CITATION: Peerless v Chief Commissioner of State Revenue [2006] NSWADT 201 DIVISION: Revenue Division APPLICANT PARTIES: Karen Alice Peerless RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 056087 HEARING DATES: 18/01/2006 SUBMISSIONS CLOSED: 02/09/2006 DATE OF DECISION: 07/05/2006 BEFORE: Hole M - Judicial Member CATCHWORDS: Land tax exemption - principal place of residence MATTER FOR DECISION: Principal matter LEGISLATION CITED : Land Tax Management Act 1956 Kamper and Anor v Chief Commissioner of State Revenue [2005] NSWADT 256 CASES CITED: Ryan v Commissioner of Land Tax [1982] 1NSWLR 305 Timbs v Chief Commissioner of State Revenue [2005] NSWADT 173 APPLICANT R Hamilton, Barrister REPRESENTATION: RESPONDENT S Free, Solicitor ORDERS: The decision of the Chief Commissioner of State Revenue as set out in the assessment dated 14 February 2005 is affirmed REASONS FOR DECISION FACTS 1 The applicant is the owner of two properties: one being a free standing dwelling constructed on a parcel of land which has, as its access to road frontage, a narrow steep strip (commonly called the axe handle of a battleaxe block) over a distance of approximately 95.75m ("Lot A") and the other being a lot in a Strata Plan where the Strata Plan has a common boundary with Lot A for a distance of approximately 65.62m where the axe hand is approximately 1.2 wide (except an irregular boundary for approximately 5m at the eastern end of the axe handle) ("Unit B"). 2 The applicant purchased Lot A and Unit B at the same time. 3 The respondent assessed land tax on both properties, for the 2005 tax year and has not applied the principal place of residence exemption to include both properties. The assessment dated 14 February 2005 discloses that Lot A is exempt as the principal place of residence and Unit B as being subject to land tax. 4 The applicant forwarded a valuation objection form to the respondent dated 24 March 2005. The objection was made on the basis that: "Please be advised that my principal place of residence embraces not only [Lot A], but [Unit B], as well. The unit is used solely as part of my residence and is situated upon a block of land that is contiguous to [Lot A], and is as such a "parcel of residential land" being undivided by physical separation, use, occupation and title. (See attached diagram and legal precedents.)" 5 The respondent then investigated the situation, this investigation included an inspection of Lot A and Unit B, to ascertain the physical location of the parcels, by an officer of the Office of State Revenue ("OSR") so that consideration could be given to the validity of the claim. 6 On 15 July 2005, following consideration of the objection, inspection and correspondence from the applicant, the Chief Commissioner of State Revenue advised the applicant that the objection was disallowed. The reasons given that Unit B consists of a fully self contained dwelling capable of separate disposal and is also located physically apart from Lot A, that the two properties are distinct residential sites and therefore Unit B is not entitled to the principal place of residence exemption provided in Schedule 1A Clause 2 of the Land Tax Management Act 1956 ("the Act"). 7 The applicant has applied for review of the decision of the Chief Commissioner of State Revenue included in the letter dated 15 July 2005. The Evidence 8 A copy of the subdivision plan whereby Lots A and B came into existence was provided to the Tribunal, a copy of the Strata Plan which subdivided that Lot B was also provided. The plan definition of Unit B, a lot in the Strata Plan which created in excess of 10 lots together with car parking spaces as part of some lots (including Unit B), discloses that part of a side boundary of Unit B is coincidental with part of the side boundary of Lot A for a strip being about 16 metres in length. There is an access through this common boundary. The axe handle of Lot A is very steep and narrow, it is sufficiently wide for an inclinator which is used to access Lot A from the road to the dwelling constructed on Lot A. There is a stop-off point at the access across the common boundary with Unit B into Unit B. The inclinator provides apparently exclusive access from the road to Lot A and Unit B and between the dwelling on Lot A to Unit B. 9 There is a footpath over the common property of the Strata Plan on the opposite side of the common property to the position of Unit B which leads to a right of way over the part of Lot A on the opposite side of that Lot. This right of way is in favour of the Strata Plan and provides foot access to the water frontage of Lot A for the owners of lots in the Strata Plan. Because the applicant owns Unit B, the applicant is able as such owner to use the footpath when the inclinator is broken down and for large deliveries which cannot be accommodated on the inclinator. 10 At the time of the hearing and for the relevant time relating to the assessment for land tax for the 2005 tax year Unit B was undergoing renovations including restoration of the kitchen and replacing flooring, whilst still being used by the applicant. 11 Prior to the applicant becoming the owner of Lot A and Unit B the previous owners used it for the purposes of the accommodation of a butler whilst they resided in the dwelling on Lot A. 12 Since the applicant became the owner, Unit B has been used to accommodate family, and friends when visiting. A small area of Unit B has been used as an office and a gym from time to time. 13 The part of Unit B, which is a carspace, has been the subject of a lease by the applicant to her husband. 14 The applicant provided written and oral evidence and was, in the opinion of the Tribunal, an honest and straightforward witness. In cross examination, by the respondent's representative, the applicant described her use of Unit B as daily, including that she used the gym in Unit B daily, the refrigerator was used for storage for overflow from the refrigerator in the dwelling on Lot A, she used the bathrooms regularly and stored personal files in the unit. On occasions friends stayed in the unit although she did not sleep there and the kitchen facilities were used daily for making coffee and the microwave was used regularly. The garden equipment and green waste bins are kept at Unit B. 15 The applicant gave further evidence that although there was a lease to her husband of the carspace she continued to use the carspace to park her car from time to time and her husband also parked his car there from time to time. The carspace was also used for storage space and both she and her husband have keys to access the carspace. A copy of a deed between the applicant and her husband releasing the husband from paying rent was supplied to the Tribunal. Legislation 16 The applicable legislation is: Section 10 "10 Land exempted from tax (1) Except where otherwise expressly provided in this Act the following lands 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"." Section 3 "3 Definitions (1) In this Act, unless the context or subject-matter otherwise indicates or requires: … 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." Schedule 1A Part 2 – Part 2 Principal place of residence exemption "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." and "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." Submissions 17 The applicant's representative has defined the issue as being whether the exemption as defined in Section 2 of Schedule 1A of the Act refers to a parcel of residential land in the circumstances where there is property held as a strata lot and a property held as a lot in a deposited plan which are claimed to comprise a 'principal place of residence'. 18 The applicant's representative submitted that the respondent had applied the incorrect test when considering the objection by the applicant. The test to be applied being that as enunciated in Ryan v Commissioner of Land Tax [1982] 1NSWLR 305 and as applied in Kamper and Anor v Chief Commissioner of State Revenue [2005] NSWADT 256 whereas the respondent had stated that the test was that both properties are self contained, they constitute two separate residences and are capable of separate disposal. Block J ADJC (Judicial Member) in Kamper held that Ryan is binding on the Tribunal, and the applicant's representative submitted as the two lots can also together constitute 'a parcel of residential land' then notwithstanding the differing forms of title, the two lots meet all the requirements of Ryans case. Likewise in Timbs v Chief Commissioner of State Revenue [2005] NSWADT 173 although this case is on appeal two adjoining strata lots were held exempt and that therefore in the interests of consistency a mix of one Torrens Title lot with one Strata lot should receive equivalent treatment. 19 The applicant's representative submitted that the property being Lot A and the property being Unit B were adjoining properties and, for part of their boundaries, they are contiguous. That there is a stop-off point on the inclinator which provides the exclusive access from Lot A to Unit B across part of the contiguous boundary. 20 The applicant's representative submitted that the applicant occupied Lot A and Unit B as one residential area; Unit B is used as part of the applicant's home and has not been rented out by the applicant. 21 The applicant's representative submitted that the facts provided in evidence to the Tribunal included: the use of Unit B by the applicant on a daily basis including use of the kitchen, refrigerator, bathroom and gym; storage of garden equipment and green waste bin; accommodation of family and friends; exclusive access, by way of the inclinator, between Lot A and Unit B and the street; the availability of the right as owner of Unit B to use the footway from the street over the common property of the Strata Plan to Lot A in the event of breakdown of the inclinator for certain deliveries; and the use by the applicant and her husband of the combined buildings exclusively as their principal place of residence 22 The applicant's representative submitted that in consideration of the evidence provided as to the use and occupation of the adjoining Lot A and Unit B and that as the applicant owned both then the conditions as set out in Ryans case had been satisfied. 23 Further submissions were received by the Tribunal on 9 February 2006 on behalf of the applicant relating to the possibility of an adverse inference being drawn from the manner in which the properties had been assessed prior to the 2005 tax year. These submissions disclose that the applicant had sought a variation to an anticipated land tax assessment in 1998 and that as the transfers to the applicant had not been registered prior to 31 December 1997 no land tax was payable; subsequently land tax was assessed and for the years 2001, 2002, 2003 and 2004 it was so assessed where Unit B was assessed as aggregated land and Lot A as separately taxed land. Respondent's submissions 24 The respondent's representative made various submissions concerning the physical location of Lot A and Unit B including: "in one sense, there is a physical linkage between the Primary House and" Unit B. "using the inclinator, the applicant can access" Unit B "from the Primary House without having to cross any other properties". "While the passageway and the inclinator provide a physical link between the Primary House and "Unit B "there is also a significant element of physical separation between the two areas of land. There is a garden area approximately 20 metres in length which is part of the common area for the unit block, …" 25 The respondent's representative drew attention to the lease of the garage being part of Unit B to the applicant's husband and submitted that pursuant to Clause 3(1) of Schedule 1A of the Act this part of Unit B, if it is a part of the principal place of residence of the applicant, would not be exempt. 26 The respondent's representative submitted that the relevant question was whether Unit B is exempt from land tax for the 2005 tax year under the principal place of residence exemption. That based on the requirements of the Act it is impossible for a strata lot and a non-strata lot to together form a single "parcel of residential land". 27 The respondent's representative submitted that the reference to: "other than a building or buildings: (a) comprised of lots within a strata plan …" in Clause 3(1) of Part 2 of Schedule 1A of the Act precluded Unit B from being a parcel of residential land for the purposes of applying the principal place of residence exemption or of being included as part of properties which, relying on the test as formulated by Hunt J in Ryans case, would be exempt. 28 The respondent's representative submitted that it was unnecessary to consider the test in Ryans case as:- "Under cl. 2 of Sch. 1A of the LT Management Act , land may qualify as land used and occupied by the owner as his or her principal place of residence in one of two ways. The land that is so used and occupied must be either: (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. As to the meaning of a "parcel of residential land", cl. 3(1)(a) of Sch. 1A expressly provides that "residential land" means land that is used and occupied for residential purposes, that use and occupation being use and occupation of a building(s) designed, constructed or adapted for residential purposes, other than a building or buildings comprised of lots within a strata plan or residential units. Accordingly, the use and occupation of the "parcel" of land at "Unit B" and the Primary House cannot qualify as use and occupation of "parcel of residential land" because the use and occupation involves use and occupation of a building comprised of a lot within a strata plan. Nor could the use and occupation of that "parcel" come within the terms of cl. 2(1)(b). Clause 2(1)(b) refers to land that is a strata lot. The land that the applicant contends is her principal place of residence is not a strata lot but a non-strata lot (on which the Primary House is situated) together with a secondary strata lot." 29 The respondent's representative also submitted, in the alternative to the previous paragraph 28 that as there was significant physical separation between the two lots it precluded them from being treated as a single parcel. That the respondent accepted that Lot A was the applicant's principal place of residence and contended that the use, as described by the applicant, of Unit B was not used as a principal place of residence in the same way as Lot A such that there is unity in the use of the two properties. That Unit B's use seemed to be as an ancillary premises for special purposes. That there was also a significant difference in the occupation of the two lots and the Tribunal was referred to the cases which analyse the terms "use" and "occupation". 30 The respondent's representative also drew attention to Timbs and to the fact that in that particular case the taxpayers were able to show that in terms of use the two units were indivisible. Timbs was subject to appeal and the decision in that appeal has now been given, the decision upheld the initial decision of the Tribunal two to one. 31 The respondent's representative submitted that for several years prior to the 2005 tax year the applicant had received a tax free threshold on both the aggregated land and the separately taxed land. Reasons for decision 32 Factually Lot A and Unit B have adjoining boundaries for a length of approximately 16 metres. There is easy access from Lot A to Unit B and the street by way of the inclinator. The fact that the access between the two is by way of the interchange between the inclinator and Unit B is no difference to the access to Lot A by way of the interchange between the street and Lot A. The access between the two is a doorway of the inclinator. For the purposes of considering the test in Ryans case, the separation between the two parcels is that they physically adjoin each other for a sufficient distance which allows the doorway to operate efficiently. It is clear that if, as in this case, there is sufficient contiguity to permit easy access between the two parcels for at least a usual door aperture then the parcels are not physically separated. 33 The facts provided to the Tribunal as to use and occupation disclose that the applicant was using Lot A and Unit B as her principal place of residence, the activities described by her encompass daily use for her usual home activities including use of the gym, kitchen and bathroom. As an ancillary use and occupation of both Lot A and Unit B she has provided occasional accommodation for her family and friends. Unit B is also used for storage of particular items of the applicant. 34 Evidence was given as to the alternative access available to the applicant over the common property of the Strata Plan being an incident of ownership of Unit B for the purposes of her as owner of Lot A. This is a convenient ancillary right that the applicant enjoys. It is not relevant for the purposes of her claim relating to principal place of residence. 35 Insofar as the lease of the part of Unit B, being a carspace, this is also not relevant in view of the potential to exclude that part from any exemption. In these circumstances, where no rent is payable, it may be that any exclusion would have minimal effect on any apportioning of land tax for assessment purposes. 36 The fact that the applicant has paid the assessment for prior years as assessed by the respondent does not lead to any inferences as this application relates to the 2005 tax year only. By application of that provision the exclusion referred to being "other than a building or buildings: (a) comprised of lots within a Strata Plan …" specifically excludes the combining of a parcel of residential land with a lot in a strata plan for the purposes of the principal place of residence exemption. In Timbs it was possible for the two lots in a strata plan to be considered to come within the exemption provided in Clause 2(1)(b), in Kamper it was also possible to consider the two properties in light of the test in Ryans case as they were two adjoining parcels of residential land. 37 For the above reasons the Chief Commissioner has been correct in determining that Lot A and Unit B could not be considered together as used and occupied by the applicant as her principal place of residence and therefore being entitled to the exemption in Clause 2 of Part 2 of Schedule 1A of the Act. 38 The issue in this matter must be considered following application of the provisions of Clause 3(1) of Part 2 Schedule 1A of the Act. ORDER The decision of the Chief Commissioner of State Revenue as set out in the assessment dated 14 February 2005 is affirmed. 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