CITATION: Beashel and anor v Chief Commissioner of State Revenue [2008] NSWADT 103 DIVISION: Revenue Division PARTIES: APPLICANTS Vincent Stewart Beashel and Kathleen Everlyn Bowles, Executors of the Estate of Joyce Stewart Beashel Deceased FILE NUMBER: 076090 HEARING DATES: 4 February 2008 and 10 March 2008 SUBMISSIONS CLOSED: 10 March 2008 DATE OF DECISION: 7 April 2008 BEFORE: Verick A - Judicial Member CATCHWORDS: Land tax exemption - principal place of residence MATTER FOR DECISION: Principal matter Income Tax Assessment Act 1936 (Cth) LEGISLATION CITED : Land Tax Management Act 1956 State Revenue Legislation Amendment Act 2004 Commissioner of Taxation (Victoria) v Lennon (1921) 29 CLR 579 Cooper Brookes (Wollongong) Pty Ltd v FC of T 81 ATC 4292 Craig Williamson Pty Ltd v Barrowcliff [1915] VLR 450 Dunlop v Astee [2004] VSC 139 FC of T v Baxter 2003 ATC 4506 Freeman v Medical Practitioner's Board of Victoria [2000] VSC 547 Jaques v FC of T (1924) 34 CLR 328 Kennedy Holdings and Property Management Pty Ltd v FC of T 92 ATC 4918 CASES CITED: Marana Holdings Pty Ltd v FC of T 2004 ATC 5068 Minister for Immigration and Multicultural and Indigenous Affairs v SZAYW [2005] FCAFC 154 Mort v Bradley [1916] SALR 129 Newton v FC of T (1958) 98 CLR 1 R v Assessment Committee of St Pancras (1877) 2 QBD 581 Scott v Commercial Hotel Merbein Pty Ltd [1930] VLR 25 Volpatti v Chief Commissioner of State Revenue [2007] NSWADT 222W Thomas & Co Pty Ltd v FC of T (1965) 115 CLR 58W Thomas & Co Pty Ltd v FC of T [1965]115 CLR 58 APPLICANTS L Batalha, solicitor REPRESENTATION: RESPONDENT A Rider, barrister ORDERS: The decision under review is affirmed. REASONS FOR DECISION Introduction 1 This was an application made by Joyce Stewart Beashel ("the Applicant") for a review of an objection decision made by the Chief Commissioner of State Revenue's ("the Commissioner") to disallow her objection to the Land Tax Assessment issued to the Applicant on 16 January 2007 for the 2006 and 2007 land tax years in respect of land owned by the Applicant and situated at Saratoga, New South Wales ("the Property"). 2 Unfortunately, before this matter was heard, the Applicant passed away. The application was prosecuted by the executors of her estate before the Tribunal. 3 The fundamental issue in these proceedings is whether the Applicant was, in respect of the land tax years, deemed to continue to use and occupy the Property as her principal place of residence for purposes of the principal place of residence exemption under Schedule 1A to the Land Tax Management Act 1956 (NSW) ("the LTM Act") in circumstances where she had moved out of the Property and was in those years resident in a nursing home and the property was leased to tenants. 4 The relevant provision in issue is Clause 8 of Schedule 1A to the LTM Act. Factual Background 5 The Property was the Applicant's principal place of residence from around 1957 until December 2003 when she moved into a nursing home. The Applicant was, in the years in dispute, the sole registered proprietor of the Property. 6 After the Applicant took up residence at the nursing home, the property was let to tenants under residential tenancy agreements from 6 January 2005 to 2 November 2005, and 30 November 2005 to 30 June 2007. The amount of rental income derived under the leases during the relevant land tax years was approximately $14,600 per annum. 7 It was claimed that the property is "over 100 years old" and required "significant amount of work to be performed annually to maintain tenancy". 8 In the 2005 income year the property was let for a rental income of $14,600 and an amount of $12,524 was incurred for expenses. The major expenses were in relation to repairs of the front fence ($1000), replacing the guttering ($2,398), roof repair ($1,315) and repair to the front windows ($1,554). An additional expenditure of $4,385 was incurred to pay council rates, insurance premiums and agent's fees. The net result was that there was a loss of $2,309 in relation to the letting of the property. 9 In the 2006 income year the Applicant received a rental income of $14,600 and incurred expenditure amounting to $10,483. The major expenses were in relation to tree lopping ($1,149.28), underground power ($6,000) and repair boatshed roof ($900). In addition, the Applicant incurred expenditure of an amount of $5,182.81 to pay council rates, water charge, insurance premiums and agent's fees. There was a loss of $1,065. 10 On 16 January 2007, the Commissioner issued an assessment to the Applicant in respect of the Property, in relation to the 2006 land tax year for $9,059.00 and in respect of the 2007 land tax year for $9,308.30. The Applicant paid these amounts on 26 February 2007. 11 On 7 March 2007, Freeman Kennedy, a firm of chartered accountants, lodged on behalf of the Applicant an objection against the assessment on the grounds that the Property had been the Applicant's principal place of residence from 1956 to January 2004 and she qualified for the principal place of residence exemption under Sub-clause 8(1) or (4) or (7) of Schedule 1A to the LTM Act. 12 On 18 May 2007, the Commissioner disallowed the objection on the grounds that the Property had been leased from December 2004 onwards thereby giving the tenants the exclusive right to occupy the Property for more than 6 months in each of the 2005 and 2006 calendar years, and that the Property was therefore not exempt from land tax under Clause 8 of Schedule 1A in respect of the 2006 and 2007 land tax years. 13 On 3 July 2007, the Applicant filed an application in the Tribunal for a review of the objection decision made by the Commissioner on the grounds that sub-clause 8(7)(b) of Schedule 1A to the LTM Act applied to the Property. Relevant Legislation 14 Under the combined effect of sections 7, 8 and 9 of the LTM Act, land tax is payable by the owner of land upon the taxable value of all land situated in New South Wales owned by the owner as at midnight on 31 December immediately preceding the year for which the land tax is payable, other than land which is exempt from taxation under the LTM Act. 15 Section 10 of the LTM Act sets out various categories of land that enjoy exemption from land tax under the LTM Act. Section 10, so far as it is relevant in relation to the "principal place of residence exemption", provides as follows: " 10 Land exempted from tax (1) Except where otherwise expressly provided in the 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." 16 Schedule 1A to the LTM Act which sets out details of the principal place of residence exemption, also provides a concession in relation to a former principal place of residence where the owner is absent and is able to fall within the ambit of the provisions of Clause 8 of the Schedule. In the tax years under review Clause 8 relevantly provided as follows: " 8 Concession for absences from former residence (1) If the Chief Commissioner is satisfied that: (a) a person is the owner of land ( the former residence ) that has been used and occupied by the person as his or her principal place of residence for a continuous period of at least 6 months, and (b) the person uses and occupies other land (whether or not in New South Wales), that is not owned by the person, as his or her principal place of residence the person is taken, for the purpose of the principal place of residence exemption, to continue to use and occupy the former residence as his or her principal place of residence. (2) The maximum period for which a person may be taken, under this clause, to continue to use and occupy a former residence as a principal place of residence is 6 years starting at the end of the last period (of at least 6 months) during which the former residence was used and occupied by the person as a principal place of residence (not including any period for which the person may be taken, under clause 7 of this clause, to have used and occupied the former residence as a principal place of residence). (3) If the principal place of residence exemption applies to the former residence of a person by operation of this clause, the exemption is revoked if the person is the owner of the former residence at the end of the 6 year period referred to in subclause (2) and fails: (a) to resume actual use and occupation of the residence as a principal place of residence by the end of that period, and (b) to continue that use and occupation for at least 6 months. (4) and (5) (Repealed) [2006 land tax year] but re-introduced for the 2007 land tax year in the following form (4) Any period during which a person is in full time care is not to be counted toward the maximum period referred to in sub-clause (2). Accordingly, a person who is in full time care may continue to be taken to use and occupy his or her former residence as his or her principal place of residence during any period in which he or she is in full time care. (5) For the purposes of this clause, a person is in full time care during any period in which the person: (a) resides at a hospital or mental hospital as a patient of the hospital, or (b) resides at an aged care establishment (within the meaning of section 10R) while being provided with residential care, or respite care, or (c) resides with another person (a carer) who is eligible for a carer payment under the Social Security Act 1991 of the Commonwealth because the carer provides care to the person. (6) This clause applies in respect of the assessment of a person's ownership of land in a tax year only if the Chief Commissioner is satisfied that no income has been derived from the use or occupation of the former residence in the preceding tax year, except as permitted by sub-clause (7). (7) Income may be derived from the use or occupation of the former residence in a tax year if: (a) the income is derived from a lease, licence or other arrangement under which a person has a right to occupy the former residence and the total period for which any such right of occupation is conferred does not exceed 6 months in the tax year, or (b) the income is derived from any arrangement under which a person occupies the former residence, but the income is no more than is reasonably required to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence. (8) This clause is subject to clause 12 (which limits members of a family to one principal place of residence exemption)." (9) In this clause: hospital means an institution at which relief is given to sick or injured people through the provision of care or treatment. Mental hospital means an institution conducted principally for the treatment of mentally ill persons, and includes a hospital within the meaning of the Mental Health Act 1990. Submissions 17 The Applicant's case was essentially that under paragraph (b) of sub-clause 8(7) an "arrangement under which a person occupies the former residence" includes an arm's length tenancy agreement made with a real estate agent at market rates and that "maintenance costs" include "all repair expenses relating to periodic repairs", "covers 'oiling, brushing or cleaning' and other like activities that fall short of repairs but which prevent the possibility of something going wrong in the future" but does not "cover improvements (eg expenditure of a capital nature)". 18 The Applicant's solicitor, Mr L Batalha, provided the following written submissions to support his submission that paragraph (b) applied to ordinary commercial leases: "17. The Applicant submits that … the ordinary meaning of "occupy" does not according to any legal authority mean "occupation short of a right to exclusive possession". The ordinary meaning of "occupy" normally encompasses "occupation under a lease" ( Cooper Brooks (Wollongong) Pty Ltd v FC of T 81 ATC 4292 at 4305; Marana Holdings Pty Ltd v FC of T 2004 ATC 5068, paragraph 15; R v Assessment Committee of St Pancras (1877) 1 QBD 581 at 588; Kennedy Holdings and Property Management Pty Ltd v FC of T 92 ATC 4918; FC of T v Baxter 2003 ATC 4506, paragraph 17). 18. Further, the interpretation of paragraph (b) as specifically excluding anyone who has a right to occupy the former residence appears to have no foundation in the text of paragraph (b). As stated above, the Applicant disagrees with the Respondent's view that the phrase "use and occupation" in clause 8(7) restricts the meaning of "occupies" in paragraph (b). 19. The Applicant submits that, since arrangements covered by paragraph (b) of clause 8(7) clearly include occupation with a right to occupy, they must include occupation under a lease. The Applicant submits that this interpretation is also consistent with the comments in paragraph 26 of Volpatti." 19 In relation to his submission that "maintenance costs" included all replacements and repair costs of the owner, reliance was placed on various Australian Taxation Office rulings and various cases which have held, in particular, for income tax purposes that the expenditure incurred to carry out replacements and repairs was on revenue account and deductible. 20 It was further submitted that "given the lack of extrinsic material available to ascertain the purpose" of Clause 8(7), "the provisions in Schedule 1A to the LTMA may be used to determine the intention of parliament. Of note, there is a rule of statutory interpretation requiring that the same word as used in the same legislation (particularly in the same provision of that legislation) be given the same meaning (Craig Williamson Pty Ltd v Barrowcliff [1915] VLR 459 at 452; Minister for Immigration and Multicultural and Indigenous Affairs v SZAYW [2005] FCAFC 154 at 14; Dunlop v Astee [2004] VSC 139 at 10; Commissioner of Taxation (Victoria) v Lennon (1921) 29 CLR 579 at 590; Mort v Bradley [1916] SALR 129; Scott v Commercial Hotel Merbein Pty Ltd [1930] VLR 25 at 30; Freeman v Medical Practitioner's Board of Victoria [2000] VSC, paragraph 29))." 21 The Commissioner's case was that on a proper construction, Clause 8(7)(b) of Schedule 1A was only concerned with non-commercial arrangements on the basis of the "key difference between clause 8(7)(a) and (b)" as follows: "32. As an initial matter, the Respondent submits that in order to understand the construction and operation of clause 8(7)(b), it is first necessary to consider the preliminary words of clause 8(7) and then to compare and contrast the wording of clause 8(7)(a) and clause 8(7)(b). In this regard, while the Respondent notes that there is no case law on the construction of clause 8(7)(b), or guidance from the second reading speeches or explanatory notes to the legislation which introduced clause 8 of Schedule 1A into the LTMA in this regard, the Respondent submits that the clear and deliberate wording and structure of clause 8(7) plainly indicates how sub-clauses (a) and (b) are intended to operate. 33. First, the Respondent notes that the preliminary words of clause 8(7), which refer to "use or occupation", are deliberate, significant and immediately indicate that that subclauses (a) and (b) are intended to deal with entirely different and mutually exclusive situations. 34. In this regard, it is clear from the plain words of clause 8(7)(a) that this provision is concerned with the situation where a person has a right to occupy (that is "use") the former residence, regardless of whether the person actually occupies the residence in a physical sense. That is, clause 8(7)(a) can be satisfied by the mere existence of a right to occupy the former residence, with or without any physical occupation. 35. By contrast, clause 8(7)(b), on its terms, is concerned only with the situation where a person actually occupies the former residence without any right to occupy. 36. Based on the above, the Respondent submits that it is clear from the preliminary words of clause 8(7) and the plain and deliberate wording of sub-clauses (a) and (b) that these provisions deal with entirely different situations. That is, clause 8(7)(a) deals with situations that may involve only "use" (i.e. the right to occupy the former residence) with or without physical occupation and clause 8(7)(b) deals with situations involving only actual physical occupation without any right to occupy the former residence. 37. The Respondent further submits that clause 8(7)(b) is clearly concerned with non-commercial arrangements. This is because an arms' length party is unlikely to accept a former residence without any right to occupy and an owner is unlikely to accept rental, which is only sufficient to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence. In this regard, the Respondent submits that clause 8(7)(b) is intended to apply to family and other non-arms' length arrangements, such as where a person occupies their grandmother's home as a caretaker after she goes into a nursing home and they make a contribution towards energy and water use and the cost of cleaning the house or pool, or maintaining the garden, to keep the house in a respectable condition while the family decides what to do with the property. 38. Therefore, on the basis that clause 8(7)(b) is concerned with non-commercial arrangements under which a person occupies a former residence without a right to occupy, the Respondent submits that the rent derived under Leases did not satisfy clause 8(7)(b) in any Tax Year, because the Leases arose from commercial arrangements under which the tenants had the right to occupy the Property in return for paying a market rate rental. 39. For completeness, the Respondent notes that the Applicant's submission that the word "arrangement" should have an identical interpretation in clause 8(7)(a) and clause 8(7)(b) is incorrect. This is because an "arrangement" for the purposes of clause 8(7)(a) must clearly, under the terms of that provision, give a right to occupy, while an arrangement for the purposes of clause 8(7)(b) must only be one under which a person occupies the former residence without any right to occupy." 22 On the basis of the ordinary meaning of "maintenance", the Commissioner submitted that "maintenance costs of the owner" referred to in Clause 8(7)(b) "are costs which keep the residence in its current state and condition, such as the cost of cleaning the residence (including a pool) or maintaining the garden" and that costs associated with repairs to the Property "such as repainting, laying gravel, paving, making additions to the residence and replacing items such as eaves and guttering, went well beyond mere maintenance activities due to their improving and enduring nature and therefore did not represent 'maintenance costs' for the purposes of clause 8(7)(b)". Findings and Reasons 23 The fundamental issue in this matter is whether Clause 8(7)(b) of Schedule 1A to the LTM Act only operates, as submitted by the Commissioner, in respect of non-commercial and non-arm's length arrangements so as to exclude leases under which the owner of the former residence has no right of control over the property during the currency of the lease. 24 It is most unfortunate that the Minister's speech and the explanatory note to the Bill that introduced Schedule 1A provide very little assistance to understand the policy reasons for extending the principal place of residence exemption in circumstances where the owner was absent for a temporary period from his usual principal place of residence. Apart from a general note in the Explanatory Note that the purpose for the insertion of Schedule 1A to the LTM Act by the State Revenue Legislation Amendment Act 2004 (NSW) was relevantly to "extend the existing concession to include circumstances where an owner is absent from the home for an extended periods but resumes occupation within 6 years", there is no other reference to the scope or purpose of Clause 8 in Schedule 1A. 25 In the absences of any such extrinsic material, the provisions of Sub-clause 8(7) have to be given a meaning on a proper construction of the words actually used but against the general policy of Schedule 1A to grant exemption to an owner where the subject land is used as a principal place of residence by the owner, including where the owner is absent. 26 The scheme of Clause 8 is essentially to continue to grant the exemption for a principal place of residence to an owner who is absent from his or her former residence for an extended period. It only operates where the owner uses and occupies other land meaning his temporary residence, but which is not owned by the owner. The owner is taken, for the purpose of the principal place of residence exemption, to continue to use and occupy the former residence as his or her principal place of residence. 27 The concession under Clause 8 applies for a period of 6 years starting from the last period of at least six months during which the former residence was used and occupied by the person as a principal place of residence. The concession ceases to have effect if the person is the owner of the former residence at the end of the period of six years and fails to resume actual use and occupation of the residence by the end of that period, and to continue to use and occupy the former residence for at least 6 months. 28 In respect of land tax years commencing with the 2007 land tax year, in calculating the 6 years period, any period during which a person is in full time care is not to be counted toward the maximum period of six years. A person is taken to be in "full time care" during any period in which the person: (a) resides at a hospital or mental hospital as a patient of the hospital, or (b) resides at an aged care establishment (within the meaning of section 10R of the LTM Act while being provided with residential care, or respite care, or (c) resides with another person (a "carer") who is eligible for a carer payment under the Social Security Act 1991 of the Commonwealth because the carer provides care to the person. 29 The concession granted under Clause 8 only applies in respect of a land tax year if the Commissioner is satisfied that no income has been derived from the use or occupation of the former residence in the preceding tax year, except as permitted by sub-clause (7). 30 The proper interpretation of sub-clause 8(7) is in issue in this matter. There is no dispute that the Applicant has otherwise satisfied all the other requirements set out in Clause 8. 31 Sub-clause 8(7) allows the owner of a former residence to derive income from the use or occupation of the former residence in a tax year. 32 There are two limbs to subclause 8(7). Paragraph (a) allows the owner to derive income from "a lease, licence or other arrangement" under which a person has a right to occupy the former residence and the total period for which any right of occupation is conferred does not exceed 6 months in the relevant tax year. There is no limit as to the amount of the rental income that can be derived by the owner under these arrangements. Paragraph (b) allows an owner to derive income from an ongoing basis (including any period exceeding 6 months) arrangement under which a person occupies the former residence "but the income is no more than is reasonably required to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence". 33 The Commissioner's submission was that paragraph (b) "is intended to apply to family and other non-arms' length arrangements, such as where a person occupies their grandmother's home as a caretaker after she goes into a nursing home and they make a contribution towards energy and water use and the cost of cleaning the house or pool, or maintaining the garden, to keep the house in a respectable condition while the family decides what to do with the property". 34 In suggesting the above approach to the interpretation of paragraph (b), the Commissioner may have been influenced by the facts of this particular case. As indicated above, subclauses (4) and (5) which only apply from the 2007 land tax year, merely provide a further concession to owners who come within the ambit of the provisions of Clause 8. The 6 year time period generally allowed under this concession is further extended in the case of owners who are in full time care at a hospital or a nursing home or living with a carer. 35 The concession set out in clause 8 is, I think, for a far more general application and a variety of situations would come within the prescribed rules. It would, for example, apply to owners required to locate overseas or interstate for work or business reasons. The principal place of residence exemption concession continues to apply to owners, provided of course, the income test set out in sub-clause 8(7) is satisfied or if no income is in fact derived during the period of absence. 36 There are no limitations in respect of any six months period in a land tax year. Paragraph (a) allows the former residence to be let at market rate rents during the relevant six months. Paragraph (a) refers to "a lease, licence or other arrangement" under which a person has a right to occupy the former residence. 37 The Commissioner's submission, as I understand it, is that if an owner enters into "a lease, licence or other arrangement" which gives a person a right to occupy the former residence for a period longer than six months, the owner would simply fail to qualify for the concession under clause 8 because paragraph (b) only applies to "any arrangement under which a person occupies the former residence" but without a right to occupy. In short, the Commissioner's submission was that only arrangements that allow occupation without a right to occupy the former residence fall within the provisions of paragraph (b). 38 Both paragraphs (a) and (b) of sub-clause 8(7) pose some difficulties in their practical application. These provisions are perhaps more comprehensible when read together in the context of Schedule 1A to the LTM Act. Schedule 1A has been inserted as a complete code to provide relief to owners in circumstances where a property is used and occupied as the owner's principal place of residence. Clause 8 recognises that that connection with a property used as a principal place of residence does not cease merely because the owner is absent from the property. An owner is taken for the principal place of residence exemption to continue to use and occupy the property as his or her own principal place of residence during the period of absence if the necessary conditions set out in clause 8 are satisfied. 39 The word "arrangement" is used in both paragraphs (a) and (b) of sub-clause 8(7). It is a word that is used in various provisions in the Commonwealth income tax laws. In particular, the word has had a long history in relation to anti-avoidance provisions. In considering the general scope of the word "arrangement" in relation to the former section 260 of the Income Tax Assessment Act 1936, Lord Denning in the Privy Council in the celebrated case of Newton v FC of T (1958) 98 CLR 1, made the following useful observation: "Their Lordships are of opinion that the word 'arrangement' is apt to describe something between two or more persons – a plan arranged between them which may not be enforceable at law." 40 It has also been noted by the courts that the word "arrangement" is "no doubt an elastic word, and in some contexts may have a larger connotation" ( per Isaacs J in Jaques v FC of T (1924) 34 CLR 328 at 359). 41 In relation to paragraph (a) of sub-clause 8(7), " other arrangement" is the third in a descending series, and I think it is used to extend the operation of the provision to other arrangements which may not be in the strict legal sense either leases or licences but nevertheless a person under those other arrangements "has a right to occupy the former residence". 42 But when the term "arrangement" is used in paragraph (b) of sub-clause 8(7), it has a different connotation. The words "any arrangement" are used to include any arrangements under which a person occupies the former residence and "the income is no more than is reasonably required to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence". Paragraph (b) in that sense does not apply if the "arrangement" is a "lease, licence or other arrangement" under which a person has a right to occupy the former residence by paying a fixed market rate rent without the obligations to pay those expenses. I do not think the concession in paragraph (b) is available merely because the rental income is used by an owner to pay for expenses. 43 The provision refers to an arrangement under which the parties agree that the occupant would pay an amount that is reasonably required to cover the ongoing expenses that owner would normally pay. As correctly pointed out in his submissions by Mr Rider, counsel for the Commissioner, that under paragraph (b) the "control the owner has over the property is reinforced by the fact that the owner is still liable for the expenses mentioned in clause 8(7)(b), some of which, such as energy costs, would be incurred by a tenant if they had a right of control over the property under a lease". 44 I think the paragraphs (a) and (b) are quite intentionally drafted in that manner to make the necessary distinction between an arrangement under which a person has a right to occupy the former residence and an arrangement where the owner of the former residence continues to have a right of control over the former residence. In the case of the latter, for the arrangement to fall within the ambit of paragraph (b) it has to place an obligation on the person who occupies the former residence to pay an amount near enough to "cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence". Such an arrangement, as submitted by Mr Rider, would have to be a non-arm's length arrangement to satisfy that requirement. 45 A lease with a fixed market rate rental would clearly not satisfy that requirement because it will give the tenant the right to occupy the former residence. Paragraph (b) is, in the scheme of Schedule 1A, designed to give absent owners the concession provided they do not derive commercial rents from the former residences. It allows an owner to be reimbursed for the kind of expenses set out in the paragraph and at the same time have the benefit of the principal place of residence exemption. Any interpretation, as suggested by the Applicant's solicitor, to extend the operation of paragraph (b) to leases made to earn commercial rentals would clearly make little sense and defeat the purpose of the concession. If that interpretation is correct, it was not necessary to draft sub-clause 8(7) in its present form. It would have been sufficient for the provision to state that "any lease, licence or other arrangement" exceeding six months provided all or the substantial amount of the income derived is used to "cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence". That kind of provision would have allowed owners to "create" or incur expenses to enable owners to continue to have the exemption. It would have made no sense and there would have been revenue leakage. The provision is designed to only apply to bona fide arrangements of the kind set out in paragraph (b), which would essentially include mostly non-arm's length arrangements. It is difficult to see arm's length arrangement with a stranger to occupy a former residence on those terms. The owner would be entitled to nominate all sort of expenses and the tenant would have no control over the amount that would be claimed as such expenses. 46 The Tribunal also agrees with Mr Rider's submission that only costs of maintaining the former residence in its current state and condition would qualify as "maintenance costs" under paragraph (b). In context of paragraph (b) "maintenance costs" cannot be given a wider application as suggested by the Applicant's solicitor because it would defeat the purpose of the concession. 47 The Applicant's solicitor, Mr Batalha, in his submissions placed some reliance on a recent decision of the Tribunal in Volpatti v Chief Commissioner of State Revenue [2007] NSWADT 222 where the Tribunal held that the applicant was not entitled to the concession under sub-clause 8(7)(a) of Schedule 1A on the grounds that the lease in question went beyond 6 months in each of the relevant tax years under review. In passing, the Tribunal indicated that the applicant was also not entitled to the alternative concession under paragraph (b) because the rent earned in each year went far beyond the expenses that were incurred. On the basis of this observation, it was submitted that the Tribunal had accepted that a lease could be considered as an "arrangement" within paragraph (b). Unfortunately, the Tribunal in that case did not deal with this issue in any detail nor provide any reasons for the statement. It must also be noted that the Commissioner did not in Volpatti raise the argument that paragraph (b) did not extend to commercial leases. It is, therefore, difficult to place any reliance on that decision which is persuasive but not binding on this Tribunal. 48 In the present matter, there is no dispute that the former residence was let to tenants under arm's length rental leases during the relevant land tax years. At the hearing, the executors of the Applicant's estate made it quite clear that their parents had done nothing for many years to the 100 years old residence and major works to upgrade facilities were necessary to enable the Property to be let. The work carried out in both land tax years was largely to rectify defects that were not the result of normal wear and tear operation but many years of neglect. In the income tax context, it has been held, for example in W Thomas & Co Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia [1965] 115 CLR 58, that expenditure incurred for the purpose of repairs, was, nevertheless, expenditure of a capital nature, being for the purpose of putting a building into a condition suitable for its use. The same principles would, I think, apply in determining whether any outgoing incurred can be regarded as a "maintenance cost". It is thus difficult to regard improvements to a property after years of neglect as "maintenance" works. 49 I also agree with Mr Rider that, on the basis of the ordinary meaning of the word "maintenance", "maintenance costs" in the context of paragraph (b) would generally only include the costs incurred to keep the former residence "in due condition or a specified state". 50 It was quite sensible for the executors to rent the property at commercial rents and use the income to carry out some of the necessary improvements to the property not previously attended to by their parents. In this matter, it is not necessary for the Tribunal to conclusively deal with the issue whether the work carried out in each year was maintenance work because the commercial leases for both years were not "arrangements" within the concession under paragraph (b). That question simply does not arise for determination in this matter. Order The decision under review is affirmed. 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