23/12/2010 - 11:15

State plans retrospective tax move

23/12/2010 - 11:15

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The state government plans to introduce retrospective legislation to reverse the effect of a High Court ruling that could have saved taxpayers tens of millions of dollars in stamp duty.

State plans retrospective tax move

The state government plans to introduce retrospective legislation to reverse the effect of a High Court ruling that could have saved taxpayers tens of millions of dollars in stamp duty.

The government move follows a string of disputes between the state tax office and the business sector over stamp duty, in particular the 'land rich' provisions which have substantially widened the stamp duty net.

These provisions have resulted in mining companies, power generators and other businesses, including Alcoa, Origin Energy and Epic Energy, disputing stamp duty assessments in Western Australia.

This month's High Court ruling related to the 1998 sale by WMC Resources of its power generation assets to TEC Desert Pty Ltd and AGL for $190 million.

The assets comprised four gas-fired power stations in the Goldfields, which are currently operated by Southern Cross Energy, a wholly-owned subsidiary of Canadian company TransAlta

The Commissioner of State Revenue ruled the transaction was subject to stamp duty of $9 million. Following an appeal to the Court of Appeal, the stamp duty payable was lifted to $11 million.

The High Court ruled this month that "the transaction did not transfer any interest in land and so was not subject to stamp duty".

Newly appointed state finance minister Simon O'Brien announced today the state has taken "immediate action to address a deficiency in the Duties Act 2008 to protect Western Australia's long-term revenue base".

"The State Government is concerned that the decision could seriously impact the revenue base of Western Australia into the future," Mr O'Brien said.

"Unless this change in the interpretation of the law is addressed, tens of millions of dollars of revenue the State Government relies on to fund essential community services will be put at risk.

"As a result, I will move to amend the legislation to ensure that items considered prior to the decision to constitute fixtures such as buildings, infrastructure and plant and equipment continue to be subject to duty."

The Minister said it is intended that the new provisions will be retrospective so that the necessary changes will have effect from today.

Today's move follows similar measures in February 2008, when the then-state government announced changes to legislation after Origin Energy successfully challenged a $3 million stamp duty assessment in the State Administratve Tribunal.

 

 

The Minister's statement, and a summary of the High Court judgement, are pasted below:

 

Finance Minister Simon O'Brien has taken immediate action to address a deficiency in the Duties Act 2008 to protect Western Australia's long-term revenue base.

The Minister's move follows a recent High Court decision related to the sale of certain power generation assets undertaken in 1998 which was initially assessed to duty by the Commissioner of State Revenue in 2000.

The High Court considered an appeal by the purchasers of power generation plant and equipment from WMC Resources Ltd.

In a summary of the decision, the High Court said it 'unanimously held that an agreement divesting WMC Resources Ltd of responsibility for power generation for its mining operations in Western Australia did not transfer any interest in land and so was not subject to stamp duty under the Stamp Act 1921 (WA). The Court of Appeal of the Supreme Court of Western Australia had previously determined that the stamp duty payable by the purchasers TEC Desert Pty Ltd and AGL Power Generation (WA) Pty Ltd, was in excess of $11million'.

"Notwithstanding that the Stamp Act has now been replaced by the Duties Act, the State Government is concerned that the decision could seriously impact the revenue base of Western Australia into the future," Mr O'Brien said.

"Unless this change in the interpretation of the law is addressed, tens of millions of dollars of revenue the State Government relies on to fund essential community services will be put at risk.

"As a result, I will move to amend the legislation to ensure that items considered prior to the decision to constitute fixtures such as buildings, infrastructure and plant and equipment continue to be subject to duty."

The Minister said full details of the proposed measures will be announced when the legislation is introduced into State Parliament.

However, it is intended that the new provisions will be retrospective so that the necessary changes will have effect from today.

TEC DESERT PTY LTD & ANOR v COMMISSIONER OF STATE REVENUE [2010] HCA 49

The High Court of Australia today unanimously held that an agreement divesting WMC Resources Ltd of responsibility for power generation for its mining operations in Western Australia did not transfer any interest in land and so was not subject to stamp duty under the Stamp Act 1921 (WA). The Court of Appeal of the Supreme Court of Western Australia had previously determined that the stamp duty payable by the purchasers, TEC Desert Pty Ltd and AGL Power Generation (WA) Pty Ltd, was in excess of $11 million.

In 1998, WMC entered into an agreement to sell its power generation assets to the purchasers
("Sale Agreement"). The assets of WMC dealt with by the Sale Agreement included power
stations, generators, electrical wires, and transmission and distribution equipment. The Sale
Agreement provided for the sale of those of WMC's assets that were chattels or personal property, but not those that were "Fixtures", for approximately $190 million. The term "Fixtures" was defined in the Sale Agreement as items "affixed to land, and an estate or interest in which is
therefore an estate or interest in land". The Sale Agreement required WMC to grant licences to the purchasers. The licences allowed the purchasers to use the power generation assets that were "Fixtures" and the areas of land on which they were located for 15 years. WMC could require prepayment of the licence fees, totalling almost $40 million, on completion of the Sale Agreement. If the licences terminated, the purchasers were required to acquire the "Fixtures" from WMC.

The Commissioner of State Revenue assessed the Sale Agreement to stamp duty of approximately $9 million on the basis that the chattels sold to the purchasers were mostly fixtures, in the technical sense, and so the Sale Agreement was an agreement to transfer interests in both land and chattels. Agreements of that kind are caught by s 70(2) of the Stamp Act, and duty is payable on the value of both the land and the chattels. The purchasers successfully appealed to a single judge of the Supreme Court, but that decision was overturned by the Court of Appeal. The Court of Appeal determined that s 70(2) applied to the Sale Agreement. It further held that the stamp duty payable should be increased to approximately $11 million, as the licences required to be granted under the Sale Agreement also transferred interests in land.

By special leave, the purchasers appealed to the High Court. Most of WMC's power generation
assets were on land not owned by WMC. WMC held mining leases and other mining tenements,
under Western Australia's mining legislation, over those lands. The High Court held that the
interests of WMC in mining tenements were not interests in land; they were personal property,
limited to rights to work mines and take away minerals recovered. Thus, interests in the power
generation assets affixed to such land were also personal property and not interests in land. As for the remanning assets located on land owned by WMC in freehold, the parties had made an agreed assumption in the Sale Agreement that WMC had title to the "Fixtures" separate and distinct from its title to the land. Accordingly, no interest in land was transferred. The High Court held further that terms in the licences requiring the purchasers to rehabilitate the area the subject of the licences,and preventing WMC assigning its freehold without the assignee being bound by the licences, were contractual rights and obligations and did not grant any interests in land.

The High Court allowed the appeal and reinstated the decision of the Supreme Court at first
instance that no duty was payable. The Commissioner was ordered to pay the purchasers' costs.

ends

 

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