The recent judgment of the New South Wales Court of Appeal in Australia in a landholder stamp duty case has attracted widespread attention. A power station that has been legally detached from the land is considered an "interest in goods" under Section 4 of the Stamp Act 1997.
This article will explain this in detail from three parts: case background, fact analysis and decision.
The taxpayer (previously known as Meridian Energy Australia Pty Ltd) acquired 100% of the shares in GSP Energy Pty Ltd (GSP) for more than $160 million in March 2018. At the time of the acquisition GSP was the operator of 3 hydro-electric power stations in NSW and the lessee of the land on which the power stations were situated pursuant to leases entered into in 2014. GSP’s access to water required for the operation of the power stations was pursuant to water agreements entered into with the State Water Corporation.
The Chief Commissioner assessed the taxpayer to duty of $7.9 million in respect of the acquisition of shares. The Commissioner considered that GSP was a “landholder” under Ch 4 of the Duties Act because it held property interests in the items constituting the power stations, which items were fixtures and thus part of the land on which they sat. The amount of duty was calculated on landholdings and goods valued by the Commissioner in the amount of $145.35 million. The taxpayer sought review of the decision on the basis that the items of property, which were once fixtures, situated at the power stations had legally been severed from the land by reason of 2 vesting orders made under the Electricity Generator Assets (Authorised Transactions) Act 2012 (NSW).
At first instance (2022 ATC ¶20-835;  NSWSC 1074), Ward CJ in Eq determined the application in favour of the taxpayer. Her Honour concluded that GSP’s interests in the assets forming part of the power stations were neither interests in land nor interests in goods. Rather, they were innominate sui generis property interests. Her Honour further found that GSP’s leasehold interests in the land upon which the assets were situated were, leaving aside the assets themselves, of no material value.
The Commissioner appealed from this decision to the NSW Court of Appeal on 3 grounds. The first was that the primary judge erred in characterising GSP’s leasehold interests in the power stations, other than the bare leasehold interests in the land, as in the nature of innominate sui generis property interests. The second ground was that if the interests were not in land, then they were interests in goods and therefore were still required to be considered in the assessment of duty. The third ground was that the primary judge erred in determining the value of the bare leasehold interests.
The NSW Court of Appeal allowed the appeal in respect of the second ground, but not the first and third.
The court found that the items constituting the power stations, having been legally severed from the land, were “goods” for the purposes of Ch 4 of the Act. They fell within that notion because the ordinary understanding of that notion at general law, which the statutory usage in s 155 encompassed, included former chattels which had been legally severed from the land. There was nothing in the statutory vesting orders which effected the severance that had the effect of changing the legal character of the items such as to become innominate sui generis property interests. Even if they had done so, such a property interest would still fall within the reach of the concept of goods in Ch 4 of the Duties Act.
With respect to the first ground, the primary judge was correct to conclude that the property interests in the items constituting the 3 power stations had legally been severed from the land by the effect of 2 statutory vesting orders. However, the property interests in the severed items were not innominate sui generis property interests. As to the third ground, there was no relevant error made by the primary judge in her reasoning or conclusion in determining the value of the bare leasehold interests.
This case serves as a reminder of the importance of respecting the relevant regulatory framework when dealing with a particular asset class or industry. Because changes in statutory entitlements/powers may alter expected tax outcomes. Whether items that would otherwise be fixed property (interests in land) are in fact “goods”/movable property and thus may enjoy more favourable tax treatment.
In addition, transactions may also raise complex valuation issues (such as the allocation of value between land and non-land interests), which may have flow on effects to the duty analysis. It is therefore important to engage a stamp duty advisor early on to ensure issues are identified and proper evidence of valuation is obtained.
Source: Chief Commissioner of State Revenue (NSW) v Shell Energy Operations No 2 Pty Ltd 2023 ATC ¶20-863;  NSWCA 113, 26 May 2023.