Recent NSW NCAT decision results in double duty

On 17 July 2023, S Dunn, Senior Member of the NSW Civil and Administrative Tribunal delivered a decision on the application of section 50 of the Duties Act 1997 (NSW) (Duties Act), which underscored the importance of ensuring adherence to legislated timeframes in relation to duties matters. 

Background

Zhang v Chief Commissioner of State Revenue [2023] NSWCATAD 181 (Zhang) concerned an appeal against a decision by the Chief Commissioner of State Revenue (Chief Commissioner) to disallow an objection to a duties assessment where the relevant contract for sale was rescinded ab initio subsequent to the assessment of duty thereon.

Specifically, the applicant had entered into a contract to purchase a strata lot in Sydney in December 2014. Duty was paid on that contract, and the contract was duly stamped, in June 2016 . However, in January 2019 the applicant and vendor entered into a deed in respect of the contract whereunder both parties rescinded the contract ab initio, and all rights created thereby were relinquished and obligations owed thereunder discharged. On the same date, a new contract was entered into for the purchase of the same property by a trustee company. 

In October 2021, after duty was assessed in respect of the second contract, and both more than five years after duty was assessed in respect of the first contract and 12 months after the deed of rescission, the applicant’s solicitor attempted to upload an application for a refund of the duty paid in respect of the first contract. This attempt was rejected, and the applicant’s solicitor was advised by the Chief Commissioner that, as the refund application was lodged more than five years after the date of the relevant assessment, he could not refund the duty paid. In December 2021, the applicant lodged a notice of objection under section 86 of the Taxation Administration Act 1996 (NSW) (TAA), which was subsequently disallowed by the Chief Commissioner. The applicant therefore applied for administrative review .

Double duty arose, one lot of duty on the initial contract that was later rescinded, and the same amount of duty on the new contract. 

Legislation

Most relevant to the decision in Zhang was section 50 of the Duties Act, as well as subsection 9(3) of the TAA. 

Section 50 of the Duties Act deals with ‘cancelled agreements’, and provides:

50 Cancelled agreements

1. An agreement for the sale or transfer of dutiable property that is cancelled is not liable to duty under this Chapter if the Chief Commissioner is satisfied

   (a) that the agreement was not cancelled to give effect to a subsale, or

   (b) that the purchaser or transferee under the agreement is a promoter of a named company proposed to be incorporated and that the company is the purchaser or transferee of the dutiable property under a subsequent agreement, or

   (c) that the purchaser or transferee under the agreement and the purchaser or transferee under a subsequent agreement relating to the same dutiable property were related persons when the agreement that is cancelled was entered into.

2. If duty has been paid on an agreement that is not liable to duty under this Chapter because of this section, the Chief Commissioner must reassess and refund the duty if an application for a refund is made within—

   (a) 5 years of the initial assessment, or

   (b) 12 months after the agreement is cancelled, whichever is the later.

3. In this section, cancelled means rescinded, annulled, or otherwise terminated without completion.

Subsection 9(3) of the TAA deals with reassessments and provides:

3. The Chief Commissioner cannot make a reassessment of a tax liability more than 5 years after the initial assessment of the liability, unless—

   (a) the reassessment is to adjust tax to give effect to a decision on an objection or review as to the initial assessment, or

   (b) at the time the initial assessment or a reassessment was made, all the facts and circumstances affecting the liability under the relevant taxation law of the person in respect of whom the assessment or reassessment was made were not fully and truly disclosed to the Chief Commissioner and, as a result, the tax liability was assessed at a lower amount than the Chief Commissioner would otherwise have assessed it, or

   (c) the reassessment is authorised to be made more than 5 years after the initial assessment by another taxation law, or

   (d) the reassessment is made as a consequence of an application by a taxpayer, being an application made within 5 years after the initial assessment of the liability, and the reassessment reduces the tax liability.

The Decision

The Tribunal decided in favour of the Chief Commissioner, concluding that the duties assessment was correct at the time it was made, and that subsection 50(1) of the Duties Act does not operate to render an assessment which was correct at the time it was made, incorrect. 

By way of obiter, the Tribunal remarked that had the applicant sought reassessment and refund under subsection 50(2) within the timeframe there provided and satisfied one of paragraphs (a). (b) or (c) of subsection 50(1)), the Chief Commissioner would have been required to reassess and refund the duty the applicant had paid. 

Duties issues to consider

In addition to the obvious double duty outcome, the decision in Zhang has a number of relevant implications, including: 

• Section 50 did not apply to the application for a refund. Section 50 must be read as a whole with subsection 50(2), such that, as the application for a refund was not made within the time specified by that subsection, section 50 can have no application.
• Subsection 50(2) has the effect, that the whole of section 50 relies on an application having been made for a refund within 5 years of the original assessment or 12 months of the cancellation of the agreement whichever is the latter, so that if this has not occurred, as is the case here, subsection 50(1) does not operate to relieve the taxpayer of liability to duty. 
• Subsection 50(1) cannot be read as a stand-alone provision. 
• Time limits are imposed to give the Chief Commissioner certainty and there is no provision, in the Duties Act or the TAA which provides the Chief Commissioner with any discretion to extend the time limit imposed by s 50(2). 
• In reviewing the duties assessment the Tribunal could take account of facts and circumstances which were not before the Respondent at the time of the Assessment. However, that does not involve reassessing a contract that was assessed to duty and subsequently rescinded as not liable to duty other than in accordance with section 50.
• The objection and review process in Part 10 of the TAA is separate from and additional to the refund application process provided for in subsection 50(2) of the Duties Act. Section 9 of the TAA only allows the Chief Commissioner to make a reassessment of duty within 5 years;
• Subsection 50(2) is a beneficial provision. It gives taxpayers an opportunity to recoup duty paid in respect of cancelled contracts which would not have been available to them if they sought a reassessment under section 9 of the TAA or to object to the assessment. 
• The contract did not cease being a dutiable transaction because of the fact that it was rescinded. 
• The time limitations for a refund application imposed by subsection 50(2) are strict.

For more information

If you require duty advice with respect to duty refund applications, please contact Sam Mohammad or  Mira Brewster.

[1] Zhang v Chief Commissioner of State Revenue - NSW Caselaw

[1] The objection with respect to the duty refund was also disallowed. 

[1] Interest was additionally imposed because the applicant had not lodged the contract for stamping within the time required by the Duties Act. 

[1] An objection was lodged to the initial duty assessment and also to the rejection of the refund application