Set aside by Appeal : Set Aside by Appeal on 21 June 2007: Chief Commissioner of State Revenue v Geoffrey Harry Coleman & Another [2007] NSWSC 625 Appeal Panel - Internal CITATION: Coleman & anor v Chief Commissioner of State Revenue (RD) [2006] NSWADTAP 59 APPELLANTS Geoffrey Harry Coleman PARTIES: Diana Coleman RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 059074 HEARING DATES: 09/03/06 SUBMISSIONS CLOSED: 06/07/2006 DATE OF DECISION: 11/24/2006 BEFORE: Needham J SC - Judicial Member; Greenwood J - Judicial Member; Bennett C - Non Judicial Member CATCHWORDS: misapplication of correct test MATTER FOR DECISION: Principal matter FILE NUMBER UNDER APPEAL: 056059 DATE OF DECISION UNDER APPEAL: 10/19/2005 LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Land Tax Management Act 1956 Federal Commissioner of Taxation v. Murray (1998) 193 CLR 605 Kamper v. Chief Commissioner of State Revenue [2005] NSWADT 256 CASES CITED: Kinging & anor v. Chief Commissioner of State Revenue [2005[NSWADT 239 Penrith Rugby League Club v. Commissioner of Land Tax (1983) 2 NSWLR 616 Ryan v. Commissioner of Land Tax [1982] 1 NSWLR 305 Timbs v. Chief Commissioner of State Revenue [2006] NSWADTAP 25 APPELLANTS MB Boulton, Barrister REPRESENTATION: RESPONDENT S Free, solicitor B. Baker, solicitor ORDERS: 1. The appeal is allowed; 2. The decision of the Chief Commissioner under review is set aside. REASONS FOR DECISION Proceedings before Tribunal and Appeal 1 Mr and Mrs Coleman (the appellants) are the owners of property located at 8 Gunyah Street, Cronulla, in relation to which they were assessed for land tax for the 2005 tax year by the Chief Commissioner of State Revenue (the respondent) by reason of the respondent determining that the property was no longer being used and occupied as the appellants' principal place of residence. The appellants sought a review of that decision by application dated 18 May 2005. 2 The application was heard by Judicial Member Block ADCJ on 12 October 2005. By decision dated 19 October 2005, he determined that "at the relevant taxing date, … the exemption in respect of [8 Gunyah Street] was correctly refused. That being so the decision under appeal is affirmed" (see par [45] of the Tribunal decision). 3 The appellants appealed by Notice of Appeal dated 14 November 2005 and the matter was heard on 9 March 2006. Leave for further submissions was granted on the basis that a decision of the Appeal Panel of this Tribunal in Timbs v. Chief Commissioner of State Revenue was pending, and the issues in this case and that of Timbs had some similarities. That decision was, when delivered, numbered [2006] NSWADTAP 25 and leave to make further submissions was limited to issues arising out of that decision to be filed by 7 June 2006. Those submissions have now been received. 4 The appellants seek that the decision of Judicial Member Block be overturned on a number of bases which are set out in the document attached to the Notice of Appeal entitled "What are the errors of law in the Tribunal's decision?". In summary, the appellants contend that the Tribunal member below erred in the application of Ryan v. Commissioner of Land Tax [1982] 1 NSWLR 305 (Ryan's' Case) to the facts, and that the use of the land at 8 Gunyah Street was wrongly characterised as that of "construction of a new dwelling" rather than as part of a parcel of land which was subject to the principal place of residence exemption. The Facts 5 The facts of the matter are not in contest, and are as follows: - (a) The appellants bought a block of land in Cronulla in 1993, being Lot 114 of DP828424, with the street address of 8 Gunyah Street. They constructed an unusual house, the roof of which comprised a tennis court, in the 1990s. They resided there with other members of their immediate family from that time and did so as at 31 December 2004 (the relevant taxing date). Prior to 31 December 2004 the entirety of Lot 114 had the benefit of the principal place of residence exception. (b) In 2000 the appellants decided that the residence no longer suited them, in part because of the lack of sunlight, and began to formulate plans for a new residence on the site. In 2003 Sutherland Shire Council granted approval for a subdivision and construction of a new dwelling on the block of land. The land was subdivided in September 2003 and two new lots, being 1142 and 1143 in DP 1058050, were created. Lot 1142 is known as 8 Gunyah Street ("Gunyah"), and Lot 1143 has the street address of 1B Redgum Avenue ("Redgum"). The original dwelling under the tennis court is now known as 1B Redgum Avenue. (c) As at the relevant taxing date, 31 December 2004, the new dwelling at Gunyah ("the new house") had foundations, stone walls and concrete slab floors at ground level and the first storey. It was thus unoccupiable. The appellants were living in the Redgum house ("the old house"). (d) In May 2004 construction commenced on the new house on the Gunyah block. The new house is now completed and the appellants moved in with their son, Scott, on 5 August 2005 (before official completion, which was certified by Council in November 2005). Their daughter, Catriona, now lives in the old house with her family. (e) The two blocks share some amenities. There were, and are, gardens over the entirety of the parcel of land. There is a timber deck between the two houses which is used for entertaining. There is a paved barbecue area. The appellants have priority use of the tennis court and visitors often use it as well. They store books and other items in the old house. The occupants of the old house, and visitors, use the entry to the new house because that has easier access. 6 The appellants do not dispute that once they had moved into the new house (in August 2005) the exemption for the old house as a principal place of residence should not apply. They contend, however, that at the relevant taxing date the use of the block upon which the new house was being constructed was still part of their principal place of residence, that is, both blocks were being used for the appellants' ordinary domestic and recreational purposes. Evidence was given that they often used the construction site as a place to sit in the sun and admire the local views, and that they continued to use the gardens over the entirety of the two blocks as they had before. Legislation 7 The legislation for the relevant taxing date in which the exemption for a principal place of residence exemption is contained appears mainly in Schedule 1A to the Land Tax Management Act 1956 ("the Act"). The relevant legislation is as follows: - "Schedule 1A Principal place of residence exemption Part 1 Preliminary 1 Definitions (1) In this Schedule: principal place of residence exemption — see clause 2. residential land -see clause 3. taxing date - means midnight on the thirty-first day of December. (2) For the purposes of this Schedule, a reference to the owner of land includes, if there are joint owners, any one or more of those joint owners. 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. (2) Land is not used and occupied as the principal place of residence of a person unless: (a) the land, and no other land, has been continuously used and occupied by the person for residential purposes and for no other purposes since 1 July in the year preceding the tax year in which land tax is levied, or (b) in any other case, the Chief Commissioner is satisfied that the land is used and occupied by the person as the person's principal place of residence. (3) If the owner of land is entitled to the exemption conferred by this clause, no other person is liable to be assessed for taxation under this Act in respect of the land during the period of the owner's entitlement to the exemption. (4) The exemption conferred by this clause is referred to as the principal place of residence exemption. 3 Residential land - meaning (1) In this Schedule, residential land means land that is used and occupied for residential purposes and for no other purpose, that use and occupation being use and occupation of a building or buildings designed, constructed or adapted for residential purposes, other than a building or buildings: (a) comprised of lots within a strata plan or residential units, or (b) containing (out of the total of all rooms in the building or buildings) occupancies other than that of the owner, or (c) from any part of which income is derived. (2) Land does not cease to be used and occupied as provided by subclause (1) by reason of there being on that land any building or improvement that is used or occupied for a purpose ancillary to the purposes for which the building is, or the buildings are, designed, constructed or adapted. 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. Part 4 Restrictions 12 Only one principal place of residence for all members of same family (1) For the purposes of the principal place of residence exemption, only one place of residence may be treated as the principal place of residence of all members of the same family. (2) If members of a family own (whether jointly or separately) more than one residence used and occupied by any of them as a principal place of residence, the Chief Commissioner is to treat the one place of residence elected as the principal place of residence of the family as the principal place of residence of all members of the family in respect of a tax year. (3) Such an election is to be made, by or on behalf of the members of the family, in writing and must be lodged with the Chief Commissioner within the period for the lodging of objections under section 89 of the Taxation Administration Act 1996. (4) An election may be made, in respect of a tax year, by the end of the period allowed for the lodging of an objection to a notice of assessment of land tax liability (being an initial assessment of land tax liability) for that tax year. (5) If an election is not made, the Chief Commissioner is to treat the residence that has the highest land value for land tax purposes as the principal place of residence of all members of the family. (6) For the purposes of this clause, a family consists of the following: (a) a person and his or her spouse (if any), (b) any dependent child or dependent step-child of the person and his or her spouse (or of either of them) who ordinarily resides with the person or his or her spouse. (7) A person is the spouse of another person if: (a) they are legally married, or (b) they are living together as a couple in a de facto relationship within the meaning of the Property (Relationships) Act 1984. (8) However, if the Chief Commissioner is satisfied that a person: (a) is legally married to another person but not cohabiting with that other person, and (b) has no intention of resuming cohabitation with that other person, the person is not to be regarded as the spouse of that other person and if a dependent child or dependent step-child of the person has a joint interest in the principal place of residence of the spouse, that interest is to be disregarded. (9) A person who is the child or step-child of another person is a dependent child or a dependent step-child if the person is under 18 years of age and is not legally married. (10) Nothing in this clause prevents more than one residence from being treated as the principal place of residence of members of a family under clause 7 (Concession for sale of former principal place of residence)." The Appellants' Submissions 8 The appellants submit that the fact that the new house was being constructed on the subdivided block at Gunyah was irrelevant until such time that the building was able to be occupied. They submit that there was only one built residence on the land at the relevant time, and that it was illogical to say that once construction had commenced, there was automatically a different use for that part of the land. They submitted that the use of constructing a new dwelling was a use additional to, and one which did not displace, the previous use of the Gunyah Street block as a recreational area. 9 The submission of the appellants was that the Tribunal erred in law in finding, as it did in par [39] of the decision, that: - "On the relevant taxing date however the use of Gunyah had altered to a marked extent. On that date construction of the New House had been in progress for some 7 to 8 months and had reached the significant stage previously described". 10 It was suggested to counsel for the appellants by the Appeal Panel during argument that the finding quoted above was a factual finding, and so, without any application for leave to extend to the merits in accordance with s 115 of the Administrative Decisions Tribunal Act 1997, it may not be a finding to which the Appeal Panel could focus its attention, given the restriction to appeals on questions of law in s 114 of that Act. In response to this suggestion, the appellants submitted that the relevant findings of the Tribunal below were errors of law, in that the Tribunal had taken into account irrelevant factors (ie, the additional, rather than alternative, use of the property) in coming to the conclusion in par [39]. Further, it was submitted, the question of use necessarily brings in the application of the legal principles set out in Ryan's Case and the breadth of the exemption for principal place of residence in the Act. 11 The main focus of discussion in this appeal was the extent and binding nature of the tests in Ryan's Case (supra). In that case, Mr and Mrs Ryan owned one block of land, and a contiguous block was owned solely by Mr Ryan. The Ryans built a residence on the jointly owned block (No 1) and the contiguous block (No 3) was not physically separated from it. No 3 was used as a garden area. Hunt J accepted (at 306) that both blocks of land were used and occupied together at all times as the one residential area. However, they were assessed as two separate taxable holdings, because they were held in different ownerships. The oft-quoted passage from the judgment in Ryan's Case, which forms the supporting planks of the Colemans' appeal, appears at page 310: - "It follows, in my view, that contiguous blocks of land can comprise a "parcel of residential land" within s 10(1)(r)(ii) only where they are undivided not only by physical separation but also in use, occupation and title." 12 The appellants submitted that the Tribunal erred in finding that it was "bound by Ryan's Case " in the way it did (see par [29] of the decision at first instance). The Tribunal held that the four unities must be present with a degree of precision. After going through a process of reasoning, including an analysis of relevant dates such as 6 August 2005 (the date of occupation of the new house by the appellants, and the old house by Catriona), and 31 December 2003 (the previous year's taxing date) the Tribunal concluded that the unity of use factor in Ryan's Case was not sufficiently adhered to in relation to 31 December 2005. 13 It was submitted that in Ryan's Case, the requirement of use must be applied in a flexible manner, and that the passage cited above at 310 of Ryan's Case did not create a strict test in the manner applied at first instance. The use of the property was analysed by the appellants as: - - in 2004 – a garden lot and a house lot (as in Ryan's Case , only with the requisite unity of title); and - in 2005 – a house lot, together with a garden lot combined with a building use. It was submitted that "a house is not a house until built to the occupiable stage", and that the actual, rather than prospective, use of the new house block should be the determinative factor. It was submitted that the intention of the applicants, as evidenced by the construction of the new dwelling, was inappropriately taken into consideration by the Tribunal below and that it was an error of law to take the future use - that of a house - into account when the actual use of the property, apart from the construction works, had not changed. 14 The decision of the Appeal Panel in Timbs (supra) was called in support of this argument, in that the requirement for no physical separation in that case was flexibly applied. In Timbs the two properties were units comprising one floor of a high rise apartment building, each owned by the same person, and accessed through the lobby (of which the occupants had sole use by arrangement with the Owners Corporation of the strata block). 15 In a further submission, the appellants argued that the exempting provisions, of which the principal place of residence exemption was one, should be applied beneficially in the interests of taxpayers. A number of cases were cited, including Kamper v. CCSR [2005] NSWADT 256, Penrith Rugby League Club v. Commissioner of Land Tax (1983) 2 NSWLR 616, and Federal Commissioner of Taxation v. Murray (1998) 193 CLR 605. It was submitted that exempting provisions in taxing statutes should not be narrowly construed, for fear of defeating the purpose or object of the provision (see Murray at 632). 16 There was a further submission on the part of the appellants that they were denied natural justice by the failure to consider submissions relating to Timbs which were filed after the hearing. Acting Judge Block delivered his decision without reference to that submission. However, as the appellants were able to make supplementary submissions on the effect of the Appeal Panel decision in Timbs this ground was not pressed to any great degree. 17 The parties were given leave to deliver further submission on the effect of the decision in Timbs once the Appeal Panel had handed down that decision. The appellant sought to identify what were said to be anomalies between the position in Timbs, where unity of use in the strata context resulted in an exemption, and in this case, where, if undisturbed on appeal, the unity of use is broken. The Respondent's Submissions 18 The respondent categorised this dispute as being "whether the Gunyah lot should be subject to land tax in the 2005 tax year. More particularly … whether, as at 31 December 2004 and for the purposes of the principal place of residence exemption in Sch 1A of the Act, the land at Gunyah was, together with the adjoining land at 1B Redgum Avenue Cronulla … , part of a single parcel of residential land that was used and occupied by the appellants as their principal place of residence". 19 The respondent meets the appellants' argument as to the proper construction of Ryan's Case by noting that the test set out therein is a "clear test for determining when multiple lots of land can be treated as constituting a single parcel of residential land" for the purposes of the exemption. The use to which the blocks in this case were put, the respondent submitted, differs from that in Ryan's Case. It was submitted that the treatment of the test by the learned Tribunal member was appropriate, and that to note that the tests need to be met "precisely" in no way indicates a falling into error. Rather, the Tribunal member, it was submitted, concluded that there was a material difference in the way the two lots were used and occupied. 20 On the question of how the use of the lots should be evaluated, the respondent noted that cl 2 of Sch 1A of the Act provides that land that is "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 land tax if the land is a "parcel of residential land". "Residential land" is defined in cl 3(1) as meaning "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 …". On that basis, it was submitted that if the building being constructed on the Gunyah block was, say, a garage or a greenhouse that was to be used for ancillary purposes to the main residence, the construction could properly be characterised as being an extension of the existing use of the property and thus exempt. 21 Accordingly, it was submitted that it was proper for the Tribunal to take into account the character of the completed building as at the taxing date of 31 December 2004. It was not a building to be used in conjunction with the old house on Redgum, but a new and separate dwelling which would not be used for the same (exempt) residential purposes. The finding was, it was submitted, that Gunyah was being used for two purposes; recreation, and the construction of the new house, and thus the land was not being used "as the principal place of residence … and for no other purpose". 22 On the question of the test in Ryan's Case¸ the respondent submitted that it was necessary only to identify the purposes for which each lot was used and to determine whether they were the same. It was submitted that Gunyah was used for recreation and construction, whereas Redgum was used for residential purposes. Once that finding had been made, there was no room to find, in accordance with Ryan's Case¸ that the uses were the same, and no need to enter into an exercise of determining fact or degree of the uses. It was submitted that the mere fact that the construction activity was occurring meant that the uses were different and the Ryan's Case requirement of "no division" between the uses of the two lots meant that the exception could not apply. Secondly, it was submitted that the exception requires use of the land for "residential purposes and for no other purpose". 23 The supplementary submissions of the respondent made the point that the decision of the Appeal Panel in Timbs had no application because, firstly, of the factual differences, and secondly, the use by the applicants in Timbs of each of the strata units for their regular daily lives. It is noted that the respondent has given instructions to appeal against the decision in Timbs. Consideration 24 It seems to us that the appellants' argument that Ryan's Case was not binding on this Appeal Panel cannot succeed. The case has been followed by a number of Tribunal members and Appeal Panels and, where the question is whether blocks of land constitute a "parcel", has been considered the final word on the subject (see, for example, Timbs; also Kinging & anor v. Chief Commissioner of State Revenue [2005[ NSWADT 239 and Kamper v. Chief Commissioner of State Revenue (supra)). 25 However, the question of whether the tests in Ryan's Case were properly applied by the learned Tribunal member is certainly central to this appeal. 26 The central issue in this appeal, while argued by both sides in a number of different ways, is whether the test in Ryan's Case of unity of use has been met. It seems to us that the analysis by the respondent is too precise. The words of the statute "and for no other purpose" cannot mean that an ancillary purpose to that of a principal place of residence must be excluded - otherwise, Ryan's Case would have been decided differently. In Ryan's Case, one block comprised a house and the other a garden. To take the statutory language used in the words "and for do other purpose" as being construed too narrowly by application of the narrower meaning contended for by the respondent would not provide the protection by way of exemption which was clearly intended by Parliament for land subject to residential use, or recognition of the multi-faceted nature of that residential use, which has been identified in the various preceding cases. 27 It is our view that the use of the Gunyah block had not changed sufficiently as at 31 December 2004 so as to constitute a change of use sufficient to take it out of the exemption. While the construction use being conducted on Gunyah was considerable, the owners still used it as part of their principal place of residence - for relaxation and as a patio. The uses were necessarily linked to that of their principal place of residence and that use, certainly, had not changed by 31 December 2004. 28 It is certainly very persuasive that the two blocks, one with a residence use and one with a garden use, each received the principal place of residence exemption for the tax year immediately prior to that under consideration. Further, the area of the new house is only 12.83% of the Gunyah block, leaving a considerable amount of Gunyah for the appellant's use as a garden and recreation area. 29 It seems to us, further, that the appellant's submission that while the question of the nature of the use of Gunyah as at 31 December 2004 was a finding of fact by the Tribunal, the manner in which the Tribunal used that finding of fact, both in applying Ryan's Case and the statutory exemption for principal place of residence under the Act show errors of law. Firstly, the Tribunal took into account an irrelevant factor (being the "use" as a construction site, impliedly overriding other, continuing uses ancillary to the principal place of residence of the appellants) and, secondly, viewed the Ryan's' Case principles too restrictively in relation to the uses by the appellants of Gunyah and the new house, while under construction, as part of their garden environs. The learned Tribunal member's conclusion, that "at the relevant taxing date Gunyah and Redgum did not constitute a parcel of residential land and the exemption in respect of Gunyah was correctly refused" is a matter of law, being partly a factual finding and partly a matter of statutory construction, sufficient to attract appellate review. 30 It seems to us that the decision at first instance was incorrect as a matter of law; that Gunyah and Redgum do, in fact, constitute a "parcel of residential land" within the meaning of Schedule 1A cl 2(1)(a) of the Act, and that there was no division of use as set out in Ryan's Case. Accordingly, the appeal should be allowed. Orders 1. The appeal is allowed. 2. The decision of the Chief Commissioner under review is set aside. 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.