Estate of Mr Cawthen (Deceased) and Commissioner of Taxation
[2008] AATA 1168
•24 December 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 1168
ADMINISTRATIVE APPEALS TRIBUNAL )
) Nos ST200600342-343
TAXATION APPEALS DIVISION ) Re ESTATE OF JACK REGINALD
CAWTHEN (DECEASED)Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Senior Member R W Dunne Date24 December 2008
PlaceAdelaide
Decision The Tribunal affirms the objection decision under review.
..............................................
R W DUNNE
(Senior Member)
CATCHWORDS
TAXATION – capital gains tax – family company purchased dwelling and adjacent land – husband and wife shareholders – granted licence or right to occupy dwelling as main residence – following death of husband and liquidation of company, trustees of husband’s estate disposed of interest in dwelling and land – request for private binding ruling – capital gain not disregarded – decision on objection affirmed
Income Tax Assessment Act 1997 ss 1-3, 118-100, 118-110, 118-130, 118-195
Income Tax Assessment Act 1936 ss 160ZZQ(1), (2), (15)Real Property Act 1886 (SA) s 80A
Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297
South Australian Company v The Corporation of the City of Port Adelaide [1914] SALR 16REASONS FOR DECISION
24 December 2008 Senior Member R W Dunne introduction
1. This is an application to review a decision of the Commissioner of Taxation (“respondent”) to disallow an objection to a private binding ruling. The respondent had ruled that s 118-195(1) of the Income Tax Assessment Act 1997 (“ITAA 1997”) did not apply to exclude any capital gain derived by the trustees of the estate of Jack Reginald Cawthen deceased upon the disposal of a dwelling and land (“Dwelling”) in which the trustees held an interest. The Dwelling had originally been acquired by a family company in which Mr Cawthen and his wife were shareholders, and they had been granted a licence or right to occupy the Dwelling as their main residence. The trustees (“applicant”) objected against the private binding ruling and the respondent decided to disallow the objection. The applicant has applied to this Tribunal for review of the objection decision.
2. At the hearing, which involved only arguments in law, Mr Michael Butler appeared for the applicant and Dr Chris Bleby (of counsel) appeared for the respondent. The T documents were admitted into evidence (as Exhibit R1) pursuant to s 37 of the Administrative Appeals Tribunal Act 1975.
issue for the tribunal
3. The issue for the Tribunal is whether s 118-195(1), ITAA 1997 applies to exclude any capital gain derived by the applicant upon disposal of the applicant’s one-half interest in the Dwelling.
legislation
4. The provisions of the ITAA 1997 that are presently relevant are ss 118-100, 118-110 and 118-195. They read as follows:
“118-100 What this Subdivision is about
You can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence.
However, this exemption may not apply in full if:
•it was your main residence during part only of your ownership period; or
• it was used for the purpose of producing assessable income.
There are special rules for dwellings passed from, or owned by a trustee of, a deceased estate.
…
118-110 Basic case
(1)A *capital gain or *capital loss you make from a *CGT event that happens in relation to a *CGT asset that is a *dwelling or your *ownership interest in it is disregarded if:
(a) you are an individual; and
(b)the dwelling was your main residence throughout your *ownership period; and
(c)the interest did not *pass to you as a beneficiary in, and you did not *acquire it as a trustee of, the estate of a deceased person.
Note 1: You may make a capital gain or capital loss even though you comply with this section if the dwelling was used for the purpose of producing assessable income: see section 118-190.
Note 2: There is a separate rule for beneficiaries and trustees of deceased estates: see section 118-195.
(2) Only these *CGT events are relevant:
(a)CGT events A1, B1, C1, C2, E1, E2, F2, I1, I2, K3, K4 and K6 (except one involving the forfeiting of a deposit); and
(b)a CGT event that involves the forfeiting of a deposit as part of an uninterrupted sequence of transactions ending in one of the events specified in paragraph (a) subsequently happening.
…
118-195Dwelling acquired from a deceased estate
(1)A *capital gain or *capital loss you make from a *CGT event that happens in relation to a *dwelling or your *ownership interest in it is disregarded if:
(a)you are an individual and the interest *passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and
(b)at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.
Beneficiary or trustee of deceased estate acquiring interest
Item One of these items is satisfied And also one of these items
1the deceased *acquired the your *ownership interest ends
*ownership interest on or within 2 years of the deceased’s
after 20 September 1985 death
and the *dwelling was the
deceased’s main residence
just before the deceased’s
death and was not then
being used for the *purpose
of producing assessable
income
2the deceased *acquired the the *dwelling was, from the
*ownership interest before deceased’s death until your
20 September 1985 *ownership interest ends, the main residence of one or more of:
(a)the spouse of the deceased
immediately before the death
(except a spouse who was living
permanently separately and apart
from the deceased); or
(b)an individual who had a right
to occupy the dwelling under the
deceased’s will; or
(c)if the *CGT event was brought
about by the individual to whom
the *ownership interest *passed as a
beneficiary—that individual
Note 1:You may make a capital gain or capital loss if the dwelling was used for the purpose of producing assessable income: see section 118-190.
Note 2:In some cases the use of a dwelling to produce assessable income can be disregarded: see sections 118-145 and 118-190.
Note 3:There are special rules for dwellings acquired before 7.30 pm on 20 August 1996. These rules also affect the operation of section 118-192 and subsections 118-190(4) and 118-200(4): see section 118-195 of the Income Tax (Transitional Provisions) Act 1997.
(2)Only these *CGT events are relevant:
(a)CGT events A1, B1, C1, C2, E1, E2, F2, I1, I2, K3, K4 and K6 (except one involving the forfeiting of a deposit); and
(b)a CGT event that involves the forfeiting of a deposit as part of an uninterrupted sequence of transactions ending in one of the events specified in paragraph (a) subsequently happening”.
5. Certain repealed provisions of the Income Tax Assessment Act 1936 (“ITAA 1936”) are also relevant. They are ss 160ZZQ(1), (2) and (15) and read as follows:
“Principal residence
(1) In this section:
dwelling includes:
(a) a unit of accommodation constituted by, or contained in, a building, being a unit that consists, in whole or in substantial part, of residential accommodation; and
(b) a caravan, houseboat or other mobile home.
relevant period, in relation to the disposal of a dwelling by a taxpayer other than a taxpayer in the capacity of a trustee, means the period after 19 September 1985 during which the dwelling was owned by the taxpayer and includes any period during which land acquired after that date on which the dwelling is erected was owned by the taxpayer before the erection of the dwelling.
…
(2)For the purposes of this section, a person shall be taken to own, or to have acquired, a dwelling constituted by or contained in a building if the person owns or has acquired, as the case may be:
(a) in the case of a dwelling other than a flat or home unit:
(i) a legal or equitable estate or interest in the land on which the dwelling is erected; or
(ii) a licence or right to occupy the dwelling; or
(b) in the case of a flat or home unit:
(i) a legal or equitable estate or interest in a stratum unit in relation to the flat or home unit;
(ii) a licence or right to occupy the flat or home unit; or
(iii) a share in a company that owns a legal or equitable estate or interest in the land on which the building containing the flat or home unit is erected, being a share that entitles the holder to a right of occupancy of the flat or home unit.
…
(15) Subject to subsection (21), where:
(a) a dwelling owned by a taxpayer in the capacity of the trustee of the estate of a deceased person is disposed of;
(b) either of the following subparagraphs is applicable:
(i)the disposal took place within 2 years after the date of the death of the deceased person; or
(ii) the dwelling was, throughout the period from the death of the deceased person to the time of disposal of the dwelling by the taxpayer, the sole or principal residence of any one or more of the following:
(A) the person who was, immediately before the death of the deceased person, the spouse of the deceased person;
(B) a person who, under the will of the deceased person, had a right to occupy the dwelling; and
(c) if the dwelling was acquired by the deceased person after 19 September 1985, the dwelling was, immediately before the death of the deceased person, the sole or principal residence of the deceased person;
a capital gain shall not be deemed to have accrued to the taxpayer, and a capital loss shall not be deemed to have been incurred by the taxpayer, as the case requires, in respect of the disposal of the dwelling.”
material facts
6. As there was no dispute regarding the material facts, I take them from the respondent’s notice of private ruling (Exhibit R1, T5 at pages 26-27):
“Jack Reginald Cawthen and Marie Earlston Black were a married couple living in a house owned by their family company Cawmac Pty Ltd. The company purchased the house in October 1969 and an adjacent block of land in 1971. Both properties did not exceed two hectares in area. The house and land were used as the residence of Mr Cawthen and Mrs [sic] Black until the death of Mr Cawthen in April 1987.
Mr Cawthen and Mrs [sic] Black were equal shareholders in Cawmac Pty Ltd.
Mr Cawthen bequeathed his estate to his executors to hold the income arising from the estate on trust for his wife and upon her death to distribute the estate equally among Mrs [sic] Black’s niece and three nephews.
His estate included his 50% shareholding in Cawmac Pty Ltd. He did not have an interest in the house and land as this was owned by Cawmac Pty Ltd.
In 1992 Cawmac Pty Ltd was liquidated and the interest in the house and land was distributed in specie to the then shareholders. The result of this was that Mrs [sic] Black acquired a 50% interest in the house and land and the remaining 50 percent interest went to the executors of Mr Cawthen’s estate.
Mrs [sic] Black continued to live in the house until 2001. She moved into a nursing home until she died in August 2005. She bequeathed her estate to her executors to be divided equally among her niece and three nephews. Her niece, one of the beneficiaries, has lived in the house since 2001 on a rent free basis. The house has not been used to produce assessable income and was Mrs [sic] Black’s main residence until the time of her death.”
7. The Dwelling (referred to in the notice of private ruling as the house and adjacent block of land) was sold in May 2007 by the applicant and the executors of Ms Black’s estate.
applicant’s submissions
8. In summary, Mr Butler’s submissions for the applicant were as follows:
(a)On the plain wording of a 118-195(1), the applicant is entitled to the benefit of the “main residence” exemption in respect of the capital gain arising upon the sale of the applicant’s interest in the Dwelling.
(b)There is no requirement in s 118-195(1) that “the ownership interest” of the deceased (Mr Cawthen) be exactly the same ownership interest that was disposed of by the applicant. Imposing such a requirement would modify words in the section which have a plain, natural and ordinary meaning in the applicant’s favour.
(c)As the matter in issue involves the construction of an exemption, the interpretation should favour the party whose claim is based upon the exemption (ie the applicant).
(d)Even if there is a “same interest” requirement in s 118-195(1), the ownership interest of the deceased was more than a mere personal right to occupy the Dwelling. As a result of residing in the Dwelling for more than 17 years:
(i)the deceased had a right to bring an application for a certificate of title under s 80A of the Real Property Act 1886 (SA) (“RPA”); and
(ii)that right passed to the applicant on the deceased’s death and remained an asset of the applicant until the applicant’s interest in the Dwelling was disposed of in May 2007.
(e)If s 118-195(1) does not exempt any capital gain realised by the applicant, s 1-3, ITAA 1997 resolves the matter in the applicant’s favour. Section 1-3(2) makes it clear that:
(i)if the ITAA 1936 expresses an idea in a particular form of words; and
(ii)if the ITAA 1997 appears to express the same idea in a different form of words in order to use a clearer or simpler style,
the ideas are not to be taken to be different just because different forms of words are used.
(f)Section 118-195(1) “appears to express the same idea” as was expressed in s 160ZZQ(15), ITAA 1936 “in a different form of words in order to use a clearer or simpler style”.
(g)If the applicant had disposed of the Dwelling before s 160ZZQ(15) was repealed, the “principle residence” exemption in that section would have applied.
(h)Section 1-3(2) therefore provides that the idea expressed in s 118-195(1) is not “to be taken to be different to the idea expressed” in s 160ZZQ(15) “just because different forms of words were used”.
(i)There was nothing in the Explanatory Memorandum to indicate that it was Parliament’s intention in s 118-195(1) to change the concepts involved with, or make significant amendments to, s 160ZZQ(15).
(j)The respondent has confirmed in a number of private binding rulings that other provisions in Subdivision 118-B express the same idea as s 160ZZQ and should be read in the same way.
(k)Since s 160ZZQ(15) does not distinguish between (i) the applicant’s ownership interest, and (ii) the deceased’s ownership interest, there is no justification for importing such a distinction when interpreting s 118-195(1).
consideration
Does s 118-195(1), ITAA 1997 apply to exclude any capital gain derived by the applicant upon disposal of a one-half interest in the Dwelling?
9. Section 118-195(1) is part of Subdivision 118-B, ITAA 1997, which deals with the “main residence” exemption from capital gains tax (“CGT”). It follows on from s 118-100 which sets out, in broad terms, what Subdivision 118-B is all about. Under s 118-100, you (the taxpayer) can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence. However, there are special rules for dwellings owned by a trustee of a deceased estate. Section 118-110 expands what is said in s 118-100 and provides that a capital gain or capital loss you (the taxpayer) make from a CGT event that happens in relation to a CGT asset that is your dwelling or your ownership interest in it is disregarded if certain criteria are satisfied. Section 118-110 repeats that there is a separate rule for trustees of deceased estates and refers specifically to s 118-195. The section also makes reference to the concept of your “ownership interest” in a dwelling that is not a flat or home unit, which is defined in s 118-130(1) to mean “a legal or equitable interest in the land on which the dwelling is erected, or a licence or right to occupy it”.
10. At first blush, s 118-195(1) appears straightforward. However, on closer examination there appear to be interpretation difficulties with it, largely from the use of the expression “ownership interest” and the use of the definite article “the” with that expression. By way of example, sub-section (1) refers to a CGT event that happens in relation to “a” dwelling or your (the taxpayer’s) “ownership interest” in it. Paragraph (a) then refers to “the interest”, which is referring back to the “ownership interest” in sub-section (1) that you (the taxpayer) owned as the trustee of a deceased estate. Column 2 of the table refers to the deceased having acquired “the ownership interest”, again referring to the “ownership interest” in sub-section (1) and “the interest” in paragraph (a), before 20 September 1985. Column 3 of the table then refers to where “the dwelling”, referred to in sub-section (1) (but without reference also to “ownership interest”), was from the deceased’s death until your (the taxpayer’s) ownership interest ends the main residence of the spouse of the deceased immediately before the death.
11. The respondent has accepted that, prior to his death, Mr Cawthen had a right to occupy the Dwelling and that this right amounted to an “ownership interest” within the meaning of s 118-130(1). A fundamental question that arises is whether, in respect of the disposal of the Dwelling or the applicant’s ownership interest in it, the ownership interest of Mr Cawthen must be the same ownership interest disposed of by the applicant. It is Mr Butler’s contention that there is no such requirement in s 118-195(1). He said that s 118-195(1)(b) simply requires that “at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied” and:
(a)Mr Cawthen acquired his ownership interest before 20 September 1985 and therefore satisfies item 2 in column 2; and
(b)the Dwelling was the main residence of his spouse until her death, thus satisfying item 2 in column 3.
No inference should be drawn from the reference in item 2 of column 2 to “the” ownership interest.
12. For the reasons I set out below, I am of the view that the interpretation of s 118-195(1) requires more than, as Mr Butler put it, just “ticking the boxes” in the table.
13. On the evidence, I am satisfied as to the following:
(a)The Dwelling was Mr Cawthen’s main residence from 1969 until his death in 1987.
(b)Mr Cawthen acquired an ownership interest in the Dwelling when Cawmac Pty Ltd granted him (along with his wife) a right to occupy the Dwelling.
(c)Mr Cawthen acquired that ownership interest in the Dwelling (ie the ownership interest referred to in (b) above) before 20 September 1985.
(d)The applicant disposed of its half interest in the Dwelling in May 2007.
(e)The Dwelling was, from Mr Cawthen’s death until the applicant’s ownership interest ended, the main residence of Ms Black, Mr Cawthen’s spouse, immediately before the death.
14. In looking at the main residence exemption in Subdivision 118-B, it is apparent that s 118-100 and s 118-110 can apply to capital gains and capital losses that a taxpayer makes in relation to the disposal of a dwelling or the taxpayer’s ownership interest in the dwelling. Both these sections put to one side the situation where the trustee of a deceased estate disposes of the deceased’s dwelling or the deceased’s ownership interest in the dwelling. Ignoring the reference to an interest passing to a beneficiary in a deceased estate, s 118-195(1) sets out the various requirements for the main residence exemption to be available to the trustee of a deceased estate disposing of a dwelling or the trustee’s ownership interest in the dwelling, where the deceased acquired the ownership interest before 20 September 1985. The first requirement is that a CGT event must happen “in relation to a dwelling or your own interest ownership in it”. As I have said, “ownership interest” in a dwelling is defined in s 118-130(1). The second requirement is that “you [the taxpayer] are an individual and … you owned it [the ownership interest] as the trustee of a deceased estate”.
15. It was Dr Bleby’s submission (which I accept) that paragraph (a) of s 118-195(1) requires that ownership of “the interest” there mentioned is vested in the taxpayer. It does not distinguish between the dwelling and the interest in the dwelling. The table that follows proceeds on the necessary condition that either a beneficiary in, or a trustee of, a deceased estate has the identified ownership interest in a dwelling. It is that identified ownership interest which is then the subject of column 2 of the table (“the ownership interest”) and patently the subject of column 3. Thus, where a CGT event happens “in relation to a dwelling”, that event only has any relevance to s 118-195(1) insofar as it happens in relation to the person’s ownership interest in that dwelling. The first part of the section merely establishes the concepts of “dwelling” and “ownership interest” in the one sentence, and paragraph (a) requires that there be an identified ownership interest of either a beneficiary or a trustee. The table then establishes further, necessary criteria relating to that ownership interest for the main residence exemption to apply. In my view, the section would have no different meaning (but would be expressed in better terms) if the first part read:
“(1)A *capital gain or *capital loss you make from a *CGT event that happens in
relation to your ownership interest in a *dwelling …”
16. Mr Butler submitted, with considerable force, that the clear legislative intention in Subdivision 118-B should be given effect to by exempting from CGT a capital gain that arose in respect of the Dwelling purchased by Mr Cawthen in 1969 and occupied as his main residence until his death in 1987, and by his spouse until 2005. He referred to Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297, where Mason and Wilson JJ said (at page 323):
“The courts are as much concerned in the interpretation of revenue statutes as in the case of other statutes to ascertain the legislative intention from the terms of the instrument viewed as a whole.”
If Mr Butler’s submission, as he expressed it, was correct, there would be no difficulty with s 118-195 applying. However, the Dwelling was not purchased by Mr Cawthen. He was given a right to occupy in 1969 and it was not that interest that passed to the applicant. In terms of s 118-195(1), the ownership interest that was disposed of by the applicant in 2007 was not the same ownership interest acquired by Mr Cawthen in 1969. In the respondent’s outline of submissions, Dr Bleby referred to the continuity of concept of “ownership interest” that travels through the whole of s 118-195(1). That concept, being a unitary concept, is grammatically linked between sub-section (1), paragraph (a) and table columns 2 and 3. The section provides CGT relief in respect of interests that had been held by Mr Cawthen. That was not the case with the interest that was disposed of by the applicant.
17. Mr Butler then referred me to s 1-3, ITAA 1997 and to s 160ZZQ(15), ITAA 1936. It was his submission that, even if s 118-195(1) did require the same interest to be acquired and disposed of, s 1-3 resolved the matter in the applicant’s favour. That section reads:
“1‑3 Differences in style not to affect meaning
(1)This Act contains provisions of the Income Tax Assessment Act 1936 in a rewritten form.
(2) If:
(a) that Act expressed an idea in a particular form of words; and
(b)this Act appears to have expressed the same idea in a different form of words in order to use a clearer or simpler style;
the ideas are not to be taken to be different just because different forms of words were used.”
He put to me that s 118-195 “appears to express the same idea” as was expressed in s 160ZZQ(15) “in a different form of words in order to use a clearer or simpler style” and that, had the applicant disposed of the Dwelling before s 160ZZQ(15) was repealed, the “principal residence” exemption in that section would have applied. That was because:
(a)a dwelling owned by a taxpayer in the capacity of a trustee of the estate of a deceased person (the applicant) had been disposed of (s 160ZZQ(15)(a);
(b)the dwelling was, throughout the period from the death of the deceased person (Mr Cawthen) to the time of the disposal of the dwelling by the taxpayer (the applicant), the sole or principal residence of the person who was, immediately before the death of the deceased person, the spouse of the deceased person (Ms Black) (s 160ZZQ(15)(b)(ii)(A);
(c)as the dwelling was acquired by the deceased person before 19 September 1985, s 160ZZQ(15)(c) does not apply; and
(d)by virtue of s 160ZZQ(2), a person shall be taken to own, or to have acquired, a dwelling if the person owns or has acquired a legal or equitable estate in the land on which the dwelling is erected or a licence or right to occupy the dwelling.
18. Mr Butler further put to me that there was no basis for interpreting s 160ZZQ(15) as requiring that, where a dwelling owned by a taxpayer in the capacity of a trustee of a deceased person was disposed of, for the principal exemption to apply the dwelling must have been acquired by the trustee as part of the original deceased estate. The section did not require a strict legal identity between the ownership interest acquired by the deceased person and the interest disposed of by the taxpayer.
19. On the combined analysis of s 160ZZQ(15)(a) and (b)(ii)(A) above that Mr Butler suggested, any acquisition and then disposal of a dwelling by the trustee of a deceased estate, regardless of whether it had ever been acquired by the deceased during his lifetime and provided it was the sole or principal residence of the deceased’s spouse for the required period, would be subject to CGT relief. With respect, such a result could not have been intended. Although it is not relevant in the present case, assistance in the interpretation of s 160ZZQ(15) can be gained from paragraph (c) of that section. The paragraph refers to “the dwelling...acquired by the deceased person”, which clearly must mean the dwelling and the same interest referred to in paragraph (a). However, in doing this it does not refer to the situation where the deceased never acquired the dwelling, that is, the interest identified in paragraph (a). And relevantly, the applicant only acquired legal title to the Dwelling in 1992, five years after the death of Mr Cawthen. Legal title to the Dwelling was something Mr Cawthen never had.
20. In my view, s 160ZZQ(15) assumes and proceeds on the basis that the “dwelling”, that is, the interest referred to in paragraph (a), was acquired by the taxpayer from the deceased as part of the deceased’s original estate. In other words, the deceased had acquired the interest himself or herself at some stage. This proposition is confirmed in the Explanatory Memorandum to the Income Tax Assessment Amendment (Capital Gains) Bill 1986, dealing with the principal residence exemption, which provides:
“Sub-section 160ZZQ(15) is to apply in relation to the disposal of a dwelling owned by the trustee of the estate of a deceased person. If the dwelling was acquired by the deceased before 20 September 1985 and:
(a)is disposed of by the trustee within twelve months of the deceased person’s death; or
(b)the dwelling was throughout the period from the date of the death of the deceased person to the time of disposal by the trustee the sole or principal residence of the spouse (at the date of death) of the deceased person,
then subject to the trustee not having used the premises to produce assessable income – in which case sub-section 160ZZQ(21) will apply – any real capital gain that is made on the disposal will not be liable for the tax on capital gains. Correspondingly, if a loss is incurred on the dwelling, that loss will not be allowable for the purposes of the provision.
If the dwelling was acquired by the deceased person after 19 September 1985, it will also be necessary for the residence to have been the sole or principal residence of the deceased person throughout his or her ownership of it and for the dwelling not to have been used in that period for income producing purposes for the exemption to apply.”
21. It follows that Mr Butler’s submission, that s 118-195 appears to express the same idea as was expressed in s 160ZZQ(15) in a different form of words in order to use a clearer or simpler style, was correct. There is a continuity that runs from the 1936 legislation to the 1997 legislation.
22. Mr Butler’s further submission was that, even if a “same interest” requirement existed in s 118-195(1), Mr Cawthen had resided in the Dwelling as his main residence for 17 years and he had an interest or right that was more than a personal right or licence. That interest was a right to make an application under s 80A of the RPA. That section reads:
“80A – Application for certificate based on possession
A person who would have obtained a title by possession to any land which is subject to this Act, if that land had not been subject to this Act, may apply to the Registrar-General for the issue to him of a certificate of title to that land.”
An application by Mr Cawthen, effectively based on adverse possession, would have been against the registered proprietor, Cawmac Pty Ltd. Cawmac Pty Ltd could have sought to recover the Dwelling but, because of the operation of s 4 of the Limitation of Actions Act 1936 (SA), the company would have lost its right to bring an action for recovery in 1986, 15 years after the land adjacent to the dwelling had been acquired. The right to make an application under s 80A passed to the applicant, on Mr Cawthen’s death, and remained an asset of the estate until the Dwelling was disposed of.
23. As Mr Butler pointed out, adverse possession as a common law concept did not exist under the Torrens Title system. However, a small ultimately discretionary window became available through Part 7A of the RPA to enable title to be obtained by adverse possession. But, adverse possession of the Dwelling could not have arisen in Mr Cawthen’s case because Cawmac Pty Ltd was the registered proprietor and that company was the family company of Mr Cawthen and Ms Black. Mr Cawthen and Ms Black were the governing minds of Cawmac Pty Ltd. Possession must be adverse to the interests of the holder of the legal title and this cannot occur if possession exists with the permission of the holder. This was made clear in South Australian Company v The Corporation of the City of Port Adelaide [1914] SALR 16. There, the plaintiff constructed a wharf on the Port River in 1841 and the land at the back of the wharf vested in fee simple in the plaintiff under a grant from the Crown. The plan of the grant, however, did not include the actual site of the wharf. The wharf was erected with the knowledge and approval of the Government and the plaintiff had continuously used it for over 70 years and paid the rates and taxes in respect of it. The adverse possession claim by the plaintiff was dealt with succinctly by Murray J at page 67, when he said:
“… Here, as I have pointed out, there is no such uncertainty, and no ground therefore for the admission of the evidence.
The title by prescription, or more properly speaking adverse possession, which is claimed by the plaintiffs, has equally little to support it. I see no reason to doubt that The Nullum Tempus Act operates in South Australia (see Delohery v. Permanent Trustee Co. of New South Wales, (1904) I C.L.R. 283; Attorney-General of N.S.W. v. Love, [1898] A.C. 679), but the possession which the plaintiffs have had since 1840 and still have, has not been ‘adverse’. The facts I have recounted relating to the establishment of the new port at section A shew that the construction of the road and the erection of the wharf in front of section A were brought to the notice of and acquiesced in by the Government of the day. Governor Gawler’s own inclination was in favour of removing the port to section I at the North Arm, but he cut the first sod of the road to section A, inspected the road and the wharf during their construction, agreed to support a Bill authorising the company to recoup their expenditure on the road by means of tolls, remitted the duty on timber required for the wharf, erected a Customs House, Government wharf, and goods sheds on the reserve at the termination of the road, and publicly declared the new port open. The site of the company’s wharf was approved by the Surveyor-General before the work of construction was begun, and it was recognized as a sufferance wharf for the landing of dutiable goods by the Collector of Customs after it was completed. It is impossible to draw any other conclusion than that the site of the wharf was occupied and the wharf built with the knowledge and approval of the Government, and under those circumstances the plaintiffs had no adverse possession in my opinion which would enable them to acquire a title to the fee simple of the land against the Crown.
…”
24. Applying the reasoning of Murray J in South Australian Company to the present case, the Dwelling that Mr Cawthen occupied was occupied with the knowledge and approval of Cawmac Pty Ltd. At the time of his death, he did not have the right under s 80A of the RPA to apply to the Registrar-General for a certificate of title to the Dwelling. In those circumstances, no right passed to the applicant on Mr Cawthen’s death.
25. During the course of the hearing, Mr Butler referred me to a number of cases and authorities in support of the applicant’s position. Those cases and authorities were largely directed to addressing the perceived ambiguity that was said to exist within s 118-195(1) and in assisting in interpreting tax legislation, particular legislation containing exemption provisions. They are of no real assistance to me. In my view, although the drafting could be improved, there is no ambiguity in s 118-195(1). When looked at in its entirety, there is a “conceptual continuity”, to use Dr Bleby’s words, that runs through the section. Each part of the section, including the table, picks up and builds on what has gone before and results in an accumulation of the conditions that are required for the operation of the main residence exemption.
26. For the reasons above, I am satisfied that s 118-195(1) does not apply to exclude any capital gain derived by the applicant upon disposal, in May 2007, of a one-half interest in the Dwelling.
decision
27. The objection decision under review is affirmed.
I certify that the 27 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne
Signed: .........J Coulthard..............................................
AssociateDate of Hearing 4 September 2008
Date of Decision 24 December 2008
Advocate for the Applicant Mr M Butler
Solicitor for the Applicant Finlaysons
Counsel for the Respondent Dr C Bleby
Solicitor for the Respondent ATO Legal Practice
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