Chief Commissioner of State Revenue v Coleman

[2007] NSWSC 625

Reported Decision: 66 ATR 713
(2007) NSW Conv R 56-185

New South Wales

Supreme Court

CITATION:	Chief Commissioner of State Revenue v Geoffrey Harry Coleman & Another [2007] NSWSC 625
HEARING DATE(S):	15 June 2007
JUDGMENT DATE :	21 June 2007
JUDGMENT OF:	Handley AJ
DECISION:	1. Appeal allowed with costs 2. Set aside the decision of the Appeal Panel allowing the taxpayers’ appeal from the decision of the Judicial Member of the Administrative Decisions Tribunal 3. In lieu thereof substitute an order dismissing the appeal to the Appeal Panel from the decision of the Judicial Member affirming the decision of the Commissioner under review 4. Grant the respondents a certificate under the Suitors' Fund Act.
CATCHWORDS:	LAND TAX- Principal place of residence exemption - land used as part of taxpayers' place of residence and as construction site for independent dwelling - exemption not available ESTOPPEL - Commissioner not bound by assessment for earlier year.
PARTIES:	A: Chief Commissioner of State Revenue R: Geoffrey Harry Coleman, Diana Catherine Coleman
FILE NUMBER(S):	SC 30174/2006
COUNSEL:	I Mescher and B O'Donnell M Boulton
SOLICITORS:	I V Knight Coleman Maher & Co

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

HANDLEY AJ

21 JUNE 2007

30174/06 CHIEF COMMISSIONER OF STATE REVENUE v GEOFFREY HARRY COLEMAN & ANOTHER

CATCHWORDS


LAND TAX - Principal place of residence exemption - land used as part of taxpayers' place of residence and as construction site for independent dwelling - exemption not available.

ESTOPPEL - Commissioner not bound by assessment for earlier year.

FACTS

On 31 December 2004 the taxpayers owned contiguous blocks of residential land at Cronulla. The Commissioner treated one block, known as Redgum, as within the Principal place of residence exemption in Schedule 1A of the Land Tax Management Act, but assessed the other block known as Gunyah to tax. The taxpayers’ appeal from this assessment to the Administrative Decisions Tribunal was dismissed, but their further appeal to an Appeal Panel was allowed. The Judicial Member found that Gunyah was being used for two purposes at the relevant date, for recreation ancillary to or as part of the taxpayers’ principal place of residence, and as a construction site for a new freestanding building intended for use as a separate dwelling and held that the exemption was lost because the land was used and occupied for dual purposes. The Appeal Panel held that the Judicial Member had erred in law by holding that the use as a construction site impliedly overrode its use as part of the taxpayers’ principal place of residence, and had misapplied the principles in Ryan v Commissioner of land Tax [1982] 1 NSWLR 305. On appeal by the Commissioner to the Supreme Court Held: (1) the Appeal Panel had erred in law by disregarding the findings by the Judicial Member that at the taxing date there were dual uses of the land and its use as a construction site was considerable; (2) these were findings of fact which were binding on the Panel; (3) the Judicial Member had not erred in his application of the principles in Ryan’s case; and (4) (Accordingly) the land was not exempt from taxation at the relevant date and the appeal should be allowed.

ORDERS


1. Appeal allowed with costs.

2. Set aside the decision of the Appeal Panel allowing the taxpayers’ appeal from the decision of the Judicial Member of the Administrative Decisions Tribunal.

3. In lieu thereof substitute an order dismissing the appeal to the Appeal Panel from the decision of the Judicial Member affirming the decision of the Commissioner under review.

4. Grant the respondents a certificate under the Suitors’ Fund Act.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

HANDLEY AJ

21 JUNE 2007

30174/06 CHIEF COMMISSIONER OF STATE REVENUE v GEOFFREY HARRY COLEMAN & ANOTHER

JUDGMENT

1 HIS HONOUR: This is an appeal from the decision of the Appeal Panel of the Administrative Decisions Tribunal which allowed the taxpayers’ appeal from the decision of Brook ADCJ, the Judicial Member at first instance, who confirmed the Commissioner’s land tax assessment in respect of 8 Gunyah Street Cronulla for the 2005 tax year. The appeal involves the scope of the Principal place of residence exemption in Schedule 1A of the Land Tax Management Act as in force on 31 December 2004.

2 The appeal to this Court is limited to questions of law (Administrative Decisions Tribunal Act s119(1)). The appeal from the Judicial Member of the Tribunal to an Appeal Panel is also limited to questions of law (ibid s113(2)(a)) unless the Panel grants leave to review the merits of the decision under appeal. The Appeal Panel did not grant leave in this case and the taxpayers did not seek it.

3 Thus the issue for this Court, which is one of law, is whether the Appeal Panel was correct when it held that the Judicial Member had erred in law in dismissing the taxpayers’ appeal from the assessment.

4 The relevant provisions of Schedule 1A as at 31 December 2004 were:

“2(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…if the land is:
(a) a parcel of residential land, or
…
(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
…
3(1) In this Schedule, residential land means land which 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.
…
(2) Land does not cease to be used and occupied as provided by sub-clause (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.”

5 The facts as found by the Judicial Member included the following. The taxpayers had owned a residential property at Cronulla since 1993. They subdivided it into two blocks in September 2003, lot 1143, the smaller, included their residence at that time, now known as Redgum, while the larger, lot 1142, is the land in question on which another residence was later constructed, now known as Gunyah. The Commissioner’s assessment treated the Redgum lot but not the Gunyah lot, as exempt under Schedule 1A at the relevant taxing date.

6 Construction of the new residence on the Gunyah lot began in May 2004 and as at the taxing date 31 December 2004 work had progressed to the stage where the building had foundations, some walls and concrete slab floors at ground level and the first storey. The taxpayers moved out of Redgum into Gunyah in August 2005 before construction of the latter had finished. The new house, which was architect-designed, was constructed at a cost of over one million dollars. There was no evidence as to how much of this had been spent as at the taxing date and how much still had to be spent.

7 The Judicial Member held that the evidence as to the position of Gunyah at the relevant taxing date was “in some respects sparse” and there was “little evidence” of the extent to which the Gunyah lot was then being used for recreational purposes. He concluded:

“On that date then it may be said that there was a dual use of [the] Gunyah [lot] in that it was being used for recreational purposes and it was also (importantly) being used in respect of the construction of the New House…This being so use as at the relevant taxing date was divided…It cannot be doubted that the construction of the New House was, at the very least a significant use…If it is possible on a de minimis basis to ignore some small element of construction it is not possible to so regard the significant stage which the New House had reached at the relevant taxing date”. (paras 41, 42, 44)

8 The Judicial Member earlier held that the use of Gunyah had altered to a marked extent between 31 December 2003 and 31 December 2004.

9 These findings have to be understood in the light of the evidence. Mr Coleman said (para 15) that the builder did not erect any additional fences, and that he and his wife used the constructed parts of the new building for recreational purposes. He said (para 29):

“After building started we …utilised the building [on lot 1142] as a vantage point to enjoy the amenity of our neighbourhood. We have sat and stood on the floors of the building to soak up some sun, have a cup of tea or coffee, read the paper or books, observe and listen to the birds and other wildlife and take in the water view to the southwest. The building created a new vantage point for these domestic pleasures.”

10 Mrs Coleman gave evidence to the same effect (para 2), and said that after construction began she continued to maintain the gardens on lot 1142, played with the dog there, fed native birds there, and had eaten outside at the table on that lot (para 3). She said:

“Outdoor social and recreational activities (except playing tennis) have always taken place almost exclusively on lot 1142” (para 4).

11 The issues on the appeal turn on the requirement in cll 2(1), 2(2)(a), and 3(1) that the Gunyah lot be used as the owners’ principal place of residence and for “no other purpose” or “purposes” and the further requirement that the land be “a parcel” (cl 2(1)(a)) of residential land (cl 3(1)).

12 The Judicial Member held that at the taxing date the Gunyah and Redgum lots did not constitute a parcel of residential land and exemption in respect of the Gunyah lot was correctly refused. He followed the decision of Hunt J in Ryan v Commissioner of Land Tax [1982] 1 NSWLR 305, decided on earlier provisions conferring an equivalent exemption for “a parcel of residential land”. Hunt J said (p310):

“It follows, in my view, that contiguous blocks of land can comprise a “parcel of residential land” … only when they are undivided not only by physical separation but also in use, occupation and title.”

13 The Judicial Member held that between May and December 2004 “the use of Gunyah had altered to a marked extent” (para [39]), and made the findings referred to above (para [7]). He seems to have held (para [40]) that the tests in Ryan “must be complied with precisely”. On this basis he concluded that at the relevant taxing date Gunyah and Redgum did not constitute a parcel of residential land. He did not, in terms, decide that the use of part of the Gunyah lot as a building site meant that it was being used and occupied for another purpose. However that was the inevitable legal effect of his findings unless they were vitiated by legal error. The Appeal Panel considered that the Judicial Member had dismissed the taxpayers’ appeal on both grounds (para [29]).

14 The Panel held that the Judicial Member’s analysis of Ryan’s case was “too precise”, and that the requirement that the land be used and occupied for no other purpose “cannot mean that an ancillary purpose to that of a principal place of residence” would exclude the exemption (para [26]).

15 They identified legal error in the decision of the Judicial Member for the following reasons (paras [27], [29] and [30]):

“…the use of the Gunyah block had not changed sufficiently as at 31 December 2004 … 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…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. First 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…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”… and that there was no division of use as set out in Ryan’s case.”

16 The Panel’s statement (para [27]) that the use of the Gunyah block had not changed sufficiently as at 31 December 2004 was based on their conclusion that the owners still used Gunyah as part of their principal place of residence. The Panel accepted, and were bound to accept, the Judicial Member’s finding that the use as a construction site was “considerable”. It could not be disregarded as de minimis or trifling.

17 The Panel appeared to have held that a concurrent use of the lot for purposes linked to the taxpayers’ use of Redgum as their principal place of residence made its use as a construction site irrelevant. However, cll 2(1), 2(2)(a) and 3(1) require that the land be used and occupied “for no other purpose”.

18 There was no finding, nor could there have been, that use as a construction site for another freestanding dwelling intended as the taxpayers’ future place of residence was ancillary to the use of Redgum as their place of residence. The Judicial Member found that its use as a construction site on the taxing date was significant (paras [39] and [44]). Accordingly there were dual uses neither of which could be ignored. The Panel’s conclusion (para [27]) that concurrent use of the lot as part of the taxpayers’ principal place of residence entitled them to the exemption was vitiated by legal error.

19 In para [29] the Panel said that the Judicial Member’s reasons (properly understood) showed that he had held that the use of the lot as a construction site had impliedly overridden other continuing uses ancillary to the use of Redgum as a principal place of residence. With respect the Judicial Member made no such error. He found that there was dual use, and that use as a construction site could not be disregarded as trivial. In truth it was the Panel which committed this error by holding, inferentially, that the ancillary use of the lot as part of the principal place of residence impliedly overrode its use as a construction site.

20 The Panel also erred in holding (para [29]) that the Judicial Member had adopted too strict a view of the principles in Ryan’s case in relation to the use of the lot and the construction site as part of the garden environs of Redgum. The Judicial Member said that the conditions in Ryan’s case had to be compiled with precisely but his finding of a second use that was neither trivial nor ancillary showed, as a matter of law, that the principles in Ryan’s case were not satisfied. There was nothing restrictive, or excessively restrictive, in this application of those principles.

21 The conclusion in para [30] of the Panel’s reasons that there was no division of use as set out in Ryan’s case was also erroneous in point of law because it was inconsistent with and contradicted the finding of dual use which was clearly one of fact: Edwards v Bairstow [1956] AC 14, 36.

22 Some decisions of the Tribunal were cited in argument which considered the requirement in Ryan’s case that contiguous blocks must be “undivided by physical separation” if they are to be considered “a parcel”. They are of no assistance in considering the effect of dual uses on the availability of this exemption.

23 The respondents did not challenge the Judicial Member’s finding that use of the lot as a construction site for another freestanding building intended for use as a separate dwelling was use for another purpose within the relevant clauses of the Schedule. Such a submission could not have succeeded in view of the judgment of Nettle JA in Applewood Residential Development Pty Limited v Commissioner of State Revenue [2006] VSCA 207, 64 ATR 291.

24 There were other legal errors by the Panel which, in themselves, may not have vitiated their decision, but they should not be overlooked. In para [28] they treated as “very persuasive” the fact that the Commissioner had allowed the exemption for both lots for the 2004 tax year. Even in an unchanging situation this was not an admission by the Commissioner as to the position a year later, nor could it support an estoppel. Indeed even a judicial decision in respect of the earlier year would not have created an issue estoppel for the later: Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502, 501. The position of course is even clearer in a changing situation, especially since the Judicial Member found that the use of the Gunyah lot had changed since the taxing date for the 2004 year “to a marked extent”.

25 The following orders should be made:

1. Appeal allowed with costs.
2. Set aside the decision of the Appeal Panel allowing the taxpayers’ appeal from the decision of the Judicial Member of the Administrative Decisions Tribunal.
3. In lieu thereof substitute an order dismissing the appeal to the Appeal Panel from the decision of the Judicial Member affirming the decision of the Commissioner under review.
4. Grant the respondents a certificate under the Suitors’ Fund Act.
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