Key points

• An agreement entered into by a parent company to procure a sale of property owned by its subsidiary could be liable to duty as an agreement for sale, even if the owner of the property (i.e., the subsidiary) is not a party to the agreement.
• For future transactions, consider wording in SPAs to limit exposure to duty.
• A further issue was a change in shareholders in the purchaser entity, resulting in double duty. To limit this exposure, ensure the ownership of the purchasing entity is confirmed prior to execution of a sale contract to acquire land, to avoid the risk of triggering “double duty”.
• If there is the intention to change the structure of a corporate group, consider whether the taxpayer would be eligible for corporate reconstruction exemptions and concessions which differ in each State and Territory. 

Commissioner of State Revenue v Van Dairy (Hong Kong) Group Ltd, Van Dairy (Hong Kong) Group Ltd v Commissioner of State Revenue and Ningbo Kaixin Investment Co Ltd v Commissioner of State Revenue [2024] TASSC 70

In this case the Commissioner successfully argued that an agreement by which a corporate entity, which wholly controlled two other corporate entities, undertakes to arrange for those two corporate entities to sell land held by it to a purchaser, is an agreement for the sale of land. The purchaser became a land-rich entity before completion, and a double duty liability was triggered by two subsequent transfers of its shares before completion of the land purchase. The consequence was that duty of approximately AU$10 million inclusive of penalties and interest was incurred by each of the share transferees.  

Background 

In October 2015, the Woolnorth properties located in Tasmania, were owned by Van Diemen's Land Company (VDL) and Tasman Ferndale Pty Ltd (TFPL). Both VDL and TFPL were wholly owned by Tasman Land Company (TLC). 

Mr Lu was interested in purchasing the Woolnorth properties and related assets. On 30 October 2015, to facilitate the purchase, Moon Lake Investments Pty Ltd was incorporated with Mr Lu being the sole shareholder of all five shares in the company.

On 20 November 2015, Mr Lu, Moon Lake and TLC, executed a Sale and Purchase Agreement (SPA). Under clause 3 of the SPA, TLC agreed "to procure the sale and transfer to [Moon Lake] of the Assets … with effect from Closing …". 

On 12 January 2016, Mr Lu's five shares in Moon Lake were transferred to Ningbo Kaixin Investment Co Ltd (Ningbo). 

On 24 March 2016, Ningbo's shares in Moon Lake were transferred to Van Dairy (Hong Kong) Group Ltd (VDHK). 

On 31 March 2016, completion of the SPA took place and each of VDL and TFPL provided Moon Lake with a signed transfer of the property.  On or about 4 April 2016, these were lodged with the

Commissioner to be assessed for stamp duty by the State Revenue Office (SRO).

Following this, the SRO told Moon Lake’s solicitors that it would further consider whether Ningbo and/or VDHK had any liability to pay duty separately to Moon Lake's liability to pay duty at the time of the acquisition of the Woolnorth properties. 

On 20 April 2021, Moon Lake received correspondence from the SRO, which included the following statement:

"The acquisition by shares by [Ningbo] on 15 January 2016 and then subsequently by [VDHK] on 24 March each resulted in a separate dutiable transaction under s 66 of the Act as at the time of each of those majority acquisitions, Moon Lake was deemed to be a land-rich company."

On 5 July 2021, the SRO informed VDHK's solicitors that Ningbo and VDHK was each liable to pay duty interest and penalty tax in the sum of approximately AU$10.5 million.  

On 2 September 2020, Ningbo and VDHK each lodged notices of objection with the Commissioner regarding the 5 July 2021 assessments.  The Commissioner disallowed their objections. The assessments were the subject of challenge in this case.

Legislation

Under the Duties Act 2001 (Tasmania), section 60 states:

(1) A private corporation is land-rich if

(a) it has land holdings in Tasmania where the unencumbered value is AU$500,00 or more;
(b) its land holdings and all places, whether within or outside Australia, comprise 60% or more of the unencumbered value of all its property.

Section 61(1) defined "land holding" as any interest in land with some immaterial exceptions.

Section 61(4) states that: "For the purposes of this Part, the vendor and the purchaser under an uncompleted agreement for the sale of land are taken to be separately entitled to the whole of the land."

Section 67(a) states that “A person who –

(1) acquires an interest in the land-rich private corporation

(a) that is of itself a majority interest in the corporation; or
(b) that when aggregated with other interests in the corporation held by the person, or an associated person, results in aggregation that amounts to majority interest in the corporation…."

Section 49 states that: "The duty chargeable on a transfer of dutiable property is AU$50.00 if the Commissioner is satisfied that there is no change in the beneficial ownership of the property."

Decision

The main issue was whether Ningbo and VDHK had made a "relevant acquisition" for the purposes of s 67 of the Duties Act, which focused on two questions:

(1) Was there an agreement for the sale of land?

(2) Was Moon Lake a "land-rich private corporation"?

Another ground for appeal was whether there was exemption from duty for Ningbo and VDHK.

Status of the SPA

The Court held that the phrase “agreement for the sale of land” should be given its ordinary natural meaning. The “agreement for the sale of land” in the context of s 61(4) is descriptive of an agreement which results in the sale of land and should not be read in a narrow or pedantic manner.

The Court held that “an agreement by which a corporate entity, which wholly controls two other corporate entities, undertakes to arrange for its alter egos to sell land held by it to a buyer, is an agreement for the sale of land.” The Court also referred to the judgment of Justice Fullagar in Hall v Busst,¹ where his Honour said there were 'three essential elements' required for a concluded agreement – the parties, the subject matter and the price. The SPA in this case contained all three elements.

Accordingly, the SPA was a concluded and binding agreement for the sale of land in the context of s 61(4) of the Duties Act.

Was Moon Lake a “land rich private corporation”?

S 61(1) of the Duties Act creates the statutory concept of a land-rich corporation which extends beyond notions of land ownership by registration and title or equitable interests arising from trust. As a party to the uncompleted agreement for the sale of land, Moon Lake therefore had a deemed entitlement to the Woolnorth properties under the SPA which was a "landholding" under section 61(1).

At the time that Moon Lake acquired the land, Moon Lake's land holdings in all places comprised 60% or more of the unencumbered value of all its property. This made Moon Lake a “land rich private corporation” at the date of each acquisition, being on 12 January 2016 (when shares in Moon Lake were transferred from Mr Lu to Ningbo) and on 24 March 2016 (when shares in Moon Lake were transferred from Ningbo to VDHK).

Exemption from duty

The Woolnorth properties, being all freehold land subject to the SPA, is property of Moon Lake by virtue of s 61(4) of the Duties Act. Ningbo could not have acquired the land from Mr Lu in a manner that involved no change in the beneficial ownership of the land because of the separate entity doctrine which provides that where a person acquires an interest in a private corporation, that person acquires for himself or herself no interest in land owned by the corporation.

Key Takeaways

• An agreement entered into by a parent company to procure a sale of property owned by its subsidiary could be liable to duty as an agreement for sale, even if the owner of the property (i.e., the subsidiary) is not a party to the agreement.
• Landholder duty legislation in other Australian States and Territories have similar provisions deeming a company to be a holder of land where it has entered into an uncompleted agreement to purchase the land. In light of this, the decision from this case may be persuasive authority on the interpretation of those provisions in other Australian jurisdictions.
• For future transactions, ensure the ownership of the purchasing entity is confirmed prior to execution of a sale contract to acquire land, to avoid the risk of triggering “double duty”.
• Consider the duty implications of entering into sale and purchase agreements, especially where the seller or purchaser of the property is not a party to the agreement.
• If there is the intention to change the structure of a corporate group or the entity holding the assets within a corporate group, consider whether the taxpayer would be eligible for corporate reconstruction exemptions and concessions which differ in each State and Territory.

1. Hall v Busst (1960) 104 CLR 206 at [222].