Perry Properties Pty Ltd v Chief Commissioner of State Revenue (Rd)

[2012] NSWADTAP 13

Administrative Decisions Tribunal

New South Wales

Medium Neutral Citation:

Perry Properties Pty Ltd v Chief Commissioner of State Revenue (RD) [2012] NSWADTAP 13

Hearing dates:

12 March 2012

Decision date:

02 April 2012

Jurisdiction:

Appeal Panel - Internal

Before:

Judge K P O'Connor, President
S Frost, Judicial Member
J Schwager, Non-judicial Member

Decision:

1. Appeal dismissed.

2. Respondent's cross-appeal in respect of the Tribunal's refusal to order costs dismissed.

3. Respondent's application for costs of the appeal refused.

Catchwords:

STATE REVENUE - Appeal - Land Tax - Low Cost Accommodation - Exemption - Long Term Residence Criteria - Whether criteria confine calculation to the assessable period - Held, so confined - If not met, do criteria allow for exercise of discretion to allow exemption - Held, no - Appeal dismissed - Land Tax Management Act 1956, s 10Q; Revenue Ruling LT 78[3]

COSTS - Respondent's cross-appeal dismissed

Legislation Cited:

Administrative Decisions Tribunal Act 1997
Land Tax Management Act 1956
Taxation Administration Act 1996

Cases Cited:

AT v Commissioner of Police [2010] NSWCA 131
Chief Commissioner of State Revenue v McGrath & Anor [2008] NSWSC 387
Perry Properties Pty Limited v Chief Commissioner of State Revenue [2009] NSWADT 48
Perry Properties Pty Ltd v Chief Commissioner of State Revenue (RD) [2010] NSWADTAP 6
Perry Properties Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 145
Valastar Pty Ltd v Chief Commissioner of State Revenue [2010] NSWADTAP 84

Category:

Principal judgment

Parties:

Perry Properties Pty Ltd (Appellant)
Chief Commissioner of State Revenue (Respondent)

Representation:

Counsel
P English (Appellant)
I Mescher (Respondent)
M Granziera, Crown Solicitor's Office (Respondent)

File Number(s):

119032

 Decision under appeal 

Jurisdiction:

9108

Citation:

Perry Properties Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 145

Date of Decision:

2011-06-15 00:00:00

Before:

Revenue Division

File Number(s):

106006

REASONS FOR DECISION

1. APPEAL PANEL (K O'CONNOR, DCJ (PRESIDENT), S FROST (JUDICIAL MEMBER), J SCHWAGER (NON-JUDICIAL MEMBER): This appeal relates to the issue of whether the appellant is entitled to the benefit of an exemption from land tax for the 2007 tax year.

1. The Chief Commissioner issued the land tax assessment in September 2007. By reply dated 21 September 2007, the appellant applied for an exemption on the basis that the land was used for low cost accommodation as a boarding house, relying on s 10Q of the Land Tax Management Act 1956 (LTMA). Section 10Q provided relevantly:

10Q Low cost accommodation-exemption/reduction

(1) Land is exempted from taxation under this Act leviable or payable in respect of the year commencing on 1 January 1995 or any succeeding year if:

(a) the land is used and occupied primarily for low cost accommodation, and

(b) application for the exemption is made in accordance with this section, and

(c) the Chief Commissioner is satisfied that the land is so used and occupied in accordance with guidelines approved by the Treasurer for the purposes of this section.

(2) The guidelines may include provisions with respect to the following:

(a) the circumstances in which accommodation is taken to be low cost accommodation,

(b) the types and location of premises in which low cost accommodation may be provided,

(c) the number and types of persons for whom the accommodation must be provided,

(d) the circumstances in which, and the arrangements under which, the accommodation is provided,

(e) maximum tariffs for the accommodation,

(f) periods within which tariffs may not be increased,

(g) the circumstances in which the applicant is required to give an undertaking to pass on the benefit of the exemption from taxation (or, if subsection (4) applies, the reduction in taxation) to the persons for whom the accommodation is provided in the form of lower tariffs.

...

(5) This section does not apply to an owner of land in respect of a tax year unless:

(a) the owner applies to the Chief Commissioner for the exemption or reduction, in the form approved by the Chief Commissioner, and

(b) the owner furnishes the Chief Commissioner with such evidence as the Chief Commissioner may request for the purpose of enabling the Chief Commissioner to determine whether there is an entitlement to the exemption or reduction.

(6) Without limiting the other ways in which this section may cease to apply to a person, it ceases to apply to a person if the person breaches an undertaking given as referred to in subsection (2) (g).

1. The appellant had bought the boarding house, previously configured so as to allow for single or couple accommodation per room. The operative planning consent (from 1971) permitted occupation of a single room by a single person and occupation of a double room by a married couple. The premises were made up of 40 rooms. The appellant had reconfigured the lay-out of the rooms, so that each contained four single beds organised into two pairs of vertical bunks. Each room had an adjoining bathroom. The appellant opened for business on 26 January 2006. There was no provision for provision of meals, it was a 'lodgings only' operation.

1. The statutory guidelines applicable to the tax year 2007 are contained in Revenue Ruling LT 78. The guidelines approved by the Treasurer are at paragraphs [3]-[5]. The provisions relevant to this dispute are at paragraphs 3(i) to 3(iii) and 4:

3 The approved guidelines for the 2007 tax year are as follows

(i) land that is used as the site of a boarding-house will be entitled to an exemption from land tax for the 2007 tax year where, during the year ended 31 December 2006, in respect of at least 80% of the accommodation available to boarding house residents:

(a) occupation was by long term residents (a long term resident is considered to be a person who resided at a boarding-house for 3 consecutive months or for any periods totalling 3 months); and

(b) where full board and lodging was provided, the maximum tariff charged was no more than*:

$269 per week for single accommodation or $450 per week for married or shared accommodation

or where less than full board and lodging was provided, was no more than*:

$180 per week for single accommodation or $300 per week for family or shared accommodation

(ii) where the requirements of paragraph 3(i)(a) above could not be met, land used and occupied primarily for a boarding house may still qualify for exemption provided:

(a) at least 80% of the accommodation that was actually occupied was occupied by long term residents; and

(b) at least 80% of the accommodation available to boarding-house residents was either occupied or was available for occupation at tariffs within the limits shown in paragraph 3(i)

(iii) where less than 80% of the accommodation available to boarding house residents was occupied by long term residents, owners seeking an exemption must provide an explanation of the reasons that this requirement was not met and such circumstances will be considered on a case-by-case basis;

...

4 For the purposes of these guidelines, 'boarding house' is considered to mean premises which:

(i) are used in the course of conducting a business of letting rooms to boarders or lodgers; and

(ii) are used and occupied by at least three (3) long term residents who:

(a) are not members of the family of the owner or manager;

(b) are not directors or shareholders or members of the family of a director or shareholder of a company if the company is the owner; and

(iii) are not premises which are licensed under the Liquor Act 1982; and

(iv) are not used and occupied by persons who are subject to a Residential Tenancy Agreement under the Residential Tenancies Act 1987.

1. The respondent's sole ground for disallowance was that the per person tariff when multiplied by the number of people allowed in each room (four persons) exceeded the maximum permitted tariff per room.

1. In May 2008 the appellant applied to the Tribunal for review. The Tribunal upheld the respondent's decision: Perry Properties Pty Limited v Chief Commissioner of State Revenue [2009] NSWADT 48 (5 March 2009). It is now three years later and the dispute is still with the Tribunal. The subsequent history begins with a successful appeal to the Appeal Panel, and remittal of the matter to be redetermined.

1. The Appeal Panel found that the Tribunal had misinterpreted the statutory guideline as it related to what type of 'accommodation' fell within its reach.

1. The Tribunal had accepted the respondent's argument that this was not 'single accommodation' within the meaning of the guideline, and therefore the exemption was not satisfied in an essential respect. In the Tribunal's opinion, the guidelines treated single accommodation as referring to an arrangement under which there was one person per room and might extend to a situation where the room had been vertically subdivided so that there were two persons on either side of the room divider (at [33]).

1. The Appeal Panel disagreed. It held that the reference to single accommodation should not be construed as limiting the meaning of the term 'accommodation' to rooms occupied in the way suggested by the member at first instance. It had regard to the context of the guideline, addressing the need for low cost accommodation, and explanations given to Parliament. In its opinion, single accommodation could embrace bunk-house or dormitory style accommodation within the one room (at [52]). The Appeal Panel remitted the review application for reconsideration by the Tribunal. See Perry Properties Pty Ltd v Chief Commissioner of State Revenue (RD) [2010] NSWADTAP 6 (5 February 2010).

1. The Tribunal's next decision is the subject of this appeal: Perry Properties Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 145 (22 October 2011). The Tribunal again upheld the respondent's decision, this time on the basis that the appellant had not satisfied the rule that 80% of the residents of the boarding house be shown to be 'long term' in the sense set out in the guidelines.

1. The Tribunal reviewed the data produced by the appellant as to the lengths of time the users of the accommodation had been in occupation, and the respondent's opinion as to which of those instances satisfied the three months criterion. The Tribunal agreed with the submissions of the respondent that only 45% of the bed nights during 2006 (bed nights being the measure adopted in light of the Appeal Panel's ruling) were used by long term residents for a total period of at least three months.

Grounds of Appeal

1. Appeals are governed by the provisions of ss 112 and 113 of the Administrative Decisions Tribunal Act 1997 (ADT Act). An appeal may be made, as of right, on a question of law.

1. There are four questions of law raised. The first two questions go to the interpretation of paragraph 3(i)(a). They challenge the Tribunal's restriction of the operation of the clause to circumstances belonging to the year 2006, and its rejection of the appellant's submission that the time is 'infinite' for the accumulation of relevant periods of accommodation to meet the clause's requirements. The third question, in the alternative, challenges the Tribunal's failure to exercise the discretion said to arise under paragraph 3(iii) whereby circumstances that did not meet the requirements could be allowed.

1. The Tribunal also held that the appellant was not eligible for consideration for the exemption on the ground that the style of accommodation was not compliant with the planning consent, and therefore unlawful. The Tribunal considered that any tax exemption could only be given in respect of lawful activity. By the fourth question of law, the appellant contested the statement of principle and, if there was such a principle, the way the principle had been applied in the present case.

1. There is also an application for leave to extend the appeal to the merits. The respondent agrees that if the Appeal Panel is of the view that the appeal should be extended to the merits, it would be best to finalise it and not remit it again to first instance. The Appeal Panel agrees.

Accumulation of Time Beyond 31 December 2006 (Questions 1 and 2)

1. The taxing date for land tax in New South Wales is midnight on 31 December in the year preceding the year for which the land tax is levied (LTMA, s 8), in this instance 31 December 2006.

1. Taxpayers seeking to bring their case within the low cost accommodation exemption are not confined to a consideration of the circumstances at that precise time. As noted, the guidelines provide for three months' experience to be considered. It is the interpretation given to the calculation of the three months period that is at the heart of the appellant's appeal.

1. The appellant's data showed periods of occupation by residents that were short of three months as at 31 December 2006 but continued unbroken into 2007, and reached at least three months. Similarly the appellant's data referred to users of the accommodation who had returned to it in 2007 or later years. If the later periods were added to the 2006 periods, their total period of accommodation met the three months rule.

1. The respondent declined to take account of this data. The Tribunal agreed with the respondent's approach.

1. The one reference in the guidelines to a possible time bar appears in the opening words of paragraph 3(i), i.e.:

(i) land that is used as the site of a boarding-house will be entitled to an exemption from land tax for the 2007 tax year where, during the year ended 31 December 2006, in respect of at least 80% of the accommodation available to boarding house residents:

1. Paragraph (ii) provides an alternative way to paragraph (i)(a) for satisfying the exemption (the opening words are '(ii) where the requirements of paragraph 3(i)(a) above could not be met'). The time reference is not repeated at the beginning of sub-clause (ii), but, in the respondent's submission is necessarily to be implied.

1. The appellant submitted that the opening words of paragraph (i)(a) did not set a limit. The appellant's submission is that the requirements as to periods of time are at large. The submissions noted that there were corresponding Revenue Rulings governing this exemption for earlier land tax years which had the time bars placed in direct association with the accommodation criteria, making it clear beyond doubt that they were subject to such a time limit. The respondent accepted that the words were located in a different place in this Ruling, but rejected the appellant's submission that the relocation of the words was consistent with an intent to liberalise the operation of the provisions.

1. The appellant also argued that a 31 December time bar was unduly strict in policy terms. The appellant emphasised that the practical effect of such a reading would be to bar the counting of any period of occupation that commenced less than 3 months before 31 December 2006. This would, it is said, be antithetical to the purpose of this exemption, a tax measure designed to offer support to the development of low cost accommodation, especially in the inner area of Sydney. (The subject accommodation is in an inner suburb, Glebe.)

1. In our view, the reference to 'during the year ended 31 December 2006' does set a boundary in relation to the calculations (untoward in policy terms, as it may be). It appears at the head of the paragraph, and conditions, as we see it, all of the sub-paragraphs that follow including paragraph (a). In our view this interpretation is consistent with the context, purpose and orderly operation of legislation of this kind.

1. In relation to the orderly operation of the legislation, in our opinion the scheme would be impossible to administer without a boundary. The exemptions system under notice in this case is a function of the general administration of land tax. That is avowedly done on a calendar year basis, with, as previously noted, the taxing date being 31 December of the previous year. If the respondent's 'infinity' interpretation is correct, a taxpayer could bring into account time spent at the premises by 2006 users extending out into the years 2008, 2009 and 2010. Taxpayers would have an incentive to delay filing their returns if they thought there was a prospect of satisfying the 80% threshold at some point in the future. The land tax assessment process would become virtually unworkable around exemptions of this type if, as the appellant's argument allows, a taxpayer could benefit from delay in responding so as to accumulate from future activity credits towards the long term residence criteria.

Alternatively, whether a Relief Discretion is exercisable by Chief Commissioner (Question 3)

1. Paragraph 3(iii) is the focus of this ground of appeal. The appellant submitted that it was a broad provision, operating as a general exception to paragraphs (i) and (ii), and allowed for the exemption to be granted to cases falling below the thresholds set there. The appellant argued that the present case was one suited to the exercise of a broad discretion to give relief. It was a new owner. The year 2006 was the first year of its operation of the premises, as renovated; the business was in a build up phase; and the respondent's interpretation confined it being able to count, in effect, only 8 months of the year towards the three months' rule (having started on 26 January and not being able to count new occupants post 1 October).

1. We prefer the respondent's submission. In our view, sub-clause (iii) does not give an exemption of the broad kind suggested by the appellant. Sub-clause (iii) operates within a confined sphere.

1. In our view, the exemption scheme only contemplates two ways of obtaining the exemption. First, a taxpayer may qualify under the 80% rule, using as the base line for calculation 'the accommodation available to boarding house residents' (paragraph 3(i)(a)). The Tribunal noted in its first decision that 38 of the 40 rooms had been 'available' in this sense. That number, 38, therefore provided the base line. Second and alternatively, the taxpayer may choose as the base line 'accommodation that was actually occupied' (paragraph 3(ii)(a)). This base line admits of the possibility that there may have been a lower than maximum occupancy rate.

1. So for example there may have been an overall rate of occupancy of 32 rooms (using for this purpose 'rooms' as a measure), so the taxpayer would qualify if it was shown that 80% of 32 roooms was achieved across the year (i.e. 25.6). This compares to 80% of 38, i.e. 30.4, using the usual base line. Clearly a taxpayer may be assisted in obtaining the exemption if the lower of the two base lines can be used.

1. We accept the respondent's submissions that it is to this choice that the provision in sub-clause (iii) is directed. Though not, in our opinion, very clearly worded, we understand the purpose of the provision as being to enable the Commissioner to be satisfied that the use by the taxpayer of the more favourable lower base line is reasonable in the circumstances.

1. For example the accommodation provider may be able to point to circumstances explaining an actual occupation rate that regularly left untaken some rooms (or bed nights, to use the measure ultimately preferred in this case).

1. As respondent's counsel submitted, paragraph 3(iii) would be clearer in its effect if it appeared as a sub-condition of paragraph (ii), and might better have been set out as paragraph (ii) (c) in the guidelines.

1. In our view, there is no independent discretion given to the respondent allowing the respondent to grant an exemption that meets neither the 80% 'available' test nor the 80% 'actually occupied' accommodation test. Sub-clause (iii) is simply directed to the need to satisfy the Commissioner that the circumstances are such that the 'actually occupied' base line should be allowed, and to settle the point at which it should be fixed.

1. For the reasons given above the first three question of law grounds of appeal are rejected. In these circumstances there is no need to go on and deal with the fourth question of law.

Leave to Extend to Merits

1. While it is not necessary to demonstrate an error of law for there to be an extension of an appeal to the merits, the absence of any error of law especially in matters of taxation administration is a significant factor weighing against the grant of leave. It is vital to public confidence in the taxation system that it be seen to be administered according to law and consistently as between like cases. (To similar effect, see Chief Commissioner of State Revenue v McGrath & Anor [2008] NSWSC 387 at [45] per Gzell J.) In this instance there is no other reasonable basis for granting leave to extend to the merits.

Costs Issues

1. The remaining matters relate to costs.

(1) Respondent's Appeal against Tribunal's Refusal of Respondent's Costs Application

1. The respondent lodged a cross appeal as part of their notice in reply to the appellant's appeal. It challenged the Tribunal's decision not to grant its application for costs of the proceedings below. We noted at hearing that the respondent, the respondent to all matters in this Division of the Tribunal, had not conformed to the Guideline on Internal Appeals to the Appeal Panel (current version, 20 September 2010), para [9]. An appeal in the nature of a cross appeal is to be made by means of a separate notice of appeal, and, if required to do so, paying the prescribed fee. Nonetheless we went on to deal with the matter.

1. Sections 88(1) and 88(1A) of the ADT Act provide:

88 Costs

(1) Each party to proceedings before the Tribunal is to bear the party's own costs in the proceedings, except as provided by this section.

(1A) Subject to the rules of the Tribunal and any other Act or law, the Tribunal may award costs in relation to proceedings before it, but only if it is satisfied that it is fair to do so having regard to the following:

(a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings by conduct such as:

(i) failing to comply with an order or direction of the Tribunal without reasonable excuse, or

(ii) failing to comply with this Act, the regulations, the rules of the Tribunal or any relevant provision of the enactment under which the Tribunal has jurisdiction in relation to the proceedings, or

(iii) asking for an adjournment as a result of a failure referred to in subparagraph (i) or (ii), or

(iv) causing an adjournment, or

(v) attempting to deceive another party or the Tribunal, or

(vi) vexatiously conducting the proceedings,

(b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings,

(c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law,

(d) the nature and complexity of the proceedings,

(e) any other matter that the Tribunal considers relevant.

1. The respondent submitted that the Tribunal had failed to address, either at all or adequately, factors drawing on s 88(1A) which it considered justified an award of costs in its favour. The grounds of appeal referred to the Tribunal's finding that there had been delays by the appellant in filing its evidence. The respondent asserted in the notice of appeal that the Tribunal had erred in law in not making an award of costs in those circumstances, and there were 'other grounds' that warranted an order for costs. The respondent's written submissions at paras [104]-[114] develop these points; and those submissions refer in turn to paras [57]-[61] of their submissions to the Tribunal below.

1. The respondent referred to the Tribunal's recognition of the appellant's delay in providing 'bed night' information to the Tribunal below and to the Tribunal's finding that the appellant had failed to discharge its onus of proof. It submitted that the Tribunal had not had adequate regard to the degree of seriousness of the delays, and the time they had wasted. The respondent criticised the Tribunal's statement in its reasons that it had given 'no consideration' to the appellant's alleged operation of the premises in 2006 in non-compliance with the planning consent. (The appellant does now have a consistent planning consent.)

1. It is regrettable that this case has been with the Tribunal at first instance twice. It would have been simpler if all the potentially decisive points had been addressed in the first decision. Instead, on remitter, the Tribunal was dealing for the first time with the issue of whether, on the revised understanding of what constituted relevant accommodation, the 'long term' requirement was satisfied.

1. In merits review proceedings in the Tribunal, ordinarily there are no orders for costs made against losing parties. Ordinarily, review applicants do not bear any 'onus of proof'. They may, by means of the application for review, in effect, 'call in' a decision for re-examination.

1. Likewise in the Revenue Division of the Tribunal, it is most unusual for there to be any orders for costs. However, the applicant does bear an 'onus of proof'. At the objection stage, 'the objector has the onus of proving the objector's case' (Taxation Administration Act 1996, s 88) and, before the Tribunal on review, '[t]he applicant has the onus of proving the applicant's case' (s 100(3)).

1. In this case the respondent gives the appellant's failure to discharge the onus of proof as one of the reasons justifying an award of costs. In our opinion, a guarded approach should be taken to submissions of this kind. While the outcome of the case may be open to be regarded as a factor relevant to the exercise of the discretion to award costs (AT v Commissioner of Police [2010] NSWCA 131 at [33]), it should be approached mindful of the overall access objectives that the review jurisdiction of the Tribunal is intended to serve (see, generally, ADT Act, s 3, the objects clause).

1. We are not inclined to disturb the Tribunal's refusal to award costs to the respondent.

1. The costs discretion is a broad one. In our view, the Tribunal did in its reasons have regard to the main points of the respondent as they related to the weakness of the legal points taken and the way in which the proceedings were conducted. It did not take as harsh a view as the respondent.

1. We do not think it erred in declining to have regard to the planning consent issue. The primary task was to assess whether the taxpayer's business qualified for the exemption having regard to the way it was being conducted. The Revenue Ruling does not expressly identify as a relevant consideration the issue of whether the exemption-applicant's business is being conducted lawfully, in the sense of meeting the terms of the planning consent. The point arose late in the case before the Tribunal. In our view, it was open to it to disregard the matter for the purposes of exercising a costs discretion. Had the respondent from the outset raised it as a fundamental matter that disqualified the appellant from being considered for an exemption, our view might be different.

1. This appeal is dismissed. We will not proceed to direct the respondent to file a notice of appeal in proper form, but would ask that this aspect of Tribunal procedure be observed in future.

(2) Costs of the Appeal

1. The appellant has applied for its costs of the appeal, if successful, on the following grounds: (i) the submission that periods of residence outside of calendar year 2006 can be taken into account had no tenable basis in law; and, (ii), further and in the alternative, the submission as to this point was vexatious.

1. We agree, on closer examination, with the submissions of the Commissioner that the appellant's point of law was not a strong one, but we would not go so far as to describe it as untenable. We do not regard the raising of the point as vexatious. We have noted the approach taken in Valastar Pty Ltd v Chief Commissioner of State Revenue [2010] NSWADTAP 84 where an order for costs was made in favour of the Chief Commissioner in relation to a proceeding where the appellant's point was considered 'untenable', while the additional submission that it was 'vexatious' was rejected.

1. In this case we think that the way clause 3 was drafted left open, at the least, the line of argument reflected in ground 3. We found the guidelines difficult to follow, and see the drafting as having been less than ideal. The Commissioner acknowledged as much, with his counsel having to explain sub-clause (iii) as better read as paragraph (c) of sub-clause (ii). The clause, as the first appeal round demonstrated, was also less than clear on what forms of low cost single accommodation nowadays fell within the 'boarding house' exemption.

1. The application for the respondent's costs of the appeal is refused.

1. Further, we wish to indicate that had the application been successful we would have been disinclined to make an open-ended order for costs using the formula 'as agreed or assessed'. In this case the respondent filed five large volumes of material, called a 'tender bundle'. It included a lot of historical material in relation to the dispute, as well as an array of reported decisions.

1. The practice of the Tribunal is to seek to avoid filings that approximate the 'Appeal Books' of the appeal courts. The aim is to limit appeal filings to fresh material, such as the notice of appeal, the reply and the submissions. We are of course assisted by lists of authorities and selected texts of judgments. Had the respondent's application been successful, we would have only allowed a proportion of the costs of the proceedings; or invited the respondent to limit its application in this regard to the costs associated with the filings required by Appeal Panel practice.

**********

Decision last updated: 05 April 2012