Some recent interesting cases have brought Western Australian duty law to the fore and may have an impact on many businesses and individuals within that State.
Here, special counsel Justin Byrne in HopgoodGanim's tax and revenue division takes the opportunity to examine two Western Australian duty cases relating to:
- Whether exploration licences were "land" for the purposes of the landholder duty provisions; and
- Land tax – where an exemption for land used for rural business was denied.
Whether exploration licences were "land" for the purposes of the landholder duty provisions
In Abbotts Exploration Pty Ltd v Commissioner of State Revenue [2013] WASAT 39, the Western Australian State Administrative Tribunal has held that three exploration licences were held to be "land" for the purposes of the WA landholder duty provisions, whereas the fourth exploration licence only conferred a personal right in relation to the taxpayer.
The facts are complex. However, broadly, the taxpayer at the relevant time became the controlling shareholder in a company that had certain pre-existing rights in relation to four exploration licences under the Mining Act 1978 (WA). Another company actually owned the exploration licences. By virtue of an option deed (which was exercised in due course) entered into between the owner of the exploration licences and the company in which the taxpayer acquired the relevant shareholding, upon exercise of the option, rights were conferred upon the grantee in relation to the tenements, namely a right to mine, together with a requirement that the interest in the tenements be transferred to it.
The Tribunal held that the nature of the option deed and other agreements entered into was such that upon exercise of the option, the beneficial interest in the exploration licences was effectively transferred to the company. In other words, the agreements did not merely have the effect that there was an acquisition of rights in relation to the exploration licences as well as a right to mine, there was a transfer of the beneficial interest in the licences themselves. This was despite the fact that the legal ownership of the exploration licences did not change. When viewed objectively, however, it was apparent that the legal owner of the exploration licences only held the legal title to them – all substantive rights attaching to the licences had been assigned to other parties.
On that basis, the Tribunal held that landholder duty was payable upon the relevant acquisition of shares in the company. This was because the bundle of rights conferred on the company under the various agreements gave the company effective ownership of the exploration licences.
In relation to the fourth tenement, the owner of the tenement was prohibited at that time from transferring or otherwise dealing with that tenement without the prior written consent of the Minister. This was because the fourth tenement was within the first year of its term. The Tribunal therefore held that although the company did have a right in respect of the fourth tenement at the relevant date, that right could not have been proprietary in nature and was only a personal right. Therefore that right did not constitute an estate or interest in the fourth tenement and was not "land" for landholder duty purposes.
The case serves as a reminder that even where legal ownership does not change, there can still be the acquisition of property that may be subject to duty. It should also be noted that the Tribunal distinguished the recent, similar case, of Anaconda Nickel ([2000] WASCA 27; (2000) 22 WAR 101). Anaconda concerned the grant of a right to enter land the subject of an exploration licence and explore for and earn an interest in particular minerals. In that decision, it was held that this right did not give the grantee an estate or interest in the exploration licence itself. The Court found that the relevant contractual terms allowed the grantee a right to earn a 100 percent interest in certain minerals discovered, but not an interest in any of the tenements concerned. It is therefore evident that the wording of the particular document conferring the right to mine is critical.
Land tax – exemption for land used for rural business denied
The Western Australian State Administrative Tribunal in Ivankovic v Commissioner of State Revenue [2013] WASAT 21 held that the taxpayer was not entitled to the land tax exemption generally available where land is being used for a rural business.
The taxpayers (husband and wife) were the registered owners of the land and sought an exemption under section 29(3) of the Duties Act (W.A.) on the basis that they were carrying out a rural business, namely growing strawberries and tomatoes. Although the Commissioner accepted that the activities being carried out on the land were in the nature of a rural business (ie was used solely or principally on a commercial basis to produce income to the user from the sale of produce or stock in the course of carrying out a rural business eg the growing of strawberries and tomatoes), he did not accept that the owners were using the land for those businesses. Instead, he contended that the land was being used by third parties (related to Mr & Mrs Ivankovic, including a related company owned by the husband and wife as trustee of their family trust).
The Tribunal held that in order to obtain the section 29(3) exemption, the owners of the land had to personally carry on the requisite rural business, rather than any other entity, including a related party. The Tribunal said that the fact that Mr and Mrs Ivankovic participated in activities on the land in the manner described did not lead to the conclusion that they were using the land for a rural business. It further held that the activities of Mr and Mrs Ivankovic were essentially no more than assisting the related companies to farm the Land. What was required under section 29(3), on a proper construction, was the actual derivation of income by the landowner directly from the operation of the rural business. The fact that the Ivankovics may have derived income through the companies and trusts that also conducted business on the land was irrelevant.
The lesson from Ivankovic is that structure is important. While it may generally be more tax efficient for the majority of the income from a rural business activity to be derived by a related company or trust, that fact, in the Ivankovics' circumstances, denied them the land tax exemption.
In light of the Ivankovic decision, it would be prudent for taxpayers to review their structures to ensure that their rural land tax exemption can still be maintained.
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