Kosciusko Thredbo Pty Ltd v Commissioner of Taxation (Cth)

[1987] HCA 64

HIGH COURT OF AUSTRALIA

Mason C.J., Wilson, Brennan, Dawson and Gaudron JJ.

KOSCIUSKO THREDBO PROPRIETARY LIMITED v. THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

(1987) 168 CLR 147

23 December 1987

Income Tax (Cth)

Income Tax (Cth)—Deductions—Lease—Improvements—Expenditure incurred—Improvements not subject to tenant rights—Written consent of lessor—Deed of lease contemplating improvements—Whether written consent thereto—Income Tax Assessment Act 1936 (Cth), ss. 83AA(4), 88(2).

Decisions

MASON C.J., WILSON, DAWSON AND GAUDRON JJ. By Deed made 29 June 1962 between the then Minister for Lands of the State of New South Wales ("the Minister"), the Kosciusko State Park Trust ("the Trust") and Kosciusko Thredbo Pty. Limited ("the taxpayer") the taxpayer became the lessee from the Minister of a substantial tract of land in the Kosciusko State Park.

2. Since 1962 the taxpayer has made a number of improvements on the land. In the income years ended 30 June 1978, 1979, 1980 and 1981, the taxpayer sought, for the purposes of the assessment of tax payable on its income, to deduct from its income a proportionate part of expenditure incurred in making improvements on the land claiming that the deductions were authorized by s.88(2) of the Income Tax Assessment Act 1936 (Cth) ("the Assessment Act"), which relevantly provides:

"Where a taxpayer, who in the year of income is a lessee of land used for the purpose of producing assessable income has, either before or after the commencement of the lease, incurred expenditure in making improvements not subject to tenant rights on that land, and such improvements -

(a) ...

(b) ...

(c) have been made with the written consent of the lessor given after the commencement of this Act,

a proportionate part of the amount of that expenditure arrived at by distributing that amount proportionately over the period of the lease unexpired at the date when the expenditure was incurred, shall be an allowable deduction. In calculating the deduction under this sub-section, expenditure in excess of the amount, if any, specified in the agreement for the lease, or in the lease, or in the lessor's consent, shall not be taken into account."

3. Section 88(3) of the Assessment Act specifies certain exceptions to s.88(2) but those exceptions are not relevant to the present case.

4. The improvements in respect of which proportionate deductions were claimed were made after 22 October 1964 and are allowable only if s.83AA(4) of the Assessment Act is satisfied. That sub-section provides:

"Where, after 22 October 1964, improvements are made on land the subject of a lease with the written consent of the lessor of that land, sections 85, 87 and 88 do not apply in relation to those improvements unless -

(a) the written consent was given on or before that date; or

(b) the Commissioner is satisfied that, on or before that date, the lessor had agreed, whether absolutely or subject to conditions, to give that consent and the written consent was given within a period after that date that the Commissioner, on the joint application in writing of the lessor and the lessee made not later than 60 days from that date or within such further time as the Commissioner allows, has approved (whether before or after the giving of the consent) as reasonable for the purposes of this sub-section."

5. The Commissioner of Taxation ("the Commissioner") disallowed a number of claimed deductions including certain proportionate deductions claimed pursuant to s.88(2) of the Assessment Act on the basis that neither par.(a) nor (b) of s.83AA(4) applied to them. It is not in issue that if either par.(a) or (b) is satisfied the taxpayer is in all other respects entitled to proportionate deductions pursuant to s.88(2) of the Assessment Act.

6. An appeal by the taxpayer to the Supreme Court of New South Wales (Rogers J.) was upheld in so far as it concerned the disallowance of deductions claimed pursuant to s.88(2) of the Assessment Act. An appeal by the Commissioner from that decision to the Federal Court of Australia was upheld by majority (Toohey and Wilcox JJ., Bowen C.J. dissenting) save in respect of a claimed deduction for $2,121.00 in the income year ended 30 June 1981 in relation to the preliminary costs of certain subdivision works. From that decision the present appeal is brought by the taxpayer.

7. The primary contention of the taxpayer is that the written consent of the Minister, as lessor, to all the improvements in respect of which deductions were claimed was contained in the Deed made on 29 June 1962, and thus fell within the terms of par.(a) of s.83AA(4) of the Assessment Act, as was held by Rogers J. in the Supreme Court of New South Wales and by Bowen C.J. in the Federal Court of Australia. The taxpayer also relied on par.(b) of the sub-section by reference to a joint application made by the Minister and the taxpayer on 23 March 1965 covering improvements specified in Schedules A and B to that application. Schedule A listed improvements shown on a master plan; Schedule B listed other improvements which were said to be "the subject of the lessor's consent being covered by the terms of Clause 4(6) and (7) of the document of lease". On 21 April 1965 the Commissioner accepted the joint application "as satisfying the requirements of section 83AA(4)(b) only insofar as it related to the item (sic) shown on the master plan and particularised in Schedule A".

8. Before turning to the covenants contained in the Deed it is convenient to note its statutory setting. The Kosciusko State Park Act 1944 (N.S.W.) ("the Act") permanently reserved certain lands for a State Park to be known as the Kosciusko State Park (s.3). Section 4 constituted the Kosciusko State Park Trust, and the Minister was thereby appointed a member and Chairman of the Trust. By s.5(1) there is conferred upon the Trust, subject to the Act, the "care, control and management of the Kosciusko State Park". Section 10(1) of the Act provides that "(n)o land within the Kosciusko State Park shall be sold or leased or otherwise dealt with except as provided in this Act ...". Section 11(3) of the Act provides:

"The Minister may -

(a) grant leases of land within the Kosciusko State Park for the purpose of -

(i) the erection thereon of accommodation hotels or accommodation houses;

(ii) the provision thereon of facilities and amenities for tourists and visitors;

(b) grant leases of land within the Kosciusko State Park on which accommodation hotels or accommodation houses have been erected or facilities and amenities for tourists and visitors have been provided."

9. It would seem that the Deed was executed by the Minister in exercise of the powers conferred by s.11(3) of the Act. By cl.2 of the Deed, the parties declared and acknowledged that:

"... the demised premises include lands on which some facilities and amenities for tourists and visitors to the Park have been provided and they include lands which are intended to be used by the lessee for the purpose of the erection thereon of accommodation hotels or accommodation houses and the provision thereon of further facilities and amenities for tourists and visitors and in particular (but without limiting the generality) for the purposes hereinafter more particularly defined".

10. The Trust's responsibility for the care, control and management of the Park is reflected in various provisions of the Deed including sub-cl.4(11) which relevantly provides:

"That neither the lessee nor any sub-lessee or licencee (sic) will construct nor permit to be constructed buildings or other improvements without the consent of the Trust provided always that as regards the lessee such consent shall not be required in respect of minor buildings or improvements necessary or desirable for the normal use operation or enjoyment of the demised premises ...."

11. It was accepted on behalf of the Commissioner that the Minister and the Trust were independent legal entities with independent powers and functions under the Act. Specifically, counsel for the Commissioner declined to argue that the Minister and the Trust had entered into the Deed as agents either for the Crown in right of the State of New South Wales or for the State of New South Wales and that the Deed should be construed in that context.

12. It is apparent from the Deed that the parties contemplated and intended that improvements would be made on the land. Clause 2, to which reference has already been made, constitutes an acknowledgment that the purpose of the lease, at least in respect of some of the land, is "the erection thereon of accommodation hotels or accommodation houses and the provision thereon of further facilities and amenities for tourists and visitors". Sub-clause 4(8) provides that improvements, both those "existing at the commencement of the lease" and "(a)ll other improvements brought or made ... before the expiration or sooner determination" of the lease shall belong to the "lessor in right of the State of New South Wales". The contemplated and intended improvements are the subject of additional express provisions which take different forms. Sub-clause 4(9) obliges the taxpayer to "commence and thereafter diligently proceed with and complete" certain specified works, including new top and bottom stations for the then existing chairlift, a new hotel, a car park, new access roadways, a general store and a new T-bar. Sub-clause 4(10) provides that "the lessee may by way of further improvement ... but subject to the approval of the Trust in regard to plans specifications and relevant details" effect specified improvements. Sub-clause 4(7) is similar in form to sub-cl.4(10) and provides that "(t)he lessee may in connection with any use improvement or development of the demised premises authorized by these presents and subject as hereinafter appearing with the consent in writing of the Trust" do certain specified things and provide certain specified services and facilities, subject to a proviso not here relevant dispensing with the consent of the Trust in relation to minor maintenance, repair, replacement etcetera.

13. Sub-clauses 4(7) and (10) are in terms the grant of consent to the making of the improvements specified in those sub-clauses. By imposing an obligation to effect specified improvements sub-cl.4(9) imports consent to the making of the required improvements. However, none of the improvements the subject of this appeal fall within those sub-clauses. They are said to fall within sub-cll.4(5) and (6), the terms of which are as follows:

"(5) The lessee shall not (without the written consent of the Trust) use the demised premises otherwise than for any purposes provided for in any covenant by the lessee herein contained or for the conduct of an Alpine and Summer Tourist Resort and Village or for purposes reasonably incidental thereto as hereinafter provided including the sale of liquor.

(6) Purposes incidental to the aforesaid use of the demised premises by the lessee are:

(a) Hotels Motels Restaurants Boarding and Residential Establishments and holiday premises.

(b) Residential Clubs (provided always that the constitution of any such Club shall first be approved in writing by the Trust).

(c) Residences for persons bona fide permanently employed or engaged in business on the demised premises and for their families.

(d) Shops, stores, garages, service stations, parking areas and other necessary or desirable business and commercial premises.

(e) Caravan Parks and camping areas.

(f) Provision for transport of and transport facilities for members of the public and goods.

(g) Provision of adequate water, electricity, sewerage, drainage and other utility services.

(h) Provision of facilities for ski-ing, skating, golf, bowls, tennis, squash, racquets, swimming, riding, fishing and for such other sports and games appropriate to the Park as the Trust may in writing approve and for instruction in all such sports and games as aforesaid and the supply or hire of all equipment therefor.

(i) Ski tows, Ski lifts, passenger carrying ropeways and other appropriate means of uphill transport.

(j) Provision of such other amenities facilities and services for the public as the Trust may from time to time in writing approve."

14. In argument on behalf of the Commissioner reliance was placed on the difference in form between sub-cll.4(5) and (6), on the one hand and sub-cll.4(7), (9) and (10), on the other hand. In particular it was argued that sub-cll.4(5) and (6) merely identified the permitted uses of the land, and that permission to use leased land for specified purposes does not, without more, import permission to make improvements for the specified purposes. So much may be accepted, but permitted use provisions, like any other provision in a written document, must be construed according to their terms and as part of the entire document. Sub-clause 4(5) permits the land to be used "for the conduct of an Alpine and Summer Tourist Resort and Village" and "for purposes reasonably incidental thereto". By sub-cl.4(6) the incidental purposes are comprehensively defined. Certain of the incidental purposes are expressed in a manner which necessarily comprehends the making of improvements therefor. Paragraph (g) speaks of the provision of adequate water, electricity, sewerage and drainage. In terms the paragraph recognizes that then existing utility services may not be adequate and authorizes the provision of further services. The nature of those services is such that their provision necessarily requires the doing of work on the land, that is, making of improvements. Paragraphs (h) and (j) permit the land to be used for the provision of sporting, gaming and other services and facilities as the Trust may approve. That permission necessarily comprehends the making of improvements approved by the Trust answering to the descriptions contained in those paragraphs.

15. Although the other paragraphs of sub-cl.4(6) do not, either by their terms or by the nature of the services and facilities therein referred to, necessarily involve permission to make improvements for the purposes therein specified, they must be read as part of the entire document. Clause 2 and sub-cl.4(8) acknowledge that some improvements had been made at the time the lease was granted. It appears from sub-cl.4(9) that there were in existence when the lease was granted a chair lift, an hotel, a sewerage disposal plant, some facilities for the sale of petrol, and some ski trails. It appears from the Third Schedule to the Deed which specified work required to be done to existing improvements that there were also a number of lodges, a chalet, a shop, and a ski hire building. Additionally it was contemplated that there would shortly come into existence the improvements which were required by sub-cl. 6(9), and that there might come into existence the improvements authorized by sub-cll.4(7) and (10). Although the existing improvements, the required improvements and the improvements authorized by sub-cll.4(7) and (10) could serve one or more of the purposes specified in pars(a), (b), (c), (d), (e), (g) and (i) of cl.6, it is not possible to read those paragraphs as doing no more than permitting the use of those improvements for the purposes specified. The paragraphs must be read in the context that the declared purposes of the lease included the purpose of erecting "accommodation hotels or accommodation houses and the provision ... of further facilities and amenities for tourists and visitors ..." (cl.2). Within that context the necessity to read the paragraphs as encompassing permission to provide facilities over and above those existing and those the subject of sub-cll.4(7), (9) and (10) may be illustrated by reference to par.(a) of sub-cl.4(6) which identifies, inter alia, hotels as a purpose incidental to the use of the land for the conduct of an Alpine and Summer Tourist Resort and Village. As has been mentioned, there was at least one hotel in existence when the lease was granted. Paragraph 4(9)(d) obliged the taxpayer to erect an additional hotel "to cost and be of a value of not less than 80,000 pounds to be located below the present Lodge Hotel and completely separated from it...". No provision of the Lease other than par.4(6)(a) authorized the erection of additional hotels. Yet by cl.2 the parties declared that part of the land was "intended to be used by the lessee for the purpose of the erection thereon of accommodation hotels ...". Unless par.4(6)(a) is construed to include the provision of additional hotels a declared purpose of the lease could be effectuated only to the extent of the erection of the one hotel required by par.4(9)(d). Accordingly the incidental purposes authorized by pars(a), (b), (c), (d), (e), (g) and (i) of sub-cl.4(6) must be read as encompassing the provision of services and facilities as therein specified in addition to those in existence when the lease was granted, but not limited to those services and facilities which would come into existence as a result of the obligation in sub-cl.4(9) or as a result of authorization by sub-cll.4(7) and (10).

16. Permission to use land for the provision of services and facilities in addition to those in existence at the time when the lease is granted necessarily imports the lessor's consent to the making of improvements answering the description of those services and facilities, unless some specific provision is made requiring the lessor's further consent. In the present case there is no such requirement. By permitting the taxpayer to use the land for the purpose of providing further services and facilities as specified in the various paragraphs of sub-cl.4(6), but not limited to those the subject of sub-cll.4(7), (9) and (10), the Minister, as lessor, consented to the making of improvements answering the descriptions contained in those paragraphs as effectively and as positively as he consented to the improvements set out in sub-cll.4(7), (9) and (10).

17. In this context it is convenient to deal with the further argument made on behalf of the Commissioner that any consent by the Minister contained in sub-cll.4(5) and (6) was conditional upon the Trust's consent to the particular improvements and therefore did not take effect until after the relevant date. There is some ambiguity in the notion that consent takes effect. Consent may be given, withheld or withdrawn. Parties to an agreement may provide that consent will be given if certain conditions are fulfilled. In that event consent is given (and takes effect) when the conditions are fulfilled. So too consent may be limited in the sense that the subject-matter of the consent is to be further defined. Where that further definition depends on the act of a third party it may be accurate to speak of the consent taking effect upon the doing of the relevant act by the third party, but that does not mean that consent is given when that act occurs. In the present case, although sub-cl.4(11) requires the taxpayer to obtain the consent of the Trust to the construction of "buildings or other improvements" that requirement is simply the further definition of the improvements to which the Minister's consent was given by sub-cl.4(6). That consent was given when the lease was granted.

18. All the improvements in respect of which proportionate deductions were claimed were improvements falling within sub-cl.4(6) save one which is said to be referable to sub-cl.4(5). That latter improvement is described in the joint judgment of Toohey and Wilcox JJ. as a "small item for landscaping". It is therefore necessary to consider whether sub-cl.4(5) extends permission to the making of improvements beyond those set out in sub-cl.4(6). In our view it does not. The permission granted by sub-cl.4(5) is to conduct an enterprise and to execute incidental purposes thereafter comprehensively defined in sub-cl.4(6). Permission to conduct an enterprise does not carry with it permission to make improvements for the purpose of that enterprise. In so far as sub-cl.4(5) permits the making of improvements it does so by permitting incidental purposes which comprehend the making of improvements. Accordingly, improvements effected by the taxpayer cannot be said to have been made with the consent of the Minister given by sub-cl.4(5) unless that consent is also to be found in sub-cl.4(6).

19. Although sub-cll.4(6), (7), (9) and (10) have been identified as provisions carrying the Minister's consent to the making of improvements covered by those sub-clauses they are not the only provisions in the Deed which contain that consent. The primary purpose of sub-cl.4(11) is to give the Trust control over the land by requiring the taxpayer to obtain the Trust's permission for the construction of buildings and other improvements, but the clause is subject to a proviso that "such consent shall not be required in respect of minor buildings or improvements necessary or desirable for the normal use operation or enjoyment of the demised premises". In the context of the Deed as a whole, that proviso must be construed as importing the consent of the Minister and the Trust to minor improvements. A "small item for landscaping" would necessarily seem to be a minor improvement desirable for the normal enjoyment of the demised premises, and accordingly was made with the consent of the Minister given in the Deed.

20. It was also argued on behalf of the Commissioner that if the Minister's consent was to be found in sub-cll.4(5) and (6) that consent was not written consent, or alternatively was not written consent within the meaning of s.83AA(4) and s.88(2) of the Assessment Act. It was not disputed that the requirements of s.83AA(4) and s.88(2) may be satisfied by consent contained in a written lease, as was stated by Jacobs J. in G.J. Coles &Coy. Ltd. v. Federal Commissioner of Taxation (1975) 132 CLR 242, at p 256 where his Honour observed in relation to s.88(2) of the Assessment Act that "(s)uch a consent may appear in the lease itself or may appear in a separate written instrument". Rather it was put that any consent of the Minister to be found in sub-cll.4(5) and (6) was implied consent and thus not in writing. Alternatively, it was argued that the Assessment Act requires express consent.

21. There is some difficulty inherent in the expression "implied consent" in so far as that expression may convey the idea that although consent was not actually given it is to be regarded as having been given. That latter idea is perhaps better comprehended in the expression "presumed consent". However, the consent contained in sub-cll.4(5) and (6) is not presumed consent but actual consent. Sub-clause 4(6) is the elaboration of the permission granted by sub-cl.4(5) to use the land for purposes incidental to the conduct of an alpine and summer tourist resort and village. Permission is co-extensive with consent. The plain meaning and effect of sub-cll.4(5) and (6) when the lease is construed as a whole is that the Minister thereby, without reservation to himself as lessor of any further say as to what improvements would be effected, permitted the taxpayer to effect improvements answering the description of the various services and facilities covered by sub-cl.4(6). The permission was express permission, notwithstanding that a process of construction is necessary to ascertain the extent of the Minister's consent, and it was written consent because it was contained in the Deed.

22. The Minister's consent to the improvements in respect of which proportionate deductions were claimed was given in writing by the Deed made on 29 June 1962, and the conditions of s.83AA(4)(a) and s.88(2)(c) of the Assessment Act are thus satisfied. It is therefore unnecessary to consider the further argument of the taxpayer based on s.83AA(4)(b). The appeal should be allowed, the order of the Full Court of the Federal Court of Australia set aside, and in lieu thereof it should be ordered that the appeal to that Court be dismissed with costs.

BRENNAN J. To ascertain the operation of s.88(2) of the Income Tax Assessment Act 1936 (Cth), it is convenient to divide the cases in which, by the general law, a lessee may lawfully make improvements on demised premises into four categories: (1) when the improvements are made "as consideration for the grant to (the lessee) of (the) lease" (to adapt the words of par.(a) of s.88(2)); (2) when the improvements are those which the lessee is "required to make under the provisions of (the) lease" (to adapt the words of par.(b) of s.88(2)); (3) when, in the absence of the lessor's consent, the making of the improvements would be in breach of covenant or would expose the lessee to liability for waste but the lessor consents to the making of the improvements; and (4) when the making of the improvements is not in breach of covenant and does not expose the lessee to liability for waste. In this case, a question arises as to the coincidence of cases falling within the third and fourth categories and cases in which improvements "have been made with the written consent of the lessor" (the words of par.(c) of s.88(2)). A lessee taxpayer who incurs expenditure in making improvements which fall within the first two categories and which otherwise satisfy the criteria expressed in the introductory words of s.88(2) is entitled to deduct from his assessable income a proportion of that expenditure provided the lease was granted on or before, or in pursuance of an agreement entered into on or before, 22 October 1964: s.83AA(1). A lessee taxpayer who incurs expenditure in making improvements which fall within the third or fourth categories and which satisfy the criteria expressed in the introductory words of s.88(2) is entitled to deduct from his assessable income a like proportion of that expenditure provided the lessor has given written consent to the making of the improvements and provided that, on or before 22 October 1964, the lessor had given or had agreed to give written consent and, in the latter case, the written consent was in fact given within a period allowed by the Commissioner: see ss.88(2)(c) and 83AA(4). The "consent" mentioned in s.83AA(4) is the same "consent" as that mentioned in s.88(2)(c), that is, a written consent of the lessor to the making by the lessee of improvements on the leased land.

2. The criteria of deduction prescribed by pars (a), (b) and (c) of s.88(2) are mirrored by the criteria prescribed by s.87. Section 87 includes in the lessor's assessable income a proportion of the estimated value to the lessor of the improvements as at the expiration of the lease. In cases which fall outside pars (a) or (b) of s.88(2) and outside the corresponding provisions of s.87, the giving of the lessor's written consent is the material criterion upon which the relevant tax consequences depend: an addition to the assessable income of a lessor who gives written consent, and a deduction from the assessable income of a lessee who is given written consent. The tax consequences prescribed by ss.87 and 88(2)(c) depend not on the lawfulness of the making of improvements, but on the giving of written consent to the making of improvements. As between the lessor and the lessee, the giving of written consent determines, in the ordinary case, whether the lessee is entitled to a tax advantage and the lessor is liable to a tax burden. The need for written consent was stated by the 1932 Royal Commission on Taxation in par.736 of its Report:

" Other witnesses asked that all expenditure by the lessee upon improvements, whether incurred under agreement or not, should be allowed to him as a deduction. It is impossible for us to support this request. It would be unfair to impose upon the lessor in such circumstances liability to pay tax in respect of improvements made without his consent, and possibly against his will."

It would be unfair to impose a tax burden on the lessor if the lessor had not given his consent to the making of the relevant improvements, even if the lease did not preclude the lessee from making those improvements. The distinction between making improvements with the lessor's written consent and making improvements lawfully is important in this case. The relevant improvements for the purposes of this appeal appear to come within the fourth category so that the taxpayer was lawfully entitled, without the lessor's consent, to make those improvements.

3. A lessee who alters the demised premises, whether by erecting a building or otherwise, is not liable for waste if no injury is thereby done to the inheritance: Doe d. Grubb v. Earl of Burlington (1833) 5 B &Ad 507, at p 517 (110 ER 878, at p 882); Meux v. Cobley (1892) 2 Ch 253; Hyman v. Rose (1912) AC 623, at p 632. In Jones v. Chappell (1875) LR 20 Eq 539, Sir George Jessel M.R. said that a lessee of land who erects a building thereon without the lessor's consent does not commit waste unless the building is an "injury to the inheritance". Buckley J. in West Ham Central Charity Board v. East London Waterworks Company (1900) 1 Ch 624, at pp 635-636, followed Jones v. Chappell in holding -

" that the lessee of land who erects buildings thereon without the consent of his lessor does not commit waste within the definition in Co.Litt.53a, unless it can be shewn that such building is an injury to the inheritance. I am content to take the law from the case of Doe v. Earl of Burlington ... If the permanent character of the property demised is not substantially altered, ... I conceive that the law is that it is not now waste for the tenant to do things which within the covenants and conditions of his lease he is not precluded from doing. Within those covenants and conditions he may use his holding as he pleases."

In determining whether the act which is said to be an act of waste has in fact changed the nature of the demised premises "regard must be had to the user of the demised premises which is permissible under the lease": per Lord Loreburn L.C. in Hyman v. Rose, at p 632, and cf. Hunt v. Hodges (1849) 1 Ir Jur 33.

4. Although a lessor's consent to the making of an improvement is unnecessary if there is no covenant against making it and its making is not an act of waste, a written consent is required if the tax consequences are to be attracted. No doubt such a consent may be found in the lease itself or in a separate written instrument, as Jacobs J. said in G.J. Coles &Coy. Ltd. v. Federal Commissioner of Taxation (1975) 132 CLR 242, at p 256, but a lease which creates in the lessee such an interest as permits the lessee to make improvements in using the land for a particular purpose without consent is not necessarily to be regarded as itself a written consent to the making of any such improvements or as an agreement to give such a written consent so as to attract the operation of s.88(2)(c). If it were otherwise, the lessee would have a discretion not merely to make the improvements but to cast a tax burden on the lessor by making particular improvements to which the lessor had not given consent in fact. The specificity of the consent needed to attract tax consequences was considered in reference to s.88(2)(b) in G.J. Coles. Mason J. there said (at p.254) that "par.(b) merely requires an identity between the improvements required and the improvements made". Although par.(c) does not necessarily import the same degree of specificity, it would be incongruous if it did not; indeed, unless the consent of which par.(c) speaks is a consent to "the improvements made", the criterion of written consent as a means of according fairness to the lessor fails in its purpose. If the lessor were treated as having consented to any improvement the making of which is not an act of waste, the submission which the 1932 Royal Commission was concerned to reject would, in effect, be accepted. Therefore the inclusion in the lease of a stipulation as to the purposes for which demised premises may be used is not necessarily a consent to the making of any improvements which might serve those purposes: no such consent is needed under the general law, and the lease should not be construed as giving a written consent merely in order to satisfy a criterion of deductibility under s.88(2)(c). With respect, I am unable to regard a stipulation as to the purpose for which the leased land may be used as having the character of a consent to any improvements which a lessee may choose to make to serve that purpose. The lessee is not a stranger who needs consent to do something on the demised premises: the demise itself confers on him the right to use the demised premises as he pleases and to improve them as he pleases subject to any restrictive covenant and subject to the obligation not to commit waste. However, if on a proper construction of a lease, a particular provision can be seen to be both a purpose of use clause and a consent to the making of a particular improvement, the clause will satisfy s.88(2)(c). Whether a clause is intended to be merely a purpose clause or to be a consent as well is a question of construction.

5. These being the general principles, it remains to apply them in the construction of cl.4 of the Deed of Lease dated 29 June 1962 between the Minister as lessor and the taxpayer as lessee. Clause 4(9) of the lease requires the lessee to make certain improvements, and improvements made pursuant to that sub-clause fall within par.(b) of s.88(2). Clause 4(7) and (10) authorize the lessee to make certain further improvements subject, in one case, to the written consent of the Trust and, in the other, to the approval of the Trust in regard to plans, specifications and details. These are clearly consent clauses which satisfy the requirements of s.88(2)(c) and s.83AA(4). They add nothing to the right to make improvements which the lessee was entitled to exercise in virtue of the liberty it was given, subject to cl.4(11), to use the demised premises for the purposes prescribed in cll.2 and 4(5) and (6), the texts of which are set out in the majority judgment. But the improvements which remain in controversy in this appeal were not made pursuant to cl.4(7), (9) or (10). There is no express provision of the lease which either required the relevant improvements to be made or expressly consented to the making of them. The taxpayer placed some reliance on the provisions of cll.2 and 4(5) and (6), but these provisions merely specify the purposes for which the lessee may use the demised premises - in contrast to cl.4(7) and (10) - which authorize the making of specific improvements. Although regard must be had to the purposes for which the land may be used in determining whether the making of a particular improvement is an act of waste, I am unable to construe cll.2 and 4(5) and (6) as a written consent to the making of the particular improvements which now remain in issue. They are certainly not an agreement to give a written consent to the making of those improvements. I would agree with the following passage from the judgment of Toohey and Wilcox JJ. in the Full Court in the present case:

" In the case now before the Court, it is said, not only is the use of the land for a ski lodge and ancillary recreational facilities not a breach of covenant, but the lease expressly contemplates that use. This much may be accepted but it does not follow that, because the lease does not prohibit the use of land for a ski lodge, the erection of such a lodge is done with the consent of the lessor for the purposes of sub-s.88(2). Indeed, the taxpayer's submission carries with it the conclusion that no matter what improvements the lessee may make upon the land over the 45 year term of the lease, so long as those improvements fall within the general description in cl.2 of the lease, the lessor must be taken to have consented to them. That submission cannot be accepted."

As the taxpayer relies solely on the lease which was executed prior to 22 October 1964 as the written consent or the agreement to give written consent to the making of the relevant improvements, the attempt to bring the case within s.88(2)(c) and s.83AA(4)(b) fails.

6. I should add that I regard both the statutory and the contractual requirement of approval by the Trust to the making of particular improvements as immaterial to this case. If cll.2 and 4(5) and (6) constituted the lessor's consent to the making of the relevant improvements, the circumstance that a third party's consent was also required would be immaterial to the application of s.88(2)(c).

7. I would dismiss the appeal.

Orders

Appeal allowed with costs.

Set aside the orders of the Full Court of the Federal Court of Australia dated 18 December 1985. In lieu thereof order that the appeal be dimissed with costs.