Considering “consideration” for duty
and other taxes.
Taryn Hartley
All Australian jurisdictions have mechanisms for the deeming of the value of transactions
for tax and duty purposes.
For example, for duty purposes in Queensland the dutiable value of a transaction is
calculated on the higher of the consideration for the dutiable transaction or the
unencumbered value of the dutiable property that is the subject of the transaction.
Recent cases have highlighted that the determination of the “consideration” for dutiable
transactions is not as straight forward as it may seem.
What can go wrong when determining “consideration”?
The dutiable value of transactions may be miscalculated by:
errors in the calculations themselves – such as adjustments to the purchase price or
GST; or
failing to include non-cash “consideration” – such as assumption of liabilities;
failing to include a monetary amount where that amount arises from other
components of the transaction or the payment of a further amount is contingent
upon a condition subsequent being satisfied.
Duty
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Failing to correctly calculate the dutiable value of transactions, and thus failing to pay the
correct duty liability, will prompt state revenue offices to audit transactions and issue
reassessment notices. Increased duty liabilities will normally not be budgeted for by the
parties.
Income tax
For income tax purposes, the market value of assets may need to be determined in order
to calculate a tax liability, eg. for CGT purposes where the proceeds received are less
than the market value or the dealing is not arm’s length.
The ATO has published a guide “Market valuation for tax purposes” to assist taxpayers
establish the market value of assets.
GST
The A New Tax System (Goods and Services Tax) Act 1999 (Cth) sets out rules for
determining the GST inclusive market value of considerations and can also deem a value
for transactions between “associates”.
Recent example of what can go wrong: Lend Lease
case
In Lend Lease Development Pty Ltd v Commissioner of State Revenue [2014] HCA 51 (
Lend Lease Case), the High Court was asked to consider, on appeal, what was meant by
“consideration” for the transaction in question.
Here, Lend Lease Development Pty Ltd (Lend Lease) and Victorian Urban Development
Authority (VicUrban) entered into a development agreement. Under the development
agreement, Lend Lease was required to reimburse some infrastructure costs, and pay a
share of their proceeds from the developed land to VicUrban (together, contribution
payments). Annexed to the agreement were individual sale contracts for a number of
parcels of land which VicUrban agreed to transfer to Lend Lease subject to the terms of
the development agreement.
It was not disputed that this transaction was a dutiable transaction. Ultimately, the issue
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for the High Court was deciding whether the “consideration” for this dutiable transaction
was:
the amounts set out under the contracts for sale of the land; or
the amounts stipulated under the contracts for sale of the land plus the sum of the
contribution payments payable to the government under the development
agreement. The High Court unanimously found that the Commissioner was entitled to assess duty by
reference to payments made under the specified land sale contracts as well as the
contribution payments to be made under the development agreement. This was because
the payments under the land sale contract and these contribution payments formed a
single, integrated and indivisible transaction for the concurrent sale and development of
the land.
How can clients avoid falling into the same trap?
Clients have the difficult task of assessing and identifying whether the “consideration” for
a transaction is limited to the purchase price, or includes the value of any other promises
given. A duty, GST or income tax liability may be higher than originally anticipated to
account for the non-monetary consideration also received.
Property transaction implications
As to the Lend Lease Case scenario, parties to dutiable transactions should be reviewing
their development arrangements and drafting future development arrangements with
caution. They should also seek advice from specialists to ensure that the appropriate
amount of duty, GST or income tax will be budgeted for from the onset of the
arrangements.
In particular, as a result of the Lend Lease case, State revenue offices will continue to
scrutinise transactions to ensure that duty is properly assessed and paid on all the
consideration.
For other taxes, authorities will continue to audit taxpayers to ensure the consideration
received (both monetary and non-monetary) is correctly returned or subject to taxation.
Failing to properly account to the relevant authority or authorities could expose clients to
interest and penalties in addition to the tax which might not have been accounted for.
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Contact the article author for more info
Taryn Hartley
Corporate and Commercial | Brisbane
T: 07 3014 6513
E: [email protected]
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