McGrath and anor v Chief Commissioner of State Revenue

[2007] NSWADT 46

Set aside by Appeal:

CITATION:	McGrath and anor v Chief Commissioner of State Revenue [2007] NSWADT 46
DIVISION:	Revenue Division
PARTIES:	APPLICANTS Adrian Robert McGrath and Lucille Gloria McGrath RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	066093
HEARING DATES:	1/02/2007
SUBMISSIONS CLOSED:	1 February 2007
DATE OF DECISION:	1 March 2007
BEFORE:	Verick A - Judicial Member
CATCHWORDS:	Land tax exemption - principal place of residence
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Land Tax Management Act 1956 Taxation Administration Act 1996
CASES CITED:	Applewood Residential Developments Pty Ltd v Commissioner of State Revenue [2006] VSCA 207 Coleman & anor v Chief Commissioner of State Revenue [2005} NSWADT 236 Coleman & anor v Chief Commissioner of State Revenue [2006] NSWADTAP 59 Commissioner of State Revenue v Applewood Residential Developments Pty Ltd [2005] VSC 232 Flaracos v Chief Commissioner of State Revenue NSWSC 68 Kamper v Chief Commissioner of State Revenue [2005] NSWADT 256 Newcastle City Council v Royal Newcastle Hospital (1957) 96 CLR 493 Ryan v Chief Commissioner of Land Tax [1982] 1 NSWLR 305
REPRESENTATION:	APPLICANTS H R Sorensen, barrister RESPONDENT I Mescher, barrister
ORDERS:	The decision under review is affirmed

Introduction and factual background

1 This is an application made under s 96 of the Taxation Administration Act1996 for a review of an objection decision made by the respondent in relation to an assessment issued under the Land Tax Management Act1956 (“the Act”) in respect of the 2006 land tax year against the applicants. The decision that the applicants seek a review is the refusal by the respondent of a claim for a principal place of residence exemption in relation to a property jointly owned by the applicants and situated at 14B Crescent Street, Hunters Hill.

2 In addition to the documents lodged pursuant to s 58 of the Administrative Decisions Tribunal Act1997, the Tribunal also admitted sworn statements made by each of the applicants and Mr Timothy O’Brien their solicitor, all dated 21 November 2006. Mr McGrath also gave evidence at the hearing and tendered various photographs of 14B and 16A Crescent Street, Hunters Hill.

3 The facts of the matter are not in dispute, and have been very usefully set out by the respondent in his written submissions as follows:

“3. On 5 March 1996, the Applicants became the registered proprietors of 16A Crescent Street, Hunters Hill, NSW, being Lot 3 in DP 538646 (“16A”). From this time onwards and, at all relevant times, 16A comprised the Applicants principal place of residence.

4. In approximately October 2004 contracts for sale were exchanged for 14B Crescent Street, Hunters Hill, NSW, being Lot 1 in DP 571267 and Lot 4 in DP 538646 (“14B”). 16A and 14B are adjoining contiguous waterfront properties at Hunters Hill.

5. In approximately November 2004, Mr. McGrath instructed Bee and Lethbridge, Surveyors, and Tanner Architects to prepare a plan of consolidation for 14B and 16A. The Applicants’ intention was to construct one large house on the consolidated lot in lieu of the existing house on each of 14B and 16A.

6. On 24 January 2005 the Applicants became the registered proprietors of 14B. By this time a survey plan of 14B and 16A had been prepared.

7. At all material times, there was one 2 storey free standing house on each of 16A and 14B: Tab D to Statement of Timothy O’Brien sworn 21 December 2006 (“TOB”).

8. On or about 13 December 2004 Tanner Architects had instructions to proceed with preparing plans for the new residence on both 14B and 16A and Bee and Lethbridge had received instructions to prepare a relevant plan of consolidation of 14B and 16A.

9. On 1 August 2005 Tanner Architects prepared plans for the new residence on both 16A and 14B: Tab E TOB.

10. On 10 October 2005 the Applicants lodged a Development Application with Hunters Hill Council for the consolidation of 14B and 16A and the construction of the new house on both properties.

11. By 18 November 2005 a plan of consolidation of both properties had been prepared by Bee and Lethbridge, Surveyors.

12. On 6 February 2006 the Commissioner issued a Notice of Assessment of Land Tax for the 2006 Land Tax Year (in respect of property owned by the Applicants as at 31 December, 2005) for $46,816.00. 16A was treated by the Commissioner as exempt under the principal place of residence exemption (“PPR exemption”) pursuant to the Land Tax Management Act, 1956 (NSW)(“LTMA”) whereas 14B was treated as liable for land tax.

13. On 1 March 2006 the Applicants objected to the above assessment on the basis that 14B was not used and occupied for any purpose other than as the Applicants’ principal place of residence.

14. On 30 May 2006 officers of the Commissioner attended both properties and a number of photographs were taken: Tab 11 section 58 bundle.

15. On 13 June 2006 Hunters Hill Council granted Development Approval to the plan of consolidation. The date of operation of the development consent was 30 June 2006 and it would lapse after two years.

16. On 19 June 2006 the Commissioner determined the Applicants’ objection by wholly disallowing it.

17. On 18 August 2006 the Applicants filed an application for Review in the Administrative Decisions Tribunal.

18. On or about 14 November 2006 the surveyors forwarded the plan of consolidation for execution by the Applicants (after having been relevantly endorsed from NSW Maritime) for the purpose of lodgment with the Land Titles Office.

19. On 13 December 2006 tenders for construction of the new house on 16A and 14B closed.

20. It is anticipated that by February 2007, the houses on both 16A and 14B will have been demolished and the commencement of construction of the new dwelling taken place.”

4 In his sworn statement Mr McGrath explained the reasons for purchasing 14B as follows:

“6. The house on 16A was about 25 years old when we purchased that property. The house and pool area take up most of the useable area of the property. In early 2004 we decided we would like a larger block on which to build a new home, and which had a private rather than a shared driveway. We were being continually disturbed especially in the evenings by the noise of people and vehicles visiting and leaving 14B; the owners of 14B had a family of two teenage daughters. In 2004 we approached the owners and offered to purchase 14B. An agreement to purchase was made in about October 2004.”

5 Mr McGrath in his sworn statement has further explained what use of 14B has been made since its purchase, in the following paragraphs:

“11. Since January 2005 one or more of my family and I have been using the amenities at 14B such as the jetty and slipway and private beach. The slipway at 14B can be used safely at both high tide and low tide to launch and slip dinghies. The slipway at 16A is useable only at high tide. The beach accessible from 16A is a public beach whereas the beach at 14B is part of the title and is not accessible to the public.

12. Areas around the house on 14B are used as recreation areas. The concrete apron at the southern end of the house is used for basketball and also off-street parking for visiting family and friends and tradesmen. Tradesmen have called regularly to repair continuing problems including electricity, plumbing and roofing problems on 16A. I chose to repair rather than upgrade items because 16A is to be demolished. I have undertaken on-going repairs to the 14B jetty since about February 2005 costing in excess of $6,000.00.

13. The house on 14B has become disused since January 2005 except as a storage area for equipment and bicycles. A contract gardener has been employed since January 2005 to maintain the grounds on the whole of the property comprising both 16A and 14B.

14. The 14B house is usually kept locked. The keys are kept at 16A. the house at 14B is not in habitable condition because kitchen appliances have been disconnected and kitchen cupboards removed.”

6 Mrs McGrath in her sworn statement made a similar statement as to the use of 14B since its purchase by the applicants.

7 Mr McGrath gave evidence at the hearing generally confirming his sworn factual statement and identifying various photographs of the two properties. He was cross-examined but little turns on the cross-examination.

Relevant legislative provisions

8 Land tax is payable by the owner of land upon the taxable value of the land owned by the owner as at midnight on 31 December immediately preceding the year for which the land tax is payable and which is not exempt from taxation under the Act.

9 Section 10 of the Act sets out various categories of land that enjoy exemption from land tax under the Act. Section 10, so far as it is relevant in relation to the “principal place of residence exemption”, provides as follows:

“ 10 Land exempted from tax
(1) Except where otherwise expressly provided in the Act the following lands shall, subject to sections 10B, 10D, 10E, 10G and 10P, be exempted from taxation under this Act:

…

(r) land that is exempt from taxation under the principal place of residence exemption, as provided for by Schedule 1A.”

10 Clause 2 of Schedule 1A of the Act which sets out in detail the provisions dealing with the principal place of residence exemption at the relevant time provided as follows:

“2 Principal place of residence exemption

(1) Land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under this Act, in respect of the year commencing on 1 January 2004 or any succeeding year, if:

(a) the land has a land value in respect of the year of less than the premium tax threshold, and

(b) the land is:

(i) a parcel of residential land, or

(ii) a lot under the Strata Schemes (Freehold Development) Act 1973 or a lot under the Strata Schemes (Leasehold Development) Act 1986.

(2) Land is not used and occupied as the principal place of residence of a person unless:

(a) the land and no other land, has been continuously used and occupied by the person for residential purposes and for no other purposes since 1 July in the year preceding the tax year in which land tax is levied, or

(b) in any other case, the Chief Commissioner is satisfied that the land is used and occupied by the person as the person’s principal place of residence.

(3) If the owner of land is entitled to the exemption conferred by this clause, no other person is liable to be assessed for taxation under this Act in respect of the land during the period of the owner’s entitlement to the exemption.

(4) The exemption conferred by this clause is referred to as the principal place of residence exemption.

(5) The principal place of residence exemption is subject to the restrictions set out in Part 4.”

11 “Residential land” is defined in Clause 3 of Schedule 1A of the Act as follows:

“(1) In this Schedule, residential land means land that is used and occupied for residential purposes and for no other purpose, that use and occupation being use and occupation of a building or buildings designed, constructed or adopted for residential purposes, other than a building or buildings:

(a) comprised of lots within a strata plan or residential units, or

(b) containing (out of the total of all rooms in the building or buildings) occupancies other than that of the owner, or

(c) from any part of which income is derived.

(2) Land does not cease to be used and occupied as provided by subclause (1) by reason of there being on that land any building or improvement that is used or occupied for a purpose ancillary to the purposes for which the building is, or the building are, designed, constructed or adapted.”

12 The exemption for land used and occupied, as a principal place of residence under clause 3 is only available for land used by the owner as one occupancy. However, clause 4(1) of Schedule 1A provides a concession to owners where there is one other residential occupancy on the land other than that of the owner of the land provided it is an excluded residential occupancy under subclause (2). The residential occupancies excluded under subclause (2) are the following:

“(a) one room,

(b) one suite of rooms (not being a flat) each room of which all occupants of the suite are entitled to occupy,

(c) one flat,

(d) one suite of rooms (not being a flat) each room of which all occupants of the suite are entitled to occupy, and one room,

(e) one flat and one room,

(f) 2 rooms, each of which is separately occupied.”

13 Clause 4(3) of Schedule 1A further provides that “land does not cease to be residential land because there is on the land one, but not more than one, such excluded residential occupancy, even if income is derived from the residential occupancy”.

14 Clause 12 of Schedule 1A provides that for “the purposes of the principal place of residence exemption, only one place of residence may be treated as the principal place of residence of all members of the same family”.

15 “Principal place of residence” of a person is defined in s 3(1) of the Act as “the one place of residence that is, among one or more places of residence of the person within or outside Australia, the principal place of residence of the person”. Clause 12 of Schedule 1A restricts the principal place of residence exemption to only one place of residence for all members of the same family.

Submissions

16 The applicants’ and the respondent’s counsel have provided the Tribunal with written submissions and also made viva voce submissions at the hearing of this matter.

17 The critical issue in this matter, as identified by counsel for the applicants, is ‘whether 16A and 14B together constitute “a parcel of residential land”’.

18 The applicants’ counsel submitted that the principal place of residence exemption under the Act extended to a parcel of residential land. The term “parcel of residential land “ is not defined in the Act and counsel argued that on the basis of decided authorities, in particular, Ryan v Commissioner of Land Tax [1982] 1 NSWLR 305, “contiguous blocks of land can comprise a parcel of land where they are undivided not only by physical separation but also in use, occupation and title”. In the present matter it was submitted 14B and 16A constituted a parcel of residential land. It was argued that the “Ryan test of being undivided by physical separation, use, occupation, and title are properly satisfied in this case”.

19 It was further argued that a dwelling house on each block nor the fact that each was capable of being used as a complete separate dwelling house were grounds for excluding contiguous blocks from constituting a “parcel of residential land”. Reliance for this argument was placed on Clause 3 of Schedule 1A which defines “residential land” as “land that is used and occupied for residential purposes and for no other purpose that use and occupation being use and occupation of a building or buildings designed, constructed or adapted for residential purposes”. Kamper v. Chief Commissioner of State Revenue [2005] NSWADT 256 and Coleman v. Chief Commissioner of State Revenue [2005] NSWADT 236 and [2006] NSWADTAP 59 were also cited by counsel to support this submission.

20 The respondent’s counsel submitted that as a “threshold issue”, the applicants cannot succeed because ‘if there exists on the land a building or improvement that (a) not used or occupied for any purpose or (b) used or occupied for a purpose not ancillary to residential purposes (which is the purpose for which the “other building” is designed, constructed or adapted) then the land ceases to be used and occupied as provided for by clause 3(1) – i.e. the land ceases to be “residential land”.’ Counsel cited paras 40 and 47 of the decision of this Tribunal in Kamper to support this proposition. This submission was of course made against the factual background that 14B had been disused since 24 January 2005, the date of purchase of the property.

21 Alternatively, counsel for the respondent submitted that if “the Applicants have satisfied clause 3(1) then, in any event before being granted the PPR exemption for both 16A and 14B, they must satisfy the unities for contiguous lots of land as held in Ryan v. Commissioner of Land.”

22 Counsel for the respondent conceded that, in this matter, 16A and 14B are not divided by physical separation, have a unity of title and have a unity of occupation. But counsel argued that the applicants on their own facts “fail to satisfy the Ryan test because the applicants have failed to show that there was any unity of use between 16A and 14B as at the relevant taxing date”. It was also submitted that none of the decisions of the courts or the Tribunal post Ryan “dealing with the application of the PPR exemption in respect of contiguous lots have dealt with the same facts as these proceedings” and that in these circumstances “the previous decisions are relevantly distinguishable on their facts”.

Discussion

23 In Ryan, Hunt J had to consider whether two contiguous blocks of land used and occupied for residential purposes constituted a “parcel of residential land” for purposes of s 10(1)(r)(ii) of Land Tax Management Act 1956 as it stood at the relevant time. His Honour held that “contiguous blocks of land can comprise a “parcel of residential land” within s 10(1)(r)(ii) only where they are undivided not only by physical separation but also use, occupation and title”.

24 The facts in Ryan were, as set out by Hunt J at page 306, as follows:

“In 1964, Mr and Mrs Ryan jointly purchased a block of land known as No 1 Baden Road, Kurraba Point. At the same time, and in his own name only, Mr Ryan purchased the contiguous block of land known as No 3 Baden Road, although completion of this purchase was delayed until 1966. The vendor in each case was the same, and one purchase price was paid for the two blocks. In 1965, a large house was constructed upon the land at No 1 Baden Road which, together with a garage, pool house, swimming pool and associated facilities, virtually fills the whole of that land. There is no physical separation between the two blocks of land. Number 3 Baden Road is used and occupied by Mr and Mrs Ryan as a garden entertainment and recreation area; gardens have been laid and a barbecue built. The only other building constructed upon the land at No 3 Baden Road consists of stone steps which commence on the land at No 1 Baden Road next to the house and cross the boundary into No 3 Baden Road. Mr Ryan says, and I accept, that both blocks of land have been used and occupied together at all times as the one residential area.”

25 In Ryan, the court, however, found against Mr Ryan because Mr Ryan failed to establish unity of title of both properties. Whilst Mr and Mrs Ryan jointly owned No 1 Baden Road, only Mr Ryan owned No 3 Baden Road and thus there was no unity of title in respect of the two properties. In Ryan, there was only one dwelling and, other than some stone steps on the adjoining block, there were no other buildings.

26 There is no dispute that Ryan is binding on this Tribunal and that the relevant tests set out by Hunt J apply to determine whether 16A and 14B, adjoining contiguous waterfront properties situated at Hunters Hill, constitute a “parcel of residential land” for purposes of the principal place of residence exemption provisions found in Schedule 1A of the Act.

27 In view of the concessions made by Mr Mescher, the respondent’s counsel, the only issue that needs to be considered in this matter in relation to the tests set out in Ryan is whether, on the facts, the applicants have established the necessary “use” test. This issue essentially poses a question of fact and involves matters of degree.

28 In addition, the Tribunal needs to consider whether, as a threshold issue, the applicants have failed to establish that the land (comprised in both 16A and 14B) was “residential land” within the meaning of the term in clause 3(1) of Schedule 1A of the Act in the relevant year. This issue arises from a submission made by respondent’s counsel against the factual background in this matter.

29 Care must be taken when applying the principles settled in Ryan to a particular set of facts. The law relating to the principal place of residence is now far more complex. When Ryan was decided, 10(1)(r)(ii) of the Act allowed a principal place of residence exemption for “ … a parcel of land not exceeding 2100 square meters in area that is used and occupied as his principal place of residence and for no other purpose by the owner of the land …” The expression “residential land” was at the relevant time defined in s 10(1D) of the Act to mean “ … land that is used and occupied for residential purposes and for not other purpose, that use and occupation of a building that is designed, constructed or adapted for residential purposes …”

30 In the context of the current law, clause 3 of Schedule 1A defines the expression “residential land” to mean “land that is used and occupied for residential purposes and for no other purpose, that use and occupation being use and occupation of a building or buildings designed, constructed or adapted for residential purposes …” Clause 3(2) further provides that land does not cease to be used and occupied as required by clause 3(1) by reason of there being on that land any building or improvement that is used or occupied for a purpose ancillary to the purposes for which the building is, or the buildings are, designed, constructed or adapted. Special concessions are made in clause 4 where there is one other residential occupancy. It is also important to note that clause 12 of Schedule 1A restricts the principal place of residence exemption to one residence for all members of the same family.

31 Counsel for the applicants had argued that “a dwelling house on each block does not itself deny that the 2 blocks together constitute a “parcel of residential land” and cited this Tribunal’s decision in Kamper in support of his submission. In addition Dr Sorensen relied on clauses 3 and 4 of Schedule 1A of the Act.

32 In Kamper the Tribunal allowed the exemption in some years on the basis of a factual finding that “the Second Property was adapted in such manner that it was and is ancillary to the use of the house on the Main Property”.

33 A similar situation arose in Coleman. The taxpayers in that case resided in a house on land that was subdivided into two lots. The taxpayers continued to be owners of both lots. Upon subdivision, the taxpayers’ original home remained on one lot and the taxpayers commenced construction of a new home on the other lot. The Commissioner of State Revenue allowed the exemption in the relevant year to the original home but treated the new lot on which the new home was being constructed as a taxable property for purposes of land tax.

34 In first instance, the Tribunal agreed that the exemption was correctly refused for the new lot on the basis that as the new house was under construction, the “use test was not satisfied at the relevant taxing date even though the other Ryan tests were then satisfied”. The taxpayers in Coleman took the matter to the Appeal Panel of this Tribunal, which allowed the appeal on the grounds that there was a considerable ancillary use of the new lot to treat it with the other lot as forming a parcel of residential land within the settled Ryan principles. The Appeal Panel was influenced by the fact that the two lots together as one property had in the past received the principal place of residence exemption and the fact that the house being constructed only occupied 12.83% of the total land.

35 The decisions in Kamper and Coleman must necessarily be confined to their own facts and the facts are also in any case relevantly distinguishable. They are not authorities for the proposition advanced by counsel for the applicants that the exemption extends to two free standing independent residences or dwellings on a parcel of residential land made up of two adjoining lots. In both those cases, there was evidence that there was ancillary use of the second lot in each case to an extent that satisfied the “use’ test.

36 The facts in this matter are not in dispute but are quite different from both Kamper and Coleman. The applicants have both confirmed in their sworn statements that the “house on 14B has become disused since January 2005 except as a storage area for equipment and bicycles” and that the “14B house is usually kept locked”. From the photographs and plans provided to the Tribunal, the area occupied by the house on 14B is clearly in excess of 50% of the total area of the relevant lot.

37 The applicants at the hearing confirmed that they have moved out of 16A and are currently staying at another property owned by them. They are waiting for necessary approvals for the demolition of both 16A and 14B and the construction of one new home on both lots. Mr McGrath in his oral evidence confirmed that 14A was purchased by the applicants to build a larger house on both lots.

38 The threshold issue raises the question as to the status of 14B at the relevant time. To constitute “residential land” as defined in clause 3(1), the land in question “must be used and occupied for residential purposes and for no other purpose”. The question that needs to be determined in this matter in relation to the threshold issue is whether on the taxing date 14B was used and occupied by the applicants for residential purposes and for no other purpose.

39 The decisions of the Supreme Court [2005] VSC 232 and the Court of Appeal [2006] VSCA 207 in Applewood Residential Developments Pty Ltd v Commissioner of State Revenue provide some assistance to determine how the “used and occupied for residential purpose and for no other purpose” test found in clause 3(1) is to be applied in a particular case.

40 In Applewood land was acquired to build a retirement village. In the year in question, the first stage of development had been completed and was occupied and used as a retirement village but a question of liability arose in relation to the second stage of the development, which was under construction. The exemption was available for “land which is used and occupied as a retirement and for no other purpose”. In the first instance, the Victorian Civil and Administrative Tribunal held that the whole of the land in question, which included land already being developed and land for future development, was used and occupied as a retirement village because “it was enough that the land had no purpose other than the use as a retirement village”. The Tribunal also reasoned that the part of the land in the second stage on which were buildings under construction should also be regarded as being used and occupied as a retirement village because it was what the Tribunal called “ancillary to the part of the retirement village which was being occupied as a retirement village”.

41 In an appeal by the revenue to the Supreme Court of Victoria, Hansen J rejected the Tribunal’s reasoning as being deficient in a number of respects. Hansen J held that the critical issue was whether, at the relevant time, the disputed land was used and occupied as a retirement village and for no other purpose, as opposed to whether the land was held for the purpose of a retirement village. The correct approach, the judge held, was to ask whether, at the relevant time, the disputed land was used and occupied as a retirement village and for no other purpose and that if it were not so used and occupied, the exemption did not apply.

42 In an appeal by the taxpayer against Hansen J’s decision, the Court of Appeal of Victoria agreed with his Honour and in the principal judgment Nettle JA at para 33 of his judgment made the following important observation:

“… because the question of use and occupation is one of fact and degree, each case will turn to a greater or lesser extent on its own facts and circumstances and, therefore, it is impossible to lay down proleptically how much facilities must be used and occupied before they qualify for exemption. Nevertheless, in a case like the present, where a retirement village is being developed in discrete phases, I do not consider that it can be said of land on which a phase is being constructed that it qualifies for exemption until and unless the residences which comprise that phase have been completed to the point that they are available for use and occupation by a resident. Until then it seems to me that it is simply a case of the phase being developed and therefore not being used and occupied as the thing for which it will be used and occupied once it has been developed.”

43 In Applewood the legislation under consideration related to an exemption for retirement villages but the language of the relevant legislation contained a similar test as that required to determine the threshold issue in this matter. As observed by Nettle JA in that case, what is in contemplation “is land which is presently being used in that fashion and not land which simply may or even will be used in that fashion at some time in future”. Consistent with the observations made by Nettle JA, a further qualification can be added in the following terms:

“or land that has ceased to be used or is disused in that fashion”.

44 In this matter, to succeed the applicants had to show that 14B was “used and occupied for residential purposes and for no other purpose” or that it was “used or occupied for a purpose ancillary to the purposes for which 16A was designed, constructed or adapted”.

45 The house on 14B, on the applicants’ own evidence, “had become disused since January 2005”, “usually kept locked” and was “not in habitable condition because kitchen appliances have been disconnected and kitchen cupboards removed”. All that remained was for 14B to be demolished. The house occupied more than 50% of the land area of 14B.

46 There was some evidence that the applicants have used “the amenities at 14B such as the jetty and slipway and private beach” and “areas around the house 14B” as “recreation areas”. Additionally, Mrs McGrath has used the Hills hoist on 14B to hang the washing using direct access from 16A brought about as a result of the partial fence removal between the two properties. The applicants had paid $6.4 million for 14B and, pending the construction of their new home on both lots, they had naturally made some use of 14B in a temporary sense and not as ancillary to the use of 16A as their principal place of residence. These activities may have been sufficient if there was no dwelling and 14B was acquired for these activities.

47 Against this factual background, there is merit in the respondent’s submission that the applicants have failed, as a threshold issue, to establish that 14B was used and occupied for residential purposes in the relevant year. I agree with the submission made by counsel for the respondent that the effect of clause 3 of Schedule 1A of the Act ‘is that if there exists on the land a building or improvement that is (a) not used or occupied for any purpose or (b) used or occupied for a purpose not ancillary to residential purposes (which the purpose for which the “other building” is designed, constructed or adapted) then the land ceases to be used and occupied as provided for by clause 3(1) – i.e. the land ceases to be “residential land”’.

48 On the evidence before the Tribunal 14B was not used as a place of residence. The dwelling on the land, which occupied a substantial area of the relevant land of the lot in question, was on the evidence not used for residential purposes. The relevant property was, at the relevant taxing date, land awaiting development. Eventually, of course the exemption would apply when the new home is constructed and used by the applicants as their principal place of residence. However, on the taxing date 14B was not being used for residential purposes.

49 Following the decision of the High Court in Newcastle City Council v. Royal Newcastle Hospital ((1957 96 CLR 493) it is now well settled that land may be used although enjoyment is derived from it without physical occupation. That is not the case here, because the use of 14B had to be, as observed by Gzell J in Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68, on a continuous basis in the required fashion, that is, as residential land. In this matter the dwelling on 14B had ceased to be used for residential purposes.

50 The scheme of the law also restricts the exemption to one residence other than the concessions found in clause 4 of Schedule 1A of the Act. The excluded occupancies under clause 4(2) do not extend to include another freestanding dwelling other than what is allowed as “one flat”. When the concession for the flat was introduced in 1987, the Explanatory Note in respect of the amendments to the Act provided as follows:

‘The object of this Bill is to amend the Land Tax Management Act 1956 to expand the scope of exemption from land tax in cases of multiple occupancy of land. The bill provides that land used as the principal place of residence of the owner of the land will not cease to be exempt because there is a “granny flat” on the land as well as the owner’s home.’

51 The Explanatory Note assists in understanding the scheme of the principal place of residence exemption provisions. The legislature when introducing the amendment to allow the ‘granny flat” clearly recognised that the exemption for the principal place of residence under the law only allowed the exemption for the one home of the owner.

52 In recognition of this concession and also because of other free standing buildings for example a garage, or a greenhouse, or a pool house, clause 3(2) ensures that the exemption will not be denied provided any such buildings or improvements are used and occupied for a purpose ancillary to the building or buildings designed, constructed or adapted for residential purposes. Otherwise a number of residences would not qualify for the principal place of residence exemption.

53 But an independent single dwelling or residence could not be said to be used or occupied for a purpose ancillary to the purposes of another independent single dwelling or residence within the concession allowed by clause 3(2).

54 The suggested interpretation of clauses 3 and 4 is also consistent with clause 12 of Schedule 1A of the Act which clearly restricts the principal place of residence exemption to only one residence. The word “residence” is not defined in the Act but the ordinary meaning of the word would include a house, an abode, a home or, in some cases, a mansion. Two independent residences on adjoining blocks cannot be taken to be just one residence for purposes of clause 12. They are clearly two residences.

55 The cumulative effect of clauses 3, 4, and 12 is that the exemption for a principal place of residence will not apply to both dwellings if there are two independent dwellings on a parcel of residential land of adjoining blocks. The taxpayer would in those circumstances nominate the one that he or she regards as his or her principal place of residence. In this matter the applicants were on the taxing date entitled to the principal place of residence exemption for 16A.

56 Apart from the outcome in this matter as to the threshold issue, the applicants would also not be entitled to a principal place of residence exemption in relation to 14B on the basis of the cumulative effect of clauses 3, 4 and 12.

57 Having concluded that the applicants have failed to satisfy the threshold requirement for the principal place of residence exemption, it would follow that, on the evidence before the Tribunal, the applicants have also failed to discharge the necessary onus to show that there was unity of use between 16A and 14B as at the relevant taxing date to satisfy the Ryan “use” test.

58 In Ryan the Commissioner had conceded that the total land of the two lots in question was “used and occupied by Mr Ryan as his principal place of residence and for no other purpose”. In the present matter, substantial part of 14B was “disused” for residential purposes because it was “not in habitable condition”. In the absence of residential use of 14B, 14B and 16A could not be regarded as a parcel of residential land.

59 The result is that, at the relevant taxing date, 16A and 14B did not constitute a parcel of residential land as claimed by the applicants and the respondent has correctly refused the exemption in respect of 14B. The respondent was also in a position to deny the exemption on two other bases.

Decision

60 The objection decision under review is affirmed.