The recent State Administrative Tribunal (SAT) decision of Crugnale and Commissioner of State Revenue1 has radically changed the way duty is assessed in respect of lots created from strata subdivisions.
Nominal duty was payable in respect of the disposition of the base freehold title to the owners of the previous strata lots.
If the creation of new strata lots on the site resulted in the previous owners acquiring new strata lots in the same entitlements as the original strata lots, nominal duty would be payable.
This case has rejected both of these practices.
In 1979, Lot 209 on Plan 4436(3) (Lot 209) was subdivided to create Lots 1 and 2 on Strata Plan 6837 and common property.
In 2003, Jean Grace Rose (Rose) became the registered proprietor of Lot 2 on Strata Plan 6837 and in 2011 Jarrad Michael Crugnale (Crugnale) became the registered proprietor of Lot 1 on Strata Plan 6837.
In late 2017, Crugnale and Rose (the Applicants):
A Form 22 – Disposition on Subdivision (Form 22) was submitted in respect of lots 1, 2 and 3 on Survey-Strata Plan 73499 (Lots) which provided for the interest in the Lots to be allocated as follows:
On 19 December 2017, Rose submitted a duties valuation form in respect of the Lots which described the Lots as having previously been apart of Strata Plan 6837.
The Commissioner of State Revenue (Commissioner) issued a duties assessment notice to the Applicants on 13 December 2017 in the amount of $3,705 each for Crugnale and Rose respectively (Assessment). The Assessment was based on a valuation of $570,000 for each of the Lots.
On 23 December 2017, the Applicants entered into a contract for the sale of land to sell Lot 2 on Survey-Strata Plan 73499 for the purchase price of $457,000 (Lot 2 Contract).
The Applicants objected to the Assessment and the Commissioner allowed the objection in part as a result of the revaluation under the Lot 2 Contract. The Commissioner ultimately reduced the valuation of the Lots as a result of the purchase price under the Lot 2 Contract and reassessed the duty payable by the Applicants to $2,804.40 each for Crugnale and Rose respectively (Reassessment).
The Applicants then applied to the SAT for a review of the Reassessment.
The Commissioner’s position was, in summary:
In respect of the First Dutiable Transaction, the Commissioner said that when the strata scheme the subject of Strata Plan 6837 was terminated, the Applicants acquired the whole of Lot 209 which constituted new dutiable property because the interest was different to the Applicants interest in Lots 1 and 2 on Strata Plan 6837. The Commissioner said that Lot 209 was different land to the land represented by the aggregation of Lots 1 and 2 and the common property the subject of Strata Plan 6837.
In respect of the Second Dutiable Transaction, the Commissioner contended that the Applicant’s interest in the Lots was different to the 50% interest each of the Applicants initially held in Lot 209 and that Lot 209 was different land to the land represented by the aggregation of the Lots.
The Commissioner also stated that there was no exemption provision available under the Duties Act in respect of the acquisition of the Lots by the Applicants.
In respect of the First Dutiable Transaction, the Applicants argued that when the Registrar of Titles made the termination entry on Strata Plan 6837, the strata scheme the subject of that strata plan had already been terminated as a result of the prior demolition of the buildings, which constituted the lots. The Applicants contended that there was no change in ownership of Lot 209 because the Applicants already owned Lot 209 as tenants in common in equal shares as a result of the demolition.
In respect of the Second Dutiable Transaction, the Applicants submitted that the transactions were not dutiable transactions but, instead represented a partition of land between joint owners and that no duty was payable pursuant to section 39 of the Duties Act.
Section 39 of the Duties Act provides that a partition occurs when dutiable property is held by persons jointly and beneficially is transferred or agreed to be transferred to one or more of those persons.
J Sharp agreed with the Commissioner and held that the termination of the original strata scheme and subsequent acquisition of Lot 209 in fee simple was a dutiable transaction and stated further that:
“the congeries of rights that constitute the grant of a fee simple over the whole of Lot 209 are different to the congeries of rights that were possessed by Crugnale and Rose in Lots 1 and 2 on Strata Plan 6837…”
In his decision, J Sharp commented that the unwritten practice which deals with the assessment of duty in respect of the Form 22 is erroneous and said that, whilst in this case:
“there was a prior and separate transaction…that would not necessarily always be the case and there is no reason why the Commissioner should not assess that separate transaction as such.”
The unwritten practice provided that nominal duty would be chargeable in respect of a Form 22 provided that the parties receive the property strictly in accordance with their original entitlements.
J Sharp went onto say that this practice could only apply when the Form 22 relates to a survey-strata scheme and there is no common property.
This decision represents a substantial deviation from the way in which the Commissioner ordinarily assesses these types of transactions for duty.
Developers undertaking strata subdivisions should carefully consider the duty implications of their proposed transaction in light of this case and seek appropriate advice.
[1] [2019] WASAT 8
