Paliflex Pty Limited v Chief Commissioner of State Revenue

[2001] NSWSC 858

CITATION:	PALIFLEX PTY LIMITED v CHIEF COMMISSIONER OF STATE REVENUE [2001] NSWSC 858
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4486/2000
HEARING DATE(S):	3 August 2001
JUDGMENT DATE:	4 October 2001
PARTIES :	PALIFLEX PTY LIMITED v CHIEF COMMISSIONER OF STATE REVENUE
JUDGMENT OF:	Mason P

COUNSEL :	Plaintiff: N Hutley SC/ G Moore Crown: M G Sexton SC (Solicitor General)/I.Mescher
SOLICITORS:	Plaintiff: Elliot Tuthill Crown: I V Knight (Mr Buchberger)
CATCHWORDS:	Land tax - s52(i) Constitution - Land Tax Management Act 1956 (NSW) and Land Tax Act 1956 (NSW) - constitutional validity - whether characterised as laws with respect to Commonwealth places - when land ceases to be a Commonwealth place - whether land subject to land tax - statutory construction - relevance of Stocks & Holdings.
LEGISLATION CITED:	Land Tax Management Act 1956 (NSW) - Land Tax Act 1956 (NSW)
CASES CITED:	Worthing v Rowell & Muston Pty Ltd (1970) 123 CLR 89; R v Phillips (1970) 125 CLR 93; Attorney General (NSW); Ex rel Maroubra Junction Hotel Pty Ltd v Stocks & Holdings (Constructors) Pty Ltd (1970) 124 CLR 262; Attorney-General (Qld) v Attorney- General (Commonwealth) (1915) 20 CLR 148; Bradken Consolidated Ltd v Broken Hill Pty Co Ltd (1979) 145 CLR 107; South Australia v The Commonwealth (1992) 174 CLR 235; Carter v The Potato Marketing Board (1951) 84 CLR 460
DECISION:	See par 42.

SC 04486/00


MASON P

PALIFLEX PTY LIMITED v CHIEF COMMISSIONER OF STATE REVENUE

The Commonwealth owned land in Elizabeth Bay between 1922 and 1998. In February 1998 Paliflex (the plaintiff) became registered proprietor of the land. Land tax Notices of Assessment have issued to the plaintiff for the 1999 to 2000 tax years based on the plaintiff’s ownership of the land on 31 December 1998 and 31 December 1999. The plaintiff disputes its liability to pay.

Section 52(i) of the Constitution confers on the federal Parliament exclusive power to make laws with respect to Commonwealth places. In light of this, the plaintiff contends that land tax could not have been imposed on the Commonwealth in relation to the land in 1956 when the Land Tax Management Act 1956 (the LTMA) and the Land Tax Act 1956 (the Rating Act) were first enacted. Further, as there was no State enactment passed after 4 February 1998 when the plaintiff became registered proprietor of the land, the land has still not been rendered subject to land tax.

Worthing v Rowell & Muston Pty Ltd (1970) 123 CLR 89; R v Phillips (1970) 125 CLR 93; Attorney General (NSW); Ex rel Maroubra Junction Hotel Pty Ltd v Stocks & Holdings (Constructors) Pty Ltd (1970) 124 CLR 262; (discussed).

1) The decision in Stocks & Holdings turned on the specific nature of a comprehensive and enduring planning scheme that purported to control the use of the land in question from its inception.

2) The defendant’s premise that the Rating Act and the LTMA were rendered invalid from their inception qua the subject land by force of s52 of the Constitution is rejected. Although enacted at a time when the subject land was owned by the Commonwealth and a Commonwealth place, each charging provision remains entirely ambulatory until midnight on 31 December of the stipulated year. ( Attorney-General (Qld) v Attorney- General (Commonwealth) (1915) 20 CLR 148 (cited)).

3) The LTMA and the Rating Act failed to engage with the subject land in 1956. These Acts are incapable of characterisation as laws with respect to Commonwealth places. Nothing in the LTMA suggests any intention to bind the Commonwealth. Further, s2 of the LTMA establishes a presumption of severability, thereby permitting the LTMA to operate validly within constitutional limits. The plaintiff’s analysis is rejected.

ORDERS

See par 42.

SC 04486/00


MASON P

PALIFLEX PTY LIMITED v CHIEF COMMISSIONER OF STATE REVENUE

JUDGMENT

At issue is the plaintiff’s liability to land tax based on its ownership on 31 December 1998 and 31 December 1999 of an Elizabeth Bay property. The land had been owned by the Commonwealth between 1922 and 1998. The plaintiff purchased the land pursuant to a contract for sale made on 5 September 1997 and became the registered proprietor on 4 February 1998.

2 Earlier proceedings established the plaintiff’s immunity from ad valorem stamp duty on its purchase. That was because the land was “a place acquired by the Commonwealth for public purposes” (hereafter a Commonwealth place) at the time of contract and transfer (see Chief Commissioner of State Revenue v Paliflex Pty Ltd (1999) 47 NSWLR 382). Section 52(i) of the Constitution relevantly confers on the federal Parliament exclusive power to make laws with respect to Commonwealth places. A stamp duty on an agreement for the sale or conveyance of a Commonwealth place is a law with respect to that place in light of the principles applied in Allders International Pty Ltd v Commissioner of State Revenue (Vic) (1996) 186 CLR 630.

3 Notices of Assessment for land tax have issued for the 1999-2000 tax years based respectively on the plaintiff’s ownership of the land on 31 December 1998 and 31 December 1999.

4 The plaintiff disputes liability, contending that:

1. Because of s52 of the Constitution land tax was not and could not have been imposed upon the Commonwealth or otherwise in relation to the land in 1956 when the Land Tax Management Act 1956 (the LTMA ) and the Land Tax Act 1956 (the Rating Act ) were first enacted.
2. No State enactment passed after 4 February 1998 rendered the land subject to land tax.
3. Section 14(2) of the Commonwealth Places (Administration of Laws) Act 1970 (NSW) , which was enacted in response to 1970 decisions of the High Court that revealed the preclusive scope of s52 of the Constitution , and which provides:
(2) Subject to subsection three of this section, when a place ceases or has ceased to be a Commonwealth place at a particular time the laws of the State in force at that particular time apply or shall be deemed to have applied in or in relation to that place as if those laws had come into operation at that particular time and every Act, whether passed before or after the commencement of this Act, and every instrument made or having effect under any such Act, shall be read and construed as if it provided expressly that it was intended to so apply or to have so applied.

is itself struck down by s52 of the Constitution in relation to the subject land because it was a Commonwealth place in 1970.

5 The preclusive scope of s52(i) of the Constitution suddenly dawned in 1970 with a trio of cases: Worthing v Rowell & Muston Pty Ltd (1970) 123 CLR 89; R v Phillips (1970) 125 CLR 93 and Attorney General (NSW); Ex rel Maroubra Junction Hotel Pty Ltd v Stocks & Holdings (Constructors) Pty Ltd (1970) 124 CLR 262 (Stocks & Holdings).

demonstrated that State Acts of general application such as the Scaffolding and Lifts Act 1912 (NSW) could be repelled in their application to Commonwealth places. It was irrelevant that the State law did not apply only or specifically to Commonwealth places. It was sufficient that it could be characterised as a law falling within the scope of s52. This proposition was reaffirmed in Allders, a decision which also discusses how the characterisation of the impugned State law is to be addressed.

applied Worthing to a State criminal law in its application to a Commonwealth place. Phillips also established that, when the Commonwealth acquired land in a State, State legislative power over the area was abrogated in the sense that existing State enactments became ineffective as regards that Commonwealth place.

involved the converse situation. It concerned a State law struck down under s52 as regards a Commonwealth place and the question as to what happened in the period after the subject land ceased to be a Commonwealth place. The land had been acquired in 1929 by the Commonwealth as part of its Long Bay rifle range. The Local Government (Amendment) Act 1951 established the County of Cumberland Planning Scheme. That Scheme expressed itself as applying to a large area that included the land. The Scheme map showed the rifle range as a “Special Uses Area” requiring consent for changed use. In 1965 the Commonwealth transferred the land to Randwick Council and the Council subsequently sold it to Stocks & Holdings. That company proposed to erect a hotel and contended that it did not require Council consent because the Scheme did not apply to the land.

9 Applying Worthing, the Court held that a law that controlled land development was, in so far as it applied in a place acquired by the Commonwealth for public purposes, a law with respect to that place. It followed that, since the Scheme enacted by the 1951 Act applied to the rifle range land, that enactment was to that extent beyond power and invalid because of s52 of the Constitution (see per Barwick CJ at 267, per McTiernan J at 269, per Windeyer J at 280, per Walsh J at 285).

10 The Court also held that the Scheme did not spring into operation qua the land when the Commonwealth transferred the land to the Council in 1965: a fresh enactment would have been needed to subject the land to the regime of land management embodied in the 1951 Act. To my mind it is clear that this decision turned on the specific nature of a comprehensive and enduring planning scheme that purported to control the use of the land in question from its inception (see per Barwick CJ at 267 per McTiernan J at 269, per Windeyer J at 281-2, per Walsh J at 289). As Windeyer J put it (at 282):

The whole nature of a planning scheme is altered if land, which was previously excluded from its operation, is to be subjected to its provisions. A new and appropriate zoning must be determined for it; and the zoning of neighbouring lands might need reconsideration. Therefore, unless there be a State law which meets the situation that has arisen, it seems to me that the subject land was not by its transfer from the Commonwealth to the Randwick Council brought within the provisions of the Ordinance.
See also Allders at 639.

11 In Stocks & Holdings Windeyer J distinguished laws of a more general, ambulatory nature. He said (at 281):

A person who becomes a tenant in fee simple of land in a State holds it subject to the law for the time being in force in the State. I do not think that he can obtain any immunities by looking back to a time when some other law prevailed with respect to his land. For example, a person who becomes the owner of land that was once part of a Commonwealth rifle range cannot say that he is at liberty to disregard State laws relating to the discharging of firearms. In short, a person who becomes a landowner by transfer of land from the Commonwealth is in the same position as a person who acquires land in the State from any other transferor. If the land lies within a local government area, a municipality or shire, he is subject to the control of the local authority in respect of his use or and dealings with that land, just as is any other landowner. So it seems to me.

12 Walsh J (with whose reasons Barwick CJ agreed) said (at 288-9):

It is only if the provisions should be understood as having no application at all to lands which had been acquired by the Commonwealth for public purposes and were still held by it, that the Ordinance would avoid the consequences of s52(i). But if so understood, those lands, although marked upon the map, would not be within the scheme. The scheme would not apply to them.
If the conclusions just stated be correct, I think that it follows that when the subject land was transferred in 1965 by the Commonwealth to the Council, the change of ownership did not have the effect that thereafter the Ordinance applied to that land. The new owner would be bound of course by any legislation which applied to the land or to its use. But the new owner could not be bound by legislation which did not apply to that land, whether this was because upon its proper construction the legislation was not intended to apply to it or because the application of it to that land, although intended, was beyond the legislative power.
In reaching the foregoing conclusions as to the extent to which the Ordinance must be read down to save it from entrenchment on the exclusive power of the Commonwealth Parliament, I have not found it necessary to decide that no law of a State, enacted whilst a place acquired by the Commonwealth for public purposes is still owned by the Commonwealth, is capable of having a valid operation with respect to that place after it ceases to belong to the Commonwealth. I confine my opinion on this subject to the law with which we are concerned.

13 As indicated, the plaintiff’s case depends upon making the reasoning in Stocks & Holdings applicable to the present situation. The plaintiff contends that the land tax regime in New South Wales is not relevantly different to the County of Cumberland Planning Scheme.

14 The plaintiff's case depends on characterising the LTMA and the Rating Act as laws with respect to a Commonwealth place that were struck down at birth (1956) as regards the subject land; and were incapable of rising to touch it during a later era of private ownership unless reenacted generally or otherwise made to apply to the land by a specific enactment after 4 February 1998. Reliance is placed upon the remarks of Austin J in the earlier Paliflex Case where (at 389) he described Stocks & Holdings as authority for the propositions that:

· a State law will never apply to a place which was a Commonwealth place when the State law was enacted, even if the place is later disposed of by the Commonwealth; but
· after the disposal by the Commonwealth the State is free to legislate with respect to the place.

15 It will be apparent from my analysis of Stocks & Holdings that I do not see that decision as authority for the first proposition, at least in the absolute terms of Austin J’s passing summary.

16 I would reject the defendant’s premise that the Rating Act and the LTMA were rendered invalid from their inception qua the subject land by force of s52 of the Constitution.

17 The scheme of New South Wales land tax is well known. The tax is imposed by the Rating Act, whose several provisions levy the tax after named dates and stipulate that the tax is to be charged, levied, collected and paid under the provisions of the LTMA. The LTMA provides the detailed regime of imposition, assessment and collection.

18 The Rating Act commenced on 1 November 1956. Section 3(1) stated:

3 (1) In respect of the taxable value of all the land owned by any person at midnight on the thirty-first day of October in any year including the year one thousand nine hundred and fifty-six there shall be charged, levied, collected and paid under the provisions of the Principal Act in the manner therein prescribed, land tax for the period of twelve months commencing on the first day of November in that year and at the respective rates set out in the Schedule to this Act.

19 Since 1956 there have been numerous amendments to the Rating Act, imposing tax at different rates after different dates. After 1984 separate Schedules have been enacted, setting out the rates for applicable periods (see ss3AA-3AH and Schedules 2-9).

20 The provisions which levy tax in respect of land owned on 31 December 1997 and 31 December 1998 (s3AG - Schedule 8 and s3AH - Schedule 9) were enacted in 1997 (State Revenue Legislation Amendment Act 1997). In each case the operative provision relevantly stipulated that:

in respect of the taxable value of all the land owned by any person at midnight on 31 December [1998/1999] there is to be charged, levied, collected and paid under the provisions of the [ LTMA ] and in the manner prescribed under that Act, land tax for the period of 12 months commencing on 1 January in the next succeeding year and at the rates set out in Schedule [8/9] .

21 The charging provisions that give rise to the imposts at issue in these proceedings were therefore enacted at a time when the subject land was owned by the Commonwealth and a Commonwealth place. However, each provision remained entirely ambulatory until midnight on 31 December of the stipulated years. The tax would fall only upon those who were owners of land at midnight on 31 December of the stipulated year and not entitled to exemption or otherwise excluded from liability by the two enactments read together. Adopting the language of Isaacs J, when referring to the Land Tax Assessment Act 1910 (Cth) in Attorney-General (Qld) v Attorney-General (Commonwealth) (1915) 20 CLR 148 at 174:

The taxing Act is always speaking in the present. It does not affect to change or menace men’s actions, but is standing declaration of the law with respect to landed estates as they appear to exist at a given moment.

22 Of even greater significance, the imposition of tax depended upon the provision of the LTMA; and that Act never purported to impose any tax on anyone referable to the land until 31 December 1998.

23 Land tax is levied and paid upon the land value of all land situated in New South Wales which is owned by taxpayers and which is not exempt from taxation (LTMA, s7). The tax is charged on land as owned at midnight on 31 December immediately preceding the year for which the tax is levied (s8) and is payable by the owner of land upon the taxable value of all the land owned by that owner and not exempt from taxation (s9). The LTMA proceeds on the sensible, traditional basis that persons pay taxes and that land (like goods) does not (cf Mutual Pools & Staff Pty Ltd v Federal Commissioner of Taxation (1992) 173 CLR 450 at 467).

24 Section 3 defines key concepts such as “owner”. Exempt land is defined in s10.

25 Between 1956 and 1991 land owned by the Crown was exempt from taxation under the Act (LTMA, s10(1)(a)). When s10(1)(a) was repealed in 1991 (by the Land Tax Management (Amendment) Act 1991), “land owned by the Crown” ceased to be exempt as such, but thereafter “the Crown” was given express exemption from liability for land tax in respect of land it owns (s21C(2)).

26 It is unnecessary to tarry over the question whether these references to “the Crown” include the Crown in right of the Commonwealth (cf Interpretation Act 1987, s13). Nothing in the LTMA suggests any intention to bind the Commonwealth (cf Bradken Consolidated Ltd v Broken Hill Pty Co Ltd (1979) 145 CLR 107) for the obvious reason that any attempt to have done so without the consent of the Parliament of the Commonwealth would have offended s114 of the Constitution. Land tax falling upon the Commonwealth as owner would undoubtedly be a tax on property within the scope of this prohibition (see Attorney General (Qld) v Attorney General (Cth) (1915) 20 CLR 148 at 174-5, South Australia v The Commonwealth (1992) 174 CLR 235 at 248).

27 Furthermore, s2 of the LTMA states:

This Act shall be read and construed subject to the Commonwealth of Australia Constitution Act , and so as not to exceed the legislative power of the State to the intent that where any provision of this Act, or the application thereof to any person or circumstance is held invalid, the remainder of this Act, and the application of such provision to other persons or circumstances shall not be affected.

The first part of this section is a coy acknowledgment of the obvious. The second part seeks to preserve maximum operation of the Act by establishing a presumption that, to the extent that its operation is within the power of the State legislature, the law is to be valid notwithstanding that, as expressed, it is in excess of power. By establishing a presumption of severability it permits the LTMA to operate validly within constitutional limits (see Carter v The Potato Marketing Board (1951) 84 CLR 460 at 484, 486).

28 The plaintiff does not suggest that the LTMA is entirely invalid. Its case is that the Act was and remains invalid in its application to the subject land because, in 1956, the LTMA was characterised as a law with respect to “places acquired by the Commonwealth for public purposes” and because no legislation enacted after 4 February 1998 reinstated the LTMA in its application to the subject land.

29 This analysis overlooks entirely the fact that the LTMA and the Rating Act failed to engage with the subject land in 1956. By expressly abrogating any intent to tax the Commonwealth or anyone else with respect to the land during its status as land vested in the Commonwealth Crown, the New South Wales Acts were so framed as to be incapable of characterisation as laws with respect to Commonwealth places, the subject land in particular.

30 In Stocks & Holdings (at 288) Walsh J discussed what would have been the position if the County of Cumberland Scheme had been read as subject to a proviso that it was to have had no operation or effect upon the Commonwealth or upon the use of any land so long as it remained Commonwealth land. He said that the Ordinance would still have been a law with respect to Commonwealth places which at the time of its enactment were within the area to which the Ordinance referred. (See also per Barwick CJ at 267, per Windeyer J at 281-2). See also Queensland Heritage Council v Corporate Trustees, Roman Catholic Diocese of Brisbane (2000) 157 FLR 373 at 382 (although the citations to Stocks & Holdings appear confused).

31 The present legislative scheme is entirely distinguishable. The Rating Act and LTMA are laws of general application, but they do not purport to affect or bind all land in the State as from 1956. Liability descends upon taxable owners with respect to their ownership of non-exempt land as at 31 December in a particular year. Even then, the rates and tax thresholds vary from period to period. The provisions referred to in par 25 above have the effect that the Commonwealth Crown and Commonwealth places are expressly excluded. In these circumstances, it is quite fanciful to see any role for s52 of the Constitution.

32 The matter may be tested by asking whether, if the Commonwealth Parliament enacted the LTMA and the Rating Act in 1956, it would have been valid as a law with respect to Commonwealth places (see Allders at 638, 642, 676). In my view it would not have been capable of such characterisation in light of the express exemption of land owned by the Crown and the absence of any other indicia sufficient to attract s52 of the Constitution.

33 In the circumstances, it becomes unnecessary to consider:

(a) whether miscellaneous amendments to the LTMA were effective to reenact the statute after the land had ceased to be a Commonwealth place (cf Sweeney v Fitzhardinge (1906) 4 CLR 716 at 735, Commissioner of Stamps (SA) v Telegraph Investment Co Pty Ltd (1995) 184 CLR 453 at 463, 479, Kartinyeri v Commonwealth (1998) 195 CLR 337 at 354, 369, 376, 420-1); and

(b) whether s14(2) of the Commonwealth Places (Administration of Laws) Act 1970 (NSW) is valid and effective to remove any problem stemming from the application of Stocks & Holdings to the LTMA and the Rating Act .

34 It should be recorded that the defendant placed no reliance upon s6(2) of the Commonwealth Places (Mirror Taxes) Act 1998 (Cth), because no arrangement is yet in operation for the purposes of s9 of that Act.

Disposition

35 It follows that the amended summons should be dismissed with costs.

36 The defendant seeks leave to file a cross claim seeking an order that the plaintiff pay $304,802.39 made up as follows:

1999 Tax Year $

Primary Tax $123,569.00
Interest for late Lodgment 3,412.50
Penalty Tax 24,713.80
Interest for late Payment 36,086.86
___________
187,782.16


2000 Tax Year

Primary Tax 98,836.00
Interest for late Payment 18,184.23
117,020.23
___________

Total: 304,802.39

37 The components of interest for late payment have been calculated up to 3 August 2001. They will need to be recalculated to the date of entry of judgment on the cross claim which, for reasons set out below is proposed to be seven days after the date of delivery of these reasons.

38 The evidence discloses that a reduced rate of penalty tax of 20% has been imposed pursuant to s27(1) of the Taxation Administration Act 1996, using the discretion under s33 of that Act. The plaintiff has filed a written submission, contending that no penalty tax should be imposed because:

(a) the question of whether or not land tax was owed by the plaintiff is very unclear;

(b) Austin J made obiter remarks consistent with the plaintiff’s position in the earlier Paliflex proceedings; and

(c) in all the circumstances it would be unreasonable for any penalty tax to be imposed.

39 It does not appear to be disputed that a “tax default” occurred, with the consequence that liability to pay penalty tax arose in accordance with s26(1) of the Taxation Administration Act 1996.

40 As presently advised I am most uncertain as to the Court’s power to address a claim for remission of penalty tax in these proceedings, having regard to the terms of the amended summons and the matters which have been debated before me. More importantly, I am very uncertain as to the manner in which the Court should exercise any relevant appellate power with regard to penalty interest. Does the Court need to be satisfied that the Commissioner erred in the exercise of the discretion reposed under s27? Is the matter at large? What is the factual material upon which any decision should be made?

41 For these reasons I am presently minded to enter judgment on the cross claim in the amount sought by the Chief Commissioner, subject to the interest calculations being updated.

42 I order that the proceedings stand over to 9.30am on 11 October for the making of final orders.

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Last Modified: 02/13/2002