Prendiville v Chief Commissioner of State Revenue

Ryan & Anor. v Commissioner of Land Tax (1982) 1 NSWLR 305 CASES CITED: Chief Commissioner of State Revenue v Sacco [2008] NSWADTAP 61 Castle v Chief Commissioner of State Revenue [2008} NSWADTAP 62 Triguboff v Valuer General [2009] NSWLEC 9; 166 LGERA 128

APPLICANT In person REPRESENTATION: RESPONDENT H El-Hage, counsel

ORDERS: The objection decision is remitted to the Chief Commissioner to reconsider the application of clause 13, in particular clause 13(1)(c).

1 The applicants seek a review of a decision made by the Chief Commissioner to assess to land tax a property situated at Cobbittee Street, Mosman (the "Cobbittee Street property") owned by the applicants and contiguous to a property situated at Pretoria Avenue, Mosman (the "Pretoria Avenue property"), also owned by the applicants upon which their principal place of residence is located.

2 This application concerns the way the principal place of residence exemption found in Schedule 1A to the Land Tax Management Act 1956 (the "L T Management Act") is to be applied to a block of land contiguous to the block of land upon which the principal place of residence is located.

3 The general background, which is not in dispute, has been summarised by counsel for the Chief Commissioner in his written submissions as follows (without the footnotes): "4. The applicants entered into a contract for sale to purchase the Cobbittee Street property on 28 March 2008. Settlement occurred on 28 July 2008. Since that time, the Cobbittee Street property has been jointly owned by the applicants. 5. At the time of the sale, the house on the Cobbittee Street property was occupied by the vendors, … 6. The Cobbittee Street property adjoins the property at … Pretoria Avenue, Mosman ("Pretoria Avenue property"). The applicants jointly owned that property as at 31 December 2008. 7. On 18 December 2008, the applicants wrote to the Chief Commissioner seeking an exemption from the payment of land tax with respect to the Cobbittee Street property. In that letter, the applicants informed the Chief Commissioner that they had lodged a Development Application with Mosman Council to "amalgamate" the Cobbittee Street property and the Pretoria Avenue property with a view to having the one residence on the amalgamated site. 8. On 12 January 2009, the Chief Commissioner issued a Land Tax Notice of Assessment for the 2009 land tax year ("the Assessment"). The Assessment required the payment of land tax with respect to the Cobbittee Street property, in the amount of $16,025.30. An exemption from land tax was granted for the Pretoria Avenue property on the basis that it was the applicants' principal place of residence. 9. By letter dated 13 January 2009, the Chief Commissioner informed the applicants that the principal place of residence exemption could not apply to the Cobbittee Street property, given cl. 13 of Sch. 1A to the LT Management Act . 10. On 19 February 2009, Mosman Council granted approval of the Development Application. It seems the approval provided for, inter alia , the amalgamation of the two adjoining lots, demolition of the existing dwelling and carport (on the Cobbittee Street property) and additions to the dwelling on the Pretoria Avenue property. 11. On 20 February 2009, the applicants lodged an objection to the Assessment. The applicants asserted that the principal place of residence exemption should apply to both the Cobbittee Street property and the Pretoria Avenue property on the basis that both lots should be "valued together" as a single parcel of land. They pointed to the Council's approval to amalgamate the two lots. They also referred to the decision in Triguboff v Valuer General [2009] NSWLEC 9; 166 LGERA 128 (" Triguboff "). 12. By letter dated 23 March 2009, the applicants informed the Chief Commissioner that they lodged their application with the Department of Lands to consolidate the two lots. 13. On 22 May 2009, the Chief Commissioner disallowed the applicants' objection. 14. On 12 June 2009, the applicants lodged an application with the Tribunal seeking a review of the Chief Commissioner's decision to impose land tax with respect to the Cobbittee Street property."

4 Under s 7 of the land LT Management Act, all land in the State is subject to land tax, unless exempt. There are various exemptions including an exemption for the principal place of residence of an owner, as provided for by Schedule 1A when read in conjunction with s 10(1)(r) of the LT Management Act. The provisions of Schedule 1A relevant to this application are as follows: " Schedule 1A Principal place of residence exemption Part 1 Preliminary 1 Definitions (1) In this Schedule: principal place of residence exemption - see clause 2. Residential land -see clause 3. … taxing date -means midnight on the thirty-first day of December. (2) For the purposes of this Schedule, a reference to the owner of land includes, if there are joint owners, any one or more of those joint owners. Part 2 Principal place of residence exemption 2 Principal place of residence exemption (1) Land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under this Act, in respect of the year commencing 1 January 2005 or any succeeding year, if the land is: (a) a parcel of land, or … (2) Land is not used and occupied as the principal place of residence of a person unless: (a) the land and no other land, has been continuously used and occupied by the person for residential purposes and for no other purposes since 1 July in the year preceding the tax year in which land tax is levied, or (b) in any other case, the Chief Commissioner is satisfied that the land is used and occupied by the person as the person's principal place of residence. … (4) The exemption conferred by this clause is referred to as the principal place of residence exemption . (5) The principal place of residence exemption is subject to the restrictions set out in Part 4. 3 Residential land-meaning (1) In this Schedule, residential land means land that is used and occupied for residential purposes and for no other purpose, that use and occupation being use and occupation of a building or buildings designed, constructed or adapted for residential purposes, other than a building or buildings: (a) comprised of strata lots or residential units, or (b) containing (out of the total of all rooms in the building or buildings) occupancies other than that of the owner, or (c) from any part of which income is derived. (2) land does not cease to be used and occupied as provided by subclause (1) by reason of there being on that land any building or improvement that is used or occupied for a purpose ancillary to the purposes of which the building is, or the buildings are, designed, constructed or adapted. Note. Clause 4 allows one residential occupancy to be disregarded in applying the principal place of residence exemption. Clause 5 allows the use of land for purposes ancillary to a business conducted at a different place to be disregarded in certain circumstances. … Part 4 Restrictions … 13 Application of exemption to residence comprised of 2 or more lots (other than strata lots) (1) The principal place of residence exemption does not extend to a parcel of residential land that is comprised of 2 or more lots of land, and that is used and occupied by the owner of the lots (or by one of them) as a principal place of residence, unless: (a) the lots are adjoining, and (b) the lots are owned by the same person or, if any of the lots are jointly owned, the lots are all jointly owned by the same persons, and (c) the lots are the site of a single residence (excluding any additional residential occupancy that may be disregarded under clause 4). (2) For the purposes of this clause: (a) separate lots are not to be regarded as adjoining merely because one lot has a single corner point on its boundary that is common to the boundary of another lot, and (b) separate buildings erected on separate lots are not to be regarded as a single residence if the buildings are separately occupied or capable of being used for separate occupation."

5 Clause 13 was inserted in Schedule 1A of the LT Management Act by the State Revenue Legislation Amendment Act 2008 and operates from 2 July 2008. The reasons for the new Clause 13 as stated in the Second Reading Speech to the State Legislation Amendment Bill 2008 are as follows: "A land tax exemption currently applies to land used and occupied as the principal place of residence of one or more owners provided all the owners are natural persons. The exemption can apply to two or more parcels of land or two or more strata units provided the land is not physically separated and is owned by the same person or the same joint owners. If these criteria are satisfied eligibility for the exemption should be determined by the owner's use of the property as a single residence regardless of the number of lots. This "sole use and occupation" test was confirmed in the Supreme Court by what is known as Ryan's case. However several recent decisions of the Administrative Decisions Tribunal and the Supreme Court have-highlighted the possibility of inconsistent interpretation of these tests. To remove any ambiguity the amendments spell out and define the principles adopted in Ryan's case. The amendments provide that where there are separate buildings located on separate lots and the buildings are separately occupied or are capable of separate occupation the exemption will only apply to one of the lots."

6 The Chief Commissioner's case was that there were two independent issues in this matter. Firstly, it was submitted that whether "two adjoining lots constitute a parcel of residential land for purposes of cl. 2(1)(a) of Sch. 1A to the LT Management Act must be determined by the 'four unities' test in Ryan, namely that the two lots must be undivided by physical separation, use, occupation and title". In short, it was submitted by the Chief Commissioner that the applicants had to first establish that the two lots for purposes of clause 2(1)(a) were together a "parcel of residential land" by applying the test formulated by his Honour Hunt J in Ryan.

7 In addition to this test, it was the Chief Commissioner position that the applicants had then the requirement, as an additional test, to establish that the new clause 13 did not operate to deny them the principal place of residence exemption.

8 The Chief Commissioner, on the facts, submitted that there was no dispute that the two properties were undivided by title and that on 31 December 2008 were, undivided by use and occupation. But it was submitted that the properties were on 31 December 2008 not "undivided by physical separation" because a "dividing fence runs along the boundary between the two lots, from front to the back of the properties". It was further submitted that: "38. It has been established by at least two decisions of the Appeal Panel that the presence of a fence between two lots means that the lots are not "undivided by physical separation" for purposes of the test in Ryan and, therefore, are not a parcel of residential land within cl. 2(1)(a): see Chief Commissioner of State Revenue v Sacco [2008] NSWADTAP 61 (" Sacco ") and Castle v Chief Commissioner of State Revenue {2008] NSWADTAP 62 (" Castle ")."

9 It was also submitted that, because "the two lots did not constitute a parcel of residential land as at 31 December 2008, the additional question as to whether there was a single residence on the two lots, for the purposes of cl. 13(1)(c) and 13(2)(b) of Sch. 1A, does not arise" and that in any case "the Chief Commissioner would not concede that the applicants would be able to establish that the house on the Cobbitttee Street property was not capable of being used for separate occupation".

10 In response, the applicants provided the following written submission: "In all correspondence with us, the Respondent has referred to Schedule 1A Clause 13 (1) and Clause 13 (2)(b) as the test to be satisfied. The Respondent is now seeking to add additional tests by introducing Ryan v Commissioner of Land Tax , which, as far as we understand, appears to be a debate about satisfying the required PPR exemption test under previous legislation and different wording. Clause 13 incorporates the most recent set of legislative intent as it applies to this case, and in that regard the wording seems relatively straight forward and, in our particular case, satisfied ie (a) the lots are adjoining, (b) the lots are owned by same person … and (c) the lots are the site of single residence. Clause 13 (2)(b) introduces an additional test on the definition of single residence if separate buildings are erected on separate lots. The test becomes applicable if the buildings are separately occupied or capable of being used for separate occupation. We have outlined in detail in previous submissions that the building on … Cobbittee St has not been separately occupied (not disputed by the Respondent) and why it is not capable of being used for separate occupation"

11 The applicants also explained why the dividing fence between the two lots was not immediately removed, as follows: "The facts are that there is a fence. Half of the fence (the lower half) acts as one of the four walls enclosing our swimming pool. To remove it would have left the pool exposed to ours and numerous neighborhood children. The other half (the upper half) sits on an increasing vertical drop off on the … Cobbittee St side of the fence. There is an immediate vertical drop of approx 9ft, increasing in height as you move further up the fenceline, that would be exposed if the fence was removed. There was no way to remove the upper part of the fence without exposing ourselves and guests/visitors etc to safety and liability breaches. … In terms of utilization of and access to … Cobbittee St, we have had full and unfettered access through the front and rear entrances. There is no physical barrier or separation of any nature that prevents us from fully utilizing the property (at least to the extent it can be used by us given its condition),"

12 In their earlier written submissions, the applicants had submitted that the building on the Cobbittee Street property "has not been separately occupied" since the applicants acquired the property and that the building "was not (as at 31 December 2008) capable of being used for separate occupation". This submission was expanded as follows: "The building was stripped of all internal features and facilities last year and is in a state of disrepair with the roof failing and leaking, windows broken, holes in walls and toilets/vanities missing … It was a very old building to start with (circa 1920's construction) and we have spent no money or time on it (nor do we intend to) as it is to be demolished as part of our approved DA. Anything of use or value was stripped from it soon after purchase. As noted above we store packed furniture in one of the rooms. The building could not be occupied without substantial sums spent on it which did not and will not happen. As such, the building on the Property HAS NOT been separately occupied since settlement and acquisition and we would strenuously argue that it WAS NOT capable of being used for separate occupation and therefore Clause 13(2)(b) does not apply. Furthermore, given there is only one residence on the two blocks, being our current residence, Clause 13(1)(c) is satisfied."

13 The principal issue for determination was whether the applicants had, on the basis of the test settled in Ryan's case to establish under clause 2(1)(a) of Schedule 1A to the LT Management Act, that the two contiguous lots comprise a "parcel of residential land" in order to be entitled to the principal place of residence exemption for both the Pretoria Avenue property and the Cobbittee Street property.

14 The additional issue, was whether the applicants were denied the exemption under subclauses 13(1)(c) and 13(2)(b) because the building on the Cobbittee Street property was "capable of being used for separate occupation".

15 The Chief Commissioner's case was that the Cobbittee Street property and Pretoria Avenue property did not constitute a parcel of residential land within clause 2(1)(a) because of the fence between the Cobbittee Street property and the Pretoria Avenue property, "the Cobbittee Street property and the Pretoria Avenue property were not 'undivided by physical separation' for the purposes of the test in Ryan."

16 It was also the Chief Commissioner's case that because "the two lots did not constitute a parcel of residential land as at 31 December 2008, the additional question as to whether there was a single residence on the two lots, for purposes of cll. 13(1)(c) and 13(2)(b) of Sch. 1A, does not arise". And that "on the assumption that the Cobbittee Street property and the Pretoria Avenue property constituted a parcel of residential land" the Chief Commissioner was not prepared, in the absence of any evidence, to accept that the house on the Cobbittee Street property was not a building "capable of being used for separate occupation" as at 31 December 2008.

17 The only evidence before the Tribunal were the documents produced by the Chief Commissioner under s 58 of the Administrative Decisions Tribunal Act 1997 ("the ADT Act") and the statements made by the applicants in their submissions.

18 The applicants' assertion in their written and viva voce submissions that the building on Cobbittee Street property was not capable of being used for separate occupation was not acceptable to the Chief Commissioner in the absence of further evidence, in particular the extent the building had been, prior to 31 December 2008, "stripped of all internal features and facilities".

19 Prior to the insertion of clause 13 in Schedule 1A, there was no statutory guidance as to what constituted a "parcel of residential land" for purposes of clause 2(1)(a) of Schedule 1A. In determining that question reliance was usually placed on the test formulated by Hunt J in Ryan & Anor v Commissioner of Land Tax [1982] 1 NSWLR 305 at 310: "[I]n my view … contiguous blocks of land can comprise a 'parcel of residential land' … only where they are undivided not only by physical separation but also in use, occupation and title."

20 Whatever may or may not be within the scope of clause 13, it is apparent from the Minister's Second Reading Speech that the clause gives statutory effect to "the principles adopted in Ryan's case". Clause 13 was enacted to ensure that the Ryan test was applied in a consistent manner and to "remove any ambiguity" as to the test.

21 Clause 13 gives statutory effect to all the four of the "unities" suggested by Hunt J in Ryan. Clause 13(1) only operates where the relevant parcel of residential land that is comprised of 2 or more lots of land "is used and occupied by the owner of the lots (or by one of them) as a principal place of residence". This part of the clause incorporates the unity of use and occupation requirements. Clause 13(1)(a) gives effect to the "undivided by physical separation" test. It requires the contiguous lots of land to be "adjoining" to satisfy this test. Clause 13(1)(b) gives effect to the unity of title requirement. Clause 13(1)(b) requires the relevant lots to be owned by the same person or, if any of the lots are jointly owned, the lots are all jointly owned by the same persons.

22 In addition to giving statutory effect to the test formulated in Ryan, clause 13 (1)(c) has introduced an additional requirement. The exemption only applies if there is a single residence (apart from an occupancy that may be disregarded under clause 4) on the parcel of land made up of the two or more lots.

23 Under clause 13(2)(b) "separate buildings erected on separate lots are not to be regarded as a single residence if the buildings are separately occupied or capable of being used for separate occupation". This provision ensures that the principal place of residence exemption will apply only to one residence and effectively to only one lot if there is a residence on each lot either separately occupied or is capable of separate occupation. This provision also clarifies that an owner of land in New South Wales is only entitled to the principal place of residence exemption in respect of one residence.

24 The Chief Commissioner's approach was that the applicants were, as a preliminary step, required to satisfy, on the basis of the principles settled in Ryan, that the lots together were a parcel of residential land for purposes of clause 2. In my opinion, however, the Chief Commissioner was not correct in taking that approach in rejecting the applicants' claim for an exemption. The approach suggested by the Chief Commissioner is clearly contrary to the intent and purpose of clause 13. Clause 13 was introduced, as stated in the Minister's Second Reading Speech, to "spell out and define the principles adopted in Ryan's case".

25 The scheme in relation to two or more lots is now governed by clauses 2 and 13 read together. In my opinion, reliance was wrongly placed by the Chief Commissioner on one aspect of the Ryan test in relation to clause 2. On the basis of cases decided prior to the insertion of clause 13, it was submitted by the Chief Commissioner, "that the presence of a fence between two lots means that the lots are not 'undivided by physical separation' for the purposes of the test in Ryan and, therefore, are not a parcel of residential land within cl. 2(1)(a)". I do not think it is necessary for me to consider if the decisions cited by counsel for the Chief Commissioner correctly interpreted the "undivided by physical separation" test as formulated in Ryan other than to make the observation that that test is now simply satisfied if the two or more parcels of land are "adjoining" in accordance with the provisions of clauses 2 and 13 read together, as required by clause 2(5).

26 There is, therefore, under the current provisions no independent role for the Ryan test in construing the meaning of "a parcel of residential land" for purposes of Schedule 1A. The position is clearly governed by the provisions found in clause 13, which has to be read with clause 2 in determining whether two or more lots constitute a parcel of residential land for purposes of the principal place of residence exemption under the LT Management Act.

27 It was decided, with agreement with the parties at the hearing, that the Tribunal would consider the principal issue in this matter and if it was decided against the Chief Commissioner the matter would be remitted to the Chief Commissioner to enable him to consider the second issue with such further evidence that he may require to be satisfied that the building was not capable of being used for separate occupation. The applicants were not represented and it was agreed that the remission would give them the opportunity to produce evidence to support their case that the building was not on 31 December 2008 capable of being used for separate occupation.

28 I will accordingly remit the objection decision to allow the Chief Commissioner to reconsider the application of the restrictions set out in clause 13, in particular clause 13(1)(c).

The objection decision is, in accordance with s 65 of the ADT Act, remitted to the Chief Commissioner.

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