The taxpayers, Mr Les Joukhador and Mr Michel Joukhador, seek review of the respondent's decision to assess land owned by them at Croydon in Sydney to land tax in respect of the 2014 tax year.
They say that the land was exempt from land tax because it was used for the purposes of a child care centre, in accordance with section 10(1)(u) of the Land Tax Management Act 1956. At all relevant times, they said, they intended to develop and operate the land for the sole purpose of a child care centre, and were in fact developing it for that purpose as at midnight on 31 December 2013. For the same reasons, and because it was operated as a child care centre from April 2014, they say it was unfair and unreasonable to assess the land to land tax.
They have paid the land tax as assessed. They do not rely on section 110 of the Taxation Administration Act 1996, which applies only to unpaid tax.
The Chief Commissioner of State Revenue says, in essence, that the exemption applies only where, as at the 'taxing date' (midnight on 31 December 2013), the land was actually being used as a child care centre with the relevant approval. As the child care centre did not commence operation until April 2014 at the earliest, the exemption did not apply in respect of that tax year. He also says that he is not entitled to decline to assess land tax on the basis that it would be unfair, unreasonable or illogical to do so.
The facts are not in dispute. They are set forth in the respondent's written submissions and a statement of Mr Les Joukhador. He amplified that statement orally at the hearing, without objection.
The taxpayers purchased the land together in 2013, settling the purchase on 11 September of that year. The property was purchased with development approval for a child care centre. As at the date of purchase, there was a building on the land which had been used as a day care centre since the 1980's, but which had ceased to be used for that purpose. The taxpayers purchased the property with the intention of re-developing it for use as a day care centre, in accordance with the development approval. In October 2013, they demolished the old building and began construction of its replacement.
Despite delays due to weather and other factors, the new building was complete and ready by February or March 2014 for inspection by the Department of Education and Communities, with a view to providing approval for its operation as a child care centre under section 48 of the Children (Education and Care Services) National Law (NSW). Before the Tribunal, Mr Les Joukhador said the building was complete by February 2014. He had given March as the completion date in his Objection to the decision under review. Nothing turns on the difference.
On 23 April 2014, the Department approved its operation as a child care centre, and the building was operated as a child care centre from that month.
On 1 August 2014, the respondent assessed the land to land tax in respect of the 2014 tax year. Objection was made by the taxpayers and disallowed. On the application of the taxpayers, the Tribunal enjoys jurisdiction to confirm or revoke the decision of 1 August 2014: section 101, Taxation Administration Act 1996.
Land tax is to be levied and paid on all land in New South Wales owned by taxpayers, unless the land is exempt from tax: section 7, Land Tax Management Act 1956. The tax is charged on land as owned at midnight on 31 December immediately preceding the relevant tax year: section 8.
The issues for determination are as follows.
1. Whether the land attracted the exemption from land tax afforded by section 10(1)(u) of the Land Tax Management Act 1956, as 'land that is used solely for the provision of an approved education and care service ...'.
2. If not, whether it ought not have been assessed to land tax because it was unfair, unreasonable or illogical to do so.
[2]
Legislation
Section 10(1)(u) of the Land Tax Management Act 1956 exempts the following land from land tax:
"(u) land that is used solely for the provision of an approved education and care service (within the meaning of the Children (Education and Care Services) National Law (NSW)), but only if:
(i) the service is provided by an approved provider under that Law, and
(ii) the land is the place where children are educated or cared for by the service …"
Section 5 of the Children (Education and Care Services) National Law (NSW) defines 'approved education and care service' as 'an education and care service for which a service approval exists'.
That section also provides:
"service approval means a service approval -
(a) granted under Part 3 of this Law or this Law as applying in another participating jurisdiction; and
(b) as amended under this Law or this Law as applying in another participating jurisdiction -
but does not include a service approval that has been cancelled…"
Part 3 includes sections 43 and 48. Section 43 provides that an approved provider may apply to a regulatory authority for 'a service approval for an education and care service'. That is defined to mean, 'any service providing or intended to provide education and care on a regular basis to children under 13 years of age;' with certain named exceptions. Section 48 empowers a regulatory authority to grant or refuse to grant a service approval.
The respondent submits that the approval granted by the Department of Education and Communities on 23 April 2014 was a 'service approval' within the meaning of Section 5 of the Children (Education and Care Services) National Law (NSW). The taxpayers did not contradict that submission, and I accept it.
It is an offence to provide an education and care service unless a service approval exists: section 103. It follows that the taxpayers were not lawfully able to conduct their day care centre until approval was granted on 23 April 2014.
[3]
Discussion
The first task is to construe the meaning of section 10(1)(u). The taxpayers submit that the words 'land that is used solely for the purposes of' should be construed as including land that is being developed for that purpose.
The respondent disagrees. He says that a mere intention to use the property as a child care centre is insufficient. He relied on the following passage in Caruana v Chief Commissioner of State Revenue [2011] NSWADT 183, as authority for the proposition that 'land that is used solely for the provision of an approved education and care service' must mean land on which a child care service is being conducted, and not merely land on which buildings for a child care service are being developed.
29 The Applicants contend that intended use of land is a "use" for the purposes of the PPL exemption; the authorities do not support that contention. In this regard:
(a) In Parramatta City Council v Brickworks Ltd [1972] 128 CLR 1 at [18], the High Court (Gibbs J) held:
"I would agree that the word "use"... means a present use; it does not include a contemplated or intended use."
(b) In Greenville , the Court held at 280 that the "use" of land:
"Is an inquiry into actual land use, it is not to be tested by the intention of the owner."
(c) In Seville v Commissioner of Land Tax (NSW) (1980) 81 ATC 4,373, the Court held at 4,376-4,377 and 4,379:
"What is of direct concern for present purposes is the actual use to which the land was put [at the taxing date for the relevant years].
Basically, what is to be determined is the actual use of the land, and this of course may be quite different from any intention that the owners may have as to its later or ultimate use, or indeed any wish that the owners might have as to its use at that particular time."
(d) In St Pier v Chief Commissioner of State Revenue [2002] NSWADT 112, the Tribunal held at [36]:
"... the Applicant had undertaken all possible steps to commence the factual use of the land ... for primary production ...[but] had been frustrated by actions and circumstances beyond his control ... the Applicant clearly intended to use the land in a manner which may have had the effect of exempting the land as land used for primary production. The Applicant's intention was frustrated. As a matter of well established law the land was not used at the relevant dates for primary production."
(e) In Reysson Pty Limited v Chief Commissioner of State Revenue [2009] NSWADTAP 17 at [25] and Cornish Group Pty Limited v Chief Commissioner of State Revenue [2009] NSWADT 191 at [45], the Appeal Panel and Tribunal held, respectively, that the holding of land for an intended future use was not a "use" of land for the purposes of the Act, but rather, the actual use of the land was decisive.
(f) The Applicant's reliance on Ryde Municipal Council v Macquarie University (1978) 139 CLR 633 is misplaced because the University's indirect use of the relevant land by leasing it out was an adjunct of the physical use of the land by the tenant.
30 It follows that in respect of Londonderry, use arises from physical activity on the land itself and not on other land and intended use is not a use for the purposes of the Act. As set out previously expenditure in pursuit of the necessary consents does not constitute "use" for this purpose."
The facts in Caruana were summarised by the Tribunal as follows, adopting a passage from the respondent's submissions in that case [at 31].
"47 The evidence shows that the Applicants approached Penrith City Council several times about using Londonderry for an abattoir, a poultry farm, cattle grazing and holding. However, none of these uses ever eventuated and the land remained vacant, unimproved and covered in native bushland during the Tax Years.
48 Based on this evidence and the above principles, as no physical activity or changes occurred on Londonderry during the Tax Years, except to the limited extent that persons entered the land in connection with possible future uses, the land was primarily "unused". Further, any activity that did occur on the land did not comprise actual physical use for primary production.
49 Further, any intended use for primary production was not a "use" of the land for the purposes of the Act. The decision in Educang Limited v Brisbane City Council [2002] QSC 374 does not assist the Applicants' case, because that case involved land that had been the subject of substantial physical activities and changes which gave it the required character of being "used for" the relevant purpose. Here, no such physical activities or changes occurred on the land during the Tax Years, such that the land retained its character of vacant and unimproved land in all Tax Years.
50 Also, the fact that primary production activities may have occurred on other land was irrelevant, because they did not occur on the actual land itself.'
In Caruana, the taxpayer failed because the land remained unused, notwithstanding the manifest intention of the taxpayer to use it ultimately for primary production, as evidenced by its numerous approaches to the local council with a view to developing the land for that purpose.
The facts in this case are quite different. The taxpayers purchased the property with development consent. There was no need to make further application to council. Their intention was clear. As at midnight on 31 December 2013, they were in the process of constructing a child care centre, in accordance with the development approval. This was not 'unused land' of the kind considered in Caruana. On the contrary, it was land under active development. The taxpayers submit that the act of building a structure for use as a child care centre amounts to land which is being 'used for' the prescribed purpose.
That the phrase 'used for' in section 10AA can imply futurity was accepted by the Supreme Court in Leda Manorstead v Chief Commissioner of State Revenue [2010] NSWSC 867. In that case, the Court found that the dominant use of 593 hectares of land at Cobaki Lakes in the Tweed Shire was not primary production, despite the depasturing of between 268 and 279 cattle at the relevant time, because the scale of earthworks and investment preparatory to residential subdivision made subdivision the dominant use of the land. The property had been purchased by a property development company, with development consent for a residential subdivision. It conducted very significant earthworks in accordance with that consent. Gzell J found at [101]:
"The scale, extent and intensity of the earthworks activities far outweighed those of the cattle raising operation".
In considering the meaning of the phrase 'land used for primary production' in section 10AA(1), Gzell J examined various authorities as to whether 'used for' could be construed as implying an element of futurity, so that land could be 'used for' a purpose when it was being developed for that purpose. After an extensive review of the authorities, he concluded at [61-62]:
61 In my view, the impact of the earthworks on Cobaki at 31 December 2005; their sheer size and cost; the extent of the devotion of labour and machinery to the activity; the intention of Leda from the time it acquired Cobaki that it would be a residential subdivision; and Leda's continued negotiation with Tweed Shire Council and other regulatory bodies to obtain consents to development applications for subdivision and development applications for associated earthworks; establishes that the purpose of the use of Cobaki was manifested by the commencement of the earthworks, and it was "used for" residential development. Put another way, although in the development phase, Cobaki was being "used for" the end purpose that was to follow completion of construction - residential subdivision. Leda had demonstrated in very specific terms its commitment to Cobaki being "used for" a residential purpose.
62 I therefore reject Leda's submission that earthworks cannot constitute a "use for" a residential purpose.'
The task before the Tribunal is to construe the meaning of the phrase 'land that is used solely for the purposes of an approved education and care service' in the context of section 10(1)(u) of the Land Tax Management Act 1956, read as a whole.
In Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) (2009) 239 CLR 27 (Alcan), the High Court of Australia held that the task of statutory interpretation "must begin with a consideration of the text itself" (per Hayne, Heydon, Crennan and Kiefel JJ at 46). French CJ said that the starting point must be "the ordinary and grammatical sense of the statutory words to be interpreted having regard to their context and the legislative purpose" (at 31). He observed, "context and legislative purpose will cast light upon the sense in which the words of the statute are to be read".
Section 33 of the Interpretation Act 1987 (NSW) provides that, in the interpretation of a statutory provision:
"a construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purpose or object is expressly stated in the Act or statutory rule) … shall be preferred to a construction that would not promote that purpose or object".
In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 (Project Blue Sky) McHugh, Gummow, Kirby and Hayne JJ said (at 384):
"…the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have. Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning."
The proper construction of section 10(1)(u) begins with an examination of the text, which is set forth above. The exemption is attracted only by land 'that is used solely for the provision of an approved education and care service'. As the decisions reviewed in Leda demonstrate, in certain contexts the words 'used for' can imply futurity, so that development for a prescribed purpose is a 'use for' that purpose. Whether or not they do so in this case depends on the statutory context. The phrase in question must be construed in the context of section 10(1)(u) as a whole.
That phrase is expressly qualified by clauses (i) and (ii) of the section. In particular, clause (ii) confines the exemption to land 'where children are educated or cared for by the service' (emphasis added). The 'service' is the 'approved education and care service' referred to at the beginning of clause (u). The time at which the children 'are' being educated must be the time at which the land is 'used for' the prescribed purpose. Children can only be educated at the facility once the facility receives Departmental approval, and it receives the children for that purpose. In the circumstances of this case, that did not happen until April 2014. It did not happen, and could not have happened, during the development phase. Having regard to their context, the words 'used for' in section 10(1)(u) do not imply futurity, as they did in the primary production exemption considered in Leda.
Even if they did, that meaning would be contradicted by clause (ii), which confines the exemption to situations where children are being educated on the land at the relevant time.
Such an interpretation is not inconsistent with the purpose or object underlying the Land Tax Management Act 1956, which is to provide for the levying and payment of land tax on land in NSW, except where specific exemptions provided for by section 10 apply. Nor is it inconsistent with the purpose or object underlying section 10(1)(u) itself, which is to encourage the operation of child care centres by exempting the relevant land from tax, once the centre has been approved and is operating.
For all those reasons, the exemption was not attracted merely by developing the property with a view to conducting child care operations on it. The exemption is attracted by the actual conduct of child care operations in an approved facility.
No submission was made to the effect that the land ought be taxed in accordance with a use commencing after the taxing date, and no reasons given for extending the Tribunal's inquiry to the use of land after 23 April 2014 in determining its use for the purpose of section 10(1)(u). The submission that its use after 23 April 2014 rendered the assessment unfair is considered separately below.
[4]
Assessment unfair or unreasonable
The taxpayers say that the assessment was unfair, unreasonable or illogical, because it was common ground that they intended to use the land solely for the purposes of a day care facility from the time they purchased it in 2013, and did so from April 2014. The legislation does not provide an exemption from land tax on the basis that its imposition would be unfair or unreasonable, either objectively or in the eyes of the taxpayer.
Section 61 of the Taxation Assessment Act 1996 empowers the Chief Commissioner to 'do all such things as are necessary or convenient to give effect to this Act and the other taxation laws'. Section 8(1) provides that he 'may make an assessment of the tax liability of the taxpayer.
The use of the word 'may' in section 8 does not imply a general discretion to decline to assess land to land tax which is assessable, on the basis that it would be unfair or unreasonable to do so. By operation of section 7 of the Land Tax Management Act 1956, land tax is to be levied and paid on all non-exempt land in New South Wales. That requirement is not dependent on the actions of the Chief Commissioner. It is mandated by statute. As Judicial Member Block observed in Gunasti v Chief Commissioner of State Revenue (2012) NSWADT 218 at [29] to [34]:
29 It is clear that the Chief Commissioner is obliged, by virtue of sections 8(1) and 9(1) of the Act, to make an assessment of a taxpayer's land tax liability. The word "may" in both of those subsections is obligatory rather than discretionary. In Julius v Bishop of Oxford (1880) 5 App Cas 214 at 222-223, Earl Cairns LC spoke of the words 'it shall be lawful' but the statement is equally applicable to any other words appearing to invest a person with a discretion:
They are words merely making that legal and possible which there would otherwise be no right or authority to do. They confer a faculty or power and they do not of themselves do more than confer a faculty or a power. But there may be something in the nature of the thing empowered to be done, something in the object for which it is to be done, something in the conditions under which it is to be done, something in the title of the person or persons for whose benefit the power is to be exercised, which may couple the power with a duty, and make it the duty of the person in whom the power is reposed, to exercise that power when called upon to do so.
30 Accordingly an apparent discretion to act can often be obligatory. In a revenue context the High Court in Finance Facilities Pty Ltd v FCT (1971) 127 CLR 106 held that section 46(3) of the Income Tax Assessment Act 1936 (Cth) (the '1936 Act'), which provided that the Commissioner of Taxation 'may allow' a private company a rebate of taxation if satisfied that the shareholder would not pay a dividend to another private company during a specified period, was obligatory. Justice Windeyer said at 134-135:
This [question] does not depend on the abstract meaning of the word 'may' but [on] whether the particular context of words and circumstances make it not only an empowering word but indicate circumstances in which the power is to be exercised - so that in those events the 'may' becomes a 'must'.
31 His Honour went on to cite Jervis CJ in MacDougall v Paterson (1851) 138 ER 672 at 677: The word "may" is merely used to confer the authority: and the authority must be exercised, if the circumstances are such as to call for its exercise.'
32 It is clear that this is the correct situation in respect of the Applicant's liability to land tax in the relevant years. Once the Act rendered the Applicant liable to "tax" - defined as 'a tax, duty or levy under a taxation law - the circumstances required the Chief Commissioner to act. To do otherwise would cause the Chief Commissioner to fail in giving effect to ... the taxation law'.
33 That the issue of an assessment or reassessment is a matter of machinery, rather than a matter of substance, also confirms the obligatory nature of the "discretion". In Grunwick Processing Laboratories Ltd v Advisory, Conciliation and Arbitration Service [1978] AC 655 at 690 Lord Diplock said in relation to the word "shall" (but equally applicable to "may"):
Prima facie this expression appearing in a statute is used as a term of art to impose a duty to do what is prescribed, not a discretion to do it or not according to whether it is reasonably practicable to do it, nor a discretion to do something like it instead. This is particularly so where, as in section 14(1), the imposition of the duty upon Acas is followed by an express grant of a discretion which does not derogate from the duty itself but is limited to determining the means by which the duty is to be carried out. This service to point the contrast between what are matters of substance in a statute and what are matters of machinery. A court is less reluctant to treat "shall" as being directory rather than mandatory in a provision in which all that is involved is a mere matter of machinery for carrying out the undoubted purposes of the Act.
34 The issue of an assessment, or reassessment, is a matter of machinery by which the matter of substance (the liability to land tax) is given effect.
The views of Judicial Member Block were recently approved by this Tribunal in Loomes v Chief Commissioner of State Revenue (2014) NSWCATAD 133, and I adopt them. The Appeal in Loomes found at [11] to [13]:
11. By s 61 of the TA Act, the Chief Commissioner is charged with the general administration of the TA Act and the LTM Act, and is empowered to do all things necessary to give effect to the taxation laws, including the LTM Act. An important function vested in the Chief Commissioner by the TA Act is created by s 8(1): "The Chief Commissioner may make an assessment of the tax liability of a taxpayer".
Two points should be noted at the outset. First, liability to land tax is created by the LTM Act, and although the Chief Commissioner administers that Act, he does not impose the liability himself. That liability is created by direct operation of the LTM Act: Gunasti v Chief Commissioner of State Revenue [2012] NSWADT 218. Secondly, although the use of the word "may" in s 8 might suggest that the Chief Commissioner has a discretion as to whether to make an assessment or not, the function has been held to be mandatory rather than merely facultative; Gunasti at [29] - [34].
Consequently, once the LTM Act by operation of law makes a taxpayer liable to pay land tax, the Chief Commissioner is required to act, and in so doing to give effect to the relevant taxation law, by generating an appropriate assessment: see Gunasti at [32]. Even if the Chief Commissioner were to fail to act, the liability to land tax created by ss 7, 8 and 9 of the LTM Act would remain in effect. Certain exemptions from liability are provided for, mainly in ss 10 and 10A of the LTM Act, but they are not relevant to the present application.
The Chief Commissioner is obliged to issue an assessment wherever land tax is to be levied and paid in accordance with section 7. As the subject land did not attract the exemption in section 10(1)(u), land tax was to be levied and paid in respect of it by operation of section 7 of the Land Tax Management Act 1956. The Chief Commissioner was obliged by section 8 to issue an assessment. There was nothing unfair, unreasonable or illogical in his decision to comply with his statutory duty in doing so, notwithstanding that the taxpayers intended at all relevant times to use the land solely for the purpose of a day care centre, that they were developing it for that purpose as at the taxing date, or that they operated a child care centre after 23 April 2014.
The respondent's decision of 1 August 2014 to assess the land to land tax is 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
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Decision last updated: 17 March 2015