A summary of the relevant background facts are as follows:
- In 2002 EDI Rail (Maryborough) Pty Ltd (Company) had a foundry business;
- On 2 January 2003, the Company transferred the foundry assets to a wholly owned subsidiary, Vaughan Castings Pty Ltd (Subsidiary) (together, Respondents); and
- On 2 July 2003, the Company transferred all of its shares in the Subsidiary to another company in group (Company 2).
The Company's accountants suggested that:
- if the transaction were structured in this way, the specific duty exemptions in the Act concerning corporate restructures would apply; but
- if the foundry businesses assets had been transferred directly from the Company to Company 2, then stamp duty would have been payable.
The Respondents' accountants also advised that by structuring the transaction in this way, the WA Commissioner of Taxation may consider this a 'duty avoidance scheme'. Accordingly, they advised that a binding ruling should be obtained before entering into the transaction. However, that ruling was not obtained.
Application for an exemption from stamp duty
On 27 August 2003, the Respondent's accountants (on behalf of the Respondents) lodged an application for exemption from stamp duty on the asset transfer — but failed to disclose the subsequent share transfer. The Commissioner discovered this omission and invoked the claw-back provisions in the Act to charge duty and impose a penalty on the Respondents for failure to disclose material information.
At first instance
When the matter was heard at first instance, the Tribunal sided with the Respondents and held that there was no 'duty avoidance arrangement'. Accordingly, the failure to disclose the subsequent share transfer was not 'material information' for the purposes of the Act. The Commissioner appealed against this decision.
The Commissioner appealed on 3 grounds — they were:
- Ground 1, There was a 'duty avoidance arrangement' under 75JDA(1)(a) of the Act
- Ground 2, There was a 'duty avoidance arrangement' under 75JDA(1)(b) of the Act ; and
- Ground 3, The failure to disclose the subsequent share transfer was 'material information' which triggered the claw-back (and penalty) provisions of the Act.
Was there a 'duty avoidance arrangement'?
The Court considered whether the transaction, structured in this way, was a 'duty avoidance arrangement'.
Ground 1 – 'duty avoidance arrangement' under section 75JDA(1)(a) of the Act
The Court first looked to section 75JDA(1)(a) of the Act which describes a 'duty avoidance arrangement' as follows:
(a) avoiding or circumventing the operation of the provisions of this Part so far as they make the availability and continued effect of an exemption under section 75JB dependant on bodies corporate having been associated for a particular period or remaining associated for a particular period; or
The Court held that sub-section (a) did not apply in this case. This was because this sub- paragraph relates specifically to the purported avoidance or circumvention of the qualifying periods which parties may rely on to be entitled to an exemption. As the Company was not seeking to rely on these qualifying periods to prove its association, this sub-paragraph was not relevant in this case.
Accordingly, this ground of appeal was dismissed.
Ground 2 – 'duty avoidance arrangement' under section 75JDA(1)(b) of the Act
The Court then looked to whether the arrangement was a 'duty avoidance arrangement' under section 75JDA(1)(b) of the Act, which described a 'duty avoidance arrangement' as:
(b) having as its purpose, or one of its purposes, the reduction of duty that might otherwise become payable.
The Court found that a 'duty avoidance arrangement' under sub-paragraph (b) was satisfied in this case as 'one of the purposes of the arrangement (and not merely an incidental one) was the reduction of stamp duty'.
This was despite the fact that the transaction was specifically structured in such a way as to comply with exemption provisions of 75JB of the Act. Thus, the Court held that the definition of 'duty avoidance arrangement' should not be 'read down' to exclude instances where the requirements of 75JB had been satisfied. This intention is clearly apparent from a reading of sections 75JDA(2) and (3) of the Act:
(2) Without limiting section 75JC, the Commissioner may determine under that section that an exemption under section 75JB would not be granted in respect of an instrument or a Part IIIBA statement if the Commissioner considers that the instrument or statement would, if executed or lodged, relate or be likely to relate to a duty avoidance arrangement;
(3) Even if on an application under section 75JD it is shown to the satisfaction of the Commissioner that section 75JB applies, the Commissioner may refuse to grant an exemption under section 75JB(3) in respect of an instrument or a Part IIIBA statement if the Commissioner considers that the instrument or statement relates or is likely to relate to a duty avoidance arrangement.
As the Court found that a 'duty avoidance arrangement' did exist, the failure to disclose the share transfer was 'material information'. The consequence was that the duty was 'clawed-back' and a fine imposed under 75JE.
Ground 3 – Material Information
The final ground which the Court considered was whether the failure to provide details of the share transfer would have been 'material information' for the purpose of section 75JD(4), had no 'duty avoidance arrangement' been found to exist.
The Court found that the time to assess the 'materiality' of the information is the time of the application. If there is no 'duty avoidance arrangement' at this time, then the information not disclosed is not 'material information' for the purposes of section 75JD(4).
However, given that a 'duty avoidance arrangement' was found in this case, this ground did not affect the outcome in this case.
The Court held that the Respondents had not demonstrated that there was a material error in the exercise of the Commissioner's discretion to refuse to remit the fine. The Court also stated that "in circumstances where the respondents did not follow the recommendation of their professional advisor to seek a predetermination because of uncertainty surrounding section 75JDA, it is unlikely that any error would alter the result in any event".
Implications for Cleardocs users
Although this case is of direct relevance only for Cleardocs customers in WA, it provides general principles that are likely to be relevant elsewhere. Those principles are that:
- it is important to provide material information to commissioners of taxation when applying for an exemption from duty, and
- it is important to follow the recommendation of your professional advisors.
More information from Maddocks
For more information, contact Maddocks on (03) 9288 0555 and ask for a member of the Maddocks Tax and Revenue Team.
More Cleardocs information on taxation issues – www.cleardocs.com
You can access various ClearLaw articles for more relevant information relating to taxation issues:
 Commissioner of State Taxation v EDI Rail (Maryborough) Pty Ltd  WASCA 17, para 57.
 Commissioner of State Taxation v EDI Rail (Maryborough) Pty Ltd  WASCA 17, para 75.