The reference to 16A is a reference to the original land. The Appeal Panel described this finding as the "two dwellings" finding.
20 At a time when the principal place of residence exemption applied to a parcel of residential land not exceeding 2,100 square metres in area that is used and occupied as his principal place of residence, and for no other purpose, by the owner of the land or, where there are joint owners, as his principal place of residence, and for no other purpose by any one or more of them, Hunt J in Ryan v Commissioner of Land Tax (1982) 1 NSWLR 305 considered whether two contiguous lots constituted a parcel of residential land for the purposes of the exemption.
21 Mr and Mrs Ryan jointly purchased a block of land and at the same time Mr Ryan purchased the contiguous block. One purchase price was paid to the same vendor. A large house was constructed on one lot that, together with a garage, pool house, swimming pool and associated facilities virtually filled the site. There was no physical separation between the two lots and the other one was used and occupied by Mr and Mrs Ryan as a garden entertainment and recreation area, gardens having been laid out and a barbeque built. The only building on the contiguous lot consisted of stone steps commencing in the other block and crossing the boundary to the contiguous block.
22 His Honour accepted that the two lots were used and occupied together at all times as one residential area. He concluded that contiguous lots could comprise a parcel of residential land if four unities were established. At 10, his Honour said:
"It follows, in my view, that contiguous blocks of land can comprise a "parcel of residential land" within s 10(1)(r)(ii) only where they are undivided not only by physical separation but also in use, occupation and title."
23 Because there was no unity of title, Mr and Mrs Ryan failed to establish an entitlement to the exemption.
24 In this case at first instance, the Chief Commissioner conceded that the two lots were not divided by physical separation and had a unity of title and a unity of occupation. The Chief Commissioner contended, however, that on the facts, Mr and Mrs McGrath had failed to show that there was a unity of use between the two lots.
25 On this issue, as a matter of fact, the Judicial Member concluded that unity of use had not been established. At [57] he said:
"Having concluded that the applicants have failed to satisfy the threshold requirement for the principal place of residence exemption, it would follow that, on the evidence before the Tribunal, the applicants have also failed to discharge the necessary onus to show that there was a unity of use between 16A and 14B as at the relevant taxing date to satisfy the Ryan "use " test."
26 Thus, the first instance decision had three elements: a "residential land" finding as a finding of fact, a "Ryan" finding as a finding of fact and a "two dwellings" finding as a finding of law.
Appeal Panel decision
27 The Administrative Decisions Tribunal Act, s 113(1) provided that a party to proceedings in which an appealable decision of the Tribunal is made may appeal to the Tribunal constituted by an Appeal Panel. An "appealable decision" is defined in s 112(1)(b) to include a review of a reviewable decision. A "reviewable decision" is defined in s 8 to mean a decision of an administrator that the Tribunal has jurisdiction under an enactment to review. An "administrator" is defined in s 9(1) to mean the person or body that makes, or is taken to have made, the decision under the enactment concerned. The Taxation Administration Act 1996, s 96(1)(a) provides that a taxpayer may apply to the Administrative Decisions Tribunal for a review of a decision of the Chief Commissioner that has been the subject of an objection if the taxpayer is dissatisfied with the Chief Commissioner's determination of the objection.
28 It was, therefore, open to Mr and Mrs McGrath to appeal to the Tribunal constituted by an Appeal Panel.
29 The Appeal Panel found that the Judicial Member did not fall into error by deciding whether the lots were residential land. At [29] they said:
"The appellants argue that by proceeding on the basis of determining whether the relevant land was "residential land", the Tribunal fell into error. It is difficult to see how this is so given that the term "residential land" is both a defined term in the Act and part of the term "parcel of residential land" which appears in the Act as the basis of the exemption. If land is not residential land, can it be part of a parcel of residential land? The analysis of whether the land is part of a parcel of "residential land" within the meaning of the Act must commence with an analysis of whether the elements of the parcel are indeed "residential land"."
30 Next, the Appeal Panel determined that the Judicial Member did not err in making his "Ryan" finding. At [31] they said:
"It seems to the Appeal Panel that the Judicial Member did not misinterpret Ryan . In considering whether the land formed "residential land", he considered the "four unities" which are that the land is undivided "not only by physical separation but also use, occupation and title" (paragraph [23]). Such a consideration is necessary for a finding that the land falls within clause 2(1)(a) of Schedule 1A."
31 The Appeal Panel took the view that the Judicial Member's finding that the adjoining land was not residential land (the "residential land" finding) was "bound up" in his finding that the principal place of residence exemption was confined to a single independent residence (the "two dwellings" finding) such that the former was only correct if the latter involved no error of law. At [34] the Appeal Panel said:
"Was this finding an error of law? It seems to us that the "residential land" finding, bound up as it is in the "two dwellings" finding, is correct only if the "two dwellings" finding discloses no error of law."
32 The Appeal Panel then determined that the Judicial Member erred in law in making the "two dwellings" finding. At [37] they said:
"The Appeal Panel is of the view that the expression of the learned Tribunal Member in paragraph [53] is indeed an error of law. There is no reason why an "independent dwelling", previously used for residential purposes, should be in any different position from, say, a greenhouse or a pool house (see paragraph [52] of the decision). The words "the building" in clause 3(2) where they appear after the words "any building or improvement" refer back to the words "any building". It is the building on 14B which must be used for a purpose ancillary to the purpose for which that building is "designed, constructed or adapted". To say, as the learned Judicial Member did, that a residential house on adjoining land could not, of itself, be used for that ancillary purpose appears to be a misconstruction of Clause 3."
33 The Appeal Panel gave leave to extend the review to the merits because of its view that the Judicial Member's error of law in the "two dwellings" finding "informed" the factual decision in the "residential land" finding. They said at [39]:
"The appellant argues that if, as we have found, there is an error of law in the construction of Clause 3 informing the factual decision as to whether the use of 14B falls within the exemption, it is an appropriate case to grant leave to the appellant to extend the appeal to the merits of the case and to examine whether the property at 14B should be granted the exemption. We have noted the respondent's submission set out in paragraph [26] above and, having considered them, agree with the appellant on this point. Accordingly, leave is granted to extend the decision to the merits and we will consider the evidence in the light of the proper interpretation of Clause 3."
34 Having considered the merits of the case, the Appeal Panel concluded that the adjoining land was put to a use for residential purposes and for no other purpose ancillary to the uses to which the original land was put. At [41(d)] they said:
"Taking into account those principles, it appears to the Appeal Panel that the uses to which 14B were put were both for "residential purposes and for no other purposes" and "ancillary to the uses to which 16A was put". The recreational and household use of 14B was, indeed, acknowledged by Judicial Member as being, in some circumstances, probably sufficient for the exemption to apply were it not for the incorrect "two dwellings" finding. Unlike the property in Coleman's case, there was no other actual use (such as a property development) being undertaken on the site. The fact that the land was "awaiting development" was irrelevant if that use had not yet commenced, and there was actual use of the property for appropriate residential purposes."
35 In Chief Commissioner of State Revenue v Coleman [2007] NSWSC 625, (2007) 66 ATR 713, the taxpayers subdivided a block of land retaining their principal place of residence on one block and building an additional residence on the other. At the relevant time, the new residence had foundations, walls and concrete slabs at ground and first storey level, but was unoccupiable. The taxpayers continued to live in their existing home and continued to use the block for gardens and recreational purposes until the new house was complete. In allowing the Chief Commissioner's appeal, Handley AJ concluded that the Appeal Panel had erred in law by disregarding the findings below that, at the relevant time, there were dual uses of the land and the use as a construction site was considerable.
36 In this case, the Appeal Panel concluded that the adjoining land was not a place of residence for the purpose of the Land Tax Management Act, Sch 1A, cl 12 because that provision was directed towards two houses being separately occupied as places of residence. The Appeal Panel said at [42]:
"It is the Appeal Panel's view that 14B is not a "place of residence" for the purposes of clause 12 of Schedule 1A, as that clause is directed towards two house being separately occupied as places of residence, and not towards a house being used, not as a house, but for purposes ancillary to another dwelling."
37 Finally, the Appeal Panel concluded at [43]:
"Accordingly, the land at 14B is part of a "parcel of residential land" and used and occupied by the appellants for residential purposes."
Chief Commissioner's argument
38 The Chief Commissioner argues that the Appeal Panel erred in law in finding, as it did at [34] that the "residential land" finding was "bound up" with the "two dwellings" finding and was correct only if the "two dwellings" finding disclosed no error of law.
39 In concluding that the two findings were bound up together, or that the "two dwellings" finding "informed" the factual decision in the "residential land" finding as the Appeal Panel said at [39], I am of the view that the Appeal Panel misinterpreted the judgment of the Judicial Member.
40 When the Judicial Member made his "residential land" finding at [48], he made no mention of the "two dwellings" issue. The Judicial Member discussed the physical aspects of the user of the adjoining land in arriving at his conclusion. He considered the evidence of use of the amenities of the adjoining land such as the jetty and slipway and private beach and Mrs McGrath's use of the rotary hoist. He said these activities might have been sufficient to constitute use and occupation for residential purposes had there been no dwelling on the adjoining land.
41 That was not a reference to the "two dwellings" issue that the Judicial Member discussed later in his reasons. It was a reference to the lack of use of the house on the adjoining land that took up a considerable portion of it. In arriving at his conclusion on the "residential land" issue, the Judicial Member accepted the submission of the Chief Commissioner that if there exists on land a building or improvement that is either not used or occupied for any purpose, or is used or occupied for a purpose not ancillary to residential purposes, the land is not residential land.
42 Having made his "residential land" finding at [48], the Judicial Member turned to the "two dwellings" issue. He analysed the scheme of the law and concluded at [55] that the cumulative effect of the provisions of the Land Tax Management Act, Sch 1A was that the principal place of residence exemption will not apply to independent dwellings on a parcel of residential land constituted by adjoining lots.
43 That this was an issue separate from the "residential land" finding is apparent from what the Judicial Member said at [56]:
"Apart from the outcome in this matter as to the threshold issue, the applicants would also not be entitled to a principal place of residence exemption in relation to 14B on the basis of the cumulative effect of clauses 3, 4 and 12."
44 The Judicial Member clearly regarded his "residential land" finding as determinative of the matter. He regarded the "two dwellings" finding as an obiter dictum.
45 While it is not necessary to identify an error of law to give leave to extend an appeal to the merits (Lloyd v Veterinary Surgeons Investigating Committee [2005] NSWCA 456, (2005) 65 NSWLR 245 at 257 [63]-[64]) an Appeal Panel should weigh relevant factors in exercising the power to extend an appeal to a review of the merits of the case. It would, I would have thought, be only in the most exceptional circumstances that a first instance finding that an appellant failed to satisfy the onus of establishing that the land in question constituted residential land under the four unities tests in Ryan that leave to extend a review to the merits would be granted.
46 In this case, the Appeal Panel gave its reason for extending the appeal. It found that the Judicial Member erred in law in making the "two dwellings" finding. It was that error of law that the Appeal Panel found was "bound up" in or "informed" the "residential land" finding. That was the only basis for extending the appeal to the merits of the case.
47 I have found that they erred in arriving at that conclusion. Not only did the Judicial Member treat his "residential land" finding as separate from his "two dwellings" finding but also they are separate and distinct considerations.
48 If the principal place of residence exemption was not denied for two independent dwellings on a parcel of residential land constituted by adjoining lots, Mr and Mrs McGrath would still bear the onus of establishing that the land in question constituted a parcel of residential land in terms of the Land Tax Management Act, Sch 1A.
49 In my judgment, in arriving at their decision to extend the review to the merits of the case, the Appeal Panel erred in law because, for the reasons already expressed, the Judicial Member's "two dwellings" finding was not "bound up" in and nor did it "inform" his "residential land" finding.
50 It was only by extending the appeal to the merits that the Appeal Panel could overturn the decision of the Judicial Member. The Chief Commissioner has made out his appeal to this Court on a question of law.
Conclusion
51 The appeal is allowed. The decision of the Appeal Panel is set aside. The decision of the Judicial Member is affirmed. The objection decision of the Chief Commissioner under review is affirmed.
52 Mr and Mrs McGrath entered a submitting appearance, save as to costs. No doubt the Chief Commissioner's purpose in appealing from the decision of the Appeal Panel was not only to affirm the decision of the Judicial Member in the case of Mr and Mrs McGrath, but also to set aside the precedent established by the decision of the Appeal Panel as it might apply to other taxpayers.
51 In the circumstances, I am of the view that it is appropriate that I make no order as to costs.