Lance and Commissioner of Taxation (Taxation)
[2024] AATA 11
•5 January 2024
Lance and Commissioner of Taxation (Taxation) [2024] AATA 11 (5 January 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s):2022/8067
Re:Paul Keith Lance
APPLICANT
Commissioner of Taxation And
RESPONDENT
DECISION
Tribunal:Senior Member G Lazanas
Date:5 January 2024
Place:Perth
The decision under review is affirmed.
............................[Sgd]............................................
Senior Member G Lazanas
Catchwords
TAXATION – GST – taxable supply - enterprise – whether sale of property made in the course or furtherance of an enterprise – whether property subdivided for family living arrangement – whether property subdivided for sale – meaning of “in the form of a business” – whether evidence of applicant reliable - whether applicant discharged burden of proof – objection decision affirmed.
Legislation
A New Tax System (Goods and Services Tax) Act 1999 (Cth) ss 7-1, 9-5, 9-20, 9-40, 11-5, 11-15, 40-1, 40-65, 195-1
Taxation Administration Act 1953 (Cth) s 14ZZKCases
Casimaty v Federal Commissioner of Taxation (1997) 97 ATC 5135
Commissioner of Taxation v Swansea Services Pty Ltd [2009] FCA 402
Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310
Martin v Federal Commissioner of Taxation (1953) 90 CLR 470
Nerang Subdivision Pty Ltd & Ors v Hutson & Anor [2023] QSC 268
Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123
South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation (2009) 71 ATR 228
Statham & Anor v Federal Commissioner of Taxation (1988) 89 ATC 4070
Toyama Pty Ltd v Landmark Building Developments (2006) 197 FLR 74Vidler v Federal Commissioner of Taxation (2010) 75 ATR 825
Secondary Materials
Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (Cth)
Miscellaneous Taxation Ruling: MT 2006/1 – The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number
REASONS FOR DECISION
Senior Member G Lazanas
5 January 2024
INTRODUCTION
Mr Paul Lance is in dispute with the Commissioner of Taxation as to whether he is required to pay goods and services tax (GST) on the sale of a historic property in Western Australia known as Sutton Farm & Graveyard (Sutton Farm). The dispute ensued after the Commissioner audited Mr Lance and issued him with a notice of assessment of net amount of GST in respect of the monthly tax period 1 to 28 February 2021. The assessment was on the basis that the sale of Sutton Farm was a taxable supply for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act).[1]
[1] T64, 259.
Mr Lance lodged an objection dated on or about 22 February 2022 to the assessment on the basis that the sale of Sutton Farm was not a taxable supply on two grounds.[2] First, Mr Lance argued that the sale was not made by him in the course or furtherance of an enterprise carried on by him for the purposes of s 9-5(b) of the GST Act and, secondly, as Sutton Farm was Mr Lance’s residential premises, it was an input taxed supply under s 40-65(1) of the GST Act. The Commissioner had disallowed Mr Lance’s objection and maintained that he was liable to pay GST on the sale of Sutton Farm in the objection decision dated 10 August 2022. On 30 September 2022, Mr Lance applied to the Tribunal for review of that objection decision and the hearing took place on 29 November 2023.
[2] T67 and T68. See also T80 which is an amended objection form that was lodged on 8 April 2022, but which the Commissioner noted contains no material difference to the objection lodged on 22 February 2022 (Respondent’s Statement of Facts, Issues and Contentions dated 11 May 2023, [63]).
As these reasons will explain, I have concluded that Mr Lance is liable to pay GST on the sale of Sutton Farm as it was a taxable supply under s 9-5 of the GST Act. This is because it was a supply of real property made by Mr Lance in the course or furtherance of an enterprise being carried on by him. Significantly, he failed to prove that all the development works relating to the subdivision of the property were not carried on in the course or furtherance of an enterprise. Additionally, the sale was not an input taxed supply of residential premises because Sutton Farm did not meet the definition of “residential premises” in s 195-1 of the GST Act as the buildings were uninhabitable.
THE ISSUES BEFORE THE TRIBUNAL
The essential issue is whether Mr Lance is liable for GST on the sale of Sutton Farm as a taxable supply under s 9-5 of the GST Act. The only issue for determination by the Tribunal is whether the sale of Sutton Farm was made “in the course or furtherance of an enterprise” carried on by Mr Lance as all the other elements of making a taxable supply are satisfied. Mr Lance had initially also argued that the supply was not a taxable supply on the basis that it was an input taxed supply of residential premises but, as set out further below, that issue properly fell away at the hearing.
Mr Lance, as the taxpayer, bears the burden of proving that the assessment issued to him by the Commissioner is excessive or otherwise incorrect, and what the assessment should have been: s 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) (TAA).
THE RELEVANT LAW AND PRINCIPLES
It is necessary to set out some of the key provisions of the GST Act as well as the applicable principles from the relevant cases.
The starting point is s 7-1 of the GST Act which states, as follows:
7-1 GST and input tax credits
(1) GST is payable on * taxable supplies and * taxable importations.
(2) Entitlements to input tax credits arise on * creditable acquisitions and * creditable importations.
As will be noted, s 7-1 refers to “taxable supplies” and “creditable acquisitions” which are defined in ss 9-5 and 11-5 of the GST Act, as follows:
9-5 Taxable supplies
You make a taxable supply if:(a) you make the supply for * consideration; and
(b) the supply is made in the course or furtherance of an * enterprise that you * carry on; and
(c) the supply is * connected with the indirect tax zone; and
(d) you are * registered, or * required to be registered.
However, the supply is not a * taxable supply to the extent that it is * GST-free or * input taxed.
11-5 What is a credible acquisition?
You make a credible acquisition if:(a) You acquire anything solely or partly for a *creditable purpose; and
(b) The supply of the things to you is a *taxable supply; and
(c) You provide, or are liable to provide, *consideration for the supply; and
(d) You are *registered or *required to be registered.
Relevantly, s 11-15(1) of the GST Act states that “[y]ou acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise”.
Section 9-40 of the GST Act relevantly states that “[y]ou must pay the GST payable on any taxable supply that you make”. Section 195-1 (the Dictionary in the GST Act) states in relation to the word “you” that “if a provision of this Act uses the expression you, it applies to entities generally, unless its application is expressly limited.”
Section 9-20 defines the term “enterprise”. Relevantly, the definition states, as follows:
9-20 Enterprise
(1) An enterpriseis an activity, or series of activities, done:
(a) in the form of a * business; or
(b) in the form of an adventure or concern in the nature of trade; or
…(2) However, enterprisedoes not include an activity, or series of activities, done:
…
(c) by an individual … without a reasonable expectation of profit or gain;
…
“Carrying on” an enterprise is defined in s 195-1 to include “doing anything in the course of the commencement or termination of the enterprise.”
In Commissioner of Taxation v Swansea Services Pty Ltd [2009] FCA 402, McKerracher J observed at [66] that “enterprise has been defined very broadly or widely”. His Honour also observed at [68], as follows:
The GST Act definitions of ‘enterprise’ and ‘carrying on an enterprise’ appear on their face (consistently with the Explanatory Memoranda) to be substantially broader than the notion of ‘carrying on an enterprise’ for the purposes of income tax regulation. It would have been a simple matter for Parliament to confine registration to those entities ‘carrying on a business’ in the income tax sense had that been its intention…
The word “business” (as referred to in the definition of “enterprise” under s. 9-20(1)(a) of the GST Act) is, in turn, defined in s 195-1 as including “any profession, trade, employment, vocation or calling, but does not include an occupation as an employee.” The inclusive definition of “business” means it encompasses activities within the ordinary meaning of the word. Additionally, there are numerous cases which set out the indicia of determining whether an activity or series of activities were done as a business. The indicia are profit-making purpose, scale of operations, repetition and regularity, the amount of capital invested and organisation of activities in a business-like way with books and records. The analysis of whether activities constitute a business depends, ultimately, “on the large or general impression gained”: see Martin v Federal Commissioner of Taxation (1953) 90 CLR 470 at 474 and Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310 at 321.
In Professional Admin Service Centres Pty Ltd v Federal Commissioner of Taxation [2013] FCA 1123 (Professional Admin Service Centres), Edmonds J made specific observations in relation to paragraph (b) of the definition of “enterprise”, at [39], as follows:
…[P]ara (b) of s 9-20(1) makes it clear that an “enterprise” can include an isolated commercial venture in the nature of trade, which implies that it be entered into for a commercial purpose, including the purpose of profit-making: Edwards (Inspector of Taxes) v Barnstow [1955] UKHL 3; [1956] AC 14; Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18; (1987) 163 CLR 199; Thiel v Federal Commissioner of Taxation [1990] HCA 37; (1990) 171 CLR 338 at 344–345 per Mason CJ, Brennan and Gaudron JJ; at 351–352 per Dawson J; and at 360 per McHugh J.
At [60] in Professional Admin Service Centres, Edmonds J emphasised the importance of a profit-making purpose in determining whether an “enterprise” exists, and stated as follows:
As indicated in [39] above, Australian income tax law jurisprudence has emphasised the existence of a profit-making purpose as a necessary indicia to a finding that activities amount to a business, ... Similarly, the para (b) limb of the definition of “enterprise” in s 9-20(1) to the effect that it encompasses an activity, or series of activities, done in the form of an adventure or concern in the nature of trade, contemplates the existence of a profit-making purpose or motive attending the conduct of the activity or activities.
It is noted that an entity can carry on more than one enterprise. An entity can also carry on some activities that are an enterprise and some that are not in connection with the carrying on of an enterprise. A helpful explanation of the demarcation of activities that may take place in the course or furtherance of an enterprise, and those that do not, is provided in the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (Cth), in the following terms:
In the course or furtherance of your enterprise
3.10 ‘In the course or furtherance’ is not defined, but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. ‘In the course or furtherance’ does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. See Case N43 (1991) 13 NZTC 3361.
Section 40-65 of the GST Act refers to the sale of residential premises and relevantly states, as follows:
40-65 Sales of residential premises
(1) A sale of * real property is input taxed, but only to the extent that the property is * residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).
Section 40-1 of the GST Act explains that if a supply is input taxed, then no GST is payable on the supply and there is no entitlement to an input tax credit for anything acquired or imported to make the supply.
The meaning of “residential premises” is set out in s 195-1 of the GST Act, as follows:
"residential premises" means land or a building that:
(a) is occupied as a residence or for residential accommodation; or
(b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;(regardless of the term of the occupation or intended occupation) and includes a * floating home.
In South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation (2009) 71 ATR 228 at 239 it was held by Stone J that while premises do not have to be used as a residence at the time of the supply to be deemed a “residential premise”, such premises must be capable of being occupied and must provide shelter and basic living facilities to satisfy the definition of “residential premises” in s 195-1 of the GST Act. It is the physical characteristics of the premises, and not the subjective intentions with respect to the actual or intended use of the buildings, if any, that are determinative. It is also well established that vacant land is not residential premises for the obvious reason that it does not provide shelter and basic living facilities: see Vidler v Federal Commissioner of Taxation (2010) 75 ATR 825 at 834.
Sutton Farm was not capable of being occupied and did not provide shelter and basic living facilities. Indeed, at the time of sale the buildings on Sutton Farm were at best empty shells that could have provided shelter only. For completeness, it is noted that Mr Lance had moved a caravan onto the land in which to stay from time to time which had solar power, ablution facilities and a kitchen, however, the caravan was never considered a part of Sutton Farm and did not form part of the sale. Mr Lance conceded at the hearing that Sutton Farm was not “residential premises” as defined and, therefore, did not press the argument that the sale of Sutton Farm was an input taxed supply of residential premises. Instead, Mr Lance focused at the hearing on the position that the sale of Sutton Farm was not made in the course or furtherance of an enterprise carried on by him.
THE FACTUAL BACKGROUND AND THE EVIDENCE
The following findings are based upon the respective Statements of Facts, Issues and Contentions filed by Mr Lance and the Commissioner, the evidence of Mr Lance, various documents tendered in evidence by Mr Lance as a supplementary bundle (Exhibit A2) and the T-Documents (including Supplementary T-Documents) filed by the Commissioner.
Mr Lance was the only person who gave evidence. He filed a written statement dated 13 June 2023 (Exhibit A1) and also gave oral evidence and was cross-examined.
Mr Lance’s employment, property ownership and dealings
Mr Lance had in the past worked in the logistics and transportation industry and later purchased and operated a business transporting cylindrical gas bottles. Some years later, after a period of approximately six years of not working due to personal health issues, in or around 2002, Mr Lance and his wife purchased a camping ground approximately 30 km from Mandurah in the State of Western Australia (the Holiday Park). Mr Lance and his wife continued to manage the Holiday Park, which is their primary source of income.
On 17 August 2010, Mr Lance purchased several blocks of land in Boddington, Western Australia (approximately 90km south-east of Mandurah). These blocks were later sold for a loss.
Besides the family home which Mr Lance owns with his wife, they own a property containing two sheds in Pinjarra, which is an industrial complex. Mr Lance stated they generate a small amount of rental income from leasing out the sheds in respect of which GST is paid.
In early 2013, Mr Lance purchased a property located on 5 Apollo Place in Halls Head (5 Apollo Place). This property is located immediately adjacent to Sutton Farm which is the subject of these proceedings. Mr Lance stated that he intended to live out retirement in 5 Apollo Place with his wife as they transitioned out of working and operating the Holiday Park into retirement. However, Sutton Farm came up for sale and it replaced 5 Apollo Place as the ideal property for Mr Lance.
Mr Lance received advice to subdivide 5 Apollo Place and did so in or around August 2014 and the two subdivided lots were then sold, as follows:
(a)the newly created Lot 6 was sold in October 2014 for a purchase price of $500,000; and
(b)the original portion of Lot 5 was sold for $440,000 in June 2016.
Purchase of Sutton Farm
Mr Lance stated that Sutton Farm, which comprised of a single parcel of land of approximately 1.47 hectares in size located at 15 Apollo Place Halls Head, was a property which he had admired for some years as a prospective homeowner in the area. Mr Lance recalled seeing Sutton Farm advertised for sale on a tender process in the local newspaper around April 2013 and decided to put in an aspirational offer for Sutton Farm without any expectations that his offer would be successful.
The contract for the sale of Sutton Farm to Mr Lance was signed by the seller on 13 June 2013 with a sale price of $1,600,000. Mr Lance settled the purchase on 15 December 2013.[3]
[3] T47, 175.
Sutton Farm is located on waterfront canals and in closer proximity to the Holiday Park than his family home. Sutton Farm featured a pedestrian access way at the south-western corner of the land which, while not part of Sutton Farm, extended out to the foreshore and provided the public with views of the waterfront.
According to the Western Australian Register of Heritage Places, Sutton Farm consists of the following three structures:
(a)a homestead located roughly in the centre-eastern portion of the lot;
(b)a large barn towards the north-west boundary; and
(c)a single men’s quarters located towards the south-west of the lot.
All three structures were built in the Victorian Georgian style together with a graveyard which are of cultural historical significance for a number of reasons, including rarity value as a collection of farm buildings dating from the 1860s built of local limestone.[4]
[4] T47, 186.
Due to his financial position, Mr Lance realised he could not hold onto both properties, namely, 5 Apollo Place and Sutton Farm, and decided to sell 5 Apollo Place to enable him to afford Sutton Farm. Additionally, to afford Sutton Farm and subsequent development works, Mr Lance stated he took out a loan from Liberty Bank in around 2014 for approximately $1 million. This loan was later transferred to ANZ Bank. Mr Lance also borrowed approximately $1.5 million from his brother-in-law to assist in the development works. Mr Lance characterised this loan as “helping family” and was not a commercial arrangement.
Following Mr Lance’s purchase of Sutton Farm and the commencement of development activities, several articles appeared in the local newspapers, the Mandurah Mail and Mandurah Coastal Times, on the dates specified below. The following extracts from those articles reference various plans to commercialise the property as well as the proposed development on the site.
Mandurah Mail – 8 January 2014
New Lease on life for historical spot
A piece of Mandurah history has the chance at a new lease on life after a local businessman has taken it into his hands.
Paul Lance bought Sutton Farm early last month with the plans to lease it out as a restaurant, wine bar or coffee house, turn the barn into an art studio and add 8 – 10 finger jetties in the canal adjacent.
“It’s the largest piece of land on the waterfront”, he said.
“It’s a really pretty, unique property and one of a kind.”
He said the three-and-three-quarter acreage will continue to play host wedding photography, and may even be a place to hold wedding receptions in the future ...[5]
[5] T119, 530.
Mandurah Mail – 7 January 2015
Works under way at Mandurah’s Sutton Farm
…
With part of the land already sub-divided, the construction of new canal homes next to the historic building has begun.
“There was a lot of interest in those blocks because of the location,” Mr Lance said.
“That being said, there is still one available.”
But that’s just the beginning.
The owner and his architects are in the process of getting council approval to turn the farmhouse into a restaurant and the barn into a café.
…
“I got a lot of feedback; most were saying that something needed to be done with the property and they were happy about the restaurant,” Mr Lance said.
“At this time, it’s just how long it takes to get Council approval as to when the rest of the works will start”.[6]
[6] T120, 533-534.
Mandurah Coastal Times – 18 January 2016
Latest Plans for Sutton’s Farm Revealed
The farm, on Apollo Place in Halls Head, was bought in 2013 by businessman Paul Lance. His plan was to turn the old buildings into a restaurant, wine bar or a coffee house.
The latest local structure plan submitted to council on behalf of Mr Lance, shows that some of the land surrounding the existing buildings would be used for housing or shopping upon approval.
The proposed plan provides for a residential or tourist development at the northern edge of the site at a density of R40. R40 allows for minimum lots size of 180 square metres per dwelling. These dwellings could come with private jetties. There will also be a public jetty.
The plan shows a residential development at the southern edge of the site…with a minimum height potential of nine metres, which is about two stories.
The plan includes new uses for the existing heritage buildings, which could be turned into a restaurant, tavern, small bar, guesthouse or short stay accommodation.... [7]
[7] T121, 535.
Mandurah Mail – 5 October 2016
Halls Head Sutton Farm future on agenda
The development of the historical area has been a community debate since the site was bought by local businessman Paul Lance in late 2013, with the intention of enhancing the area and bringing back some life into the property.
Mr Lance plans to build new dwellings around the three heritage buildings, which would be kept for tourism for purposes such as a restaurant, a small bar or short stay accommodation.
The site’s development plan was approved and submitted to the WA Planning Commission by the City of Mandurah early this year for consideration.
However, due to changes in planning regulation that would see the City lose control over development outcomes for the site, the City was asked to consider an amendment to the initial plan. The new amendment would see the land use change from tourism to special use, which would protect the area from the establishment of a nightclub or a tavern, otherwise permitted.
It would also shed some control over building principles, such as height, materials, boundaries, setbacks and potential subdivisions in the block.
Any development or subdivision on site would now require council approval, and a minimum distance of six metres would be required between the heritage buildings and any new development. …[8]
[8] T123, 538-539.
Mandurah Mail – 6 April 2017
Mandurah residents have a say about Sutton Farm
…
The City of Mandurah planning committee resolved to advertise the Sutton Farm local development plan during the meeting on Tuesday night, giving the residents the opportunity to share their concerns and ideas before the plan gets the green light.
…
The development plan keeps the three historical buildings in the centre of a landscaped parkland area privately owned and managed but accessible to the public…
However, the areas along the northern and southern boundaries would be up for residential tourist development, surrounding the public heritage space.
According to the City, the local development plan to be advertised for comment provides design guidelines and development control over the re-use of the heritage buildings and any proposed residential development.
Some of these include principles regarding setbacks, height, built form, fencing, orientation, materials, retaining wall treatments, separation to the northern boundary, vehicular access, car parking and separation from trees.
In order to deal with the future re-use of the heritage buildings, an access and management plan would need to be brought back to council…[9]
[9] T124, 540-541.
Mr Lance expressed the following general comments regarding the various newspaper articles in his written statement:
(a)These articles were published many years ago and at the initial stages after the purchase of Sutton Farm. Any comments that were made at that time could not be used to indicate what he was doing five, or six or seven years later.
(b)He had no control over what was published in those articles and, in any event, some of them were misleading. For example, he was pictured with an excavator in one of the photos in an article from 2015, but he claimed that equipment was being used on an adjacent property and the reporter had asked that he stand near it for a photo.
(c)Whilst he does not remember specifically stating that it was his intention to lease out or develop Sutton Farm as “a restaurant, wine bar or coffee house”, he accepts that he may have made comments during that time which would have portrayed Sutton Farm in a positive way to attract prospects for the property.
(d)He was certainly an “excited purchaser” at the time and had possibly expressed different ideas about what might be possible for Sutton Farm. However, he claimed to have quickly become disenchanted from those ideas due to the difficulties associated with completing any type of development on Sutton Farm.[10]
[10] Exhibit A1, [26](a)-(c); Exhibit A1, [27](d).
Development of Sutton Farm
Sutton Farm is a historic landmark and well recognised in the relatively small Halls Head community, and Mr Lance acknowledged there was a lot of community interest in how Sutton Farm was going to be used in the future. The newspaper articles referred to above attested to the community interest in the development of Sutton Farm. Throughout the planning and development process, the City of Mandurah (the Council) required that public consultation be sought on the plans for Sutton Farm in relation to the local development plan (LDP) process.
Mr Lance engaged an expert consultant, Mr Matt Young from RPS Australia Asia Pacific. Mr Lance stated that, amongst other things, Mr Young was tasked with assisting him the rezoning of Sutton Farm, drafting the documentation and plans for submission to the Council including the Proposed Local Structure Plan, meeting with the Council’s planning officers on a regular basis, arranging for the proposed zoning changes to be advertised for public comment in accordance with the Council’s requirements, and dealing with the Department of Heritage (DOH) and the Western Australian Planning Commission with respect to different approvals and conditions.
Mr Lance explained that Sutton Farm was initially zoned ‘Tourist’ under the local planning scheme when Mr Lance purchased it, and that Mr Young advised him that he would have to rezone Sutton Farm to ‘Special Use’ to be able to renovate and live in the main homestead. At the hearing, Mr Lance stated he was told that if he wanted his daughter and son to live on this site, he had to subdivide the property so that they can build additional houses, and he had to do it as soon as possible as it would be harder to do it down the track. Mr Lance also claimed that it was not his intention to subdivide the property for commercial purposes. He simply wanted to live on Sutton Farm together with his family. As detailed further below, there was no independent evidence corroborating Mr Lance’s claims.
Mr Lance stated that he “thought the rezoning would be a simple matter of months, following which [he] could start renovating and fitting out the main homestead to live in”.[11] However, Mr Lance encountered numerous hurdles that required Mr Young’s expertise and a significant amount of additional money and time due to public access footpaths, the Council’s requirements for various issues related to the heritage site, the provision of reciprocal access rights for the existing public access way and an easement agreement. Additionally, there were ongoing negotiations with the DOH and the Department of Planning, Lands and Heritage (DLPH) in relation to the pedestrian access way on the west boundary of Sutton Farm.
[11] Exhibit A1, [32].
The Australian Taxation Office (ATO) upon commencement of a GST audit of Mr Lance, posed a number of questions to Ms Leishman, who held the position of Senior Planner, Strategic Land Use Planning at the Council. She responded by email dated 14 July 2021 in the following terms as regards the issue of whether the zoning had to be changed for Mr Lance to live in the homestead:
No formal development application has been lodged for a residential use in the heritage buildings or within the curtilage, however, the subdivision application proposed to create 3 additional lots with residential use as a permissible use on the site. This was approved subject to conditions in June 2018. … Other enquiries were made, over the course of time, into whether [Mr Lance] could utilise the original homestead as a residential property for himself. The advice given was that a development application could be lodged, at any point, under the current zoning of ‘Tourist’ at that time (despite the planning processes occurring via the Scheme Amendment and LDP), to use the property for residential purposes subject to consideration of the heritage issues associated with any internal and external alterations.
…
A development application would be required to be submitted and approved to utilise and potentially modify any of [the] heritage buildings for [residential] purposes. Any DA would [be] referred to the Heritage Council for comment and a heritage impact assessment may be a requirement of lodgement or a condition of approval – most likely the former. The proposal would have to comply with the provision of the LDP in terms of the impact on the heritage character in terms of proposed internal and external alterations, any ancillary structures within a given curtilage and any requirements in terms of public access to the heritage open space. An access management plan would also be a requirement of lodgement of the DA.[12]
[12] T57, 214-215.
In or about early 2016, Mr Lance lodged with the Council the Proposed Local Structure Plan for Sutton Farm.[13] The Outline Development Plan Notes to the diagram of the site prepared by Mr Young on behalf of Mr Lance, and lodged with the Proposed Local Structure Plan relevantly referred to the following features corresponding to these numbers on the legend of the plan: (1) the homestead building, (4) portions of the property to be developed in accordance with R40 specifications, which correspond to the parcels marked out in the northern and southern portions of Sutton Farm, and (5) short stay accommodation marked out in the northern parcel of the property:
(1) Existing heritage site to be retained for tourism/entertainment functions, such as a restaurant/café, small bar, wine house and short stay accommodation. More intensive use such as a tavern shall be subject to additional requirements such as an acoustic assessment and management plan which will be required at the lodgement stage and considered as a discretionary ‘SA’ use/ Any new additional buildings within the heritage precinct shall be designed so that it is sympathetic with the existing heritage buildings, and may be subject to separate heritage assessment.
…
(4) Residential component to be built to R40 specifications under the R-codes and a building height as per Category B of table 3 of the R-Codes. All new development shall be developed with a minimum finished floor level of 2.7m AHD (excluding the existing heritage buildings), however, allowances (to 2.5m AHD) can be made in certain circumstances where it can be demonstrated that the impact of increasing the fill levels to such an extent will have a detrimental impact in the area or the amenity of adjacent properties.
(5) short stay accommodation will be an allowable use for the Lot(s) abutting the northern boundary.[14]
[13] T83, 385.
[14] T83, 388.
In or about March 2016, Sutton Farm was rezoned ‘Special Use’ following an amendment to the local planning scheme. It was not at issue that the Council benefitted from the change in use as it gained greater control over the use of the site following the rezoning.
Mr Lance stated that, in or about July 2017, Mr Young needed to step away from Sutton Farm and could no longer act due to personal reasons. More recently, Mr Young also did not answer Mr Lance’s calls in relation to assisting him with these proceedings.
Mr Lance next engaged Mr Brad Reed from Avalon Surveys to assist with the subdivision of Sutton Farm because he “wanted to be able to build a family home on Sutton Farm and have my family live together”.[15] He stated in his written statement that his plan at this phase of the development (after July 2017) was for the northern parcel of the property to be given to his son, and the southern parcel to be given to his daughter.[16]
[15] Exhibit A1, [36].
[16] Exhibit A1, [36].
According to Mr Lance, the LDP sets out this configuration with his residential building envelope pictured in the centre of the land whilst a northern parcel and southern parcel is reserved for his two children.[17] However, there was no independent evidence to indicate that the parcels were earmarked in this manner. It should also be noted that the dimensions of the northern and southern parcel ostensibly reserved for his children closely corresponded with the “R40 specification parcels” delineated in the Proposed Local Structure Plan which included “short term accommodation” (see [43] above). The LDP was prepared by the Council in early 2017 in consultation with Mr Lance and his advisers, and Mr Lance stated that while he had some input into the LDP, this was a design that was created by the Council’s officers. That was “why each of the development parcels are further subdivided into what may appear to be residential lots; however, [that] was not my designs or intention for Sutton Farm”.[18]
[17] T73, 316.
[18] Exhibit A1, [38].
Mr Lance also stated the following in his written statement:
The Local Development Plan accommodated the upper end development potential for Sutton Farm. For example, it contemplated that Sutton Farm would be subdivided, developed and then sold off as strata lots, though that was not my intention for Sutton Farm.
In addition, the LDP was more of a planning control which the City would use to limit development on Sutton Farm in the future. Because the City had grown wary that I wanted to develop Sutton Farm, they planned for the maximum amount of development that they were willing to allow so that it could be controlled in the future.[19]
(footnotes omitted)
[19] Exhibit A1, [40]-[41].
Ms Leishman confirmed to the ATO in an email dated 14 July 2021 that although the LDP process was initiated by the Council, it “utilis[ed] the site layout of a previous proposed structure plan (Local Structure Plan) that had been lodged [on behalf of Mr Lance] in 2015” and that it was prepared in consultation with Mr Lance in early 2017.[20] As stated at [39] above, Mr Young prepared the Local Structure Plan in question on behalf of Mr Lance.
[20] T57, 215.
In or around May 2017, Mr Lance was referred by Mr Reed to Mr Mikel Sesma of Mikasa Designs. Mr Sesma was assisting with reciprocal access planning in relation to the property. Mr Lance claims that a residential building envelope was always intended to run through the middle of Sutton Farm which is reflected in the sketches that Mr Sesma produced around this time.[21]
[21] Exhibit A1, [42]; see also T84, 390.
In September 2017, the LDP was approved by the Council and allowed for the creation of a single residential lot in the centre of Sutton Farm.
In October 2017, Mr Lance lodged with the Council the subdivision application for Sutton Farm.[22] Adjacent to Sutton Farm was a parcel of land containing a pedestrian access way used for public access to the heritage site and to the jetty on the northern boundary of Sutton Farm, which does not form part of Sutton Farm purchased by Mr Lance.[23]
[22] T50, 198.
[23] T96, 416.
On 5 December 2017, the DPLH advised Mr Lance that his subdivision application was suspended until such time as he amalgamated the pedestrian access way into Sutton Farm.[24]
[24] T39, 144.
Mr Lance explained in his statement that it was never his intention to purchase from the Council the pedestrian access way, as he couldn’t build on or develop the land in any manner. However, the Council would only approve the subdivision if he purchased the pedestrian access way, and Mr Lance was advised that if he did not purchase it and incorporate it through the whole of Sutton Farm down to the water, he would only be entitled to a three lots subdivision.[25]
[25] Exhibit A1, [47].
In June 2018, Mr Lance was provided with a sale contract for the purchase of the lot with the pedestrian access way in the amount of $10,000. Mr Lance paid a deposit of $1,000 and the balance was due to be paid upon settlement of the four lots sub-divisions.[26]
[26] Exhibit A1, [48].
Ultimately, Mr Lance stated that the subdivision was delayed and effectively ground to a halt because he was unable to resolve the following two issues with the Council[27]:
(a)a heritage agreement – Mr Lance stated that this was never completed as the DPLH were very slow to engage and respond to queries and it took around three years before the Minister had signed off on the form of the agreement. Although it was ready for execution in December 2020, Mr Lance never signed it as by that stage he had made the decision to sell Sutton Farm; and
(b)an Access Management Plan – Mr Lance was not willing to agree to public access to Sutton Farm which would allow pedestrians to walk within a metre on either side of the proposed residential home.[28] Mr Lance claimed that this was a prerequisite to any development application for Sutton Farm due to its heritage value.[29] Consequently, no development application for the renovation of the residential homestead was ever lodged. As of November 2020, Mr Lance was still working towards a negotiated access management plan.[30]
[27] Exhibit A1, [49].
[28] T75, 335.
[29] This was also referenced by Ms Leishman – see [42] above and T57, 215.
[30] T44, 159.
According to Ms Leishman, the subdivision of Sutton Farm was approved in June 2018 (subject to conditions) and the approval had a three year expiry. She also confirmed that:
…the purpose of the LDP is to provide planning controls over the development outcomes on the site, although from a property developer’s point of view it does take you a few steps closer towards having some clarity and certainty about what Local Government may accept on the site, and thus could make the land more valuable… it is the subdivision approval that would add value to the property, in that it enables the creation of additional lots.[31]
[31] T57, 215.
Mr Lance was asked in cross-examination as to why he had never made a development application for the homestead to be renovated while the subdivision works were proceeding. Mr Lance stated that he couldn’t do this until the land was rezoned. However, it appears from Ms Leishman’s responses to the ATO’s questions as set out in [42] above, that “…The advice given was that a development application could be lodged, at any point, under the current zoning of ‘Tourist’ at that time (despite the planning processes occurring … to use the property for residential purposes subject to consideration of the heritage issues …”[32] That is, it was not necessary for Sutton Farm to be rezoned from “Tourist” to “Special Use” for Mr Lance to renovate and occupy the homestead as a residence and Mr Lance could have lodged a development application at any stage but had to address the heritage issues.
[32] T57, 215.
Mr Lance separately stated in his written statement that he “made two applications for the refurbishment of the main homestead [in] which [he] intended to live” and attached the rejection letters.[33] Mr Lance stated at the hearing these letters demonstrated the negative attitude of the DOH to his applications for permission to renovate the homestead. However, a close inspection of these letters reveals they were not in response to applications for permission to renovate the homestead, but instead notices of rejected applications for heritage grants under a program run by the Western Australian State Heritage Office. Specifically, Mr Lance had made applications for funding in respect of the years 2014/2015 and 2016/2017 and was unsuccessful in being granted funding both times on the basis that “competition was very strong” and the fact that “more applications were received than could possibly be funded by the program”. Furthermore, although Mr Lance had obtained a few quotes in June and July 2014 for various works to be undertaken to the heritage homestead, including plastering walls[34], floor sanding[35], and cleaning/waterproofing walls[36], he did not proceed with any of these works.
[33] Exhibit A1, [70] and Attachments ‘PL-16’.
[34] T78, 357.
[35] T78, 352.
[36] T78, 353; 355-356.
Sale of Sutton Farm
After three years of ownership, in 2017 Mr Lance attempted to sell Sutton Farm. He stated his decision to sell was due to the delays, setbacks, and seemingly constant discussions with the Council and other government departments. He said he “was nearly out of money and the stress of dealing with Sutton Farm was affecting [his] health.”[37]
[37] Exhibit A1, [50].
Mr Lance engaged Mack Hall and Associates as real estate agents who published an advertisement in the newspaper and erected an advertisement on the property. These stated that Sutton Farm could be used for a variety of different purposes, including bed and breakfast accommodation, a wine bar, a microbrewery, or an art gallery/café.[38] Mr Lance claimed to have no control over how Sutton Farm was advertised. However, the practical reality is that he likely allowed the agents to advertise Sutton Farm in the most advantageous way to attract prospective purchasers.
[38] T125, 542-543; T106, 508.
Mr Lance stated that as there wasn’t much interest in the purchase of Sutton Farm and it became apparent that he “wouldn’t make his money back on the sale”, he “decided to continue with Sutton Farm, in the hope that it could one day be used as our home”.[39]
[39] Exhibit A1, [54].
In or about 2019, after another two years of dealing with the Council and other government departments, Mr Lance could “not physically continue with the development process and … made the very difficult decision to try and sell Sutton Farm again”.[40] Mr Lance further stated:
[t]he subdivision for Sutton Farm and required development had not been completed, so I had to sell the entire parcel as one block. I would have made substantially more money [on the] sale if I had completed the subdivision; however, I couldn’t put my health and wellbeing above this property any longer.[41]
[40] Exhibit A1, [55].
[41] Exhibit A1, [56].
Harcourts had advertised Sutton Farm as follows in their marketing materials:
The current owner has spent considerable time, energy and funds into this site and has subdivision approval for the property to be subdivided into 4 x development blocks. Each site has had all services being power, water and sewerage in place which can be used for future development purposes or allow someone to subdivide and develop.[42]
[42] T107, 511.
In his written statement and oral evidence, Mr Lance distanced himself from the above advertisement stating he did not publish those words nor instruct Harcourts to characterise Sutton Farm in that way. Mr Lance stated he relied on their expertise to market the property in a way that would be most attractive. He added that it is incorrect that Sutton Farm had received “subdivision approval” as such approval has only been given to one aspect of the subdivision process and could not have proceeded any further due to the impasse with the Council regarding closing the pedestrian access way and failing to agree on an access management plan for public access through the property; there were also several unresolved heritage issues.[43]
[43] Exhibit A1, [58].
Mr Lance stated that by this time he was desperate to sell Sutton Farm due to his financial situation as well as the stress and anxiety it was having on his health. This was despite the subdivision being “95% complete according to his accountant” and that “if he wanted to maximise the value of the sale, [he] would have proceeded with the subdivision”.[44] His wife was particularly concerned as he had previously suffered two heart attacks.
[44] Exhibit A1, [63].
Mr Lance eventually sold Sutton Farm for $4,250,000 under a contract for sale of land dated 24 November 2020 which settled on 3 February 2021.[45] Mr Lance had not completed the heritage agreement and the access management plan at the time of settlement.
[45] T32, 131-133.
On the first page of the sale contract, the box adjacent to the statement “GST is NOT applicable to this Contract” had been ticked.[46] Mr Lance did not report the sale of the property in his Business Activity Statement for the month of February 2021.[47]
[46] T32, 131.
[47] T134, 552.
Mr Lance’s plans re Sutton Farm
Mr Lance summarised his position with respect to the development of Sutton Farm in his written statement as follows:
I do not accept that Sutton Farm was a commercial enterprise because it was my home. It was always supposed to be my home, although I may have had some other ideas at the start of development, the end goal was for myself and my wife to retire and live in Sutton Farm with a portion of the land given to my son and my daughter respectively.[48]
[48] Exhibit A1, [72].
Furthermore, in his oral evidence including in cross-examination, Mr Lance stated the following:
(a)He always intended to subdivide Sutton Farm into four lots.
(b)He intended to live in the heritage farmhouse in the centre lot with his wife.
(c)One subdivided lot would be given to each of his son and daughter to build houses.
(d)He intended to build a memorial on the fourth lot for another child that had passed away, but he acknowledged he had never mentioned the memorial before the hearing in any documents filed nor to the ATO officers, although he claimed to have told his children and his friends.
(e)He did not dispute that he may have made representations about Sutton Farm being used for commercial purposes to the media when he purchased it, but at the time he didn’t know what could be placed on the property.
(f)He wanted to renovate the farmhouse and retire there and was not interested in commercialising Sutton Farm.
(g)He agreed the Local Structure Plan/Outline Development Plan lodged with the Council in 2015 was prepared by Mr Young on his behalf.[49]
(h)He agreed that the LDP which was prepared by the Council in 2017, in respect of which he had some input, supported the subdivision of smaller lots in the north and south of the property although he claimed that he just wanted single houses for his son and daughter to be built there.
(i)He disagreed that the planning scheme restrictions meant that a single house was only allowed in the lot with the homestead and that grouped/ multiple dwellings were required to be built in the northern and southern subdivisions contrary to the Council’s report regarding the LDP for the Council’s planning committee meeting on 5 September 2017.[50] In his view, the sketch stated what could be done on the property and he could apply to the Council for building applications and permits to allow single houses to be built, but had not done so because it had not progressed to that stage.
(j)He agreed that a subdivision application was lodged by Mr Reed on his behalf to develop Sutton Farm, that the planned subdivision was in accordance with the LDP and that the grey lines on the subdivision plans lodged with the Council[51] showed possible multiple/grouped houses. However, he maintained that they were long-term plans if the lots were to be further developed, and there were no immediate plans to do so.
(k)He maintained that the subdivision was for himself and not something he was interested in to increase the value of the land and if he had intended to sell the land for profit, he would have subdivided the land into further lots and sold the individual lots.
(l)He disagreed that he pushed ahead with the subdivision plans after the property did not sell in 2017 to make the property more attractive to purchasers, but rather in order to complete his dream.
(m)He agreed that he sold Sutton Farm for a profit but maintained that he only sold it reluctantly because he was tired of dealing with the Council and the stress was affecting his health.
[49] T83, 385.
[50] T104, 429.
[51] T52, 205.
Other relevant representations
Mr Lance’s evidence was, however, in conflict with other representations that were made in relation to his plans regarding Sutton Farm, including representations made by Mr Lance’s lawyers and accountants. There were also discrepancies between Mr Lance’s evidence and earlier representations he made to the ATO during the GST audit.
For example, in an email dated 6 May 2021, Mr Lance’s accountants, Calder Roth, offered a number of explanations to the ATO as to various errors Mr Lance had made with respect to his GST reporting in his Business Activity Statements. Significantly, Calder Roth volunteered the following explanation in relation to the input tax credits that were claimed by Mr Lance in respect of purchases regarding the development works at Sutton Farm:
[Mr Lance] would be entitled to claim GST on the subdivision of Apollo place as he was going to sell several blocks of land that would be subject to GST. The property was eventually sold as single parcel of land un-subdivided. Based on this the subdivision costs should be reversed when the purpose of the land changed and was sold as a normal residence…[52]
(Bolding is emphasis added)
[52] T5, 32.
In a further email dated 13 May 2021, Calder Roth responded to queries from the ATO, as follows:
The subdivision was 95% completed when the property was sold. Some minor council requirements and heritage report still needed to be completed. Conditional approval was given for 4 lots with 2 of those able to be split in 6 and 9-11 additional lots, subject to additional approval. It is on this basis we treated it as an enterprise when the subdivision first commenced. The property was [Mr Lance’s] main residence and because it wasn’t subdivided at sale no GST was charged on the sale.[53]
(Bolding is emphasis added)
[53] T23, 113.
In other words, Calder Roth was of the view that the input tax credits had been correctly claimed by Mr Lance for “creditable acquisitions” relating to Sutton Farm, on the basis they related to Mr Lance carrying on an enterprise involving the subdivision of Sutton Farm and the proposed sale of several lots of land (see ss 7-1(2), 11-5 and 11-15(1) of the GST Act, as extracted at [7]-[9] above, as to an entity’s entitlement to claim input tax credits). This was different to Mr Lance’s evidence at the hearing that he had misapprehended the GST system and incorrectly claimed input tax credits for acquisitions in respect of which he was not entitled to claim as the subdivision was not undertaken in the course of carrying on an enterprise. He stated that he should have had a bookkeeper attend to his GST as he did not know much about it.
Additionally, Mr Lance’s oral evidence contradicted an earlier written statement which he had provided to the ATO in the course of the GST audit on or about 15 June 2021 (June 2021 statement) where Mr Lance relevantly stated, as follows:
Sutton Farm was a property that I admired every time I passed it on my way to town, so when I saw it was up for sale I had to inquire about it. … I'm not a wealthy person and [k]new I would have to have a partner to be able to achieve the purchase. We settled the property in December 2013.
I knew this was where I wanted to retire, but to be able to achieve this, the City of Mandurah said I would need to change the zoning from tourist zoning to special use zoning. This was a long process …
Although I now have the zoning changed, to be able to use the farm house as a residential property, I still have to meet Western Australian Planning Commission conditions outlined on the 10th October 2017 which include - Entering into a Heritage agreement, Getting a access management plan approved, Drainage easements, Arrangement with Water corporation to supply water services, Approval for sewerage services to be supplied, to get Western Power to upgrade the power supply.
From 2017 to 2019 I achieved to get the water works completed and connected. The sewage completed and connected. The power has been upgraded and connected. None of these have yet been approved as I have to meet all the conditions before approval is given. The Heritage agreement was the most frustrating of all the conditions, as I had to wait for them to draw up the agreement and to this day I still don't have a signed deed.
My whole objective was to be able to live in the heritage farm house, or to be able to build a new house on the heritage site, but to be able to achieve this I needed to be able to buy out my partner and the only way I could see myself achieving this was to sub divide the land and then having the option of either selling the subdivision to pay him out or I keep half the land and he keeps the other half. To be able to subdivide I also had to meet conditions, one of which included having to purchase from the Minister of Lands the [public access way] (lot 55) to amalgamate with the property.
Over these years the stress of trying to achieve all of this was taking a toll on me. I could no longer afford to keep going with the financial side of the conditions and couldn't afford to buy the [public access way]. … In 2019, I came to the conclusion that I needed to let go and sell the property as a whole, as I would never be able to finalise the conditions to sub divide nor be able to pay out my partner which meant I wouldn't be able to live in my home. It took to December 2020 to get an offer for the property.
I would never have imagined that this process would take as long as it did, but when I realised it was going to be longer than I thought, I decided to store a caravan in the barn so I could at least get some enjoyment from being on the property. The caravan had its own toilet, shower and solar panels. The caravan had everything to be comfortable and I used this as my own personal home for when I wasn't working. As the premises didn't have any fencing we also had a problem with vagrancies and break ins to the farm house, so it was good to have someone there to try and deter them away. I have always thought of this land as my home and was devastated when I had to sell it.[54]
(Bolding is emphasis added, errors in original)
[54] T48, 192.
Mr Lance clarified at the hearing that the reference in the June 2021 statement to “the partner” that he “needed to buy out” was his brother-in-law from whom he had borrowed approximately $1.5 million to finance the purchase and development of Sutton Farm. (Mr Lance repaid his brother-in-law the sum of approximately $1.53 million following the sale of Sutton Farm).[55] Significantly, Mr Lance failed to mention in the June 2021 statement that Sutton Farm was to be subdivided to allow his son and daughter to build homes on lots, nor that a fourth subdivided lot was for a memorial for his child that had passed which undermined his credibility.
[55] T69, 288 [3.33].
At the hearing, Mr Lance stated that he had not intended to write what is set out in the June 2021 statement, that he was under stress at the time and that he “wrote this by accident”. Mr Lance sought to portray the June 2021 statement as a mistake, and not a true reflection of his plans for the Sutton Farm property. The difficulty, however, is that the June 2021 statement appears to be a more authentic account of events as it is coherent with other contemporaneous documents, including those lodged with the Council for the subdivision of Sutton Farm allowing for further development down the track. It also lines up with the fact that Mr Lance attempted to sell and eventually sold Sutton Farm and repaid his loans.
Similarly, Mr Lance’s evidence was also contradicted by the objection and related correspondence dated on or about 22 February 2022 prepared by Cornerstone Legal. In the cover letter to the objection, Cornerstone Legal wrote to the ATO in the following terms:
Broadly the basis of this objection is that the Mr Lance does not agree that the sale of his property was in the course of a commercial enterprise. Mr Lance says that the primary purpose of the property was his residential use. Elements of the property were intended for subdivision and sale in order for Mr Lance to be able to reside on the property.
…
Our view is that the objectives and purpose for the property remained in a state of flux during Mr Lance’s period of ownership, which is difficult to unravel solely on the basis of the material provided
…
It was necessary to use additional time to consult with Mr Lance to obtain his precise and detailed instructions particularly with respect to the changing intentions for his property.[56]
(Bolding is emphasis added)
[56] T67, 275.
In the objection, Cornerstone Legal expressly stated the following:
Mr Lance’s intention was to subdivide parts of Sutton Farm which would be sold, and the balance of the money would be applied to pay off the development costs and repay the loan [from] his brother-in-law.[57]
(Bolding is emphasis added)
[57] T69, 289.
Also in the objection, Cornerstone Legal submitted on behalf of Mr Lance, as follows:
5.3 …. In the seven years that Mr Lance owned Sutton Farm, no substantive construction was completed on the property that indicates progress towards the fulfilment of the original plan for Sutton Farm (restaurant, bar, coffee house). The plan to commercialise elements of Sutton Farm in this manner was discontinued [by] Mr Lance at some stage between 2013 and 2017 when it became evident that the development trajectory exceeded his expectations. Irrespective of the changing commercial aspects of Sutton Farm, Mr Lance continued his desire to live on the property in the designated residential parcel in the middle of the lot.
5.4 The plan to subdivide Sutton Farm consequently pivoted to envelop a number of small units which would be sold in order for Mr Lance to discharge his financial encumbrances and apply the funds to refurbishing the heritage sites for residential use.
5.5 In light of the above, Mr Lance says that the overall character of Sutton Farm is residential and not for the furtherance of an enterprise. The development works must be considered in its rightful context as auxiliary to realising the property for a residential purpose.[58]
(Bolding is emphasis added)
[58] T69, 293-294.
In all the circumstances, it is difficult to accept that the June 2021 statement did not accurately represent Mr Lance’s plans with respect to Sutton Farm, namely, that he intended to and did undertake the subdivision so as to sell some of the subdivided lots and to refurbish the heritage homestead. This is especially in light of the fact that the objection cover letter and objection aligned with the June 2021 statement and other documentary evidence before the Tribunal.[59] In particular, it was stated in the objection that Mr Lance intended to sell the subdivided lots to pay off the development costs and repay the loan to his brother-in-law.[60] Additionally, there were references to Mr Lance selling a number of smaller units to allow Mr Lance to discharge his financial encumbrances and refurbish the homestead to live in it.[61] It is noted that although the objection form was signed by Cornerstone Legal, the firm certified that the objection and attached documents had been prepared in accordance with the information supplied by Mr Lance and that it had also received a declaration from Mr Lance stating that the information provided in each document is true and correct.[62]
[59] See T67, T68 and T69.
[60] T69, 289 [3.2].
[61] T69, 294 [54]; see [80] above.
[62] T68, 281.
The June 2021 statement also accords with the statements made by Mr Lance’s accountants to the ATO to the effect that Mr Lance had planned to commercialise Sutton Farm, including by way of subdivision and sale of the subdivided lots (see [72]-[73] above). More recently, in the Statement of Issues, Facts and Contentions dated 28 March 2023 filed on behalf of Mr Lance, Mr Lance’s lawyers stated at [12], as follows:
The purpose of development on the Property was to achieve two primary objectives:
(a) widen the range of potential uses for the Property through rezoning and subdivision which would provide various uses for the Property in addition to residential use; and
(b) to provide the Property with power, water connection, and sewage infrastructure that would enable [Mr Lance] to live on the Property.
In cross-examination, Mr Lance stated that he did not need to sell any of the subdivided lots of Sutton Farm to fund his retirement in the heritage farmhouse and to discharge his loans as he had other properties which he could sell. But Mr Lance did not sell those properties nor was there any evidence that he attempted to do so. However, he did unsuccessfully attempt to sell Sutton Farm initially in 2017, and successfully did so in 2020.
Summary re Mr Lance’s evidence and contentions
I find that Mr Lance was not a reliable witness and, therefore, his evidence about his plans for Sutton Farm for the purpose of a family living arrangement cannot be accepted. There were numerous inconsistencies and shortcomings in his claims. Critically, I do not accept Mr Lance’s evidence that Sutton Farm was to be subdivided into 4 lots, all of which were to be used by him and his family including one of the subdivided lots to be used as a memorial. There was no independent corroboration of Mr Lance’s claims to this effect and his claims were inconsistent with the documents before the Tribunal including his June 2021 statement, the objection lodged on his behalf by Cornerstone Legal and the correspondence sent by Calder Roth to the ATO. Other independent documents, including the media articles containing extracts from interviews with Mr Lance, also indicated he had always contemplated the commercialisation of Sutton Farm.
Even though I accept that Mr Lance had intended, at some stage, to live in the heritage homestead located in the centre lot of Sutton Farm, I find that Mr Lance had also intended to subdivide Sutton Farm and sell off the subdivided lots in order to be able to afford to refurbish the homestead and repay his loans.
Mr Lance contended on the basis of his evidence that the supply of Sutton Farm was not a taxable supply as it was not made “in the course or furtherance of an enterprise”, although he accepted he ran an enterprise in relation to leasing of his other properties.
Mr Lance additionally contended that “the unique heritage qualities associated with the Property meant that mere realisation of [the] property was interconnected with different processes which do not indicate the quality of commerciality, rather [he] was required to undertake, and did undertake, an exhaustive list of works to satisfy the various stakeholders involved in the decision-making process for the Property”. In other words, in his view, the complicated and protracted development works due to the heritage nature of Sutton Farm may give the impression that he was engaged in activities “in the course or furtherance of an enterprise”, but he was merely realising the property.
Further, Mr Lance argued his “use of the Property lacked the requisite commercial character particularly following [his] departure from initial aspirations which were reported by media outlets”. Mr Lance further claimed to have “carried out development on the Property without the expectation of making a profit”.[63]
[63] Applicant’s Statement of Issues, Facts and Contentions dated 28 March 2024, [20 (a)-(d)].
Critically, I found that the evidence shows that Mr Lance engaged in an enterprise of developing Sutton Farm to enhance its value and make a profit by way of selling Sutton Farm as subdivided lots. That enterprise entailed a series of activities to develop Sutton Farm, including rezoning, negotiations with the Council for the LDP, pursuing the closure and amalgamation of the pedestrian access way, obtaining subdivision approval, and completing electricity, water and sewerage works.
I reject Mr Lance’s evidence that he only ever subdivided Sutton Farm to allow him to live on Sutton Farm with his family and the subdivision had no commercial purpose. I also reject the notion that the development works were a mere realisation in all the circumstances of a complex heritage site, and that they did not entail any commercial purpose nor that he had any expectation to make a profit. Mr Lance acknowledged in his June 2021 statement that he would only be able to achieve the objective of living on Sutton Farm if, relevantly, he subdivided Sutton Farm and sold the subdivided lots to repay his brother-in-law.
WAS THE SALE OF SUTTON FARM A TAXABLE SUPPLY?
I have reached the conclusion that the series of activities undertaken by Mr Lance constituted an “enterprise”, namely, “in the form of a business” under paragraph (a) of the definition of “enterprise” in s 9-20(1) of the GST Act. This is supported by the wide meaning of the definition of “enterprise” in the GST Act which is substantially broader that the concept of “carrying on a business” for the purposes of income tax: see Swansea Services at [66] and [68] as extracted at [13] above.
Furthermore, my conclusion is also supported by the words “in the form of” which appear in paragraph (a) of the definition of “enterprise” in s 9-20(1), and which have been interpreted by the Courts to have the effect of extending the meaning beyond the carrying on of a business to encompass activities that have the appearance or characteristics of business activities: see Toyama Pty Ltd v Landmark Building Developments (2006) 197 FLR 74 (Toyama) at [69] per White J. See also Nerang Subdivision Pty Ltd & Ors v Hutson & Anor [2023] QSC 268 at [45]-[48] where Cooper J cited with approval the decisions of Swansea Services and Toyama.
Mr Lance’s development works were in “the form of a business”, in particular, because of the scale of the operations that Mr Lance was involved in, including the rezoning and subdividing of Sutton Farm, as well as the amount of capital invested by him in the purchase of the property and development works. This was regardless of whether or not he was in the business of being a property developer. At the time of Mr Lance’s purchase, Sutton Farm was 1.47 hectares in size and the largest piece of land on the waterfront according to the media articles. Moreover, the Local Structure Plan that Mr Lance lodged with the Council proposed that Sutton Farm was to be subdivided into four lots with plans for further subdivision into approximately 15 lots. Mr Lance also completed sewerage, water and electrical works. All of these activities were undertaken by Mr Lance over a period of some seven years, which enhanced the value of Sutton Farm.
The sale of Sutton Farm was a commercial transaction as it was undertaken “in the course or furtherance” of the “carrying on” of an enterprise. This was because the sale was for the purpose of achieving the goal of realising the value that had been added to Sutton Farm. “Carrying on” an enterprise is also broadly defined in s 195-1 of the GST Act to include doing anything in the course of the termination of the enterprise. It follows that even if the ultimate sale of Sutton Farm was the result of Mr Lance giving up on the enterprise that he had commenced with respect to the development of Sutton Farm, the supply made upon the sale of Sutton Farm nonetheless occurred in the course of him terminating the enterprise.
Mr Lance’s activities can also be characterised as a series of activities “in the form of an adventure or concern in the nature of trade” under paragraph (b) of the definition of “enterprise” in s 9-20(1) of the GST Act. I consider that Mr Lance satisfied that paragraph as he intended to profit from the sale of Sutton Farm whether or not viewed as an isolated transaction: see Professional Admin Services Centres at [39] and [60] as extracted at [15]–[16] above.[64] The sale of Sutton Farm was not a mere realisation of property. The factual matrix is distinguishable from the income tax cases of Statham & Anor v Federal Commissioner of Taxation (1988) 89 ATC 4070 and Casimaty v Federal Commissioner of Taxation (1997) 97 ATC 5135 where minimal works were undertaken and the properties were acquired by gift and used for primary production. It is immaterial that no buildings were constructed, and no major repairs were undertaken to the existing buildings on Sutton Farm. It also does not matter that Sutton Farm was eventually sold as a single parcel of land and that it was considered by Mr Lance to be his home. Substantial value had nevertheless been added to Sutton Farm after its rezoning, the LDP, conditional subdivision approval and the various infrastructure works, as per the advertising for the sale of Sutton Farm (see [64] above). All of these enhancements were transferred with the property upon sale and were reflected in the selling price and the profit.
[64] It will be recalled, however, that immediately prior to purchasing Sutton Farm, Mr Lance also sold subdivided lots of 5 Apollo Place. It is possible that the sale of Sutton Farm may not be viewed as an isolated transaction.
Moreover, even though Mr Lance had, at some stage, intended to live on Sutton Farm, it is clear from the evidence that he had to subdivide and sell a number of the subdivided lots to finance the development and refurbishment of the heritage homestead, as well as discharge his loans. The following example in Miscellaneous Taxation Ruling: MT 2006/1 – The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number referred to by the Commissioner is an apt description of a subdivision of land that is an enterprise which broadly captured Mr Lance’s circumstances:
Example 29
273. Tobias finds an ocean front block of land for sale in a popular beachside town. He devises a plan to enable him to afford to live there. He decides to purchase the land and to build a duplex. He plans to sell one of the units and retain and live in the other. The object of his plan is to enable him to obtain private residential premises in an area that would otherwise be unaffordable for him.
274. Tobias carries out his plan. He purchases the land, and lodges the necessary development application with the local council. The development application is approved by the council, Tobias engages a builder and has the duplex built. He sells one unit, and lives in the other.
275. Tobias is entitled to an ABN. His intentions and activities have the appearance of a business deal. They are an enterprise.
276. Further, there is a reasonable expectation of profit or gain … as his plan has enabled him to be able to keep and live in one of the units.
CONCLUSION
It is clear that Mr Lance’s series of activities throughout his ownership of Sutton Farm amounted to the carrying on of an enterprise. Therefore, the sale of Sutton Farm was a supply made “in the course or furtherance of an enterprise” “carried on” by Mr Lance.
As all of the elements in s 9-5 of the GST Act were satisfied, the supply of Sutton Farm is a taxable supply in respect of which Mr Lance is liable to pay GST.
DECISION
Mr Lance failed to discharge the burden of proving that the GST assessment issued to him by the Commissioner in respect of the sale of Sutton Farm is excessive under s 14ZZK(b)(i) of the TAA. It follows that the objection decision, being the decision under review, must be affirmed.
I certify that the preceding 99 (ninety-nine) paragraphs are a true copy of the reasons for the decision herein of Senior Member G Lazanas
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Associate
Dated: 5 January 2024
Date of hearing: 29 November 2023 Solicitors for the Applicant: Mr Davies, Cornerstone Legal Counsel for the Respondent: Mr S R Pack Solicitors for the Respondent: Ms S Neagu, ATO Litigation and Legal Services
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