Standing resolute against the Commissioner of State Revenue
Our specialist team, led by Duncan Bedford, was successful in its stamp duty appeal in the Supreme Court of Queensland for gold mining client, Resolute Mining Limited. The OSR will now have to refund almost $500,000 in overpaid duty, plus interest, to Resolute.
On 14 September 2020, his Honour Justice Bradley of the Supreme Court of Queensland confirmed that when contingent consideration is payable with respect to a dutiable transaction:
(1) section 502 of the Duties Act 2001 (Qld) (Duties Act) should first be applied in an effort to ascertain the consideration payable to move the transaction, on which duty will be paid; and
(2) if consideration cannot be ascertained under section 502, duty is payable on the unencumbered value of the relevant property under section 11(7)(b)(ii) of the Duty Act (based on a valuation of the land).
Crucially, Justice Bradley confirmed that the Commissioner of State Revenue cannot apply the common law “contingency principle” and apply duty to a “basic” or “prima facie” amount payable, in an attempt to gloss over gaps in section 502.
Resolute Mining Ltd v Commissioner of State Revenue  QSC 281
As part of the expansion of the Ravenswood Gold Mine, Carpentaria Gold Pty Ltd (Carpentaria), a subsidiary of Resolute Mining Ltd (Resolute), sought the grant of two additional mining leases and the extension to the surface area of a third mining lease (new mining leases) from the State of Queensland. The Ravenswood State School, including heritage listed buildings, was located on land within the area of the new mining leases. The land on which the school was located was owned by the Queensland Department of Education on behalf of the State of Queensland (Department).
In accordance with the Mineral Resources Act 1989 (Qld), to obtain the new mining leases Carpentaria entered into a Compensation Agreement with the Department (as landowner), under which the Department provided its consent to the grant of the new mining leases subject to Resolute and the Department entering into a Funding Agreement under which Resolute agreed to pay for the relocation of the school and the construction of a new school at an alternative site.
Under the Funding Agreement, Resolute and the Department agreed that:
(i) the Department will procure the design and construction of a comparable school complex for the Ravenswood State School in a new location, including the relocation and refurbishment of two existing heritage listed school buildings (Project); and
(ii) Resolute will fund the cost of the Project… (at ).
Once the Project was completed and students of the Ravenswood State School relocated, the Department would transfer the relevant property to Resolute.
In the Funding Agreement, Resolute and the Department further agreed that a Funding Amount of approximately $8.9million (including GST) would be paid to the Department for the cost of the Project. The Funding Amount was based on an estimate of the cost of the Project, with an 8% contingency built in. The amount payable by Resolute was then also subject to increase or refund so that practically, Resolute was required to pay the actual costs of the Project, whatever they happened to be.
The Commissioner formed the opinion that:
(1) the Funding Amount of approximately $8.9million was the consideration for the transaction; and, in the alternative
(2) if section 502 of the Duties Act did not apply to make the consideration ascertainable, the common law contingency principle would treat the Funding Amount as a prima facie or basic amount on which duty should be paid.
The result was a duty assessment by the Commissioner of approximately $512,000. Resolute argued that duty should have been assessed on the unencumbered value of the relevant properties, as determined by an independent valuation, of $635,000. Duty calculated on that basis was $21,600.
Justice Bradley found against the Commissioner on both his primary and alternative arguments, and concluded that the duty should have been assessed on the unencumbered value.
Section 11(7) of the Duty Act provides
(7) … the dutiable value of another dutiable transaction is –
(a) the consideration for the dutiable transaction; or
(b) the unencumbered value of the dutiable property or new right the subject of the transaction if –
(i) there is no consideration for the transaction; or
(ii) the consideration can not be ascertained when the liability for transfer duty arises; …
Section 502 of the Duty Act goes on to provide
(1) Subsection (2) applies for determining the consideration payable under an instrument or transaction if the consideration payable –
(a) may be increased or decreased depending on a particular thing happening or not happening; or
(b) may or may not actually become payable depending on a particular thing happening or not happening;
(2) Regardless of whether the thing happens or does not happen, the consideration is –
(a) if subsection (1)(a) or (b) applies – the highest consideration payable under the instrument or transaction;
Justice Bradley accepted that the consideration for the transfer of the land underlying the new mining leases, being the value that moved the transfer under the Funding Agreement, was the promise by Resolute to pay for the costs of the Project. That is, the consideration was the net cost of the Project.
In this circumstance, the consideration was not ascertainable at the time of entry into the Funding Agreement. In addition, the Funding Agreement provided for neither a maximum nor minimum amount payable, such that section 502 could not be applied to ascertain the dutiable value of the dutiable transaction under the Funding Agreement.
As the consideration could not be ascertained at the relevant time, section 11(7)(b)(ii) was enlivened.
Qld approach compared to NSW and Victoria
In reaching his decision, Justice Bradley noted that section 11(7) of the Duties Act provides for a very different approach to circumstances where the consideration for a dutiable transaction cannot be ascertained on the relevant date when compared to the approach adopted under the duty legislation in New South Wales and Victoria.
In those two states, the revenue authority can issue an interim assessment on the estimated dutiable value of the transaction, and subsequently issue a reassessment when the full dutiable value has been ascertained (section 49 Duties Act 1997 (NSW) and section 30 Duties Act 2000 (Vic)).
Although Queensland had the opportunity to adopt an approach similar to that of New South Wales and Victoria, the duty legislation in those two states, having been enacted prior to the Duties Act and considered by the Queensland legislature, meant that was not the approach adopted in Queensland.
Queensland determined that it would make one assessment, and not afford the opportunity to issue an interim assessment, which might later be amended. By virtue of section 502(1)(a), Queensland has, for example, the ability to make assessment on the highest consideration nominated – if it can be ascertained. In that case, no refund of duty is available if the consideration is ultimately less than the maximum amount on which duty was paid.
However, in the event that consideration cannot be ascertained with the assistance of section 502, the duty is assessed on the unencumbered value of the land being transferred.
A copy of Justice Bradley’s decision is available here.
Special thanks to Adria Askin, Lawyer for her assistance in putting this article together.