of Assembly.

It is clear that the High Court decision was taken on 30 September 1999 and that legal advice was provided to me, as treasurer, about a month later on 30 October 1999. The matter was the subject of a cabinet submission on 8 November 1999, and a first draft bill was issued on 14 May 2000 for consultation. Ultimately, the bill was considered in the parliament in November and December 2000. So, there was a delay of some 14 months or so from the High Court decision to entry into parliament.

From the wonderful vantage point of opposition, it is fair to say that the Hon. Mr Holloway and the then member for Hart—I think he was—Mr Foley, waxed lyrical about the extraordinary delays by the then government in introducing legislation to correct a High Court decision from September 1999, that is, there had been a delay of just over a year in having the bill introduced.

The Hon. Mr Holloway, on a number of occasions in his contribution, was critical of the delays. It is fair to say that his criticisms, as was often the case in those days, paled in comparison to the criticisms made by the member for Hart (Mr Foley), who was joined on that occasion by the member for Ross Smith (Mr Clark), a former good friend of the Labor Party, who spoke at length in the second reading debate and at the committee stage.

As I said, the member for Hart—now Treasurer—was very critical of the 'negligence/incompetence' and various other descriptions of the lack of activity of the government in bringing that legislation to the parliament to correct that particular problem. For the benefit of members, I will not read all the contributions of Mr Foley and Mr Clark into the record. I do not think that any reader who wants to go back to those debates will disagree that—

The Hon. P. Holloway: I assume we supported it.

The Hon. R.I. LUCAS: Very reluctantly, you said in the end.

The Hon. B.V. Finnigan interjecting:

The Hon. R.I. LUCAS: Well, that speech was very clear, I thought. As I said, I think that most people who go back to those debates will think that my summation, that the then opposition was strongly critical, is relatively fair. I intend to raise questions during the second reading debate in relation to this matter. I do note that, whilst the Hon. Mr Holloway, Mr Foley and Mr Clark were very critical of the delay of some 14 months, this High Court decision was actually brought down on 28 September 2005. On the last check, I think we are into 2008 at the moment, so it is almost three years after that High Court decision was taken down.

The now Treasurer and the now Leader of the Government in the Legislative Council, as I said, were very critical of the former government in relation to the delay. I have a series of questions for the Leader of the Government, which we can pursue during the committee stage, as to what on earth he and the government have been doing since 28 September 2005 in relation to this particular decision.

Just to help smooth the passage during the committee stage, can the minister get advice from the Treasurer as to when the Treasurer was first advised by RevenueSA, the Solicitor-General or the Crown Solicitor of these particular concerns as covered by a similar case in Victoria of 28 September 2005—CPT Custodian Pty Ltd v the Commissioner of State Revenue—in that particular jurisdiction?

The section of the second reading explanation in question states, 'As a result'—and it is not entirely clear as a result of what, but it states:

As a result of objections lodged against assessments of stamp duty made on the above basis, the Solicitor-General and Crown Solicitor provided RevenueSA with advice that exemption 26 operates more broadly than was intended and recommended that consideration should be given to amending the exemption to more clearly provide—

a split infinitive, I note—

for the limited exemption that was intended.

When were the objections lodged against assessment of stamp duty in relation to these particular provisions? How many objections were lodged, and what was the total cost of revenue in dispute? Before anyone indicates that these sorts of issues are not canvassed, I refer them to the debate in 2000 when the former government listed six cases in dispute in relation to MSP Nominees, totalling revenue (I am going on memory now) of $6 million.

Obviously the privacy provisions do not allow, and should not allow, the naming of the individual disputants, if I can use that inappropriate word—'objectors' perhaps is a better one—but the revenue at risk, if I can put it that way, was certainly provided, and RevenueSA would have the information in relation to those particular cases.

So, what was the total at-risk revenue? When was that advice first provided, first, to RevenueSA and, in particular, was it pre the decision of the High Court on 28 September 2005? When did RevenueSA advise the Treasurer of these particular concerns? When was the first memo from the commissioner to the Treasurer that there was this particular concern in relation to the land-rich provisions in the legislation?

After 28 September 2005—and why I asked the question earlier—it would appear that the issues I raised then were all raised prior to 28 September 2005, if one follows the sequencing of the second reading explanation. Knowing the officers within RevenueSA and Treasury, I am sure that they would follow the logical sequence as they would normally do. After the second reading explanation refers to the High Court decision of 28 September, it then states:

The Crown Solicitor has advised that the decision in the CPT case essentially means that the transfer of a unit in a unit trust will not constitute a transfer of property that is subject to that trust and, therefore, is not liable to ad valorem conveyance duty in South Australia. Consequently, further amendments are now required.

On what date after 28 September 2005 did the Crown Solicitor advise the commissioner or RevenueSA, whoever is handling the case, of the concerns? Did the commissioner, prior to receiving the Crown Solicitor's advice, advise the Treasurer of the concerns in relation to the potential implications of this High Court decision, and if he did not prior to the Crown Solicitor's advice, how soon after receiving the Crown Solicitor's advice (on what date) did he advise the Treasurer of his concerns in relation to the implications of the High Court decision on the stamp duty base here in South Australia as a result of that particular decision? The Treasurer might like to—on advice, I am sure—indicate what then transpired between, I am assuming, some time soon after September 2005 and the present time, almost three years later.

I understand that there was no consultation with the industry in relation to this legislation for fears of the industry becoming aware of what the government was intending. I think that is a fair summation of the government's position. However, I seek confirmation of that—that is, between 2005 and 2008 that there was no consultation with industry groups or the normal group of people that the commissioner normally consults in relation to state tax matters.

The commissioner will be aware that there is a body (the name of which escapes me now; something like the joint legislation committee of a number of accounting bodies here in South Australia) that is normally consulted by the commissioner in relation to state taxation matters. I am assuming that there was no consultation with that body or, indeed, any other body or individuals. I seek confirmation that the government did not consult any individual—I am not just talking about bodies but any individual—in relation to these issues.

If that is the case, what was occurring between 2005 and 2008 in relation to these issues? Again, I remind members that the Treasurer and the Leader of the Government in this chamber have very strong views on this matter and certainly delays of 14 months in introducing amending legislation in the parliament is tardiness in the extreme, and I am sure they would be consistent in their views in relation to a delay of up to three years in the introduction of the legislation.

I also seek a response from the Treasurer specifically in relation to the issues that were identified as 'at risk' in relation to the Victorian legislation and, therefore, its application to South Australia. Having some marginal experience of the time required for High Court decisions, I assume that this issue was well known to the commissioner probably a number of years (but certainly many months) prior to the High Court decision of 28 September 2005. I seek advice, through the Treasurer, from the commissioner as to when he and his officers were aware that this case was being tested in the Victorian High Court.

In particular, I am asking whether the provisions in the Victorian legislation were exactly the same as the provisions in the South Australian legislation. That is, the commissioner was obviously aware of what was being challenged in Victoria in relation to the specific provisions of their legislation, but were the provisions in South Australia exactly the same or were there some marginal differences in terms of the drafting of our provisions in South Australia?

I also ask, particularly in these areas, as to whether the government had any other legal advice at any time throughout this period which was contrary to the final decision of the High Court on 28 September 2005 or, subsequently, the decision of the Solicitor General and the Crown Solicitor. That is, did the commissioner take any other legal advice at any stage throughout this long period in relation to this particular issue?

I also seek advice from the Treasurer regarding the extent of the revenue at risk should the parliament not confirm these provisions through the amending legislation. I asked earlier about the number of objections lodged and their potential cost, but the commissioner will have advised the Treasurer, in preparation of the cabinet submission, that unless these things are 'fixed up' (to use a colloquial expression) there will be a sum of $20 million or $50 million (or whatever it may be) potentially at risk in relation to these issues.

Regarding the objections I also ask what, if any, position has been arrived at in terms of people who have lodged objections and who, under the current law, would have been successful in not having to pay stamp duty had they taken it to court? Has the government come to any arrangement at all in those cases where people have expended their own money on legal advice, etc.? As I understand the nature of this particular decision, should it pass the parliament they will ultimately still be liable for the stamp duty payable.

In the second reading explanation the government highlighted two unintended consequences of the amendments of 1999 and 2000. The first is described as follows:

It has since become apparent that the structure of the amendment act has led to unintended consequences in relation to two exemptions available under the act. Firstly, the exemption contained in section 71(5)(e) is arguably not available in respect of distributions and transfers from certain trusts. Prior to the MSP decision, the view held by RevenueSA was that a distribution from a unit trust was exempt from ad valorem duty on the basis that a unit trust was considered a fixed trust in which the unit holders had an equitable interest in the trust assets.

Let us be clear on that: prior to the MSP decision (which was in 1999) the view held by RevenueSA was that distribution from a unit trust was exempt from ad valorem duty. Therefore, RevenueSA was not charging stamp duty on those particular transactions. The second reading explanation goes on:

The operation of the act as a result of the MSP decision and the subsequent amendments is such that the exemption contained in section 71(5)(e) will not apply where trust property is transferred to a unit holder of a unit trust as the unit holder is not considered to have a beneficial interest in the property transferred. Transfers of property from superannuation funds to fund members are similarly not exempt from duty. Given that this result was not intended, RevenueSA has continued to administer the exemption in a manner consistent with the practice of the office prior to the decision in the MSP case, so as not to remove benefits to taxpayers.

In order to give legislative effect to this practice, the bill amends section 71(5)(e) to exempt, from ad valorem duty, distributions from unit trusts, or transfers of property from superannuation trusts to the extent of the value of the unit holder’s or fund member’s interest in the trust.

I seek clarification of this unintended consequence. If I have understood the second reading explanation (and I seek advice from RevenueSA officers, through the minister, as to whether I have understood it correctly), it appears to say that RevenueSA has continued, in these particular cases, not to remove benefits to taxpayers.

That is, in these particular cases they have not been charging stamp duty. As there does not appear to be anyone who has been disadvantaged, I am assuming that no-one has objected. You would normally object only if you have been charged stamp duty and you do not think that you should have been. You do not normally object if you have not been charged stamp duty and perhaps you should have been.

If I have read this correctly, I am assuming there has been no objection lodged by anybody and it may well be that what we are talking about here is that RevenueSA itself—or it has taken Crown Law advice—has said, 'You are not interpreting the act correctly', that is, 'You are giving an exemption and a concession when you shouldn't be.' There is no reference in this to advice from the Crown Solicitor or the Solicitor-General. The other parts of the second reading explanation generously refer to advice from the Solicitor-General and the Crown Solicitor.

My questions to the commissioner, through the minister, are as follows: first, have I understood what the second reading explanation is trying to tell us as legislators is the nature of the issue here? Secondly, if I have understood it, was Crown Solicitor's advice or Solicitor-General's advice taken in relation to this particular issue? If so, when was that advice taken and what was the nature of the advice provided by the Solicitor-General or the Crown Solicitor? If that advice was not provided by either of those legal authorities, was it provided by another legal authority, or was this a view formed by the commissioner and/or his senior officers in relation to these issues?

My recollection of the normal practice of RevenueSA is that, if it had come to a conclusion such as this, it would normally have sought confirmation from the Crown Solicitor on something as important or as serious as this, that is, in essence, that the officers had not been interpreting the act correctly, there was a new legal view and that maybe they had been giving a benefit that they should not have been giving; they had not been charging stamp duty when they should have been. You might have had a grumpy Treasurer who was saying, 'Hey, you're telling me that we should be ripping out some stamp duty from people and we haven't been. What's the explanation in relation to why we're not collecting stamp duty when we should have been?'

Will the commissioner also indicate what level of stamp duty is covered by this particular area? That is, what might the Commissioner of State Taxation and the government have been collecting if they have been interpreting the legislation since 1999 on the basis of, I assume, the legal advice that the Solicitor-General or Crown Solicitor has given to the Treasurer?

The opposition supports the second reading of the legislation, although I await the minister's response. Again, if it is possible, I would appreciate receiving a written copy so that I can then consult with one or two people who have an interest in this particular area. I am not sure that I mentioned this in the earlier part of my contribution, but if the commissioner's answers to my questions on consultation are that he and the government did not consult for reasons of confidentiality, etc., is that a significant change in policy from the previous policy adopted by the commissioner on stamp duty legislation?

Certainly in relation to the MSP legislation in 1999-2000, Hansard is full of references to the reason for the 14-month delay, which was that the commissioner drafted legislation and went out and consulted with the industry, received feedback and came back and provided advice to the then treasurer and to the government in relation to that. If the answer is that there was no consultation, is that now a change of policy from the commissioner? If it is a change of policy, will the minister indicate when this policy was changed and the basis for the policy change? Does it apply to all state taxation issues? Is it now being adopted through all state tax issues in relation to legislation being introduced into the parliament?

I think it is an important issue because it is a complicated area of the law. Only a limited number of people are what one would call experts, in addition to officers within RevenueSA. Previous practice has meant that there has been consultation with a number of those other experts. If the current practice is that there is to be no consultation with those experts, on past experience I would say that we (the parliament and the government) would leave ourselves open to the potential for more examples of unintended consequences having to be revisited by the parliament.

The brutal reality is that on these issues not all wisdom rests within RevenueSA. There are people on the other side of the tax equation with considerable expertise in terms of getting around the law, some of whom are still practising in the area and some of whom have left the area but who would be happy to be consulted on these issues, even on a consultancy basis. Certainly, it would be good legislative practice to ensure that there was access to views from outside RevenueSA in relation to some of these complicated areas prior to their going through the executive arm of government and, ultimately, coming into the parliament.

The Hon. R.P. WORTLEY (21:02): I support the bill which seeks to amend certain provisions relating to trusts within the Stamp Duties Act 1923. These amendments are made in consequence of two High Court decisions to which I will refer later. Until the first of these two cases in 1999, RevenueSA was of the view that a distribution from a unit trust was exempted from ad valorem duty. Ad valorem refers to duties that are 'graduated according to the value of the subject matter taxed'.

The basis for the view held by RevenueSA was that a unit trust was considered to be a fixed trust and that unit holders held an equitable interest in the trust assets. Then came the decision in MSP Nominees Pty Ltd v Commissioner of Stamps. This case concerned the construction of the Stamp Duties Act 1923 and its application to the redemption of units in a unit trust scheme.

The High Court held that a redemption of units in a unit trust was not liable to duty under the act. The Stamp Duties (Land Rich and Redemption) Amendment Act 2000 was subsequently enacted to ensure that liability for ad valorem conveyance duty remained for the issue and redemption of units in private unit trusts owning property in this state unless a relevant exemption applied.

However, the amendment act, specifically section 71(5)(e) and general exemption 26 of schedule 2 of the act, led to results not intended by the then legislature. As a result, RevenueSA has continued the practice established prior to the MSP case with regard to section 71(5)(e). This bill amends that subsection to give the practice legislative effect. The amendment before us now provides greater clarity in terms of the limited exemption intended by general exemption 26 of schedule 2 of the act.

The second High Court decision impacting on the Stamp Duties Act 1923 was CPT Custodian Pty Ltd v Commissioner of State Revenue in 2005. It placed a question mark over the effectiveness of the amendments made to the charging provisions of the act as a result of the MSP decision. As a result, additional amendments are required to ensure that the private unit trust provisions continue to have the same application, as was the case prior to the CPT decision. In order to protect revenue, the amendments are designed to operate both retrospectively and prospectively.

Finally, the bill examines two additional stamp duty exemptions. The first of these deals with the inequitable restriction to an exemption. The bill looks to exemption from ad valorem duty where trust property is subdivided into community or community/strata titles and transferred to previously identified beneficiaries as required under the trust. The second of these relates to the action of Chapter 5C of the Commonwealth—

Members interjecting:

The Hon. R.P. WORTLEY: Mr President, if they want to speak, members can move out the front or out the back if they wish.

The PRESIDENT: Order! I will make the decisions about where people speak.

The Hon. R.P. WORTLEY: Thank you for your protection, Mr President, from this rabble across from us. The second of these rules relates to the action of Chapter 5C of the commonwealth corporations law. This, of course, predated the Corporations Act 2001. If technically construed, this makes a transfer between a responsible entity which holds property and undertakes the business of a scheme and the custodian of a managed investment scheme a voluntary conveyance and therefore subject to ad valorem conveyance duties. In other jurisdictions, an exemption—or at the least a concession—operates with regard to transfers of this nature, and it is the government's view that, following extensive consultation, the exemption is warranted. The provisions put forward in this bill are proportionate to the inconsistencies and inequities encountered in the area I have outlined, and they protect the revenue appropriately. I support the bill.

Debate adjourned on motion of Hon. I.K. Hunter.