Marana Holdings Pty Ltd v Commissioner of Taxation

Federal Court of Australia (Full Court)|2004-11-25|Before: Beaumont J, Conti JJ

Background 1 This is an appeal from an order of Beaumont J, dismissing the appellants' application for a declaration that the sale of a strata-titled unit was "input taxed" pursuant to s 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the "GST Act") which imposes a tax ("GST") upon supplies of goods and services. The appellants and the respondent (the "Commissioner") agree that the question may be appropriately resolved by declaratory relief.

Facts 2 At first instance, there was no substantial dispute concerning the facts which were relevantly as follows:

· the appellant companies are the members of a partnership which is registered for the purposes of the GST Act;

· on 7 May 2002 Tarfex Pty Ltd ("Tarfex"), on behalf of the appellants, agreed to purchase from Hajuku Pty Ltd ("Hajuku") a motel in Gladesville, Sydney for $5 700 000;

· Hajuku had operated the premises as a motel until two days before the settlement of the agreement;

· in October 2002 Tarfex obtained council approval to use the premises as residential apartments;

· on 19 November 2002 Tarfex applied to convert the motel to strata title;

· the physical modifications to the unit were completed on 30 July 2003;

· on 4 August 2003 Tarfex entered into a contract with Susan Wells for the sale of proposed lot 46 (previously room 202 in the motel) and proposed lot 100 (a parking space) which lots together comprised unit 46;

· room 202 had contained queen-size and single beds, a coffee table, a lounge, a television, a radio, an iron and ironing board, a kettle, some glasses, cups and cutlery, bedding and a shower. It had not contained clothes-washing facilities, a refrigerator or cooking facilities;

· on 22 September 2003 an application by Tarfex to convert the motel into strata title was approved, with the motel being divided into 134 strata title lots, 65 of those lots being residential units;

· the sale to Ms Wells was settled on 22 September 2003.

Legislative provisions and OTHER agreed facts 3 Section 7-1 of the GST Act imposes GST on a person who makes a "taxable supply". Section 9-5 defines "taxable supply", which definition is dependent upon the definition of "supply" in s 9-10. Both definitions are very wide, but s 9-5 expressly excludes from the definition of "taxable supply" any supply which is "GST-free" or "input taxed". Later provisions of the GST Act so classify various supplies, thus effectively exempting them from liability for GST. Other provisions provide that some supplies which are neither GST-free nor input taxed are to be dealt with in ways which reduce the GST imposed in connection with them. 4 The use of the term "input taxed" to describe a status which is relevantly untaxed may seem curious. The usage apparently relates to the fact that in calculating GST on a taxable supply, the supplier may claim credit for GST previously paid on goods and services acquired for the purpose of producing the goods or services supplied. If a supply is classified as "input taxed", no GST is imposed, but no such credit may be claimed. The expression "input taxed" presumably reflects the fact that although the ultimate supply is free of GST, input into such supply has been taxed. 5 The appellants contend that the sale of unit 46 to Ms Wells is "input taxed" (s 9-30) with the consequence that it is not a "taxable supply" (s 9-5), and thus no GST is payable on that supply (s 7-1; 9-40). The appellants accept that if they are correct in their contention, a necessary consequence is that the appellants have no entitlement to input tax credits for things that are acquired or imported to make that supply. In the introduction to his reasons for judgment, Beaumont J stated that the appellants sought relief in these proceedings '… for the reason that they would obtain no input tax credits included in the price of building materials and services acquired in relation to the acquisition or renovation …'. If this observation is meant to imply that the appellants are in some way dissatisfied with that position, then it would be inaccurate, but it is by no means clear that his Honour intended that implication. 6 Division 40 of the GST Act identifies those supplies which are input taxed, including the supply of residential premises by way of lease, hire or licence (subdivision 40-B) and supply of residential premises by sale (subdivision 40-C). Division 87 deals with "Long-term accommodation in commercial residential premises". Such a supply is not input taxed, but is to be taxed at a concessional rate. This appeal is specifically concerned with subdivision 40-C, but subdivision 40-B and division 87 have peripheral relevance. The various explanatory memoranda, to which we will later refer in more detail, indicate an intention that there be some broad consistency in the effect of the imposition of GST on each of these three classes of supply. 7 This appeal addresses the meaning of the expressions "residential premises" and "commercial residential premises" in subdivision 40C, which terms are defined in s 195-1 of the GST Act. The appeal also concerns the term "residential accommodation" which is used in subdivision 40-C but not defined, and the term "new residential premises", which is defined in s 40-75. 8 Section 40-65 of the GST Act provides: '(1) A sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used predominately for residential accommodation. (2) However, the sale is not input taxed to the extent that the *residential premises are: (a) *commercial residential premises; or (b) *new residential premises other than those used for residential accommodation before 2 December 1998.' 9 In the GST Act, an asterisk indicates that the term following it is defined: see s 3-1. Section 3-5 provides that once a term has been identified by an asterisk, later occurrences of the word or words in the same subsection will not be so identified. 10 "Residential premises" is defined in s 195-1 as: '… land or a building that: (a) is occupied as a residence; or (b) is intended to be occupied, and is capable of being occupied, as a residence; and includes a *floating home.' 11 "New residential premises" is relevantly defined in s 40-75 as follows: '(1) *Residential premises are new residential premises if they: (a) have not previously been sold as residential premises and have not previously been the subject of a *long-term lease; or (b) have been created through * substantial renovations of a building; or (c) have been built, or contain a building that has been built, to replace demolished premises on the same land.' 12 The Commissioner at one stage argued that the subject unit had been created by "substantial renovations" but has since abandoned that argument. We note in passing that the expression "substantial renovations" is defined in s 195-1, and given a somewhat restricted meaning. 13 "Commercial residential premises" is relevantly defined in s 195-1 as follows: 'commercial residential premises means: (a) a hotel, motel, inn, hostel or boarding house; or (b) premises used to provide accommodation in connection with a *school; or (c) a *ship that is mainly let out on hire in the ordinary course of a *business of letting ships out on hire; or (d) a ship that is mainly used for *entertainment or transport in the ordinary course of a *business of providing ships for entertainment or transport; or (da) a marina at which one or more of the berths are occupied, or are to be occupied, by *ships used as residences; or (e) a caravan park or a camping ground; or (f) anything similar to *residential premises described in paragraphs (a) to (e). However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an *education institution that is not a *school.' 14 It is common ground that the sale of unit 46 was a sale of residential premises to be used predominantly for residential accommodation, thus satisfying subs 40-65(1). It is also common ground that unit 46 was not, at the time of sale to Ms Wells, "commercial residential premises" so that it was not excluded from the operation of subs 40-65(1) by par 40-65(2)(a). However the Commissioner contended that the unit had not been sold as residential premises prior to the sale to Ms Wells and had not been used for residential accommodation prior to 2 December 1998. If these contentions are correct, the supply to Ms Wells was not input taxed. Before Beaumont J, the appellants unsuccessfully sought a declaration to contrary effect.

At first instance 15 Beaumont J concluded that:

۰ A "residence" is 'the place, especially the house, in which one resides; dwelling place; dwelling' or '[t]he place where a person resides; the abode of a person … . A dwelling house … .'

۰ The word "occupy"includes 'to take possession [of a place] …' or 'to live in … a place'.

۰ Unit 46 had, at no time prior to its sale to Ms Wells, been sold as a residence within par (a) of the definition of "residential premises"in s 195-1 of the GST Act.

۰ Unit 46 was not, at the time of any previous sale, intended to be occupied as a residence for the purposes of par (b) of that definition.

۰ Sale of commercial residential premises is not necessarily the sale of residential premises for the purposes of s 40-75.

۰ For the purposes of par 40-65(2)(b), unit 46 was not used for residential accommodation prior to 2 December 1998.

His Honour declined to make the declaration sought.

The appeal 16 The parties agree that for present purposes:

۰ nothing turns upon the fact that the strata title to unit 46 was created after the sale to Tarfex;

۰ the sale of the motel to Tarfex involved sale of unit 46;

۰ the prior use of the entire premises as a motel means that room 202 was so used whilst the motel was functioning and that such use is also attributable to unit 46 for the purposes of s 40-65.

۰ At the time of the sale to Ms Wells, unit 46 did not constitute "new residential premises" within the meaning of s 40-75, because it had previously been sold as residential premises (the sale by Hajuku to Tarfex).

۰ If the unit was "new residential premises" within the meaning of s 40-75, it had been used for residential accommodation before 2 December 1998 and so was not excluded from the operation of subs 40-65(1) by par 40-65(2)(b).

The nature of residential premises 18 The statutory definition of "new residential premises" is set out in par 10 above. The meaning of the expression "new residential premises" in s 40-75 necessarily depends upon the proper construction of the definition of "residential premises" in s 195-1, which definition, in turns, depends to some extent upon the meaning of the word "residence". The appellants rely upon both limbs of the definition of "residential premises", asserting that when the building was sold to Tarfex:

(b) it was intended to be, and was capable of being, so occupied.

19 The appellants submit that these meanings should not be determined by reference to dictionaries alone, and that other sections of the GST Act cast light upon the intended meanings. We will first discuss the words "residence" and "residential" separately, having regard to the Oxford English Dictionary ("OED"), the Shorter Oxford English Dictionary ("Shorter Oxford") and the Macquarie Dictionary (Revised 3rd ed) ("Macquarie"). We will then consider the expression "residential premises". To avoid unnecessary complication in considering the dictionary references, we will dispense with quotation marks and other unhelpful punctuation.

Residence 20 In commencing this discussion we will first consider the word "reside". OED defines the word to mean:

۰ To dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place.

۰ Of persons having some special status or position. Hence to live (at a place) for the discharge of official duties; to be "in residence".

21 As to the word "residence" OED offers the following meanings:

۰ To have one's usual dwelling place or abode; to reside.

۰ To take-up one's residence, to establish oneself; to settle.

۰ The circumstance or fact of having one's permanent or usual abode in or at a certain place.

۰ The fact of living or staying regularly at or in some place for the discharge of special duties, or to comply with some regulation; also, the period during which such stay is required of one.

۰ The place where one resides one's dwelling place; the abode of a person (especially one of some rank or distinction).

۰ A dwelling, abode, house, especially one of a superior kind; a mansion.

22 Shorter Oxford defines the term "reside" relevantly as:

۰ Of a person holding an official position: occupy a specified place for the performance of official duties; be in residence.

۰ Dwell permanently or for a considerable time, have one's regular home in or at a particular place.

۰ The circumstance or fact of having one's permanent or usual abode in or at a certain place; the fact of residing or being resident.

۰ The fact of living or staying regularly at or in a specified place for the performance of official duties or for work; a period of time required for this.

۰ The action of remaining in a place for a limited period of time; lingering; procrastination (said to be obsolete).

۰ The place where a person resides; the abode of a person.

۰ A dwelling, a house, especially an impressive, official or superior one; a mansion.

۰ To dwell permanently or for a considerable time; have one's abode for a time.

۰ The place, especially the house, in which one resides; dwelling place; dwelling.

۰ Living or staying in a place of official or other duty.

26 Clearly, both "reside" and "residence" have the connotation of permanent, or at least long-term commitment to dwelling in a particular place. We note also the usage which associates dwelling in a particular place with the performance of duties at that place.

۰ Serving or used as a residence; in which one resides.

۰ Adapted or suitable for the residence of those belonging to the better class; characterized by houses of a superior kind.

۰ Connected with, pertaining or relating to, residence or residences (in general or specific sense).

۰ A residential hotel (as a noun, ie a "residential").

28 OED refers to Bradshaw's Railway Guide (April 1910) where an hotel was described as '[f]irst-class family and residential'. The word "residential" was obviously meant to suggest something other than ordinary hotel accommodation. OED also refers to the expression '[a]n untidy boarding-house in Torrington Square, Bloomsbury, which called itself a Residential Hotel' (W J Locke Moordius & Co); and to the statement that '[t]he Inns of Court … operated like residential clubs or hotels.' (J Carey John Donne) These usages suggest that the word "residential" implies a special kind of accommodation, probably long-term. 29 Shorter Oxford gives the following meanings:

۰ Connected with, entailing, or based on residence.

۰ Adapted or used for residence; a residential district.

۰ Of an hotel etc, catering for guests who stay permanently or for extended periods.

31 All three references stress the relationship between the word "residential" and the word "residence", suggesting the aspect of permanent or long-term occupation to which we have previously referred. They recognize use of the expression in connection with hotels but generally suggest that such usage describes an hotel that caters for long-term residents. We accept that it is not uncommon to speak of long-term residents in an hotel, but when one speaks of persons who stay for shorter terms, the more common usage is to describe them as "guests".

Residential premises 32 The term is defined in s 195-1 of the GST Act as:

۰ land or a building which is either occupied as a residence; or

۰ is intended to be occupied, and is capable of being occupied as a residence.

The definition expressly includes a "floating home", which expression is defined in s 195-1 to mean: '… a structure that is composed of a floating platform and a building designed to be occupied as a residence that is permanently affixed to the platform, but does not include any structure that has means of, or is capable of being readily adapted for, self-propulsion.' 33 Obviously, such a structure would not normally be land and may or may not be a building. As we have said, the definition of the term "residential premises" in s 195-1 depends to some extent upon the meaning of the term "residence". We consider that the latter term usually connotes permanent, or at least extended occupation. We are inclined to attribute an analogous meaning to the expression "residential premises" unless the context of the GST Act or extrinsic evidence suggests otherwise. We turn to those matters.

History and explanatory memoranda 34 The statutory history of the definition of "residential premises" and the explanatory memoranda accompanying the original enactment of the GST Act and relevant subsequent amendments are of some assistance for present purposes. Originally, s 195-1 defined the term "residential premises" to mean: '… land or a building occupied or intended to be occupied as a residence, and includes a *floating home.' 35 As we have observed, the GST Act deals with the supply of residential premises by sale and by letting. At p 15 of the executive summary of the explanatory memorandum which accompanied the initial enactment, it is said that: 'Residential rents will be input taxed to ensure comparable treatment for renters with owner-occupiers. … Supplies of residential premises other than the sale of a new house are input taxed.' 36 The references to "residential rents" and "owner-occupiers" suggest the intention that a person renting a house (including a home unit) be put on the same footing as a person who owns his or her own home - neither is to pay GST in connection with such occupation. Similarly, the reference to the supply of a new "house" would not normally include an hotel or motel, suggesting that the expression "residential premises" is not intended to do so. 37 At pars 5.164 to 5.168 of the explanatory memorandum it is said, concerning subdivisions 40-B and 40-C, that: '5.164 When you supply residential premises such as houses and flats, the supply will be input taxed to ensure comparable treatment with owner occupiers. No GST will be payable on the supply of residential premises and you are not entitled to input tax credits for your acquisitions that relate to the supply. However the residential premises will only be input taxed to the extent that the premises are to be used predominantly for residential accommodation. For example if you have a flat on top of a shop, the supply of the shop will be taxable. … 5.165 The supply of residential premises will be input taxed whether: · you receive residential rent because the residential premises are supplied by lease, hire or licence … or · you supply the residential premises by the sale of real property 5.166 The supply of a long term lease (that is, a lease of 50 years or more) is not a supply of residential rent. The supply of a long term lease is to be treated as a sale of residential premises and input taxed … . 5.167 The supply of real property as residential premises and the supply of residential premises by way of a long term lease is input taxed to the extent that the residential premises are not: · 'commercial residential premises' such as hotels motels etc ('commercial residential premises' is discussed at 6.140); or · newly reconstructed residential premises … . Therefore, the sale of new residential houses by registered businesses (such as builders and developers) and the sale of commercial residential premises will be taxed. What are residential premises? 5.168 Residential premises is defined in the Dictionary … to mean land or a building occupied or intended to be occupied as a residence, and includes a floating home. …' 38 Clearly the intention is that subdivisions 40-B and 40-C operate for the benefit of home-owners and those who rent their homes. It is true that par 5.167 suggests that the draftsman considered it necessary to specify that commercial residential premises were not to have such benefit. The same concern appears in ss 40-65 and 40-70. The appellants argue that this implies that the term "residential premises", when used in ss 40-65 and 40-75, includes commercial residential premises. For reasons which we will give at a later stage, we consider it more likely that the draftsman merely recognized the possibility that some premises might fall into both categories. 39 At par 6.140 of the explanatory memorandum, it is said that the term "commercial residential premises" means: '… amongst other things, hotels, motels, inns, hostels, boarding houses or camping grounds. Premises used to provide accommodation in connection with primary or secondary schools only are also included in the definition.' 40 At par 6.134 and 6.135, it is said that: '6.134 If long term accommodation was input taxed like the supply of residential rent (see 5.164), the supplier of the accommodation would have to apportion input tax credits between that part that relates to the residential accommodation and that part that relates to services. 6.135 To avoid this and make the calculations easier, a concessionary treatment of long term commercial accommodation is given under Division 87.' 41 Division 87 of the GST Act gives effect to this intention by providing that the calculation of GST on the supply of long-term accommodation is to be calculated in a way which results in a much reduced tax liability, presumably so that the treatment of long-term residents is analogous to the treatment of owner-occupiers and those renting houses or units. There is no suggestion in the GST Act or the explanatory memorandum that the sale of commercial residential premises or the cost of accommodation in such premises (other than for long-term accommodation) is to receive such treatment. 42 The original definition of the expression "residential premises" contained two alternative limbs, the first requiring that the premises be occupied as a residence in order that they be classified as "residential premises" and the second requiring that they be intended to be so occupied. The 1999 amendment added to the second limb the additional requirement that the premises be capable of being occupied as a residence. Of this amendment it was said in the relevant explanatory memorandum at 1.167-1.168: '1.167 The new definition requires that for land to be considered residential premises it must be intended to be occupied, and capable of being occupied, as a residence. That is, it is permissible to use the land for residential purposes and the land has some facilities ordinarily associated with residences (i.e. water and sewerage). 1.168 The amendment ensures that sales of vacant residential land will not be input taxed under section 40-65. The supply of land is not input taxed where it is: · vacant residential land; · commercial land; or · new residential premises.' 43 The memorandum speaks of "land", and it is clear that the amendment was primarily designed to deal with problems arising in connection with vacant land. However the amended definition also applies to buildings. In any event there is no apparent intention that the supply of commercial premises be input taxed.

Cases 44 Beaumont J appears to have accepted that in general usage, the adjective "residential" may have a broader meaning than that suggested by analogy to the meaning of the word "residence". However his Honour concluded that it did not have that broader meaning in the definition of "residential premises", primarily because that definition focused upon the word "residence". At first instance and on appeal, the appellants relied on a number of cases concerning the United Kingdom VAT and capital gains tax legislation and the Australian fringe benefits tax legislation. These decisions primarily concerned the expression "residential accommodation", which expression we will consider at a later stage. However we understand the appellants to submit that the cases also suggest a broader meaning for the expression "residential premises". 45 The decision in Urdd Gobaith Cymru v Commissioners of Customs and Excise [1997] V&DR 273 was concerned with accommodation facilities established at two centres in Wales for students and their teachers attending educational courses at the centres. The question was whether such accommodation was residential accommodation for the purposes of the VAT legislation. The Tribunal held at [13]: 'I agree that "a residence" clearly implies a building with a significant degree of permanence of occupation. However the word loses that clear meaning when used as an adjective. In ordinary English "residential accommodation" merely signifies lodging, sleeping or overnight accommodation. It does not suggest the need for such accommodation to be for any fixed or minimum period.' 46 In Denman College v Commissioners of Customs and Excise [1998] V&DR 399, the Tribunal again considered residential accommodation for students. At [111] the Tribunal referred to the decision in Urdd Gobaith Cymru and continued: 'So understood, the words "residential accommodation" cover the two accommodation blocks with which the present appeal is concerned. The fact that they have no facilities, included within the block, for providing meals for the occupants does not mean that they are any the less residential accommodation for students.' 47 The Tribunal referred at [12] to an earlier decision of the Court of Appeal in Owen v Elliott (Inspector of Taxes) (1990) 1 Ch 786, to which we will presently refer, and observed: 'That reasoning, albeit in a different context, drives home the conclusion that the present accommodation blocks, which admittedly convey no kitchen or catering facilities, are nonetheless "residential accommodation".' 48 In AAT Case 10,476 (1995) 99 ATR 1264, the Administrative Appeals Tribunal considered accommodation and a daily allowance paid to employees working on a mobile offshore drilling unit ("MODU"). It was submitted that the accommodation provided to workers whilst living on the MODU was not "residential accommodation" within the meaning of that term in the Fringe Benefits Tax Assessment Act 1986 (Cth). The relevant legislation used the expressions 'residential accommodation' and 'his or her usual place of residence'. At [36] - [38], the Tribunal held: '36. The submission of the applicant in relation to s 30(2)(c) of the FBTAA, that the accommodation on board the MODU was not "residential accommodation", cannot be accepted either. The term "residential accommodation" is not defined in the FBTAA and therefore its meaning must be considered in the context of s 30(2). 37. "Residential" is defined in the Macquarie Dictionary as: "adj. 1 of or pertaining to residence or residences. 2. Adapted or used for residence: 'a residential district'." And "Residence" is defined in that dictionary as "n. 1. the place, esp the house in which one resides; dwelling place; dwelling. 2. a large house. 3. the act or fact residing. 4. living or staying in a place of official or other duty." "Accommodation" is defined in that dictionary as: "… 6. lodging, or food and lodging ...". The sleeping, mess and recreational quarters, together with food on board the MODU, provide the drill crew with a place to reside (or lodge) and food. It therefore accommodates (to use the word in a different sense) the concept of "residential accommodation" in the s 30(2) of the FBTAA context. 38. To suggest that residential accommodation cannot be temporary nor relatively spartan in the context of accommodation on an offshore rig is unacceptable. Accommodation in those circumstances, according to industry standards, is temporary in that employees' terms of employment ordinarily allow for a short time of continuous work with a similarly short time of onshore leave. Employees reside temporarily on the MODU in accommodation provided by the employer. That accommodation is residential albeit of a temporary nature.' 49 The English cases concerned accommodation offered in connection with attendance at courses of education. The Australian case concerned accommodation offered at a place of employment. Such usages may reflect the special meaning (noted in the dictionaries) of dwelling in a particular place for the purpose of occupying an office or performing duties there. 50 The decision of the Court of Appeal in Owen v Elliott concerned use of the expression "residential accommodation" in capital gains tax legislation. The premises in question comprised a main residence with a small annex. The taxpayer and his family lived in the annex during the summer months, letting rooms in the main residence to paying guests. For the rest of the year they occupied the whole of the property, together with any paying guests. The taxpayer's wife provided guests with meals and laundry services. The premises were licensed to sell liquor. During the summer months most guests stayed for short periods. A few guests stayed for longer periods during the winter. It seems that the taxing authority accepted that the words "residential accommodation" in their usual sense would include the residential accommodation offered at these premises but urged a different approach in the context of the relevant legislation. The court considered that the legislation provided no cause for attributing to those words any meaning other than their usual meaning. 51 It may be that the expression "residential accommodation" is sometimes used to describe short-term accommodation in an hotel or a motel. We are not sure that any such usage is as common in Australia as the Court of Appeal in Owen v Elliott considered it to be in England. We would have thought that such accommodation is more often described as "temporary accommodation", "holiday accommodation" or perhaps as "hotel accommodation" or "motel accommodation".

Other sections of the GST Act 52 Even if the expression "residential premises" may, in common usage, have the wider meaning urged by the appellants, the starting point for present purposes must be the statutory definition which focuses upon the word "residence". Beaumont J concluded, and we agree, that such definition, taken in isolation, can only include premises which are either used as a residence or are intended to be, and are capable of being so used. In common usage, that dictates the element of permanent or long-term occupation to which we have referred. The question is whether some other aspect of the GST Act compels us to give a wider meaning to the word "residence" and therefore to the expression "residential premises" than that suggested by the statutory definition, taken in isolation. There may be a degree of illogicality in seeking to construe the words of a legislative definition by reference to usage of the defined term elsewhere in the same legislation. After all, the point of the definition is to assist in determining the meaning of the relevant term throughout the legislation in question. Nonetheless it is at least possible that in some cases the meaning of such a definition may be clarified by the way in which the defined term is actually used in the legislation. 53 The appellants submit that the definition of "commercial residential premises" in s 195-1 (set out above) indicates that such premises are a "sub-set" of "residential premises" and that the definition of the latter term must be construed accordingly. Particular reliance is placed upon par (f) of the definition of the expression "commercial residential premises". Some of the premises identified in the definition do not fit easily within the definition of "residential premises". Paragraphs (c) and (d) prescribe that the term "commercial residential premises" includes a ship which is mainly let out on hire in the ordinary course of a business of letting ships out on hire and a ship which is mainly used for entertainment or transport in the ordinary course of a business of providing ships for entertainment or transport. A ship would not normally be described as either "land" or a "building" and so could not be residential premises as defined in s 195-1. As the term "ship" is defined to mean '… any vessel used in navigation, other than air navigation', such a vessel is not included in the expression "floating home" which, by definition, has no means of propulsion. Further, pars (c) and (d) of the definition of "commercial residential premises" prima facie include ships which are not used for any residential purpose. For that reason, too, such ships could not be within the definition of "residential premises". Conversely, the final proviso to the definition of "commercial residential premises" excludes premises used for accommodation of students in connection with an educational institution which is not a school - a situation which might, in some circumstances, justify description of the premises as "residential premises" for the purposes of the GST Act. 54 Paragraph (f) provides that the term "commercial residential premises" includes: 'anything similar to *residential premises described in paragraphs (a) to (e).' 55 Clearly, the paragraph is intended to extend the definition beyond the premises identified in pars (a) to (e). The problem lies in identifying the features which will lead to particular premises, not otherwise within the definition, being so included. Given the difficulties with pars (c) and (d) to which we have referred, and the apparent exclusion of accommodation in some educational establishments which accommodation might conceivably be residential premises, we doubt whether it was intended that all premises within the definition of "commercial residential premises" also be "residential premises" as defined. Of course that does not exclude the possibility of some overlap. Premises used as a private residence might also be used to provide accommodation to paying guests. Whether such premises are described as an "hotel" a "motel" or a "boarding house" may depend upon many factors, including size of the premises, proportions used for private and rental accommodation, liquor licensing requirements, arrangements for meals and other services and questions of public relations. We consider that the rather awkward wording of par (f) is intended to describe the criteria for inclusion of premises not specifically mentioned in pars (a) to (e) in the definition of "commercial residential premises". Such premises will have some or all of the characteristics of both residential premises and one or other of the various premises identified in the earlier paragraphs of the definition. The use of the word "similar" probably reflects the possibility that such dual functions might make the relevant premises appear to be neither one thing nor the other. 56 The possibility of dual use is clearly recognized in other sections. Section 40-65 speaks of premises which are '… used predominantly for residential accommodation …' and provides that a sale is not input taxed '… to the extent …' that the premises are within pars 40-65(2)(a) or (b). Subsection 40-35(2) contains similar language. 57 It is true that ss 40-35, 40-65 and 40-70 at least suggest the possibility that premises may be both residential premises and commercial residential premises, but as we have observed, that is as consistent with the apprehension of a possible overlap as with the intention that "commercial residential premises" be a "sub-set" of "residential premises". Nothing in the GST Act suggests that the expression "residential premises" should have any meaning other than that adopted by Beaumont J at first instance. It includes premises which are occupied as a residence, or intended to be, and capable of being so occupied. In that context the word "residence" has the meaning attributed to it by the various dictionary references, involving a degree of permanent or long-term commitment to the occupation of the premises in question.

Had unit 46 been previously sold as residential premises? 58 As we observed above (par 16), the appellants submit that at the time of the sale to Ms Wells, unit 46 did not constitute "new residential premises" within the meaning of s 40-75 because the Huntley Inn (of which the unit is a part) had previously been sold as residential premises (the sale by Hajuku to Tarfex). The Commissioner accepted in argument that the sale of the motel to Tarfex involved a sale of unit 46, but submitted that when the motel was sold by Hajuku to Tarfex the premises were not sold as "residential premises". In the light of the Commissioner's concession, we confine ourselves to that question.

Were the premises, when sold, occupied as a residence or intended to be and capable of being so occupied? 59 Reading par 40-75(1)(a) of the definition of "new residential premises" and s 195-1 together, it seems that premises will be "new residential premises" if they have not previously been sold as (ie "whilst"):

· 'intended to be occupied, and … capable of being occupied, as a residence …'.

60 As to the first limb, the appellant's submission depends upon the assertion that the prior use of the premises as a motel constituted use as residential premises such that the motel (or unit 46) was at the time of the prior sale, land or a building that was occupied as a residence. The submission should be rejected having regard to our conclusion, earlier expressed, that the word "residence" has the meaning attributed to it by the various dictionary references discussed above, involving a degree of permanent or long-term commitment to the occupation of the premises in question which must be present before it can be said that the premises were 'occupied as a residence'. 61 As to whether the motel (or unit 46) had been previously sold whilst it was intended to be, and capable of being occupied as a residence, we consider that it was not. The appellants' argument assumes that the relevant intention is that of the appellants at the time of acquisition. We disagree. If Parliament intended that a subjective intention be the relevant consideration for the purposes of par 40-75(1)(a), one might reasonably have expected it to have indicated whose intention was relevant for that purpose - the vendor's or the purchaser's. In any event, it is difficult to see why such intention would be of any significance in this context. 62 In our view the word "intended" in the definition is used in a different sense. The relevant meaning of the verb "intend" is, according to Shorter Oxford, '[h]ave as one's purpose (an action etc.)'. The verb may also be used in the passive form to describe the object of an intention. In the present case, the passive verbal form "is intended" has as its grammatical subject the connective "that", standing in place of the words "land or a building". The person having the relevant intention is not identified. This sentence structure is commonly used to describe characteristics of the subject of the sentence, which subject is the object of the relevant intention. To say that a building is "intended" to be occupied as a residence implicitly describes the intention with which it was designed, built or modified, which intention will be reflected, to greater or lesser extent, in its suitability for that purpose. It is true that this meaning may overlap with the further requirement that the building be capable of occupation as a residence. However, as we have pointed out, the 1999 amendment appears to have been concerned primarily with land. It may not be surprising that it is a little awkward in its application to buildings. In any event par 1.167 of the explanatory memorandum which accompanied the amending legislation suggests that the draftsman may have thought that "intended" meant "permissible" and "capable" meant "having necessary qualities". 63 As far as we can see, there is no evidence concerning the physical suitability as at the date of sale by Hajuku to Tarfex, of the premises for use as a residence, as to whether they were then capable of being so occupied or as to whether such use would have then been lawful. As it was apparently necessary to modify the premises, obtain council permission for the change of use and convert the title to strata title, it seems likely that they were neither intended to be, nor capable of being occupied as a residence as at the date of sale. In any event the onus of establishing these matters was upon the appellants, and they seem not to have sought to discharge it. We conclude that the premises were not occupied as residential premises at the date of sale by Hajuku to Tarfex, and that they were not then intended to be, and capable of being so occupied. It follows that the premises were "new residential premises" as at the date of sale to Ms Wells.

Had the premises been used for residential accommodation before 2 December 1998? 64 The appellants submit that the use of the motel as such prior to 2 December 1998 constituted use of unit 46 as residential accommodation prior to that date for the purposes of par 40-65(2)(b). 65 At first instance Beaumont J rejected this view, saying: '31. It is submitted that the relevant use as residential accommodation before December 1998 arose from use as a motel prior to that date; and the circumstance that the residential use by customers was of a temporary nature does not, as was decided in Urdd Gobaith (and, to the same effect in the AAT case 10,476 (1995) 31 ATR 1264 (at 1271)), prevent the conclusion that the strata title was then used for 'residential accommodation'. 32. Again, I have difficulty accepting the applicants' arguments. 33. The opening words of section 40-65(2)(b) are, in my view, critical in their operation here - 'new residential premises … .' This phrase, as has been seen, takes one into the restricted definition of 'residential premises'. As has been said, that definition was not satisfied here because before the sale to Ms Wells, no 'occupation as a residence' existed.' 66 The appellants submit that Beaumont J effectively accepted that the prior use of the motel (and therefore unit 46) was "for residential accommodation". They submit that his Honour nonetheless concluded that unit 46 was not excluded from the operation of par 40-65(2)(b) because, at the time of such prior use, the motel was not "residential premises" as his Honour defined that term, and so could not be "new residential premises". The appellants submit that par 40-65(2)(b) does not require that the premises have been new residential premises (or even residential premises) as at the time of prior use. They need only have been used for residential accommodation. They again urge the wider approach to the meaning of that expression. The Commissioner submits that the approach attributed to his Honour by the appellants is correct and also submits that the expression '… used for residential accommodation …' has a narrower meaning which does not include use of the premises as a motel. 67 The Commissioner's first submission focuses on the pronoun 'those' in par 40-65(2)(b) which it is submitted, stands in place of either the term "residential premises" appearing in subs 40-65(1) and (2) or the term "new residential premises" appearing in par 40-65(2)(b). Clearly the reference is to a thing which has been earlier mentioned in the subsection. In our view, the reference is to "residential premises". We come to that conclusion because the section has as its focus "residential premises". Sales of residential premises are to be taxed except to the extent specified, and par 40-65(2)(b) contains an exception to the exception. But the constant reference point is "residential premises". 68 As the motel was not residential premises before 2 December 1998, it follows that the appellants cannot bring themselves within the exception to par 40-65(2)(b), and the premises remain "new residential premises", the sale of which is not input taxed.

ORDERS 69 The appeal must be dismissed with costs. I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Dowsett, Hely & Conti.

Counsel for the Appellants: Mr B Sullivan SC Mr R Hamilton

Counsel for the Respondent: Mr A Robertson SC Mr M S Leeming

Solicitor for the Respondent: Australian Government Solicitor

A New Tax System (Goods and Services Tax) Act 1999(Cth)ss 3-1, 3-5, 7-1, 9-5, 9-10, 9-30, 9-40, 40-35, 40-65, 40-70, 40-75, 195-1

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