Capital Club Pty Ltd v Commissioner of State Revenue
[2007] VSC 108
•30 April 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
VICTORIAN TAXATION APPEALS LIST
Nos. 4121, 4122, 4123 and 4124 of 2006
| CAPITAL CLUB PTY LTD | Appellant |
| V | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 February 2007 | |
DATE OF JUDGMENT: | 30 April 2007 | |
CASE MAY BE CITED AS: | Capital Club Pty Ltd v Commissioner of State Revenue | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 108 | First Revision: 16 May 2007 |
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LAND TAX – appeal against rejection of objections to assessments – whether appellant, as owner and operator of golf course, entitled to exemption under s.9(1)(g) of the Land Tax Act 1958 (Vic) – golf course predominantly used by customers of Crown Casino – whether appellant existed for the purpose of providing sporting facilities – whether appellant applied its profits in promoting its objectives – whether greenkeepers’ residential properties were used for purposes ancillary or incidental to the overall use of the golf course land.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr J de Wijn QC Mr M Osborne | Maddocks |
| For the Respondent | Mr J Delaney SC Mr C Horan | Solicitor for the Commissioner of State Revenue |
HIS HONOUR:
Introduction
At all material times, the appellant owned and operated an 18 hole championship golf course known as the Capital Golf Club that is located on land[1] comprising 96 hectares situated at 385 Centre Dandenong Road. There is a greenkeeper’s residence located at 319 Centre Dandenong Road and an assistant greenkeeper’s residence located at 8A Madden Road. Although having separate addresses, these two residences are located on the golf course land which is bounded (in part) by Centre Dandenong Road, Ross Street, Old Dandenong Road and Madden Road. There is also constructed on the land a club-house (including locker and dining facilities), a large “Pro-Shop”, a maintenance building and yard and two tennis courts.
[1]The land is about 21 kilometres from the Melbourne CBD in the suburb of Heatherton and is near to the Moorabbin Airport.
These appeals arise from objections lodged by the appellant against four land tax assessments[2] made by the respondent (hereinafter “the Commissioner”) for the tax years 2002, 2003, 2004 and 2005 insofar as those assessments relate to the said land. The Commissioner relevantly rejected the appellant’s objections by deciding[3] that ss.9(1)(g) and 13 of the Land Tax Act 1958 (Vic) (“the Act”) did not apply to exempt or otherwise reduce the tax payable on that land or any portion thereof.
[2]Notice of Assessment number 030312704 dated 15 March 2002, Notice of Assessment number 032508466 dated 7 March 2003, Notice of Assessment number 035760994 dated 27 February 2004 and Notice of Assessment number 039203203 dated 25 February 2005.
[3]By four Notices of Decision issued on 3 October 2005.
The principal issue on the appeals is whether the said land is exempt from land tax by virtue of falling within the category defined by s.9(1)(g) of the Act as follows:
“(g)land which is vested in any body corporate or unincorporate (not being a body that promotes or controls horse racing …[etc] …) that exists for the purpose of providing or promoting cultural or sporting recreation or similar facilities or objectives and that applies its profits in promoting its objectives and prohibits the payment of any dividends to members and which is used for out-door sporting recreation or cultural purposes or similar out-door activities;”
Factual background
On 18 April 1997 the appellant was incorporated as a proprietary company limited by shares. The original memorandum of association of the appellant provided for an authorised share capital of 10M shares of $1 each and was otherwise in an unremarkable and more or less standard form. The original articles of association divided the shares into 9.5M Ordinary shares and blocks of 100,000 shares denoted class “A”, “B”, “C”, “D” and “E”. The Ordinary and “A” and “B” class shares entitled the holder to receive dividends and to vote. Lesser rights were attached to the other classes of shares. However, until 3 July 2000, the appellant’s only issued share capital comprised 2 Ordinary shares issued to Hudcon Properties Pty Ltd (“Hudcon Properties”). The articles of association were otherwise also in an unremarkable and more or less standard form.
The appellant provided no evidence concerning the business, activities or ownership of Hudcon Properties. Senior Counsel for the appellant asserted that Hudcon Properties was an entity “associated with Hudson Conway” but again there was no evidence of this and no evidence about Hudson Conway. Some statements were made by Senior Counsel for the appellant in the course of the hearing about the source of finance for construction of the golf course and about monies advanced by either Hudson Conway or Hudcon Properties but there was no evidence elucidating these matters.
According to an affidavit of a director of the appellant, Stephen Boykett (“Boykett”), the appellant from 18 April 1997 to 1 July 2000 granted playing rights over the golf course to Crown Ltd (“Crown”) pursuant to an agreement which had been entered into with Crown under which Crown was obliged to pay a fee in consideration of the right to use the golf course. This evidence was touched upon in cross-examination when Boykett said that prior to 29 June 2000 Crown “leased” the golf course from the appellant. However, no agreement or lease was produced. Further, there was some confusion in Boykett’s evidence in relation to a statement by the appellant’s solicitors in a letter dated 10 September 2004 to the State Revenue Office stating that the appellant leased the golf course to Crown and that all maintenance and running costs were incurred by Crown directly. Boykett maintained that the appellant incurred these costs itself and that they were covered by the rental under the lease. In the absence of documentation, the precise position remains obscure.
According to Boykett, from 29 June 2000 the appellant implemented a “new operational arrangement” under which the appellant commenced “operating the golf course on its own account for the benefit of its members”. What is meant by this “new operational arrangement” can be gathered by reference to a new constitution adopted by the appellant together with Boykett’s evidence about the method of nominating persons to play on the golf course.
On 29 June 2000 the appellant adopted a new constitution in lieu of the former memorandum and articles. The new constitution provides for a number of classes of shares in addition to Ordinary shares, namely, Corporate Membership shares, Private Membership shares, Honorary Membership shares and Life Membership shares. Of the various classes of shares, only the Ordinary shares are defined as voting shares.[4] The board is empowered to determine the issue price of any class of shares.
[4]The constitution of the appellant however vests in the board a power to establish other classes of shares with or without a right to vote.
The new constitution provides that a Corporate Membership share (initially limited to one share) and Private Membership shares (initially limited to 100 shares) and Ordinary shares carry entitlements to participate in the profits of the appellant by way of dividends or otherwise and to participate in distributions on a winding up in accordance with proportions[5] set out in the constitution.
[5]The proportionate entitlement of the Corporate Membership Shares was 25/52, of Private Membership Shares was 16/52 and of Ordinary shares was 11/52.
Clause 6.1 of the constitution provides that Corporate Members, Private Members, Life Members, Honorary Members and persons nominated by the board pursuant to clause 6.10 are entitled “to play the Course” and use its facilities. Clause 6.2 of the constitution provides that Corporate Membership entitles the Corporate Member to nominate no more than 36 persons in any one day to have unlimited use of the course and its facilities and to hold up to ten tournaments[6] on the course with the prior written consent of the board. Clause 6.10 of the constitution provides that the board may in its absolute discretion nominate any person or persons who are not members to use the course and its facilities if in the board’s opinion that person or those persons “may enhance the reputation of the Course”.
[6]Presumably per annum.
On 30 June 2000 the appellant paid a dividend of $2,529,604.94 to its then sole shareholder Hudcon Properties. Broadly speaking, this dividend represented the operating profit, after tax, of the appellant for the year ending 30 June 2000. This dividend was and still is the only dividend that has been paid by the appellant.
The appellant’s balance sheet for the year ending 30 June 2000 shows that the land had been revalued by the board from $31.2M to $52M and that the resulting capital profit on paper had been applied to eliminate the accumulated losses of previous years. The appellant’s financial report (dated 9 August 2000) for the year ended 30 June 2000 stated that the company’s principal activity was that of investment but the report also noted that a new constitution had been adopted “[e]ffective 1 July 2000”.
On 3 July 2000 the appellant issued to PBL Capital Pty Ltd (“PBL Capital”) one Corporate Membership share in consideration of the payment of the sum of $36M and on the same date the appellant issued to Hudcon Properties 100 Private Membership shares.[7] The appellant’s issued share capital since that date has been the said one Corporate Membership share held by PBL Capital, the said 100 Private Membership shares held by Hudcon Properties and the two Ordinary shares originally issued to and still held by Hudcon Properties. As the sole holder of a Corporate Membership share, PBL Capital is liable under the appellant’s constitution to pay an annual membership fee of $3M.[8] The appellant’s constitution further requires PBL Capital to pay an additional amount that is calculated by reference to the total operating maintenance and capital expenditure of the appellant in respect of the golf course and its facilities.[9]
[7]The evidence was that the consideration for these shares was the discharge of a $16M balance owing to Hudcon Properties by the appellant.
[8]The constitution further provides for this fee to be increased annually by a percentage or by reference to the Consumer Price Index.
[9]This amount is to be proportionately reduced if PBL Capital receives funds in respect of the Private Membership shares (but such receipt has not as yet occurred).
On 21 December 2001 the appellant’s constitution was amended, inter alia, by inserting a new clause 2A setting out “OBJECTS” of the appellant. In that regard clause 2A.1 provided inter alia that the appellant was not to be carried on for the purposes of profit or gain to its members and would not pay any dividend to members. In addition, a number of consequential amendments deleted all entitlements of relevant classes of shares to participate in profits by way of dividends.
On 23 December 2002 the appellant’s constitution was further amended, by amending the “OBJECTS” clause (clause 2A) by adding some words to clause 2A.2 and by adding a new clause 2B. As a result, as from 23 December[10] 2002, clauses 2A and 2B of the appellant’s constitution provides as follows:
[10]In the case of each owner of land, land tax is assessed and levied for each year on the total unimproved value of all land of which he is the owner at midnight on the 31st December immediately preceding the year for which such tax is assessed and levied – see s.8(1) of the Act.
“2A. OBJECTS
2A.1The Company has been established to own and operate the Course to provide for the social, sporting and recreational interests of Members. The Company is not to be carried on for the purposes of the profit or gain to its Members, and accordingly, the Company will not pay any dividend (whether in cash or in kind) to Members.
2A.2In furtherance of the objects set out in Clause 2A.1, in the event that in any Membership Year the Company makes a profit or other surplus of income over expenditure, such profit or surplus is to be held in reserve by the Company for expenditure on the Course and its associated facilities in future years and will not be paid by way of dividend to its Members, and the Board shall formulate the annual budgets of the Company accordingly.
2B. APPLICATION OF INCOME
The income and property of the Company must be applied solely towards the promotion of the Objects of the Company as set out in this Constitution, and no portion of such income or property may be paid or transferred directly or indirectly by way of dividend, bonus or otherwise to Members.”
The land tax assessments the subject of these appeals relate to the four years commencing on 31 December 2002 and thus relate to the four tax years immediately after the above amendments to the appellant’s constitution had taken effect.
In relation to the right, since 29 June 2000, of the Corporate Member (PBL Capital) to nominate persons to play on the golf course, Boykett testified that the procedure adopted was that one of the general managers “at PBL” would telephone the golf course and speak to the manager in the Pro-Shop advising of the names of players that were coming that day, the next day or the next week, and their names would be recorded by the golf course manager or staff on a spreadsheet.
Boykett’s evidence shows that his reference to “PBL” was a reference to Publishing and Broadcasting Ltd, the public company that is the 100% holding company of both PBL Capital and Crown[11], the latter being the company operating the Crown Casino. There is no evidence to suggest that PBL Capital is anything other than an entity created for the purpose, on behalf of Crown, of nominating persons to play on the golf course. As I understand the evidence, the reality is that, from the outset, the golf course was and still is made available for use predominantly by guests and patrons of the casino and hotel operated by Crown. Whether, since PBL Capital became the Corporate Member of the appellant, these persons have been nominated by an employee of PBL Capital or by some employee of PBL or of Crown, seems to have been of little significance to those concerned.
[11]Boykett testified that if caddie fees or other costs were incurred by players nominated by PBL Capital and charged by those players to their hotel account, such charges would, at the end of the month, be sent in an account to Crown.
In relation to the right of the board, since 29 June 2000, to nominate persons to play on the golf course, Boykett testified that one or other of the directors would telephone the Pro-Shop to make such a nomination and the names of the nominees would be recorded in a separate diary kept for the purpose.
Boykett deposed that the appellant’s revenue since 3 July 2000 had been made up of annual membership fees paid by PBL Capital, interest, caddie fees and other fees charged to players, and retail sales to patrons of the Pro-Shop and bar and dining facilities. Boykett deposed that, for the financial years ending 30 June 2001 to 2004, the appellant did not earn any surplus “largely because of the significant depreciation expenses” but that any “operational cash surplus derived by the appellant has been used in the further development, improvement and maintenance of the golf course and accompanying facilities”. Boykett further deposed that, for the financial year ending 30 June 2005, the appellant derived a surplus of $228,304 which was applied in reduction of accumulated losses.
Graeme John Rogers (“Rogers”) is the golf course superintendent (or greenkeeper) and made an affidavit sworn 12 April 2006. Rogers deposed that he resided in the greenkeeper’s residence at 319 Centre Dandenong Road and was employed on a full-time basis to maintain the golf course. He further deposed that an assistant greenkeeper, who resided in the assistant greenkeeper’s residence at 8A Madden Road, was also employed on a full-time basis for the same purpose.
Rogers deposed that the golf course was designed by Peter Thompson and had a visually impressive layout, 15 hectares of lakes, larger than average greens, about 150-160 bunkers, fully-maintained manicured undulating fairways, the biggest practise fairway in Melbourne, two practise putting greens and one practise chipping green. He also deposed in detail as to the buildings on the course.
Rogers deposed that his residence was a five-bedroom brick residence and was provided as part of his employment package. He said that the provision of the residence to the greenkeeper was critical for the operation and maintenance of the golf course. His working day started between 5.30am and 6.00am when he arrived at the course. By living on the course, he was readily able to monitor the irrigation cycles and immediately attend to any repairs to irrigation pipes or other maintenance issues. He was also responsible for supervising the spraying of chemicals and fertilizers that usually occurred at night and he was readily contactable if there were any difficulties in that regard. He was also available to address security concerns including any problems of vandalism.
Rogers deposed that the assistant greenkeeper resided in a three-bedroom brick residence that was part of his employment package and that the assistant greenkeeper’s presence on course was essential for much the same reasons as he stated in relation to his own position. In addition, Rogers deposed, the assistant greenkeeper’s residence was located so as to give ready access to the maintenance area of the golf course and he was thus able to keep an eye on the valuable equipment which was kept in that area.
In cross-examination, Rogers emphasised the benefits of being in close proximity to the golf course, but accepted that if he lived in an appropriate residence which was within five or ten minutes walk, or even five or ten minutes driving time, from the golf course he would still be able to perform all of the duties outlined in his affidavit.
Issues
It was common ground that under s.9(1)(g) of the Act the appellant was required to establish four matters:
(i)that the land is vested in a body corporate – this was not in dispute;
(ii)that the body corporate exists for the purpose of providing or promoting cultural or sporting recreation or similar facilities or objectives – this was disputed;
(iii)that the body corporate applies its profits in promoting its objectives and prohibits the payment of any dividends to members – it was not disputed that the appellant prohibited the payment of any dividend to members, but it was disputed that it applied its profits in promoting its objectives;
(iv)that the land is used for out-door sporting recreation or cultural purposes or similar out-door activities – this was not in dispute except as to the land used and occupied for the residences of the greenkeeper and assistant greenkeeper.
Did the appellant exist at the relevant times for the purpose of providing or promoting cultural or sporting, recreation or similar facilities or objectives?
It was not suggested that the appellant existed for the purpose of “promoting” the stipulated facilities or objectives or for the purpose of providing anything other than sporting, recreation or similar facilities. In essence, the issue between the parties was whether the appellant existed for the purpose of “providing” sporting facilities.
In each of the four notices of decision dealing with the appellant’s objections to the four land tax assessments, the Commissioner stated:
“In relation to the purpose requirement, the relevant body must ‘exist’ for the purpose of providing or promoting cultural or sporting recreation or similar facilities or objectives. Having regard to [the appellant’s] shareholdings and membership structure, it is evident that [it is] only the Corporate Member, Private Member and persons nominated by or guests of those members who have an entitlement to play the golf course. As at the relevant time, [the appellant] existed for the purposes of –
(a)providing a private golf course for the use, via [Hudcon Properties] as shareholder, of Lloyd Williams and his invitees; and
(b)providing golfing facilities to those nominated by [PBL Capital], in particular persons nominated by it in connection with PBL’s business[12] as owner and operator of … Crown.
As such, at the relevant time, [the appellant] did not satisfy the purpose requirement.”
[12]There is a confusion in the notices of objection between PBL Capital and its holding company Publishing and Broadcasting Ltd (the holding company of Crown).
The submissions advanced on behalf of the Commissioner on this issue reflected the above ground of decision save that no reliance was placed upon the position or connection of Lloyd Williams, a matter that was not the subject of evidence.
The Commissioner submitted that the appellant was not a body that “exists for the purpose” of providing sporting, recreation or similar facilities. The Commissioner submitted that the appellant had to establish that it was a body which existed for the sole, alternatively dominant, purpose of providing such facilities. It was not sufficient if the provision of such facilities was a purpose, or even the main purpose, for which the appellant existed – it had to be the sole or dominant purpose. In order to characterise the purpose for which the appellant exists, there had to be a realistic appraisal of all the facts, including the history of the company and its activities. The question could not be determined simply by looking at the appellant’s constitution; the objects therein set out were relevant but not determinative. The intentions of the promoters could be taken into account.
The Commissioner said that the appellant was not established for the requisite purpose but was established as a conventional profit-making company that declared or might declare dividends. The objects clause was subsequently inserted in the appellant’s constitution in order to seek the benefit of a land tax exemption and should be given little weight in determining the purpose of the appellant at the relevant dates.
The Commissioner argued that even if the insertion of the objects clause was significant, the evidence did not establish that the appellant was pursuing those objects. The objects clause referred to “the social sporting and recreational interests of Members”. The Commissioner contended that each of the members was a corporation and that, as such, neither Hudcon Properties nor PBL Capital had any “social, sporting or recreational interests”. Further, as to Hudcon Properties, there was no evidence that it had nominated any persons to use the course. As to PBL Capital, there was no evidence that PBL Capital itself nominated any players. In substance and in reality the players were nominated by Crown as an adjunct to its business and this had been and remained the position since the establishment of the golf course. Even if the players were nominated by PBL Capital, they were nominated for the business purposes of PBL Capital and it was the players and not PBL Capital whose social, sporting and recreational interests were being served.
The Commissioner submitted that the appellant did not exist to provide for the social, sporting and recreational interests of its members, but rather for the purpose of enabling PBL Capital (or Crown) to serve its business interests by providing access to a golf course and associated facilities for persons with whom Crown had a commercial relationship, that is, for the patrons of Crown’s casino and hotel. The position was no different than if Crown, as part of its hotel, provided a golf course on adjoining land for use by its guests. The fact that ownership and maintenance of the golf course was “quarantined” to a company related to Crown should not lead to a different result.
The Commissioner accepted that the appellant did in fact provide sporting and recreational facilities but the Commissioner submitted that the appellant did not exist for that purpose and that the appellant existed for the primary purpose of enabling Crown to serve the interests of Crown’s customers.
It was submitted on behalf of the appellant that, at the relevant times (indeed since its inception), the appellant had existed for the purpose of providing sporting, recreation or similar facilities. The appellant was a single purpose company and its sole raison d’etre was to acquire, operate and maintain the golf course. The appellant’s sole activity was to provide sporting facilities. It was submitted, in substance, that the fact that one of the appellant’s members or “the Crown group” or “the PBL group” nominated persons to play on the golf course with whom they had a commercial relationship, was irrelevant.
It is convenient next to mention some of the cases to which the parties made reference.
In A. & S. Ruffy Pty Ltd v Federal Commissioner of Taxation[13] (“Ruffy”) the High Court was concerned with the requirements which a company had to meet in order to be a co-operative company under s.117 of the then income tax legislation. One of these requirements was that the company be established for the purpose of carrying on any business having as its primary object or objects one or more of certain specified objects. It is to be noted that the language of s.117 differs in a number of respects from the provision in this case but the parties in this case appeared to be in agreement that some aspects of the approach taken by the High Court were relevant. By that I mean, in particular, the statement in the judgment of Dixon CJ, Williams and Webb JJ to the effect that one should not “look, at all events exclusively or even initially, at the objects expressed in the company’s memorandum”[14] and the emphasis in the judgment of Fullager J upon looking at the “activities actually carried on by the company and at its history, constitution and control.”[15]
[13](1958) 98 CLR 637.
[14](1958) 98 CLR 637, 649.
[15](1958) 98 CLR 637, 656.
In Brookton Co-operative Society Ltd v Federal Commissioner of Taxation[16] (“Brookton”), the High Court was again concerned with s.117 of the then income tax legislation relating to co-operative companies. Gibbs CJ said[17] that the “use of the present tense in the phrase ‘is established’ makes it necessary to consider the purpose for which the company was carried on in the relevant income year, rather than at the time of its formation.” Gibbs CJ said that the Court had to consider the activities which the company actually carried on, in order to ascertain the dominant purpose for which it was established and he said that it was unnecessary to decide whether the motives of the promoters were relevant. Mason J said[18] that the purpose for which a company is established may change in the course of time, but the objects of the business were not to be gathered solely from the memorandum and that, in characterising the object of the business, the Court looked at the business activities of the company after its incorporation as well as to the purpose of its incorporation. Mason J adopted what was said by McTiernan J in Revesby Credit Union Co-operative Ltd v FCT[19]: “The main test to be adopted in ascertaining the primary object is to ask what the actual activities of the appellant’s society indicate it to be.” However Mason J said[20] that in ascertaining the sole or dominant purpose, the Court was entitled to look not merely to the activities of the taxpayer and its directors but also to the intentions of the promoters.
[16](1981) 147 CLR 441.
[17](1981) 147 CLR 441, 445.
[18](1981) 147 CLR 441, 451.
[19](1965) 112 CLR 564, 576.
[20](1981) 147 CLR 441, 453.
In Brookton, Aickin J said:[21]
“The test which s 117, as construed in earlier decisions of this Court, provides is a compound one. There must be ascertained first the purpose for which the company ‘is established’. For a company to qualify as a co-operative company that purpose must be the carrying on of a business which has as its primary object or objects one or more of the activities specified in s 117 (1). Thus the second aspect of the test is the ascertainment of the primary object or objects of the business carried on by the company.
It has been held in earlier decisions of this Court that the expression ‘is established’ indicates that the company and its activities must be looked at year by year, and not merely at the time of its incorporation. That expression therefore has the significance of ‘maintained’ or ‘kept in operation’. This Court has held that the objects as set out in the company's memorandum of association or other constituent documents cannot be decisive and perhaps may be of only remote relevance.”
[21](1981) 147 CLR 441, 460-461.
Aickin J then quoted extensively from Ruffy and then said:[22]
“No member of the Court treated the subjective, or the expressed, intentions of the promoters or directors of the company as being in any way material to the determination of its status under s 117 but treated what the company actually did, including the taking over of the former business and the like, as being the determinative factors. In my opinion the subjective intentions of the promoters, the original subscribers or shareholders and the original directors, whether formed prior to or at the time of incorporation are of no assistance in determining whether the taxpayer company is, as it claims to be, a co-operative company within the meaning of s 117. For reasons which I indicate below what matters is what the company did. The purpose of its incorporation must be ascertained from what it did. In my opinion no significance is to be attributed to the fact that what the company actually did had been planned in advance by those who may be described as ‘its promoters’; it would be very surprising if the activities were not so planned, unless the company were a ‘shelf company’.”
[22](1981) 147 CLR 441, 463.
SSAU Nominees Pty Ltd v Federal Commissioner of Taxation[23] related to a sales tax exemption for “goods for use … by a society, institution or organisation established and carried on exclusively or principally for the promotion of the interests of a university or school conducted by an organisation not carried on for the profit of an individual.” Ormiston J referred to Ruffy and Brookton noting that the High Court held the view that the primary object or objects of the company’s business could not be determined solely or even initially by reference to its memorandum of association and that evidence of its history, setting up and activities had to be examined. The case otherwise turned on its own facts and the particular legislation.
[23][1986] VR 355.
It seems to me that the starting point on the “purpose” issue in the present case is that the appellant since 1 July 2000, and certainly on each of the dates relevant to the tax years in question, provided sporting facilities, that is, it operated and maintained the golf course and made the golf course available to the nominated players. This was the appellant’s sole overall activity at the relevant times. Although the appellant submitted that this had been its activity since its incorporation, that need not be decided and, indeed, probably cannot be decided having regard to the unsatisfactory evidence about the lease or agreement between the appellant and Crown. So one question is, I think, why should it not follow that the appellant existed on each of the relevant dates for the primary or dominant purpose of conducting that activity, i.e. for the purpose of operating and maintaining the golf course for the use of those who played on it?
One strand in the Commissioner’s argument was that, whereas the objects clause in the appellant’s constitution provided that it had been established “to own and operate the Course to provide for social, sporting and recreational interests of Members”, the Members (namely Hudcon Properties and PBL Capital) had no social, sporting and recreational interests but were commercial entities that nominated players to use the course so as to serve those entities’ commercial interests and therefore the objects clause did not assist in showing that the appellant existed for the purpose of providing sporting facilities. Rather, the evidence showed that the appellant operated the course to provide for the commercial interests of those entities.
I agree that the objects clause in the appellant’s constitution is of no or little assistance in determining the purpose for which the appellant existed at the relevant dates. Insofar as the objects clause refers to the purpose of owning and operating the golf course, that is obvious enough without the need to refer to the objects clause. I agree that the above quoted portion of the appellant’s objects clause is otherwise misleading in the way that the Commissioner submitted. The evidence does not show that Hudcon Properties or PBL Capital have anything other than a commercial interest that is served by the golf course and the evidence justifies the conclusion that the golf course, so far as Hudcon Properties and PBL Capital are concerned (in substance and reality, this means Crown), exists to serve their commercial interests. It is fair to say, therefore, that at one level the appellant exists for the purpose of carrying out its activities, namely operating, maintaining and providing the golf course, while perhaps at another level, it exists for the purpose of serving the commercial interests of Crown.
Divorcing the question from any consideration of legislative intent, it makes sense to say that the appellant exists for the purpose of running a golf course. “Purpose”[24] in that sense conveys, I think, the object which the appellant as a body corporate has in view (or “for which it exists” – which perhaps demonstrates the redundancy in the phrase in question). It is almost nonsensical to say: “Capital Club Pty Ltd operates and maintains a golf course and makes it available to players nominated under the rules in its constitution and does nothing else but it does not exist for that purpose”. It is true that the evidence tends to show that the golf course itself serves the commercial interests of the Members or of Crown and that the appellant is the vehicle used to own and operate the golf course (and the conduit for the necessary funds to do so) – but these facts go to the purpose or purposes of the Members and of Crown in setting up and maintaining the structure.
[24]“Purpose” is relevantly defined in the Oxford English Dictionary (2nd edition) to mean “that which one sets before oneself as a thing to be done or attained; the object which one has in view; the object for which anything is done or made, or for which it exists; the result or effect intended or sought; end, aim.”
In the statutory context, the answer depends upon the proper interpretation of s.9(1)(g) and the policy underlying it, if and so far as the latter can be ascertained.
In that regard, reference should be made to the decision of the Court of Appeal of this Court in Commissioner of State Revenue v Australian Football League[25] (the “AFL case”). That case was concerned with a different aspect of s.9(1)(g) of the Act. The question was whether, at the relevant date, Waverley Park (formerly known as VFL Park) was “used for out-door sporting recreation or cultural purposes or similar out-door activities”. The facts were that while Waverley Park was no longer used for football it was used by the public, but not by its owner the AFL, for a number of different out-door sporting, recreation or similar activities. The Court held that the relevant aspect of s.9(1)(g) was satisfied because the expression “which is used” did not mean, by the insertion of words that were not there, “which is used by the body corporate in which the land is vested” and the out-door sporting and similar activities need not be confined to those which the body corporate existed for the purpose of providing. Callaway JA, with whom Maxwell P and Chernov JA agreed, said:[26]
“… at first glance, it does seem odd that a football league should be granted exemption in relation to cycling. If the legislative intention was to exempt non-profit organizations in relation to particular uses of land, there was no need to stipulate that the organizations exist for the purpose of providing or promoting cultural or sporting recreation or similar facilities or objectives. Moreover, the same descriptions (“cultural”, “sporting”, “recreation” and “similar”) are found, albeit in a different order, both in the description of the body and in the description of the qualifying activities. The only readily apparent difference is that the latter are limited to out-door activities. The difficulty is that, again contrary to my first impression, the appellant’s construction involves reading words in that are not there. The italicized words at the end of s.9(1)(g) would have to be read as if they continued “of the kind the body exists to provide or promote” or words to that effect. Parliament could easily have said that and did not do so.
In B.P. Refinery (Westernport) Pty. Ltd. v. Shire of Hastings ((1977) 180 C.L.R. 266 at 280) the majority of the Privy Council referred to Lord Mersey’s oft cited statement in Thompson v. Goold & Co. ([1910] A.C. 409 at 420) that “[i]t is a strong thing to read into an Act of Parliament words which are not there, and in the absence of clear necessity it is a wrong thing to do.” Their Lordships added that it was a particularly strong thing to do when it amounted to modifying, as against the fiscal subject, words which have a plain, natural and ordinary meaning in his or her favour. There is nothing in s.9(1)(g) that requires the land to be used by the body in which the land is vested and there is nothing that requires the out-door sporting recreation or cultural purposes or similar out-door activities for which the land is used to be those of that body.”
[25][2006] VSCA 24.
[26][2006] VSCA 24, [16]-[17].
The AFL case and the above quotation from the judgment of Callaway JA therein support the emphasis that ought to be placed on the actual words used by Parliament and also illustrates the difficulty of divining the precise legislative intention or policy underlying s.9(1)(g) of the Act. In relation to the policy of the provision, perhaps one can do no better than refer to a decision concerning precursor[27] legislation, that is, the decision in City of Essendon v Cox[28]. In that case, the defendants were members of a committee of a horseracing club. The club’s race-course land was held in trust on behalf of the club – parts of the race-course were arguably used for a variety of purposes and there was also adjoining vacant land partly used for grazing horses and partly for the provision of car-parking areas. In relation to municipal rates, the question was whether the lands were within the purview of the Cultural and Recreational Lands Act 1963 which related to “recreational lands” defined as “lands which are – (i) vested in or occupied by any body corporate or unincorporate which exists for the purpose of providing or promoting cultural or sporting, recreational or similar facilities or objectives and which applies its profits in promoting its objects and prohibits the payment of any dividend or amount to its members; and (ii) used for out-door sporting, recreational or cultural purposes or similar out-door activities …”
[27]Section 9(1)(g) of the Act was introduced in 1970 by Act No. 8055 which adopted the language used in the definition of “recreational lands” in the Cultural and Recreational Lands Act 1963.
[28][1967] VR 545.
Adam J adverted to the policy of that legislation in a way that, I think, is pertinent to the present case, when he said:[29]
“… The manifest policy of this legislation does not suggest that a distinction is to be drawn between those bodies controlling sporting or recreational lands, which actually expend all their profits as and when they are derived in the promotion of their objects and others which for the more effective promotion of their objects retain part of their profits for future contingencies. The real distinction intended to be drawn is, I consider, between those bodies which apply their profits for purposes other than the promotion of cultural, sporting or recreational objects (as the case may be), and those which do not. This, I think, is reinforced by the further requirement of the statutory definition that the body in question must be one which prohibits the payments of any dividend or amount to its members.
…
… The manifest policy of this Act being to encourage, in the interests of the community[30], the retention of existing outdoor cultural, sporting and recreational lands and their continued use as such, when controlled by organizations which derive no profit for themselves, certainly predisposes one to give a reasonably wide and, indeed, liberal scope to the requirement that lands should be used for the specified purposes.”
[29][1967] VR 545, 549-551.
[30]The reference to “interests of the community” relates back to s.4(1) of the Cultural and Recreational Lands Act 1963 which empowered the municipality to set rates for recreational lands in such amount “as the council of the municipality thinks reasonable having regard to the services provided by the municipality in relation to such lands and having regard to the benefit to the community derived from such recreational lands.” (Emphasis added).
It seems to me that in this case, on a literal interpretation, the requirement of s.9(1)(g) of the Act as to existing for the purpose of providing sporting facilities is satisfied. For ease of reference, I will refer only to sporting facilities in what follows. It makes perfect sense to say, having regard to the evidence, that the appellant exists for the purpose of providing sporting facilities. Turning to the purpose of the exemption, it is obviously about avoiding imposts upon out-door sporting activities. It seems to me that the policy of the section is to encourage, or at least not to burden, out-door sporting activities carried on upon land, where the body owning the land also provides or promotes sporting facilities or objectives and devotes all of its profits to the same. Thus land is exempted from land tax where it is owned by a body that provides sporting facilities, that applies its profits to that end (and prohibits the payment of dividends to members) and whose land is used for out-door sporting activities. Provided that the appellant satisfies what might be termed the “non-profit” requirements of the section (as to which see below), it seems to me that the policy of the section, as so understood, is satisfied in the present case. The appellant provides facilities for the playing of golf, that is what the land is used for, and that is within the scope of what the exemption seeks to immunise from land tax. I therefore consider that it is not relevant to the intent of the exemption that the Members, or Crown, have a commercial interest that is served by the golf course and that the appellant is the vehicle used by them for their purposes. There is nothing in the section that requires that the members of the body owning the land should not have a commercial interest in relation to, or indirectly derive a commercial benefit from, the relevant sporting activity, provided that the express “non-profit” requirements of the section are met by the body concerned.
I conclude that, at the relevant dates, the appellant existed for the purpose of providing sporting facilities.
Did the appellant at the relevant times apply its profits in promoting its objectives?
The Commissioner submitted that the appellant did not apply its profits in promoting its objectives because any accumulated profits might be distributed to members on a winding up or by way of a reduction of capital. The Commissioner submitted that to satisfy this requirement the constitution of the appellant would have had to provide that, in the event of a winding up, the appellant’s assets (including any accumulated profits) would be applied to those objectives or transferred to a body with similar objectives.
It was submitted on behalf of the appellant that it was necessary to look at what the appellant did from year to year and that, in the relevant years, the appellant had not applied its profits other than in promoting its objectives (i.e. the provision of sporting facilities) and was required by its constitution to apply any profit or surplus towards future expenditure on the golf course and associated facilities. It was submitted that what might happen on a winding up or a reduction of capital was irrelevant to the question whether, at the material times, the appellant applied its profits in promoting its objectives.
In my opinion these submissions made on behalf of the appellant are correct both in fact and in law. Looking at the appellant’s activities in the relevant years, I am satisfied that it applies its profits in promoting its objectives, as submitted on its behalf. I consider that that conclusion is supported by the approach taken by Adam J in City of Essendon v Cox[31] and I here set out at greater length a passage from the portion of his judgment to which I have earlier referred:
“… I agree … that the question might arise each year for rating purposes whether the club is one which applies its profits in promoting its objects, but I am unable to accept [the] submission that in this context “applies” means “expends”. The word “applies” used in expressions such as “applies its profits” has a flexible meaning. No doubt, and particularly when used in the past tense, the word may be read narrowly as denoting moneys actually expended or paid [citations omitted] ... [A]n organisation may appropriately be treated as applying its funds for a purpose, although it builds up its funds so that greater benefits may accrue to it at a later stage. The manifest policy of this legislation does not suggest that a distinction is to be drawn between those bodies controlling sporting or recreational lands, which actually expend all their profits as and when they are derived in the promotion of their objects and others which for the more effective promotion of their objects retain part of their profits for future contingencies. The real distinction intended to be drawn is, I consider, between those bodies which apply their profits for purposes other than the promotion of cultural, sporting or recreational objects (as the case may be), and those which do not. This, I think, is reinforced by the further requirement of the statutory definition that the body in question must be one which prohibits the payments of any dividend or amount to its members.”
[31][1967] VR 545, 549-550.
The appellant further submitted that, in any event, what might happen on a winding up or on a reduction of capital would not be, within the meaning of the section, an “application of profits”. I tend to the view that this submission is also correct but it is unnecessary to so decide.
Is the land used and occupied for the residences of the greenkeeper and assistant greenkeeper (“the residential land”) used for the purpose of providing sporting facilities?
The Commissioner accepted that if the use of the residential land was properly regarded as “ancillary or incidental” to the use of the golf course land, then the residential land was used for out-door sporting activities. In City of Essendon v Cox, the Court made a distinction between uses of land that were “ancillary and incidental” to the overall use of the land and those uses that were “independent and collateral” thereto. Adam J said that it was sufficient for the purposes of the Act there in question that “the immediate and direct purpose served by the use of the lands, although not of [the required] character, is fairly to be regarded as merely ancillary and incidental to the use of the land as a whole for outdoor sporting or recreational purposes.”[32] The Commissioner submitted that the residential land should not be characterised as being used for purposes ancillary or incidental to the use of the golf course land but rather for independent and collateral purposes.
[32][1967] VR 545, 551.
The appellant submitted to the contrary and contended that there was a clear nexus between the provision of the two residences to the greenkeeper and assistant greenkeeper and the maintenance of the golf course.
In my opinion it is clear that the provision of residential accommodation for the greenkeeper and assistant greenkeeper is not to be fairly regarded as ancillary or incidental to the use of the land as a whole for a golf course, no matter how convenient it may be to have these employees living close at hand. The evidence shows I think that it was not necessary, as opposed to convenient, for the greenkeepers to live on the golf course land. In any event I think that the provision of residential accommodation is a domestic or private matter that cannot be treated, in the context of the exemption, as ancillary or incidental to the use of the land for out-door sporting activities. I conclude that the residential land is not exempt from land tax.
Section 13 of the Act
The appellant relied, in the alternative, upon s.13 of the Act for a partial exemption from land tax on the basis that the land was owned and solely occupied by a “club” which is defined by s.13(2) of the Act to mean:
“… any society club or association not carried on for the purposes of the profit or gain to its individual members and which is carried on exclusively for one or more of the following purposes –
(a) providing for the social sporting cultural recreational literary or educational interests of its members;”
Having regard to my conclusions, I do not think that it is necessary to consider the appellant’s alternative submission based upon s.13 of the Act. If it is necessary to do so in relation to the residential land, I am of the view that the section is not applicable to the appellant because the appellant is not to be regarded as a “society club or association” and because its members have not been shown to have “sporting interests”, as I have stated earlier.
Orders
I will hear submissions from the parties as to the orders to be made and as to costs.
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