20 March, 2014

What You Need To Know

This Bulletin outlines Australian stamp duty developments in February 2014, which may impact your business, including: 

Mortgage Duty 

NSW: Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCA 6 – the New South Wales Court of Appeal found for the taxpayer, and held that a variation to a facility deed was not subject to additional mortgage duty as an “advance” under section 206 of the Duties Act 1997 (NSW).

Administration 

Revenue Ruling TAA.007 – the Victorian State Revenue Office has issued an update to Revenue Ruling TAA.007 in relation to the charging of interest and penalties.

Mortgage Duty – NSW: Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue [2014] NSWSCA 6 

In Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCA 6 the New South Wales Court of Appeal (NSWCA) found for the taxpayer, and held that a variation to a facility deed was not subject to additional mortgage duty as an “advance” under section 206 of the Duties Act 1997 (NSW) (the Act). 

Facts 

The appellants (collectively, the Bondi entities), entered into a finance arrangement with National Australia Bank (NAB) for the raising of funds to acquire a property in Bondi. NAB purchased notes worth approximately $92m from an issuer and on-sold them to the Bondi entities. The Bondi entities deferred payment of the purchase of the notes and provided a charge in favour of NAB as security of their obligation to pay the deferred purchase price and interest in respect of the notes. 

The Bondi entities extended the repayment date nine times by multiple variation deeds. Among other matters, the terms of the variation deeds altered the due date in the original facility deed, but none of the deeds operated in terms as a substitution of a new agreement. 

The Chief Commissioner issued a notice assessing mortgage duty of AUD 102,600,000 on the basis that three of the nine variation deeds constituted a forbearance and therefore an “advance” under section 206 of the Act, with a liability to additional mortgage arising under section 208(2) of the Act. At first instance, Gzell J in the New South Wales Supreme Court held in favour of the Chief Commissioner on the basis that the variation deeds constituted an “advance” as they were a forbearance to require the payment of money owing under section 206 of the Act. 

The Bondi entities appealed to the NSWCA, arguing that the primary judge erred in his interpretation of “advance” under the Act. The Bondi entities argued that even if the variation deeds did amount to a forbearance they were still not a dutiable advance because no provision or obtaining of funds was involved. 

The Chief Commissioner cross-appealed contending that his Honour erred in concluding that capitalised interest should not be included in the calculation of the additional mortgage duty payable by the Bondi entities. 

Held 

The NSWCA held that for a forbearance to be an “advance” within the meaning of the mortgage duty provisions it must result in the provision or obtaining of funds. What is required for the purpose of section 206(a)(ii) of the Act is the identifiable provision or obtaining of funds in the sense that the effect of the transaction is that there has been a provision or obtaining of funds. 

The NSWCA held that in the present case, the contractual variations that took place did not involve a transaction where the Bank had advanced money to the Bondi entities when the payment date arrived and the payment was not made. Ultimately, there was no obtaining of funds, even if there was a financial benefit in obtaining an extension of the date for payment of the purchaser price. Therefore, it was found that on the facts that there was no actual or constructive provision or obtaining of funds by way of financial accommodation.

Additionally, on the issue of capitalised interest, the NSWCA considered that if it had agreed with the primary judge that there was an advance under the legislation (thus incurring mortgage duty liability), there was no basis to exclude the capitalised interest from the advance. However, as the NSWCA found that the variation deeds did not operate as an advance, it dismissed the cross-appeal.

Administration – Victorian Revenue Ruling TAA.007 

On 28 February 2014 the Victorian SRO issued Revenue Ruling TAA.007 (version 2) (Interest and Penalty Tax). 

The purpose of the Ruling is to explain how the Commissioner will impose administrative penalties and calculate interest under Part 5 of the Tax Administration Act 1997 (Vic) (TAA). 

The Ruling has been updated to include some examples on how the TAA will apply and also outline the Commissioner’s approach to the imposition of penalty tax and interest if there has been a tax default.

For further information, please contact:

Geoffrey Mann, Partner, Ashurst
[email protected]

Nika Dharmadasa, Ashurst
[email protected]

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