FEDERAL COURT OF AUSTRALIA Marana Holdings Pty Ltd v Commissioner of Taxation [2004] FCA 233 TAXATION – GST – whether motel 'residential premises' within the meaning of s 195-1 of A New Tax System (Goods and Services Tax) Act 1999 – whether property 'new residential premises' within meaning of s 40-75. Judiciary Act 1903 (Cth) s 39B(1A)(c) Federal Court of Australia Act 1975 (Cth) s 21 A New Tax System (Goods and Services Tax) Act 1999 (Cth) AAT Case 10,476 (1995) 31 ATR 1264 referred to Gibb v Commissioner of Taxation (1966) 118 CLR 628 referred to Urdd Gobaith Cymru v Commissioner of Customs and Excise [1997] V & DR 273 cited Macquarie Dictionary (3rd ed) Shorter Oxford English Dictionary MARANA HOLDINGS PTY LIMITED AND CAMARO NO. 1 PTY LIMITED V COMMISSIONER OF TAXATION N 1668 OF 2003 BEAUMONT J 15 MARCH 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1668 OF 2003 BETWEEN: MARANA HOLDINGS PTY LIMITED AND CAMARO NO. 1 PTY LIMITED APPLICANTS AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: BEAUMONT J DATE OF ORDER: 15 MARCH 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application be dismissed, with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1668 OF 2003 BETWEEN: MARANA HOLDINGS PTY LIMITED AND CAMARO NO. 1 PTY LIMITED APPLICANTS AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: BEAUMONT J DATE: 15 MARCH 2004 PLACE: SYDNEY REASONS FOR JUDGMENT BEAUMONT J: Introduction 1 The applicants seek declaratory orders (relying upon s 39B(1A)(c) of the Judiciary Act 1903 (Cth) and s 21 of the Federal Court of Australia Act 1975 (Cth)) that the sale of certain real property is 'input taxed' within the meaning of s 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ('the GST Act'). Section 9-30(2) of the GST Act provides that a supply is 'input taxed' if it is input taxed under, inter alia, Division 40. The applicants seek relief for the reason that they would obtain no input tax credits included in the price of building materials and services acquired in relation to the acquisition or renovation to be described below. 2 Subdivision 40-C of the GST Act deals with residential premises, relevantly as follows: 3 Subject to a qualification to be mentioned later, s 40-65(1) deals with sales of residential premises by providing: '(1) A sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation.' (Emphasis added.) 4 'Residential premises' are defined by s 195-1 to mean – 'land or a building that: (a) is occupied as a residence; or (b) is intended to be occupied, and is capable of being occupied, as a residence.' (Emphasis added.) 5 As mentioned, s 40-65(1) is qualified by s 40-65(2), which provides: '(2) However, the sale is not input taxed to the extent that the residential premises are: (a) commercial residential premises; [the Commissioner does not contend that this applied here] or (b) new residential premises other than those used for residential accommodation before 2 December 1998.' (The Commissioner does contend that this provision applies here.) 6 'Commercial residential premises' are defined by s 195-1 to mean, inter alia, a 'motel' ((a)). 7 'New residential premises' are defined by s 40-75(1) as follows: '(1) Residential premises are new residential premises if they: (a) have not previously been sold as residential premises ... ; or (b) have been created through substantial renovations of a building; ... .' (The Commissioner does not, however, rely upon this provision here.) Thr primary facts 8 The applicants are members of a partnership, registered for GST purposes, who appointed Tarfax Pty Limited ('Tarfax') as their agent. In May 2002, Tarfax, acting as such agent, entered into a contract for purchase to buy premises on which stood the 'Huntley Inn' ('the motel premises'). Included in the contract was certain plant and the 'On Licence [Restaurant]'. The contract was settled in September 2002 when the land was conveyed to Tarfax. 9 In October 2002, the local Council approved a development application by Tarfax for the conversion of the motel premises into residential units. In December 2002, Tarfax entered into a building contract to renovate the motel premises so as to permit registration of a strata plan and sale of strata units. In February 2003, the building works were approved by an accredited certifier. That work commenced in February 2003, and was finished in July 2003. Accordingly, Room 202 in the motel premises became Lot 46 in Strata Plan 70815 and an existing car space became Lot 100 in Strata Plan 70815 (collectively 'Unit 46'). In August 2003, Tarfax entered into a contract to sell Unit 46 to Susan Anne Wells for use as residential premises. Settlement occurred in October 2003. The declaration now sought is that this sale is 'input taxed'. 10 The applicants put their claim in several ways. It will be convenient to deal with them separately. Conclusions on the applicants' first argument 11 The applicants submit that the sale to Ms Wells effected, for the purposes of s 40-65(1), a sale of 'residential premises' to be used 'predominantly for residential accommodation'. 12 They submit that the premises were not 'new residential premises' because they had been 'previously ... sold as residential premises' within the meaning of s 40-75(1)(a). The prior sale relied upon is the sale to Tarfax in September 2002. 13 The applicants submit that, for present purposes, strata subdivision is immaterial. Reliance is placed upon the Commissioner's public ruling (GSTR 2003/3, par 43) – 'The process of strata titling an apartment block does not, of itself, create new residential premises under [s] 40-75(1)(a). When the newly strata titled units are subsequently sold, the supply of those units are not sales of new residential premises, if the land and the building together have previously been sold as residential premises ... .' 14 The applicants argue that when the motel premises were sold to Tarfax, they were sold 'as residential premises', because they were sold as premises 'occupied as a residence'; that is to say, the argument runs, the premises were being used as a motel for the provision of residential accommodation. 15 On behalf of the Commissioner, it is contended that the sale of the motel premises in 2002 was not a sale of 'residential premises', which, it will be recalled, is defined (by s 195-1) to mean premises occupied, or intended to be occupied 'as a residence'. 16 There is no statutory definition of 'residence'. Hence, in my view, its ordinary meaning should, prima facie, be applied. According to the Macquarie Dictionary (3rd ed) its primary meaning is: 'the place, especially the house, in which one resides; dwelling place; dwelling.' The Shorter Oxford English Dictionary offers these definitions: 'The place where a person resides; the abode of a person ... . A dwelling, a house ... .' 17 In my opinion, these dictionary definitions are appropriate for application in the present statutory context. 18 The definition of 'residential premises' in s 195-1 also includes the element that the 'residence' must also be 'occupied'. Again, there being no statutory definition of 'occupied', one should, prima facie, have regard to its ordinary meaning. The Macquarie Dictionary defines 'occupy' so as to include: 'to take possession [of a place] ... .' The Oxford Dictionary's definition includes: 'to live in ... a place.' 19 Again, in my view, these definitions are apposite in this statutory definition and must be applied for present purposes. 20 It is true that, in the absence of the statutory definition of 'residential premises', a motel might have been so described. However, the question posed by the definition in s 195-1 is whether a room in a motel was occupied as a residence. Here, this definition is decisive (see Gibb v Commissioner of Taxation (1966) 118 CLR 628 at 635). 21 The present point is well illustrated by observations made by Mr Lightman in Urdd Gobaith Cymru v Commissioner of Customs and Excise [1997] V & DR 273 (at 279): 'I agree that "a residence" clearly implies a building with a significant degree of permanence of occupation. However the word loses that clear meaning when used as an adjective. In ordinary English "residential accommodation" merely signifies lodging, sleeping or overnight accommodation. It does not suggest the need for such accommodation to be for any fixed or minimum period.' (Emphasis added.) 22 Applying those observations here, it must follow that I cannot accept the applicants' initial argument. 23 The applicants advanced an alternative proposition that, at the time of sale to Tarfax in September 2002, the motel premises were 'intended to be occupied ... as a residence'. 24 In its reference to premises which 'have not previously been sold ...', it is clear that 'previously' refers to a sale before that in question. The Commissioner accepts that the sale to Ms Wells is a sale of premises intended to be occupied as a residence. However, the Commissioner argues, and I agree, that the previous sale of the motel premises did not have that character, for the reasons given earlier. 25 Accordingly, I am unable to accept the applicants' alternative submission on this branch of its argument. 26 On behalf of the applicants, it is, in the further alternative, contended that the motel premises were sold as 'residential premises' and thus as 'commercial residential premises'. Reference is made to the definition in s 195-1 of 'commercial residential premises' as follows: 'commercial residential premises means: (a) a hotel, motel, inn, hostel or boarding house; or (b) premises used to provide accommodation in connection with a *school; or (c) a *ship that is mainly let out on hire in the ordinary course of a *business of letting ships out on hire; or (d) a ship that is mainly used for *entertainment or transport in the ordinary course of a *business of providing ships for entertainment or transport; or (da) a marina at which one or more of the berths are occupied, or are to be occupied, by *ships used as residences; or (e) a caravan park or a camping ground; or (f) anything similar to *residential premises described in paragraphs (a) to (e).' 27 The applicants rely particularly upon (f) of this provision and upon a public ruling by the Commissioner (GSTR 2000/20, par 18): 'The definition ... in (f) ... clearly indicates that the preceding paragraphs refer to things that are residential premises.' 28 It is submitted for the applicants that the legislative structure thus contemplates that a motel will constitute both 'commercial residential premises' and 'residential premises'; that is to say, under the GST Act, those categories are overlapping, not mutually exclusive, so that premises may be both 'residential premises' and 'commercial residential premises'. 29 Again, for the reasons previously given, that is, the use in the definition in s 195-1 of the noun 'residence' rather than the adjective 'residential' is, in my view, specific for present purposes, and thus of critical significance here. Conclusions on the applicants' second argument 30 The applicants then submit (alternatively) that if the strata unit constituted 'new residential premises' within s 40-75, they 'were used for accommodation before 2 December 1998' within s 40-65(2)(b), so that the exclusion in par 2(b) operated and, thus, the sale of the strata unit is 'input taxed' under s 40-65(1). 31 It is submitted that the relevant use as residential accommodation before December 1998 arose from use as a motel prior to that date; and the circumstance that the residential use by customers was of a temporary nature does not, as was decided in Urdd Gobaith (and, to the same effect in the AAT Case 10,476 (1995) 31 ATR 1264 (at 1271)), prevent the conclusion that the strata unit was then used for 'residential accommodation'. 32 Again, I have difficulty accepting the applicants' argument. 33 The opening words of s 40-65(2)(b) are, in my view, critical in their operation here – 'new residential premises ... .' This phrase, as has been seen, takes one into the restricted definition of 'residential premises'. As has been said, that definition was not satisfied here because before the sale to Ms Wells, no 'occupation as a residence' existed. Orders 34 It must follow that the application is dismissed, with costs. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont. Associate: Dated: 15 March 2004 Counsel for the Applicants: Mr B Sullivan SC, Mr R Hamilton Solicitor for the Applicants: Thomson Playford Counsel for the Respondent: Mr A Robertson SC, Mr M Leeming Solicitor for the Respondent: Australian Government Solicitors Date of Hearing: 9 March 2004 Date of Judgment: 15 March 2004