Set aside by Appeal : CITATION: Sacco v Chief Commissioner of State Revenue [2008] NSWADT 32 DIVISION: Revenue Division APPLICANT Roberto Sacco PARTIES: RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 076047, 076048, 076052 HEARING DATES: 24 September 2007 SUBMISSIONS CLOSED: 5 October 2007 DATE OF DECISION: 18 January 2008 BEFORE: Needham J SC - Deputy President CATCHWORDS: Dividing fence - Land tax exemption - principal place of residence MATTER FOR DECISION: Principal matter LEGISLATION CITED : Land Tax Management Act 1956 Applewood Residential Developments Pty Ltd v Commissioner of State Revenue [2006] VSCA 207 Castle v Chief Commissioner of State Revenue [2007] NSWADT 242 Chief Commissioner of State Revenue v Coleman [2007] NSWSC 625 Chief Commissioner of State Revenue v Timbs [2006] NSWADTAP 25 CASES CITED: Christies Sands Pty Ltd v City of Tea Tree Gully (1975) 37 LGRA 325 MacMillan v Commissioner of Land Tax [1972] 1 NSWLR 545 McGrath v Chief Commissioner of State Revenue [2007] NSWADTAP 67 Patullo v The Council of the Municipality of Condoblin (1918) 18 SR (NSW) 297 Penrith Rugby League Club Ltd v Commissioner of Land Tax [1983] 2 NSWLR 616 Ryan v Commissioner of Land Tax [1982] 1 NSWLR 305 G Vale, solicitor REPRESENTATION: H El-Hage, solicitor ORDERS: The decisions under review are set aside. REASONS FOR DECISION 1 Mr Roberto Sacco, the applicant, is the registered proprietor of land known as 120 Cedar Road, Prestons ("the Cedar Road property"). It is not disputed that that property is his principal place of residence and it is recognised as such for land tax purposes by the respondent to this application, the Chief Commissioner of State Revenue ("the Commissioner"). 2 Mr Sacco also owns another property located at Witchhazel Place, Casula which property, despite having a different street and even suburb address, is adjacent to the Cedar Road property. This property is itself physically divided into two, one part being a vacant lot bounding the back of the Cedar Road Property and the other, also vacant land, being separated from the balance of the block by a public road. Apart from a small issue dealt with in paragraph 21 below, the separate portion is not relevant to these proceedings. The two parts of the Witchhazel Place property are separately valued by the Valuer General and separate land tax levied on each portion. These proceedings, as I have said apart from one issue, concern only the portion which adjoins Cedar Road and so where there is a reference to "the Witchhazel property", it is a reference to the portion of the property adjoining Cedar Road. 3 As I have noted, the properties have adjoining rear boundaries, so that the view from the back of the Cedar Road property is over the Witchhazel property. The Witchhazel property became registered in Mr Sacco's name on 23 September 2004 and thus at midnight on each of 31 December 2004, 2005 and 2006 he was the owner of two blocks of land, upon one of which was erected his family home. 4 The Commissioner assessed the Witchhazel property as subject to land tax for the land tax years of 2005, 2006 and 2007, and it is those assessments that the applicant seeks to review in this Tribunal. The relevant Notices of Assessment were issued on 23 May 2006 (in relation to the 2005 and 2006 tax years) ("the first assessment") and on 17 January 2007 (in relation to the 2007 tax year) ("the second assessment") and, as noted above, each of those assessments excluded the Cedar Road property from land tax on the basis of the exemption known as the "principal place of residence exemption" pursuant to paragraph 10(1)(r) and Schedule 1A to the Land Tax Management Act 1956 (NSW) ("the Act"). 5 Mr Sacco objected to the first assessment on 21 July 2006, which objection was disallowed in whole on 30 October 2006. Mr Sacco sought a review of that decision on 30 October 2006, which request was determined on 25 January 2007. 6 Mr Sacco objected to the second assessment on 16 March 2007 and on 19 March 2007 that assessment was disallowed. 7 On 16 March 2007 Mr Sacco filed applications in this Tribunal in relation to the first assessment and the request for a review. On 27 March 2007 Mr Sacco filed an application in this Tribunal relation to the second assessment. 8 In each of the applications, the issue may be expressed as whether the principal place of residence exemption applies to the Witchhazel property as well as the Cedar Road property. 9 The applications were heard together on 24 September 2007. Each party was represented at the hearing and provided useful submissions as well as directing me to a later decision delivered on 3 October 2007 by Judicial Member Acting Judge Block. The Legislation 10 The principal place of residence exemption has, at all relevant times, allowed a taxpayer to seek an exemption from land tax for his or her principal place of residence, which definition is contained in section 10(1)(r) of the Act and Schedule 1A of the Act. The relevant provisions are as follows: " 3. Definitions principal place of residence of a person means 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. 10. Land Exempted from Tax (1) Except where otherwise expressly provided in this Act, the following land shall, subject to sections 10B, 10D, 10E, 10G and 10P, be exempted from taxation under this Act: (r) land that is exempt from taxation under the principal place of residence exemption as provided for by Schedule 1A". Schedule 1A Principal Place of Residence Exemption Part 1: Preliminary 1. Definitions (1) In this Schedule: principal place of residence exemption - see clause 2. residential land - see clause 3. taxing date - means midnight on the thirty-first day of December. (2) For the purposes of this Schedule, a reference to the owner of land includes, if there are joint owners, any one or more those joint owners. 2. Principal place of residence exemption (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 lot under the Strata Schemes (Freehold Development) Act 1973 or a lot under the Strata Schemes (Leasehold Development) Act 1986. (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 clause, 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 clause is referred to as the principal place of residence exemption. 3. Residential land - meaning (1) In this Schedule, residential land means 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 lots within a strata plan 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. (2) Land does not cease to be used and occupied as provided by subclause (1) by reason of there being on that land any building or improvement that is used or occupied for a purpose ancillary to the purposes for which the building is, or the buildings are, designed, constructed or adapted." The Evidence 11 Mr Sacco gave evidence that he was the sole registered proprietor of both Cedar Road and Witchhazel, and that the properties were contiguous, adjoining each other by their rear boundaries. 12 Cedar Road was purchased first, and since 17 September 2003 he and his family have resided in that property. He purchased Witchhazel in 2004 and "decided to purchase it to be used in conjunction with the Cedar Road property as the primary residence of myself and my family" (see affidavit sworn 29 May 2007, para 7). When the Witchhazel property was purchased it was separated from the Cedar Road property by a boundary fence. Soon after purchasing the property Mr Sacco demolished approximately 2.4 metres (about 8 feet) of the fence "to enable the composite block to be used by myself and my family" to "provid(e) vehicle and individual access throughout the [Witchhazel] block". The Witchhazel block has a vegetable garden and some play equipment on it, although the play equipment is not constructed on the block. Photographs of the Witchhazel property were tendered. Those tendered by the applicant were taken in October 2006 and show a gap in a reasonably substantial fence giving access to a vacant block, which apparently when the photos were taken was either being used or had recently been used for soccer and other family-oriented recreational pursuits. Those tendered by the Commissioner were taken more recently prior to the hearing and show that part of the land is now being built on. 13 The photographs show a substantial brick fence, approximately 183 cm (6 feet) in height. A gate has been installed across the opening. Prior to construction being commenced, the only access to the Witchhazel property is through the Cedar Road property through the gate in the dividing fence. 14 Mr Sacco gave evidence that construction had commenced in early February 2007 of a residence for which an application for a Development Approval was made in 2005. It was put to him that there had been a change of use of the block but he denied that that was the case; he said that in any event, that part of the Witchhazel block which was not used for building was still used for recreational or "backyard" pursuits. 15 The solicitor for the Commissioner, Mr El Hage, cross-examined Mr Sacco and put to him that his "real" backyard was that which was located within the fenced boundary the Cedar Road property, and that all the activities of daily living went on within those fences, with only occasional straying onto the Witchhazel property. Mr Sacco denied that proposition and agreed that, while the Cedar Road property contained fixtures and the Witchhazel property did not, the Witchhazel property was intrinsic to his family's recreational needs. 16 It was submitted on behalf of the Commissioner that the failure by Mr Sacco to mention the building application and construction work in his evidence in chief reflected poorly on his credit. I do not agree. The construction work clearly commenced after 31 December in the relevant year and thus any change of use is not relevant to these proceedings. Mr Sacco agreed readily with the questions put to him in cross-examination and did not appear to be trying to conceal the existence of the construction; he took the view that it was not a matter to be raised in these proceedings. 17 The solicitor for the Commissioner further commented on Mr Sacco's evidence to the effect that no evidence as to the details of the frequency of use was given. That is true, although the thrust of the evidence was that the Witchhazel property was used as needed and was available for recreation as an adjunct of the Cedar Road property. I accept Mr Sacco's evidence in relation to the use of the Witchhazel property. The Relevant Principles of Law 18 The legal question in this case may be simply stated. Are the two blocks of land, Cedar Road and Witchhazel, to be regarded as a "parcel of residential land" for the purposes of the principal place of residence exemption and therefore fall within clause 2(1)(a) of Schedule 1A? 19 The starting place for an analysis of the legal principles is the decision in Ryan v Commissioner of Land Tax [1982] 1 NSWLR 305, wherein Hunt J accepted that two separate titles of land may be regarded as a "parcel" of land "only where they are undivided not only by physical separation but also in use, occupation and title" (at 310). It is well accepted that the test in Ryan's Case is the appropriate test to be applied in determining whether two (or more) blocks of land are together a "parcel" of residential land for the purposes of the principal place of residence exemption. 20 It is submitted by the Commissioner, and I agree, that the requirements in Ryan's Case must be satisfied "precisely" (see Chief Commissioner of State Revenue v Coleman [2007] NSWSC 625 at [20]). Claim for Exemption over Part of Witchhazel Property 21 As noted above, the exemption is sought only in relation to that part of the Witchhazel property which adjoins Cedar Road. The Commissioner does not dispute that land tax may be levied with respect to part of land within one title. On the basis of the decision in Patullo v The Council of the Municipality of Condoblin (1918) 18 SR (NSW) 297, it appears that the other portion of the property should be regarded as a separate parcel of land and that there is no barrier to the vacant portion of the Witchhazel property adjacent to Cedar Road being sought to be subject to the principal place of residence exemption on its own. This is, of course, subject to the applicant establishing all those other matters which he needs to establish to show that the claimed portion of the Witchhazel property is indeed, together with Cedar Road, a "parcel of residential land". "Undivided by Use" 22 The question of whether properties are "undivided in use" is one of fact - see Applewood Residential Developments Pty Ltd v. Commissioner of State Revenue [2006] VSCA 207 at [33]. In Ryan, the two blocks in question were used as (a) a residence and garden (No 1) and (b) a garden (No 3). The uses were not identical but the garden complemented the use of the residence to such an extent that the properties were found to be "undivided in use". See also McGrath v Chief Commissioner of State Revenue [2007] NSWADTAP 67. 23 While the Commissioner, in written submissions prepared on his behalf, indicated that "there is no dispute that the applicant and his family use and occupy the land in both lots for residential purposes", the evidence brought forward by the Commissioner and outlined above does seem to raise some level of dispute as to the nature and extent of that use. Accordingly, I have considered the evidence provided by both sides. 24 In my view, in relation to the relevant tax years, the applicant has succeeded in showing that the two properties at Cedar Road and Witchhazel are in fact "undivided in use". That situation may, of course, change with the construction work now being undertaken on Witchhazel but that of course is not the question in these proceedings. 25 In reaching this decision, I took into account my generally favourable view of Mr Sacco's credit, his evidence that his family used the land as he described (as is as noted above), and his explanations for the lack of permanent recreational fixtures on the land. The reason for the whole fence not being removed was explained as being "commercial" which I infer refers to the cost of such removal. There was also a reference to security concerns with leaving items on the Witchhazel property which is consistent with use of the property from time to time for recreational purposes as described. 26 I do not accept the submission of the Commissioner that the recreational activities of the Sacco family were confined to the Cedar Road property. 27 Accordingly, I find that the "undivided in use" test as in Ryan's Case is satisfied and that the two properties do not fail to be a "parcel of residential land" by reason of their individual uses. The use of the Witchhazel property is a use in conjunction with the residential purposes of Cedar Road and the land, at the relevant times, was not used for any other purpose. "Undivided by Physical Separation" 28 The Commissioner contends, inter alia, that the two relevant blocks are physically separated for the purposes of the Ryan test by the brick fence, despite the opening in it for the gate to facilitate access between the two blocks. The Commissioner contends that the application founders on the requirement to meet the Ryan tests "precisely" by reason of the dividing fence, albeit with a gate, between the two properties. 29 The Commissioner relies upon the decision in Patullo v. The Council of the Municipality of Condoblin (supra) to found a submission that the fence divides the two lots into two separate parcels of land. In his written submissions, Mr El Hage said: "To the reasonable person standing at Witchhazel Place (that is, the public road), and looking towards Cedar Road, the two blocks of land would appear to be physically separated by the brick fence between the two lots". 30 In MacMillan v Commissioner of Land Tax [1972] 1 NSWLR 545, Isaacs J, in an obiter comment, notes that in determining whether two allotments of land, under the same title and valued as one entity, were one parcel of land, noted that "There was never any dividing fence between the two allotments or any other physical division of the land". The Commissioner relies upon the existence of the fence to show that the Ryan's Case requirement for "physical separation" is not met. 31 The respondent relies upon various cases such as Chief Commissioner of State Revenue v Timbs [2006] NSWADTAP 25 (two strata units comprising the whole floor of an apartment building and used, together, as a couple's residence being held to be within the principal place of residence exemption); Christies Sands Pty Ltd v City of Tea Tree Gully (1975) 37 LGRA 325 at 335-6 (a parcel of land meaning a "specified and reasonably well defined area of land … defined by clearly established usage …") and most particularly Penrith Rugby League Club Ltd v Commissioner of Land Tax [1983] 2 NSWLR 616 (the concept of a "site" being applied to areas which are physically seen as a whole despite division by roads, such as Martin Place, the (then) Sydney Technical College in Ultimo or, in that case, the club and car parks of Penrith Rugby League Club). 32 It should be noted that Timbs related to a strata unit and therefore to a different exempting provision, while the Christies Sands Case related to a different legislative provision entirely. 33 Hunt J, in the Penrith Rugby League Club Case, noted (at 622) that "Centennial Park is literally criss-crossed by roadways". His Honour further noted that "The intention of (the relevant exemption in that case) is clearly enough not to raise revenue; it is to relieve certain community groups from the burden of land tax upon the land used an occupied by them. Such an exemption should not be construed narrowly". 34 After the matter had been heard and my decision reserved, the parties provided me with the decision of Block ADCJ, Judicial Member, in Castle v Chief Commissioner of State Revenue [2007] NSWADT 242. Up until that decision, the parties were not able to point me to any decision which dealt squarely with whether a fence between two parts of what may otherwise be a "parcel" of land constituted physical separation of those parts. 35 The facts in Castle's Case are as follows; the applicants lived in a residential dwelling house at 7 Hammond Avenue. That block was at some stage subdivided into (at least) two blocks, which included the new, smaller 7 Hammond Avenue and a block which had the street address of 6 Knox Place. The two properties were separated by a wire fence and, after the applicants' dog habitually escaped, a more substantial wooden fence erected. That fence had a gap in the fence to allow access to 6 Knox Place. When access was not required a temporary wooden barrier was placed across the gap to contain the fugitive dog. 6 Knox Place was used by them for a number of activities including golf, activities with the dog, and for reading. It was also used as a holding area for building materials. 36 On the question in Castle's Case, the learned Tribunal Member held (at [23]) that: "I have come to the conclusion that the wooden fence was of such a nature that it had the effect that Knox and Hammond were at all relevant times physically separate … the wooden fence was constructed by the applicants in order to achieve a physical separation between Knox and Hammond and so as to prevent the Applicants' dog from unrestricted access to Knox and thence to the street. The fact that there was a gap (apparently) easy, at least for human beings, to gain access from Hammond to Knox does not in my view has the effect that there was not the necessary degree of physical separation. … Put in other words the Applicants by their own actions took steps to ensure that the two properties were physically separated". 37 At [26] the learned Tribunal member, after noting (at [23]) that "the fact moreover that to obtain a PPR exemption in the future for Knox Street would require only the removal of the wooden fence is also not to the point" said: "This decision is, it might be thought, somewhat harsh but the binding nature of the judgment in Ryan has the effect that in my view it is the correct and indeed the only possible decision. At the risk of repeating myself the question before me is as to whether the two properties are physically separated and the plain fact is that, regrettably, they are". 38 The solicitor for the Commissioner provided the decision to me with a covering letter dated 5 October 2007 which made further submissions to the effect that "in Castle , Block ADCJ decided that an (incomplete) fence between two lots of land constitutes physical separation for the purposes of the criteria in Ryan" . In a letter dated 8 October 2007, the applicant's solicitor requested that, if I were to take the view that "the decision in Castle will result in the applicant in the present proceedings failing … then the applicant would like an opportunity to make submissions in respect of the Castle decision. It is submitted that there are a number of factual differences in the current proceedings and those of Castle which, in the brief review of the Castle decision undertaken by the applicant does not necessarily lead to the result that the decision in Castle requires finding the present proceedings against the applicant". 39 In the circumstances, I have made my own study of the decision of Block ADCJ in Castle and, assisted by the outline of submissions given in the letter of 8 October from the applicant's solicitor, have come to the conclusion that the factual circumstances of the present case before me are indeed different. While it is questionable whether the intent of the persons erecting the fence between the properties is relevant, it is worth noting that while in Castle the fence was erected as a physical separator, the Sacco family demolished part of the fence to enable physical access. As a further difference, the gap in the fence in Castle was very small - it could be blocked to prevent the dog escaping merely with a wheelie bin - and in this case the gap is nearly 2.5 metres wide. The gap between the Cedar Road and Witchhazel properties would be sufficient for vehicle access and would allow family members easy walking access between the two properties. Such a distance would not require persons going between Witchhazel or Cedar Place to step over or around any obstacles while the gap in Castle seemed to be more a gap in the fence in which the palings had never been affixed. 40 As I have noted, the question of whether the properties are "undivided by physical separation" is one of fact. While respecting the correctness of the decision in Castle on its facts, it does appear to me that the fence in this matter is in a different category. I do not think that the learned Tribunal member, in the portions of his decision quoted above, intended to say that any fence, in any circumstances, must constitute "physical separation". On the contrary, the learned Tribunal member said that that the particular fence in question, in those particular circumstances, did so separate the properties. 41 As a matter of fact, and in relation to this particular application, I find that the fence, with the substantial gap affording easy access to and travel between the two blocks, does not constitute physical separation. 42 In this decision I am inclined to follow the reasoning of Hunt J in Penrith Rugby League Club Ltd (supra) in holding that the determination of whether areas of land used for one purpose needed more than merely a road for that land to lose its character as a site, and that in so determining that issue "what must be looked at is not the conveyancing details of the land but rather … its actual use and occupation" (at 621). While his Honour was not evaluating the same legislation as in this matter, the principles are similar; are various areas of land physically separated from each other so as to be removed from an exemption? The land in question here, as in the Penrith Rugby League Club Case, is used as a whole, and the purpose of the fence is not to separate so much as the demolished portion or gate is to unite. 43 I find that the two blocks are not, despite the presence of a fence, physically separated, due to the substance and purpose of the demolished portion or gate. Conclusion 44 The two blocks of land at Cedar Road and Witchhazel Place are to be regarded as a "parcel of land" for the purposes of the principal place of residence exemption, being undivided both in use and in physical separation. 45 Accordingly, the decision of the Chief Commissioner should be set aside and the applicant have the benefit of the principal place of residence exemption in relation to the relevant portion of property owned by him at Witchhazel Place, Casula. 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.