VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
ADMINISTRATIVE DIVISION
REVIEW AND REGULATION LIST	
vcat reference No. Z657/2018
	
CATCHWORDS	
Taxation – Duties Act 2000 (Vic), section 42 – Whether transfer of land exempt from duty as transfer from legal personal representative of a deceased person to a beneficiary.	

APPLICANT	Carl Robert Wood	
RESPONDENT	Commissioner of State Revenue	
WHERE HELD	Melbourne	
BEFORE	R. Tang AM, Member	
HEARING TYPE	Hearing	
DATE OF HEARING	2 April 2019	
DATE OF ORDER	30 April 2019	
CITATION	Wood v Commissioner of State Revenue (Review and Regulation) [2019] VCAT 616	

OrderS
1.	The decision of the Commissioner dated 28 March 2018, reducing the liability under the assessment issued on 24 October 2017 to $18,508, is confirmed.
2.	The Principal Registrar is directed to amend the register to correct the name of the applicant to Carl Robert Wood.

R. Tang AM
Member			

APPEARANCES:		
For Applicant	Mr C.R. Wood, in person	
For Respondent	Ms K.A. O’Gorman, of Counsel	

Reasons
What are these proceedings about?
1	On 18 July 2018, the Commissioner of State Revenue (Commissioner) referred this application to the Tribunal at the request of the applicant, Mr Carl Wood, under the Taxation Administration Act 1997 (Vic) (TA Act).
2	Mr Wood seeks review of the Commissioner’s decision to disallow his objection to the Commissioner’s assessment of duty under the Duties Act 2000 (Vic) (Duties Act) in respect of his acquisition of two properties at 13 and 15 Wheeler Road, Cape Paterson (Relevant Properties). 
3	The notice of assessment (no. 14648537) was issued on 24 October 2017 imposing duty of $22,070.  The Commissioner issued a notice of determination on 28 March 2018, partially allowed that objection ‘in that the liability under the Assessment has been reduced from $22,070 to $18,508’.
4	Mr Wood contends that the acquisition of his interest in the Relevant Property is exempt under section 42 of the Duties Act, which provides an exemption for the transfer of a property from the legal personal representative of a deceased person to a beneficiary in certain circumstances. The Relevant Properties formed part of the estate of Mr Wood’s mother and were transferred to Mr Wood following an agreement between Mr Wood and his sister as to the division of her estate.
5	The Commissioner’s case is that the exemption is not available because the conditions for the exemption to apply are not satisfied on the facts as: 
a.	the transfer of one of the two Relevant Properties was made ‘for valuable consideration’; and
b.	the transfer to Mr Wood was not, to the extent that the value of the property exceeded his entitlements under his mother’s will, ‘made in satisfaction of [his] entitlement arising under the will’.
6	On 2 April 2019, I heard the application. There were no witnesses.  The evidence tendered was:
a.	the documents filed by the Commissioner with the Tribunal under clause 89(1) of Part 19 of Schedule 1 to the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (T Documents);
b.	an affidavit made by Mr Wood sworn on 11 October 2018; and
c.	an affidavit made by Ms Janet Leslie Cregan-Wood (Mr Wood’s sister) sworn on 8 October 2018.
7	At the end of the hearing, I reserved my decision. 
Outline of the Duties Act
8	Chapter 2 of the Duties Act deals with the imposition of duty on transfers of land and certain other categories of dutiable property. In particular, section 7 of the Duties Act provides that ‘[t]his Chapter charges duty on – (a) a transfer of dutiable property’, with dutiable property defined in section 10 to include ‘an estate in fee-simple’.
9	Part 5 of Chapter 2 of the Duties Act provides for various exemptions from, or concessional rates of, duty in specified situations.
10	Section 42 of the Duties Act is the only exemption of relevance in the current proceeding.  It provides:
(1)	No duty is chargeable under this Chapter in respect of a transfer of dutiable property not made for valuable consideration by the legal personal representative of a deceased person to a beneficiary being –
(a)	a transfer made under and in conformity with the trusts contained in the will of the deceased person or arising on an intestacy; or
(b)	a transfer of property the subject of a trust for sale contained in the will of the deceased person.
…
(3)	No duty is chargeable under this Chapter in respect of a transfer of dutiable property not made for valuable consideration by a legal personal representative of a deceased person to a beneficiary to the extent that a transfer is made in satisfaction of the beneficiary’s entitlement arising under the will of the deceased person or arising on an intestacy.
11	Section 42(3) of the Duties Act was inserted by the State Taxation Acts Amendment Act 2009 (No. 37 of 2009).  The Commissioner’s book of authorities included the Explanatory Memorandum to the State Taxation Acts Amendment Bill 2009 (EM) and the second reading speech of the then Treasurer, Mr Wells (2RS). 
12	The EM indicates that the Bill amends the Duties Act to, among other things, ‘clarify the scope of the exemption from duty in relation to deceased estates’. In relation to clause 5 (being the clause that became section 42(3)), the EM states:
Clause 5 inserts new section 42(3) to exempt from duty a transfer of dutiable property not made for valuable consideration from a legal personal representative of a deceased person to a beneficiary to the extent that the transfer is made in satisfaction of the beneficiary’s entitlement arising under the will of the deceased person or arising on an intestacy.
For example, a transfer of land to a beneficiary, made pursuant to the terms of a deed of family arrangement entered into between beneficiaries of a deceased estate, will be exempt to the extent that that beneficiary was entitled to the land under a will of the deceased person.
13	In the 2RS, Mr Wells explained the purpose of the measure, stating: 
When property is transferred without consideration to a beneficiary entitled to that property under a will of a deceased person or arising under intestacy, that transfer is exempt from duty.  This provision extends the scope of the existing exemption for deceased estates.  Provision was required to clarify the position in relation to the existing exemption for deceased estates as a result of the current wording not being able to accommodate further after-the-fact beneficiary agreements relating to the distribution of a deceased’s estate.
An example is when beneficiaries agree to vary the terms of an estate’s distribution in which two parties were to share equally in a property but by further agreement one party elects to allow the other to obtain a greater than 50% share in consideration of another part of the deceased’s estate.  However, the duty exemption will only apply to the beneficiary percentage allocated in the will and no greater.  If one party were originally intended to receive a 50 per cent share in a property but by agreement will gain 100 per cent, then the beneficiary will be liable to pay duty on the extra 50 per cent.  Under the existing provision, the further agreement is not recognised and duty would be assessed on 100 per cent.
Background
14	Mr Wood and his sister, Ms Cregan-Wood, are the children of the late Ms Jean Margaret Cregan.  
15	Ms Cregan made a will on 11 October 2001 by which she bequeathed:
a.	a property in Barton Street, Hawthorn to her daughter, Ms Cregan-Wood;
b.	a property in Denham Street, Hawthorn to her son, Mr Wood; and
c.	the residue (after payment of a monetary bequest of $110,000 in favour of Mr Wood and distribution of certain personal chattels) equally between Mr Wood and Ms Cregan-Wood.
16	Mr Wood and Ms Cregan-Wood proved the will and acted as legal personal representatives of Ms Cregan.  They were registered as the owners of the Relevant Properties in that capacity on 8 February 2017.
17	On 29 May 2017, Mr Wood and Ms Cregan-Wood signed a document headed ‘Estate of Jean Margaret Cregan’ (Agreement). Paragraph 1 relating to the terms of the will states:
(i)	Property situate at 20 Barton Street Hawthorn to be transferred to Janet Leslie Cregan-Wood;
(ii)	The sum of $110,000 to be paid to Carl Robert Wood;
(iii)	The balance of the Estate to be divided 50% to Janet Leslie Cregan and 50% to Carl Robert Wood.
Note: The property situate at 74 Denham Street Hawthorn did not form part of the Estate as it was owned by Jean Margaret Cregan and Carl Robert Wood as joint tenants and as a consequence was transferred directly to Carl following her death.
18	The Agreement goes on at paragraphs 2 and 3 to list out the debts and assets of Ms Cregan-Wood’s estate including the Relevant Properties, which are each given an ‘agreed value’ of $462,500 and identifying ‘total realised’ assets (after debts) of $1,192,716.52 and a balance for distribution (after paying Mr Wood his entitlement of $110,000 and reimbursing him for estate expenses) of $1,068,716.52.
19	Paragraph 4 of the Agreement is headed ‘Agreement of beneficiaries Janet Leslie Cregan-Wood and Carl Robert Wood’, below which is the following table:
Asset Explanation	CR Wood	JL Cregan-Wood	
13 Wheelers Road Cape Paterson	$462,500.00		
15 Wheelers Road Cape Paterson cash to be paid to Janet by Carl in exchange for the title being transferred to Carl Robert Wood upon payment to Janet		$462,500.00	
Shares to be transferred to Carl	$71,858.26		
Cash to be provided to Janet by Carl in exchange for the balance of shares (valued at $71,858.26) being transferred to Carl		$71,858.26	
TOTAL	$534,358.26	$534,358.26	

20	In his affidavit, Mr Wood explained the genesis of the Agreement in the following terms:
When Janet and I started to look at the balance of the Estate and how to divide it, Janet advised me that she did not want to take either of the properties at Cape Paterson or the share portfolio.  She preferred to receive her half share of the balance of the Estate as cash … The Cape Paterson properties have been in our family for many years and have been a holiday destination for my family and Janet’s family over the years.  I was keen to keep the properties within the family…
21	He goes on to explain how they came up with the value of $462,500, being the mid-point of an external appraisal, and how he funded the payment to his sister:
In order to retain both the blocks of land at Cape Paterson I needed to divest myself of some other asset that had been bequeathed to me in the Will.  The share portfolio was not going to provide sufficient funds to pay Janet the agreed amount of $462,500 and accordingly I placed the house at 74 Denham Street Hawthorn, which had been bequeathed to me by our mother, on the market for sale.
22	The Relevant Properties were transferred to Mr Wood on 18 January 2018.
Mr Wood’s submissions
23	Mr Wood handed up a Summary of Argument which, by and large, summarises the background and concludes:
In settling the Estate of Jean Margaret Cregan, Carl and Janet fulfilled all of the requirements of the Will as set out by Jean Margaret Cregan.  Carl did not obtain any advantage in how the Will was finalised.
24	Mr Wood said that the issue to be determined is “what is valuable consideration and was it paid?”.  He says that the transfer of money from the sale of the Denham Street property to his sister was “not valuable consideration in that I received nothing more than if I had taken one of the properties” and that the “money came via my mother’s death”.
The Commissioner’s submissions
25	The Commissioner’s case is that the exemption under section 42 of the Duties Act is not available because the conditions for the exemption to apply are not satisfied on the facts as: 
a.	the transfer of one of the two Relevant Properties was made ‘for valuable consideration’; and
b.	the transfer to Mr Wood was not, to the extent that the value of the property exceeded his entitlements under his mother’s will, ‘made in satisfaction of [his] entitlement arising under the will’.
26	It is necessary, at this point, to explain some further background as to the reduction in the duty liability set out in the Commissioner’s determination of 28 March 2018.  
27	Ms O’Gorman explained that the reduced liability of $18,508 was based on a dutiable value of $390,641.74, calculated as follows:

Market value of Relevant Properties (being
$462,500 x 2)	$925,000.00
Less: 50% of residual estate	$534,358.26
Dutiable value	$390,641.74
28	In terms of the second basis on which the Commissioner says his decision should be confirmed, Ms O’Gorman submitted that the EM “makes plain that the purpose of section 42(3) [of the Duties Act] is that, where section 42 is available, then it is intended to be available to the extent of the entitlement under the will”, and referred to the examples in the 2RS which show the way it is intended to operate, being in a manner that is “nuanced and calibrated” by reference to the entitlements under a will.
29	In relation to the first basis for supporting the decision, Ms O’Gorman submits that the affidavit given by Mr Wood (which is also supported by the affidavit given by Ms Cregan-Wood) establish that there was consideration because Mr Wood transferred a sum of money to Ms Cregan-Wood (raised from the sale of the Denham Street property) in order to acquire the second of the Relevant Properties.  On this basis, no part of the transfer of the second of the Relevant Properties was eligible for the exemption under section 42 of the Duties Act, although because section 109 of the TA Act provides that ‘the Commissioner’s case is limited to the grounds on which the objection was disallowed’, the appropriate course is to confirm the determination made on 28 March 2018.
Decision
30	As indicated above (in the Outline of the Duties Act), the Duties Act imposes duty on a transfer of land.  Absent any available exemption, it follows that duty is payable on the transfer to Mr Wood of the Relevant Properties (by Mr Wood and Ms Cregan-Wood as the legal personal representatives for Ms Cregan) based on the greater of the consideration for, and unencumbered value of, the Relevant Properties.
31	The only question is whether section 42 of the Duties Act operates to exempt either or both transfers and, if so, to what extent.  
32	To be entitled to the benefit of section 42(3) of the Duties Act, the key requirements are that the transfers of the Relevant Properties to Mr Wood must not have been ‘for valuable consideration’ and must have been made ‘in satisfaction of [his] entitlement arising under the will of [Ms Cregan]’. If these requirements are satisfied then the exemption is available ‘to the extent’ that the transfer is in satisfaction of the relevant entitlements.
33	There is no doubt that the transfer of one of the Relevant Properties can be seen to fall within the exemption because the value of the entitlement which Mr Wood had under his mother’s will (ie. $534,358.26) exceeded the value of such property (ie. $462,500).  
34	It is also clear that the transfer of the second of the Relevant Properties (with a value of $462,500) exceeded Mr Wood’s remaining entitlement under his mother’s will (ie. $71,858.26) and so could not qualify for a full exemption on any basis.   
35	The issue here is whether the transfer of the second of the Relevant Properties is entirely disqualified from the exemption, on the basis that consideration in the form of the cash (ie. $390,641.74, being the difference between the two figures in the preceding paragraph) was provided, or whether Mr Wood is entitled to the benefit of the “nuanced and calibrated” exemption section 42(3) in relation to his remaining entitlement under his mother’s will.
36	Given that the Commissioner’s determination of 28 March 2018 was made on the basis that the latter position applied, and having regard to the terms of section 109 of the TA Act which limits the Commissioner to such ground without leave, I confirm the Commissioner’s decision to impose the reduced duty of $18,708 in respect of the transfer of one of the two Relevant Properties to him. 

R. Tang AM
Member