[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 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'. "
89 The Full Court concluded that the evidence did not establish that the premises were physically suitable for use as a residence at the time the motel was sold. Irrespective of the purchaser's intention, they were not "intended to be occupied and capable of being occupied as a residence".
90 The Full Court's decision establishes how the definition of "residential premises" is to be construed. Although, in the present case, the property was not occupied as a residence at the time of sale, it was nonetheless "residential premises", because it was built for the purpose of being occupied as a residence and was capable of being so used.
91 However, that does not resolve the question whether the sale was of residential premises to be used predominantly for residential accommodation. The Court in Marana did not consider how the words "to be used predominantly for residential accommodation" in subs 40-65(1), or how the words "are to be used predominantly for residential accommodation" in paragraph 40-35(2)(a), are to be construed.
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.
93 In my view, it does not accord with the natural meaning of paragraph 40-35(2)(a) and subs 40-65(1), to determine the question whether the residential premises are to be used predominantly for residential accommodation, solely by reference to the physical construction of the premises, and what that construction connotes about the intention with which the premises were designed, built or modified. If that construction were correct, it would have been much simpler for Parliament to have provided that a sale of real property was input taxed to the extent that the property was constructed as a residence. It is necessarily implicit in the expression "residential premises to be used predominantly for residential accommodation" that premises constructed as a residence may not be used for that purpose. Sections 40-65 and 40-35 recognise the possibility of dual or multiple uses of a building constructed as a residence. Hence the construction of the premises cannot be determinative of their intended or expected use.
94 Nor should the fitting-out or furnishing of premises be determinative, except in so far as it throws light on the intentions of a purchaser, or parties to a lease. The Act does not say that a sale of real property is input taxed to the extent it is constructed or fitted out for, or fit for, use as residential accommodation. If the fitting-out of premises were determinative, one could not assess whether the sale of an empty house, capable of multiple uses, was input taxed.
95 The construction which Landmark advances is not consistent with the evident purpose of the provisions. As explained in Marana v Federal Commissioner of Taxation (at [35], [36] and [38], 197-198), the purpose of sub-divisions 40-B and 40-C of the Act was to benefit homeowners who are selling their homes, and to treat persons who are renting a house on the same footing as a person who owns a house. The provisions were intended to operate for the benefit of homeowners and those who rented their homes.
96 It would be inconsistent with that purpose if a lease of a house to a real estate agent, which provided that the premises could only be used as a real estate agency, was input taxed because no changes had been made to the physical structure of the house, which could equally be used as a residence. This would equally be so if the house was sold empty, or was furnished as a residence. In the same way, in the circumstances of this case, the rulings of the Australian Taxation Office and the argument of Landmark, if correct, would give s 40-65 an operation which is inconsistent with its intended purpose. Neither Landmark, nor the trustees, nor Concrete Pty Ltd was a homeowner or home occupier whom Parliament intended to benefit.
97 I accept that there is a practical difficulty in determining the vendor's liability to pay GST on a sale of a house or home unit by reference to the purchaser's intention as to how the premises will be used. If the premises are sold at auction, the identity of the purchaser will not be known in advance. However, it is open to a vendor by the terms of the contract to protect himself or herself from liability. The 2000 edition of the Standard Form Contract for Sale which was used on the sale to Concrete Pty Ltd made such a provision. Clause 13.7 provided that if the contract said that the sale was not a taxable supply, the purchaser promised that the property would not be used and represented that the purchaser did not intend the property to be used in a way that could make the sale a taxable supply.
98 The authors of the CCH GST Guide Commentary on Real Property suggest (at 35-200) that whether residential premises are to be used predominantly for residential accommodation should be determined by objective criteria rather than a party's subjective intentions. Neither s 40-65(1) nor s 40-35(2) expressly uses the language of intention. The provisions rather require a prediction at the time of supply as to how the premises will be used. However, the most important factor in making such a prediction is the intention of the purchaser of the premises or the parties to a lease. The fact that it may be difficult to assess how premises will be used in the future does not mean that the range of available materials for making that assessment should be limited, by excluding, in the interests of expediency, the most important consideration.
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.
100 For these reasons, I do not accept the reasoning in the ATO's private rulings. Those rulings followed the revised terms of paragraph 19 of the ATO's GST Ruling 2000/20. However, neither that paragraph, nor the private rulings, explain how the terms of s 40-65(1) are satisfied merely by a consideration of the physical characteristics of the premises.
101 In my view, the subjective intentions of the purchaser, and the objective criteria considered as a whole, show that the proper conclusion to have been drawn at the time of the supply was that the premises were not to be used predominantly for residential accommodation. The trustees' conclusion that this was the case was correct. Indeed, it has been shown to be correct, as neither the purchaser nor anyone else used the premises as residential accommodation after the sale.
102 In his correspondence of 9 September 2003 referred to in paragraph [35] above, Mr Barrak appeared to concede that it was not likely that the purchaser would use the property predominantly for residential accommodation. He contended that by virtue of s 9-30(4) of the GST Act, the sale was input taxed irrespective of the use to which the purchaser proposed to put the property. Landmark did not rely upon this provision in its final submissions. On any view, it could have no application. If, as I have found, the supply to Concrete Pty Ltd was made by the trustees, it was not made in connection with other supplies by the trustees that were input taxed. It is true that the beneficiaries, (Landmark and Toyama) had made previous supplies of the property by way of lease which were input taxed. However, the supply by sale to Concrete Pty Ltd was not made by the beneficiaries, but by the trustee. Even if it could be treated as a supply by the beneficiaries, the sale to Concrete Pty Ltd was not made in connection with the earlier supplies. Section 9-30(4) is not relevant.
103 Landmark did not submit that the purchaser's intention that the new units to be constructed on the land be used as residential accommodation satisfied s 40-65(1). They are not the residential premises sold.
104 There is another difficulty with s 40-65(1), but its resolution would not resolve the present issue. The difficulty is that it is clear from the words "to the extent that" in s 40-65(1), and from s 9-80, that a sale or lease of real property may have to be apportioned between that part which is input taxed because it is to be used predominantly for residential accommodation, and that which is a taxable supply. However, no apportionment arises unless a use is not to be "predominantly" for residential accommodation. If residential premises were to be used partly as a residence and partly for commercial purposes, no question of apportionment would arise if the predominant use of the premises was to be for residential accommodation. In other words, it would not simply be a matter of saying that part of the premises was to be used for commercial purposes and part as a residence and apportioning the supply accordingly, as that would give no work to the word "predominantly". However, this difficulty exists irrespective of which approach to the construction of s 40-65(1) and para 40-35(2)(a) is adopted.
105 For these reasons, I consider that the trustees were correct in describing the sale as a taxable supply. Concrete Pty Ltd did not intend to use the land and existing buildings for residential accommodation. It intended to demolish the existing buildings. The objective circumstances at the time of sale indicated that this was probable. That is why the property was marketed as a development site. The fact that the existing buildings were constructed as a residence made them "residential premises", even though they were not, at the time of sale, occupied as a residence. However, they were not residential premises which were, to any extent, to be used predominantly for residential accommodation. They were therefore not input taxed pursuant to s 40-65(1).
106 It follows that as the trustees acted correctly, they cannot be liable for breach of trust.
Trustees' Liability if the Sale was Input Taxed
107 If I am wrong in my interpretation of subs 40-65(1), it does not follow that the trustees committed a breach of trust. As I have said in para [51], I accept that the trustees' duty was to act on the sale of the property with the degree of care a reasonable, prudent man of business would exercise in selling his own property.
108 On the other hand, Landmark submitted that it is not a defence that the trustees acted on advice, if the advice was wrong. It relied on National Trustees Executors & Agency Company of Australasia Ltd v General Finance Co of Australasia Ltd [1905] AC 373 at 379.
109 National Trustees Executors & Agency Company of Australasia Ltd v General Finance Co of Australasia Ltd is not germane to this case. There, the trustees breached their trust by paying trust moneys to persons not entitled. They could not rely upon their having acted on the advice of competent legal advisers to establish that there was no breach of trust, when the terms of the trust required them to hold the trust property for others. The obligation to hold the trust property for, or pay it to, the persons entitled, is not an obligation whose touchstone is reasonableness or prudence. The trustees' duty is to adhere to the terms of the trust. On the other hand, in the management of the trust business, a trustee should exercise the same diligence and prudence as an ordinary prudent man of business would exercise in conducting that business as if it were his own. (Fouche v Superannuation Fund Board at 641; Jacobs, Law of Trusts in Australia, 6 ed, para [1718]). In asking whether a trustee has exercised the care and diligence expected of an ordinary prudent man of business, it is clearly relevant, although it may not be decisive, that he acted on the advice of competent advisers.
110 The trustees were not under an absolute duty to state correctly whether the sale was a taxable supply.
111 Without conceding that the trustees' duty was merely one of exercising reasonable care and diligence, Landmark nonetheless submitted that the trustees did not act with reasonable care and diligence. Landmark submitted that: