Nathan Scott Pty Limited v Chief Commissioner of State Revenue [2004] NSWADT 122

CITATION: Nathan Scott Pty Limited v Chief Commissioner of State Revenue [2004] NSWADT 122 DIVISION: Revenue Division APPLICANT PARTIES: Nathan Scott Pty Limited RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 036050 HEARING DATES: 21/05/2004 SUBMISSIONS CLOSED: 05/21/2004 DATE OF DECISION: 06/18/2004

BEFORE: Verick A - Judicial Member APPLICATION: Land tax exemption - retirement villages and nursing homes MATTER FOR DECISION: Principal Matter Administrative Decisions Tribunal Act 1997 Aged Care Act 1997 Land Tax Management Act 1956 LEGISLATION CITED : Nursing Homes Act 1988 Retirement Villages Act 1999 State Revenue Legislation Further Amendment (No 2) Act 2001 Taxation Administration Act 1996 Valuation of Land Act 1916 Chief Commissioner of State Revenue v Aldridge & Anor [2003] NSWADTAP 50 CASES CITED: Commissioner of Land Tax v Christie [1973] 2 NSWLR 526, Council of the City of Newcastle v Royal Newcastle Hospital [1959] 100 CLR 1 Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68 APPLICANT REPRESENTATION: M Hawker, agent RESPONDENT H Roberts, solicitor ORDERS: The objection decision under review is affirmed

REASONS FOR DECISION Introduction and factual background 1 This is an application for review of a decision made by the Chief Commissioner of State Revenue (respondent) under the Land Tax Management Act, 1956 (the LTM Act) for the 2003 land tax year. The central issue is whether the applicant's property made up of three lots situated at Dalmeny, New South Wales (the property) was used and occupied as an aged care establishment in the relevant year and exempt from land taxation under s 10R of the LTM Act. 2 Apart from a letter with an attached tax invoice sent to the Tribunal, the applicant at the hearing produced no other evidence. Both parties essentially rely on the bundle of documents provided to the Tribunal by the respondent under s 56 of the Administrative Decisions Tribunal Act 1997. The respondent has also lodged written submissions. 3 Two different vendors owned the three lots constituting the relevant property. In July 2000, an entity known as JSM Australia Pty Ltd (JSM) obtained options to purchase the property to build an aged care residential facility. JSM entered into contracts for sale dated 26 September 2001 to purchase the property from the vendors. JSM received planning approval for the facility on 19 February 2002 and government consent to operate the aged care facility on 25 February 2002. The property was eventually purchased by the applicant which is a wholly owned entity of the shareholders of JSM. This was done to "facilitate an additional avenue of financing the fit out of the business after construction was completed". As the respondent has submitted, nothing turns upon the identity of the purchaser being different from the entity with planning approval. 4 In a letter dated 27th February 2004 addressed to the Tribunal the applicant "enclosed a copy of an invoice received by the builder R.W.Brain Pty Ltd for the first progress payment in relation to earthworks completed to the site at 25-29 Noble Parade, Dalmeny, NSW, 2546". 5 The attached invoice was a "Tax Invoice" dated 14/10/2002 issued by Narooma Earthmoving which was a "progress invoice" and the description of the work carried out was as follows: "BULK EARTHWORKS Site establishment Site Security (Parrawebbing and signs) Site control (minimal) fence and bales Clear and grub Remove tree waste off site Strip unsuitable and surplus off site Cut to fill in compacted lifts to sub base levels Compaction testing conducted by Eurobodalla Shire Council Allow roadbase for site access STORM DRAINAGE Pits, pipes, bedding material, machine hire and labour to construct Stormwater drainage from pit No 1 through to pit 34." 6 The total amount claimed in the tax invoice was $50,068.85, which included GST. In the letter to the Tribunal the applicant also explained as follows: "The purpose of lodging this additional piece of information is to show to the tribunal that well before the assessment period had started, building works at the site were well underway. Our belief is that the building works were under way on the 14th October 2002 and therefore land tax should not be applicable as we have clearly demonstrated our intention to use the building once completed as an Aged Care Facility as defined in the Aged Care Act 1997." Relevant legislation 7 Liability for land tax rests in New South Wales under s 8 of the LTM with the owner of the relevant land as at midnight on the thirty-first day of December preceding the year for which land tax is levied. Land tax is, under s 9 of the LTM, "payable by the owner of land on the taxable value of all the land owned by that owner which is not exempt from taxation under this Act." 8 In the present matter, the applicant is the owner and was the owner of the land at midnight on thirty-first December 2003. The applicant claims that it is, however, exempt from land tax under s 10R of the LTM Act which provides: "10R Retirement villages and nursing homes – exemption/reduction (1) In this section: aged care establishment means: (a) any building or any part of a building used or intended to be used for the provision of residential care, within the meaning of the Aged Care Act 1997 of the Commonwealth, by an approved provider under that Act, or (b) any building or any part of a building used or intended to be used for the provision of respite care, within the meaning of the Aged Care Act 1997 of the Commonwealth, by an approved provider under that Act. nursing home has the same meaning as in the Nursing Homes Act 1988. Retirement village has the same meaning as in the Retirement Villages Act 1999 (2) Land is exempt from taxation under this Act if the land is used and occupied as any of the following, or any combination of the following, and for no other purpose: (a) an aged care establishment, (b) a retirement village, (c) a nursing home. (3) If the Chief Commissioner is satisfied that part only of land is used and occupied as referred to in subsection (2), the land value of the land is to be reduced for purposes of land tax by an amount calculated as follows: R = A x B/C Where: R equals the reduction in land value. A equals the land value of the land before reduction. B equals the area of the land used and occupied as referred to in subsection (2). C equals the total area of the land. (3A) If part only of a building is used and occupied as referred to in subsection (2), a proportion (the allowable proportion) of the area of the land occupied by the building is to be included as part of the area of the land so used and occupied for the purpose of determining the value of "B" in the calculation under subsection (3). (3B) The allowable proportion under subsection (3A) is the proportion specified in an application under subsection (3C) in respect of the land, subject to subsections (3D) – (3F). (3C) Subsection (3A) does not apply unless application has been made to the Chief Commissioner by the owner of the land specifying the proportion that in the owner's opinion is a fair and reasonable proportion of the area of land occupied by the building to be attributed to use and occupation as referred to in subsection (2). The application must be in a form approved by the Chief Commissioner and be accompanied by such supporting information as the Chief Commissioner may request. (3D) Despite subsection (3B), the Chief Commissioner may request the Valuer-General to determine the reduced land value to be attributed, for the purposes of assessing land tax, to that part of the land that is used or occupied otherwise than as referred to in subsection (2). (3E) If a request is made under subsection (3D): (a) the Valuer-General must determine the reduced land value concerned, and (b) the reduced land value so determined is (subject to subsection (3F)) the value of the land for land tax purposes (instead of the value obtained under subsections (3) and (3A)), and is to be entered in the Register accordingly. (3F) Part 3 (Notices and objections) and Part 4 (Appeals to Land and Environment Court) of the Valuation of Land Act 1916 apply in respect of the reduced land value determined under subsection (3E) in the same way as those Parts apply in respect of a valuation under that Act. (4) For the purposes of this section, land does not cease to be used and occupied for the purpose of an aged care establishment, a retirement village or a nursing home, merely because any building or improvement on the land is used or occupied for a purpose ancillary to that purpose. (5) This section applies to land tax payable in respect of the year commencing on 1 January 1991 and any succeeding year." 9 Historically, s.10R only exempted retirement villages and nursing homes that were operated on a non-profit basis. In 1990 the exemption was extended to commercial retirement villages and nursing homes from the 1991 land tax year. Aged care establishments were not included in this exemption until a recent amendment to s 10R by State Revenue Further Amendment (No 2) Act 2001. The amendment commenced to operate on 31 December 2002 and applies to aged care establishments from the 2003 land tax year. Revenue Ruling 10 The respondent has on 26 March 1991 issued a revenue ruling (No. LT31) (Exemption for Retirement Villages and Nursing Homes) "to explain how owners should calculate their liability in cases where a partial exemption is applicable": under s 10R of the LTM Act. The respondents has ruled as follows: 4. Section 10R(3) provides that if the Chief Commissioner is satisfied that only part of the land is used and occupied as a retirement village and/or a nursing home, the adjusted value of the land will be reduced by the proportion of the total area of the land which is so used. Owners are responsible for determining the proportion of the land so used in the first instance. Owners should indicate briefly in their return or an accompanying letter, the basis on which the calculation was made. 5. It should be noted that any part of the land which is used for purposes which are ancillary to use as a retirement village and/or nursing home is also exempt. Such uses include leisure areas for the use of residents such as a swimming pool, a tennis court or a park, or a kiosk or shop(s) whose principal function is to serve residents. 6. Where land is only partly developed as a retirement village and/or nursing home, partial exemption will apply. Owners may calculate the partial exemption based on the area actually in use. However, where planning approval has been obtained for the development of the unused portion, a calculation based on the number of units of accommodation in the partial development compared with the number of units once the land is fully utilised will be accepted. 7. If owners are unsure of the proportion of land for which exemption may be claimed, a submission should be made to the Office of State Revenue, setting out all relevant details. 11 This ruling was issued prior to the amendment to s 10R to extend the exemption to aged care facilities but now would apply equally to such facilities where the facts warrant the application of s 10R(3). Submissions 12 The applicant's case is essentially that the exemption under s 10R should apply to the relevant property which was "acquired for the sole intention of construction of an aged care facility" and that the intention of clause 6 of the Revenue Ruling No LT 31 "is to exempt land owners who can clearly demonstrate an intention to construct an aged care facility on the site and construction starts in a reasonable time frame". 13 The respondent has submitted as follows: "6. Section 10R(2) of the LTMA provides an exemption from taxation for land which is "used and occupied as … an aged care establishment". Aged care establishment is the defined as "any building or any part of a building used or intended to be used for the provision of residential care within the meaning of the Aged Care Act 1997". Section 41-3(1) provides: Residential care is personal care or nursing care, or both personal care and nursing care, that: (a) is provided to a person in a residential facility in which the person is also provided with accommodation that includes: (i) appropriate staffing to meet the nursing and personal care needs of the person; and (ii) meals and cleaning services; and (iii) furnishings, furniture and equipment for the provision of that care and accommodation. 7. The words "used and occupied" have different and cumulative meanings: Commissioner of Land Tax v Christie [1973] 2 NSWLR 526 at 533 per Bowen JA. "Use" has regard to the purpose to which the land is put. "Occupation" includes legal possession as well as well as something more: Newcastle City Council v Royal Newcastle Hospital (1959) AC 248. It is not necessary to satisfy the section that each and every part of the land in question have upon it a building being used for the provision of residential care. However, nor is it sufficient that the land merely be intended for such use and occupation in the future. The respondent has not allowed the applicant's claim for the exemption because, as at the relevant taxing date, being midnight 31 December 2002, the land in question was not being used and occupied for the purpose of an aged care establishment. 8. The applicant has provided evidence (enclosed in a letter dated 27 February 2004) by way of a tax invoice from Narooma Earth Moving. The applicant asserts that the invoice demonstrates that building works at the site were underway on 14 October 2002. The invoice makes reference to work including "bulk earthworks" and "stormwater drainage" 9. It is not put in dispute by the respondent that the applicant, at the relevant time and now, intended to use the subject land for the building, and eventual operation of, an aged care establishment. However, in the respondent's submission the legislation does not exempt undeveloped land even if that land in the future is to be used as an aged care facility. The invoice referred to in paragraph 7 above does not provide evidence that there was, at the taxing date, "any building or any part of a building used or intended to be used for" aged care on the relevant land. 10. The applicant relies upon the OSR Revenue Ruling No. LT31 – Exemption for retirement villages and nursing home. That Ruling applies where land is only partly used for a retirement village and/or a nursing home, allowing for a partial exemption. The purpose of the ruling is to explain how owners should calculate their liability in cases where a partial exemption is applicable (Clause 3). For a partial exemption to be available the Chief Commissioner must be satisfied that part of the land is used and occupied as a retirement village or a nursing home. 11. The Applicant relies on cl.6 of that Ruling which states: "Where land is only partly developed as a retirement village and/or nursing home, partial exemption will apply. Owners may calculate the partial exemption based on the area actually used. However, where planning approval has been obtained for development of the unused portion, a calculation based on a number of units of accommodation in the partial development compared with the number of units once the land is fully utilised will be accepted." 12. Clause 6 provides two methods of calculating liability when a partial exemption is applicable: either based upon the land area utilised, or the fraction of the eventual total capacity of the development being utilised (by reference to residential units). The Ruling does not create a category of exemption for land over which there is planning approval but no use and occupation. As a matter of law, a Ruling cannot create an exemption if such an exemption does not exist under the relevant statute: Chief Commissioner of State Revenue v Aldridge & Anor [2003] NSWADTAP 50 at paragraphs [32-33]. 13. The onus is on the applicant to establish that it meets requirements of the Act and qualifies for the exemption: s.100 Taxation Administration Act 1996. There is no evidence that as at 31 December 2002, the land in question in this application satisfied the requirements of s.10R (2). In the respondent's respectful submission, the decision of the respondent should be affirmed." Reasons for Decision 14 There is no dispute that the applicant acquired the relevant property with the intention of building an aged care facility for which the applicant has obtained appropriate approvals to build and operate such a facility. In addition, there is no dispute that as at 31 December 2002 building works including earthworks had commenced and were as the applicant claims "well underway". 15 The essential question in these circumstances is whether the relevant property is exempt from land tax in respect of the 2003 land tax year. Under s 10R(1) an "aged care establishment" is defined as " as any building or any part of a building used or intended to be used for the provision of residential or respite care, within the meaning of the Aged Care Act 1997". In relation to "residential care", s 41-3(1) of the Aged Care Act 1997 sets out what "residential care" is, as follows: "personal care or nursing care, or both personal care and nursing care, that: (a) is provided to a person in a residential facility in which the person is also provided with accommodation that includes: (i) appropriate staffing to meet the nursing and personal care needs of the person; and (ii) meals and cleaning services; and (iii) furnishings, furniture and equipment for the provision of that care and accommodation." 16 So far as it is relevant for purposes of this application, s 10R(2) provides that land is exempt from taxation under the LTM Act "if the land is used and occupied" as an aged care establishment. The exemption under s 10R has not been previously considered. However, the expression, "used and occupied" are also found in other provisions found in the LTM Act including s 10(1)(r) which provides an exemption for land that is used and occupied as the principal place of residence of the owner. Cases dealing with this expression in relation to other exemptions are helpful in defining the proper meaning of the expression as used in s 10R(2). 17 Section 10R(2) required the relevant land to be used and occupied as an aged care establishment of the applicant as on 31 December 2002 if it was to be exempt in the 2003 land tax year. The word "use" in the forerunner of s 10(1)(r) was considered in Commissioner of Land Tax v Christie [1973] 2 NSWLR 526 at 533 by Bowen JA (with whom Jacobs P agreed) as follows: '"Use" has regard to the purpose to which the land is put. Under s9 (3)(e) it must be shown to have been devoted to the purpose of constituting the site of the dwelling house. Provided there is unity in the land in question in a physical sense and a unity in what is done in devoting it to the purpose of providing or constituting the site, and provided there is a sufficiently proximate and not too remote connection between the dwelling house and its requirement or the requirements of its users or occupants on the one hand and the whole of the land in question on the other hand, then this element will be sufficiently established to demonstrate "use" as the site of the dwelling house.' 18 In Christie the court had to consider whether the land was used as a dwelling house but the test suggested by Bowen JA would equally apply when considering whether the relevant land was used as an aged care establishment. More recently, his Honour Gzell J in the Supreme Court of New South Wales in Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68 expressed his opinion as what constitutes the "use" requirement as follows: "28. The continuous use and occupation required by s 3(3)(a) of the Act means that the use of the land for residential purposes must remain constant throughout each relevant eighteen month period. If portion of a residence is converted into a shop, the land no longer answers the description of continuous use for residential and no other purpose. The plaintiff's land having at all times been used as a dwelling, it satisfied this requirement." 19 On the evidence before the Tribunal there was no building situated on the relevant land on the 31 December 2002. The evidence of any improvements to the land is found in the tax invoice furnished by the applicant and it suggests that some earth works, and stormwater drainage work had been done. That in my view would not establish that the relevant land or any part of it was used for the purpose of an aged care facility. In the absence of any established buildings, the applicant has not demonstrated the elements necessary to establish "use" of the site as an aged care establishment. In the present matter the relevant land was not used as on 31 December 2002 for any purpose whatsoever. 20 Although the applicant would not be entitled to the exemption under s 10R in those circumstances, I will also, in any case, consider other aspects of this application. 21 Section 10R(2) also required the relevant land to be occupied as an aged care establishment. In relation to "occupation", Bowen JA in Christie also provided the following useful tests to determine "occupation": '"Occupation" is not synonymous with legal possession. It includes possession, but it also includes something more: see Newcastle City Council v Royal Newcastle Hospital . It involves an element of control, or preventing or being in a position to prevent the intrusion of strangers (Newcastle City Council v Royal Newcastle Hospital ). It is for this reason that physical presence on the land and fencing are evidence of occupation. But continuous physical presence or physical presence on every part of the land does not have to be shown in order to establish occupation.' 22 There is also support for the view that "legal possession" and "occupation" have different meanings, in the following observations made by Lord Denning in the Privy Council in Council of the City of Newcastle v Royal Newcastle Hospital [1959] 100 CLR 1 at p.4: 'But legal possession is not the same as occupation, Occupation is a matter of fact and only exists where there is sufficient measure of control to prevent strangers from interfering … There must be something actually done on the land, not necessarily on the whole land, but on part in respect of the whole. No one would describe a bombed site or an empty unlocked house as "occupied" by anyone …' 23 In the present matter, the relevant land was as at 31 December 2002 in its early stages of being developed into a site for building the necessary accommodation and other facilities for the proposed aged care establishment. Land in its early stages of development, as was the case here, could not be described as being occupied as an aged care establishment in the relevant land tax year. The applicant, accordingly, was in no position to say that the land was "occupied" as an aged care establishment on the relevant date. 24 Finally, I will deal with the submission made by the applicant that clause 6 of the respondent's Revenue Ruling No LT 31 was not "considered" by the respondent and provides support for its claim that the relevant land was exempt under s 10R in the relevant land tax year. 25 The respondent's ruling was issued "to explain how owners should calculate their liability in cases where a partial exemption is applicable". Partial exemption is allowed by s 10R(3) where the respondent is satisfied that part only of land is used and occupied as referred to in subsection 10R(2). In cases where only part of the land is used and occupied for example as an aged care establishment, the land value of the relevant land is reduced under s 10R(3) for the purposes of land tax by an amount calculated in accordance with a formula provided in that subsection. Clause 6 merely attempts to explain how that calculation can be made. 26 In the present matter, unfortunately, no part of the relevant land was being used or occupied on 31 December 2002 as an aged care establishment. Neither section 10R(3) nor the respondent's ruling has any relevance to the matter before the Tribunal. 27 The exemption under s 10R does not apply to land intended to be used as an aged care establishment. The exemption only operates when the land or part of the land is used and occupied as an aged care establishment. 28 Accordingly, I will in the circumstances affirm the objection decision under review.