Wines v Commissioner for State Revenue (Taxation) [2011] VCAT 310

Mr Kotros of Counsel, instructed by the Solicitor to the Commissioner of State Revenue

1. In this proceeding Mr Wines, the taxpayer, seeks an exemption from Land Tax for his property at No. 16 Silver Street, Malvern.
2. Mr Wines has his residence at No. 14 Silver Street which is contiguous with No. 16. No. 14 is treated for Land Tax as Mr Wines' principal place of residence under Section 54 of the Land Tax Act 2005. Mr Wines says the adjacent No. 16 should enjoy the same exemption.
3. Mr Wines bought No. 16 in 1975 and lived there for some years. In 1980 he bought No. 14 and moved there. He removed the old weatherboard house which had previously stood on No. 14 together with the fence between the two properties. In 1995 he erected a new house on No. 16 'for the use of my family'. Initially this new house was occupied by his daughter Kore but in August 2003 he rented the house to a third party on commercial terms when his eldest daughter left Australia to work overseas. He built a fence around the dwelling at No. 16. This he estimated fenced off approximately one-third of the total land area of No. 16. He retained the other two-thirds as part of the garden for his residence at No. 14.
4. In 2004 the tenant moved out and his younger daughter, Jemma moved in. In March 2005 Jemma went to travel overseas and another third party moved in as tenant on a short-term lease. Jemma returned and lived in the house until June 2006 when she left and a tenant was once again allowed in.
5. This proceeding concerns the 2007 assessment. Mr Wines objected to that assessment by letter dated 20 August 2007. The objection was disallowed by the Commissioner by letter dated 8 May 2008 over the signature of a delegate of the Commissioner. Mr Wines requested that his objection be referred to the Tribunal for review in a letter dated 2 June 2008. The Commissioner made the referral by a letter dated 29 March 2010. Proceedings relative to two other tax years were struck out because Mr Wines refused to pay the filing fees.

1. Section 54 of the Land Tax Act creates an exemption for principal places of residence and also for contiguous land. The requirements for the exemption for the contiguous land which is the exemption in question here are set out in sub-section (3). Section 54 provides as follows:

(1) Subject to this Division, the following land is exempt land -

(a) land owned by a natural person that is used and occupied as the principal place of residence of that person;

(ab) land owned by a person that is used and occupied as the principal place of residence of a natural person who has a right to reside on that land;

(b) land owned by a trustee of a trust that is used and occupied as the principal place of residence of a natural person who is a beneficiary of the trust.

(1A) Despite subsection (1)(ab), land referred to in that subsection is not exempt land unless -

(a) immediately before the natural person who has a right to reside on the land was granted the right, the land was exempt land under section 54(1)(a) or (b); and

(i) an exemption under this Part in respect of any land; or

(ii) an exemption from land tax under a law of any other State or Territory that corresponds to this Part.

(2) Subject to section 55, subsection (1)(a) or (b) only applies if the land has been used and occupied as the principal place of residence of the owner or beneficiary -

(a) since 1 July in the year preceding the tax year; or

(b) if the owner or trustee became the owner of the land on or after 1 July in the year preceding the tax year, since a later date during that year.

(3) In addition to land of an owner that is used and occupied as a person's principal place of residence (the PPR land), land is also exempt land if it is owned by that owner and -

(a) is contiguous with the PPR land or separated from the PPR land only by a road or railway or other similar area across or around which movement is reasonably possible; and

(c) is used solely for the private benefit and enjoyment of the person who uses and occupies the PPR land and has been so used -

(i) since 1 July in the year preceding the tax year; or

(ii) if the owner or trustee became the owner of the land on or after 1 July in the year preceding the tax year, so used and occupied since a later date during that year.

(4) This section applies to land whether owned by a sole owner or joint owners.

1. Mr Wines first took me to a number of important definitions in the Act. He noted first the definition of exempt land as follows:

exempt land means land that is declared by or under this Act to be exempt land;

1. Next he took me to the definition of 'land' itself, as follows:

(a) contiguous or separated only by a road, railway or other similar area across or around which movement is reasonably possible; and

The definition of 'principal place of residence':

principal place of residence includes sole place of residence;

taxable land means land that is not exempt land

1. Next, he referred to Section 54 of the Act which I have quoted above. Finally, he referred to Section 46 of the Act dealing with Land Tax on parts of land. The section is as follows:

If it is necessary to assess land tax on a part of land, the land tax applicable to that part is the proportion of the land tax, assessed on the taxable value of the whole land, that the taxable value of the part bears to the total taxable value of the whole land.

1. Mr Wines submitted that the requirements for exemption under sub-section (3) were made out. He should be liable for tax on no more than one-third of No. 16.

1. According to Mr Kotros, Counsel for the Commissioner, there was no dispute that No. 14 Silver Street qualified for the exemption under Section 54. Again, he conceded that in terms of Section 54(3)(a) of the Act, 16 Silver Street was 'contiguous with the PPR land'. In terms of Section 54(3)(b) he said 'it is difficult to accept that 16 Silver Street, with its separate dwelling and use by a third party, 'enhanced' the PPR land'. In any event he said, even if it could be contended that it enhanced the PPR land it was not pursuant to Section 53(1)(c) 'used solely for the private benefit and enjoyment of the person who uses and occupies the PPR land'. He referred to Landro Pty Ltd v Commissioner of State Revenue [2004] VCAT 1337.
2. As to Mr Wines reliance on Section 46 of the Land Tax Act, Mr Kotros said it was not 'necessary to assess Land Tax on a part of land'. Next he referred to Section 62 headed 'Partial Exemption if Land Used for Business Activities'. He gave this as an example of an instance where it might be necessary to assess Land Tax on parts of a piece of land rather than the land itself.
3. In oral submissions he elaborated the point by referring to various divisions relative to exemptions which required consideration of taxing part of land, namely Sections 65, 70, 73, 74(2), 75(5), 76(3), 76A(3), 77(3), 78(2), 80(2), 81(2) and (3) and 84(2) and (3).

1. Mr Wines denied that the Tribunal decision in Landro provided any analogy with the present dispute.
2. Mr Wines said that Section 46 was 'the hub' of his case. He said that the exemption created by Section 54 and Section 54(3) specifically created the necessity to assess duty on parts of land thereby bringing Section 46 into operation. He said the Commissioner's submission to the contrary was 'dismissive and shows an arrogant indifference to the underlying intention of the Act and honest, hardworking people who should not be penalised by the inappropriate "operation" of the Act'.

1. Since Nos. 14 and 16 are regarded as the appropriate integers of land for the purposes of Land Tax assessment, it is clear in my view that Section 54(3) can have no application to No. 16. As the Commissioner correctly conceded No. 16 is contiguous with No. 14 and so the requirements of Paragraph (a) of the sub-section are met. Despite the Commissioner's quibbles so is paragraph (b) of Section 54(3). Number 16 on the evidence before me provides a substantial additional garden area to No. 14 and therefore enhances it; but the requirements of paragraph (c) are not made out. Number 16 is used on the evidence partly for the private benefit of Mr Wines and his family but also partly for the benefit and enjoyment of Mr Wines' tenant in the residence.
2. Section 46 of the Act provides for an apportionment or if you like a differential treatment of different parts of land for Land Tax purposes but only 'if it is necessary to assess Land Tax on a part of land'. The various sections referred to and relied upon by Mr Kotros are examples where the Land Tax Act creates a differential Land Tax liability for one part of a piece of land from the liability attaching to another. These are examples of the necessity referred to in the opening phrase of Section 46. I reject Mr Wines' contention that Section 54(3) raises such a necessity. There is nothing in Section 54(3) which suggests any differential treatment for land Tax purposes of one part of a piece of land from the treatment of another, indeed the requirement that the land in question be 'used solely' for a particular purpose tends to exclude the possibility of any differential treatment. The piece of land is either used solely for a particular purpose or it is not. If it is used for any other purpose it is not used solely for the first purpose. The requirements of Section 54(3) of the Act for exemption of No. 16 have not been made out.
3. The Section 54(3) exemption includes no reference to 'parcels' therefore the definition of 'parcel' in the Act appears not to be relevant to its operation.
4. What creates the imponderable in this proceeding however is the question what is the integer of land for the purposes of Land Tax liability. To put it another way, if the Land Tax Act, as it does, refers to the liability of 'land' what does it mean? Presumably the land is not being assessed grain by grain of soil. In Commissioner of State Revenue v Famajohn Nominees Pty Ltd (1999) 43 ATR 29 Balmford J on appeal from this Tribunal was considering the liability for Land Tax of a piece of land owned by Famajohn which had previously consisted of two allotments one of which was owned by Famajohn as their trustee, the other as trustee for a discretionary trust. The Tribunal had held that the liability of Famajohn was affected by Section 52 of the Land Tax Act 1958 on the basis that it was:

The owner of different lands in severalty in trust for different beneficial owners who [were] not, by reason of joint occupation or otherwise, liable to be jointly assessed for tax in respect of the same.

1. Her Honour decided the matter in favour of the Commissioner finding that Section 52 did not apply on the basis that the lands were not held in trust by Famajohn for different beneficial owners since the family discretionary trust had no beneficiary with a vested beneficial interest in a trust fund. She concluded however that Famajohn was the owner of 'different lands' because the two parts of the consolidated allotment had previously been on separate titles. Considering the issue of different lands, Her Honour said at paragraph [15]

The concept of 'different lands' in the plural requires that it be possible to define what would be meant, for the purposes of the Act, by 'one land' or 'a land' in the singular, expressions which do not appear in the Act, and which were not employed by counsel, but the use of which helps to clarify the issue.

(1999) 43 ATR 29, 33

1. As we have seen the Land Tax Act both in its 1958 and 2000 version attaches various tax consequences to 'land'. The question is which land, which unit of land or which integer as I have described it?
2. This deceptively simple question does not receive an obvious answer. Mr Wines commenced his enquiry with the definition of land which it will be recalled includes inter alia 'all tenements' and 'all interests in land'. I need not turn to the judicial dictionaries for definitions of the word 'tenement', I assume I will find that it means in effect all interests in land or something of that sort. At any rate the phrase 'all interests in land' is to be found itself as part of the definition.
3. The lessee for a term of three years of a 100 sq m shop in the Chadstone Shopping Centre is the holder of an interest in land. The shop in question would not be comprised in a single title or folio kept under the Transfer of Land Act 1958 yet that leasehold interest is land within the definition in Section 3 of the Land Tax Act. Leaving to one side any lease covenants by which the fee simple owner might seek to pass on part of his Land Tax liability to the lessee, is the lessee directly liable for Land Tax under the land Tax Act. Section 8 of the Land Tax Act provides that it is 'the owner' of taxable land who is liable to pay Land Tax on the land. The question who is the owner is answered by Section 10 of the Act in the following terms:
   1. Who is the owner of land?

(1) The following persons are owners of land for the purposes of this Act -

(a) a person entitled to land for a freehold estate in possession;

(b) a person entitled to land under a lease of Crown land;

(c) a person entitled to land under a licence of Crown land if the person has a right, absolute or conditional, of acquiring the fee simple;

(d) a person who is a licensee of vested land under Part 3A of the Victorian Plantations Corporation Act 1993;

(e) a person deemed by this Act to be the owner of land.

(2) Subsection (1)(b) does not apply to a person entitled to land under a sub-lease of Crown land.

1. It will be seen therefore that despite the breadth of the definition of land in Section 3 of the Act, inferentially an ordinary commercial leasehold interest in land is not to be regarded as land. This follows from the fact that the person liable to pay Land Tax is the 'owner' of land and the holder of an ordinary commercial leasehold estate in land is not in accordance with Section 10 of the Act to be regarded as an owner of that land. The concept of owner is extended in various ways in the following sections, say for instance a life tenant is 'deemed to be the owner of the land instead of the person entitled to the fee simple reversion'. Someone who disposes of land but remains in possession of it is also deemed to be the owner (Section 14) and a purchaser of land in possession is deemed to be the owner under Section 14 and so on.
2. If one were guided solely by the definition of land in Section 3 one would suppose that Section 103 of the Land Tax Act which provides as follows:
   1. Notice of acquisition of land

(1) A person who acquires land must give notice of the acquisition -

(3) Any information contained in a notice under this section may be disclosed to the Valuer-General.

would oblige someone who took out a five year commercial lease to give a notice of acquisition to the Commissioner. Inferentially however since such a person would in terms of the Act neither be the owner nor deemed to be the owner. This cannot be right and when Section 103 refers to persons acquiring land it must mean in effect 'becoming the owner or the deemed owner in accordance with the terms of this Act'. All of these considerations lead me to be inclined to the view despite the very wide definition of land to be found in the Land Tax Act that the word land is used in the Act 'to designate a portion of the earth's surface'. To quote what was said by Griffith CJ in Isles v Federal Commissioner of Land Tax [1912] HCA 24; (1912) 14 CLR 372, 376 (speaking of the word in the Commonwealth Land Tax Assessment Act 1991) His Honour's statement was adopted and approved by Balmford J in Famajohn (1999) 43 ATR 29, 32 [13] - [14]. Nevertheless this leaves open the question as posed by Balmford J in Famajohn what is 'a land' for the purposes of the Act. Mr Kotros drew my attention to a remark that I made in Arifoglau v Commissioner of State Revenue [2006] VCAT 2679 at [31] where I said once again in the context of an exemption claimed under the equivalent of Section 54, for land contiguous to a principal place of residence:

The contiguous land at 659-663 should be regarded as a single entity having geographic unity and the application of the criterion of exemption laid down by the first paragraph, paragraph (a) of Section 13A(3) of the Land Tax Act 1958 should be applied accordingly.

1. I reached that conclusion despite the fact that the two pieces of land seeking exemption under the Section 54(3) equivalent were separated by a street.
2. In my view there is no ground for treating number 16 as being other than a single piece of land. The existence of a leasehold interest relative to the house which does not affect the back garden assuming that this is the correct view of the facts should make no difference. Mr Kotros drew attention to the fact that the lease for No. 16 simply refers to the demised premises as being No. 16 and includes no exclusion of the backyard. In my view in the context of a short-term lease prepared by an estate agent a reference to No. 16 should be understood to be No. 16 as fenced and occupied at the time the lease commences hence the backyard would be excluded. In Lamanna v Commissioner of State Revenue [2005] VSC 436; (2005) 61 ATR 467 Hollingworth J considered an appeal by a land owner who had been assessed to Land Tax for land on which was constructed a four storey building. The Commissioner as he was entitled to do had adopted the valuations made for municipal purposes under the Valuation of Land Act 1960. These municipal valuations separately assessed each 'occupancy' in the building. The Land Tax assessment made reference to the separate valuations for the various occupancies being tenancies in the office building. Her Honour accepted that these 12 occupancies represented an apportionment of the value of the entire land. Her Honour approached the matter upon the basis that the integer for assessment was the entire building and the land on which it was situated, that it was only this land which had been assessed and the erroneous inclusion of the reference to separate occupancies did not render the assessment invalid. Hence despite the existence of the various commercial leasehold interests, in Her Honour's view there was but a single piece of 'land'. Consistently with this approach No. 16 remains a single piece of land despite the creation of the tenancy over the residence. It is a single piece of land which must be treated in a non-differential manner for Land Tax purposes in the absence of any section which requires it to be dealt part by part and for the reasons given above I believe there is no such authority or requirement to be found in the Act.
3. My own inclination is to accept the view expressed by Mr Kotros on behalf of the Commissioner that to use the terminology of Balmford J 'a land' under the Land Tax Act means the land comprised in a certificate of title held under the Transfer of Land Act 1958 in the case of freehold land or in a Crown lease in the case of Crown land. An announcement was made quite a few years ago now to the effect that the Transfer of Land Act 1958 has been extended to all freehold land in Victoria and therefore the potentially complicating factor of general law land need not now concern us. There is no definitive authority supporting this view though in the circumstances it is a convenient one. Acceptance of it would be sufficient to exclude the possibility that Nos. 14 and 16 Silver Street, Malvern should be regarded but a single piece of land entitled to exemption under Section 54(1) without resort to sub-section (3) at all. I note in any event that the entire tenor of Mr Wines' presentation was that Nos. 14 and 16 should be regarded as separate pieces of land.
4. The conclusion reached by Balmford J in Famajohn that land comprised in a single title under the Transfer of Land Act 1958 could be regarded as 'different land' because though the areas in question in were previously separate allotments and continued to be held on different trusts does not constitute a binding precedent excluding the view that 'land' means the land comprised in a title or Crown lease. As Mr Kotros observed the decision in Famajohn went with the Commissioner, the Commissioner attempted to appeal Her Honour's views as to what constituted 'different lands' to the Court of Appeal but according to Mr Kotros the presiding judge, Batt JA, informed the Commissioner's Counsel that an appeal could be brought against the judgment of the Court but not against a particular finding or a step in reasoning. Therefore I do not believe that Her Honour's views on what constitute 'different lands' are part of the ratio decidendi of Famajohn's case.
5. In my view the respondent's assessment should be confirmed.