Vatner v Chief Commissioner of State Revenue

Supreme Court of NSW|2024-05-01|Before: Richmond J

JUDGMENT

These proceedings concern the imposition of land tax on the plaintiff in respect of Lots 1, 2 and 3 in strata plan 4655 (SP4655) (Lots 1 to 3), located at 25 Kenneth Street, Tamarama (the 25 Kenneth Street Property) for the 2020, 2021, and 2022 land tax years (relevant years). Following substantial construction work involving reconfiguration of the lots, they were subsequently amalgamated to become lot 7 of strata plan of subdivision 107340 (SP107340) (Lot 7). SP107340 was registered on 21 February 2024.
The plaintiff, Mr Vatner, as registered proprietor of the land, was assessed for land tax for the relevant years on Lots 1 to 3 (the Assessments). On 28 April and 30 August 2022, Mr Vatner's objections to the Assessments were disallowed by the defendant, the Chief Commissioner of State Revenue (Commissioner). By amended summons filed on 5 September 2022, Mr Vatner brings an appeal under s 97 of the Taxation Administration Act 1997 (NSW) seeking to set aside the Assessments.
The issue in the proceedings is whether the land is exempt from land tax under the principal place of residence (PPR) exemption found in s 10(1)(r) of the Land Tax Management Act 1956 (NSW) (LTM Act).
At the commencement of the hearing, a view was conducted pursuant to s 53 of the Evidence Act 1995 (NSW) in order to obtain a better understanding of the spatial characteristics of the land.

Statutory Scheme

Land tax is levied on the taxable value of all land in New South Wales owned by a taxpayer at midnight on 31 December immediately preceding the year for which land tax is levied (being a calendar year commencing on 1 January) which is not exempt from taxation: ss 7 and 8 of the LTM Act; Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378 at [34] per White J (Barrett and Leeming JJA agreeing).
In the case of a lot under the Strata Schemes Development Act 2015 (SSD Act), the basis on which land tax is charged is set out in s 9B of the LTM Act which provides: (1) Land tax, in the case of land subject to the Strata Schemes Development Act 2015, is to be levied and paid in respect of each lot comprised in a parcel. (2) For the purposes of this Act - (a) the land value of a lot comprised in a parcel is an amount that bears to the land value of the parcel (within the meaning of section 9 (4)) the same proportion as the unit entitlement of the lot bears to the aggregate unit entitlement, and (b) the average value of the lot is to be ascertained on the basis of the land value of the lot, as determined under paragraph (a). (3) Expressions used in this section have the same meanings as in the Strata Schemes Development Act 2015.
The entitlement to an exemption from land tax is generally determined having regard to the facts and circumstances as at the taxing date for the relevant land tax year (being midnight on the immediately preceding 31 December). In the present case this is midnight on 31 December 2019 for the 2020 land tax year, 31 December 2020 for the 2021 land tax year and 31 December 2021 for the 2022 land tax year.
Section 10(1)(r) contains the relevant exemption relied on in this case. It provides an exemption for 'land that is exempt from taxation under the principal place of residence exemption, as provided for by Sch 1A'.
Cl 2 of Sch 1A provides: (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 residential land, or (b) a strata lot or, subject to this Schedule, land comprised of 2 or more strata lots. (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. (3) If the owner of land is entitled to the exemption conferred by this Schedule, no other person is liable to be assessed for taxation under this Act in respect of the land during the period of the owner's entitlement to the exemption. (4) The exemption conferred by this Schedule 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.
The term 'principal place of residence' is defined in s 3(1) of the LTM Act to mean 'the one place of residence that is among the one or more places of residence of the person within and outside Australia, the principal place of residence of the person'.
The term 'residential land' is defined in cl 3 to mean: …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.
The term 'strata lot' is defined in cl 1(1) to mean 'a lot under the Strata Schemes Development Act 2015'.
It follows that cl 2 only applies to land if: 1. it is a parcel of residential land or alternatively either a strata lot or, subject to the other provisions of Sch 1A, land comprised in two or more strata lots; 2. it is used and occupied by the owner as the principal place of residence of the owner of the land (and must have been so used and occupied since 1 July in the immediately preceding tax year or alternatively the Commissioner must be satisfied that the land is used and occupied by the person as their principal place of residence); and 3. none of the restrictions in Part 4 of Sch 1A applies.
The statement in cl 2(1)(b) that the provision will extend to land comprised of two or more strata lots 'subject to this Schedule' appears to be a reference to cl 14 which is the only provision of Sch 1A which qualifies the entitlement of two or more strata lots to the PPR exemption. This conclusion is consistent with the legislative history of cl 2(1)(b) which at the time Sch 1A was originally introduced (by State Revenue Legislation Further Amendment Act 2003 (NSW)) only extended to a single strata lot. By the amendments to Sch 1A made by State Revenue Legislation Amendment Act 2008 (NSW) (2008 Act), cl 2(1)(b) was amended to take its present form and cl 14 was also introduced to impose certain restrictions on the claiming of the PPR exemption for two or more strata lots (see below). At the same time, cl 13 was introduced which imposes a similar qualification for a parcel of residential land comprised of 2 or more lots of land, and because cl 13 is in Part 4 the operation of cl 2(1)(a) is subject to cl 13 through cl 2(5).
Cl 6 provides for a concession (confirmed by its heading) which extends the PPR exemption in cl 2 to unoccupied land which is not at the taxing date but is intended (after completion of construction works) to be the owner's principal place of residence. Cl 6 provides: Concession for unoccupied land intended to be owner's principal place of residence (1) An owner of unoccupied land is entitled to claim the land as the owner's principal place of residence if the owner intends to use and occupy the land solely as the owner's principal place of residence. In such a case, the owner is taken, for the purpose of the principal place of residence exemption, to use and occupy the unoccupied land as the owner's principal place of residence. (2) This clause does not apply unless - (a) the land is unoccupied because the owner intends to carry out, or is carrying out, building or other works necessary to facilitate the owner's intended use and occupation of the land as a principal place of residence, and (b) if those building or other works have physically commenced on the land, no income has been derived from the use and occupation of the land since that commencement, and (c) the intended use and occupation of the land is not unlawful. (3) This clause applies in respect of the assessment of a person's ownership of land only in the period of - (a) 4 tax years immediately following the year in which the person became owner of the land, or (b) if, after the person became owner and before the building or other works physically commence, the land is used and occupied for residential purposes by another person - 4 tax years immediately following the tax year in which the other person ceases to use and occupy the land for those purposes. (4) Without limiting subclause (3) (a) - (a) this clause does not apply in respect of the assessment of a person's ownership of land in a period referred to in subclause (3)(b) unless the Chief Commissioner is satisfied that, by the end of the first of the 4 tax years concerned - (i) the building or other works will be, or have been, physically commenced, or (ii) significant steps will be, or have been, taken to enable those works to physically commence, and (b) if the building or other works are not physically commenced by the end of that tax year (or the Chief Commissioner is not satisfied that, by the end of that tax year, significant steps have been taken to enable those works to physically commence) - (i) the principal place of residence exemption applying by operation of this clause to the land is taken not to have applied to the land in respect of that tax year (unless subclause (3) (a) applied to the assessment in that tax year), and (ii) land tax liability is to be assessed or reassessed accordingly. (5) If the principal place of residence exemption applies by operation of this clause to land not actually used and occupied by a person as the person's principal place of residence on a taxing date, that exemption is revoked if the person fails to actually use and occupy the land as the person's principal place of residence by the end of the period in which this clause applies in respect of the assessment of the person's ownership of the land and to continue to so use and occupy the land for at least 6 months. (6) The effect of the revocation is that the principal place of residence exemption is taken not to have applied to the land in respect of any tax year to which, but for the revocation, it would have applied. Land tax liability is to be assessed or reassessed accordingly. (6A) For the purposes of section 9 (3) (c) of the Taxation Administration Act 1996, any reassessment under this clause is authorised to be made more than 5 years after the initial assessment. (7) This clause does not apply in respect of land owned by a person if - (a) the person or any member of the person's family (within the meaning of clause 12) is entitled to have the person's or member's actual use and occupation of other land taken into account under section 9C or 9D or under this Schedule, or (b) the person owns land outside New South Wales that is the principal place of residence of the person or a member of the person's family (within the meaning of clause 12), or (c) the land, or the land if combined with any adjoining land of which the person is an owner, is capable of having more than 2 residences or residential units lawfully built on it. (7A) The Chief Commissioner may extend the period of 4 tax years in subclause (3)(a) or (b) to a period of up to 6 tax years if the Chief Commissioner is satisfied - (a) there has been a delay in the completion of the building or other works necessary to facilitate the owner's intended use and occupation of the land as a principal place of residence, and (b) the delay is due primarily to exceptional circumstances beyond the control of the owner, and (c) the delay could not reasonably have been avoided by the owner. (7B) The Treasurer may, for the purposes of subclause (7A), approve guidelines by publishing the guidelines in the Gazette. (7C) The Chief Commissioner must, when making a decision under subclause (7A), consider any guidelines approved under subclause (7B). (8) For the purposes of this clause - unoccupied land means land that is not being used or occupied for any purpose.
Cl 6 was included in Sch 1A at the time of its original introduction to the LTM Act by State Revenue Legislation Further Amendment Act 2003 (NSW).
As noted above, cl 13 was introduced by the 2008 Act and extends the PPR exemption to a parcel of residential land which comprises 2 or more lots of land where the lots are adjoining, the lots are in the same ownership and the lots are the site of a single residence (which is used by the owner or one of them as a principal place of residence).
The 2008 Act also included cl 14 which, in conjunction with cl 2(1)(b), extends the PPR exemption to land comprised of two or more strata lots and provides: 14 Application of exemption to residence comprised of 2 or more lots in a strata plan (1) The principal place of residence exemption does not extend to land that is comprised of 2 or more strata lots, 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 strata lots (excluding any ancillary lot) have adjoining walls or floors, and (b) the strata lots are in the same ownership, and (c) the strata lots comprise a single residence (excluding any additional residential occupancy that may be disregarded under clause 4). (1A) Strata lots are in the same ownership if - (a) 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, or (b) each lot is beneficially owned by the same person or, if any of the lots have more than one beneficial owner, each lot is beneficially owned by the same persons (subject to clause 11). (2) For the purposes of this clause, 2 or more strata lots are not to be regarded as comprising a single residence unless there is internal access between all the strata lots (other than any ancillary lot), such as internal connecting doors or internal staircases. (3) In this clause - ancillary lot means a strata lot that is used for purposes ancillary to another strata lot and which is not used or adapted for habitation (for example, a garage or storage area).

Evidence

The plaintiff gave evidence by several affidavits and was cross-examined. In addition, the plaintiff read affidavit evidence of the plaintiff's partner, Ms Helena Vatner, and his solicitor, Mr Michael Soulos. The plaintiff also relied on affidavits of two other lot owners in the 25 Kenneth Street Property being Ms Rosie Reeman and Mr Mark Newson and the managing director of the builder, Mr David Lavings, who were not required for cross-examination. The defendant read the affidavit evidence of Ms Lisa Springer.
The plaintiff and defendant both relied upon expert town planning evidence provided by Mr Karavanas and Ms Fortu respectively. The town planning experts were cross-examined simultaneously on the first day of the hearing.
The town planning experts were largely in agreement, however differed on one point that assumed significance at the hearing: whether the issuance of a new development consent by the Council in 2012 (and subsequently modified in 2017 and 2021) meant that the previous development consent issued in 1969, and the occupation certificate issued in 1970, were impliedly withdrawn and hence no longer permitted the construction of 6 units on the 25 Kenneth Street Property. This evidence was relied on by the parties in support of their respective contentions regarding the potential application of cl 6(7)(c) of Sch 1A. As I will explain below, it is not necessary to resolve this point for the purposes of the present case.
The plaintiff also relied upon an affidavit and expert report of Mr Michael Strazds, the architect who designed the redevelopment of the 25 Kenneth Street Property, who was also cross-examined.

Issues

The defendant assessed Mr Vatner for land tax on the taxable value of Lots 1, 2 and 3 of SP4655 for each of the relevant years in accordance with s 9B of the LTM Act. The defendant rejected Mr Vatner's claim for the PPR exemption.
Mr Vatner claims the PPR exemption for Lots 1, 2 and 3 in SP4655 on the basis that his use and occupation of those lots on the relevant taxing dates satisfied the requirements of cl 2 of Sch 1A read with cl 6. The issues raised by the claim can be conveniently identified as follows: 1. Whether cl 6 apart from cl 6(7)(c) is satisfied in respect of Lots 1, 2 and 3 in SP4655 for any of the relevant years? 2. If cl 6 is otherwise satisfied, does cl 6(7)(c) disentitle the plaintiff from claiming the exemption because the land was 'capable of having more than 2 residences or residential units lawfully built on it'? 3. Does cl 14 disentitle the plaintiff from claiming the exemption?

Was cl 6 satisfied for Lots 1 to 3 in the relevant years?

Plaintiff's submissions

The plaintiff contends that the PPR exemption applies because at all relevant times he intended to make the reconfigured Lots 1 to 3 his principal place of residence and therefore the land was unoccupied land which satisfied the requirements of cl 6(1) of Sch 1A. The fact that there was to be the registration of a new strata plan, a change to the lot designation, and changes to the previous boundaries does not alter that conclusion because the space that would become his principal place of residence was the space that Lots 1 to 3 occupied. Mr Vatner's evidence should be taken as intending merely that the new apartment would be his principal place of residence, and not that he intended only to live in Lot 7 (as it would eventually be recorded in the register), as that was merely used as a shorthand in his evidence to describe the amalgamated apartment.
The plaintiff submits that this is consistent with the general scheme of strata title, and Mr Vatner's subjective intention to live in the amalgamated apartment. Mr Vatner did not have a separate specific intention to live in Lot 7 as opposed to Lots 1 to 3; he had an intention to live in a reconfiguration of those lots. The amalgamated apartment existed prior to the registration of Lot 7. The test in cl 6 looks at the taxpayer's intention to use and occupy an apartment as the principal place of residence for the taxpayer. That intention test is unaffected by the state of title to the land, and all that is required is that the taxpayer was the owner of the land (in this case comprised of Lots 1 to 3). The inquiry for cl 6(1) ought to be focussed on the intention to physically use the land as a single residence, and not by reference to the classification of the land in the register.
It was submitted that approaching the construction of cl 6 in this way is consistent with the need to construe statutory provisions within their context: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [69]. The application of Sch 1A of the LTM Act must be understood by reference to the general law that applies to strata lots embodied in the SSD Act and the physical characteristics of the development of the 25 Kenneth Street Property. The building containing Lots 1 to 3 was completely demolished and in the place that they previously occupied, the four-storey apartment was created.
The Commissioner's insistence that there be an exact match between the boundaries and entitlements of the strata lots before and after construction ignores the effect of the Environmental Planning and Assessment Act 1979 (NSW) and the fact that very rarely, if ever, will a redevelopment of a strata building precisely match lots pre- and post-redevelopment.

Defendant's submissions

The defendant contends that on a proper construction of cl 6 there is no scope for the application of the PPR exemption to Lots 1 to 3 because the plaintiff did not, at the relevant taxing dates, intend that land to be his principal place of residence. The plaintiff only ever intended to make Lot 7 in the new strata plan his principal place of residence. There is nothing in the text of the LTM Act that would suggest that this intention could be imputed to Lots 1 to 3 during the relevant taxing year. Lot 7 was materially different to Lots 1 to 3, because it included an additional level and absorbed parts of the common property of the 25 Kenneth Street Property. That intention had manifested by the time of the submission of the plans to the Council in 2017. The plaintiff's intention, at each of the relevant taxing dates, was not to simply keep the existing structure and remove some internal walls and insert access points to reconfigure the three units into one single unit.
The application of cl 6(1) to 'the land' requires that there be a consistent identity to that land, and if there is any change or modification to that identity it must be provided for in the taxing statute. The 'land' for the purposes of the Assessments were each of Lots 1 to 3. The plaintiff had to show that this was unoccupied land that he intended to make his principal place of residence. The plaintiff has failed to do that, because his intention was to make an entirely new strata lot, with different boundaries and physical characteristics, his principal place of residence. Moreover, it is inaccurate to say that the lots have entirely ceased to exist in the period prior to the finalisation of the redevelopment works. They remain recorded in the register and come with various rights, including the rights under the Deed of Agreement.
The defendant submitted that this interpretation is consistent with the structure of the PPR exemption. Cl 2(1)(b) provides that the exemption may apply to 'land comprised of 2 or more strata lots', and cl 14 provides for the circumstances in which that approach applies. Accepting that the requirement in cl 14 that the lots be used and occupied by the owner of the lots is subject to cl 6 makes no difference to this analysis. The plaintiff simply cannot satisfy cl 6(1) because he never had the requisite intention in respect of the Lots 1 to 3. In effect, the concession in cl 6 is not sufficiently broad to accommodate a major redevelopment of a strata scheme of the type in the present case where the previous lots cease to exist, and a materially different new lot takes their place.

Consideration

The word 'land' is not defined in the LTM Act but cl 2 of Sch 1A identifies the land to which the PPR exemption applies as including, relevantly, a strata lot or 'subject to this Schedule' land comprised of two or more strata lots. As noted above, the words 'subject to this Schedule' are a reference to cl 14 of Sch 1A.
It is necessary, therefore, to identify the nature of a 'strata lot'. That term is defined in cl 1(1) to mean a lot under the SSD Act. A 'lot' in relation to a strata scheme is defined in s 4(1) in the SSD Act as one or more cubic spaces shown on a floor plan relating to the strata scheme. 'Floor plan' is also defined in s 4(1) and is required to be included in the strata plan (s 10(1)) or strata plan of subdivision (s 13(3)) as the case may be. The boundaries of a lot are described in s 6 of the SSD Act. In the case of SP4655, the boundaries of Lots 1, 2 and 3 were the inner surface of walls making a vertical boundary in which the base of the wall corresponded substantially with a base line shown on the floor plan for that strata plan, the upper surface of the floor and the under surface of the ceiling, together with each balcony for those lots shown on the floor plan to a height of 8 feet and 6 inches: B Edgeworth, Butt's Land Law (Lawbook Co, 7th Ed, 2017) at [13.90]. The 'common property' in relation to a strata scheme is a residual category being 'any part of a parcel that is not comprised in a lot including any common infrastructure that is not part of a lot': s 4(1), SSD Act.
A lot also confers an interest (held by the owners corporation as agent for the owners as tenants in common) in the common property of the strata scheme proportional to the unit entitlement of the owner's lot: s 28(1), SSD Act. This can be described as an equitable interest as a tenant in common with other lot owners and as a proprietary right: Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 at 56; B Edgeworth, Butt's Land Law at [13.110]. Each lot owner's interest in the common property cannot be severed from, or dealt with separately from, the owner's lot: s 28(2), SSD Act.
For a freehold strata scheme such as SP4655 (and SP107340), an 'owner' of a lot means 'a person for the time being recorded in the Register as entitled to an estate in fee simple in the lot': s 4(1), SSD Act.
It follows that in the case of Lots 1 to 3 in SP4655, each lot was 'land' for the purposes of cl 2(1)(b) (and Sch 1A more generally) comprising a particular cubic meterage of air space identified by reference to the floor plan for the strata plan. This is consistent with the common law notion that land can encompass an identified part of the airspace above the surface of the land: Bursill Enterprises Pty Ltd v Berger Bros Trading Co Pty Ltd (1971) 124 CLR 73 at 91-2. That is not to deny that the congeries of rights possessed by the owner of a lot in a strata plan is not limited to rights in respect of cubic meterage of airspace but also extends to all the rights conferred on a lot owner under the SSD Act, including the equitable interest in the common property arising from s 28(1). Rather it is to recognise that the definition of 'strata lot' in cl 1(1), by importing the definition of 'strata lot' in the SDD Act, is focusing on the airspace represented by the lot as the relevant 'land' for the purposes of Sch 1A.
A lot or common property may be subdivided by registration of a strata plan of subdivision (s 13(1)). A 'subdivision' of a lot or common property is defined by s 7(1) to mean 'the alteration of the boundaries of (a) one or more lots to create only 2 or more different lots, (b) one or more lots to create one or more different lots and common property, (c) one or more lots and common property to create one or more different lots or one or more different lots and common property, or (d) common property to create one or more lots'. SP107340 is a strata plan of subdivision (falling within para (c) of the definition of 'subdivision') and as a consequence of s 13(1), it was the registration of SP107340 on 21 February 2024 that caused Lot 7 to come into existence.
The scheme of Sch 1A as it applies to strata lots can be summarised as follows: 1. Cl 2(1)(b) confers an exemption from land tax in respect of a strata lot or (if cl 14 is satisfied) two or more strata lots, where that lot (or lots) is used and occupied by the owner as his or her principal place of residence and for no other purpose, on the relevant taxing date (being midnight on 31 December immediately before the commencement of the land tax year). 2. The entitlement to claim the exemption in respect of two or more lots which are used or occupied as the owner's principal place of residence is qualified by cl 14 which requires that the strata lots have adjoining walls or floors, are in the same ownership and comprise a single residence. In relation to the last of these requirements, the relevant lots will only be a single residence if there is internal access between all the strata lots (other than any ancillary lot) such as internal connecting doors or internal staircases. The words 'such as' indicate that internal connecting doors or internal staircases are not the only way in which the internal access requirement can be satisfied. 3. Cl 6 contains a concession which permits the claiming of the exemption under cl 2 in respect of land which is unoccupied because the owner intends to carry out or is carrying out building or other works necessary to facilitate his or her intended use and occupation of the land as a principal place of residence (cl 6(2)(a)). The purpose of cl 6 is to extend the exemption in cl 2(1) to land which is unoccupied for that reason and consequently would not satisfy the key requirement of cl 2(1) which is that the land be used and occupied by the owner as his or her principal place of residence on the relevant taxing date. It achieves this by deeming the owner, for the purposes of PPR exemption, 'to use and occupy the unoccupied land as his or her principal place of residence' (cl 6(1)). 4. While cl 6 does not specifically refer to a strata lot or lots there is no reason why it should not apply to a strata lot or lots, the definition of 'unoccupied land' being equally applicable to both categories of land identified in cl 2(1)(a) and (b). 5. The concession in cl 6 contains a number of restrictions, the only ones relevant in the present case being first, that the owner of the unoccupied land intends to use and occupy the land solely as his or her principal place of residence and second, the exclusion in cl 6(7)(c) where the land is capable of having more than two residences lawfully built on it.
The central requirement of cl 6(1) is that 'the owner of the unoccupied land…intends to use and occupy the land solely as his or her principal place of residence'. The reference to 'the land' is to the 'unoccupied land' which is the land owned by the taxpayer at the taxing date for the relevant land tax year which is otherwise subject to tax under ss 7, 8 and 9B of the LTM Act. That is 'the land' which the taxpayer is entitled to claim as his or her principal place of residence if the necessary intention is held. The necessary intention is as to the use and occupation of 'the land' owned at the taxing date for the relevant land tax year in which the land is unoccupied, and the question whether the taxpayer has the relevant intention is to be determined at that taxing date.
In the present case, the unoccupied land as at each taxing date (being midnight on 31 December 2019, 31 December 2020 and 31 December 2021) was Lots 1 to 3 in SP4655. As indicated above, that land was the total cubic meterage of air space identified for those lots in SP4655. Hence, the question for determination is whether the plaintiff had the intention at the relevant taxing dates to use and occupy that cubic meterage of air space as his principal place of residence once the building works permitted by the Development Consent were complete.
In my opinion, the answer to that question is no because the plaintiff did not intend at each of the relevant taxing dates to use and occupy all of the unoccupied land as his principal place of residence. What he intended to occupy as his principal place of residence was the cubic meterage of air space which would comprise Lot 7 in SP107340 being a four-level apartment occupying a significantly different cubic meterage of air space than Lots 1 to 3 in SP4655 as a result of both of the transfer of part of the common property to Lot 7 and the excision of cubic meterage of air space from Lots 1 to 3.
This conclusion turns on the construction of 'the land' appearing twice in the first sentence of cl 6(1) as a reference to the 'unoccupied land' first referred to in the clause, and involves giving those words their ordinary and natural meaning in the context in which they appear, which is as part of an exemption which necessarily relates to the land which the taxpayer owns at the relevant taxing date and which would otherwise be subject to land tax. To require a conformity between the unoccupied land and the land intended to be occupied by the taxpayer as his or her principal place of residence is consistent with cl 6(2)(a) which requires that the relevant works be undertaken to facilitate the intended use and occupation of 'the land' as a principal place of residence which again must be a reference to the unoccupied land owned at the relevant taxing date.
At the very least, the proposed residence must be intended to be located on all the land which is owned by the taxpayer on the taxing date, given the context of cl 2 which is the provision of an exemption for land which would otherwise be subject to land tax for the relevant land tax year. It would be an odd result, and one which Parliament could not have intended, if cl 2 through the operation of cl 6 gave an exemption for land in circumstances where part of that land is not intended to be used and occupied as the taxpayer's principal place of residence once construction of the proposed residence is complete.
The plaintiff contended that the difference between the cubic meterage of airspace represented by Lots 1 to 3 on the one hand, and Lot 7 on the other, is de minimis and could be ignored. It may be accepted that unless a contrary intention appears, a statute is to be construed in accordance with the principle of the maxim de minimis non curat lex (the law does not concern itself with trifling matters): see eg. Farnell Electronic Components Pty Ltd v Collection of Customs (1996) 72 FCR 125 at 127-31. Whether something is so trivial that it can be ignored will depend on the context of the statutory provision in question. The creation of Lot 7 involved the transfer to Lot 7 of 174.55 m2 of common property and the excision of 4.25 m2 formerly part of Lots 1 to 3. In my view, neither can be regarded as de minimis. In relation to the 4.25 m2 excised from Lots 1 to 3, this had a market value of $24,900 and the land tax attributable to this area in the 2021 land tax year is $688. It is approximately the same amount for the other two land tax years and consequently the aggregate amount of land tax attributable to the 4.25 m2 for which an exemption is claimed is a little over $2,000 for all the relevant years. Those amounts are not trivial. The effect of the taxpayer's argument would be that cl 2, through the operation of cl 6, would provide an exemption for those amounts of land tax in respect of land which was not, at the relevant taxing dates, intended ever to form part of the taxpayer's principal place of residence.
For the above reasons, in my opinion, the PPR exemption does not apply to Lots 1 to 3 for the relevant years.
While the above conclusion means that the other issues referred to at [38] above do not arise, I will address them briefly below in case the matter goes further.

Is the land capable of having more than two residences or residential units built upon it?

Plaintiff's submissions

The plaintiff submitted that on its proper construction cl 6(7)(c) could have no application to strata lots because it is principally directed to the construction of residences or residential units on freehold land, and not to the reconfiguration or redevelopment of strata lots.
The plaintiff's submission was that the concept of 'land' in the LTM Act was largely unworkable by reference to the applicable law governing strata lots (ie. the Strata Schemes Development Act) as the effect of that law is to vest title in the land on which the strata building is erected in the owners corporation. Therefore, the only application of cl 6(7)(c) is to the owner of freehold land that is capable of bearing a building or structure that houses two or more residences or residential units. Mr Vatner does not meet this description, because he is merely the owner of Lots 1 to 3 and then Lot 7. No owner of a strata lot could ever own the 'land' on which the strata building is erected, because that land is owned by the owners corporation. A strata lot owner is only entitled to their ownership of the lots in a building that exists at the taxing date.
In the alternative, even accepting that strata lots could constitute 'the land' for the purposes of Sch 1A, the plaintiff submitted that the exception to the concession in cl 6(7)(c) should only be construed in a manner which made a workable arrangement to the exception to the concession, and not in a way that would deprive a significant number of land owners without an intention of building two or more residences on their land of the benefit of the PPR exemption.
In any event, even if Lots 1, 2 and 3 were taken to be the land for the purposes of cl 6(7)(c) they were not capable of having multiple residences or residential units lawfully built on them. For this point, the plaintiff relied on the evidence of his expert, Mr Karavanas. He gave evidence that his opinion was that the previous development consent issued in 1969, pursuant to which the previous structures at the 25 Kenneth Street Property had been constructed, was extinguished by the issuance of the development consent in 2012 and the subsequent modifications.

Defendant's submissions

The Commissioner contended that cl 6(7)(c) was drafted in a broad manner that ought to be given effect in the current proceedings. The phrase used is that the land 'is capable of' having more than 2 residential units or residences built upon it. The clause applies at the time that the exemption is invoked (ie. at the relevant taxing dates for each of the relevant years).
The Commissioner's submission was that at each of the relevant taxing dates Lots 1 to 3, being adjoining land owned by the plaintiff, were capable of having three residential units lawfully built under planning laws. In the context of Sch 1A as a whole, strata lots fall within the scope of 'land' and 'residences'. Counsel for the Commissioner accepted that the land not only had to be physically capable of having more than two residences or residential units built upon it, but it would also have to be capable for those residences to be lawfully built.
In support of its contention that the Lots 1 to 3 were capable of having three residential units or residences lawfully built on them at the taxing dates, the Commissioner relied on the evidence of its expert, Ms Fortu. Ms Fortu gave evidence that her opinion was that the previous development consent and occupation certificates remained valid and were not impliedly revoked by the Council when the development consent was issued in 2012 (and similarly when various modifications were approved). The construction preferred by the Commissioner was that all that was required was that the land in question was capable of having more than two residences built on it under the Environmental Planning and Assessment Act 1979 (NSW). That does not require that a consent be actually in place for the construction of those residences, merely that the land was zoned in such a way that a consent was reasonably possible.
Counsel for the Commissioner acknowledged that there was potentially a very broad application of the provision if the phrase 'is capable of' extended to circumstances where a party could, but at the time of the taxing date had not, approached a council to obtain a development consent to build more than two residences on land.
However, the only inquiry for the Court is whether three residences could lawfully be built on Lots 1, 2 and 3 on the taxing dates. In support of the proposition that this was so, the defendant relies upon Ms Fortu's expert opinion that the previous development consent issued in 1969 remained valid, pursuant to which three residential apartments could be constructed in the previous building 'envelope' for Lots 1 to 3. At its broadest, the Commissioner's submission was that the possibility of an amendment to the Development Consent to permit the building of three residences on Lots 1, 2 and 3 meant that they fall within the scope of cl 6(7)(c).

Consideration

Cl 6(7)(c) excludes the operation of cl 6 to land if 'the land, or the land if combined with any adjoining land of which the person is an owner, is capable of having more than two residences or residential units lawfully built on it.'
The expression 'residential units' is defined in s 3(1) of the LTM Act to mean a flat that forms part of a building comprising two or more flats and is used and occupied as principal place of residence, and for no other purpose, by a person who is a joint owner of the parcel of land on which the building is erected and who has entered into an arrangement with the other joint owners of the land under which the person has the exclusive right occupy that flat. The expression 'flat' is defined in s 3(1) to mean a room or a suite of rooms used to occupy as a separate dwelling or so constructed so as to be capable of such use.
Given the definition of 'residential unit', that expression is not capable of applying to the land comprising strata lots, and so the question in the present case is whether on the taxing dates Lots 1, 2 and 3 (being the land to which cl 6 applies) were capable of having more than two residences lawfully built on them. The term 'residence' is not defined in the LTM Act
There is some uncertainty as to the scope of the requirement that the land is not 'capable of having more than two residences…built on it'; particularly as the purpose of cl 6(7)(c) is not identified in the explanatory notes for State Revenue Legislation Further Amendment Act 2003 (NSW), which introduced Sch 1A including cl 6(7)(c), or in the second reading speeches. However, for the reasons which follow, it is not necessary to explore the full extent of the operation of cl 6(7)(c) in order to determine its potential application in the present case.
The ordinary meaning of 'capable of' is 'having the ability, strength, etc, to; qualified or fitted for' (Macquarie Dictionary). In the present context, the requisite capability is qualified by the word 'lawfully'.
The Commissioner's submission that 'lawfully' means that the construction of more than two residences must be compliant with planning laws may be accepted, but it is not the only matter to which regard may be had. The requirement that more than two residences are capable of lawfully being built on the land must have regard also to the terms of the Deed of Agreement under which both the plaintiff and the Owners Corporation were contractually bound to implement a Development Consent which only permitted the construction on the land comprising Lots 1, 2, and 3 of the single four-level apartment which became Lot 7 in SP10730. The construction of any other residence or residences on that land would have been in breach of the Deed of Agreement and therefore unlawful: Rookes v Barnard [1964] AC 1129 at 1186, 1201 and 1234; Sankey v Whitlam (1978) 142 CLR 1 at 28.
Accordingly, in my view cl 6(7)(c) is inapplicable to the present case.

Does cl 14 disentitle the plaintiff to the PPR exemption?

Plaintiff's submissions

The plaintiff's primary submission was essentially that cl 14 operates subject to cl 6 and the circumstances in which cl 6 will apply (identified in cl 6(2)(a)) will render cl 14 otiose where at the relevant taxing date there is, due to the construction works, no residence capable of being occupied as a principal place of residence. Put another way, where cl 6 applies, cl 14 should be tested in relation to the subject matter of the taxpayer's intention which, in this case, is a single apartment and hence not one to which cl 14 would apply.

Commissioner's submissions

The Commissioner submitted that in order for the PPR exemption to apply to all of Lots 1, 2 and 3 in SP4655, cl 2(1)(b) needed to be satisfied and this requires Lots 1, 2 and 3 to satisfy cl 14 at the relevant taxing dates. While the words in cl 14(1) 'and that is used and occupied by the lots…as a principle place in residence' can be read as subject to the deeming in cl 6(1), the requirements in cl 14(1)(a)-(c) and cl 14(2) must still be met, and the taxpayer had failed to establish that they were met in the present case. In particular, at midnight on 31 December 2019 the lower part of the block had been demolished and consequently cl 14(1)(c) was not satisfied. In relation to the 2021 and 2022 years, the evidence did not establish the internal layout of the new building which had been constructed by 31 December 2020 so that it was not clear whether there was internal access between all the strata lots because the staircase and lift shown on the plans were not fully situated or existing in the interior of Lots 1, 2 and 3.
If cl 14 is not satisfied, then under cl 2(1)(b) the relevant 'land' for the purposes of the PPR exemption in respect of the relevant years was each of Lots 1, 2 and 3 considered separately. The plaintiff did not have the relevant intention required by cl 6(1) in respect of any of those lots considered separately.

Consideration

Had cl 6 been satisfied in relation to Lots 1 to 3 for the relevant years, I would not have regarded cl 14 as an impediment to the claiming of the PPR exemption for those years.
In my opinion, as the Commissioner submitted, cl 14 does apply in circumstances where cl 6 is relied on. This is clear from the second sentence of cl 6(1) which indicates that cl 6 is not a freestanding exemption but rather is intended to provide a deeming of use and occupation of the unoccupied land which then feeds into cl 2(1) by causing the requirement in the chapeau of cl 2(1) (that the land must be 'used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose') to be satisfied. However, it is then necessary to apply the rest of cl 2(1) to the land, in particular the requirement set out in cl 14 where, as here, the land comprises two or more strata lots.
However, cl 14 needs to be applied taking into account the operation of the deeming in cl 6(1). The unoccupied land to which cl 6 applies can be divided into two categories: first, a single lot which is either residential land or a single strata lot; and second, a parcel of residential land comprising two or more adjoining lots of land or, alternatively, two or more strata lots which are adjoining. In the case of the first category, which is more common than the second, cl 13 and cl 14 have no operation. Hence, the deeming in cl 6(1) operates in a perfectly satisfactory way to deal with the circumstance that due to building works, the relevant land is unoccupied. In the second category, cl 13 and cl 14 impose restrictions on the operation of the exemption. In the case of strata lots, those restrictions are contained in cl 14(1) (a) to (c). Whether they are complied with in relation to the unoccupied land comprising strata lots which satisfy cl 6 needs to take into account that under cl 6(1) those lots are taken (ie. deemed) for the purpose of the exemption in Sch 1A to be used and occupied by the owner as his or her 'principal place of residence'. Given the definition of that expression in s 3(1) of the LTM Act, this is a deeming that at the taxing date the owner is using and occupying the strata lots as his or her one place of residence.
A deeming provision such as cl 6(1) is to be construed in the same way as any other statutory provision, by giving effect to the ordinary and natural meaning of the words used, having regard to the context and purpose of the provision: see eg. Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; [2009] HCA 41 at [4] and [47]. The mere fact that it is a deeming provision is not a reason to give the provision a narrow construction.
This point was made by White J (as his Honour then was) in Newcastle Airport Ltd v Chief Commissioner of State Revenue [2014] NSWSC 1501 when considering the effect of s 49(6) of the Interpretation Act 1987 (NSW) which provided that 'a delegated function that is duly exercised by a delegate shall be taken to have been exercised by the delegator'. The taxpayer (NAL) had employed workers as a means of performing its delegated function of managing the civil aviation facility at Newcastle Airport on behalf of two local councils. The issue was whether the wages paid by it to those workers were exempt from payroll tax under s 58 of the Payroll Tax Act 2007 (NSW) which applied to exempt wages 'if they are paid or payable by a council or county council, within the meaning of the Local Government Act 1993'.
His Honour said: [54] The Chief Commissioner submitted that such a deeming provision is to be construed strictly and only for the purpose for which resort is to be had to it (Federal Cmr of Taxation v Comber (1986) 10 FCR 88 at 96). The Chief Commissioner's argument did not explain how s 49(6) would operate if given a narrow or strict construction as distinct from giving the words used their ordinary and natural meaning. Counsel for the Chief Commissioner submitted that s 49(6) existed "for the purposes of determining whether or not a statutory function has been exercised by the delegator". Undoubtedly, that is true in the sense that the provision provides that where a delegated function has been duly exercised by the delegate, it is taken to have been exercised by the delegator. But that is only to repeat the words of the section. Counsel submitted that the purpose of the provision was "to determine whether or not a statutory function has been exercised". I do not understand that submission because s 49(6) applies only where a delegated function has been duly exercised. [55] In my view the approach to be taken to construing the deeming provision in s 49(6) is the same as in construing any statute. In DCC Holdings (UK) Ltd v Revenue and Customs Commissioners [2010] UKSC 58; [2011] 1 WLR 44 at 58 Lord Walker approved the following passage from the judgment of Peter Gibson J in Marshall v Kerr (1993) 67 TC 56 (at [38]) as follows: [38] Peter Gibson J (with whom Balcombe and Simon Brown LJJ agreed) then stated this principle 67 TC 56, 79 (the same passage also appears at p 92 but with five words accidentally omitted): For my part, I take the correct approach in construing a deeming provision to be to give the words used their ordinary and natural meaning, consistent so far as possible with the policy of the Act and the purposes of the provisions so far as such policy and purposes can be ascertained; but if such construction would lead to injustice or absurdity, the application of the statutory fiction should be limited to the extent needed to avoid such injustice or absurdity, unless such application would clearly be within the purposes of the fiction. I further bear in mind that, because one must treat as real that which is only deemed to be so, one must treat as real the consequences and incidents inevitably flowing from or accompanying that deemed state of affairs, unless prohibited from doing so. In the House of Lords (which reversed the Court of Appeal on a point not taken below) Lord Browne-Wilkinson approved this passage as the correct approach: [1995] 1 AC 148, 164. [56] Lord Walker added (at [39]): [39] Neuberger J developed this reasoning in a passage in Jenks v Dickinson [1997] STC 853; 878,69 TC 458 that I find helpful: It appears to me that the observations of Peter Gibson J, approved by Lord Browne-Wilkinson, in Marshall indicate that, when considering the extent to which one can "do some violence to the words" and whether one can "discard the ordinary meaning", one can, indeed one should, take into account the fact that one is construing a deeming provision. This is not to say that normal principles of construction somehow cease to apply when one is concerned with interpreting a deeming provision; there is no basis in principle or authority for such a proposition. It is more that, by its very nature, a deeming provision involves artificial assumptions. It will frequently be difficult or unrealistic to expect the legislature to be able satisfactorily to [prescribe] the precise limit to the circumstances in which, or the extent to which, the artificial assumptions are to be made. [57] The purpose of s 49(6) is clearly to modify what would otherwise be the position that a delegate is taken to be exercising himself, herself or itself the statutory function that by reason of the delegation is entrusted to the delegate personally… [58] In my view, s 49(6) is to be given its literal interpretation. NAL employed workers as the means of performing its delegated function. This was an incidental function but NAL did so in the exercise of its delegated function. It was duly exercising the delegated function in doing so. Accordingly, its actions in employing staff and paying them are taken to have been done by the councils. Unless there is anything in the Payroll Tax Act or in the instrument of delegation indicating a contrary intention, the effect of s 49(6) is to deem the councils to have paid the wages paid by NAL.
Giving the words of cl 6(1) their ordinary and natural meaning, if cl 6 had been satisfied in relation to Lots 1 to 3, the plaintiff would be deemed for the purposes of, relevantly, cl 14 to use and occupy Lots 1 to 3 as his one place of residence on each taxing date notwithstanding that, in reality, they were not physically capable of being a residence. That one place of residence would be the four-level apartment identified in the approved plans attached to the Development Consent which he intended to occupy on completion of the construction works referred to in cl 6(2)(a). It is a short step to then conclude that this one residence satisfies each of the requirements of cl 14(1). It may be said that this is the ordinary consequence of the deeming in cl 6(1) which requires one 'to treat as real the consequences and incidents inevitably flowing from that deemed state of affairs' (see DCC Holdings (UK) Limited v Revenue and Customs Commissioners [2010] UKSC 58 at [38], set out at [85] above).
Adopting this construction of cl 6(1) and cl 14(1) avoids what may be regarded as a capricious result of the alternative construction put forward by the Commissioner which is that the concession in cl 6 would be available for unoccupied land within the first category set out at [82] above but not the second simply because there is no actual residence against which to test the requirements of cl 14, in circumstances where the concession is directed to the intended use of the land with a single residence on it and not the actual non-use of the land as a residence at the taxing date.
A court has regard to the consequences of a particular construction of a statute where there are two alternative constructions reasonably open and the fact that one of those alternatives has a capricious, unreasonable or absurd result may justify preferring the other construction which does not: Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 at 320-321; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408. In this case, there are two alternative constructions of the relevant provisions which are reasonably open, being the one put forward by the Commissioner and the alternative construction adopted above which gives full effect to the deeming in cl 6(1). The fact that the alternative construction avoids the capricious result referred to in the previous paragraph is a reason for preferring it. It also gives cl 6 a harmonious operation with cl 14 which was introduced into Sch 1A at a time when it contained cl 6. There is nothing in cl 14 to suggest that Parliament intended cl 14 to exclude the operation of cl 6 to unoccupied land to which cl 6 applies merely because the building works to create the proposed residence were in the course of being undertaken.
However, ultimately, the question of whether cl 14 was satisfied does not arise because cl 6(1) was not satisfied for the reasons given earlier.

Conclusion

I will make the following orders: 1. The Assessments are affirmed. 2. The Amended Summons is dismissed. 3. The Plaintiff is to pay the Defendant's costs on the ordinary basis, as agreed or assessed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 June 2024

State Revenue Legislation Amendment Act 2008(NSW)

State Revenue Legislation Further Amendment Act 2003(NSW)

Taxation Administration Act 1997(NSW)

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Judgment (19 paragraphs)

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