O'Donnell v Commissioner of Police

[2009] NSWADT 82

CITATION:	Holcombe v Chief Commissioner of State Revenue [2009] NSWADT 82
DIVISION:	Revenue Division
PARTIES:	APPLICANT Jon Holcombe RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	086054
HEARING DATES:	20 March 2009
SUBMISSIONS CLOSED:	20 March 2009
DATE OF DECISION:	16 April 2009
BEFORE:	Verick A - Judicial Member
CATCHWORDS:	Land Tax exemption – principal place of residence
LEGISLATION CITED:	Land Tax Management Act 1956
CASES CITED:	Livock v Suncorp Insurance and Finance [1995] 1 Qd R 206 Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68 Marana Holdings Pty Ltd and Another v Commissioner of Taxation (2004) 57 ALR 521 Zakariya v Chief Commissioner of State Revenue [2003] NSWADT 26 Chief Commissioner of State Revenue v Ferrington [2004] NSWADTAP 50 Re Newman and the Commissioner for ACT Revenue (1993) 93 ATC 2105 Dean v Commissioner of Stamp Duties [1996] 2 QdR 557 McNally & Anor v Chief Commissioner of State Revenue (NSW) 2004 ATC 4007 Chief Commissioner of State Revenue v Aldridge & Anor (RD) [2003] NSWADTAP 50 Beashel & anor v Chief Commissioner of State Revenue [2008] NSWADT 103
REPRESENTATION:	APPLICANT M Hall, barrister RESPONDENT S Kaur-Bain, barrister
ORDERS:	The decision under review is affirmed.

Introduction

1 The Applicant seeks a review of the Respondent’s decision dated 2 May 2008 to disallow the Applicant’s objection against Land Tax Assessment for the 2004, 2005, 2006 and 2007 Land Tax years (“the Land Tax Years”) in respect of land situated at Scotts Head in the State of New South Wales (“the Land”).

2 The issue in the proceedings is whether the Land was exempt in the Land Tax Years as land used and occupied by the Applicant as his principal place of residence under the Land Tax Management Act 1956 (NSW) (“the Act”).

Relevant Facts

3 The facts relevant for purposes of this review, as set out by the Applicant in his affidavit filed on 22 October 2008, further expanded in his viva voce evidence at the hearing and as clarified by counsel for the Respondent in cross-examination with additional evidence, were as follows:

1.The Applicant is a qualified veterinary surgeon who from 1976 to 1993 had his own practice at Rathmines on the Central Coast of New South Wales. He and his wife lived there in a property owned by them.

2. In 1997, the Applicant and his wife moved from Rathmines to a property situated at Toronto, New South Wales, owned by their family company but rented to them.

3. In 1993, for health reasons the Applicant gave up his full time practice in Rathmines and since then he has practised part time or as a locum for other practices, as well as pursuing his interest in photography including some time as a builder.

4. On 10 October 2001, the Applicant was registered as the owner of the Land situated at Scotts Head, which at that time was a vacant block.

5. The final plans to develop the Land approved by the local Council were for the construction of 2 independent units on the Land.

6. The Applicant commenced on 28 October 2002 to live at Scotts Head in a rented fully furnished unit to undertake and supervise the construction work to build the two units. In addition to his work clothes, he had at Scotts Head some “nice” clothes, his photographic equipment and other tools and equipment for the construction work.

7. The construction work commenced in October 2002 and continued until sometime in late 2003. In August 2003, the Applicant moved from the rented unit to live in his own units, which were at a stage when they could be locked up but some work was necessary to complete the construction and furnishing of the units. The Applicant continued with the “finishing off work and maintenance” through to mid October 2004. His wife, a school principal, continued to live at Toronto but joined the Applicant on alternate weekends and school holidays during the construction phase. The Applicant would travel to see his wife on every other weekend.

8. It is claimed by the Applicant that the Land was purchased to build a dwelling for his and his wife’s retirement. But that “during the later building stages it also became obvious” that he “would need to rent the buildings to help recoup at least maintenance/running costs”.

9. The Applicant received the Interim Occupation Certificate from the Nambucca Shire Council on 17 December 2003. By December 2003 the building, decorating and furnishing of the two units were “just about complete”. The furnishing included some furniture designed by a Tasmanian craftsman, the beds were locally purchased and each unit had its own Plasma TV screen. On 28 January 2004, the Council undertook a final inspection of the units, confirming that all building works were complete and satisfactory.

10. In October 2003, the Applicant commissioned a media agent to set up a website –“OceanScape – Luxury Beachfront Villas”. The site advertises the two units as “Villa 1 and Villa 2” and, inter alia, describes the two villas on its homepage as follows:

“OceanScape is a small boutique development of just two modern, spacious & fully self contained villas set in an idyllic, secluded location overlooking Wakki Beach at Scotts Head”

11. Although the Applicant commenced to advertise the units in October 2003, the first guests to use the units were in December 2003. Since then, the units have been rented on numerous occasions and throughout the land tax years in issue. Bookings can be made anytime throughout the year and that was the case during the period of the relevant land tax years. In the 2003 year the units were occupied from 27 December and 24 December till the end of that year respectively. In the 2004 year, the units were occupied in total for 184 rental days, in 2005 for 364 rental days, in 2006 for 400 rental days and in 2007 for 341 rental days.

12. When the units are not occupied, the Applicant claims he stays at the units or a unit if only one was vacant. His belongings, which are his clothes, other personal and any food items, are removed when the units are occupied and stored in a garage attached to the units. When both units are occupied, he stays with his wife or sometimes at places where he performs his locum work.

13.In his tax return for the period 1 July 2003 to 30 June 2004 the Applicant declared receipt of rental income from the Scotts Head units of $25,970 and claimed a deduction for expenses totalling $84,071. The major items of expenses were advertising for tenants ($14,283), interest on loan (27,714) and building write-off ($11,580). In addition, he claimed depreciation for the security system, electrical appliances and internal furnishings ($5,825). The Toronto address was given as his home address in the return lodged.

14. In his tax return for the period 1 July 2004 to 30 June 2005, the Applicant declared receipt of rental income from the Scotts Head units of $38,904 and claimed a deduction for expenses totalling $79,877. The major items of expenses were for interest on loans ($28,015), promotional material ($8,104) and Council Rates ($4,917). In addition, the Applicant claimed a depreciation of $9,086. His Toronto address was given as his home address in the return lodged.

15. In his tax return for the period 1 July 2005 to 30 June 2006, the Applicant declared receipt of rental income from the Scotts Head units of $74,260 and claimed a deduction of $62,430 as expenses and depreciation. A PO Box address in Macksville was given as his home address in the return lodged.

16. In January 2004, the Applicant commenced veterinary locum work, first in Sydney and then mostly on the Central Coast of New South Wales near Toronto. From April 2004 the frequency of his locum work increased and he spent a lot of time away from Scotts Head. Mostly the locum work was at a clinic at Long Jetty. He would stay with his wife at the family company owned residence at Toronto during the weekend and work at the clinic for one to two days, staying the night if necessary at accommodation at the clinic. He would return to Scotts Head if the units were vacant otherwise he would stay with his wife at Toronto.

17 This arrangement went on till end of 2006 when he commenced part time veterinary work at Macksville. This continued till December 2007. Since then he has done locum work on Norfolk Island.

18. The Applicant’s wife moved from Toronto to a property at Fishing Point some time in October 2006. She also owns a property situated at Utungun which is rented to the family owned company and was used by the Applicant for residential purposes when the units at Scotts Head were fully booked.

Relevant Legislative Provisions

4 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 land tax under the Act.

5 Section 10 of the Act sets out various categories of land that enjoy exemption from land tax under the Act. Section 10, 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.”

6 Clause 2 of Schedule 1A to the Act sets out in detail the provisions dealing with the principal place of residence exemption and in respect of the relevant Land Tax Years 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.”

7 “Residential land” is defined in clause 3 of Schedule 1A to 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.”

8 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.

9 However, clause 4 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 4(2). The residential occupancies excluded under subclause 4(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.

10 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”.

11 Under clause 8(1), a person absent from his or her principal place of residence is taken to continue to use and occupy that residence if the Chief Commissioner is satisfied that:

“(a) a person is the owner of land ( the former residence ) that has been used and occupied by the person as his or her principal place of residence for a continuous period of at least 6 months, and

(b) the person uses and occupies other land (whether or not in New South Wales), that is not owned by the person, as his or her principal place of residence.”

12 Clause 8 further provides as follows:

(2) The maximum period for which a person may be taken, under this clause, to continue to use and occupy a former residence as a principal place of residence is 6 years starting at the end of the last period (of at least 6 months) during which the former residence was used and occupied by that person as a principal place of residence (not including any period for which the person may be taken, under clause 7 or this clause, to have a used and occupied the former residence as a principal place of residence).

(3) If the principal place of residence exemption applies to the former residence of a person by operation of this clause, the exemption is revoked if the person is the owner of the former residence at the end of the 6-year period referred to in subclause (2) and fails:

(a) to resume actual use and occupation of the residence as a principal place of residence by the end of that period, and

(b) to continue that use and occupation for at least 6 months.

(4) The effect of that revocation is that the principal place of residence exemption is taken not to have applied to the former residence in respect of any tax year to which, but for the revocation would have applied. Land tax liability is to be assessed or reassessed accordingly.

(5) If the principal place of residence exemption is revoked, the reassessment of land tax liability more than 5 years after an initial assessment was made in respect of the land is authorised.

13 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”.

14 “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”.

Submissions

15 Mr Hall, counsel for the Applicant, submitted that his client had purchased the Land as a vacant block to build a place for his and his wife’s retirement.

16 His client’s absences from the units were categorised by counsel as follows:

(1) days when on holiday with his wife and friends;

(2) the alternate weekend which the Applicant spent with his wife;

(3) days when both units were let out; and

(4) when doing locum work away from the Property.

17 Mr Hall further submitted that clause 2 of Schedule 1A has to be read subject to the exceptions found elsewhere in Schedule 1A and that his client was entitled to the principal place of residence exemption under the exceptions found in clauses 4 and 8.

18 In relation to clause 4, counsel placed reliance on subclause 4(2)(c) and subclause 4(3), which he submitted allowed a flat on the land in addition to the owner’s own residence, even if income is derived from the flat.

19 The final submission was that his client was entitled to the concession under clause 8 of Schedule 1A for absences from the Land, having resided at the Land for a continuous period of six months. It was submitted that the Applicant was entitled to the concession as no unit had been let for a period exceeding 6 months and the income derived from the units was no more than was “reasonably required to cover council, water and energy rates and charges and maintenance costs”.

20 In relation to his absences, the Applicant provided the following explanation in his written submissions -

“I have additional phone records (Annexed hereto and marked to show that I resided at Scotts Head for this period, including Xmas. I left on 27th December staying at Newcastle for 2 nights & picking up all the camping gear before heading to the ‘Big Hole’ in Barrington Tops, where we camped with friends for 4 nights, over the New Year.

The fact that both units were rented for this short period at the end of December (from 27th December), is not relevant, as I was on holidays anyway, and given the PPR exemption for Dec-Jan ( Revenue Ruling LT 82 page 5), for the minor lettings in December-January, then there can be absolutely no dispute that I was in residence at … Scotts Head for 6 months, and more especially, for the period to the 31st December 2003.

As stated, the same periods for 2004, 5 and 6, given the Commissioners (sic) ‘discretion’. It would never have been possible for me to maintain continuous residency at any given time in the second half of each year, given my work and marital arrangements.”

21 The Respondent’s preliminary submission was that “the Applicant cannot satisfy Clause 2(1)(b)(i)” because “the Land is being used for a purpose other than a residential purpose, being occupancy of the units for a holiday let, similar to a motel type arrangement”. It was argued by counsel for the Respondent that to qualify for the exemption, the Land must be “used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose”. In support of this submission, some reliance was placed by counsel for the Respondent on the decision of Gzell J in Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68 and the decision of the Full Federal Court (Dowsett, Hely and Cont JJ) in Marana Holdings Pty Ltd and Another v Commissioner of Taxation (2005) 214 ALR 190.

22 In relation to the “continuous use and occupation” requirement found in clause 2(2)(a), Ms Kaur-Bain, counsel for the Respondent relied on the following written submissions:

23. In Livock v Suncorp Insurance and Finance [1995] 1 Qd R 206 at 208-212 the Court of Appeal of Queensland held that for the purposes of the insurance policy there under question a right of possession and physical presence coupled with a sufficient degree of control were needed to constitute “occupation” of a dwelling.

24. It is not necessary to show a continuous physical presence on the land: Flaracos at paragraph 29 . However, it is submitted that occupation ceases when there is an intention to cease to occupy the premises coupled with the absence of the Applicant’s presence on the property.

25. Therefore, if the Applicant has granted possession of the units on the Land to a tenant for a term that includes any date from 1 July to 31 December in a year preceding a land tax year, then the Land will not have been continuously occupied by the owner: Aldridge, at paragraph 21 .

26. Further, the concession in Clause 4 (for land on which there is one other residential occupancy) does not apply if all two units have been leased and the Applicant stores his goods in the lock-up garage. Further, if only one unit was rented as a holiday let then the concession does not apply, as the holiday occupancy would not have been a “residential occupancy” as required by the said clause.

27. In this case the Applicant for the various periods from 24 December 2003 to 31 December 2006 granted holiday lets to third parties either over the upper or lower unit or the entire property. The Applicant parted with the right to possession and control for the period of the holiday lets.

Discussion

23 The main question in this matter is whether the Applicant is entitled to the principal place of residence exemption in respect of the Land situated at Scotts Head under Schedule 1A to the Act. The Applicant’s contention was that in the relevant Land Tax Years, it was his principal place of residence. In addition, it was argued that the Applicant was entitled to the exemption under the concessions found in Schedule 1A. In particular, the Applicant has argued that clause 4 allows an owner to have on the land an “excluded residential occupancy”, which in his case was one of the two units depending on their occupancy. Alternatively, the Applicant relied on the grounds that he has used and occupied the Land as his principal place of residence for a continuous period of six months and that absences from the Land should be disregarded under clause 8.

24 Although the provisions relating to the principal place of residence exemption are set out in Schedule 1A to the Act, the expression “principal place of residence of a person” is defined in s 3(1) of the Act to mean “the one place of residence that is, among the one or more places of residence of the person within and outside Australia, the principal place of residence of the person”.

25 It is also important to note that, under clause 2, the exemption is available on two alternate bases. Under subclause (2)(a), the exemption is available to an owner provided the land in question is a parcel of residential land and 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 the land tax is levied. The alternate basis is set out in subclause (2)(b) which gives the Chief Commissioner discretion to grant an owner the exemption where he is satisfied that the land is used and occupied by the owner as his or her principal place of residence. The alternate basis allows the Chief Commissioner to grant the exemption where an owner has not continuously used the residence during the relevant period.

26 Further, it is a requirement under clause 3 that the “residential land” must be “used and occupied for residential purposes and for no other purpose, that use and occupation of a building or buildings designed, constructed or adapted for residential purposes” and, inter alia, excludes any part of a building or buildings “of which income is derived”.

27 The Act does not provide any technical or legal meaning for the expression “principal place of residence” and as observed by the Australian Capital Territory Administrative Appeals Tribunal in Re Newman and the Commissioner for ACT Revenue (1993) 93 ATC 2105, “the term ‘principal place of residence’ has its ordinary meaning…and does not extend to include a place from which one is absent for a period of time.”

28 In ascertaining whether a particular residence of a person is the principal place of residence of that person it is necessary to use an objective test and the conclusion is determined by considering the extent and quality of use and occupation of the residence in each case (per Fryberg J in Dean v Commissioner of Stamp Duties (Qld)(No 2) [1996] 2 Qd R 557 in considering the meaning of expression “principal place of residence” found in the Stamps Act 1894 (Qld)).

29 In Zakariya v Chief Commissioner of State Revenue [2003] NSWADT 26 the Tribunal in the context of first home grants legislation held that “the subjective intention” of a person did not bring an applicant within the eligibility criteria if the person did not, in fact, reside at the property as his or her principal place of residence. It is necessary that the original subjective intention of a person does, in fact, come to fruition for the original subjective intention to be accepted. The original intention is relevant but does not play a dominant role in the final determination of a person’s principal place of residence.

30 In Chief Commissioner of State Revenue v Ferrington (GD) [2004] NSWADTAP 41 the Appeal Panel of the Tribunal agreed that “to occupy a home as his or her principal place of residence a person’s occupation must have a degree of permanence to it: a connection to a place of residence of a transient, temporary, contingent or passing nature is not sufficient, nor occupation for any other reason”.

31 In this matter, it was conceded by counsel for the Applicant, quite correctly, that the Applicant was carrying on a business of letting holiday units at Scotts Head in the relevant Land Tax Years. The units were capital assets of that business. The units, according to the evidence of the Applicant, were available from October 2003 for rental and that the units could have been rented thereafter on any day of the years under review. Actual rentals commenced on 27 December 2003 in the case of unit 1 and 24 December 2003 in the case of unit 2. In 2004, the occupancy rate was 25% but increased to 50% in 2005, with about 60% in 2006 and was 46% for the 2007 year.

32 The units were furnished with brand new furniture and individually furnished for independent use, each as a self-contained residence. The Applicant brought no item of any furniture to the units from the family residence. The only items of personal use and clothes for work and some “nice” clothes were kept at the units and when rented they would be stored in a small cupboard in the attached lock-up garage.

33 The Applicant’s own evidence was that when he first arrived at Scotts Head “to undertake and supervise the construction” of the units he brought these items including some working tools and equipment with him. His photographic equipment travels with him wherever he goes and was with him at the Tribunal on the day of the hearing of this matter. When he moved into the units whilst doing the “finishing work”, the only personal items taken to the units were those he had at the rented flat.

34 The Applicant’s original intention to build the units for his retirement was abandoned by him “during the later building stages” when it became obvious that he “would need to rent out the buildings to help recoup at least maintenance/running costs”. At that early stage, he was proceeding to build two self-contained units for rental and not for his personal use.

35 The Applicant has lived with his wife in homes in various places including Rathmines and, before moving to Scotts Head for a number of years at the family company owned residence at Toronto. No evidence was produced to indicate that he removed all his belongings, such as books, paintings, special items of furniture, which presumably he had either himself, or in partnership with his wife, acquired over the many years that they have lived together. His relationship with his wife was never an issue in the relevant years under review and his evidence was that they spent the weekends and school holidays together. It is interesting that when he went for a holiday in December 2003, his evidence was that he had to go to Newcastle to get his camping gear. The Tribunal, in the absence of any evidence to the contrary, is entitled to make the inference that other than the few items that he claimed were with him in Scotts Head all his other personal belongings remained at the family company owned residence at Toronto. They would have moved to Newcastle when the Applicant’s wife moved there in October 2006.

36 Against the factual background, it is difficult to conclude that the two units were used and occupied by the Applicant as his principal place of residence in terms of clauses 2 and 3. The evidence before the Tribunal was that, from October 2003, the units were used for the purpose of earning rental income. He was only able to occupy and use a unit or units when they were not let. Under clause 2 he was required to establish that the units were continuously used and occupied by him as his “principal place of residence”, and no other purpose since July in the year preceding each tax year under review.

37 Some reliance was placed by the Applicant on the decision of his Honour Justice Gzell in Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68 to argue that the categorised absences were permissible and did not deny the Applicant the principal place of residence exemption.

38 In Flaracos, the court considered the position of an owner who took in tenants at the same time as maintaining residency. The owner was in the relevant land tax years unemployed and there were periods of absences from his dwelling whilst he was looking for work in other states. But, when he returned from these trips he stayed at his dwelling, a portion of which was leased to tenants. The evidence also indicated that he had not established a residence anywhere else. His Honour, Gzell J found that the letting “involved joint physical presence in the dwelling and not handing over of exclusive possession to the tenant”. In the relevant years, s 3(3)(a) of the LTM Act required “continuous use and occupation” to qualify for the principal place of residence. In concluding that the owner had not breached this provisions, his Honour expressed his opinion as follows:

[29] In my opinion continuous physical presence on the land is not required to constitute continuous occupation. If a person leaves his or her premises for a holiday, it would defeat the purpose of the Act to conclude that occupation had ceased to be continuous. So long as the person retains the right to possession and controls possession, that person remains in occupation, in my view. The observation of Sir Nigel Bowen in Christie that physical presence over the land is not necessary to establish occupation is equally apposite when there is some hiatus in physical presence over time.

39 The provisions of the Act referred to in Flaracos have been replaced by subclause 2(2)(a) of Schedule 1A to the Act which came into operation with effect from 31 December 2003. Subclause 2(2)(a) in the present case denies the Applicant the exemption because, in the relevant land tax years, the Applicant did not, as required by the provision, continuously use or occupy the units as his principal place of residence. Several tenants occupied and used the units.

40 No evidence was produced by the Applicant as to the nature of the occupation when the units were let. However, it does not matter whether they were short term leases or licences, because when both units were let, and that was frequently the case on the basis of the “rental calendars” of the units attached to the Applicant’s affidavit, the Applicant lost possession of the units. In those circumstances, the Applicant was not in continuous occupation of the units. The Applicant as a result neither had the right to possession of the units nor the control of the possession during the days the units were let in the relevant years under review.

41 When all the facts and surrounding circumstances are taken into account, it is also not an appropriate case to the exercise of the discretion under Subclause 2(2)(b) to allow the Applicant the exemption. The facts are to some extent similar to those that were considered by his Honour Gzell J in McNally & Anor v Chief Commissioner of State Revenue (NSW) 2004 ATC 4007. In McNally it was held that the principal place of residence exemption did not apply to the use and occupation of a former holiday home by the taxpayer as his residence while his wife resided mainly in the family home in Sydney. On the average, Mr McNally had resided at the family home at Greenwich for four days per week and resided with his wife at the former holiday home at Noraville for three days per week. Gzell J held that the plaintiffs had “not discharged their onus of establishing that Mr McNally had relinquished Greenwich as his principal place of residence and had adopted the Noraville residence in its stead”. Similarly, in this matter, when the evidence is considered, the Applicant has not discharged the onus of establishing that he had relinquished Toronto as his principal place of residence and had adopted the Scotts Head units in its stead. The Applicant merely made the broad statement that he stayed at Toronto every other weekend and on days he was in the area doing locum work except where overnight accommodation was available. It was also claimed by the Applicant that his wife spent every other weekend with him at Scotts Head. But the Applicant did not produce any evidence of the exact number of days he spent at Toronto (or at Fishing Point or Utungun residences) and the number of days he spent at Scotts Head. The broad statement was not supported by the lettings disclosed in the “rental calendars” which were attached to his affidavit.

42 The Applicant’s tax returns produced by the Respondent disclose substantial income from letting of the units in the relevant years. In cross examination, Ms Kaur-Bain, counsel for the Respondent, had suggested to the Applicant that the large tax deductions claimed in these years did not reflect any discount for the claimed private use and occupation by him of the units. The Applicant agreed with the suggestion made by counsel. The Applicant in cross examination also indicated that he had brought the matter to the attention of his accountant and had instructed him some months ago to seek amendments to the relevant income tax assessments. But, towards the end of the hearing, he informed the Tribunal through his counsel that he would await the outcome of this matter before taking any action. In any case, the returns lodged support the conclusion that I have reached in this matter, that the units were business assets and used in his business of letting these units for holiday and recreational purposes.

43 The matter that remains is whether the Applicant is entitled to the exemption pursuant to the concession available under clauses 4 or 8.

44 Under clause 4, an owner of a principal place of residence is permitted to have one other residential occupancy on the land from which income may be derived. Subclause 4(2) lists the residential occupancies that are permitted and include “one flat”. The Applicant’s case was that when one unit was vacant he would live there whilst the other one, which was leased, should be regarded as a “residential occupancy” permitted by clause 4. But, unfortunately, that was not the case because both the units were frequently let at the same time. Clause 4 only applies if a “building or buildings used and occupied for residential purposes contains or contain a residential occupancy other than that of the owner”. In this matter each of the units was an independent residential occupancy for purposes of the letting business of the Applicant.

45 Clause 8 allows an owner to retain the principal place of residence exemption for a period of six years even if the owner is absent from the residence. The concession is available to an owner subject to certain criteria.

46 The scheme of clause 8 is essentially to continue to grant the exemption for a principal place of residence to an owner who is absent from his or her former residence for an extended period. It only operates where the owner uses and occupies other land as his temporary residence, but which is not owned by the owner. The owner is taken, for the purpose of the principal place of residence exemption, to continue to use and occupy the former residence as his or her principal place of residence.

47 The concession under clause 8 is available for a period of 6 years starting from the last period of at least 6 months during which the former residence was used and occupied by the person as a principal place of residence. The concession ceases to have effect if the person is the owner of the former residence at the end of the period of six years and fails to resume actual use and occupation of the residence by the end of that period, and to continue to use and occupy the former residence for at least 6 months.

48 The concession granted under clause 8 only applies in respect of a land tax year if the Chief Commissioner is satisfied that no income has been derived from the use or occupation of the former residence in the preceding tax year, except as permitted by subclause 8(7).

49 There are two limbs to subclause 8(7). Paragraph (a) allows the owner to derive income from “a lease, licence or other arrangement” under which a person has a right to occupy the former residence and the total period for which any right of occupation is conferred does not exceed 6 months in the relevant tax year. There is no limit as to the amount of the rental income that can be derived by the owner. Paragraph (b) allows an owner to derive income under an arrangement exceeding 6 months provided the income is no more than that “is reasonably required to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence”.

50 The concession set out in clause 8 is available to owners who are absent from their former principal place of residence, for example, applies to owners required to locate overseas or interstate for work or business reasons or if hospitalised for lengthy periods. The principal place of residence exemption continues to apply to the land of an owner, provided, of course, the income test set out in Subclause 8(7) is satisfied or if no income is in fact derived during the period of absence.

51 There are no limitations in respect of any 6 months period in a land tax year. Paragraph (a) of Subclause 8(7) allows the former residence to be let at market rate rents during the relevant six months. Paragraph (a) refers to “a lease, licence or other arrangement” under which a person has a right to occupy the former residence.

52 The concession under paragraph (b) of Subclause 8(7) only applies to “any arrangement under which a person occupies the former residence” but without any right to such occupation.

53 In Beashel & anor v Chief Commissioner of State Revenue [2008] NSWADT 103 I discussed, in some detail, the role of these provisions as follows:

38 Both paragraphs (a) and (b) of subclause 8(7) pose some difficulties in their practical application. These provisions are perhaps more comprehensible when read together in the context of Schedule 1A to the LTM Act. Schedule 1A has been inserted as a complete code to provide relief to owners in circumstances where a property is used and occupied as the owner’s principal place of residence. Clause 8 recognises that that connection with a property used as a principal place of residence does not cease merely because the owner is absent from the property. An owner is taken for the principal place of residence exemption to continue to use and occupy the property as his or her own principal place of residence during the period of absence if the necessary conditions set out in clause 8 are satisfied.

39 The word “arrangement” is used in both paragraphs (a) and (b) of subclause 8(7). It is a word that is used in various provisions in the Commonwealth income tax laws. In particular, the word has had a long history in relation to anti-avoidance provisions. In considering the general scope of the word “arrangement” in relation to the former section 260 of the Income Tax Assessment Act 1936 , Lord Denning in the Privy Council in the celebrated case of Newton v FC of T (1958) 98 CLR 1, made the following useful observation:

“Their Lordships are of opinion that the word ‘arrangement’ is apt to describe something between two or more persons – a plan arranged between them which may not be enforceable at law.”

40 It has also been noted by the courts that the word “arrangement” is “no doubt an elastic word, and in some contexts may have a larger connotation” ( per Isaacs J in Jaques v FC of T (1924) 34 CLR 328 at 359).

41 In relation to paragraph (a) of subclause 8(7), “other arrangement” is the third in a descending series, and I think it is used to extend the operation of the provision to other arrangements which may not be in the strict legal sense either leases or licences but nevertheless a person under those other arrangements “has a right to occupy the former residence”.

42 But when the term “arrangement” is used in paragraph (b) of subclause 8(7), it has a different connotation. The words “any arrangement” are used to include any arrangements under which a person occupies the former residence and “the income is no more than is reasonably required to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence”. Paragraph (b) in that sense does not apply if the “arrangement” is a “lease, licence or other arrangement” under which a person has a right to occupy the former residence by paying a fixed market rate rent without the obligations to pay those expenses. I do not think the concession in paragraph (b) is available merely because the rental income is used by an owner to pay for expenses.

43 The provision refers to an arrangement under which the parties agree that the occupant would pay an amount that is reasonably required to cover the ongoing expenses that owner would normally pay. As correctly pointed out in his submissions by Mr Rider, counsel for the Commissioner, that under paragraph (b) the “control the owner has over the property is reinforced by the fact that the owner is still liable for the expenses mentioned in cl.8 (7)(b), some of which, such as energy costs, would be incurred by a tenant if they had a right of control over the property under a lease”.

44 I think the paragraphs (a) and (b) are quite intentionally drafted in that manner to make the necessary distinction between an arrangement under which a person has a right to occupy the former residence and an arrangement where the owner of the former residence continues to have a right of control over the former residence. In the case of the latter, for the arrangement to fall within the ambit of paragraph (b) it has to place an obligation on the person who occupies the former residence to pay an amount near enough to “cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence”. Such an arrangement, as submitted by Mr Rider, would have to be a non-arm’s length arrangement to satisfy that requirement.

45 A lease with a fixed market rate rental would clearly not satisfy that requirement because it will give the tenant the right to occupy the former residence. Paragraph (b) is, in the scheme of Schedule 1A, designed to give absent owners the concession provided they do not derive commercial rents from the former residences. It allows an owner to be reimbursed for the kind of expenses set out in the paragraph and at the same time have the benefit of the principal place of residence exemption. Any interpretation, as suggested by the Applicant’s solicitor, to extend the operation of paragraph (b) to leases made to earn commercial rentals would clearly make little sense and defeat the purpose of the concession. If that interpretation is correct, it was not necessary to draft subclause 8(7) in its present form. It would have been sufficient for the provision to state “any lease, licence or other arrangement” exceeding six months provided all or the substantial amount of the income derived is used to “cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence”. That kind of provision would have allowed owners to “create” or incur expenses to enable owners to continue to have the exemption. It would have made no sense and there would have been revenue leakage. The provision is designed to only apply to bona fide arrangements of the kind set out in paragraph (b), which would essentially include mostly non-arm’s length arrangements. It is difficult to see arm’s length arrangement with a stranger to occupy a former residence on those terms. The owner would be entitled to nominate all sort of expenses and the tenant would have no control over the amount that would be claimed as such expenses.

46 The Tribunal also agrees with Mr Rider’s submission that only costs of maintaining the former residence in its current state and condition would qualify as “maintenance costs” under paragraph (b). In context of paragraph (b) “maintenance costs” cannot be given a wider application as suggested by the Applicant’s solicitor because it would defeat the purpose of the concession.

54 In this matter, the units were let throughout each year under review and the rental charged for the letting was at market rates. The Applicant in those circumstances was not entitled to the concession available under clause 8.

55 I should add, having concluded that the units were not the Applicant’s principal place of residence under clause 2 in the years under review, the discussion in relation to the application of clauses 4 and 8 was not necessary but undertaken because the Applicant placed some reliance on these provisions.

Order

56 The Respondent’s decision dated 2 May 2008 to disallow the Applicant’s objection to the Land Tax Notice of Assessment for the 2004, 2005, 2006 and 2007 Land Tax Years is affirmed.