Focus: Lend Lease Development – will the High Court be moved on what 'moves' the transfer?
8 September 2014
In brief: When it comes to assessing duty on land transfers, identifying what constitutes the consideration for the transfer is a key issue. In Lend Lease Development Pty Ltd v Commissioner of State Revenue, the Victorian Court of Appeal decided that certain 'development contributions' made by a purchaser to a vendor did not form part of the consideration that 'moved' the transfer of land to the purchaser. Taxpayers that have relied upon this decision to determine the stamp duty implications of similar arrangements should be aware that case has been appealed to the High Court. Partner Katrina Parkyn , Senior Associate Marc Johnston and Associate Jay Prasad report on the practical aspects of the case and whether it applies more broadly to any arrangement where a taxpayer pays other amounts to a vendor in addition to the price to acquire dutiable property.
- Lend Lease Development Pty Ltd v Commissioner of State Revenue
- Court of Appeal
- The practical implications
How does it affect you?
- Taxpayers face an uncertain period during which the principles established in the Lend Lease decision should not be considered final.
- Where a transfer of dutiable property is part of an arrangement involving inter-related contracts, taxpayers should be mindful of the potential for other amounts payable under those contracts to be treated as part of the dutiable consideration for the transfer of dutiable property (in addition to the stated purchase price).
- While the Lend Lease decision involves the Victorian duties legislation, the relevance of the decision is not confined to transactions involving Victorian property and it remains to be seen whether revenue offices outside Victoria will adopt the same approach to assessing duty on transfers of property that occur in similar circumstances.
Various Lend Lease related entities (collectively referred to as Lend Lease) entered into arrangements with the Victorian Urban Development Authority (VicUrban) for the transfer of land situated in the wider Docklands region in Melbourne. The transfers were to be completed in various stages between 2006 and 2010. Each transfer was effected by a separate Land Sale Contract in a form that was annexed to a Development Agreement entered into between Lend Lease and VicUrban.
The Development Agreement outlined a number of mutual and inter-connecting undertakings for the completion of development works in the wider Docklands area. Lend Lease was obliged to develop and sell the land it acquired from VicUrban and, upon selling the developed lots to third parties, Lend Lease and VicUrban agreed to share in the sales proceeds. Lend Lease was also required to contribute towards VicUrban's costs of constructing infrastructure, remediating previously unused sites and erecting public art work in the Docklands area. The infrastructure was constructed and the art work was located outside the boundaries of the land that was transferred to Lend Lease.
The Victorian Commissioner of State Revenue (the Commissioner) assessed duty on the land transfers on the basis that the dutiable consideration was the agreed purchase price under the applicable Land Sale Contract plus the amounts that Lend Lease contributed towards the cost of infrastructure and construction works under the Development Agreement.
Lend Lease objected to the assessments, and subsequently appealed to the Victorian Supreme Court, on the basis that the consideration for the land transfers did not include its contributions under the Development Agreement.1
The decision at first instance
Justice Pagone dismissed the appeal and concluded that the Commissioner's assessment of duty was correct.2 His Honour concluded that the obligations flowing from the Development Agreement were not only interdependent but wholly integrated within the one composite development project undertaken by VicUrban and Lend Lease. The amounts that Lend Lease paid were all 'for' the land in the form and state intended to be secured through the development. As such, the contributions made under the Development Agreement, together with the agreed purchase price under each Land Sale Contract, formed part of the consideration for the land acquired and were subject to duty. Lend Lease appealed to the Court of Appeal.
The Court of Appeal allowed the appeal and reversed the decision at first instance.
The Court of Appeal criticised the approach at first instance which essentially treated all of the consideration that moved the composite arrangement between the parties as the consideration that moved the transfer of the land.
The High Court's decision in Chief Commissioner of State Revenue v Dick Smith Electronics Holdings Pty Ltd3 was discussed at length. In that case, the High Court emphasised that, when identifying the consideration for a transfer, the focus is on what a vendor receives, rather than what a purchaser parts with. However, the Court of Appeal characterised the relationship between Lend Lease and VicUrban as materially different to the simple one-off transaction in Dick Smith where the contracting parties did not have any ongoing set of rights or obligations:4
The arrangement between [Lend Lease] and VicUrban was not only a composite transaction, but was also an on-going commercial arrangement with ambitious objectives that could only be realised incrementally and which the parties acknowledged would require development that was dynamic if the objectives were to be achieved.
The Supreme Court conflated the development of the precinct with the transfer of the land, which was an unjustifiable (and inaccurate) characterisation of the nature of the dutiable property. By contrast, the Court of Appeal treated the contribution payments made under the Development Agreement as relating to matters that were separate and distinct from the transfer of the land. The Court of Appeal concluded that '…the consideration for the land transfers was solely that which moved the part of the composite whole comprising the transfer of the land,'5 which did not include the contributions made under the Development Agreement..
On 15 August 2014, the High Court granted the Commissioner special leave to appeal the Court of Appeal's decision. A critical aspect of the High Court case is likely to be focus that the Court of Appeal placed on the circumstances in Dick Smith being 'wholly different from the multi-layered arrangement between [Lend Lease] and VicUrban whereby, under the arrangement, there were to be certain payments made, at different periods of time, for different things'6.
The approach adopted by the Court of Appeal suggests that it is possible to limit the Dick Smith decision to simple one-off transactions with a single objective, where there is no continuing relationship between the parties and where there is no explanation for a payment that a vendor receives other than the transfer of the relevant dutiable property. It will be interesting to see whether the High Court agrees and, if so, where they draw the line between different types of transactions.
It is difficult to predict which particular aspects of the Court of Appeal's decision the High Court will scrutinise. One of the more important aspects of the Court of Appeal's reasoning was its conclusion that 'the contribution payments were for matters that were separate and distinct from the transfer of the land'7 and it is reasonable to expect that this will be a key issue in the High Court's consideration of the appeal.
Hopefully, the High Court will use the opportunity to provide further guidance on how to determine what constitutes consideration for a transfer in more complicated arrangements. One of the interesting issues will be whether the reasoning that the High Court adopts will, in effect, confine the Dick Smith decision to its specific circumstances.
The immediate and practical impact of the decision to grant special leave is that taxpayers face an uncertain period during which the principles established by the Court of Appeal decision should not be considered final. Pending the High Court's decision, taxpayers that plan on entering into multiple inter-related contracts involving arrangements in respect of dutiable property should be cautious in quantifying the consideration that moves any transfer of that property. This is particularly relevant for property developers that contribute to construction and development costs but, potentially, any decision the High Court makes could apply more broadly where dutiable property is transferred as part of an integrated project involving the exchange of mutual promises.
-  VSCA 207.
- Lend Lease Development Pty Ltd v Commissioner of State Revenue; Lend Lease Real Estate Investments Ltd v Commissioner of State Revenue; Lend Lease IMT 2 Pty Ltd v Commissioner of State Revenue  VSC 108.
-  HCA 3.
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- Charles ArmitagePartner,
Ph: +61 2 9230 4756
- Martin FryPartner, Practice Leader, Tax,
Ph: +61 3 9613 8610
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