The state government has suffered its third major court defeat over controversial stamp duty laws that hit mining and infrastructure companies with large tax bills.
The State Administrative Tribunal has ruled that WestNet Rail, now known as Brookfield Rail, was incorrectly levied with a $71.3 million stamp duty bill over the 2006 purchase of Australian Railroad Group.
This followed earlier court rulings in favour of energy companies AGL, TEC Desert and Origin Energy, which also challenged their stamp duty assessments.
Not all the court rulings have gone in favour of business groups.
Epic Energy challenged the $7.8 million stamp duty bill on its 2004 purchase of two pipelines in the Pilbara; Epic took its case all the way to the Court of Appeal, largely without success.
Other business groups that have been caught by the ‘land-rich’ rules, including Alcoa, are understood to have reached out of court settlements with the Office of State Revenue.
The key issue in all of these cases is the definition of ‘land’.
Under the Stamp Act as it applied at the time, a company was liable for stamp duty if it bought a business where 60 per cent of the assets comprised land.
The original intent of the ‘land-rich’ provisions was to stop tax avoidance by property owners, who could put land inside a company structure in order to avoid stamp duty when it was sold.
The definition of land has subsequently been amended to ensure it includes mining tenements and ‘fixtures’ such as pipelines and power stations.
In the WestNet Rail case, SAT president John Chaney concluded that “the company was not a landholder for the purposes of the Stamp Act”.
AGL and TEC Desert (which acted together) and Origin Energy benefited from similar rulings, in relation to the purchase of power stations.
Going back further, Westralia Airports Corporation had a big win in 2002 when it overturned a $40 million stamp duty assessment.
State governments of both political persuasions have responded swiftly to these cases by amending the relevant legislation.
Most recently, in December 2010, finance minister Simon O’Brien said changes were needed “to protect Western Australia’s long-term revenue base”.
Past changes have included introducing the Duties Act in 2008, which applies stamp duty to the sale of all businesses with land worth $2 million or more.
The 2008 legislation has substantially
widened the stamp duty net but still means there are disputes over the definition of land and chattels, and the valuation of those assets.
In the WestNet case, Justice Chaney reached his conclusion after an exhaustive analysis of legislation specific to the rail freight network in WA.
Notably, this included the Rail Freight System Act 2000, which provided for the privatisation of the state-owned rail freight business in the year 2000.
The business was originally bought by Wesfarmers and US company Genesee & Wyoming.
Six years later they sold it in two parts – QR National bought the ‘above-rail’ assets, such as rolling stock, and Westnet, which at the time was part of the ill-fated investment group Babcock & Brown, bought the ‘below-rail’ assets.
The assets bought by WestNet were valued at $1.48 billion. Westnet and the Office of State Revenue agreed that about one third of this total was not ‘land’; they also agreed that a further $109 million was ‘land’.
In dispute was the remaining $921 million, which included rights to use ‘corridor land’, the ‘track infrastructure’, and other infrastructure such as control systems, signalling systems and communication equipment.
In the SAT hearing, the Office of State Revenue referred to previous court cases where railways had been found to be ‘fixtures’ and therefore treated as ‘land’.
However, Justice Chaney concluded that the Rail Freight System (FRS) Act “specifically provides that anything on the land is not part of the land, regardless of whether it is of the nature of a fixture”.
Justice Chaney said his conclusion would not have changed, even if the FRS Act did not apply.
“I would have concluded that the track infrastructure is not a fixture to the land over which it passes,” his judgement stated.
Similarly, he concluded that other infrastructure such as train control systems is not land for the purposes of the Stamp Act.
The Office of State Revenue has lodged a notice of appeal in the Supreme Court.
