Scheduled maintenance

The Credit Card Payment service will be unavailable between 3.00am and 9.00am, and the OSR website will be unavailable between 6.00am and 9.00am on Sunday, 23 July due to scheduled maintenance. We apologise for any inconvenience.

Bondi Beachside Pty Ltd and others v Chief Commissioner of State Revenue [2014] NSWCA 6

Date of judgement 07 February 2014 Proceeding No. 2011/361164
Judge(s) Bathurst CJ, Ward JA and Tobias AJA
Court or Tribunal NSW Court of Appeal
Legislation cited Bankruptcy Act 1966 (Cth)

Duties Act 1997

Moneylenders' Infants Loan Act 1941

Stamp Duties Act 1920

State Revenue Legislation Further Amendment Act 2009

Taxation Administration Act 1996
Catchwords TAXES AND DUTIES - stamp duties - assessment and amount payable including fines - whether a deed of variation extending the time for payment of principal and capitalised interest was an advance under s 206(a)(iii) of the Duties Act
Cases cited Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) [2009] HCA 41; (2009) 239 CLR 27

AMP Inc v Utilux Pty Ltd (1971) 45 ALJR 123; [1972] RPC 103

Bank of New South Wales v Brown [1983] HCA 1; (1983) 151 CLR 514

Baystone Investments Pty Ltd v Commissioner of Stamp Duties [1978] 1 NSWLR 441

Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 21

Burnes v Trade Credits Ltd [1981] 1 NSWLR 93

Chow Young Hong v Choong Fah Rubber Manufactory [1962] AC 209

Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55

Commissioner of Taxation v Mercantile Credits Ltd (1986) 10 FCR 340

Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520

Electronic Industries Limited v David Jones Limited [1954] HCA 69; (1954) 91 CLR 288

Handevel Pty Ltd v Chief Controller of Stamps (Vic) [1985] HCA 73;(1985) 157 CLR 177

Messenger Press Pty Ltd v Commissioner of Taxation [2012] FCA 756

Minister for Resources v Dover Fisheries Pty Ltd [1993] FCA 366; (1993) 43 FCR 565

Prime Wheat Association Ltd v Chief Commissioner of Stamp Duties (NSW) [1999] NSWSC 546; (1997) 42 NSWLR 505

Prudential Mutual Assurance Investment and Loan Association v Curzon (1852) 8 Exch 97; 155 ER 1275

Santander UK Plc (QB) v Harrison [2013] EWHC 199

Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93

Thompson v Goold & Co [1910] AC 409

Tozer Kemsley & Millbourn (Australasia) Pty Ltd v Point [1961] 61 SR (NSW) 751 at 764; (1961) 78 WN (NSW) 250

Trade Credits Ltd v Burnes [1979] 1 NSWLR 630

Summary

The Taxpayer in this case appealed against the decision of Gzell J at first instance that the Chief Commissioner of State Revenue was correct to assess a fixed and floating charge (“Charge”) to additional mortgage duty. The Chief Commissioner cross-appealed against the decision of Gzell J to not include the amount of capitalised interest as subject to additional mortgage duty.

The Court of Appeal found, unanimously, that Gzell J erred in finding that the Variation Deeds resulted in the Charge being liable to additional mortgage duty as an “advance” within s 206(a)(iii) of the Duties Act, and upheld the appeal. The Chief Commissioner’s cross-appeal was dismissed.

Background

The Charge was granted in 2007 and, upon execution, was stamped with duty of $5 on the basis that it did not secure any “advances” at the time of its execution.

The Charge formed part of a “deferred purchase price” arrangement (“DPP Scheme”). In essence, a DPP scheme is one under which a financial institution may subscribe for and sell loan notes for a price. In this case, the Charge secured payment of that price, but payment could be deferred. As the Charge secured the payment of an unpaid purchase price rather than the repayment of a loan, this arrangement fell outside the provision in s 206 of the Duties Act 1997 (NSW) (“Duties Act”) defining what, for mortgage duty purposes, was an “advance”.

Relevantly, the term “advance” was defined as follows:

advance means the provision or obtaining of funds by way of financial accommodation, by means of:

(a) a loan, being:

...

(iii) a forbearance to require the payment of money owing on any account whatever ...”

The Charge secured notes issued in 2007 that had a face value of $92,006,545. Interest was capitalised on the value of the notes issued, and as at 1 July 2009, the total amount outstanding which was secured by the Charge was $102,600,000.

Under various Variation Deeds, the appellants elected to defer (or extend) the due date for payment of the purchase price on several occasions, including on three occasions after 1 July 2009.

The Chief Commissioner assessed the Charge to additional duty (based on an advance of $102,600,000) on 24 December 2010 (“Assessment”) in respect of those deferrals (or extensions), after 1 July 2009, of the date for payment of the purchase price.

Justice Gzell found at first instance that the Chief Commissioner was correct to assess the Charge to additional mortgage duty, however mortgage duty should only be imposed in respect of an amount of advances totalling $92,006,545 (and not $102,600,000 as originally assessed). The appellants appealed against this decision, whilst the respondent cross-appealed against the decision of Gzell J to not include the amount of capitalised interest as subject to additional mortgage duty.

Decision

The Court of Appeal found, unanimously, that Gzell J erred in finding that the Variation Deeds resulted in the Charge being liable to additional mortgage duty as an “advance” within s 206(a)(iii) of the Duties Act. Accordingly, the Court of Appeal found that the appeal should be upheld and the Chief Commissioner’s cross-appeal should be dismissed.

In reaching this decision, the relevant issues for the Court to determine were:

  1. Whether the Variation Deeds, by deferring (or extending) the due date for payment of the purchase price, constituted an “advance” in the sense of a “forbearance to require the payment of money owing on any account whatever” within the meaning of s 206(a)(iii) of the Duties Act.

  2. If the appellants fail on their appeal, whether the amount secured by the Charge included capitalised interest (this was the subject of the cross-appeal).

In respect of each issue, the Court of Appeal found as follows:

Forbearance (Issue 1)

  1. In order for a forbearance to be an “advance” within the mortgage duty provisions, there must be an identifiable “provision” or “obtaining” of funds. The Court of Appeal found that this did not require that it was necessary to identify an “actual” provision or obtaining of funds, but that it would be sufficient to satisfy the definition of “advance” if there was a “constructive” provision or obtaining of funds. In reaching this conclusion, the Court of Appeal indicated that it was troubled by the appellants’ construction of the definition of “advance”, which appeared to give the forbearance limb of the definition no readily identifiable operation. However, the Court of Appeal was equally troubled by the respondent’s construction, which it found could lead to multiple duty being imposed in respect of the Variation Deeds.

  2. In this case, the Court of Appeal found that the effect of the Variation Deeds was not that the appellants actually received any new funds. The argument put by the respondent, that the appellants retained, or had the continued use of, funds that they otherwise would have been required to pay to the bank (and hence in that sense “obtained” funds by reason of the extension of time for payment) assumes that the appellants had such funds available to them at the relevant time. Importantly, the Court of Appeal found in this regard that retention of funds for a longer period does not involve the “provision” or “obtaining” of any new funds (ie there was no obtaining of funds even if there was a financial benefit in obtaining an extension of the date for payment of the purchase price).

Capitalised interest (Issue 2)

  1. As the Court of Appeal found that there was no “advance” in this case, the issue of whether the amount secured by the Charge included capitalised interest (the subject of the cross-appeal) did not arise.

  2. However, the Court of Appeal indicated that, had the question arisen, it would have concluded that Gzell J erred in not treating the amount of “advances” secured by the Charge as including the amount of capitalised interest. In this regard, the Court of Appeal accepted the respondent’s submission that, had there been a provision or obtaining of funds, a forbearance to require the payment of interest would have amounted to an “advance” for mortgage duty purposes.

Orders

Accordingly, the Court of Appeal ordered that the appeal be allowed and set aside the judgment and orders of Gzell J. The Chief Commissioner’s cross-appeal was dismissed.

Link to decision

Bondi Beachside Pty Ltd and others v Chief Commissioner of State Revenue [2014] NSWCA 6

Last updated: 19 May 2016