Comptroller of Stamps (Vic.) v. Ashwick (Vic.) No. 4 Pty. Ltd.

Judges:
Mason CJ
Wilson J
Dawson J
Toohey J
Gaudron J

Court:
High Court of Australia

Judgment date: Judgment handed down 10 December 1987.

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Mason C.J., Wilson, Dawson, Toohey and Gaudron JJ.

This is an appeal from a decision of the Full Court of the Supreme Court of Victoria (Kaye, Murphy and Tadgell JJ.) [reported at 87 ATC 4168] upholding an objection to an assessment of stamp duty upon an instrument of transfer. The assessment was made by the appellant in reliance upon sec. 32 and Heading VI of the Third Schedule of the Stamps Act 1958 (Vic.) ("the Act").

The instrument in question was dated 7 November 1984 and was executed by Carlton and United Breweries Limited ("C.U.B.") and the respondent. By it C.U.B. transferred land to the respondent for a consideration expressed as follows:

"The Transferee is entitled to the transfer of the land as a shareholder in the Transferor in the course of a distribution of assets of the Transferor in consequence of the reduction of the capital of the Transferor. The Transferee's entitlement arises upon the redemption of 10,000 Class Four redeemable preference shares held by the Transferee in the capital of the Transferor."

The appellant ruled that the instrument was liable to duty of $47,229 calculated on an ad valorem basis, the property having a value of $899,557. An objection to the assessment was disallowed and an appeal against the disallowance came before Crockett J. who ordered, pursuant to sec. 44 of the Supreme Court Act 1958 (Vic.), that the case be argued before the Full Court.

The respondent has objected to the assessment on the ground that the instrument was wholly exempt from duty by reason of the provisions of exemption (19) under Heading VI of the Third Schedule to the Act. That exemption reads:

"Any instrument for the conveyance of any real property held by a company where the conveyance is made to a shareholder of the company in the course of any distribution of assets of the company in consequence of the reduction of the capital of the company."

The Full Court was of the view, with which we agree, that the "capital" referred to in the exemption is the share capital of the transferor company.

The case has been conducted on the basis of an agreed statement of facts. Tadgell J. (with whose reasons for judgment Kaye and Murphy JJ. agreed), summarised those facts as follows [at pp. 4170-4173]:

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ATC 5066

"For many years before 1984 C.U.B., which among other things manufactures and sells beer, owned a number of hotels in Victoria and elsewhere which it leased to the licensees of the hotels. In the second half of 1984 C.U.B. decided to enable such of a number of its Victorian hotel tenants as chose to do so to obtain an equity in the hotels which they leased by becoming 50% shareholders in the companies which it was proposed should own the hotels. Those companies were respectively known as Ashwick (Vic.) No. [ ] Pty. Ltd., each company bearing an identifying number. At all material times C.U.B. and a company called Henry Jones Investments Limited were wholly owned subsidiaries of Elders IXL Limited; and at all times until 9 November 1984 all the Ashwick companies were wholly-owned subsidiaries of Henry Jones Investments Limited.

On 20 September 1984 the articles of association of C.U.B. were amended to introduce a new art. 5 which provides, inter alia, for the issue of redeemable preference shares and the terms and conditions on which they may be issued. The terms of art. 5, so far as now relevant, are these:

• `5(1) Subject to the Companies (Victoria) Code the directors may issue preference shares that at the option of the directors are to be liable to be redeemed. Such shares are hereinafter referred to as redeemable preference shares.
• (2) The terms and conditions on which redeemable preference shares are issued shall be the terms and conditions hereinafter appearing in this Article, subject where indicated to the option of the directors to issue the shares on different terms.
• (3) At the option of the directors redeemable preference shares may be issued in different classes.
• (4)(i) Redeemable preference shares may be issued at par or at a premium determined by the directors.
• (ii) At the option of the directors, redeemable preference shares may be issued wholly or partly paid in respect of capital and/or premium (if any).
• ...
• (14) Subject to the Companies (Victoria) Code the directors may at their absolute discretion at any time redeem any redeemable preference shares but so that all of the issued redeemable preference shares in any class are redeemed at the one time.
• (15) Upon redemption of any redeemable preference shares the holder thereof shall be entitled by virtue of the redemption to receive a sum equal to the capital for the time being paid up on such shares together with a premium equal to the amount of the premium, if any, for the time being paid up on such shares or property equal in value to such capital and premium or money and property which taken together are equal in value to such capital and premium.
• (16) If it is proposed to redeem any redeemable preference shares wholly or in part by the transfer of property as provided in the last preceding paragraph (15) the directors shall at least ten days before the date of the meeting of directors at which it is proposed so to resolve, adopt valuations of such property and give notice to the holder of the shares proposed to be redeemed that it is proposed to redeem such shares wholly or in part by the transfer of such property, of the valuation which the directors have adopted of that property and of the date of the directors' meeting at which it is proposed that the resolution for redemption be passed. If before that date the holder of any such shares gives notice to the directors that he disputes the valuation of the property concerned the directors may not redeem that holder's shares either wholly or in part by resolving to transfer the property to the holder on any basis other than on the basis of a value determined by a valuer jointly appointed by the directors and holder of the shares within seven days after the date fixed for the said meeting or in default of such an appointment by a valuer appointed by the President for the time being of the Institute of Valuers for Victoria.
• (17) All redemptions of redeemable preference shares shall be by a resolution of the directors to redeem such shares,

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  ATC 5067

  specifying the amount of any payment to be made and the description of any property to be transferred to the holder by virtue of such redemption.
• (18) Redemption shall take effect on the passing of the resolution referred to in paragraph (17) and any payments or distributions to be made by virtue of the redemption shall be made as soon as practical thereafter and in any case within 30 days after the passing of the resolution.'

On 20 September 1984 following the introduction of the new art. 5, the board of directors of C.U.B. resolved that:

• `1. 1,357,500 unissued shares in the capital of the Company be constituted cumulative redeemable preference shares having the rights set out in Article 5 of the Articles of Association of the Company and that the said shares be divided into classes as follows -
  • [There followed an enumeration of classes of redeemable preference shares, numbered consecutively from 1 to 124 inclusive, and a designation of the number of shares in each of the 124 classes, together with the identifying numbers of the shares. It is relevant to notice that Class Four comprised 10,000 shares respectively numbered `4-1 to 4-10,000'].
• 2. Such shares be available for allotment at a premium of $99.00 per share and that the full amount of nominal value and premium per share be fully paid on allotment.'

On 20 September 1984 1,357,500 shares of $1 each in the capital of C.U.B. not previously divided into classes were classified in accordance with the first of the resolutions above set out and a return was duly filed as required by sec. 124(2) of the Companies (Victoria) Code.

Later on 20 September 1984 the board of directors of the appellant [i.e., Ashwick (Vic.) No. 4 Pty. Ltd.] met and noted that:

• `(a) Several classes of cumulative redeemable preference shares in the capital of Carlton and United Breweries Limited were available for allotment.
• (b) The Company had agreed to borrow $1,000,000 from Elders IXL Limited on the basis that:
  • (i) the loan would be interest free but only while the Company remained a wholly owned subsidiary of the Elders Group of Companies; and
  • (ii) the loan would be repayable at call.
• (c) The Company could use the funds available to be borrowed from Elders IXL Limited to apply for cumulative redeemable preference shares in the capital of Carlton and United Breweries Limited and that this could be done by directing Elders IXL Limited to pay the borrowed funds directly to Carlton and United Breweries Limited.'

The board of the appellant thereupon resolved to apply for 10,000 Class Four cumulative redeemable preference shares in the capital of C.U.B. and to use the funds that Elders IXL Limited had agreed to lend it in order to pay to C.U.B. the amount of $1,000,000, being the amount due on allotment of the shares. Pursuant to the resolution the appellant duly applied for the shares on 20 September 1984. Still later on that day, at a further meeting of the board of C.U.B., there were tabled the appellant's application and a cheque from Elders IXL Limited to cover the amount due on allotment. The directors of C.U.B. thereupon resolved to allot to the appellant the shares the subject of the application and to prepare a share certificate in favour of the appellant accordingly. The certificate was prepared, executed and delivered to the appellant on or about 21 September 1984. It appears that comparable applications had been made by the other Ashwick companies and that, on 20 September 1984, all of the 1,375,500 redeemable preference shares in the capital of C.U.B. were allotted among them.

On 21 September 1984 the directors of C.U.B. met and noted that Elders IXL Limited was unable to proceed with loans which would have enabled the applicants for preference shares (including the appellant) to pay the total amount of capital and premium payable on allotment. At the request of the applicants (including the

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ATC 5068

appellant) the board of C.U.B. agreed, and resolved accordingly, that the terms of allotment be revised so that one per cent only of the total nominal value and premium should be payable immediately and that the balance should be paid by a call or calls later to be made. The directors of the appellant passed a corresponding resolution and arranged for Elders IXL Limited to cancel the original cheque and pay the revised amount of $10,000 to C.U.B., and that was done on the same day.

On 18 October 1984 the directors of C.U.B. resolved to call up the amount of capital and premium remaining unpaid on the redeemable preference shares. A call of $990,000 was made on the appellant accordingly.

On 24 October 1984 the directors of C.U.B. resolved to adopt a recommendation from officers of the company that all the company's redeemable preference shares should be redeemed; and they further resolved that shares constituting 110 of the 124 classes of such shares (including those of Class Four held by the appellant) should be redeemed in part by the transfer of property. In the case of the Class Four shares it was decided in effect that the property to be applied in the proposed redemption should be the `Ashley' Hotel at Braybrook, and that the value of $899,557 previously assessed by an independent valuer, McGee O'Callaghan Gill Pty. Ltd., should be attributed to it, inclusive of fixtures and fittings. On the same day notice to the appellant was accordingly given by C.U.B., pursuant to reg. 5(16) of its articles, of its proposal to redeem the Class Four shares. The notice stated that the proposal was to redeem by transferring the said hotel property to the appellant and by paying to the appellant the sum of $100,443, which together were said to make up the amount of $1,000,000 paid up or to be paid up on the shares by way of capital and premium. The notice also stated that the date of the directors' meeting at which the proposal to redeem would be considered and, if approved, adopted, was to be 7 November 1984. A similar kind of notice was given to 109 of the other holders of redeemable preference shares.

On 2 November 1984 the directors of the appellant resolved that the appellant take no steps to dispute the valuation of $899,557 referred to in the notice of 24 October.

On 5 November 1984 the appellant paid the call of $990,000 that had been made by C.U.B. on 18 October.

On 7 November 1984 the directors of C.U.B. resolved to redeem, on the basis set forth in the notice of 24 October, the preference shares it had issued to the appellant, namely to transfer the hotel property to the appellant at a value of $899,557 and to pay it the sum of $100,443. The instrument of transfer the subject of this appeal was executed accordingly. The appellant handed over the share certificate for the Class Four redeemable preference shares and in exchange received the instrument of transfer and a cheque for $100,443. The share certificate was subsequently cancelled by C.U.B. A comparable result was achieved in the case of each of the other 109 Ashwick companies holding C.U.B. redeemable preference shares to whom a notice had been given under art. 5(16). The 14 shareholders who had not received a notice had their shares redeemed for cash alone, equal to the par value and the premium paid. The minutes of the meeting of C.U.B. directors of 7 November 1984 record that it was resolved that:

• `...
• (c) The shares be redeemed out of profits that would otherwise be available for dividends and that the premium per share be provided for out of the share premium account.
• (d) In accordance with s. 120(5) of the Companies (Victoria) Code there shall, out of profits that would otherwise have been available for dividends, be transferred to a reserve called the `capital redemption reserve' a sum equal to the nominal amount of the shares redeemed.'

On 7 November 1984 the appellant held, and it had held since 25 October 1984, one ordinary share in the capital of C.U.B.

The procedure above described was avowedly devised and implemented in order

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ATC 5069

to achieve a transfer by C.U.B. to the appellant, and to each of the 109 other Ashwick companies concerned, of a hotel property, and with a view to taking advantage of exemption (19) under Heading VI of the Stamps Act. The object, in other words, was to devise and implement a means by which an equity might be conferred on the lessee of each of a series of hotel properties without the incurrence of stamp duty under Heading VI. The question is whether that object has been achieved, and the present parties and the other Ashwick companies have agreed that this should be regarded as a test case."

The appellant makes three distinct submissions in support of the appeal. First, on the proper construction of sec. 120 of the Companies (Victoria) Code ("the Code"), the redemption of redeemable preference shares, although reducing the number of shares issued, does not result in any reduction of capital. Secondly, even if the procedure outlined in sec. 120 of the Code can be said to result in a reduction of capital, it is not a reduction of the kind to which exemption (19) refers. Thirdly, the entire arrangement between C.U.B. and the respondent should be viewed as a whole and the provision for the allotment of redeemable preference shares and their redemption should be disregarded as a "fiscal nullity" within the meaning of the principle adopted by the House of Lords in
W.T. Ramsay Ltd. v. I.R. Commrs (1982) A.C. 300 and explained in
I.R. Commrs v. Burmah Oil Co. Ltd. (1982) 54 T.C. 200; (1982) S.T.C. 30 and
Furniss v. Dawson (1984) A.C. 474.

So far as material, sec. 120 of the Code provides:

"120(1) Subject to this section, a company having a share capital may, if so authorized by its articles, issue preference shares that are, or at the option of the company are to be, liable to be redeemed.

(2) The redemption shall not be taken to reduce the authorized share capital of the company.

(3) The shares shall not be redeemed -

• (a) except on such terms and in such manner as are provided by the articles;
• (b) except out of profits that would otherwise be available for dividends or out of the proceeds of a fresh issue of shares made for the purposes of the redemption; and
• (c) unless they are fully paid-up.

(4) The premium (if any) payable on redemption shall be provided for out of profits or out of the share premium account.

(5) Where redeemable preference shares are redeemed otherwise than out of the proceeds of a fresh issue of shares, there shall, out of profits that would otherwise have been available for dividends, be transferred to a reserve called the `capital redemption reserve' a sum equal to the nominal amount of the shares redeemed, and the provisions of this Code relating to the reduction of the share capital of a company, other than sub-section 123(6), apply, except as provided by this section, as if the capital redemption reserve were paid-up share capital of the company.

(6) Where, pursuant to this section, a company has redeemed or is about to redeem any preference shares, it may issue shares up to the sum of the nominal values of the shares redeemed or to be redeemed as if those preference shares had never been issued.

(7) The capital redemption reserve may be applied in paying up unissued shares of the company to be issued to members of the company as fully-paid bonus shares.

..."

Although the section marks a limited departure from the rule in
Trevor v. Whitworth (1887) 12 App. Cas. 409, in so doing it ensures that the purchase of shares will not be to the detriment of the company's creditors. The section allows a company to issue and redeem preference shares, subject to conditions which are directed to ensuring that the "capital yardstick" fixed originally by the share capital and share premiums is not reduced (Gower, Principles of Modern Company Law, 4th ed. (1979), pp. 225 and 228). This result is achieved by requiring that the shares be fully paid and that they be redeemed either out of the proceeds of a fresh issue of shares made for the purposes of the redemption or out of profits that would otherwise be available for dividends. If the former procedure is followed, there will be no overall change in the issued share capital of

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ATC 5070

the company because the new shares will replace those that have been redeemed. In the latter case, there will of necessity be a reduction in the issued share capital of the company but this will be offset by the crediting to a capital redemption reserve of a sum equal to the nominal value of the shares redeemed. Moneys standing to the credit of the capital redemption reserve are to be treated, subject to sec. 120(7), as if they were paid-up share capital of the company. Professor Gower has said of the capital redemption reserve:

"The name suggests, erroneously, that it represents a sinking fund intended to provide for the redemption. In fact it is a notional liability replacing the notional liability of the redeemed share capital"

(at p. 228, n. 78).

It is, to our mind, axiomatic (as Tadgell J. said in the Full Court) that the redemption of redeemable preference shares reduces the share capital of the company. In In
re Serpell & Co., Limited (1944) Ch. 233, Uthwatt J. accepted it as clear that the effect of a redemption is that the shares cease to form part of the paid-up capital and of the issued capital of the company. His Lordship was required to decide whether the redeemed shares still formed part of the nominal capital. He answered that question in the negative. It was consequent on this decision that the legislature amended the Companies Act 1929 (U.K.) to provide that a redemption shall not be taken to reduce the authorised share capital of the company, that is, the limit up to which subscriptions of share capital may be received. A similar provision now appears as sec. 120(2) of the Code and serves to emphasise that upon redemption the issued share capital of the company, as distinct from its authorised share capital, is reduced (albeit, in the case of redemption out of a fresh issue of shares, the reduction is counterbalanced by the fresh issue). With this provision should be contrasted sec. 121(2), whereby a cancellation of shares under that section (one of the authorised methods of altering share capital) "shall be deemed not to be a reduction of share capital...". In
I.R. Commrs v. Universal Grinding Wheel Co. Ltd. (1955) A.C. 807, Viscount Simonds, after referring with approval to the decision in In Re Serpell, summed up the effect that a redemption of preference shares has upon the capital structure of a company by saying at p. 818:

"This analysis appears to me to justify the proposition advanced by the respondent company that redemption of preference shares is a way of reducing the capital of a company, and it may be added that by 1947 it was a familiar way of doing so."

See also pp. 820, 822 and 824.

Counsel for the appellant argues that, because the capital yardstick is not reduced, a redemption of shares effected out of profits otherwise available for dividends does not constitute a reduction of capital. This is because the sum credited to the capital redemption reserve makes provision in the capital structure of the company for the nominal value of the redeemed shares. Counsel's argument in this regard is correct but only in so far as "capital" has the flexible connotation that he ascribes to it. A redemption effected out of profits that would otherwise have been available for dividends must have the consequence that the paid-up and issued share capital of the company is reduced. This consequence appears graphically from the illustrative balance sheets in Ford, Principles of Company Law, 4th ed. (1986), pp. 188-189. Furthermore, as Tadgell J. pointed out [at p. 4175]:

"It does not follow, because the capital redemption reserve is required by sec. 120(5) to be treated as if it were share capital, that it is share capital... or that there has on that account been no reduction of paid-up capital."

As we have said, the second submission of the appellant turns on the construction of exemption (19). In the first place, it is said that the reference to the reduction of capital in the exemption confines its application to the circumstances contemplated by sec. 123 of the Code. That section permits a company, if authorised by its articles, by special resolution to "reduce its share capital". The exercise of the power is subject to confirmation by the Court. However, the submission fails to give effect to the plain meaning of the words in exemption (19). It is true that the expression "reduction of capital" in the exemption is akin to the language used by sec. 123. But there is nothing in the exemption to indicate that it is confined to the procedure prescribed by that

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ATC 5071

section. Once it be accepted that the redemption of redeemable preference shares results in a reduction of paid-up share capital, a proposition affirmed both in In re Serpell and Universal Grinding Wheel and which is said by Viscount Simonds to have been a familiar way as at 1947 of reducing capital, it is impossible to construe exemption (19) as having sub silentio excluded it. The exemption was introduced into the Schedule of the Act by amending Act No. 9662 of 1981, at a time when the use of the term "reduction of capital" in the context of a redemption of preference shares was well established. This conclusion is a fortiori in the context that a redemption must necessarily result in a distribution of assets, an essential element in the operation of the exemption.

In the second place, it is said that the exemption has no application to the present case because the reduction of capital was not the cause of the distribution of the assets of C.U.B. Rather, it was the distribution of assets that formed the primary object of the whole transaction, with the reduction of capital being merely part of the machinery by which the distribution was effected. For this reason it is not open to the respondent to claim that the conveyance was made to it in the course of a distribution of assets in consequence of the reduction of capital. Counsel did not shrink from the further proposition implied in the contention, namely that the distribution of assets can only be in consequence of a reduction of capital effected by the redemption of redeemable shares if the value of the assets distributed is equivalent to the nominal value of the shares redeemed. But these arguments fail to take account of art. 5(15) of the respondent, which entitles the holder of shares being redeemed to receive money or property equal in value to the nominal value of the shares plus the amount of premium for the time being paid up on the shares. The price of redemption was not the nominal value of the shares redeemed. It was the nominal value of $1 plus $99 premium per share. Cf. Universal Grinding Wheel.

So far as material, the course of events followed by C.U.B. and the respondent was this: C.U.B. resolved to redeem the 10,000 $1 redeemable preference shares held by the respondent which was also an ordinary shareholder of the company; a premium of $99 was paid up on each share; in accordance with art. 5(15), in order to effect the redemption, C.U.B. was under an obligation to distribute assets of the company amounting to a value of $1,000,000 to the respondent; C.U.B. discharged this obligation by executing in favour of the respondent a transfer of land valued at $899,557, together with a cheque for $100,443. The question then is whether the conveyance of the land was made to a shareholder in the course of a distribution of assets of the company in consequence of a reduction of the capital of the company. Subject to the third and final argument advanced for the respondent, the answer must be in the affirmative. Once C.U.B. decided to reduce the capital of the company by redeeming the preference shares, the implementation of that decision obliged the company to distribute assets to a value of $100 per share. Being made in the course of such a distribution, the conveyance fell within exemption (19).

Finally, the appellant invokes the fiscal nullity principle enunciated by the House of Lords in Ramsay, Burmah Oil and Furniss. The limitations of that principle were described by Lord Brightman in Furniss, at p. 527:

"First, there must be a pre-ordained series of transactions; or, if one likes, one single composite transaction. This composite transaction may or may not include the achievement of a legitimate commercial (i.e. business) end... Secondly, there must be steps inserted which have no commercial (business) purpose apart from the avoidance of a liability to tax - not `no business effect'. If those two ingredients exist, the inserted steps are to be disregarded for fiscal purposes. The court must then look at the end result. Precisely how the end result will be taxed will depend on the terms of the taxing statute sought to be applied."

The appellant asks the Court to follow this approach in the present case. It is submitted that if the transaction is viewed as a composite whole, it can be seen that the allotment of shares to the respondent and their subsequent redemption were introduced for no business purpose save to bring the conveyance of the land from C.U.B. to the respondent within exemption (19). It is said that the moneys subscribed by the respondent for the shares did not represent capital resources available to C.U.B. in the conduct of its business and that

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ATC 5072

they necessarily were to be held against the fulfilment of the obligations imposed by art. 5 in the event of redemption. Redemption was part of the plan from the outset. On the other hand, the appellant does not argue that the transaction was a sham. That, however, does not preclude the application of the Ramsay principle because, as Lord Wilberforce said in Ramsay, at p. 324:

"For the commissioners considering a particular case it is wrong, and an unnecessary self limitation, to regard themselves as precluded by their own finding that documents or transactions are not `shams', from considering what, as evidenced by the documents themselves or by the manifested intentions of the parties, the relevant transaction is. They are not, under the Westminster doctrine [
Inland Revenue Commissioners v. Duke of Westminster [1936] A.C. 1] or any other authority, bound to consider individually each separate step in a composite transaction intended to be carried through as a whole."

The Ramsay doctrine has been referred to in a number of cases in Australia, including
F.C. of T. v. Ilbery 81 ATC 4661; (1981) 58 F.L.R. 191;
Alloyweld Pty. Ltd. v. F.C. of T. 84 ATC 4328; (1984) 69 F.L.R. 274;
F.C. of T. v. Walker 84 ATC 4553; (1984) 2 F.C.R. 283;
Bayford Wholesale Pty. Ltd. v. F.C. of T. 84 ATC 4626; (1984) 2 F.C.R. 427;
Oakey Abattoir Pty. Ltd. v. F.C. of T. 84 ATC 4718; (1984) 55 A.L.R. 291;
D.F.C. of T. v. Vereker & Ors 87 ATC 4010. In Oakey, a case arising under the Income Tax Assessment Act 1936 (Cth), the Full Court of the Federal Court of Australia said at ATC pp. 4725-4726; A.L.R. p. 299:

"In our opinion, the Ramsay and Furniss principles should be perceived as no more than rules governing the statutory interpretation of the United Kingdom legislation for the taxation of capital gains. As such, they have no immediate impact upon the Australian Act. Further, given the presence of sec. 260... and given the doctrine of economic equivalence underlying the approach of the House of Lords, we do not think that this approach affords any useful analogy in the present case..."

A broadly similar approach has been taken by the Supreme Court of Canada:
Stubart Investments Ltd. v. R. (1984) 15 A.T.R. 942. It should be added, however, that the Ramsay principle has recently been applied in England in a case arising under stamp duty legislation:
Ingram v. I.R. Commrs (1986) Ch. 585. Vinelott J. held that although stamp duty was chargeable on instruments and not on transactions, it was for the Court to ascertain the substance of the transaction effected by the instrument so as to determine whether it fell within a chargeable category. In carrying out that task, his Lordship followed the Ramsay principle.

In the view we take of the appellant's submission, we do not find it necessary to decide how far, if at all, the Ramsay principle is part of the law governing the judicial process in Australia. This is because we think the submission must fail in any event. As we have said, the question posed by the appeal arises in the context of stamp duty legislation. In the words of Lord Radcliffe in
Oughtred v. I.R. Commrs (1960) A.C. 206, at p. 227:

"The duty is charged upon instruments, if they exist and come within any of the categories prescribed by the Act. It is not charged upon transactions."

Nevertheless, in determining the category to which the instrument is to be assigned, its character is to be ascertained by considering its legal effect at the date of its execution:
Wm. Cory & Son Ltd. v. I.R. Commrs (1965) A.C. 1088. There is no difficulty in ascertaining the character of the instrument in the present case. It is a conveyance of land. But the expressed consideration is in a form which, if accepted, would attract exemption (19). In terms it is entirely accurate of the transaction that has occurred and to which the instrument is intended to give effect. Assuming the availability of the Ramsay principle, is it possible to treat the instrument simply as a conveyance of land for a consideration of $899,557?

Before an affirmative answer can be given, the transfer must be the end result of a pre-ordained series of transactions or one single composite transaction having no business purpose other than the avoidance of stamp duty on the transfer. And, as Tadgell J. asked in the Full Court: "What are the `inserted steps' that are properly to be ignored?" It is here that in any event the appellant's case breaks down.

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ATC 5073

Viewing the transaction in its wider context, there is no doubt that the events which occurred achieved the result which C.U.B. sought to achieve from the outset, namely the transfer of an equity in a number of its hotels to its tenants. But it does not follow that the precise steps by which that result was achieved were pre-ordained. It was not pre-ordained whether each of the Ashwick companies would receive a hotel as part of its share in the distribution of assets which effected the redemption of the shares. In the event, 110 of the 124 classes of redeemable preference shares were redeemed in part by the transfer of property. The valuation of the hotel transferred to the respondent was not determined until some weeks after the shares had been allotted. Nor can it be said that there was one single composite transaction in the sense that Lord Brightman used the expression. The intervening steps between the allotment of the shares and the conveyance were distinct and disparate steps which called for the making of discretionary decisions from time to time by the parties involved. To ignore all the steps between payment of moneys by the respondent and the transfer of the hotel to it, as the appellant invited us to do, is to disregard the very situation to which exemption (19) refers, namely a conveyance made to a shareholder in the course of a distribution of assets in consequence of a reduction of capital. Where there is such a conveyance, it is hard to see how the circumstances in which it took place, circumstances which exemption (19) expressly contemplates, may simply be put to one side.

It was argued for the appellant that the moneys paid for the shares, including the premium, were never available to C.U.B. as capital for use in its business. But there is nothing in the material before the Court to suggest that the money was frozen whilst in the possession of C.U.B. At the end of the exercise, C.U.B. had converted part of its interest in 110 hotels into a very substantial sum of money. In the meantime, it enjoyed the use of the moneys contributed for the shares for a period of time before the distribution of assets was undertaken. Furthermore, there was a sum of $1,357,500 necessarily left standing to the credit of the capital reserve account by reason of the redemption of the shares. In all the circumstances, there is no foothold from which the appellant can invoke the Ramsay principle. It follows that the Full Court was correct in upholding the objection of the respondent to the assessment.

We would dismiss the appeal.