Kalomel Nominees Pty Ltd v Commissioner of State Taxation
[2012] SASC 10
•3 February 2012
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
KALOMEL NOMINEES PTY LTD & ANOR v COMMISSIONER OF STATE TAXATION
[2012] SASC 10
Judgment of The Honourable Justice Gray
3 February 2012
TAXES AND DUTIES - LAND TAX - WHO ARE LIABLE AND IN RESPECT OF WHAT LANDS - OWNERS - IN GENERAL
TAXES AND DUTIES - LAND TAX - OBJECTIONS AND APPEALS - IN GENERAL
Appeal against a determination by the Treasurer of the State of South Australia to confirm assessments of land tax - the assessments were issued by the Commissioner of State Taxation in respect of land at North Adelaide for the 2008/2009 and 2009/2010 financial years - where from 30 May 2008, the second appellant had a ten per cent interest in the land - where the appellants had been granted an exemption from land tax with effect from 30 June 2008 - where on or about 29 September 2009, the exemption from land tax was removed and the second appellant's interest in the land was disregarded for the purposes of the Land Tax Act 1936 (SA) - whether the land was exempt from land tax in the 2008/2009 and 2009/2010 financial years under section 5(10)(a) of the Land Tax Act on the basis that it was the principal place of residence of the second appellant.
Section 13A of the Land Tax Act, discussed.
Held: Appeal allowed - assessments of land tax for the 2008/2009 and 2009/2010 financial years in respect of the land at North Adelaide, set aside.
Land Tax Act 1936 (SA) s 2, s 3, s 4, s 5, s 7, s 8, s 8A, s 8B, s 12, s 13A, s 14, s 16 and s 17; Taxation Administration Act 1996 (SA) s 4, s 7, s 8 and s 10, referred to.
Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297; Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; Tooth & Co Ltd v Newcastle Development Ltd (1966) 116 CLR 167; Australian and Overseas Telecommunication Corporation Ltd v Commissioner of Land Tax (Qld) (1993) 25 ATR 282; Layala Enterprises Pty Ltd (In Liquidation) v Commissioner of Taxation) (1998) 86 FCR 348, considered.
KALOMEL NOMINEES PTY LTD & ANOR v COMMISSIONER OF STATE TAXATION
[2012] SASC 10Civil
GRAY J.
Kalomel Nominees Pty Ltd and Theo Steven Maras have appealed against a determination by the Treasurer of the State of South Australia to confirm assessments of land tax. The determination confirms land tax assessments for the financial years 2008/2009 and 2009/2010 issued by the Commissioner of State Taxation in respect of land in North Adelaide in the State of South Australia.
This appeal calls on this Court to consider provisions of the Land Tax Act 1936 (SA) and the Taxation Administration Act 1996 (SA).
Background
On the hearing of the appeal the parties agreed to the receipt by the Court of a statement of facts, a book of documents, an affidavit of Diane Jeannette Barry of 31 March 2011 and an affidavit of Mr Maras of 24 March 2011. There was no application to cross-examine the deponents.
In the present proceeding, Kalomel is acting in its capacity as the trustee of “The Theo Maras Family Trust”. Kalomel was incorporated on 1 October 1975. It has three directors: Mr Maras, his wife and his eldest son.
On 16 April 1980, Kalomel became the registered proprietor of the land and home property situated in North Adelaide. On 5 February 1988, Kalomel transferred ownership of one per cent of the land to Mr Maras. Following transfer, Kalomel and Mr Maras were the registered proprietors of the land with 99 per cent and one per cent interests respectively.
By letter dated 15 February 2008, the Commissioner informed Kalomel of the enactment of a land tax anti-avoidance provision in the Land Tax Act. That provision, section 13A, at that time had yet to commence. The letter relevantly advised:
The effect of the new provisions is, that it is most likely, in cases where land is owned by two or more persons and one or more of those persons hold an interest in the land of 5 per cent or less (the “minor interest”), the person or persons holding the minor interest will be taken not to be an owner of the land for the purposes of the Act.
In such cases, the land tax payable in respect of the relevant land will be assessed, and is payable, as if the land was wholly owned by the owner (or owners) of the land who does not hold the minor interest (the “Owner”). It is most likely that the relevant land will also be aggregated with any other land owned by the Owner for the purposes of assessing land tax.
…
Based on the information available to this Office, it has been identified that the abovementioned Land Tax Ownership record contains property where a minor interest exists and as such will be caught by the new provisions, which will operate to impose an increased liability for the 2008/09 Assessment year onwards.
[Original emphasis.]
On 30 May 2008, Kalomel transferred a further nine of the 99/100 parts then owned by Kalomel to Mr Maras in his capacity as beneficiary of “The Theo Maras Family Trust”. The memorandum which documented this transfer was lodged with the Registrar-General for registration on the Certificate of Title prior to 30 June 2008. From 30 May 2008, Kalomel and Mr Maras were the registered proprietors of the land with 90 per cent and ten per cent interests respectively.
At midnight on 30 June 2008, section 13A of the Land Tax Act came into operation. Section 13A is in the following terms:
Commissioner may determine that minor interest is to be disregarded
(1) In this section—
prescribed interest—see subsections (2) and (3);
prescribed land means land where 2 or more persons are the owners of the land;
transaction includes any form of conveyance, transfer, contract, agreement or arrangement (whether or not in writing).
(2)If a person's interest in prescribed land is 5% or less, subsection (5) will apply in relation to the interest (a prescribed interest) unless the Commissioner, on the application of a person who, as an owner of the prescribed land, has an interest exceeding 5% in the land, is satisfied that there is no doubt that the interest was created solely for a purpose, or entirely for purposes, unrelated to reducing the amount of land tax payable in respect of the land, or any other piece of land.
(3)If a person's interest in prescribed land exceeds 5% but is less than 50%, subsection (5) will apply in relation to the interest (a prescribed interest) if the Commissioner forms the opinion that the purpose, or 1 of the purposes, for the creation of the interest was to reduce the amount of land tax payable in respect of the land, or any other piece of land.
(4)For the purposes of subsections (2) and (3), the Commissioner may have regard to—
(a) the nature of any relationships between the owners of the land, or between the owners of 2 or more pieces of land; and
(b) the lack of consideration, or the amount, value or source of the consideration, provided in association with the creation of the interest; and
(c) the form and substance of any transaction associated with the creation or operation of the interest, including the legal and economic obligations of the parties and the economic and commercial substance of any such transaction; and
(d) the way in which any transaction associated with the creation or operation of the interest was entered into or carried out; and
(e) any other matter the Commissioner considers relevant.
(5) If this subsection applies in relation to a prescribed interest under this section—
(a) the person holding the prescribed interest is to be taken not to be an owner of the land for the purposes of this Act; and
(b) the land tax payable in respect of the land is to be assessed, and is payable, as if the land were wholly owned by the owner or owners of the land who do not hold the prescribed interest (or, if relevant, any such prescribed interest).
(6)However, a preceding subsection will not apply for the purposes of the other provisions of this Act if the effect is to decrease the amount of land tax payable in respect of any land.
(7)If the Commissioner decides to reject an application of an owner of land under subsection (2), the Commissioner must give notice of the decision to the owner—
(a) stating the decision; and
(b) stating the grounds on which the decision is based.
(8)If the Commissioner forms an opinion under subsection (3) so as to give rise to the application of subsection (5), the Commissioner must give notice of the operation of subsection (5) to each owner of the land—
(a) stating the fact that the opinion has been formed, and setting out its effect under this section; and
(b) stating the grounds on which the opinion is based.
(9) For the purposes of this section—
(a) a reference to an interest in land is a reference to the estate, interest, right, benefit or fact of occupation that makes a person an owner of land under this Act; and
(b) an interest may be or become subject to the operation of this section no matter when it was created, including in a case where the interest was created before the commencement of this section.
[Emphasis in original.]
On 29 January 2009, the Commissioner advised Kalomel that he had noted that the ownership of the minor interest in the North Adelaide land had increased from one per cent to ten per cent. Kalomel was given the opportunity to inform the Commissioner within 30 days as to the reason for the increase in the minor interest. On 30 January 2009, Mr Maras lodged an application for a residential exemption seeking an exemption from land tax on the basis that the North Adelaide land was his principal place of residence.
On 24 February 2009, the Commissioner advised Kalomel and Mr Maras[1] that the North Adelaide land had been granted an exemption from land tax with effect from 30 June 2008. The letter provided:
[1] Drawn from the amended statement of agreed facts.
Dear Sir/Madam,
OWNER NUMBER – 70318305
OWNER NAME – KALOMEL NOMINEES PTY LTD & ANR
Residential Exemption
0220385002 98 BARNARD ST NORTH ADELAIDE SA 5006 LT 91
Your application for Land Tax exemption in respect of the above property/properties is acknowledged.
Exemption has been granted with effect from 30 June 2008.
Land Tax payable for your ownership has been re-calculated and as a result, the ownership is non-taxable.
Yours faithfully
[signature]
for
COMMISSIONER OF STATE TAXATION
[Emphasis in original.]
At the same time, the Commissioner forwarded a Notice of Principal Place of Residence Exemption. That notice provided:
NOTICE OF PRINCIPAL PLACE OF RESIDENCE EXEMPTION
0220385002 – 98 BARNARD ST NORTH ADELAIDE SA 5006 LT 91
Notice is hereby given pursuant to Section 5(5) of the Land Tax Act, 1936, that the above property has been granted an exemption from land tax based on the following:
1. The property was occupied as the principal place of residence by one or more of it’s [sic] owners.
2. All of the buildings on the land are predominantly of a residential character.
3. That no part of the property is used for business purposes.
Upon receipt of this notice you must ensure that the statements herein and the grounds for exemption are accurate and correctly stated.
If the statements are correct you do not need to do anything further. If the statement is incorrect, this notice is void and you must inform RevenueSA of your circumstances within 21 days from the date of this notice.
This exemption will remain in force if you continue to use the property for residential purposes and are able to meet the criteria. If circumstances change the Act requires written notification to be sent to this Office.
Failing to notify this Office of an incorrect notice or changes affecting the exemption may result in a penalty not exceeding $5,000 and an expiation fee of $315.
COMMISSIONER OF STATE TAXATION
[Emphasis in original.]
On 29 September 2009, the position changed. The Commissioner, by letter addressed to Kalomel, informed Kalomel that he had decided to disregard Mr Maras’s ten per cent interest in the land because the Commissioner was of the view that a purpose of the increase of Mr Maras’s interest in the land from one per cent to ten per cent was to reduce the amount of land tax payable. The Commissioner further informed Kalomel that the principal place of residence exemption would be removed because the owner of the land for the purposes of land tax was not a natural person who resided on the land. As this letter is of particular importance, its full terms are set out:
Dear Sir/Madam
LAND TAX ACT 1936 – MINOR INTEREST PROVISIONS
Ownership No: 70318305 – Kalomel Nominees Pty Ltd and Mr Theo Maras
Assessment No: 0220385002 – 98 Barnard St North Adelaide
RevenueSA initially wrote to Kalomel Nominees Pty Ltd on 11 February 2008, advising of new minor interest provisions introduced into the Land Tax Act 1936 (the “Act”) for the 2008-09 financial year. At that time Kalomel Pty Ltd held a 99 per cent interest in a property at 98 Barnard Street, North Adelaide (the “Land”) and Mr Theo Maras held the remaining 1 per cent interest in the Land.
RevenueSA identified that a change in the abovementioned ownership occurred and this change was that Mr Theo Maras’ minor interest percentage increased from 1 per cent to 10 per cent in May 2008.
On 29 January 2009, RevenueSA wrote to Kalomel Nominees Pty Ltd seeking the reason, or reasons, for the change in the ownership of the Land. To date there has been no response to this request.
Section 13A(3) of the Act provides that in situations where a person has an interest in land exceeding 5 per cent but less than 50 per cent then if the Commissioner forms the opinion, that the purpose or one of the purposes for the creation of the minor interest was to reduce the amount of land tax payable in respect of the land, or any other piece of land, subsection 13A(5) of the Act will apply to the minor interest, and such minor interest will be disregarded for land tax purposes.
On the date of the creation of the minor interest in the Land, Kalomel Pty Ltd, owned another property situated at 16 Kent Drive, Victor Harbour. In addition, Mr Maras has been able to qualify for a principal place of residence exemption under the Act and to avoid a land tax liability settling on Kalomel Pty Ltd.
It appears that a purpose of the change to the minor interest by increasing Mr Theo Maras’ minor interest percentage from 1 per cent to 10 per cent, approximately three months after RevenueSA advising of the new minor interest provisions being introduced into the Act, was to avoid the application of the minor interest provisions.
The Commissioner has formed the opinion that for the purposes of Section 13A(3) of the Act, the purpose or one of the purposes of the creation of the additional 9 per cent interest in the Land was to reduce the amount of land tax payable. Accordingly the 10 per cent minor interest of Mr Theo Maras in the Land has been disregarded.
Effective from the 2008-09 financial year, the Land has been combined under Ownership No: 70182065 – Kalomel Nominees Pty Ltd and has been assessed on the aggregated value of any other properties in that Ownership.
Based on the above information the principal place of residence exemption will be removed, as the owner of the land for the purposes of Land Tax is not a natural person who resides on the land.
Yours faithfully
[signature]
For COMMISSIONER OF STATE TAXATION
[Emphasis in original.]
At about the same time, the Commissioner issued or purported to issue an assessment of the land tax payable for the 2008/2009 financial year to Kalomel. An assessment for the 2009/2010 financial year was issued or was purported to be issued on or about 20 October 2009.
On 25 November 2009, the Commissioner informed Mr Maras that the criteria for the principal place of residence exemption from land tax were not satisfied. The Commissioner requested payment of the amount set out in the 2009/2010 Notice of Land Tax Assessment.
On 27 November 2009, Mr Maras disputed the accuracy of the statement in the Commissioner’s letter of 25 November 2009 that “[a]s the Certificate of Title on the abovementioned property is in the name of a Company an exemption has not been granted”. Mr Maras was of the view that section 5(10)(a)(i) of the Land Tax Act did not require a natural person to be the sole owner of the land. Accordingly, it was requested that the grant of Mr Maras’s principal place of residence exemption be confirmed and that the land tax assessment be withdrawn. On 30 November 2009, the Commissioner informed Mr Maras that his minor interest in the land had been ignored and, consequently, the principal place of residence exemption would not be granted.
On 15 December 2009, Mr Maras wrote to the Commissioner alleging that the Commissioner’s letter dated 29 September 2009 did not fulfil the notice requirements set out in section 13A(8) of the Land Tax Act. Mr Maras also relied on sections 4(2) and 4(3) of the Land Tax Act, alleging that the Commissioner’s decision on 29 September 2009 could not influence the land tax assessments for the 2008/2009 and 2009/2010 financial years. It was said that in those two years, Mr Maras did not have to pay land tax due to his principal place of residence exemption. Mr Maras concluded by requesting that the Commissioner’s confirmation of the assessments for the 2008/2009 and 2009/2010 financial years be withdrawn and that the principal place of residence exemption to be maintained.
On 8 January 2010, the Commissioner explained to Mr Maras the basis of the Commissioner’s earlier determination to disregard Mr Maras’s ten per cent interest in the land. The Commissioner informed Mr Maras that he could lodge a written objection with the Treasurer. Mr Maras and Kalomel jointly lodged with the Treasurer an objection against the land tax assessments made by the Commissioner for the 2008/2009 and 2009/2010 financial years.
In a letter dated 21 December 2010, the Treasurer informed Mr Maras and Kalomel that he had confirmed the land tax assessments made by the Commissioner for the 2008/2009 and 2009/2010 financial years. Mr Maras and Kalomel then appealed to this Court.
The Legislative Scheme
The approach to the interpretation of taxing or fiscal statutory provisions has been the subject of extensive judicial comment.[2] The statutory interpretation principles generally applicable where revenue statutes and in particular stamp duty statutes are under consideration were recently stated by French CJ in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue:[3]
The starting point in consideration of the first question is the ordinary and grammatical sense of the statutory words to be interpreted having regard to their context and the legislative purpose. That proposition accords with the approach to construction characterised by Gaudron J in Corporate Affairs Commission (NSW) v Yuill as: "dictated by elementary considerations of fairness, for, after all, those who are subject to the law's commands are entitled to conduct themselves on the basis that those commands have meaning and effect according to ordinary grammar and usage." In so saying, it must be accepted that context and legislative purpose will cast light upon the sense in which the words of the statute are to be read. Context is here used in a wide sense referable, inter alia, to the existing state of the law and the mischief which the statute was intended to remedy.
[Footnotes omitted.]
[2] A convenient summary can be found in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297, 320-321, 323 (Mason and Wilson JJ). See also Pearce & Geddes, Statutory Interpretation (6th ed, 2004) [9.40].
[3] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27, [4].
The other members of the High Court in that decision further observed that “[t]he general purpose of the Act to raise revenue is insufficient to support an intention to exclude a clearly expressed definition and to substitute a quite different meaning”.[4] The fact that the statute is a taxing statute does not make it immune to the general principles governing the interpretation of statutes. 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.
[4] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27, [53].
The within proceeding is an appeal under Part 10 of the Taxation Administration Act in respect of an assessment made under that Act in the administration of the Land Tax Act. Accordingly, the within proceeding requires consideration of provisions of both the Land Tax Act and the Taxation Administration Act.
The Land Tax Act is “[a]n Act to make provision for taxes on land; and for other purposes”.[5] The Taxation Administration Act “makes provision for the administration and enforcement of [the Land Tax Act] and other taxation laws”.[6] It is necessary for the two Acts to be read together.[7]
[5] Land Tax Act 1936 (SA) preamble.
[6] Land Tax Act 1936 (SA) section 3; see also, Taxation Administration Act 1996 (SA) sections 4, 7.
[7] Land Tax Act 1936 (SA) section 3.
Land tax is defined in the Land Tax Act as “any tax imposed by [that] Act”;[8] effectively, it is a tax on land ownership. The Commissioner can make an assessment of tax liability.[9] The Commissioner is also entitled to make a reassessment of the tax liability.[10] However, the reassessment must occur within five years of the initial decision except where the person being assessed has agreed otherwise or where there has been a deliberate tax default.[11]
[8] Land Tax Act 1936 (SA) section 2(1).
[9] Taxation Administration Act 1996 (SA) section 8.
[10] Taxation Administration Act 1996 (SA) section 10.
[11] Taxation Administration Act 1996 (SA) section 10(4).
Section 4(1) of the Land Tax Act provides that, subject to the exceptions set out in that subsection, tax is imposed on all land in South Australia. The amount of land tax payable is based on the site value of the land[12] and, subject to the other provisions in the Land Tax Act, the owner of the land is liable for the land tax in respect of their land.[13] The definition of “owner” in the Land Tax Act includes a person who holds a legal estate of fee simple in the land.[14]
[12] Land Tax Act 1936 (SA) section 7.
[13] Land Tax Act 1936 (SA) section 14(1).
[14] Land Tax Act 1936 (SA) section 2(1).
The principal provisions requiring consideration in the present proceeding are sections 4(2), 4(3), 5 and 13A of the Land Tax Act. Sections 4(2) and 4(3) are in the following terms:
(2)The taxes are imposed and payable in respect of every financial year and liability to the taxes arises at the commencement of every financial year.
(3)The taxes so imposed for a particular financial year will, subject to this Act, be calculated as at midnight on 30 June immediately preceding that financial year on the basis of circumstances then existing.
A scale is used to calculate the amount of tax imposed on the owner.[15] Subject to exceptions set out in the Land Tax Act, that scale is applied to the aggregate taxable value of all of the land owned by the particular person.[16] Where land is owned by more than one person, the calculation of the land tax payable on the particular land is the same as if there were only one owner of the land.[17] Further, in circumstances of multiple owners of land, the owners are jointly and severally liable for the payment of the tax[18] and an owner who has paid the land tax is entitled to recover the proportion payable by the other owners.[19] The amount payable by each owner is proportionate to the value of each owner’s interest in the land.[20]
[15] Land Tax Act 1936 (SA) sections 8, 8A.
[16] Land Tax Act 1936 (SA) section 8B.
[17] Land Tax Act 1936 (SA) section 12.
[18] Land Tax Act 1936 (SA) section 16.
[19] Land Tax Act 1936 (SA) section 17(2).
[20] Land Tax Act 1936 (SA) section 17.
Pursuant to section 5 of the Land Tax Act, land can be made wholly or partially exempt from land tax where there are proper grounds for such an exemption, where such an exemption has been granted by the Commissioner and where the exemption remains in force.[21]
[21] Land Tax Act 1936 (SA) sections 5(1), 5(2), 5(5); see also, Land Tax Act 1936 (SA) section 4(1)(n).
Section 5 relevantly provides:
Exemption or partial exemption of certain land from land tax
(1) Land is wholly exempt from land tax under this section if—
(a) proper grounds for the exemption exist; and
(b)such an exemption has been granted, and remains in force, under this section.
…
(5) The Commissioner may, if satisfied that proper grounds exist for doing so, wholly or partially exempt land from land tax (whether or not an application for exemption has been made).
…
(8) If—
(a)land is exempted wholly or partially from land tax under this section; and
(b)circumstances change so that—
(i)proper grounds for an exemption cease to exist; or
(ii)proper grounds for an exemption continue to exist but a lesser exemption than the one actually given,
the owner must forthwith inform the Commissioner in writing of that fact and, whether or not the Commissioner is so informed, the land will cease to be exempt from land tax, or the extent of the exemption will be reduced (as the case requires).
…
(10) Proper grounds for exempting land from land tax under this section exist as follows:
(a) land may be wholly exempted from land tax if—
(i)the land is owned by a natural person and constitutes his or her principal place of residence (whether or not he or she is the sole owner of the land); and
(ii)the buildings on the land have a predominantly residential character; and
(iii)no part of the land is used for a business or commercial purpose (other than the business of primary production) or the part of the land so used is less than 25% of the total floor area of all buildings on the land;
…
Proper grounds exist, inter alia, to wholly exempt land from land tax where the land is the principal place of residence for the owner or one of the owners of the land, where the buildings on the land have a predominantly residential character, and where less than 25 per cent of the total floor area of the buildings is used for a business or commercial purpose other than primary production.[22] However, if the proper ground upon which the whole or partial exemption was based no longer exists or circumstances have changed so that the extent of the exemption should be reduced, the owner is obliged to notify the Commissioner in writing.[23] The land becomes subject to land tax, wholly or partially, from the time of the change of circumstances, regardless of whether the owner of the land fulfils his or her obligation to notify the Commissioner.[24]
[22] Land Tax Act 1936 (SA) section 5(10)(a).
[23] Land Tax Act 1936 (SA) section 5(8).
[24] Land Tax Act 1936 (SA) section 5(8).
Section 13A, which is set out above, allows for persons with minority interests in land to be taken not to be owners of land for the purposes of the Land Tax Act where the minority interest is less than five per cent or where the Commissioner is of the opinion that the reason or one of the reasons for the creation of the minority interest in the land was to reduce the amount of land tax payable in respect of that particular land or any other piece of land. In the event that a minority interest holder is taken not to be an owner, the other person or persons who own interests in the land are required to pay more land tax as the land is assessed as being owned wholly by that person or those persons.[25] It is worth noting that section 13A applies to interests which were created either before or after the provision came into force.[26]
[25] Land Tax Act 1936 (SA) section 13A(5).
[26] Land Tax Act 1936 (SA) section 13A(9)(b).
The South Australian legislation is relevantly similar to the legislation considered by the High Court in Tooth & Co Ltd v Newcastle Development Ltd.[27]The High Court there observed that liability for land tax was not dependent upon any action of the Commissioner but was derived directly from the statute. In particular, the Court observed:[28]
… [the tax] is so charged and imposed on the land as owned at midnight on 31st October immediately preceding the year for which it is levied and neither the charge nor the imposition waits upon the issue of an assessment pursuant to s. 39. "Assessment" in the context of the Act means no more than the ascertainment of the extent of a previously existing liability and the statutory provision (s. 39) that land tax for each year shall be due and payable thirty days after service of the notice of assessment does not mean that the liability is postponed until this has been done (cf. Church of England Property Trust, Diocese of Sydney v. Metropolitan Mutual Permanent Building and Investment Association Ltd.).
[Footnote omitted.]
[27] Tooth & Co Ltd v Newcastle Development Ltd (1966) 116 CLR 167.
[28] Tooth & Co Ltd v Newcastle Development Ltd (1966) 116 CLR 167, 170.
In South Australia, factors relevant to liability are all to be determined by reference to the circumstances which existed at the end of the year that preceded the material financial year; namely, as at midnight on 30 June.[29] The questions of land ownership and land exemptions are to be determined at the same time. This is necessary for the practical administration of the land tax legislation which would otherwise involve arbitrary decisions concerning liability or exemption from liability based on whatever circumstances existed at various points of time when assessments were made during a financial year, or which would otherwise involve constant adjustment of assessments to respond to changing circumstances.
[29] See, Land Tax Act 1936 (SA) section 4.
Principles Applicable to Land Tax Legislation
In Layala Enterprises Pty Ltd (In Liquidation) v Commissioner of Taxation,[30] in the context of payroll tax, it was held that the first function of a notice of assessment is “to put the employer on notice of both the assessment and the Commissioner's calculations to enable an employer to establish that the assessment … was excessive by exercising rights of objection and appeal”.[31] The second function is to fix a date when payment of the liability is due, so that enforcement action may be taken if the tax remains unpaid.[32] Cooper J relevantly observed:[33]
The notice required to be given under s 18(6) performs two functions. The first includes considerations of natural justice to put the employer on notice of both the assessment and the Commissioner's calculations to enable an employer to establish that the assessment made under s 18 was excessive by exercising rights of objection and appeal under ss 32 and 33 respectively of the Assessment Act. The second function is to fix a date when, in the event that the pay-roll tax or further pay-roll tax as assessed by the Commissioner has not been paid voluntarily, recovery proceedings under s 23 of the Assessment Act in respect of the pay-roll tax as assessed, together with any additional tax or penal tax or any interest on any such tax, may be instituted in a court of competent jurisdiction. The time given under any such notice for payment does not postpone the liability of the employer for the tax and other amounts until the time has expired, nor make the liability dependent upon service of the notice: Tooth & Co Ltd v Newcastle Developments Ltd (1966) 116 CLR 167 at 170; Australian Overseas Telecommunications Corporation Ltd v Commissioner for Land Tax (Qld) (1993) 25 ATR 282 (CA) at 289, 291-292.
[30] Layala Enterprises Pty Ltd (In Liquidation) v Commissioner of Taxation (1998) 86 FCR 348.
[31] Layala Enterprises Pty Ltd (In Liquidation) v Commissioner of Taxation (1998) 86 FCR 348, 359.
[32] Layala Enterprises Pty Ltd (In Liquidation) (1998) 86 FCR 348, 359.
[33] Layala Enterprises Pty Ltd (In Liquidation) (1998) 86 FCR 348, 359.
The Appeal
The question arising in the present proceeding is whether the North Adelaide land is exempt from land tax in the 2008/2009 and 2009/2010 financial years under section 5(10)(a) of the Land Tax Act on the basis that it was the principal place of residence of Mr Maras.
As noted above, the Commissioner granted an exemption from land tax with effect from 30 June 2008. That exemption remained current as at 30 June 2009. The Commissioner removed the exemption on 29 September 2009. As a consequence, as at 30 June 2010 there was no exemption from land tax. As earlier mentioned, these proceedings concern only the assessments made in respect of the 2008/2009 and 2009/2010 financial years.
The appellants submitted that the Commissioner was bound by the exemptions that had been granted, that the relevant time to consider the liability to land tax was at midnight on 30 June immediately preceding the financial year under consideration and that the relevant factual circumstances were those that existed at that time. The calculation of the amount of land tax payable would be made later by the Commissioner, however, it was to be made by having regard to the facts as they existed at midnight on 30 June.
The appellants relied on the earlier referred to observations of the High Court in Tooth & Co v Newcastle Development Ltd[34] and the further observations of the Full Court of the Supreme Court of Queensland in Australian Overseas Telecommunications Corporation Ltd v Commissioner of Land Tax (Qld).[35]It was said that each of these authorities provided useful guidance to the interpretation of the South Australian legislation. Under the South Australian legislation the liability to land tax arises by the terms of the statute itself. The calculation of the tax payable is a matter for assessment by the Commissioner having regard to the facts that existed at a fixed time and date; namely, at midnight on 30 June immediately preceding the relevant financial year.
[34] Tooth & Co Ltd v Newcastle Development Ltd (1966) 116 CLR 167.
[35] Australian and Overseas Telecommunication Corporation Ltd v Commissioner of Land Tax (Qld) (1993) 25 ATR 282.
The Commissioner drew the Court’s attention to the fact that when the legislation was introduced into Parliament, it was expressly stated to be anti-avoidance legislation to come into effect on 30 June 2008 “effective for the 2008-09 land tax assessment year”.[36] It was said that the clear intention of Parliament was that for the 2008/2009 financial year the Commissioner would be able to disregard minor interests even though the legislation would take effect on 30 June 2008. Accordingly, the Commissioner submitted that Parliament intended the scheme to operate as it has, with the Commissioner forming an opinion under section 13A(3), and that that opinion is to apply at all times after 30 June 2008 or from the date that the interest was created, whichever time is later.
[36] South Australia, Parliamentary Debates, House of Assembly, 7 June 2007, 399 (The Hon K O Foley).
The Commissioner submitted that this interpretation was supported by the purpose of the enactment, the second reading speech and the practical operational issues that would arise if any other interpretation were accepted. In particular, the Commissioner described the practical operation of the Land Tax Act if the Commissioner was required to form an opinion under section 13A(3) before the land tax was imposed. In those circumstances, the Commissioner said that taxpayers could reduce the land tax payable by transferring interests in land on 30 June of each financial year and practically prevent the Commissioner being in a position to form an opinion under section 13A(3) before 1 July. It was said that such an interpretation could not have been intended by Parliament and that such a construction should not be accepted.
In short, the Commissioner’s argument was that section 13A(5) of the Land Tax Act applies from the later of 30 June 2008 or when the interest was created, and that section 13A(5) causes Mr Maras to be taken not to be an owner of the land for the purposes of the Land Tax Act from that time. It was contended therefore that the North Adelaide land was not exempt under section 5 of the Land Tax Act due to the statutory precondition in section 5(1) requiring there to be proper grounds for the exemption to exist. It was said that as Mr Maras was no longer taken to be an owner for the purposes of the Land Tax Act, the proper ground in section 5(10)(a) that the land was Mr Maras’s principal place of residence was not applicable. Accordingly, the Commissioner submitted that the land did not satisfy section 4(1)(n) which is an exception to the general rule that all land in South Australia is subject to land tax.
The submission of the Commissioner was that he was not bound by the exemption that had been granted. It was contended that on 29 September 2009 a decision was made that the exemption would be removed. It was said that the effect of the removal was to change the position as it had existed at midnight on 30 June 2008 and at midnight on 30 June 2009. The Commissioner accepted that the exemption that he had granted was not void ab initio. However, it was contended that the removal had retrospective effect. In support of his submission, the Commissioner asserted that section 13A was enacted as anti-avoidance legislation and that it should be interpreted against this background.
The submission of the Commissioner invited the Court to give retrospective effect to the Commissioner’s removal of the exemption. It was not to the point, the Commissioner argued, that a land owner may have acted on the basis of the exemption. There was no suggestion that Kalomel and Mr Maras had engaged in any misleading, deceptive or fraudulent conduct.
In my view, the Commissioner’s submission should be rejected. The earlier discussed correspondence between the parties demonstrates that Kalomel and Mr Maras sought to minimise the exposure to land tax by taking steps that were considered legitimate and of which the Commissioner was fully informed. There is nothing in the legislation that permits the Commissioner on the one hand to grant an exemption and then, on the other, to remove it with retrospective effect.
Section 13A of the Land Tax Act does not alter or postpone the time at which the liability for land tax arises. Mr Maras’s interest in the land that existed at the commencement of the 2008/2009 and 2009/2010 financial years is not to be ignored. Section 13A(5) is conditioned upon the Commissioner having first formed an opinion under section 13A(3). The formation of an opinion by the Commissioner under section 13A(3) is a ‘circumstance’ in that liability will depend upon whether or not the Commissioner held such an opinion. Accordingly, as no opinion had been expressed pursuant to that subsection either prior to 1 July 2008 or 1 July 2009, no regard could be had to a section 13A(3) opinion. As earlier discussed, it may be reasonably inferred that the Commissioner did not form such an opinion until, on or about 29 September 2009 as it was at that time that notice was given to the appellants that the Commissioner had formed the view that the increase of Mr Maras’s ownership from one per cent to ten per cent was to reduce the amount of land tax payable and further, that the principal place of residence exemption would be removed.
To summarise, at midnight on the relevant dates, 30 June 2008 and 30 June 2009, the Commissioner had granted a principal place of residence exemption in respect of the property at North Adelaide. That exemption remained current from the date on which it was granted, effective from 30 June 2008, until it was removed on 29 September 2009. That was a circumstance that existed at those respective times and dates. The position had changed by 30 June 2010 so that liability to land tax arose in respect of the 2010/2011 financial year. However, this appeal was limited to the financial years 2008/2009 and 2009/2010.
As earlier noted, the terms of section 4 of the Act provide that liability to the tax arises at the commencement of every financial year and the tax for a particular financial year is to be calculated as at midnight on 30 June immediately preceding that financial year on the basis of circumstances then existing. The Commissioner’s submission invites the Court to ignore a circumstance that existed as at midnight on 30 June 2008 and a circumstance that existed as at midnight on 30 June 2009.
As noted earlier, the principal place of residence exemption was granted on 24 February 2009 and this exemption had not been removed as at midnight on 30 June 2009. The Commissioner did not remove the exemption until 29 September 2009.
It is to be accepted that the exemption said to exist as at midnight on 30 June 2008 was an exemption that was not granted until 24 February 2009. However, the Commissioner had advised both Kalomel and Mr Maras in writing that the property had been granted an exemption with effect from 30 June 2008. I do not consider that the Commissioner should be allowed to resile from this position.
Conclusion
The appeal is allowed. The assessments of land tax in respect of the land at North Adelaide for the 2008/2009 and 2009/2010 financial years are set aside. I will hear the parties as to any necessary consequential orders.
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