Queensland landholder duty case: Eshchenko v Commissioner of State Revenue

On 18 May 2023, Cooper J of the Supreme Court of Queensland delivered this landholder duty judgment, which is significant for multiple reasons, including foremostly its elucidation of the scope and operation of the ‘excluded interest’ provision at sub-section 179(6) of the Duties Act 2001 (Qld) (the Act). 

Background

The case concerned an appeal against the Commissioner of State Revenue’s decision to disallow an objection to an assessment of landholder duty, which related to a special resolution by the shareholders of a landholder private company, Maylake Pty Ltd (Maylake), that afforded the taxpayer an incremental 51% interest therein.

The relevant facts preceding the assessment were:

1. In 1997, Maylake was incorporated, whereupon the taxpayer’s father (Leonid) was made sole director and secretary and was allotted one ordinary share;
2. In 1998, Maylake allotted a further 2,999,999 ordinary shares to Leonid. At that time, Leonid held an entitlement to all distributions on the winding up of Maylake;
3. On 11 July 2013, Maylake’s constitution was amended to provide for two classes of shares comprising 3,990,000 ordinary shares and 10,000 redeemable preferences shares (the latter carrying rights to 49% of any dividend declared by Maylake and any amount distributed to members upon a winding up);
4. The redeemable preferences shares were issued to the taxpayer, meaning that as at 11 July 2013, the issued share capital of Maylake comprised 3,000,000 ordinary shares held by Leonid and 10,0000 redeemable preference shares held by the taxpayer;

5. Subsequently, on 21 June 2021, Maylake’s shareholders resolved to vary the share rights of the redeemable preference shares held by the taxpayer such that the issued 10,000 redeemable preference shares carried between them the rights (2021 Shareholders’ Resolution):

   a. to receive 100% of any dividend declared by Maylake, and

   b. to receive 100% of any amount distributed to members of Maylake upon a winding up.

6. As at 21 June 2021, Maylake was, in its own capacity, the registered owner of various real properties in Queensland with a total market value of $30,700,000.

Consequent to the above, the Commissioner of State Revenue issued to the taxpayer an assessment of landholder duty in the amount of $880,802.50, being on 51% of $30,700,000 (dutiable value).

Legislation

The facts of this case, referenced above, were agreed between the parties and relatively confined. In dispute was the application of the landholder duty provisions contained in Part 1 of Chapter 3 of the Act.

The most relevant provisions are sections 158 and 179 of the Act. The former prescribes when there will be a ‘relevant acquisition’, whereas the latter prescribes the methodology for working out the dutiable value of a ‘relevant acquisition’. 

Per section 158, a ‘relevant acquisition’ will arise when a person acquires a ‘significant interest’ in a landholder, or alternatively when a person acquires an interest in a landholder which when aggregated with existing interests in the landholder held by them or acquired or held by related persons, constitute a ‘significant interest’. Per section 159, in the case of a private company like Maylake, the term ‘interest’ refers to an entitlement as a holder to a distribution of the landholder’s property on winding up, whereas the term ‘significant interest’ means an interest of 50% or more. Section 162(2)(c) includes the ‘abrogation or alteration of a right for a share’ as one way by which a person may acquire an interest in a landholder. 

Per sub-section 179(1), the dutiable value of a ‘relevant acquisition’ in a private landholder is “the interest in, or total of interests in, the landholder constituting the relevant acquisition, less any ‘excluded interest’ of the person at the time of acquisition, multiplied by the unencumbered value of all Queensland landholdings of the landholder at the time of acquisition”. Per section 179(6), an ‘excluded interest’ of a person who makes a relevant acquisition in a private landholder, is any interest constituting the ‘relevant acquisition’:

   (a) Held by the person, or a related person of the person, on or before the day that is 3 years before the relevant acquisition, unless:

         (i) the interest was acquired as part of an arrangement; and

         (ii) the arrangement includes the interest most recently acquired as part of the relevant acquisition; or

   (b) Acquired by the person, or a related person of the person, at a time when the landholder did not hold land in Queensland.

Taxpayer’s submissions

The essence of the taxpayer’s submissions was that sub-section 179(6) should be given a literal construction and that adopting such a construction, the 51% interest acquired pursuant to the 2021 Shareholders’ Resolution was an ‘excluded interest’, meaning there could be no assessment of landholder duty. This was on the basis that the 51% interest acquired was an interest held by a related person who had: (a) held that 51% interest for more than three years before the relevant acquisition, and (b) acquired that interest at a time when Maylake did not hold land in Queensland. 

The judgment

Cooper J, adopting a purposive approach to statutory interpretation that considered legislative intent and history in line with the High Court in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41, rejected the taxpayer’s submissions, upholding the landholder duty assessment and ordering the payment of costs.

Key aspects of the judgment included: 

• The legislative intention was not to exclude interests a person acquires from a related person at the time of a ‘relevant acquisition’ – such a construction would not accord with the broader context of the landholder duty provisions contained in Part 1 of Chapter 3 of the Act;
• The 51% interest in Maylake which Leonid ceased to hold upon the making of the 2021 Shareholders’ Resolution was not an interest which constituted the ‘relevant acquisition’;
• Where the person acquires an interest from a related person (his father), it ceases to be held by the related person and therefore, it did not count towards the interests (if any) to be aggregated under sub-section 158(1)(b) of the Act.
• Upon the making of the 2021 Shareholders’ Resolution (that being the time of the acquisition):

(a) the 51% increase in the taxpayer’s interest in Maylake accrued to him as a new entitlement attaching to the redeemable preference shares he already owned and was therefore different to the interest or entitlement the taxpayer’s father held pursuant to his ordinary shares;

(b) the taxpayer’s father ceased to have any entitlement as shareholder to a distribution of Maylake’s property on a winding up and so held no relevant interest which constituted the relevant acquisition.

• The definition of “excluded interest” is within a provision which deals generally with the calculation of the ‘dutiable value’ of relevant acquisitions:

It seems unlikely the legislative intention was to exempt the acquisition of certain interests from related persons… 

Landholder duty issues to consider

• Always first consider the ramifications of landholder duty before varying share rights of redeemable preference shares in a landholder, for example by way of a special resolution.
• Do not assume that words in a different revenue jurisdiction will also be applicable in the jurisdiction where the land is located.  As in this case, the taxpayer relied on drafting of a section within the Western Australian Duties Act which was held to be irrelevant for Queensland landholder duty purposes. Refer to point 94 of the judgement:

[94] …the construction I have adopted is that which I consider best conforms to the legislative intent as ascertained from the text of the section read in the context of the landholder provisions in Part 1 of Chapter 3 of the Act more broadly and the object of those provisions as identified in [30] above. 

• No part of a statute can be considered in isolation from its context – the whole must be considered.
• When calculating the ‘dutiable value’ for landholder duty, you do not exclude the current interest acquired being the 51% acquired under section 179(6) in this case.
• Duty is not imposed on the same taxpayer for the same interest on multiple occasions. 

For more information

If you require landholder duty advice, please contact Mira Brewster or Sam Mohammad.