FSX v Chief Commissioner of State Revenue

Agreed facts

1. The parties have helpfully supplied a statement of agreed facts. Though often expressed in the present tense, I interpret them as an agreement concerning facts which pertained at all relevant times. Relevantly, those agreed facts are as follows. 1. Under the Local Environment Plan, the land is zoned B1 Neighbourhood Centre. 2. It is prohibited under the Local Environment Plan for development consent to be granted for residential accommodation on the land without a commercial space on the ground floor. 3. The Local Environment Plan provided: shop top housing means one or more dwellings located above ground floor retail premises or business premises Note - Shop top housing is a type of residential accommodation - see the definition of that term in this Dictionary. 1. Condition 3 of the development consent required specific development applications to be lodged for approval in connection with the initial usage of any retail or commercial area within the development, prior to occupation of the premises. 2. What was required was either a development consent to such use, or a complying development certificate allowing for 'initial use' of commercial premises after construction. 3. Subject to fulfilment of condition 3, certain areas on the ground floor (marked in red on a plan appended to the Agreed Facts) are able to be lawfully used and occupied exclusively for non-residential (commercial) purposes. They may not lawfully be used for residential purposes. 4. No consent to use of those areas has been sought by FSX pursuant to condition 3. 5. In the absence of an application for initial use, the areas marked red must remain vacant. 6. It is not unlawful for FSX to refrain from seeking approval for initial use of those areas, or to leave the commercial spaces vacant. 7. Certain other areas on the ground floor (marked green in the plan) are able to be lawfully used and occupied exclusively for residential purposes. They may not lawfully be used for non-residential purposes. 8. Other areas on the ground floor (marked white in the plan) may lawfully be used for either residential or commercial purposes. 9. The remaining areas of the development may only be used and occupied exclusively for residential purposes. 10. Condition 9 of the development consent requires that a glass shop front for window display purposes be retained.

1. Whether FSX intended to use and occupy land 'solely' as a principal place of residence
2. FSX and her husband each provided an affidavit. Their contents were different, but consistent. In summary, their evidence was to the effect that: 1. the planning, development application process, and building design and construction was overseen by Mr FSX on behalf of FSX, 2. building commenced in December 2020, at about the time when FSX purchased the land, and was due for completion in 2023; 3. the relevant development consent for 'shop top housing' issued in 2015, and has been modified twice - once prior to FSX's purchase of the land, and once since then; it is unnecessary to detail the modifications here, as nothing turns on them; 4. a previous development consent had lapsed in 2011, the planning process for which had commenced in 2010; 5. in 2010, Mr FSX 'held an initial thought of running a genuine commercial space at ground level', but later decided against it; 6. the inclusion of commercial spaces on the ground floor plan submitted for the purposes of the 2015 development consent was solely for the purpose of satisfying the requirements of the Local Environment Plan that approval be granted only for 'shop top housing', 7. at all relevant times the intention of both spouses was to use and occupy the premises solely as a residence for their family; 8. apart from the 'initial thought' referred to in 2010, they never intended to use the designated commercial spaces for non-residential purposes, as they did not wish unknown persons to be in the close vicinity of their home for security reasons, and became sensitive to the concerns of neighbours who were adamantly opposed to an increase in the already busy foot and vehicular traffic in the area; 9. they had not applied for consent to use those spaces for any purpose, and 10. they intended to leave them vacant, until such time (if ever) that the law changed to allow them to apply for their use and occupation for residential purposes.
3. FSX relied on two reports of town planner, Mr Kossnetter. The first of these included a coloured copy of the ground floor plan, with spaces exclusively for commercial use marked red, spaces exclusively for residential use marked green, and spaces for both uses marked white. He confirmed that the only mechanism available under the Local Environment Plan to accommodate a dwelling on the site was as a component of an overall development classified as 'shop top housing', defined to mean 'one or more dwellings located above the ground floor of a building, where at least the ground floor is used for commercial premises or health services facilities'. Otherwise, he said, residential accommodation is prohibited, and 'there are no prospects of gaining development consent' for it.
4. In his experience, commercial premises in such developments are in some cases 'left vacant or used for low-impact commercial activity'. He said the commercial premises can also be used as an office by the resident, 'as a distinctly separate area from the residence'.
5. Mr Kossnetter expressed the following opinion at [4.4]: The intended use and occupation of the Subject Land for residential accommodation is lawful, to the extent that the use relates to the areas for exclusive use for residential purposes or the areas that are non-exclusive … This includes all areas on Levels 2, 3 and 4, as well as the majority of the ground floor excluding only the areas shown red.
6. The respondent relied on a report by town planner, Ms Sneyd. Her evidence may be summarised as follows. 1. Residential accommodation is prohibited under the LEP unless it is part of a 'shop top housing' development. 2. The definition of that term in the LEP was amended with effect from 1 December 2021 to read: One or more dwellings located above the ground floor of a building, where at least the ground floor is used for commercial premises or health services facilities. Note - shop top housing is a type of residential accommodation - see definition of that term in this Dictionary 1. That definition was effective as at midnight on 31 December 2021 - the taxing date in respect of the 2022 tax year. 2. In the absence of development consent for their use, no use can be made of the designated commercial premises on the ground floor. 3. If and when development consent is sought, Council will apply the then existing definition of 'shop top housing' in considering whether to grant consent - which is, currently, commercial or health care facilities. 4. 'Commercial' is defined to include office premises, but the space cannot be used as a home office as part of the residential use of the site. 5. Prior to the amendment which came into effect on 1 December 2021, 'technically the ground floor approved commercial space could be left vacant as there was no requirement for use. The effect of the amendment is that "use" of the ground floor "for commercial premises or health services facilities" is required.' 6. In any event: 1. the use of the land exclusively for residential use is inconsistent the objectives of the B1 Neighbourhood Business zone, which are 'to maintain commercial and residential uses at the ground level within the B1 zone', and 2. the style and character of the development is not residential, as the upper (residential) levels are set back, and the lower façade replicates the essentially commercial appearance of the demolished façade. 1. The two modifications to the development consent did not decrease the overall area of exclusive commercial floor space. 2. Areas on the ground floor plan marked in blue by Ms Sneyd should properly have been defined as being exclusively for commercial use, and one other area which she marked in pink should properly have been defined as being exclusively for residential use. 3. If Council became aware of FSX's intention never to use the commercial areas for that purpose, it could characterise the development as residential accommodation and prohibited development, which could prevent the issue of an occupation certificate by the principal certifying authority under condition 90 of the development consent. 4. Sole residential use of the site was not permissible development as at the 2021 and 2022 Land Tax years and could not have been approved by Council. It constituted prohibited development. Council lacks power to approve prohibited development.
7. Mr Kossnetter issued a supplementary report, in reply to Ms Sneyd. He disagreed that the December 2021 amendment to the definition of 'shop top housing' affected the development consent, as the latter had issued in 2015, many years prior to the amendment. Notwithstanding the modifications since, he said the consent remained current in accordance with its terms, as the definition stood in 2015. He said the development was not required to conform with the post-December 2021 definition of 'shop top housing'.
8. He disagreed that areas marked blue by Ms Sneyd were exclusively for commercial use. He gave detailed reasons which need not be repeated here, as nothing turns on the issue.
9. He agreed that: 1. if the owner does not apply for development consent to an initial commercial use (or for a complying development certificate, which the parties have agreed is still an available option) the designated commercial areas must be left vacant; and 2. the commercial space cannot be used as a home office.
10. The two experts were in agreement on many issues. Some of the issues in respect of which they disagreed have been resolved by the Agreed Facts. Others are considered below. Having regard to the reasoning expressed below, it has been unnecessary to resolve the (few) remaining issues on which they disagreed.
11. As indicated, clause 6(1) takes an owner to use and occupy unoccupied land as her principal place of residence if she intends 'solely' so to use and occupy it. A person's intention is to be gauged not subjectively, but objectively having regard to all the circumstances of the case: Chief Commissioner of State Revenue v Ferrington [2004] NSWADTAP 41 at [42]; Zakariya v Chief Commissioner of State Revenue [2003] NSWADT 26 at [14].
12. The evidence of FSX and her husband is unequivocal. Both say that at all relevant times their intention was to use and occupy the land solely as their home. They say they had no intention to use and occupy the site for any other purpose, notwithstanding the designation of areas on the ground floor exclusively for commercial purposes, and other areas on the ground floor for commercial and residential purposes. The sole purpose for identifying these areas on the plans was, they say, to satisfy the requirement of the Local Environment Plan for 'shop top housing', which in turn would empower the Council to grant the development consent, which it did. They accept that the development would otherwise have been prohibited.
13. They say that they have been, and remain, content to leave the exclusively designated commercial use areas vacant.
14. On the other hand, the Chief Commissioner says there are essentially two objective circumstances which would incline the Tribunal not to accept that FSX's true intention was to use and occupy the land solely as a principal place of residence. They are: 1. her designation of areas on the ground floor for commercial use in the plans which were submitted on her behalf and approved; and 2. the fact that the intention now asserted by FSX and her husband differs materially from the intention which they evinced to Council by seeking consent for shop top housing with designated commercial spaces.
15. Notwithstanding the differences of opinion between the experts, it is common ground that purely residential development was at all relevant times prohibited in the zone, and that Council had no power to approve it. The only way to obtain approval was to designate commercial space on the ground floor, to bring the development with the definition of 'shop top housing', however it was defined.
16. That is a sufficient explanation for the presence on the ground floor plans of areas designated for commercial use. It is not necessarily inconsistent with the presence of an intention to use and occupy solely as a residence, even if, as the Chief Commissioner says, it is a different intention from the one implied by the application for consent to a development which included exclusively designated commercial areas.
17. The spaces designated for exclusive commercial use must be left vacant unless and until development consent or a complying development certificate with respect to the particular use issues. That has not occurred, nor has it been applied for. Accordingly, the spaces must be left vacant. That too is consistent with an intention at the relevant times not to use the development for any but residential purposes.
18. The appearance of the façade, mentioned by Ms Sneyd, with set-back (though clearly visible) living areas at the top and commercial style design below, is not necessarily inconsistent with such an intention. It is consistent with condition 9 of the development consent, referred to above.
19. Whatever might be said of applying for development consent on the basis that designated spaces be reserved for a use which neither spouse intended, none of these circumstances causes me to doubt the evidence of FSX and her husband as to their true intention. I am satisfied that at all relevant times - including, as at the taxing dates for the 2021 and 2022 tax years - FSX intended to use and occupy the land solely as her principal place of residence. The primary requirement of clause 6(1) is satisfied.

2. Whether intended use and occupation unlawful
3. The Chief Commissioner says exclusive use as a principal place of residence is unlawful, because: 1. it contravenes the terms of the development consent, which was for both residential and commercial use, and 2. it contravenes the Local Environment Plan, under which the land is zoned B1 Neighbourhood Centre.
4. As at the date of development consent in 2015, the Local Environment Plan permitted Council to grant development consent for 'shop top housing' as it was then defined. Council was satisfied that the plans, as submitted, fell within the definition of shop top housing, and gave its consent. On the evidence, that consent remains current, as modified at FSX's request. There is no evidence to suggest that development consent has been withdrawn, or that it has been rendered ineffective by reason of the amendments to the definition of shop top housing which took effect in December 2021, or by any other cause.
5. The respondent has not drawn my attention to any legislative provision or principle of law to support the proposition made by Ms Sneyd that the change to the definition of 'shop top housing' in the Local Environment Plan in December 2021 operated to vary the terms of the 2015 development consent as modified with respect to the 2022 tax year. I am not satisfied that it did.
6. I am satisfied that the development consent for the development described on the plans as submitted, with approved modifications, remained current in respect of both tax years. Development in accordance with those plans is and was lawful.
7. Whether the intended use of the land solely for residential purposes is lawful is, however, a different issue. As indicated, I am satisfied that the intention of FSX was to leave the commercially designated areas vacant until such time, if ever, that its use for residential purposes became lawful.
8. Land that is left vacant is not necessarily unused or unoccupied. In Council of the City of Newcastle v Royal Newcastle Hospital [1957] HCA 15; (1957) 96 CLR 493, the High Court of Australia found by majority that 292 acres of virgin bush was used (per Taylor and Webb JJ) and occupied (per Williams and Webb JJ) for the purposes of a public hospital, whose buildings stood on an adjacent thirty-six acres divided from the bushland by a fence, notwithstanding the fact that the hospital had left the bushland vacant.
9. Royal Newcastle Hospital was applied by the Court of Appeal in Commissioner of Land Tax v Christie [1973] 2 NSWLR 526. Counsel for the Applicant relied on the following passage from the judgment of Bowen J in Christie at 533-534 with respect to the meaning of 'use' and 'occupation': "Use" has regard to the purpose to which the land is put. Under sec 9(3)(e) it must be shown to have been devoted to the purpose of constituting the site of the dwelling house. Provided there is a unity in the land in question in a physical sese and a unity in what is done in devoting it to the purpose of providing or constituting the site and provided there is a sufficiently proximate and not too remote connection between the dwelling house and its requirement or the requirements of its users or occupants on the one hand and the whole of the land in question on the other had then this element will be sufficiently established to demonstrate "use" as the site of the dwelling house. "Occupation" is not synonymous with legal possession. It includes possession, but it also includes something more: see Newcastle City Council v Royal Newcastle Hospital. It involves an element of control, of preventing or being in a position to prevent the intrusion of strangers (Newcastle City Council v Royal Newcastle Hospital). It is for this reason that physical presence or physical presence on every part of the land does not have to be shown in order to establish occupation. If it were necessary to prove physical presence on every part of a residential block to secure the deduction a substantial proportion of residential blocks could well be denied it. It is not uncommon in our community for there to be portions of such blocks which are rarely or never visited. Indeed, as these present cases illustrate, there may well be portions of such block which are precipitous, or are under water or are covered with dense bushland and which are therefore, in a practical sense difficult if not impossible to traverse physically. This does not mean that they are not "occupied" in a legal sense. To hold otherwise would be to subvert the obvious intent of s 9(3)(e). Nor, although the presence of fencing may be some evidence of occupation, does the absence of fencing establish that there is no occupation: Newcastle City Council v Royal Newcastle Hospital.
10. As to the meaning of 'use', Applicant's counsel also relied on the following statement of principle in Metricon Qld Limited v Chief Commissioner of State Revenue (No 2) [2016] NSWSC 332 at [70] - emphasis added: I see no reason to read down s10AA(3) to require that a competing use against which the primary production use is to be measured must be a physical use. As noted earlier in these reasons, "use" has more than one ordinary meaning. An ordinary meaning of "use" includes employing land for a purpose, putting it in service or turning it to account. This need not be a physical use. …. But "Use" does require doing something with the land, whether it be using it physically or by putting it to advantage, for example, by letting it.
11. In his written submissions, counsel for FSX urged the Tribunal to accept the following conclusion: "The advantage to which the commercial space [on the ground floor] is put is to facilitate the Applicant's intended and subsequent actual use of the [land] as her principal place of residence. Without such an area being physically incorporated into the architectural designs, the construction of her resident would not be possible."
12. Applying the principles of interpretation in Christie and Metricon, I accept the Applicant's submission that the 'advantage to which the commercial space [on the ground floor] is put is to facilitate [her] intended and subsequent actual use of the [land] as her principal place of residence'. In other words, the facilitation of her use of the land as a principal place of residence was always the 'use' to which the commercial areas were put, and the use which she at all material times intended.
13. Her intention to leave the designated commercial spaces vacant, while using and occupying the balance of the land as her principal place of residence, amounted to an intention to use the commercial spaces for the purposes of using and occupying the land as her principal place of residence. That is so, even if (as I accept) she intended them to remain vacant, and never to go there unless and until their use as residential spaces became permitted.
14. The parties have agreed that the areas marked red on the ground floor plan as being exclusively designated for commercial use may not lawfully be used for residential purposes. For the reasons given, in the circumstances of this development, FSX's intention to leave them vacant amounted to an intention to use them for residential purposes. As the parties agree, that use is unlawful.
15. Requirement (c) of clause 6(2) is not satisfied. The principal place of residence exemption does not apply. The decisions of the Chief Commissioner with respect to the 2021 and 2022 land tax years must be confirmed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar

Amendments 18 August 2023 - Hearing date corrected. 18 August 2023 - Hearing date corrected to 9 March 2023. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 August 2023