Sunchen Pty Ltd v Commissioner of Taxation

FACTUAL BACKGROUND 8 With one exception, the primary facts were not relevantly in dispute before the Tribunal. The exception concerns the precise nature of Sunchen's subjective intention at the time it acquired the property. That question need not be considered if the Commissioner's construction of s 40-65(1) is accepted as correct.

Sale of the property 9 Sunchen is an Australian company which is registered for GST. Pursuant to a contract for the sale of land exchanged and dated 8 August 2006 ('the Contract'), Sunchen purchased the property located at 117 Bridge Street, Port Macquarie, New South Wales from Dable Holdings Pty Limited. 10 The Contract specified the date for completion as 20 September 2006 and the purchase price as $525,000, inclusive of GST. 11 At the time of settlement, a single storey house with carport was located on the property and the property was being occupied by a tenant pursuant to a residential tenancy agreement. The Contract provided that the sale to Sunchen was subject to this existing tenancy. The tenancy continued until at least 29 November 2006.

Claim for input tax credit and subsequent disallowance 12 In its business activity statement for the quarter ending 30 September 2006, Sunchen claimed an input tax credit of $47,807, which comprised $47,727 in respect of the purchase of the property and $80 in respect of other acquisitions. 13 On 25 January 2007, the Commissioner disallowed Sunchen's claim for an input tax credit of $47,727 in respect of the purchase of the property. On 31 January 2007, the Commissioner issued a notice of assessment of GST net amount for the period 1 July 2006 to 30 September 2006 ('the Assessment'), which resulted in a debit adjustment of $47,277 to the Sunchen's GST account. 14 On 7 February 2007, Sunchen objected to the Assessment. On 8 June 2007, the Commissioner disallowed the objection ('the Objection Decision'). By Application for Review of Decision dated 7 August 2007, Sunchen sought review of the Objection Decision. As previously observed, Sunchen's Application for Review was dismissed by the Tribunal as was the subsequent appeal to the primary judge.

Relevant Legislation 15 An entity is entitled to an input tax credit for a 'creditable acquisition' that the entity makes (s 11-20). Section 11-5 imposes four conditions which must be satisfied before an entity makes a creditable acquisition. One of those conditions is that the supply giving rise to the acquisition is a taxable supply (s 11-5(b)). 16 A supply which is input taxed is not a taxable supply (s 9-5). Division 40 of the Act sets out the circumstances in which a supply will be input taxed. 17 Section 40-65 provides: 'Sales of residential premises (1) A sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). (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 (regardless of the term of occupation) before 2 December 1998.' (Underline emphasis added.) 18 'Residential premises' is defined in s 195-1 of the Act to mean: '[L]and or a building that: (a) is occupied as a residence or for residential accommodation; or (b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation) and includes a *floating home.' 19 It is common ground that the property was 'residential premises' at the time of the supply. Accordingly, the sole issue before the Tribunal was whether the property was residential premises 'to be used predominantly for residential accommodation'.

Consideration 20 Both the Tribunal and the primary judge doubted the accuracy of the construction of the expression 'to be used predominantly for residential accommodation' set out by White J in Toyama and preferred the approach adopted by a Full Court in Marana on a related section of the Act. However, both felt obliged to follow Toyama in the absence of a decision of the Full Court on s 40-65 itself.

The decision in Toyama 21 Toyama concerned an application for equitable compensation for breach of trust. One issue in the proceedings was whether the trustees were correct in representing that a sale of residential premises was not input taxed under s 40-65(1) of the Act. The applicant for equitable compensation, Landmark Building Developments Pty Ltd, argued that the sale was input taxed. It relied upon the reasoning set out in GST Taxation Ruling 2000/20 and the decision of the Full Court in Marana. 22 His Honour declined to adopt the reasoning set out in the ruling and Full Court decision. His Honour held that s 40-65(1) required (at [92]): '[A] prediction as to the future use of the premises. The most important fact in such a prediction is the intention of the future owner or lessee of the property. In the case of a lease, the question of how the property is to be used in the future will usually be determined by the terms of the lease. In the case of a sale, the likely future use of the property will probably depend on the purchaser's intentions, to be assessed having regard to objective circumstances such as the physical condition of the premises, the zoning or any restrictive covenants.' 23 It will be noted that his Honour speaks in this passage of determining the purchasers intention by reference to objective considerations. However, his Honour subsequently relied upon both 'the subjective intentions of the purchaser and the objective criteria considered as a whole', in concluding that the residential premises sold were not to be used predominantly for residential accommodation after the purchase was completed (at [101]). 24 As the primary judge correctly noted at [12], the passage from Toyama set out above 'undoubtedly erects a test in which the intentions of the purchaser are relevant and important'.

The decision in Marana 25 In Marana, a Full Court rejected a submission that the expression 'intended to be occupied as a residence' in the then definition of 'residential premises' permitted regard to be had to the subjective intentions of the purchasers at the date of acquisition. The Court (Dowsett, Hely and Conti JJ) said (at [61], [62]): 'The appellants' argument assumes that the relevant intention is that of the appellants [purchasers] at the time of acquisition. We disagree. If Parliament intended that a subjective intention be the relevant consideration for the purposes of s 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 an intention would be of any significance in this context. … 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.' (Emphasis added) 26 It may be accepted that caution must be exercised in relying upon the construction of a different statutory provision. Nevertheless, the critical features of the provision considered by the Full Court in Marana also appear in s 40-65. First, to the extent s 40-65 incorporates a concept of intention, the person having the relevant intention is not identified. Secondly, the expression 'to be used' has as its grammatical subject the residential premises the subject of the sale.

The Commissioner's further arguments 27 The Commissioner embraced the reasons of the primary judge at [15] - [19] as to why the construction proposed by the Commissioner and derived from Marana should be preferred to the contrary position adopted by White J in Toyama. It is unnecessary to repeat them. To those reasons the Commissioner added the following considerations. 28 First, there is nothing in the terms of s 40-65(1) which suggests that the subjective intentions of the purchaser, or any user for that matter, are relevant to the operation of the section. This omission reinforces the conclusion that 'to be used' in s 40-65(1) is concerned with the objective physical suitability of the premises being supplied. 29 Secondly, the Explanatory Memorandum ('EM') to the Bill which became the Act is inconsistent with the approach in Toyama. The EM relevantly states: '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 that 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'. (Emphasis added) 30 There is no suggestion in this passage that s 40-65(1) requires a prediction as to the future use to which premises will be put by an actual purchaser, nor that the subjective intentions of the purchaser are relevant to the enquiry mandated by the section. The example used in the paragraph is phrased in the present tense ('if you have a flat on top of a shop') and invites consideration of the objective characteristics of the applicable building. It is not suggested, for example, that s 40-65(1) would operate to input tax the entire sale of a property comprising a flat and shop if it could be shown that the purchaser intended to convert the shop into residential accommodation at some later date. 31 Thirdly, a construction of s 40-65(1) which emphasises the subjective intention of the purchaser is inconsistent with the fact that liability for GST is imposed on the vendor to a sale contract. The intention of the purchaser may never be communicated to the vendor prior to the acquisition of the property (for example, a purchase by way of public auction). Even if the intention were accurately communicated at one point in time, it may have changed prior to acquisition. It would be odd if a vendor were liable for tax in circumstances where the vendor has no way of determining its liability. 32 Moreover, if the vendor were assessed by the Commissioner on the basis that s 40-65(1) did not apply, the vendor would have almost no practical ability to challenge the resulting assessment in a court or tribunal. This is because the vendor, in order to succeed, would need to persuade the court as to the subjective intentions of a non-party to the proceedings. The difficulties faced by a vendor in such circumstances are obvious. 33 Fourthly, an assessment of a person's subjective intention raises a number of difficult questions. When is the intention to be assessed? At the time of acquisition, at the time of purchase, or at a later time? Even if that question can be resolved, a person's subjective intentions as to the future use of property will almost always be contingent upon factors outside that person's control: for example, the ability to raise finance, the extent to which any change in use is approved by the relevant development authority, movements in the property market and other such factors. It follows that a person's subjective intention is likely to be so qualified by external contingencies that it cannot be said to provide an accurate reflection of the likely future use of a property. 34 Fifthly, White J's suggestion at [97] of Toyama that a vendor can protect itself from the uncertain application of s 40-65(1) by amending the contract for sale should be rejected. The practical utility of a provision that indemnifies a vendor for any GST liability that might be determined to arise is dependent upon the purchaser's financial standing at a point in time that might be some years after settlement has occurred. Moreover, the insertion of a clause in a sale contract to the effect that a purchaser did not intend to use the property in a way that could make the sale a taxable supply could not be determinative of the subjective intention of the purchaser at the date of acquisition (although it would be evidence to which the court and tribunal could have regard in determining that intention). The Contract in this very case contained such a clause (special condition 16). 35 Sixthly, the primary judge's analysis of 'to be used' is consistent with judicial treatment of the related expression 'intended to be used', albeit in a different context. Section 3(1) of the Road Safety Act 1986 (Vic) relevantly defines a motor vehicle as 'a vehicle that is used or intended to be used on a highway and that is built to be propelled by a motor that forms part of the vehicle'. In Transport Accident Commission v Ball [1999] 1 VR 64, the Court of Appeal held that 'intended to be used' should be read as meaning 'suitable for' or 'apt for use as'. Buchanan JA, with whom Callaway and Batt JJA agreed, said (at 67): 'In my view the word "intended" in the definition is used in the sense of "suitable or apt", as Lord Parker said, or "meant for", as Marks J said in Transport Accident Commission v Serbec, in a passage at p 155, in which he spoke of the distinction between the expression "is used" and the expression 'intended to be used'. He said: "The distinction between the above two expressions in the definition of 'recreation vehicle' is between how a vehicle is actually used and such of its characteristics as may lead an objective bystander to think what its use is or may be, in other words, what it is 'meant for'."' 36 It followed that Buchanan JA did not accept that the subjective intention of the owner or driver of the vehicle had any relevance to the question before the court: 'The question whether a vehicle is "intended to be used" on a highway or in a public place is to be determined objectively: Newton v Incorporated Nominal Defendant [1970] VR 257; Burns v Currell [1963] 2 QB 433 at 440; Transport Accident Commissioner v Serbec (1993) 6 VAR 151 and Siciliano v Acme Knitters & Dyers Pty Ltd [1994] 1 VR 632. Accordingly, it would not be permissible to determine the question by evidence of the state of mind of the manufacturer or the current owner. Neither, in my view, is it appropriate to rely upon evidence of facts such as the place at which the vehicle is kept or the use to which it is put for the purpose of revealing the owner's state of mind. The question turns upon the characteristics of the vehicle itself.' 37 It is to be noted that these authorities concerned the expression 'intended to be used' rather than 'to be used'. Nevertheless, the rejection of the relevance of subjective intention in relation to the former expression undercuts any requirement for consideration of subjective intention in relation to the latter (where the concept of intention is not even referred to).

Other revenue contexts 38 The issue of statutory construction that is raised by the legislature's use of the words 'to be used predominantly for residential accommodation', in s 40-65(1) of the Act reminds one of a similar issue which arose in the context of the old investment allowance deduction provisions in Subdiv B of Div 3 of Pt III of the Income Tax Assessment Act 1936 (Cth) ('the ITAA 1936') (inserted by Act No 50 of 1976; phased out subject to a 'sunset' provision, by Act No 98 of 1992). Section 82AF(2) of the ITAA 1936 provided that - 'This Subdivision does not apply in relation to - … (f) plant or articles (other than plant or articles referred to in sub-section (1)) for usein, or primarily and principally in connexion with - (i) amusement or recreation; (ii) sport (including the racing of animals or vehicles) or physical exercise or any similar activity; (iii) gaming or gambling; (iv) circus performances or the performance in public of music, plays, dancing or similar entertainment; or (v) the exhibition to the public of cinematograph films otherwise than by television broadcasting …' (Emphasis added) In Smith (W) v Federal Commissioner of Taxation (1982) 41 ALR 315, a Full Court (Bowen CJ, Fisher and Fitzgerald JJ) said at 317 - 318: '[Section] 82af is concerned with property which is excluded from the benefit of the Subdivision. Section 82af deals with this subject by listing various types of property. Some are identified by simple description, eg "motor cars" in para (a); some by the use for which they are designed, eg "discs … that are designed to be used for the storage of … sounds" in para (d); others by the words "for use" followed by a description of the relevant activities, eg "musical instruments and equipment for use in conjunction with musical instruments", para (e). Clearly in employing the word "use" in paras (d) and (e) the draftsman was concerned to describe the attributes of the property which he was seeking to identify. He was not concerned with the identity of the person by whom the property might be used or whether it would be used for the purpose of producing assessable income … Paragraph (f) is constructed in the same way. The reference to plant or articles for use in or primarily and principally in connection with "(ii) sport" is apt to describe the attributes of the property which the draftsman is seeking to identify. It does not in its terms introduce any notion of use by a particular person. Indeed, it is not easy to read into a description of an article by reference to the use for which it is suited a further qualification limiting that use to use by a particular person. In our view para (f) is clearly concerned with the nature of the articles and not the identity of the users.' 39 In Kearney v Federal Commissioner of Taxation (1984) 68 FLR 316, the Victorian Supreme Court (Tadgell J) said at 322: 'In W Smith v Federal Commissioner of Taxation (1982) 82 ATC 4240 the Full Court of the Federal Court decided that par (f) of subs (2) of s 82AF of the Act does not by its terms introduce any notion of use by a particular person. It is concerned with the nature of the articles it seeks to describe and not with the identity of their users. It follows that, if the "James Kelly" is not of its nature a vessel for use in or primarily and principally in connection with amusement or recreation, the use to which it was put or intended to be put, whether by the taxpayer or its passengers, will not alter its classification for the purpose of the subsection. The Federal Court applied and explained Smith's case in Hamilton Island Enterprises Pty Ltd v Federal Commissioner of Taxation (1982) 82 ATC 4302 at 4305, saying that the former decision: "... should not be read as indicating that the use to which the relevant item of personal property is put will necessarily be irrelevant for the purpose of determining whether, for the purposes of s 82AF(2)(f)(i), the item answers the description 'plant or articles for use in, or primarily and principally in connection with, amusement or recreation'. It may, in a particular case, be common ground that the use to which the relevant item is put corresponds with the use which it is of its character to serve. In such a case, the examination of the actual use of the item could well be decisive of the question whether it was or was not of a designated character. Quite apart from such cases, the use to which an item is actually put will ordinarily be illustrative of at least some aspects of its character."' 40 When Kearneycame up to a Full Court, (1985) 16 ATR 351, Woodward and Northrop JJ concluded they should follow Smith's case and the Hamilton Island Enterprises case 'without considering their correctness' (at 353). Jenkinson J agreed (at 354). 41 Similarly in the present case, the words 'to be used predominantly for residential accommodation', is not referring to use by any particular person, but to describe the attributes of the property to which its use is suited. Once it is accepted that the relevant words are not referring to use by any particular person, the intention of the future owner, even if determined solely by reference to objective circumstances and without regard to his stated intention, is totally irrelevant. That is not to say that actual use of the property will necessarily be irrelevant; as the Full Court (Bowen CJ, Deane and Fisher JJ) said in the Hamilton Island Enterprises case: '[T]he use to which an item is actually put will ordinarily be illustrative of at least some aspects of its character.'

The architecture of section 40-65(1) 42 It is necessary to say something of the architecture of s 40-65(1) because, while the particular issue is not critical in this case, during the course of argument, particularly on behalf of the Commissioner, a question arose as to whether the extract from the EM recited in [29] above, conflated two discrete elements of s 40-65(1) when it said: 'However, the residential premises will only be input taxed to the extent that the premises are to be used predominantly for residential accommodation.' The two discrete elements of s 40-65(1) are said to be (1) whether the property is residential premises, and (2) whether the property is to be used predominantly for residential accommodation. The argument is that the first element is concerned with the nature of the premises and the second with the use to which the premises are to be put; and that the words 'to the extent' are referrable to the first element, not the second. 43 We have some difficulty with this argument. It seems to us that the definition of 'residential premises' in s 195-1 looks to an existing state of fact: whether the land or building is occupied as a residence or for residential accommodation; or is intended to be occupied, and is capable of being occupied, as such. Again, the second, or para (b), limb of the definition, notwithstanding the phrase 'intended to be occupied', is looking to the characteristics or nature of the property, rather than the intention of any person. So much is to be gleaned from the phrase 'and is capable of being occupied'. 44 That being so, and accepting that the phrase 'to be used predominantly for residential accommodation' is only concerned with the characteristics of the property in terms of its suitability, and not with any person's intended use of the property, there is really only one element of s 40-65(1), not two, and so understood, the phrase 'to the extent' qualifies all of the words in s 40-65(1) which follow, not just the phrase 'residential premises'. It would follow that the words of the EM do not represent a conflation of the words of the statute but rather portray a proper construction of the statute. 45 Finally, in our opinion the introduction into s 40-65 of the meaning of 'residential premises' resulting in the expression 'intended to be occupied' as well as 'to be used predominantly for residential accommodation' does not lead to a different conclusion. The expressions 'intended to be occupied' and 'to be used' are synonymous. At most the word 'predominantly' in the second phrase qualifies the first phrase in a quantitative way. The two phrases are not separate criteria introducing, respectively, an objective and subjective test.

Conclusion 46 The appeal must be dismissed. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Edmonds and Gilmour.

Jessup J 47 This is an appeal from a judgment given by a single Judge of the court on 29 January 2010, in which his Honour dismissed an appeal under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act") and an application under s 5 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("the ADJR Act") filed by the appellant, Sunchen Pty Ltd, in connection with a decision of the Administrative Appeals Tribunal ("the Tribunal") made on 19 September 2008. By that decision, the Tribunal affirmed an Objection Decision of the respondent, the Commissioner of Taxation, made on 8 June 2007, the effect of which was that the appellant's objection, dated 7 February 2007, to a goods and services tax ("GST") assessment referable to the quarter ending on 30 September 2006 was disallowed. The question before the Tribunal was whether the Commissioner had been correct to reject the appellant's claim for an input tax credit in relation to the purchase by it of a property in Bridge Street, Port Macquarie in September 2006. The Commissioner's position was, and is, that the appellant was not entitled to any such credit because the sale of the property to the appellant was "input taxed" by reason that the property was "to be used predominantly for residential accommodation" within the meaning of s 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("the GST Act"). 48 According to evidence before the Tribunal, the appellant was the trustee of the Sunchen Family Trust, which carried on business as a property developer. On 8 August 2006, the appellant entered into a contract for the purchase of the Bridge Street property, on which a single-storey house with car-port was located. There were tenants living in the house, pursuant to a lease which ran until 29 November 2006. The contract of sale was expressed to be subject to existing tenancies, but the property was also the subject of a development approval, which would have permitted the construction of a five‑storey residential flat building, with strata sub-division. The benefit of the vendor's interest in the development approval was assigned to the appellant under the contract of sale. Before the Tribunal, the Commissioner accepted that, at the time of settlement, the appellant desired, at some future time, to develop the property in accordance with the development approval. 49 It was the appellant's case before the Tribunal that it intended to develop the property, not at some future time, but within the short to medium term. As it was put to us on appeal, this would, in the intention of the appellant at the time, have occurred about six months or so after settlement. Because it claimed to have such an intention, the appellant submitted that, at the time of settlement, the property was not "to be used predominantly for residential accommodation" within the meaning of s 40-65(1) of the GST Act. That submission gave rise to two questions: first, as a matter of construction, did the words "to be used" in s 40-65 require attention to be given to the contemporary intention of the purchaser of the property, and if so, secondly, was it the appellant's intention at that time to use the property predominantly for residential accommodation? 50 It was the Commissioner's case throughout that the first of these questions should be answered in the negative and that the second question, therefore, did not arise. The Commissioner submitted that the words "to be used" looked not to the intention of the putative user, but to the objective characteristics of the property at the relevant time. Thus, in the circumstances of the present case, the improvements which stood on the property at the relevant time were a house (which was tenanted) and a carport. Looking at the matter objectively, therefore, the property was fitted, or suitable, for use as residential accommodation, and thus was "to be used" for such accommodation. 51 The very question of construction to which I have referred had been decided adversely to the position for which the Commissioner contended by White J in the Supreme Court of New South Wales in Toyama Pty Ltd v Landmark Building Developments Pty Ltd (2006) 197 FLR 74. In the present case, the Tribunal considered that it was bound by that judgment. It proceeded, therefore, upon the basis that the intention of the appellant at the time of settlement was relevant to the question whether the property was then to be used predominantly for residential accommodation. On the facts, however, the Tribunal rejected the appellant's case that it did not have such an intention at that time. The Tribunal accepted the submission then put on behalf of the Commissioner that, save for the existence of the development approval which related to the property, "virtually all of the other factors indicated that the Property would continue to be used as residential accommodation". The Tribunal found that the appellant had "no intention to terminate the lease" and, indeed, "intended that the Property would be continued to be leased until, if ever, it was demolished". The Tribunal held, therefore, that the property was, at the relevant time, "to be used predominantly for residential accommodation" within the meaning of s 40-65(1) of the GST Act, and that the property was "input taxed" by reason of the operation of that section. 52 In its appeal under s 44 of the AAT Act, and in its application under s 5 of the ADJR Act, the appellant's grounds were that the Tribunal had, first, misconstrued s 40-65(1) of the GST Act, secondly, made findings for which there was no evidence, thirdly, taken into account irrelevant considerations and, fourthly, failed to take into account relevant considerations. Although characterised as a construction point, the appellant's first ground amounted essentially to an attack on the means by which the Tribunal came to the view that the property was to be used predominantly for residential accommodation. Indeed, the true construction point which arose under s 40-65(1) was decided by the Tribunal in the appellant's favour. That circumstance led to the filing, by the Commissioner, of a Notice of Contention, the purport of which was that, on a proper construction, s 40-65(1) required regard to be had only "to the objective characteristics of the premises at the date of acquisition", and that "the subjective intentions of either the supplier or acquirer of the premises is [sic] not relevant". Thus, the Commissioner sought to uphold the decision of the Tribunal, but upon a different basis. 53 With respect to the appeal, the Application and the Notice of Contention that were before him, the primary Judge identified the following issues which arose (at [3]): (a) The construction issue. The taxpayer contended that those words required an assessment of the likely future use to which the premises might be put and that that inquiry could be aided by a consideration of a taxpayer's intentions for the property. The Commissioner, on the other hand, submitted that the expression was concerned only with an assessment of the physical characteristics of the premises without regard to any particular person's intentions. (b) The relevance issue. In the Tribunal the taxpayer was successful on the construction issue. The Tribunal, therefore, embarked upon an assessment of the likely future use of the premises by the taxpayer. It concluded that it was likely that the premises would continue to be used as residential accommodation for the foreseeable future. The taxpayer submitted that in carrying out that task the Tribunal had erred. This was because, whilst it was true that that which was to be assessed was the likely future use of the premises, that assessment was to be carried out on the basis of what was known at the time of the purchase. The taxpayer submitted that the Tribunal had inappropriately taken into account several matters which post-dated the purchase. The Commissioner, on the other hand, submitted that the reasons of the Tribunal made clear, when read as a whole, that no impermissible use of such matters had occurred. (c) The onus issue. It was the taxpayer's position that the premises in question did not answer the description of being "premises to be used predominantly for residential accommodation". It submitted that the consequence was that it was obliged to prove that the likely future use of the premises would not be predominantly residential accommodation. The Tribunal, so the taxpayer submitted, erred by concluding that the taxpayer had failed to discharge the burden of proving that the premises would be used for property development. Put another way, the taxpayer was obliged to prove a negative and not a positive. The Commissioner, on the other hand, submitted that this was an excessively technical reading of the Tribunal's reasons. (d) The no evidence issues. The Tribunal concluded that the taxpayer did not intend to develop the property as it had argued. The reasoning which led the Tribunal to that conclusion included findings by the Tribunal that the development was not feasible, that there was no evidence that the taxpayer had undertaken any estimate of the costs of the development and that there was no evidence that there was any genuine attempt to pre-sell the proposed apartments. The taxpayer argued that the finding that the development was not feasible was made in the absence of any evidence to that effect. Further, there was evidence before the Tribunal that the cost of the development had been estimated and that there had been attempts at pre-sales. The Tribunal's finding that there was no evidence of either of those matters was itself unsupported by any evidence. The Commissioner submitted that these matters amounted to no more than an impermissible attack on the merits of the decision together with an unacceptably technical reading of the Tribunal's reasons. (e) The irrelevant consideration issues. The Tribunal's reasoning on the issue of the development's feasibility turned, in part, on its observation that the taxpayer had not applied for bank finance or for a construction certificate. The taxpayer contended that these were irrelevant to the Tribunal's decision. (f) The relevant consideration issues. The Tribunal concluded that the taxpayer had not intended to proceed with the development. Its process of reasoning did not disclose that it had taken into account a number of matters said by the taxpayer to support the contrary conclusion. These included evidence of a number of inquiries made by the taxpayer of an architect and a builder which were, so it was submitted, inconsistent with the idea that no development was proposed. The taxpayer submitted that, as a matter of law, these matters were considerations that the Tribunal was bound to take into account so that the ground set out in s 5(2)(b) of the ADJR Act was made good.

54 On the construction issue, although the primary Judge's own view was that the purchaser's intentions were not relevant to the question whether property was "to be used" for residential accommodation within the meaning of s 40‑65(1), his Honour held that the judgment of White J in Toyama was not clearly wrong, and that, therefore the Commissioner's contention should be rejected. On the relevance issues, his Honour found against the appellant, holding that "It was legitimate to look at what the taxpayer did after completion to test whether the asserted intention existed". On the onus issue, his Honour held that the Tribunal did not reverse the onus of proof, but, in a situation in which there were only two realistic possibilities (an intention to redevelop the site, or an intention to hold the premises for re-sale), his Honour held that the Tribunal "embraced the latter view". There was no error of law involved here. On the "no evidence" issues, his Honour held, against the appellant, that the Tribunal's findings were not vitiated by the absence of evidence, in the sense relevant to proceedings for judicial review or for the identification of an error of law. His Honour also determined the irrelevant, and relevant, issues questions adversely to the appellant. For reasons which will appear, it is not now necessary to elaborate upon his Honour's conclusions in these respects. In the result, his Honour rejected the appellant's case. 55 On 19 February 2010, the appellant filed the present appeal. Although the appellant's Notice of Appeal set out four grounds, the second was the obverse of the first, and the fourth was the obverse of the third. There were, in essence, two grounds of appeal only, namely: 1. His Honour erred in failing to hold that The Administrative Appeals Tribunal misconstrued s. 40‑65 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) Act [sic] by: (i) misdirecting itself as to the question to be asked in determining whether or not the premises satisfied the description "residential premises for use as residential accommodation" in s. 40‑65 of the Act, namely, whether as at the date of supply the likely future predominant use of the premises was use as residential accommodation; (ii) failing to make the determination of fact which it was required to make in order properly to apply the relevant statutory test, by failing to make a determination as to the likely future predominant use of the property; …. 3. His Honour erred in holding that the Tribunal did not err in law by making findings for which there was no or insufficient evidence, namely: (a) that the applicant did not have even a rough estimate of the cost of construction of the development prior to completion of the purchase of the property; and (b) that there were no genuine attempts to sell units off the plan.

56 On 22 July 2010, the appellant filed a Notice of Motion, in which the return date was left open, for leave to amend its Notice of Appeal (presumably pursuant to subr (3) of O 52 r 21, since an amendment by supplementary notice under subr (1) would by then have been out of time). By the same Notice of Motion, the appellant foreshadowed moving to amend its original Notice of Appeal under s 44 of the AAT Act. In an affidavit sworn on 20 July 2010, the appellant's solicitor stated that the amendments arose from the engagement by the appellant of senior counsel who had not appeared before the primary Judge, and from the advice given by him. In essence, the proposed new appeal under s 44 involved a wholesale attack upon the fact‑finding process employed by the Tribunal, the deficiencies in which were, in various ways, alleged to be so substantial as to give rise to errors of law. For reasons which will appear, it is not necessary to elaborate upon the nature of those deficiencies. In the Amended Notice of Appeal from the judgment of the primary Judge upon which the appellant sought to rely, the only grounds presented were that his Honour was in error in not having upheld the appeal under s 44 of the AAT Act, and in not having granted the application under s 5 of the ADJR Act, upon one or other of the grounds now sought to be relied on in the amended documentation at first instance to which I have referred. 57 By direction of the Full Court, the appellant's Notice of Motion was made returnable on the first day of the hearing of the appeal. At the outset of the hearing on that day, counsel for the appellant invited the court to consider whether it might be convenient to hear first from the Commissioner with respect to his Notice of Contention. That was a course which attracted itself to the Full Court, and we received submissions on the construction of s 40‑65, not only with respect to the Notice of Contention as such, but also with respect to subs (1) generally. 58 Having received those submissions, and having considered them, we refused the appellant's motion to amend, indicating that we would provide our reasons subsequently. Counsel for the appellant then advanced no further arguments in support of the appeal as presently constituted, and we reserved our judgment. These are my reasons for refusing the appellant's motion to amend - both at first instance and on appeal - and as to the disposition of the appeal as presently constituted. 59 When the GST Act was enacted in 1999, s 40‑65 provided as follows: (1) A sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation. (2) However, the sale is not input taxed to the extent that the residential premises are commercial residential premises or new residential premises. At the time, the term "residential premises" was defined in s 195‑1 as: … land or a building occupied or intended to be occupied as a residence, and includes a floating home. With effect from 22 December 1999 (ie before the GST Act itself commenced on 1 July 2000) that definition was changed, and "residential premises" were now defined 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.

60 That was the form of the presently relevant statutory provisions when the Full Court decided Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR 299. That case concerned a former motel, which had been sold in circumstances where the purchaser proposed to convert it into a series of strata‑titled residential units. Relevantly to the present controversy, the question was whether, at the time of the sale of the motel (but before development as units), the premises were "intended to be occupied … as a residence". The Full Court held not, on the basis that the matter was not to be resolved by reference to the "intention" of the developer. Their Honours said (141 FCR at 312-313, [61]-[62]): 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 s 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. 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 para 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". In the present appeal, the Commissioner submitted that this passage was dispositive of the question concerning the construction of s 40‑65(1). The significance of that would be that we would normally be obliged to follow Marana, in preference to the judgment of White J in Toyama, notwithstanding that different provisions were involved. 61 Before coming to those questions, I should return to the legislative history. In Marana, the Full Court held that the original motel was not a building that was occupied as a residence, or that was either intended or capable of being so occupied, within the definition of "residential premises" in s 195‑1 of the GST Act, because motel accommodation, of its nature, lacked the permanence normally associated with the concept of "residence" (141 FCR at 312 [57]). That led to an amendment to each of the provisions with which we are concerned in 2006. The words "or for residential accommodation" were added to the end of each of paras (a) and (b) of the definition of "residential premises" in s 195-1; the parenthetical expression "(regardless of the term of the occupation or intended occupation)" was added to that definition; and the parenthetical expression "(regardless of the term of occupation)" was added to subss (1) and (2) of s 40‑65. The result of these amendments was that the legislation took the form in which it has remained, and which it took at the time of the events which are relevant in the present appeal. 62 Section 40‑65 provides as follows: (1) A sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). (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 (regardless of the term of occupation) before 2 December 1998. The definition of "residential premises" in s 195‑1 is: … land or a building that: (a) is occupied as a residence or for residential accommodation; or (b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation) and includes a floating home.

63 When the defined meaning of "residential purposes" is inserted into s 40‑65(1), the provision with which we are presently concerned reads as follows (omitting for the sake of simplicity the presently immaterial reference to a floating home): A sale of real property is input taxed, but only to the extent that the property is land or a building that: (a) is occupied as a residence or for residential accommodation; or (b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation) … to be used predominantly for residential accommodation (regardless of the term of occupation).

64 As appears from the above, in Marana, the Full Court was concerned with the expression "intended to be occupied" in the definition of "residential premises". That was not, their Honours held, a reference to the intention of any person. Whether the expression "to be occupied" in s 40‑65(1) of the GST Act was to be similarly construed was a question considered by White J in Toyama. That was not a tax case, but a material question was whether a certain sale of property was "input taxed" within the meaning of s 40‑65. His Honour was referred to the judgment of the Full Court in Marana, but pointed out that the Full Court had been concerned with a different statutory expression. Referring both to s 40‑65(1) and to s 40‑35(2)(a) - where a similar expression appeared - his Honour said (197 FLR at 92 [92]): The construction of both provisions should be approached in the same way. They require a prediction as to the future use of the premises. The most important factor in such a prediction is the intention of the future owner or lessee of the property. In the case of a lease, the question of how the property is to be used in the future will usually be determined by the terms of the lease. In the case of a sale, the likely future use of the property will probably depend on the purchaser's intentions, to be assessed having regard to objective circumstances such as the physical condition of the premises, the zoning or any restrictive covenants. His Honour proceeded to recognise that the construction which he gave to s 40‑65 might be problematic in certain practical respects, such as where the intention of the purchaser was unknown to the vendor (the putative taxpayer) at the time of sale (such as in the case of an auction), but felt obliged, as a matter of construction, to regard the purchaser's intention as a factor proper to be taken into account under the subsection. 65 In Toyama, White J also said (197 FLR at 93 [99]): In any event, even if the matter is to be determined solely by objective criteria, there is no warrant for limiting those criteria to the physical characteristics of the premises at the time of supply. The physical characteristics of the premises will be relevant to, but not determinative of, the question of to what use the premises will be put. There can be many other objective criteria, such as the terms of the lease. In this case, the objective criteria for determining whether the premises would be used predominantly for residential accommodation include its location, the configuration of the site, the fact that two development consents had been granted for the construction of residential apartments, and the fact that at the time of sale the building was disused. These were all factors that led to the site being marketed as a development site. They show that notwithstanding that the land had on it a building which was constructed as a residence, considered objectively, it was not likely that the premises would be used for residential accommodation. As I read his Honour's judgment, these observations were more in the way of backup than in the way of primary reasons for giving s 40‑65(1) a construction which departed from that given by the Full Court to the definition of "residential premises" in Marana. Those primary reasons appear in para 92 of his Honour's reasons, to which I have referred in the previous paragraph. 66 In the present case, the primary Judge did not agree with the approach to construction taken by White J in Toyama. His Honour said (at [15]-[19]): It is useful in the first instance to observe that the phrase "premises to be used" consists of a noun - "premises" - qualified by the verbal passive adjective "to be used". It bears useful comparison with phrases such as: "food to be eaten" "a goal to be achieved" "a consummation devoutly to be wished". Each of those examples illustrates that what is involved is not a verb in its infinitive form with an unarticulated subject. To say that there is food to be eaten is to say nothing about the eater and is purely a description of the purpose which the food has. So, too, that a consummation is devoutly to be wished tells one nothing about the wisher and everything about the consummation. Uninstructed by authority I would conclude, therefore, that the expression "to be used predominantly for residential accommodation" directs attention to the objective circumstances of the premises and the use which can be divined therefrom. That conclusion is contrary to the approach of White J in Toyama which proceeds on the basis that "to be used" has some element of futurity to it, as if it meant "will or might be used". It is consistent with, but not required by, the approach of the Full Court in Marana. Although it is not presently material I would respectfully differ from the Full Court's conclusion that "intended" in the definition of "residential" premises is a passive verb. The conclusion which flows from the absence of an expressed subject is not that there is present a verb whose subject is unexpressed; rather, it is that what is present is not a verb at all. Phrases such as "clothing designed for wear and tear", "homes built to last" and "planes intended for flying" are all examples of adjectival, rather than verbal, constructions. They do not involve passive verbs. However, that observation has no impact on the soundness of the reasoning in Marana. On the contrary, the conclusion that a passive verbal adjective is involved only emphasises the arid nature of seeking to divine the mental states of the "intender"; there is no intender. I take, therefore, the thrust of Marana to be that one should not search for the motives of any particular person in considering the questions raised by the definition of "residential premises". That question is, as already noted, not the question which presently arises. There is great force in the notion that the kinds of questions generated by s 40-65 of the Act about residential accommodation should be considered by reference only to the premises themselves and what their apparent purpose and use is. Once one moves away from what the premises are at the time of supply to what, as is explicit in Toyama, they will be, questions emerge which cannot readily be answered by reference to any part of the text of s 40-65. For example, how far into the future is the prediction required? If the purchaser intends to use the premises as a home for two years and then to convert them permanently thereafter into a car yard are they "premises to be used predominantly for residential accommodation"? So too, what happens if there is no information at all about the likely future use of the premises, for example, where land is acquired under a put option. Finally, the person who bears the tax liability is the vendor as supplier. It is a curious result indeed that leaves the liability of the vendor as a function of the intentions of the purchaser. My conclusions, therefore, are that: (a) the reading of "to be used" in Toyama is grammatically unsound. "To be used" connotes present objectively determined fitness for use not likely future use; (b) the requirement of prediction in Toyama gives rise to issues which the text of s 40-65 is not apt to answer; (c) the requirement of prediction leaves the liability of the vendor to tax as a function of the purchaser's intentions; (d) the reading of "to be used" in s 40-65 should, in principle, be similar to the reading of "intended" in the definition of "residential premises" in Marana and derives some support therefrom. Marana does not, however, actually govern the matter one way or the other.

67 Notwithstanding those views, as I have indicated above, the primary Judge was not persuaded that the reasons of White J were plainly wrong, or clearly wrong. Since those reasons related directly to the provision with which the primary Judge was concerned, his Honour felt bound to follow Toyama, and he did so. 68 Albeit not without a qualification to which I shall refer, I consider that White J was substantially correct. It is clear from the expanded form of s 40‑65(1), which I have set out in para 63 above, that the characteristics of the property, and its present fitness for use in a particular way, must, in accordance with Marana, be taken into account under para (b) of the subsection. Those characteristics, and that fitness, govern the disposition of the question whether the property is "intended to be occupied … for residential accommodation". The concluding words of the subsection - "to be used predominately" etc - if they are to make any contribution to the meaning of the provision at all, must convey an idea which differs, at least in some respects, from that conveyed by the earlier words of the provision. 69 In its most natural meaning, to describe something as "to be used" for a particular purpose conveys the notion of a prediction, based upon the objective, known, facts at the time. While I recognise, with respect, the force of the grammatical analysis offered by the primary Judge at para 15 of his reasons (see para 66 above), I do not consider that such an approach is inconsistent with, or renders inappropriate, the kind of predictive exercise to which White J referred in Toyama. All will depend on context. To say that food is "to be eaten" may well convey something about the food, but it necessarily also conveys, in my view, a prediction as to the future destination of the food. Food not consumed at a banquet and destined for the rubbish bin may, in point of physical characteristics, be suitable for eating, but it could never be said that it was "to be eaten". To say that a goal is "to be achieved" adds little, in my respectful view, to the noun itself - since it is the nature of a goal that it ought to be achieved - but would often have a forward‑looking aspect, in the sense that the goal remained to be achieved. The often delicate nuances conveyed by expressions of this kind makes it inappropriate, in my respectful view, to opine categorically that similar, but different, verbal passive phrases should be understood analogously. 70 Although paras (a) and (b) of the expanded form of s 40‑65(1) are concerned with occupation of the property, the concluding words of the provision are concerned with the use to which the property is to be put. In my view, these words add an additional layer of meaning to s 40‑65, and are not satisfied merely by pointing to the existing physical circumstances of the property, by reference to which the operation of the earlier parts of the provision has been affirmatively established. This does not mean that the question posed by the concluding words should be answered exclusively, or even (necessarily) principally, by reference to the intention of the future owner or lessee of the property. In this respect, I would depart from what White J said in para 92 of his Honour's reasons. I consider that the words "to be used" require an entirely objective prediction to be made as to the use to which the property will be put. The intention of the future owner or lessee will usually be an ingredient in the mix of facts by reference to which that prediction is made. I can see no reason, however, to elevate it, as a matter of construction, to a level of importance higher than other objective circumstances which may exist in particular cases. The future owner or lessee may, for instance, have every intention to use the property in a particular way, but the objective circumstances may indicate that he or she would have a negligible prospect of securing the finance necessary for that kind of use. In such a case, the intention of the future owner or lessee would play only a small part in the objective exercise of prediction to which I have referred. 71 The conclusion that the appellant's intentions were relevant to a determination of the question whether the Bridge Street property was "to be used" for residential accommodation does not, however, conclude either its motion or its appeal in its favour. There are two circumstances which, in combination, in my view, require us to determine both matters in favour of the Commissioner. The first is an issue of construction which arises under s 40‑65(1). Here the question is not whether the property was, at the relevant time, to be used for a non‑residential purpose, such as development. The question is whether the property was to be used for residential accommodation. If the answer to that question is in the affirmative, the operation of the subsection is not excluded by the circumstance, if it be a circumstance, that the property was later to be used for a non‑residential purpose. 72 At this point, it is relevant also to note that s 40‑65(1) contemplates circumstances in which a property might be used for more than one purpose. A sale of real property is input taxed, but only "to the extent that" the property is residential premises to be used "predominantly" for residential accommodation. The explanation for this terminology is to be found in para 5.164 of the Explanatory Memorandum for the Bill which gave rise to the GST Act in 1999: 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. Perhaps for the sake of simplicity, the Explanatory Memorandum appears to have conflated two separate elements of s 40‑65(1): the element that directs attention to "the extent" to which the property in question is residential premises, and the element which requires predominant use for residential accommodation. These are not the same things, either textually or conceptually. The first element is concerned with the nature of the premises as such, and is, perhaps, neatly exemplified in the example of the flat above a shop given in the Explanatory Memorandum. The second element is concerned with the use to which the premises are to be put, and might, for example, deal with the situation where the dining room of a house is also used as a workspace. 73 Although distinctions of this kind do not arise directly in the present case, the analysis to which I have referred shows that the word "predominantly" in s 40‑65(1) is concerned with the use which, at the relevant time, is to be made of the property, to the extent to which it is residential premises. The word is not concerned to discriminate between different sequential uses to which the property may be put over some period in the future. I accept the point made by the primary Judge in the present case, and reiterated by the Commissioner in his submissions on appeal, that the subsection would be close to unworkable if it required the identification of the predominant use as between a number of uses to which the property might sequentially be put in the indeterminate future. 74 The second circumstance which favours the Commissioner is a factual one. At the relevant time, the Bridge Street property in the present case was being used wholly for residential accommodation, and would, on any view, continue to be so used for at least about the next six months or so. The appellant accepted that, on no view of the facts, would it have been in a position to use the property other than for residential accommodation for at least this period. To grant the relief sought by the appellant in its Notice of Motion, and to permit it to challenge the legal legitimacy of the fact‑finding process employed by the Tribunal, would, in my view, go no distance towards excluding the conclusion that the property was, even in the sense conveyed by Toyama, to be used predominantly for residential accommodation. For a period of six months at least, the appellant itself intended that it be so used, and that would, for the reasons explained above, be sufficient to enliven the operation of s 40‑65(1). 75 For the foregoing reasons, I joined in the conclusion that the appellant's motion to amend should be refused (in both of its aspects). Counsel for the appellant made no further submission in support of their client's existing grounds of appeal, and it follows that the appeal must be dismissed.

I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.