Statutes Amendment and Repeal (Budget 2015) Bill

Second Reading

Adjourned debate on second reading.

(Continued from 23 September 2015.)

The Hon. R.I. LUCAS (16:51): I rise to continue my second reading contribution. As I indicated last time, the remaining significant (in length) section of my speech is based on a 20-page submission from a very prominent tax lawyer, raising quite detailed and complex questions about clauses in the legislation. I will repeat the suggestion I made to the government last time. For the benefit of Hansard, I do have a typed copy of this, so I will read quickly and provide you with a printed copy.

The suggestion I made to the government—and it is for them to respond as they see fit—is that if the government's detailed response to these questions, which I am sure will be prepared by the competent officers in Revenue SA, could be made available to the opposition prior to the delivery in the house that would assist, because once I receive the government's response I then want to consult with the tax lawyer and other stakeholders before we conclude the debate in the committee stage, to know which particular issues need to be pursued in detail in the committee.

It may well be that the government is able to respond satisfactorily to a number of the detailed questions that the tax lawyer has raised. So with that introduction, I now refer to and quote from this submission on the Statutes Amendment and Repeal (Budget 2015) Bill:

Clause 8—Section 13A

The fundamental difficulty with these provisions is that section 13A was introduced to deal with minor interests arising from a tenancy in common (i.e. a 1% interest as a tenant in common) for the language of the provision, particularly with these further amendments, is not limited to such interests. Accordingly, the substantive provisions as amended by this amendment appear to extend to life and other lesser estates or interests other than ones arising from occupation. This raises the issue of how to measure any of these lesser interests that are not excluded? This may create issues on which there is no guidance.

What does beneficiary in sections 13A(4)(a), 13A(5) and 13A(9)(a)(ii) mean? There is no guidance in the legislation. In some contexts it extends to objects of discretionary trusts; in others it does not. Ideally, the scope of the word should be defined. This type of problem arose recently in the scope of section 71CC of the Stamp Duties Act 1923 and is now the subject of amendments proposed by this bill to deal with the issue (see clause 45).

The exclusion in section 13A(9)(a) only extends to an interest consisting of a right of occupation. Whether a right of occupation (such as a right of a widow to the personal use of a dwelling) applies to life interests not simply lesser rights of occupation may be questioned.

A footnote refers to a court case: 'In re Reid [1943] SASR 254'.

A life interest is something more than a right of occupation; in most cases it includes not only the right of occupation but the right to receive the income from the land. In section 2(1) the Land Tax Act 1936 the definition of "owner" in paragraph (a) excludes a leasehold interest. Technically, a leasehold interest is something more than a right of occupation in this provision. Why occupation only is excluded, should be classified. Ideally the definitions and particularly the exclusions should be consistent in all provisions.

There is a continuing concern about the requirement in section 13A that one of the purposes of holding the interest is the reduction of land tax. Realistically, is there ever a situation, in the commercial world, that consideration is not given to the land tax consequences and it is not taken into account? We suggest land tax reduction should be the dominant purpose is not simply one of the purposes. The burden of proving the purpose is ultimately on the taxpayer, if they pursue the issue on objection and then appeal under the Taxation Administration Act 1996 (SA).

Clause 9—Section 19(2)

The scope of section 19(2)(b)(ii) requires some qualification. Land tax is not a return based tax. In most situations the Commissioner makes an assessment based on the valuation role and the ownerships shown on that role. There are limited circumstances when information is to be provided by a taxpayer to the Commissioner.

There are situations where information may be provided to the Commissioner in connection with an exemption application or an application under section 13(3)(b) to disassociate property held on trust. In these situations the failure to provide the Commissioner with information that should have been provided should be covered.

As drafted the provision is not expressed to simply apply to situations that involve an application to the Commissioner or the loss of the relief afforded by the Act. It appears to be much broader. It appears to be imposing an obligation to provide any information at any time affecting a land tax liability under threat of a serious tax default. It only need be a contributing factor for the failure, as a basis of serving an assessment.

Clause 10(3)—Retrospective Operation of Section 13A

Elsewhere in this submission there are submissions about the use of retrospective legislation. There can be no justification for the operation of the proposed amendments to have any retrospective operation whatsoever. In these provisions it is proposed that section 13A apply in a manner that whilst prospective in operation applies to arrangements made prior to the commencement of the legislation (see section 10(3), Transitional Provisions). We submit that the provisions should only apply in respect of arrangements made from the commencement of the legislation.

Part 8—Amendments of the Stamp Duties Act 1923

Clause 23

It is proposed to delete sections 102G(3) and (4). In part, they were carried forward from the former land rich provisions and expanded. Whilst they may not always be applicable, they provide some opportunity for amelioration of some of the possible unintended consequences of the broad thrust of Part 4.

Further, one of the main issues that lead to the suggestion that these provisions be removed was the concern that they constitute backdoor reconstruction relief. In view of the introduction of very broad reconstruction relief, we question whether this issue remains and, if not, what other reason exists for their removal.

A further concern, as we understand it, is the broad scope of the concept of just and equitable. This provision is not as broad as the discretion to be found in section 163H of the Duties Act 1997 (NSW). We suggest that in the circumstances that the provisions, if they are to be repealed, should be replaced with a provision similar to this section…

Obviously, the use of discretions in such a situation is undesirable. More targeted provisions, rather than very broad provisions that bring with them unintended consequences, would avoid the need for these discretions. Such submissions in the past to the Commissioner have not been acted on. So these provisions remain important in ameliorating the breadth of Part 4.

The extended width of who constitutes an associate in section 91(8) can also raise situations, which may not always be adequately addressed by the exempting bracketed provision in that section, giving the Commissioner a discretion to exclude, in certain limited circumstances. So section 102G(3) and (4) remain important relief provisions where it is just and equitable to provide such relief in situations where these grouping provisions apply.

Section 101 provides for the aggregation of certain other transactions. There is no express power to relieve from the application of those provisions. Such a provision should be included, if Part 4 is to be the subject of amendments.

From 1 July 2018 Part 4 will apply to many more situations than it has in the past because of the removal of the $1 million threshold. Whilst, in more recent years, the holding of primary production land has been in disc0retionary trusts there are still situations where it is held in a company. In most of these situations the shares are held by family members, they are aggregated on the Commissioner's preferred view, by section 91(8). In these circumstances relieving provisions in section 102G(3) and (4) are likely to be even more relevant and should therefore not be repealed or should be replaced with a provision to the foregoing effect.

Clause 24—Corporate Reconstructions

The definition of hold in the proposed section 102H(1) raises a number of issues. The first is the scope of the concept of controlling the exercise of rights attached to property. This concept is proving somewhat illusory in other areas in the Stamp Duties Act 1923 (SA), particularly with no definition of the concept of control.

Further, the right must be attached to the property. This appears to be broader than 'inherent' in the nature of the property (i.e. voting power of a share is inherent in its nature rather than attached). It raises the question as to whether something can be attached which is not inherent in the nature of the property and if it can should it be taken into account.

The proposed section 102H(2) uses an 'and' at the end of each paragraph. This is a conjunctive 'and' and this is consistent with the collation intended to operate as a 'hendiadys' or at least something similar. We question whether that is the best way of dealing with what appear to be three very different concepts (i.e. unit trusts, partnerships and conveyances of motor vehicles).

There is a reference in that paragraph to D.C. Pearce and R. Geddes, Statutory Interpretation in Australia, 6^th edition. The letter continues:

In treating a member of a partnership as having a proportionate interest in each partnership asset in section 102H(3) there is no indication of how the extent of the proportionate interest in each asset is to be determined. Is it to be by reference to capital entitlements, profit share or voting rights where they are different? Guidance is required, preferably in legislation.

The corporate reconstruction relief should provide relief from section 71E. It should be expressly included in section 102K. The corporate reconstruction relief is likely to be of use after 1 July 2018 in connection with primary production land in a corporate group. If section 71E applies to a particular transaction then reconstruction relief should be available.

If the Commissioner is satisfied that the transaction is one to which the Part applies and the Commissioner exempts the transaction, it is submitted he must also exempt any statement required to be brought into existence under section 71E or under Part 4 in addition to any conveyances. An alternative is to provide relief from the requirement to create such statements where the Commissioner grants an exemption in advance.

And there is a note—

As is proposed in connection with the abolition of gaming machine surcharge (see clause 38, the proposed section 104F(3).

The letter continues:

If the duty has been paid on an assessment, is simply granting an exemption sufficient to authorise a refund in the face of the express terms of Parts 3 and 4 of the Taxation Administration Act 1996 (SA)? Is there to be an entitlement to interest on any refund where the duty has already been paid?

New South Wales allows such applications to be made within five years, Queensland and Victoria allow three years and Western Australia one year. A period of five years would be consistent with the Commissioner's powers of reassessment found in section 10 of the Taxation Administration Act 1996 (SA) and other rights of refund under that Act. Five years is the period proposed by this Bill in respect of waivers and refunds of land tax in clause 7(2).

The proposed section 102M(2) requires the application to be accompanied by certain documents. They do not appear to extend to statements to be brought into existence under section 71E and under Part 4. It refers to drafts. What is the position in respect of already stamped documents? How does this provision apply?

Section 102M(5) does not appear to extend to the statements to be brought into existence under section 71E and under Part 4.

In sections 102H(2)(c) and 102K(d) the word 'asset' is used, though elsewhere the word property is used. Ideally 'property' should be used on all occasions other than in section 102K(b) because of the use of the expression local land assets in Part 4.

The provisions do not appear to apply to:

companies limited by guarantee;

indigenous corporations established under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) where there are membership interests only.

Clause 25—Definition of Land

It is unclear how these provisions will operate in respect of leasehold interests. Ideally they should be specifically excluded. It appears that if there is a transaction involving a leasehold interest it will be within the scope of these provisions.

This definition appears to include an aquaculture lease granted under the Aquaculture Act 2001 (SA), notwithstanding that it is not expressly referred to in the provision by way of inclusion or exclusion. This is different to the approach previously taken in the landholder provisions. It is suggested that if it is not intended to include such leases that they be expressly excluded. If an aquaculture lease is included will it be regarded as a lease of commercial property or primary production land?

As proposed it appears that any transfer of a leasehold interest will be dutiable, but it is likely that in most situations the leasehold interest will have minimal value and only attract nominal duty or be exempt in other situations where it relates to commercial land after 1 July 2018. It will raise the issue as to whether goodwill is an incidence of the site or the broader assets. If an incidence of the site, then some of that value could be attributed to the lease and attract stamp duty.

It will also raise the issue as to whether plant and equipment used in connection with the land whether prescribed goods or not are prescribed goods (in this case because they have a significant connection with the land) and must be included. Such items are not excluded. So if they have a significant value, belong to the lessee and pass with the leasehold estate then it appears they will be dutiable, at least up to 1 July 2018 in connection with commercial land thereafter with non-commercial land.

After 1 July 2018 leases of commercial properties should be exempt. We query whether the operation of these provisions simply does not become red tape for leases of primary production land and residential premises after that date and could be avoided by excluding leases of, say, less than five years.

Clause 26—Instruments to be separately charged

This provision renders a document relating to different types of property in effect separate instruments in respect of each type of property to which it relates. It assumes that it is possible to look through the mass of property and split it up. That may not always be the case nor appropriate.

The provision leaves a number of significant aspects to practice without providing any indication as to how such matters are to be dealt with, some express provisions are required to address these issues. Some of the issues include:

what does type of property mean. We query whether that is the best description. The Macquarie online dictionary describes 'type' inter alia as follows: Noun

1. a kind, class, or group as distinguished by a particular characteristic.

2. a person or thing embodying the characteristic qualities of a kind, class, or group; a representative specimen.

3. the general form, style, or character distinguishing a particular kind, class or group.

Whilst goods, financial products and land may be different types of property we query whether primary production land, commercial land and residential land are different types of property or only the same type of property, namely land, simply put to different uses from time to time. It is preferable that, at least in these circumstances, the basis for differentiation is further described;

is an interest in a trust a type of property or can you look through it to the underlying property (i.e. unit trust, fixed trust, interest through a deceased estate and an object of a discretionary trust);

what if the trust has debts (see Revenue Ruling SDA003 for aspects):

do they come off;

how are they apportioned;

what happens if they are secured on some specific property;

there is interstate property and debts;

does section 2(2) impact on this concept.

In the case of a unit trust with land of $.8 million (less than the landholder threshold) and $2 million of public company shares it appears to assume you can say that a transfer of half the units constitutes a transfer of half the land (i.e. $400,000) and half of the shares.

There is a note which says this assumes you can look through the trust to the assets in the trust rather than look at the nature of what is being conveyed. I continue:

It then appears to imply that as it is a separate instrument in respect of the land it is to be assessed on that basis (i.e. $400,000). That may work if the unit trust has no liabilities. If it has liabilities of $2.1 million it is no longer clear whether the liabilities are attributed to any portion of the land or ignored. Prior to these amendments, in most situations, the duty would have been paid on half the net value of the unit trust namely on $350,000. There is no doubt many more of these types of examples. Similar issues will arise with most other trust arrangements (i.e. fixed trusts, discretionary trusts and deceased estates).

In the proposed section 14(2) the use of the word 'or' between 'an instrument relating to types of property that are chargeable with different rates of duty' and 'relating to a type of property chargeable with duty and a type of property not chargeable with duty' suggests that these are the only two alternatives. There may be situations where there will be types of property chargeable with different rates and no duty. Ideally these situations should that be expressly addressed.

Clause 27—Section 31 Amendments

Primarily these amendments arise because of the amendments being made to section 60A(1) in respect of the meaning of what is the date of sale. They highlight the anomaly in the assertion that the Commissioner has consistently adopted the view, for the last twenty years, that the date of sale is the date of the conveyance. Apart from the insertion of section 31(1)(b) and the repeal of section 31A the remaining amendments, like the change to section 60A(1) proposed elsewhere by the bill, are not required. If they are to be made, they should not be retrospective as currently provided by clause 40, for the reasons described elsewhere in this submission.

The operation of the existing section 31(2) should also be preserved for those conveyances that are made pursuant to contract stamped in accordance with section 31 or 31A prior to the commencement of the operation of the proposed provisions.

The insertion of section 31(1)(b) and the repeal of section 31A otherwise simplifies these provisions and should be made.

The proposed section 31(2)(a) refers to the value being greater than the consideration specified in the contract. It should refer to the value of the interest under the conveyance being greater than the consideration expressed in the contract or the value of the property if the Commissioner has assessed the contract on that value under section 31(1b).

Clauses 31 and 40—Section 67

The amendments to section 67 are to have retrospective effect. As mentioned elsewhere in these submissions retrospective legislation is inimical to the concepts of the rule of law. Other than the most exceptional of circumstances, and then generally only in favour of citizens to correct errors of the state, it should not be used.

Its use is counter-productive to compliance insofar as it provides an example to citizens that the state will disregard its compliance obligations on the grounds of economic convenience. There is nothing to support its use in this situation.

Clause 32—Repeal of Section 71B

Section 71B has long existed in stamp duties acts. It permits commonly owned property to be divided between the owners without further duty other than on the amount of any payment by way of inequality.

Even after 1 July 2018 such relief will still be important. A couple of examples highlight it. A and B are farmers conducting their own farming operations in partnership with say their wives. They are each using some land owned by their father (Lot 1 and Lot 2 respectively). Their father dies leaving the land to A and B under his will. As A and B are not in a business relationship with each other section 71CC is not available. Under section 71B they could divide the land between them so that A takes Lot 1 and B takes Lot 2. If each lot is of similar value than under section 71B there would be no stamp duty. After this amendment A and B will each pay stamp duty on the value of each half interest being transferred to them.

Part 9—Amendments to the Stamp Duties Act 1923, clause 38

It is suggested that the definition of 'dutiable land transaction' in section 104A be broadened along the following lines:

'dutiable land transaction' means a transaction that results in duty being chargeable on or in respect of a conveyance or transfer of land or as if there were a conveyance or transfer of land including a statement under section 71E.

The proposed section 104B(2), which is apparently designed to preserve duty on transfers of units in a unit trust that have an interest in land, is simply both too subtle and too broad. The provision should be recast in clear and express terms and identify with particularity what it applies to, primarily unit trust situations and the operation of the landholder provisions including prescribed goods.

The effect of this provision is to preserve not only unit trust situations but in effect any other possible arrangements (including trust arrangements) that affect interests in land. So in effect, its operation is potentially much broader than that described in the limited comments emphasising unit trusts, particularly in conjunction with the proposed section 14(2). If it is to simply apply to unit trusts then it should be so stated. If it is to be broader that should be clearly described.

In section 104B(4):

there is a reference to land used for primary production. There is no definition of primary production in the Stamp Duties Act 1923; there is a definition of a business of primary production. It would appear that a definition of primary production should be included and the definition of the business of primary production and land used for primary production reference to such a definition. This issue also arises in other provisions;

it is suggested after the word 'land' in the third line of the definition of 'prescribed goods' the words 'the subject of a dutiable transaction' be inserted;

the definition of prescribed goods in this provision and in Part 4 should be in the exact same terms rather than different terms with similar effect. It avoids issues as to whether there are intended differences arising from the difference in wording.

Clause 39—Section 109

We suggest that, rather than this suite of new provisions, Part 6A of the Taxation Administration Act 1996 be extended to apply to the situation of concern proposed to be dealt with by the proposed section 109.

Clause 40—Transitional Provision

For the reasons given elsewhere these provisions should not have retrospective effect.

Part 10—Amendments of the Stamp Duties Act 1923

Clause 41

The proposed amendment to section 60 clarifies an issue that has arisen, in practice, though the Full Court decision in JWW Nominees Pty Ltd vs The Treasurer [2004] SASC 163 rather suggests it was not an issue. The difficulty is that the Commissioner apparently has advice that indicates that if a conveyancer is exempted by section 71(5) or (7a) and also answers the conveyance on sale head of charge then it may be assessed on that basis notwithstanding the exemption in section 71(5) applying to it. The avoidance of this issue is desirable.

Against this difficulty the provision does not go far enough. It still leaves the possible issue that a conveyance within the scope of section 71(3)(a) can also constitute a conveyance on sale, in some situations. Section 71 has a number of other provisions that differentiate a conveyance within the scope of section 71(3) from a conveyance on sale. These provisions should prevail, so it is suggested that the proposed provision makes it quite clear that a conveyance deemed by section 71(3)(a) to be a conveyance operating as a voluntary disposition cannot be a conveyance on sale.

Clauses 42, 43 and 49—Introduction

The operation of these amended provisions is to have retrospective effect by reason of clause 49. The provisions together with the changes to section  31 fundamentally alter the operation of the conveyance duty provisions. Whether such changes are necessary or can be justified, is questioned.

The Stamp Duties Act 1923 currently provides and was administered until relatively recently, in terms of the history of the Act, on the basis that the value of property the subject of a sale was fixed as at the date of sale. That is the date a contract or agreement was entered into by the parties. What happened after that was generally irrelevant from the perspective of the liability for conveyance duty on a sale.

Section 31 reinforced that view by providing that the conveyance attracted no further duty where the duty was paid on the agreement. Even the proposed anti avoidance provision to be introduced in section 109 by this Bill and the qualifications on the reduction and abolition of stamp duty on commercial properties do not apply to property conveyed pursuant to a contract of sale entered into prior to certain dates before the reduction of the duty. Emphasising that the usual trigger point is the date of the contract not the date of a conveyance, in the stamp duty arena.

Even if the amendments are considered necessary, which we submit is not the case, retrospective legislation is simply not warranted in this situation.

Clauses 42, 43 and 49—Distinction between Conveyance on Sale and others. The stamp duties legislation in South Australia since its inception in 1886 distinguished between conveyances on sale and other forms of conveyances. The Stamp Act 1886 (SA) apart from imposing duty on certain other instruments, when it came to conveyances, only imposed duty on conveyances on sale.

In the Stamp Act Amendment Act 1902 (SA) any other conveyance was made dutiable with a fixed duty. This distinction between conveyances on sale and other conveyances has long had its counterpart provisions in the United Kingdom stamp duties legislation where conveyances on sale were charged with ad valorem duty based on the consideration for the sale and the other conveyances were charged with fixed duty only.

In the Stamp Act Further Amendment Act 1915 (SA) the concept of a conveyance operating as a voluntary disposition inter vivos was introduced in South Australia and duty on such conveyances was set at one half of the duty payable on a conveyance on sale substituting for the consideration, the value of the property, in such situations.

On the adoption of the Stamp Duties Act 1923 (SA), this distinction between conveyances on sale and conveyances operating as voluntary dispositions inter vivos was carried forward into a piece of consolidating legislation.

The rates of duty on conveyances operating as a voluntary disposition inter vivos were further changed in 1928. Those rates were subsequently brought into line, in most respects with the rates of duty on conveyances on sale, by 1982, but the duty on conveyances operating as a voluntary disposition inter vivos were still determined by reference to the value of the property.

In 1982 section 60A and a number of other amendments, including amendments to the heads of charge, were introduced. The fundamental change to the heads of charge was to provide that stamp duty on conveyances on sale were thereafter to be assessed by reference to the value of the property conveyed rather than by reference to the value of the consideration passing. For this purpose, section 60A(1) was inserted. It provides that for the purpose of determining the market value of the property conveyed, in the case of a conveyance on sale, it was to be determined at the date of the sale in any other case as at the date of the conveyance.

The distinction that was drawn between the date for determining the value of the property the subject of a conveyance on sale and the value of the property in any other case reflected the practice that had effectively been adopted since the introduction of stamp duty in South Australia. Further, there is nothing in the Second Reading Speech of the Premier and Treasurer [see Hansard 8 December 1982], at the time, to suggest that there was to be any change in the then subsisting practice as to determining the relative date of sale and in practice nothing changed in that respect. That is a conveyance on sale was assessed by reference to the value of the property as at the date of the agreement of sale not the date of the conveyance.

There is a reference to a case: The Crown v The Bullfinch Proprietary (WA) Limited (1912) 15 CLR 443.

The proposed amendments are intended to overturn this position. This is notwithstanding that the Stamp Act is to continue the distinction between conveyances on sale, and conveyances operating as voluntary dispositions inter vivos, when for most purposes, the rates of duty are the same and the date for determining the liability for duty is now to be the same. It makes a confused set of provisions even more confusing. These are concepts that have long been abolished in the other Australian States. Further, if this legislation is to be business friendly then a Duties Act model, as is used in all other States needs to be adopted. Not the current patchwork quilt.

Under clauses 42, 43 and 49—Interstate Approach there is a summary over some three or four pages of the approach of stamp duties in relation to clauses 42, 43 and 49 in Victoria, New South Wales, Queensland, Western Australia, Tasmania, the Northern Territory and the ACT. If the government advisers want copies of this part of the submission I am happy to provide it but I am sure they are probably familiar with the equivalent provisions to section 42, 43 and 49 in the interstate stamp duties legislation and I therefore do not believe that it will be required for the Revenue SA officers to have me read that into the Hansard. The submission continues:

The foregoing table—

that is, the table of the interstate approaches—

highlights that there are two different approaches in the other States and Territories. One is the approach adopted in Victoria and Tasmania. The duty is paid on the conveyance based on the consideration or dutiable value as at the time the contract of sale was entered into or in any other case, at the time the dutiable transaction occurred. The only effective legislative difference with South Australia on the fundamental aspect is that the legislation in those jurisdictions is even more explicit about what the date of sale means, namely the time of the contract. There is no suggestion that in those jurisdictions they have adopted a practice similar to that of the Commissioner or indeed there is any need to do so.

The other approach is that adopted in the remaining jurisdictions. The contract is liable for duty as a conveyance and is assessed with duty as at that date on the higher of the consideration or the unencumbered value. A transfer made in conformity with the contract is not dutiable or dutiable with nominal duty. In some cases there is an express provision to the effect that improvements made by a transferee prior to the transfer not for the benefit of the transferor are excluded from any duty consequence.

The foregoing interstate provisions would suggest that there is no real issue to be addressed in South Australia. What has occurred in South Australia, the practice adopted by the Commissioner, it is submitted, is unauthorised by law and what is now proposed in adopting that approach is changing fundamentally the taxing regime by altering the legislation to conform with what appears to be an unauthorised practice. It is a problem that does not appear to occur in any other Australian jurisdiction. Further, it creates yet a new approach in Australia, differentiating South Australia from all other jurisdictions on what should be capable of being a common approach, that is determining the value for duty purposes as at the date of the contract of sale not the date of the conveyance where the conveyance is pursuant to a sale.

I would just interpose at this stage and indicate that this particular issue is an issue that has been raised not just by this highly respected tax lawyer but a number of other people as well in relation to this issue, and certainly whilst I am seeking a response from the government to all issues raised in this submission in particular, there are a number of individuals and groups who have raised questions in relation to the government's proposed approach in that particular area. I continue with the submission:

Clauses 42, 43 and 49—Agreements for Sale and Conveyances on Sale

As already described, it is proposed to amend section 31 in respect of agreement for the sale of property so that it accords with the proposed amendments to section 60A(1). The suggestion that the long established practice of the Commissioner in respect of section 60A supports retrospectivity is not always supported by his practices in respect of section 31 or indeed the section itself. Section 31 supports the contrary view.

Under the assessing practices prior to 18 June 2015, if there was an agreement for the sale of a business consisting of goodwill, plant and equipment, stock in trade and a transfer of a registered lease of leased premises that was to settle twelve months after the agreement, the whole of the duty would be assessed on the agreement and was payable within two months of the date of the agreement, other than in respect of the stock in trade, that is not then known.

However, if there was an agreement for the sale of the business consisting of goodwill, plant and equipment, stock in trade and a transfer of fee simple land that was to settle within twelve months after the agreement, then duty would be assessed on the agreement in respect of the non land component as of the date of the agreement (other than stock in trade) and the duty on the land would be imposed on the land transfer. Otherwise it appears all was assessed on the contract and the subsequent conveyance adjudged to the contract if in conformity.

There is a note which says:

The basis for this practice of differentiating between contracts with postponed settlements finds no obvious justification in the terms of existing legislation.

It goes on to say:

If all property were assessed, as at the date of the agreement, then there is consistency, though it is not clear from section 31 how the exception is to apply, if there is a single consideration for all assets that is not apportioned. Any practice of apportioning some part of the consideration for land does not appear to be authorised by the section. Even if it did, nothing in the section authorised the adoption of a date other than the date of the agreement for sale to be used for determining the value on any such apportionment.

In these situations where the duty was paid in the agreement any subsequent conveyance made in conformity with the agreement, is to be adjudged in affect to the agreement. That is, no further duty was payable on the conveyance whenever it may be executed, whether it is one year or ten years later. This once again emphasises that the date of sale is the date of the agreement not some subsequent date.

If the proposal to amend section 31 by adopting section 31(1a), as currently drafted is adopted, then it may also be necessary to amend the head of charge in respect of conveyances or transfers on sale in item 3(1) of Part 1 of Schedule 2.

The head of charge currently provides that the duty be assessed on a 'Conveyance or transfer on sale of any property (not otherwise charged), including contract or agreement for sale'—is to be on (a) 'the value of the financial product' and (b) in any other case 'where the value of the property conveyed…' This appears to create yet further inconsistencies.

Further, in view of the Commissioner's recent revenue ruling about conveyances by direction (refer to revenue ruling SDA009 Conveyance by Direction) the limitation in proposed 31(2)(a) requires reconsideration. The effect is that if the conveyance is made to a person other than the purchaser under the contract, namely to a person by direction to which section 68 does not apply, then the conveyance will not have the benefit of the credit under section 31(2). It is to be noted that proposed section 31(2)(a) is in similar terms to the existing section 31(2). So far, the current section 31(2) is rarely created an issue because a letter of nomination was produced and consequently the purchaser under the contract was the principal not the agent. It may have been more problematic where there was an assignment, though it is arguable that the assignee was the purchaser under the contract by virtue of the assignment and paying the purchase price. A person taking a conveyance by direction is unlikely to be ever described as the purchaser under the contract.

Clauses 42, 43 and 49—Some Other Anomalies or Reservations

The proposed amendments will create yet other anomalies. We would submit that what appears to have been overlooked in proposing to legislate in this way is that fundamentally, on the execution of the contract and the sale of property certain rights accrue in respect of that property and may be enforced in the courts. In arm's length matters, the parties have agreed the price and therefore usually the market value.

In many of those situations specific performance is available to ensure performance by either party. The purchaser has an interest in the property commensurate with the ability to obtain specific performance. The purchaser is no stranger to the property any longer. Under the described practice and the proposed amendments, the realities of commercial transactions is to be effectively ignored and an artificial criterion for the imposition of duty prescribed.

Some simple examples highlight issues….A developer of an apartment building will develop a program for the sale of the apartments recognising that those persons who are prepared to purchase off the plan, before the building has even started, should be offered an incentive. Sometimes these persons enter into the contract a year or two before completion. It often assists the developer in financing the development. The price agreed for the apartment at that point recognises many trade-offs and the acceptance of certain risks. Under the Commissioner's current practice and this proposal those very realities are ignored in a one-sided way. If the completed or near completed apartments sell well then the price of the apartments will increase over time. The Commissioner will under his current practice and these amendments assess the duty on this later higher price. If they do not sell well and the price drops, the Commissioner will assess the duty on the consideration.

A developer of broad acres enters into a contract with a farmer to purchase a relatively large tract of land on the Metropolitan fringe for a significant premium over the price the land will sell for as farming land. The contract is subject to the developer obtaining all necessary rezoning approvals and allows the developer some years to achieve it. The developer then obtains the rezoning approvals and deposits the development plans including subdividing the land into a substantial number of lots. This takes a number of years. Under the practice and proposed legislation the duty will be assessed on the considerable enhanced value of the land at the time of the transfer not at the time of the contract of sale. This will be the case notwithstanding the existence of the contract, the risks assumed by the developer and the enhancement in value primarily comes from the efforts and expenditure of the developer.

A person purchases a dwelling house at an auction. The purchaser achieves a favourable price at the auction. The purchaser does not appreciate the property is being sold as part of an acrimonious divorce settlement. One of the spouses refuses to sign the transfer and the matter becomes the subject of protracted litigation leading after nearly a year to an officer of the court executing the transfer. The value of the property at that time of the conveyance is significantly in excess of the price because of the much improved market conditions and the advantage achieved at the auction. The purchaser will pay duty on the value as at the date of the transfer not on the consideration. It also fails to recognise that in such a situation the purchaser is likely to incur considerable expenses.

The foregoing examples highlight the practice adopted and the proposed amendments simply do not recognise that the price at the date of the contract reflects the risks taken by a purchaser at the time of the contract and can be wholly unrelated to the value of the property when it is to be transferred. The approach proposed will also often give the Commissioner the best of both worlds. It is submitted that the practice and the proposed legislation is artificial and inconsistent with the original purpose of the amendments that adopted section 60A.

Accordingly, if the proposed changes are to be persisted with, it is submitted that the provisions relating to duty on conveyances be wholly reformed with one suite of consistent and intelligible provisions rather than the continuing patchwork of amendments. Further, as fundamentally the conveyance duty is now to be based on value, the consideration passing should be ignored. In future the duty should be assessed on the Valuer-General's capital value, where the property involved is land, on the day the transfer is lodged at the Lands Titles Office. This will further simplify the system of payment, collection and ascertaining values.

In broader terms as one of the examples has highlighted, the proposed amendments, as does the practice, have the potential to significantly impact on the cost of vacant building allotments. It is common for developers to enter into agreements to purchase land subject to obtaining certain development approvals. Such agreements usually provide for the land owner to receive a significant amount in excess of broad acre value once such approvals are obtained. Such approvals can sometimes take many years.

The effect of the proposed amendments is to render the conveyance of the land dutiable on the post development and subdivision approval value, which is often considerably in excess of the consideration actually being paid or the value at the date of the sale. In effect the stamp duty cost becomes so high that any development arrangement is likely to take a very different form, than a sale.

Clauses 42, 43 and 49—Retrospective Operation

The Second Reading speech reflects the Commissioner's view that the amendment, and by implication the justification for retrospective legislation, is to reflect the Commissioner's longstanding practice and that the practice has persisted for in excess of twenty years. Whatever may be the Commissioner's practice and no matter how longstanding that practice may have existed it does not justify retrospectively making the law accord with the Commissioner's practice. It is fundamentally inimical to our concept of the rule of law.

I interpose at this stage with my own question to the minister to ask the government to respond to the fact that is it the case that Revenue SA had received legal advice that their longstanding practice, in essence, was not supported by the current legislation, and that the legislation needed to be changed to provide validity to what the Commissioner has indicated was the longstanding practice? I flag that I would like to pursue that particular issue within the committee stages, in particular, because as this submission and others have highlighted, this is an issue of significant concern to people and some have intimated to me that this is as a result of legal advice being received by the government that their current practices were unsustainable and unsupported by the existing legal position and that the government needed to amend the legislation to support what the Commissioner has identified as a longstanding practice. I return to the submission:

The fundamental starting point in a consideration of a proposal that legislation be retrospective is that retrospective legislation is inimical to our system of law and democracy. A few quotes from F. Bennion [Bennion on Statutory Interpretation (5^th ed.)] provide both an explanation and some justifications for this view. The fundamental proposition is that the law should be certain.

The anathema that retrospectivity constitutes is highlighted in the following quote:

The essential idea of a legal system is that current law should govern current activities…If we do something today, we feel that the law applying to it should be the law in force today, not tomorrow's backward adjustment of it. Such, we believe, is the nature of law. '…those who have arranged their affairs…in reliance on a decision which has stood for many years should not find that their plans have been retrospectively upset'…

Retrospectivity is artificial, deeming a thing to be what it was not. Artificiality and make-believe are generally repugnant to law as the servant of human welfare.

As Bennion yet further highlights:

A law that is altered retrospectively cannot be predicted. If the alteration is substantive it is therefore likely to be unjust. It is presumed that Parliament does not intend to act unjustly.

Further, this is not a new controversy. In 1910 the Commissioner in Western Australia sought to adopt the position contended for by the Commissioner. The High Court rejected that view in The Crown v the Bullfinch Proprietary (WA) Limited. In addition the Stamp Duties Act 1923 has been amended in excess of ninety times since it effected a consolidation of the laws relating to stamp duties in this State in 1923, but at no time since, it appears, has the Executive been concerned to ensure the current view of the Commissioner, is to prevail by approaching Parliament to do what is now proposed.

Nothing in Hansard in 1980 suggests that there was to be a change in practice or the law on this aspect. In addition, the review of the Commissioner's Circulars highlights that it was only with the advent of Circular 234 issued on 3 October 2002 that the subject practice was described, in a particular context, notwithstanding earlier opportunities to do so.

Further, in December 1990, over twenty three years ago, the Commissioner issued the first of his now superseded Circulars. A number of those circulars mention section 60A but it is not apparent prior to Circular 234 in 2002 that there has been a departure from the previous practice described above, notwithstanding the statements to the contrary.

And there is a reference in a note underneath to Circular 27 from 1992, Circular 87 from 1993, Circular 149 from 1997, Circular 157 from 1997, Circular 166 from 1998, Circular 209 from 2000.

One would suggest that on the occurrence of such fundamental change in practice the circular system should have been used to announce it. Circular No 9 Stamp Duty Fishing Licences—Liability for Duty in December 1990 and Circular No 13 Stamp Duty Transfer of Realty (Land Rich Entities) Aggregation Provisions in May 1991 are two simple examples of where the Commissioner used those circulars to publish and clarify his views. It is submitted simply asserting that the practice of the Commissioner fundamentally changed and that the community must therefore see the law changed to conform to that view is not a justification. Even if that change occurred on the basis of advice, which now appears to be incorrect, it makes no difference to the fundamental principle that the retrospectivity is inimical to our law.

In our submission taxpayers are entitled in our society to order their affairs on the basis of the law as it is stated by Parliament and the advice they take on its meaning. Their view may be different to the Commissioner. If it is subsequently found that such views are correct and prevail over that of the Commissioner's view, the clients are entitled to have the benefit of that. If it is found to be wrong, then they pay the tax and any relevant interest and penalties. In the circumstances of this matter we submit there is nothing to justify the use of retrospective legislation, whatever the practice of the Commissioner may have been or said to have been in the past.

Further, if the Commissioner argues the justification is to protect the Revenue against serious loss he should provide details, both legal and financial, from which the extent of the threat might be determined. From a legal perspective that would require the Commissioner to say that, most likely, his practice would be found to have been unlawful. This would squarely raise the question whether the unlawful expropriation of monies from taxpayers ought, at any level of Government, then be ratified.

Also of relevance will be whether the taxpayers who have paid too much can recover in light of the limitation periods for objecting to assessments, obtaining refunds and requesting reassessments. While the Commissioner may, in regard to these time limits, be caught by his own current argument that a stamping on his RevNet system does not generate an assessment it seems unlikely that many taxpayers would have stamped on the basis of the value at the date of conveyance rather than at the date of sale, in stamping instruments via RevNet (i.e. most are likely to have used the agreed consideration in the contract of sale).

Retrospective provisions that preserve and protect against the adoption and application of a misinterpretation of the law is an even greater anathema to the rule of law than simple retrospective amendments. It ought not to be countenanced in this situation, even if there are situations where retrospective legislation can ever be countenanced.

Clause 43(3), the transitional provisions protects those who have had a favourable objection decision. It appears anomalous that it is a requirement that the objector must have lodged the objection within the 60 days, where the objector could have lodged out of time with in effect the approval of the Minister for up twelve months.

Clauses 42, 43 and 49—Conclusion

This long accepted and established practice has some shortcomings where there are house and land packages involved. This has been addressed in other jurisdictions. Each of the other jurisdictions use the sale contract as the relevant date. In some jurisdictions the duty is paid on the agreement and in others on the conveyance. The proposed change will differentiate South Australia on this aspect and one must question whether it is warranted.

It is further submitted, that rather than simply making a yet further amendment that simply blurs, yet further, the evaporating differences, between the two concepts, the provisions relating to duty on conveyances be wholly reformed with one suite of consistent and intelligible provisions, if the amendments are to be persisted with.

Even if the amendments are warranted, retrospective legislation is simply not warranted in this situation.

Clauses 42, 43 and 49—Retrospective Operation—Penalties and Interest

The retrospective provisions in clause 49 provide for no relief from penalties or interest in respect of these retrospective changes. The Commissioner appears however to have indicated in Revenue Ruling SDA008[V3] that these provisions will only apply in respect of instruments processed via RevNet on or after 18 June 2015.

If the provision is to have retrospective effect then there must be an express provision that no penalties or interest can apply to any instruments assessed retrospectively.

Part 11—Stamp Duties Act 1923

Clause 50

In the proposed section 71DC(1)(b) there is a reference to land used for primary production. As explained earlier there is no definition applicable to such use.

In the proposed section 71DC(2) there is the repeated use of the expression "after taking into account information provided by the Valuer-General". Whilst it appears implicit that the Commissioner may have regard to other information it is highly preferable to say so. It is therefore suggested that this provision be amended as follows or some wording to like effect "after taking into account information provided by the Valuer-General and such other information as may be appropriate in the circumstances".

It would appear that the classification is to be determined at the time of the conveyance not the date of the contract of sale. In view of the difficulties described above about what is the relevant date, this should be explicitly stated.

It is unclear from these provisions how broad acres under development for sale as residential allotments are to be classified. If at the time of the conveyance (assuming that is the test point) land had been used as primary production land but then rezoned as residential land, is it to be regarded as non residential because it is yet to be developed and is not then used as primary production land?

Part 12—Stamp Duties Act 1923

Clause 53

Much the same comments as in paragraphs 105 to 108 apply to this proposed section.

There is also a question as to whether the staged abolition will create a series of cliffs in the property market. This is a matter that an economic adviser may be able to comment on.

Part 13—Supreme Court Act 1935

Clause 54

This will allow for the introduction of ad valorem probate fees by regulation.

Ad valorem probate fees were the forerunner of death duties.

In effect these provisions will allow for a form of death duty.

Part 14—Taxation Administration Act 1996

Clause 55

Section 93 of the Taxation Administration 1996 currently provides that to appeal to the Supreme Court it is first necessary to pay the tax in dispute, unless the Minister waives this requirement. The decision of the Minister is, unfortunately, declared to be a non-reviewable decision, which means in most situations that it cannot be called into question. This restriction should also be removed.

The proposed amendment is simply limited to reducing the amount required to be paid to 50 per cent. This appears to be based on the Federal Commissioner's practice that a taxpayer can pay 50 per cent of the tax in dispute. Under the Federal Commissioner's practice, if the 50 per cent is paid no interest thereafter accrues nor are recovery proceedings taken. Neither apply in this situation, so interest continues to accrue on the unpaid 50 per cent and the Commissioner may enforce the assessment. The Commissioner does enforce some assessments by the use of caveats or charges on the land.

The requirement to pay the tax in dispute before appealing applies in only one other jurisdiction and then in different terms. In the Taxation Administration Act 1997 (Vic) there is no similar requirement though the Commissioner may apply to the Supreme Court for an order as to the payment or some part of the tax in dispute. The Taxation Administration Act 1997 (NSW), the Taxation Administration Act 2001 (QLD) and the Taxation Administration Act 2003 (WA) do not contain any similar requirement. The Taxation Administration Act 1997 (Tas) does contain a similar provision to South Australia except that the decision to waive payment is to be made by the Commissioner but that decision does not appear to be non-reviewable.

It is submitted that the Victorian or New South Wales provision should be adopted rather the 50 per cent approach. If the 50 per cent is to prevail the decision of the Minister should also be reviewable, no further interest accrues and no enforcement processes undertaken. Recent decisions and practices further highlight the difficulties the current requirement can cause.

That concludes, as I said, the quite detailed submission from this tax lawyer. I thank that particular person (a) for his expertise, (b) for his devotion to duty and (c) for his willingness to commit in writing all of the detailed questions and concerns he and others have about aspects of the legislation.

I conclude my remarks by again repeating to the minister my request that a copy of the detailed response that the minister provides in relation to this be made available to me as soon as the Treasurer has approved it so that I can commence my consultation with the tax lawyer and indeed others who have interest in this particular area, which will assist our progress through the committee stage of this debate.

The Hon. K.L. VINCENT (17:45): I will speak briefly to indicate Dignity for Disability's general support for the second reading of the bill, but I would also like to raise a few questions. Firstly, I would like to thank the Treasurer's office for arranging, I believe, eight people to brief my office on the bill, so it was obviously a very comprehensive briefing.

We support some of the measures in this bill which support people with disabilities, family carers and disability support providers where relevant, including exemptions from conveyance duty on properties transferred to special disability trusts and as used by the beneficiary's principal place of residence; exemptions from stamp duty on motor vehicle transfers where the patient or guardian of an 'incapacitated child' buys a vehicle to transport that child; and exemptions from stamp duty on motor vehicle transfers where disability service providers buy vehicles to transport persons with disabilities.

Dignity for Disability has raised some additional issues in relation to the stamp duty exemption. We would like to see it extended to all family vehicles used to transport adults with disability where their disability would prevent them from independently transporting themselves. At the moment, it only extends to people under the age of 18. I am sure that I do not need to tell anyone in this chamber that just because someone turns 18, it does not mean that their disability and their related needs disappear and they no longer require assistance in a modified vehicle, where that is what they require.

We have also sought some clarification around what the term 'incapacitated' means and whether that is the definition we are looking for and the one we should be using. It is certainly not a 21^stcentury definition of disability and it would be good to see legislation starting to reflect appropriate person-first language appropriate to this century, not the last. Language certainly does matter. However, I think the use of the term 'incapacitated' is also unclear for another reason. It is my understanding that this refers specifically to someone whose disability affects the use of their legs and thereby their ability to drive a car.

My office certainly deals with lots of constituents who do not necessarily have a physical disability but may have a disability that is intellectual or sensory in nature, which would impact their ability to independently use a vehicle, so we would like this exemption expanded to cover them. I understand from speaking to the Treasurer that he is open to expanding this definition, and I thank him for that, but I would like to make sure that that is what will happen.

This bill also amends the Rates and Land Tax Remission Act 1986 to provide a new cost of living concession to replace the existing council rate concession. While Dignity for Disability applauds this initiative, we have had some concerns raised with us by constituents around the awareness of this new concession for renters and the accessibility of the website administering the payment.

On 30 July, members may recall that I asked some questions in this place about this website and I have not yet received an official answer. In the briefing my office had yesterday, some questions were provided when put to the government briefer but some still remain unclear, so perhaps I will put some of those on the record now.

1. Why is the downloadable application form in PDF only, meaning that it could be inaccessible to people using screen readers due to a vision impairment? I would certainly hate for people to have to rely on someone to read the form out to them.

2. Is there a plan to make a version of the application form that is not only not in PDF but also in easy English and plain language for people with literacy issues?

3. Why can't those applying for the concession post 31 October access the payment for this financial year?

4. Why will it take up to 31 March, that is nine months, if you apply on 1 July for this payment to be received? Why does it take nine months to process an application for $100.

5. Will the department be providing face-to-face support as well as phone and internet based support for South Australians through an agency such as Service SA to assist people to apply for this concession?

I appreciate that I have already put some of these questions on record, but given that they have been raised to me by constituents who are interested in applying for this concession, I would appreciate an answer so that I can go back to them and support them with applying for this important concession. With having put those questions on record, I indicate again Dignity for Disability's general support for the bill.

Debate adjourned on motion of Hon. J.M. Gazzola.