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Recent WA stamp duty case recognises mining company has non-land goodwill
On 11 September 2017 the Court of Appeal of the Supreme Court of Western Australia delivered its keenly anticipated decision in Placer Dome Inc (Placer) v Commissioner of State Revenue (Commissioner)  WASCA 165 in favour of the appellant (Placer Dome Inc). This was an appeal lodged by the taxpayer against a decision of the State Administrative Tribunal to uphold the validity of a ‘land rich’ assessment of over $54 million issued to the taxpayer by the Western Australian Commissioner in connection with its 2006 takeover of Placer Dome Inc.
The case provides judicial recognition that in certain circumstances, contrary to the longstanding view of the Western Australian Commissioner, a mining company can have business goodwill in the stamp duty context. The decision sets out some helpful guidance on this vexed issue as well as how land should be valued in the stamp duty context. Both these issues are in particular focus when assessing the stamp duty implications of the takeover of a mining company.
The facts and key issue
Barrick Gold Corporation effected a 2006 takeover of Placer Dome Inc (PDI) and requested the Western Australian Commissioner to determine whether ‘land rich’ stamp duty was payable on the takeover. Some seven years later, the Commissioner determined that this stamp duty was payable in an amount of over $54 million. After an objection to the assessment had been disallowed, the appellant applied to the State Administrative Tribunal which also provided an unfavourable decision.
The main issue for the Court of Appeal’s consideration was whether PDI was a listed ‘land-holder’ corporation at the time of the 2006 takeover. Very broadly, the stamp duty rules at 2006 provided that a corporation was a land-holder in Western Australia if:
- it owned land in Western Australia worth $1 million or more; and
- the value of all its land, wherever located, is 60% or more of the value of all its property excluding certain ‘liquid’ assets.
It was not in dispute that (1) above was satisfied. The appellant however submitted that (2) was not satisfied for a number of reasons including in particular that PDI had materially significant goodwill that should be valued separately from the land held by PDI.
The evidence in the case confirmed that PDI had over 100 years’ experience in operating goldmines and in 2005 was the fifth largest goldmining company assessed by market capitalisation, the third largest assessed by gold reserves, and the fourth largest assessed by gold production. In 2006, PDI employed more than 13,000 staff and was operating goldmines, undertaking development projects and exploration projects in various countries on various continents around the world. Also, there were management structures and systems in place to enhance profitability and experience as would be expected in a business of the size and complexity of PDI’s.
Court of Appeal decision
The Court of Appeal made the following key findings on the land valuation and goodwill issues:
- The ‘top-down’ approach used in the Commissioner’s valuation of PDI’s land to support the assessment (ie; value the total property, subtract the value of non-land assets and residual value is attributable to land) was the incorrect approach under the Western Australian stamp duty rules and resulted in the value of PDI’s land being approximately equal to the value of all its property. The land valuation should have been undertaken on the basis that there was a necessary distinction to be made between the value of PDI’s land on one hand and the value of PDI’s business on the other. The Commissioner’s valuation conflated these two things.
- The PDI business had a significant amount of goodwill given the longstanding history and the size, scale and complexity of its mining operations that spanned several continents. The top-down approach used in the Commissioner’s valuation of PDI’s land was fundamentally inconsistent with the approach to the valuation of goodwill set down by the High Court in the seminal case on goodwill (Federal Commissioner of Taxation v Murry  HCA 42).
Next steps and implications
The Court of Appeal has remitted the matter to the Tribunal to make final findings in relation to the valuation of PDI’s land as at 2006 and whether the test noted in (2) above was satisfied as at the date of the 2006 takeover.
While the Court of Appeal decision considers the predecessor provisions to the existing ‘landholder’ duty rules, the decision is relevant to the current landholder stamp duty rules in Western Australia and in all jurisdictions Australia-wide in particular how land held by a mining company should be valued for stamp duty purposes and whether a mining company has any goodwill.
It is our view that the application of the findings on PDI’s goodwill in this decision will need to be considered carefully on a case by case basis in respect of each mining takeover. That PDI had materially significant goodwill separate from the value of its land was understandable based on the evidence in the case as to its over 100 years’ history of operations and the massive size and scale of its operations. It is less clear whether that will be so in the case of mining companies with more modest mining operations.
Any application for special leave to appeal the Court of Appeal decision will be required to be made by either party within 28 days of the date of the decision ie; before 9 October 2017 and we will be keeping abreast of any further developments in this area.