CITATION: Timbs v Chief Commissioner of State Revenue [2005] NSWADT 173 DIVISION: Revenue Division APPLICANT PARTIES: John Andrew Timbs RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 046043 HEARING DATES: 18/05/2005 SUBMISSIONS CLOSED: 01/06/2005 DATE OF DECISION: 02/08/2005 BEFORE: Hole M - Judicial Member APPLICATION: Land tax exemption - principal place of residence MATTER FOR DECISION: Principal matter LEGISLATION CITED : Land Tax Management Act 1996 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Evatt v CCLT(unreported) [1999] NSWSC 1317 Federal Commissioner of Taxation v Murray (1998) 193 CLR 605 McMillan v Commissioner of Land Tax (1972) 1 CASES CITED: NSWLR 545 Penrith Rugby league Club Ltd v Commissioner of Land Tax of NSW (1983) 2 NSWLR 616 at 622. Plessey Australia Pry Ltd v Federal Commissioner of Taxation (1989) 20 ATR 1938 Ryan and Anor v Commissioner of Land Tax 82 A TC 4178 Taxation Determination TD 1999/69 APPLICANT REPRESENTATION: R Hamilton, barrister RESPONDENT S Benjamin, solicitor ORDERS: Units 901 and 902 comprise one principal placce of residence for the purposes of assessment of Land Tax. REASONS FOR DECISION Introduction 1 The Applicant has applied for a review of a decision by the Chief Commissioner of State Revenue to impose land tax under the Land Tax Management Act 1956 in respect of a property owned by the Applicant. 2 The Applicant is an owner of properties at: (a) Unit 901 Pyrmont. Applicant is the sole registered proprietor. (b) Unit 902 Pyrmont. Applicant is the sole registered proprietor. (c) Bundeena. This property is jointly owned by the Applicant and Alecris Pty Ltd. (d) Centennial Park. Applicant is the sole registered proprietor. (e) Unit 9 Darling Point. Applicant is the sole registered proprietor. 3 Prior to the 2004 tax year, the property at Bundeena was the Applicant's principal place of residence. However as this property is partially owned by a corporation, the Applicant is no longer able to claim the principal place of residence exemption in respect of this property. 4 The Applicant filed a variation of return on 17 July 2003, notifying the Chief Commissioner of State Revenue of the Applicant's change of principal place of residence and requested that the principal place of residence exemption be allowed in respect of Unit 901 Pyrmont and Unit 902 Pyrmont which the Applicant claims, as together forming his principal place of residence since 11 July 2003 and therefore attracting the entitlement to exemption. 5 In respect of the 2004 Tax Year, the land tax notice of assessment issued to the Applicant included the property known as Unit 902 Pyrmont as an assessable item. 6 On 2 February 2004 the Applicant lodged an objection to the inclusion of Unit 902 Pyrmont as an assessable item on the basis that the property formed part of the Applicant's principal place of residence. The objection was disallowed and the Applicant subsequently lodged an application seeking review of that decision on 5 October 2004. 7 The Applicant acknowledges that the two units are contained in separate titles, but nevertheless contends the two units form part of the same residential envelope, occupying the entirety of the ninth level of the building and accessed from a common foyer exclusive to the Applicant's occupation. 8 The Respondent maintains that the entitlement to the exemption granted in respect of Unit 901 does not extend to Unit 902, as (a) the units have a separate value; (b) each unit has a separate usage, Unit 902 being stated as 'in-law or guest accommodation' and therefore not being used solely for residential purposes of the owner as defined by the Act; and (c) each unit is independent of the other and has the full capacity to function on its own -so that each is able to be sold or rented separately as the owner pleases. 9 The Respondent maintains that the above contention is supported by the fact that the Applicant purchased three units "off the plan" in 1998 and shortly after acquisition caused two of those units to be converted into one, now known as Unit 902 -rather than converting all three into one at that time. 10 The Applicant maintains that Unit 902 is not used for any purpose other than as part of his principal place of residence. The Issues 11 Whether the exemption as defined in Section 2 of Schedule I A of the Land Tax Management Act 1956 refers exclusively to a single lot under the Strata Schemes legislation, or to more than one strata lot under circumstances where two or more strata lots are claimed in fact to comprise a 'principal place of residence' as referred to in section 2 of Schedule 1 A. 12 The facts are not in dispute. Applicable legislative provision 13 Section 10(1) of the Land Tax Management Act 1956 provides inter alia that: Except where otherwise expressly provided in this Act the following lands shall, subject to sections l0B, 10D, 10E, l0G and l0P, 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. 14 Schedule 1A of the Land Tax Management Act 1956 in turn provides that the 'principal place of residence exemption' is defined according to Part 2, clause 2 as being: For the period commencing 1 January 2004: 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 on 1 January 2004 or any succeeding year, if" (a) the land has a land value in respect of the year of less than the premium tax threshold, and (b) the land is: (i) a parcel of residential land, or And then for the period commencing 1 January 2005: (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. Continuing as: (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. 15 Clause 3 of Part 2, Schedule 1A of the Land Tax Management Act 1956 provides that 'residential land' is defined as being: (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. Note: Clause 4 allows one residential occupancy to be disregarded in applying the principal place of residence exemption. Clause 5 allows the use of land for purposes ancillary to a business conducted at a different place to be disregarded in certain circumstances. Evidence 16 The evidence of use and occupation of Units 901 and 902 by the Applicant included: (a) the two units comprise the whole of one floor of the building apart from some common property of the Strata Plan (over which there is a grant of exclusive use to the owners of the two units; (b) each unit is capable of being separately secured; (c) from time to time the nature and extent of use of various rooms has developed and ranged from guest accommodation to everyday domestic use; (d) the Applicant and his wife tend to generally use one unit whilst when visiting them guests and relatives occupy rooms in the other unit; (e) the Applicant tends to use a bathroom and dressing area in one unit and his wife a bathroom and dressing area in the other unit whilst they share, generally, a bedroom in one unit; (f) the kitchens and pantries in both units are used, one for cooking and one for storage in the main; (g) the entertainment areas are conveniently used separately to accommodate different tastes of the Applicant and his wife; and (h) the study in each unit is used, one by the Applicant as an office and the other by the Applicant's wife as an office. 17 If one unit was separately owned by the Applicant and the other by the Applicant's wife then each would, it seems, be able to establish separate use and occupation of an individual unit. This would it seems attract an exemption for each of them for their separate units as each of their principal place of residence. Submissions 18 The Respondent submitted that: (a) the intention of the legislature had been to permit the exemption to apply to only one lot under a Strata Scheme, if the intention had been to apply to allow consideration of an exemption where there was more than one lot then appropriate extrapolations would have been described; (b) the wording of the applicable legislation is specific and should not be expanded by application of the provisions of the Interpretation Act 1987. The legislative intention in using singular expression should be given its ordinary meaning in this context; (c) public policy requires certainty, to introduce an interpretation which could have been explicitly permitted would introduce uncertainty; (d) In Ryan and Anor v Commissioner of Land Tax 82 A TC 4178 Administrative Law Division, NSW Sup CT Hunt J held that "... contiguous blocks of land can comprise a "parcel of residential land" ... only where they are undivided not only by physical separation but also in use, occupation and title. " 19 The Applicant submitted that the reference to 'a lot' in clause 2(1)(b)(ii) of Schedule 1A of the Land Tax Management Act 1956 must be considered in light of: (a) the emphasis given throughout the Land Tax Management Act 1956 to a 'place' of residence; (b) the unity of title, use and occupation of units 901 and 902; (c) the simultaneous and interdependent use and occupation of the two lots together as the principal place of residence of the Applicant and his wife, and the case law concerning 'simultaneous and interdependent use' ..where the principal place of residence comprises more than one lot: Evatt v CCLT (unreported) [1999] NSWSC 1317 which considered the concept of a "site" and Penrith Rugby League Club Ltd v Commissioner of Land Tax of NSW (1983) 2 NSWLR 616 which considered the separation of the club's building by a public road and the carpark; (d) the statement provided by Neville James Moses, in which Mr Moses states that it is common for a strata residence to comprise more than one lot. He gives as an example the fact that a residence may consist of more than one separate strata lot where two storey dwellings have been converted to strata title. He also drew attention to situations where a domestic residence in a strata scheme may comprise more than one lot as for example, where one of the lots is designated as a "utility lot"; (e) application of the provisions of Section 8(b) of the Interpretation Act 1987 which would allow the interpretation of the word 'lot' to be held to apply to 'lots'. The context of the clause does not disclose a requirement that would dictate that the provisions of Section 8(b) should not be applied. If there was a possibility of ambiguity then the modem approach would be to consider the word in context and give it the widest possible meaning CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; (f) the desirability of a consistent approach to the operation of the two sub- clauses of clause 2(1)(b) of Schedule 1A of the Land Tax Management Act 1956 given: (i) that decisions such as that in McMillan v Commissioner of Land Tax (1972) 1 NSWLR 545, a decision applicable to freehold lands, should be applied to strata lots to the effect that the principal residence exemption can apply to more than one lot provided, as a matter of fact, that they are being used and occupied by the owner as a principal place of residence; (ii) the common situation that strata residences frequently have separate associated lots, and for a variety of purposes, and the practical difficulties that would ensue were the principal residence exemption was to be restricted as suggested by the Respondent; (g) Taxation Determination TD 1999/69, in which it was ruled that a landholding comprised of more than one strata lot may qualify as 'a unit of accommodation'; and (h) the case law concerning the interpretation of relieving / exempting provisions of taxing statutes (Federal Commissioner of Taxation v Murray (1998) 193 CLR 605 at 632 per Kirby J and the cases cited therein, including Plessey Australia Pry Ltd v Federal Commissioner of Taxation (1989) 20 ATR 1938 and Penrith Rugby League Club Ltd v Commissioner of Land Tax of NSW(1983) 2 NSWLR 616 at 622). 20 The Applicant further submitted that: (a) whether the whole of a space constitutes the taxpayer's principal place of residence is a question of fact, to be determined according to the use to which the space is being put at the time for which the exemption is being claimed; and (b) the whole of the space constituted by Units 901 and 902 is in fact being used as though it were on one title. 21 The submissions of the Applicant relating to the use of Lots 901 and 902 by the Applicant drew attention to the use of the lots interchangeably whilst maintaining separate titles for each of the lots. 22 To force owners to consolidate lots in titles to prove use of several parts as one principal place of residence would be oppressive and not a requirement that the legislature would have intended in clear instances. Each separate instance would need to be considered on the facts. If, as e.g., in this case the facts clearly establish that the two (or more lots) form one principal place of residence then it would be a travesty to interpret the legislation so oppressively. The onus is on the taxpayer to establish that the two or more lots are "one principal place of residence". Where a separate lot is e.g. a utility lot, a carspace or a storage area, without a compulsive requirement to only deal with the separate lots at the same time, clearly the interpretation as envisaged in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 should be applied. 23 The unity of title, use and occupation test, in this instance, does not fail because of the separate titles. The use and occupation of the two units described as a matter of fact is that the two units are used by the Applicant and his wife in an overlapping and interdependent manner not just a convenient use and, on occasions a supportive use, to that of the use of the unit generally used and occupied by the Applicant. The whole of Units 901 and 902 are used as one principal place of residence. 24 The issue that is relevant is the fact of the use and occupation of the premises not its potential use. 25 The application of the provisions of the Interpretation Act 1987 to Part 2, Clause 2 of Schedule 1A of the Land Tax Management Act, where the facts support the clear and consistent use of the whole of more than one lot (under Strata Schemes Provisions) as a principal place of residence results in those lots comprising the land to be subject of the exemption. To interpret the provisions otherwise would, where circumstances disclose that e.g. a unit in a strata scheme which included a separate title for the area used for day to day living and a separate title for the area used for a garage ancillary to the other title would not have been the intention of the legislature. The nexus between the use and occupation would provide the basis for consideration of the actual use and occupation, not the conveyancing details of the assessable land or lot. 26 I find that: Units 901 and 902 comprise one principal place of residence for the purposes of assessment of Land Tax. 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.