FKG01 Pty Ltd v Commissioner of State Revenue

The applicant sought to appeal a decision of the respondent not to repay duty which had been paid in respect of a contract for the purchase of property. That contract was ultimately replaced in favour of a contract which provided for a different buyer. The new buyer was a related entity of the applicant. The question was whether the circumstances of the new contract, and in particular an adjustment to the purchase price, constituted a financial benefit to the applicant which made the new contract a “resale agreement” within the meaning of s 115 Duties Act 2001. Considering the circumstances and the history of the relevant provision, her Honour concluded that the adjustment to the purchase price did not constitute a financial benefit within the meaning of the section.

Hindman J

19 May 2025

The applicant was a buyer of real property under a cancelled agreement who paid transfer duty on the cancelled agreement. [2]. The applicant appealed against the refusal of the respondent, the Commissioner of State Revenue, to refund the duty that had been paid on the cancelled agreement. [2].

Section 115 Duties Act 2001 (“the Act”) relevantly states:

“115Exemption–cancelled agreements

(1)Transfer duty is not imposed on a dutiable transaction that is an agreement for the transfer of dutiable property (the cancelled agreement) if –

…

(d)the agreement is ended with the consent of the parties to it and there is no resale agreement.

(2)For subsection (1)(d), an agreement is a resale agreement if –

(a)under the agreement, any of the dutiable property the subject of the cancelled agreement is or will be transferred or is agreed to be transferred; and

(b)the transferee under the cancelled agreement or a related person of the transferee receives, or will receive, directly or indirectly a financial benefit other than –

(i)the release of the transferee from the transferee’s obligation under the cancelled agreement; or

(ii)an interest in the dutiable property to the extent that the unencumbered value of the interest does not represent a profit for the transferee because of the resale agreement.

(3)If, on an assessment, transfer duty has been paid on an agreement that is not liable to transfer duty because of this section, the commissioner must make a reassessment if an application is made within 6 months after the agreement is ended …” [30].

The original contract between the seller and the applicant involved a lease with Suncorp which was scheduled to expire after the settlement date. [12]. The applicant negotiated an agreement with Suncorp, in anticipation of their purchasing the property, that rather than having to satisfy the “make good” obligation under the lease, Suncorp would pay $50,000 plus GST. [13].

A transfer duty of $555,525.00 was paid by the applicant to the respondent in relation to the original contract. [14]. Before settlement of the original contract, the seller proposed to replace the original contract for income tax reasons. [15]. The proposed revised terms of the contract provided that: pending rescission of the original contract, the settlement date would be extended to 15 August 2022 (after the expiry of Suncorp’s lease), the seller would finalise the arrangements with Suncorp instead of the applicant, and the purchase price would be adjusted down by $50,000 to account for the seller receiving the payment from Suncorp instead of the applicant. [16].

Ultimately, for commercial reasons, a replacement contract was entered into where the applicant was replaced by a related entity, 122Marg, as the purchaser. [17]–[21]. The replacement contract was similar, but not identical, to the original contract; relevantly, it provided for the reduction of the purchase price at settlement by $50,000 reflecting the payment which by that time had been made by Suncorp to the seller. [23].

As a result of these arrangements, the original contract having been cancelled and a new buyer put in place under the replacement contract, the applicant applied for the repayment of the transfer duty which had been paid. [26]. This was refused by the respondent on the basis that the replacement contract was a resale agreement within the meaning of s 115 of the Act, the adjustment for the Suncorp payment constituting a financial benefit within the meaning of that section. [27].

Was the replacement contract a resale agreement?

Her Honour prefaced her reasoning with a detailed consideration of the legislative history of s 115 and its equivalent provisions in the legislation previous to the Duties Act 2001. [36]–[60].

The dispute between the parties was, in essence, whether either an indemnity given by the seller to the applicant under the replacement contract, or the deduction of $50,000 from the purchase price paid by the related entity, represented a financial benefit to FKG01 within the meaning of s 115. [61]–[62].

Her Honour agreed that “financial benefit” carried its ordinary English meaning, with “financial” being taken to mean “pertaining to monetary receipts and expenditure”. [84]. Her Honour found that the reduction in the purchase price under the replacement contract did not constitute a payment rather than an interest in the dutiable property; the benefit was an interest in the property for a reduced sum of money, not for the payment of that money itself. [88]. The question was whether the unencumbered value of that interest in the property represented a profit for FKG01 because of the replacement contract. [88].

Her Honour concluded it did not. 122Marg paid market value for the property taking into account an adjustment for the lack of Suncorp making good at the end of its lease; that did not represent a profit for FKG01. [89]. Her Honour acknowledged that if the discount under the replacement contract could be characterised as something like a kickback, that would be a financial benefit of the kind contemplated by s 115; this was not a case of that kind. [91].

Lastly, her Honour considered whether an indemnity clause under the replacement contract between the applicant and the seller constituted a financial benefit for the purposes of the section; the indemnity provided that the seller would be liable for any duty found to be owed under the cancelled agreement. [96]–[106].

Her Honour concluded that an indemnity could only provide a financial benefit to the applicant if in fact there was liability for transfer duty on the cancelled agreement; because of her conclusions in respect of the purchase price adjustment, there was no liability and thus no financial benefit derived from the indemnity clause. [109].

Disposition

The appeal was allowed.

B Wilson of Counsel