PESCOTT And INSPECTOR-GENERAL IN BANKRUPTCY - [2013] AATA 680

ADMINISTRATIVE APPEALS TRIBUNAL )

) 2013/0493-0494
GENERAL ADMINISTRATIVE DIVISION )
Re:ROGER PESCOTT
Applicant

And:INSPECTOR-GENERAL IN BANKRUPTCY
Respondent

CORRIGENDUM TO DECISION [2013] AATA 680

The Tribunal amends its decision of 24 September 2013 as follows:

1.in (2)(b) of the decision which appears prior to the reasons for decision and within the reasons for decision at [133] by:
(a)deleting “relation to each contribution assessment period being CAP2 and CAP3”; and
(b)in its place inserting “in the period beginning from 1 July 2013 in CAP3”.

_(sgd) S A Forgie_
Deputy President

CATCHWORDS – BANKRUPTCY – contribution assessments – fringe benefits – value of fringe benefits – housing right benefit – assessing value of right – identifying nature of right as right to occupy or as a lease –assessment by reference to rental value – consideration of principles – assessment of rental value when consideration wholly in kind or partly in kind – adjourn further consideration of value of garden maintenance and any other relevant matters.

CATCHWORDS – BANKRUPTCY – contribution assessments – fringe benefits – identifying provider of right – identifying whether provided under a right to occupy given by the owner or, under a lease or otherwise by spouse – reconciliation of provisions relating to housing right fringe benefit with those relating to support provided by way of lodging (including board) – right to occupy given by owner does not exclude certain income under modified definition of “fringe benefit” – right to occupy provided by spouse may do so.

CATCHWORDS – PRACTICE AND PROCEDURE – estoppel – whether Tribunal bound to adopt finding of facts made by differently constituted Tribunal in reviewing contribution assessment relating to earlier contribution assessment period – not bound by those findings – whether should, as matter of discretion, adopt those findings of fact – findings not adopted.

DECISION AND REASONS FOR DECISION [2013] AATA 680

ADMINISTRATIVE APPEALS TRIBUNAL     )
  )          2013/0493-0494
GENERAL ADMINISTRATIVE DIVISION     )

ReROGER PESCOTT
Applicant

AndINSPECTOR-GENERAL IN BANKRUPTCY
Respondent

DECISION

Tribunal:                   Deputy President S A Forgie
Date:  24 September 2013
Place:  Melbourne

Decision:The Tribunal:
(1)sets aside the decision of the respondent dated 14 January 2013 setting aside the decision of the Trustee dated 20 September 2012 to issue contribution assessment notices in respect of contribution assessment periods, CAP2 and CAP3; and
(2)for that decision substitutes, in part, a decision that:
(a)the value of the applicant’s housing fringe benefit at the property described either as Trawalla House or as the Homestead at Trawalla including approximately five hectares of gardens is to be calculated according to the following formula:

where:

$1,800 represents that part of the rental paid in cash monthly; and
$x represents the value in money terms of the work undertaken on the garden by Mrs Pescott; and
(b)the amount of income assessed to the applicant as fringe benefit in relation to each contribution assessment period being CAP2 and CAP3 is reduced by $250 per week; and

(3)adjourns further consideration of the decision that should be substituted to enable the parties to:
(a)obtain evidence relevant to the calculation of the value of $x in the formula; and
(b)address matters other than fringe benefits, if any, to which I should have regard in reviewing the Trustee’s assessments.

_(sgd) S A Forgie_

Deputy President

Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410
Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321; 94 ALR 11
Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682; [2009] ATPR 42-290
Australian Securities and Investments Commission v Forge [2003] FCA 274; (2003) 133 FCR 487
Blair v Curran (1939) 62 CLR 464
Boland v Yates Property Corp Pty Ltd [1999] HCA 64; (1999) 167 ALR 575; (1999) 74 ALJR 209
Bronzel v State Planning Authority (1979) 44 LGRA 34
Commonwealth v New South Wales (1923) 33 CLR 1
Crompton v Commissioner of Highways (1973) 5 SASR 301; 32 LGRA 8
Crouch v Minister of Works (1976) 13 SASR 553; 36 LGRA 254
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60
Federal Commissioner of Taxation v St Helens Farm ACT Pty Ltd (1981) 146 CLR 336
Goldsworthy Mining Ltd v Federal Commissioner of Taxation [1973] HCA 7; (1973) 128 CLR 199
Hinkley v Star City Pty Ltd [2010] NSWSC 1389
ICI Alkali (Aust) Pty Ltd (in vol liq) v Federal Commissioner of Taxation [1977] VicRp 48; [1977] VR 393
Kenmax Pty Ltd v Sydney City Council 89 LGERA 355
Lloyd v Jones (1848) 6 CB 81
Marcus Clark & Co Ltd v Commissioner for Railways (1949) 29 LVR 98
Metcalfe and Morris Pty Ltd v Reekie [1963] NSWR 459
Minister for Environment v Petroccia (1982) 30 SASR 333; 55 LGRA 244
Minister for Immigration and Multicultural Affairs v Eshutu (1999) 197 CLR 611; 162 ALR 577
Radaich v Smith [1959] HCA 45; (1959) 101 CLR 209
Re Pescott and Inspector-General in Bankruptcy [2012] AATA 727
Re Phillips and Inspector-General in Bankruptcy [2012] AATA 788; (2012) 58 AAR 452; 131 ALD 564
Re Rana and Military Rehabilitation and Compensation Commission [2008] AATA 558; (2008) 48 AAR 385; 104 ALD 595
Robinson Brothers (Brewers) Ltd v Houghton and Chester-Le-Street Assessment Committee [1937] 2 KB 445
Sheath v The Valuer-General (1963) 10 LGRA 20
Spencer v Commonwealth of Australia [1907] HCA 82; (1907) 5 CLR 418; (1907) 14 ALR 253
Spicer v Valuer-General (1963) 10 LGRA 319
St Martins’ Centre Pty Ltd v Valuer-General (WA) (2003) 30 SR (WA) 218
Sullivan v Department of Transport (1978) 1 ALD 383; 20 ALR 323
Sun v Minister for Immigration and Ethnic Affairs [1997] FCA 324
Tolhurst Druce & Emmerson (a firm) v Maryvell Investments Pty Ltd (in liq) [2007] VSC 271

Administrative Appeals Tribunal Act 1975, ss 33, 37
Bankruptcy Act 1966, ss 58, 77, 139J, 139K, 139L, 139P, 139Q, 139R, 139S, 139T, 139U, 139V, 139W, 139WA, 139X, 304A
Fringe Benefits Tax Act 1986, ss 3, 5, 6
Fringe Benefits Tax Assessment Act 1986, ss 8, 17, 25, 26, 29A, 41, 136
Property Law Act 1958 (Vic), s 60
Rating and Valuation Act 1925 (UK)
Social Security Act 1991, s 1064-B1

Bankruptcy Regulations 1996, r 6.15A, 30.3

Chambers 21^st Century Dictionary, 1999, reprinted 2004, Chambers

REASONS FOR DECISION

On 7 September 2010, a sequestration order was made under the Bankruptcy Act 1966 (Bankruptcy Act) against the estate of Mr Roger Pescott. Mr Nick Mellos was appointed as trustee of Mr Pescott’s bankrupt estate. In that role, Mr Mellos issued a notice of contribution assessment (assessment) in relation to each of two twelve month contribution assessment periods beginning 7 September 2011 (CAP2) and 7 September 2012 (CAP3). He assessed the contributions at $21,510.89 for CAP 2 and at $23,052.81 for CAP3. Mr Pescott asked the Inspector-General in Bankruptcy (Inspector-General) to review the contribution assessments. She set them aside and made fresh notices of assessment assessing Mr Pescott’s contribution for CAP2 as $20,480.45 and for CAP3 as $10,052.81. The matters in dispute centre on the interpretation and application of the provisions of the Fringe Benefits Assessment Act 1986 (FBTA Act).

On behalf of the Inspector-General, Mr Giacco submitted that I am estopped by an earlier decision of the Tribunal made after reviewing the contribution assessment in relation to CAP1, which began on 7 September 2010 and ended on 6 September 2011. In particular, he submitted either that I am estopped from attributing any value to certain property other than that attributed by the Tribunal at that time or, if I am not estopped, I should reach the same conclusion. I have decided that I am not estopped from considering the matter and, in so far as I have a discretion to accept the conclusion reached by the earlier Tribunal, I do not exercise it. Instead, I have considered the value of any benefit that Mr Pescott might have received afresh.

The second relates to the value of the accommodation that Mr Pescott is provided. I have considered various valuation methods and have concluded that the value for both CAPs is assessed partly by reference to an amount of money reflecting the rent paid after 1 July 2013 by Mrs Pescott to the owners of the house in which she and her husband and their family live and partly by reference to the cost of maintaining the extensive gardens extending over some five hectares.

The third issue relates to the identity of the person providing that accommodation. I have decided that, until 30 June 2013, it was provided by the owner of Trawalla House which had given both Mr and Mrs Pescott a right to occupy it. After 1 July 2013, it is provided by Mrs Pescott as she is the sole lessee of the property. Although Mr and Mrs Pescott had signed a tenancy agreement, I have found that Mr Pescott is not paying rent to Mrs Pescott. Mrs Pescott is, instead, providing lodging (including board) to him and he is entitled to have an amount of up to $250 each week disregarded from the amount otherwise assessed as the value of his fringe benefits under the FBTA Act.

BACKGROUND

At the time Mr Pescott was declared bankrupt, he and his wife resided on a rural property known as “Trawalla” in central western Victoria. It is situated approximately six kilometres to the south west of Trawalla. Trawalla is approximately 45 kilometres to the west of Ballarat in Victoria and some 135 kilometres to the west of Melbourne. They are connected by the Western Highway. The town of Beaufort lies another eight kilometres or so to the west of Trawalla and is also located on the Western Highway.

Trawalla

Trawalla was owned by Traland Pty Ltd (Traland) of which Mrs Pescott has been a director at all relevant times. On the basis of the copy of the Title Plan, I find that it comprises ten allotments covering an area of some 3,318 hectares[1] or 8,198.3 acres. The land is variously suited to cropping, fodder production, livestock fattening and wool production.[2]
[1] There is a small variation in the evidence ranging from 3,317.81 in the supplementary documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (ST documents); ST 2 at 159 to 3,318.02 hectares in the Lanklink report in Exhibit R.
[2] ST documents; ST2 at 153 and 160

Covenant for the Conservation of Land

On 5 April 2006, Traland Pty Limited (Traland) and Trust for Nature (Victoria) executed a Deed of Covenant for the Conservation of Land (Conservation Covenant).[3] Both were satisfied that an area of 49.54 hectares of Lot 1 (known as Church Paddock) possesses appropriate characteristics for the purpose of the conservation of the land and its native plants and wildlife, natural significance and beauty, ecological significance, historical interest, bushland, trees and rock formation and its watercourses, lakes, ponds, marshes and other bodies of water. Under the Conservation Covenant, Traland undertook not to permit a variety of activities including destruction of any local indigenous trees, adversely affect any local indigenous flora or fauna and their habitats, disturb the soil or rocks, or permit any structure or dwelling on the land.
[3] ST documents; ST2 at 203-210

The valuation of Trawalla in April 2007

On 10 April 2007, Trawalla was valued to assess its “market value … for first mortgage purposes.” It was a valuation undertaken by Landlink Group Pty Ltd (Landlink). I accept the general description of the property given by Landlink:
“The property has a substantial level of improvements which are predominantly around the central section of the holding and comprise a stately two storey mansion with various outbuildings and stables set in extremely well presented gardens, an original homestead dating back to the first settlement, a manager’s house, gardener’s house, various workers’ cottages, a modern machinery shed and older style machinery/hay sheds, a shearing shed, substantial historic shearers’quarters, a new chemical shed and stock handling facilities.”[4]
[4] Exhibit R at 10 of Lanklink report

Twenty one of the structures are then described together with a short description of a number of other buildings grouped under “Sundry Structures”. The structure of interest in this case is what is called the “Main Homestead”:
“The main homestead comprises a 1,412.4 sqm two storey 1891 brick mansion on bluestone foundations with a pitched slate tile roof, timber frame windows, plaster internal linings and timber floors.
Accommodation includes 15 bedrooms, formal entrance, formal dining, a smaller dining room, library, sitting room, still room, family room, kitchen/meals/living area, approximately 4 bathrooms, laundry and various store rooms.
The homestead provides a high level of accommodation and has been recently refurbished to part, including the main kitchen/meals/living area and various rooms throughout the home.
The dwelling appears structurally sound with regular maintenance and refurbishment being undertaken over the years.
The home has 340.7 sqm verandah to its frontages.
Ancillary structures include a glasshouse, in ground swimming pool, tennis court, various brick outhouses, a summer house and storage facilities all set in a substantial garden setting occupying some 5 hectares.”[5]
[5] Exhibit R at 10. The Lanklink report is not a structural report on the buildings or on plant or equipment. In particular, no inspection was carried out on unexposed or inaccessible portions of the premises: Exhibit R at 18.

The Lanklink report summarised the state of both the property and commodity markets before examining sales evidence. The commentary on the property market set the environment in which the valuation was conducted:
“Historically the rural market in central western Victoria, like most other property sectors has experienced strong levels of growth over the last five years. Increased demand has emanated as a result of firming commodity prices, renewed confidence in the rural sector and reduced interest rates. As a result values have firmed considerably over the last 3 to 4 years.
Western Victoria has experienced a prolonged period of below average rainfall over the last 10 years. Traditionally spring is the strong selling period however the effects of the drought have reduced the level of property offered for sale in late 2006. Despite this, those properties which have reached the market have traded strongly with value levels remaining firm.
The start of 2007 has seen renewed optimism with greater confidence in the season returning to more favourable rainfall patterns. As a result there has been a flurry of sales activity in the first quarter. Smaller holdings are highly sought after by well established land holders often emanating from the same district. Sales results are indicating significant premiums are being paid with the expectation that returns from the 2007 season will offset the premium outlaid.
Similarly single entity holdings are trading well with much of the activity occurring off market between neighbours. These sales are indicating a 10%-15% increase on values from 2006 levels. Large stations such as the subject sell sporadically with the recent sales of Banongil Station and Carngham Station of note. Sales in this end of the market often result in a long drawn out selling period and in the case of Carngham Station has been sold in many parts to optimise the value.
The recent spike in values for rural land is questionable as to its sustainability. Discussions with agents and land holders indicate that the returns on capital value of land are not as favourable and leasing is now becoming a good alternative. Many producers are now utilizing the farm equity which has been built over the last three to four years for drought management and further property purchases. Rising interest rates, fuel prices and feed costs are having an effect on the bottom line.
The direction of the market is heavily dependant on the outcome of the 2007 season, commodity price levels and arrival of the much needed autumn break.”[6]
[6] Exhibit R at 21

Landlink stated in its report that it had determined the value in accordance with the API Professional Standards and Guidance Notes. Therefore, Trawalla was valued on the basis of vacant possession. Two methods were used to value the property. The main method used was that of direct comparison and it was checked by using a summation method of valuation. Landlink described the direct comparison method and the conclusion it had reached:
“This valuation method is the most frequently used approach and involves comparison of the property to be valued with sales of similar properties.
At this stage, points of difference are taken into account by the valuer including the location of the properties, quality and size of improvements, difference in land areas, views etc and reduces the comparison down to a unit of comparison. In the case of rural land this is typically dollars per hectare ($/acre). The encumbrance of the lease has not yet been included in the calculations.
When considering the above properties on a direct comparison approach it is considered that there is only one property which provides an adequate reflection of value on a rate per hectare ‘Carngham Station’ is a smaller holding with a greater proportion of inferior land classes, however is improved to a better standard than ‘Trawalla’ with its working improvements. Given that ‘Carngham Station’is a third of the size of ‘Trawalla’, a logical allowance has to be made for not only the land area but also the number of titles when considering a suitable rate per ha for comparison.
Our assessed value indicates a land value rate of $5,100 per ha.
Our assessment of summary on this basis is as follows:

Direct Comparison Approach (rate psm land area)

Land area:

3,318.2 ha @ $5,100/ha

$16,921,902

Adopt, total market value:

$17,000,000”[7]

[7] Exhibit R at 23-24

Landlink described the summation method it had used. I note that the figure of $17,11,806 is shown as the Total Value Indication but should read $17,011,806:
“The summation valuation approach involves the assessment of the value of the land (based on direct comparison and analysis of sales of improved and unimproved properties), and the addition of the ‘added value’ of the improvements (buildings etc) on the land. Sales are analysed to indicate components of value for land and buildings.
The added value of the improvements is likewise assessed having regard to market evidence and can be assessed on a rate per area basis (eg $ psm).
In determining the overall land value, each land class has assessed taking into consideration factors which affect the property overall. Given the size of the holding and the number of titles it is anticipated a reduced level per hectare would be expected in comparison to the analysed rates indicated by smaller holdings. Again Carngham Station is considered to be the most comparable holding for this approach.
Similarly the improvements have been assessed given their added utility of the property. We note that the requirements for workmans [sic] accommodation is reducing placing little added value on some of the dwellings. It is also considered that many of the working improvements are obsolete with limited access for large machinery, bale storage and design in the case of the shearing shed.
A table summarising this approach is shown below:

Low Lying Grazing

325.00 ha

$4,450 per ha

($1,800 per acre)

$1,446,250

Undulating Grazing

550.00 ha

$4,550 per ha

($1,850 per acre)

$2,502,500

Raised Bed Cropping

1,200.00 ha

$5,200 per ha

($2,100 per acre)

$6,240,000

Additional Cropping

400.00 ha

$4,800 per ha

($1,950 per acre)

$1,920,000

Arable Grazing

388.48 ha

$4,700 per ha

($1,900 per acre)

$1,825,856

Creek and Escarpment

375.00 ha

$2,500 per ha

($1,000 per acre)

   $    937,500

Bush Reserve

49.54 ha

$2,500 per ha

($1,000 per acre)

$    123,850

Structures and Working Improvements

30.00 ha

$4,450 per ha

($1,800 per acre)

$    133,500

Compound

Total Value for Land

$15,129,456

Main Homestead and Ancillary Structures

$ 1,469,160

Domestic Improvements

$     259,190

Working Improvements

$     154,000

Total Value Indication

$ 17,11,806

Rounded to:

Rounded to

$17,000,000”[8]

[8] Exhibit R at 25

Preparing to market Trawalla

In or about July 2010 and before Mr Pescott’s bankruptcy, Traland had decided to sell Trawalla. On 15 July 2010, Mr Pescott wrote as a Director of Mariland Pty Ltd to Mrs Pescott as a Director of Traland. Mariland Pty Ltd owned another property called “Hobsons” that was one of four other properties marketed with Trawalla. He asked for confirmation of another matter regarding the efforts to sell the properties. Among them, he asked for confirmation that she and Traland had a firm agreement that she would continue to reside in Trawalla House to supervise the sale up to settlement and maintain the Homestead in presentable order.[9]
[9] T documents at 44-45

On 20 July 2010, Mrs Pesccott wrote to Mr Pescott in his capacity as a director of CMP Pastoral Pty Ltd and Maridale (Victoria) Pty Ltd and before his bankruptcy. She wrote about issues arising from the sale of Trawalla and four other farms. With regard to the sale of Trawalla in particular, Mrs Pescott wrote:
“Traland agrees to maintain all its land and buildings to the most presentable level during the sale process up to the date of settlement. For this reason I have an agreement with Traland that under no circumstances can I be removed from Trawalla until settlement.”[10]
[10] T documents at 46

Marketing Trawalla

On 28 July 2010, Mr and Mrs Pescott both signed a document authorising Elders Rural Services (Aust) Ltd (Elders) to sell Trawalla on behalf of Traland (Authority). The Authority noted that its asking price was $30 million, which matched the agents’ estimated sale price shown in the same document.[11]
[11] ST documents; ST5 at 241-244

Initially, Trawalla was to be sold by Expression of Interest expiring on 15 October 2010.[12] It failed to sell at that time but remained on the market. Traland had appointed agents who prepared a brochure regarding Trawalla. That brochure set out a detailed description of the land and the structures upon it and included colour photographs of the Homestead and several of its rooms. Of particular relevance is its description of the Homestead:
“‘Trawalla Homestead’ sits prominently in a century old English treed and garden setting comprising 14 bedrooms, 4 bathrooms, entrance vestibule, library, morning room, study, formal dining room, sitting room, family room, large country kitchen, adjoining meals area, pantry, laundry and various utility rooms. Hydronically heated throughout, “Trawalla” homestead presents in outstanding condition, burgeoning with original features offering superb accommodation and possessing every modern feature.
The professional interior designed décor has been tastefully selected to reflect the splendour of the homestead period.
Built in 1891 “Trawalla” homestead is one of the finest examples of an era in rural living that rarely presents to the market in rural Australia.
Surrounded by sweeping lawns, cottage gardens, century old English trees, gravelled pathways and walled kitchen garden, the two-storey verandahed homestead is privately located within the property near Mt Emu Creek, providing a reliable water source for the garden surrounds and a secure habitat for many species of native bird life.
The homestead precinct has a historic carriage shed/stable complex, dairy room, garden nursery, greenhouse, workshop, paint room and self contained staff/guest accommodation.
GARDEN OUTHOUSES
Ancillary structures include a glasshouse, various brick outhouses, a summer house and storage facilities all set in a substantial garden setting occupying some 5 hectares.”[13]
[12] ST documents; ST2 at 148-174
[13] ST documents; ST2 at 161-162

An article in Ballarat’s newspaper, The Courier, on 10 September 2010 stated:
“IT IS a hidden treasure, a true pearl of rural real estate, and it is on the market.
Expressions of interest are being sought for Trawalla homestead, which was built nearly 200 years ago.
Elders Real Estate agent Shane McIntyre said the Trawalla property, which has been in the McKenzie family for generations, is one of the best properties of its type in Australia.
But he would not reveal the expected price.
‘It is one of the finest examples of its type in rural Australia,’ he said.
‘The decision to sell was a difficult family decision.’
‘The 130-square-metre property is set on more than 10,000 acres and boasts 14 bedrooms and four bathrooms.
It is believed the 10,000 acres alone could sell for $3 million.
…”[14]
[14] Exhibit M

The sale of Trawalla

Trawalla was sold for a total sum of $18,000,000.00. The sale included both the land and the “Farming Business”. The area of each allotment and the portion of the sale price attributed to each for the purposes of Victorian Stamp Duty is set out in the following table:

Lot No.	Area (hectares)	Price
1	930.9 (includes 49.54, known as Church Paddock, subject to a Conservation Covenant)[15]	$6,755,268.00
2	293.5	$1,420,250.00
3	207.2	$987,490.00
4	202.3	$1,011,500.00
5	338.7	$1,562,250.00
6	[not shown on title plan]	$2,428,299.00
7	15.83	$79,150.00
8	99.96	$469,392.00
9	204.0	$989,550.00
10	176.3	$848,635.00

[15] Exhibit 2 at 203-210

Settlement took place on 16 January 2012. The transfer of the fee simple was transferred to Ms Richmond’s nominee, Trawalla Properties Pty Ltd (TPPL), on 29 February 2012 and a new title issued to that company for each of the ten Lots.[16]
[16] Documents returned by Mrs Caroline Pescott in response to summons

The “right to occupy”

On 1 July 2011, Traland sold Trawalla to Ms Elizabeth Richmond or her nominee.[17] The sale was subject to four Special Conditions, of which only the third is relevant:
“RIGHT TO OCCUPY
The directors of the Vendor and their immediate family shall retain the right to occupy the main homestead of the Property for a period of up to six months after Settlement.
The directors must properly maintain the main homestead (excepting structural maintenance) in a fit and proper condition and pay all utilities costs associated with their occupation for electricity, heating requirements and liquefied gas. Any swimming pool maintenance shall also be the responsibility of the directors.”[18]
[17] Exhibit 3 at 201-214
[18] Exhibit 3 at 213

Before the expiration of the six month period referred to in the Special Conditions, Ms Richmond, a director of TPPL, wrote to Mrs Pescott on 6 July 2012 confirming that:
“… the right to occupy the main homestead at Trawalla has been extended for a further twelve months to Mrs Caroline Pescott, under the same conditions as specified in the contract of sale – i.e. that you ‘must properly maintain the main homestead (excepting structural maintenance) in a fit and proper condition and pay all utility costs associated with their occupation for electricity, heating requirements and liquefied gas’ including the swimming pool.”[19]

Ms Richmond asked Mrs Pescott to sign the letter to signify her acceptance of the terms. She did so.

[19] Exhibit 3 at 47

Since 1 July 2013, Mrs Pescott has paid rent to TPPL’s management company, Rosegrange Pastoral Company (Trawalla) Pty Ltd (Rosegrange) at the rate of $1,800.00 per month. As she states in her Statutory Declaration made on 20 August 2013, she continues “… to have an obligation to look after minor maintenance and the garden.”[20]
[20] Exhibit H at [9]

The Trustee’s assessment of contributions for CAP 1 and the Inspector-General’s review

On 3 December 2010 and following Mr Pescott’s bankruptcy, his Trustee made a contribution assessment for CAP1 extending from 7 September 2010 to 6 September 2011. He determined that Mr Pescott was receiving a fringe benefit while living at Trawalla House and valued it at $26,000.00. That figure represented half the annual value of $52,000 residing at Trawalla House as Mr Pescott lived there with his wife and two sons.

On review, the Inspector-General assessed the value of the same benefit to be half of an annual value of $75,000.00 or $37,500.00. He reached that figure by taking 2.5% as a fair and reasonable rental yield on the capital value of Trawalla House and then multiplying it by $3,000,000.00, which he took to be its value. The reasoning adopted was:
“… [M]y investigations also show that the rental yield (being the ratio of annual rental income and re-sale value of the property) in rural areas near Ballarat, Victoria is between 2.76% to 4.8% (for property’s [sic] valued at less than $1,000,000). Furthermore, the rental yield decreases when the value of the property increases (A copy of the Ballarat Real Estate Report Graphs is attached as Annexure C).
Based on the information above and scale of Trawalla House, I am satisfied that 2.5% is a reasonable and fair rental yield applicable in your case.
I was advised by the real estate agent who listed Trawalla House, Mr Shane McIntyre that the listed price for Trawalla House is between $25,000,000 and $30,000,000. However, I am not convinced that this price guide should be applied to determine the value of the property in which you and your family are residing in at the moment, because this price includes various farming lands and associated economic benefits generated by the land which you do not appear to directly benefit from.
I have concluded that your direct benefit is from the main building and associated facilities, therefore the stand-alone value for the main building and surrounding facilities should be used in calculation of the rental yield.
My independent inquiry reveals the house alone is believed to be worth approximately $3,000,000. An article published in The Courier confirmed same. I am therefore satisfied that the value of the main building at Trawalla House is somewhere near $3,000,000 (annexure C) and I will use this figure when calculating the rental benefit from this house property to you.
Based on the information above, I have concluded that the proper prospective rent for the house you are residing in is $75,000 per annum. Consequently, the fringe benefit you are receiving is $37,500 per annun [sic].”[21]
[21] T documents; T2 at 13

The Inspector-General relied on a document setting out “Ballarat Rental Yields” for the nine month period from June 2010 to February 2011.[22] The figures appear to have been drawn from the column headed “Median Rent Yield %” in the first table that summarises information for a variety of buildings providing residential accommodation. Among others, they include houses, apartments, townhouses, terraces, flats, unknown and commercial. The information is given against the number of beds in each type of building. Trawalla House is a house and the figures for houses and the one property shown as “commercial” are:[23]
[22] T documents; T2 at 17
[23] T documents; T2 at 17-18

Beds	Average Price	Average Rent		Average Rent Yield %			Median Price			Median Rent		Median Rent Yield %			Listings
Houses
1	$239,185	$1,365	29.68%			$212,925			$170			4.15%			25
2	$239,384	$221	4.8%			$227,500			$220			5.03%			197
3	$296,724	$260	4.56%			$269,500			$250			4.82%			661
4	$494,114	$323	3.4%			$445,000			$310			3.62%			208
5	$877,135	$364	2.16%			$680,000			$350			2.68%		31
7	$440,000	-	-			$440,000			-			-		1
10	$1,200,000	-	-			$1,200,000			-			-		1
13	$1,075,000	-	-		$1,075,000			-			-		2
Commercial
22	$1,999,000	-	-		$1,999,000			-			-		1

Tenancy agreement signed between Mr and Mrs Pescott on 17 January 2012

The tenancy agreement began with a recital referring to the sale of Trawalla to Traland under a contract of sale dated 1 July 2011. It followed with a further recital that:
“Whereas Caroline, as a Director of Traland, was granted the right to occupy the main homestead of Trawalla Estate (Trawalla House) for a period of up to six months after settlement (16 January 2012).”[24]
[24] Exhibit 3 at 48

The agreement then states:
“It has been agreed hereby as follows:
1.Caroline has let half the premises known as Trawalla House to Roger for an amount of $500 per week payable fortnightly. Payment can be in cash or by electronic funds transfer.
2.The period of this agreement commenced on 16 January 2012 until 15 July 2012. Pursuant to a letter dated 6 July 2012 which was signed by Trawalla Properties and Caroline, this period has been extended until 30 June 2013.
3.There is no bond payable.
4.The lessor must ensure that the premises are maintained in good repair.
5.The lessee must take reasonable care to avoid damaging the rented premises.
6.The lessee must keep the premises in a reasonably clean condition during the period of agreement.
7-11.…”[25]
[25] Exhibit 3 at 48

The Tribunal’s review of the Inspector-General’s decision in respect of CAP1

On 23 October 2012, a differently constituted Tribunal reviewed the Inspector-General’s decision and affirmed it. A reading of its reasons for decision indicates that, putting aside the legislative provisions, it had regard to the following matters in assessing the value of Mr Pescott’s accommodation at Trawalla House:
(1)“For the purposes of calculating the applicant’s fringe benefit as a joint tenant, an agent determined the value of the Trawalla property to be $25,000,000 - 30,000,000. …”[26]
(2)“… ITSA … reduced the applicant’s share of the estimated rental income to be $37,000 per annum, or 721.15 per week. ITSA based its calculations on an assumption that the value of the Trawalla property was $3,000,000 (as the $25,000,000-30,000,000 figure included various farmlands and associated economic benefits generated from the land which the applicant did not profit from) with a rental yield of 2.5%. …”[27]
(3)“The respondent told the Tribunal that the Trawalla property had a value in the vicinity of $25,000,000-30,000,000. The respondent referred to a Contract of Sale dated 1 July 2011 relating to the Trawalla property, which indicated it was sold to Elizabeth Richmond (and or nominee) for $18,000,000. In the Tribunal’s opinion, not much turns on the value of the property in its entirety. The respondent did not seriously contest that it would be more appropriate to base a valuation, for the purposes of determining the applicant’s fringe benefit, on the value of the home on the property rather than the property in its entirety.”[28]
(4)“ITSA had previously determined that the home should be valued at $3,000,000. At the hearing, the respondent invited the Tribunal to consider increasing this valuation on the basis that the Transfer of Land relating to the sale of the property in its entirety, revealed nine separate lots. Each of the nine lots came with its own valuation for stamping purposes. Lot 1, on which the home was located, was valued at $6,755,268.
The applicant contested the valuation of $3,000,000 for the home. More significantly, the applicant rejected the argument that the home should be valued at $6,755,000 as Lot 1 included a church, summer house, sheering [sic] shed and other farm buildings.
The Tribunal accepts that the figure of $6,755,000 on the Transfer of Land is not a reliable guide to the value of the home and that it should be valued at a lesser figure. However, the Tribunal has no evidence upon which to justify a reduction in the valuation below $3,000,000, and accordingly considers $3,000,000 to be an appropriate figure.
Similarly, the Tribunal has no evidence before it which would justify revisiting the application of a rental yield of 2.5% to the estimated value of the home. Accordingly, the Tribunal considers the deemed rental of $37,500 per annum appropriate.”[29]
(5)“The Tribunal upholds the decision under review. Specifically, the Tribunal is of the opinion that a valuation of $3,000,000, in respect of the home in which the applicant resides, is a reasonable figure. Furthermore, the Tribunal finds that an estimate of rental income using a rental yield of 2.5% is appropriate. It follows that the prospective rent for the house is $75,000 per annum, of which the applicant’s 50% share is $37,500 in CAP1.”[30]

[26] Re Pescott and Inspector-General in Bankruptcy [2012] AATA 727 at [4]

[27] [2010] AATA 727 at [7]

[28] [2010] AATA 727 at [14]

[29] [2010] AATA 727 at [18]-[21]

[30] [2010] AATA 727 at [31]

The Trustee’s decision in relation to CAPs 1, 2 and 3

On 20 September 2012, the Trustee made actual assessments for CAPs 1 and 2 and an estimated assessment for CAP3. He adopted the value of $37,500 as the value of the accommodation provided to Mr Pescott at Trawalla House.[31]
[31] Exhibit 3 at 26

Evidence regarding rental values

In response to a request from the Trustee, Mr Shane McIntyre wrote a letter about rental values of accommodation on rural properties in Australia. Mr McIntyre is the National Sales Manager of Elders Rural Services Australia Limited and has been involved in the negotiation and sale of rural property for over 30 years. His letter is dated 6 January 2010 and reads, in part:
“Concerning the issues of employee accommodation, I have encountered many examples of employees’ terms and conditions providing a dwelling house, or property, to house the employee and often times, family.
In all cases, I have no evidence of any monetary value applying to the occupation of the dwelling, or any portion of any salary being attributed to on-property accommodation.
To my vast knowledge, I have not encountered any monetary scale applicable to various standards of on-property accommodation. Furthermore, there is no correlation between the standard of accommodation offered to an employee and rural worker remuneration packages that I am aware of.”[32]
[32] T documents; T7 at 61 and see also 60

Mr Ian Smith is an Agribusiness Consultant who wrote a letter dated 19 August 2013 setting out his views on the rental value of Trawalla House:
“Average house rents in the Beaufort/Trawalla district are around $200 per week. That is the market for big and small houses without farming land. Trawalla house does not have the benefit of any land to use except for the garden area which must be maintained. In my opinion, the rental valuation for the Trawalla homestead is between zero and $200 per week and that would be dependent on the upkeep standards required by the landlord. It is conceivable that the landlord may not find a suitable tenant and need to pay a married couple to live there and maintain the house and garden. The scale and age of the homestead means substantial, regular upkeep by a tenant would be required. The Ballarat rental market for comparison is irrelevant because Trawalla is remote from Ballarat.
The alternative method of determining a rental value is to assess a building’s value, taking into account the factors of its restrictions and locality and apply an income yield. For this very large old house, that yield would be less than 1%. Like many homesteads they were built as an integral part of a large agricultural holding. Houses like Trawalla homestead have very little value because nobody sells a building in the middle of a farming enterprise which has issues of access and quarantine. There are many examples in established farming and grazing areas in Victoria where owners have built convenient, modern, smaller homes and left the large pioneer homestead unoccupied to deteriorate.
…
Estimates of values made by the purchaser and vendor available on the Title Transfer documents relating to Trawalla, which I have seen appear reasonable. Estimates of the value of buildings provided by Roger Pescott which I have also seen appear reasonable. In my opinion the stand-alone value [no land other than the house and garden] of the Trawalla Homestead, provided access was secure would be between $400,000 and $1,000,000.”[33]

THE LEGISLATIVE FRAMEWORK

[33] Exhibit G

Administration of a bankrupt estate: an outline

When a sequestration order is made against a person’s estate, the property he or she had at the time immediately vests in the Official Trustee or a registered trustee. If a bankrupt later acquires property, that vests in the trustee as soon as it is acquired.[34] The property becomes part of the bankrupt’s bankrupt estate. A bankrupt has duties to advise the trustee of information about his property and affairs as set out in s 77 of the Bankruptcy Act. The trustee has power under Part V to obtain relevant information about his property and affairs. A bankrupt is also obliged to give information about income derived from time to time.[35]
[34] Bankruptcy Act; s 58(1)
[35] Bankruptcy Act; s 139U

The trustee’s task is to administer the bankrupt estate. That is the subject of Part VI of the Bankruptcy Act. It deals with matters such as the debts that are provable in a bankruptcy, the order in which the trustee pays the bankrupt’s debts from the bankrupt’s estate, the property available for payment of those debts, what is done in relation to superannuation contributions and the realization of property. Of particular relevance in this case are the provisions in Division 4B of Part VI dealing with the contributions that a bankrupt is required to make. The objects of that Division are:
“(a) to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt’s estate; and
(b)to enable the recovery of certain money and property for the benefit of the bankrupt’s estate.”[36]
[36] Bankruptcy Act; s 139J

In issue in this case is Mr Pescott’s requirement to pay a contribution towards his estate rather than the recovery of any property. A bankrupt’s obligation to pay a contribution is imposed by s 139P and subject to qualification by s 139Q. Beginning with s 139P, if the income that the trustee assesses a bankrupt is likely to derive during a CAP exceeds that actual income threshold amount applicable to the bankrupt at the time the assessment is made, the bankrupt is liable to pay the trustee a contribution.[37] If it does not, the bankrupt is not under an obligation to make any contribution but may do so if he or she wishes.[38] Section 139Q permits the trustee to make subsequent assessments in relation to the same CAP so that the bankrupt’s liability to make a contribution is determined on the basis of the subsequent assessment rather than the earlier. Any liability that arises under either ss 139P or 139Q is not affected by a bankrupt’s discharge from bankruptcy.[39]
[37] Bankruptcy Act; s 139P(1)
[38] Bankruptcy Act; s 139P(2)
[39] Bankruptcy Act; s 139R

How does the trustee obtain information about the bankrupt’s income?

A bankrupt must give the trustee information about his or her income no later than 21 days after the end of a “contribution assessment period” (CAP). A CAP begins on the day a person becomes bankrupt, or on the anniversary of that day, and ends one year after that day or upon discharge from bankruptcy or annulment of bankruptcy.[40] The bankrupt’s duty extends to information about the particulars set out in ss 139U(2) and (3) as he or she knows them and as he or she can readily obtain them.[41] Those particulars relate not only to the bankrupt but to each of the bankrupt’s dependants. In relation to a bankrupt in relation to a CAP, a “dependant”:
“… means a person who satisfies all of the following conditions:
(a) the person resides with the bankrupt;
(b)the person is wholly or partly dependant on the bankrupt for economic support;
(c)the income derived (or likely to be derived) by the person during the contribution assessment period is not more than the amount prescribed by regulations for the purposes of this paragraph.
For the purposes of this definition, income has its ordinary meaning.”[42]

Section 139V permits the trustee to require the bankrupt to provide further information in circumstances set out in that provision.

[40] Bankruptcy Act, s 139K

[41] Bankruptcy Act; s 139U(2)

[42] Bankruptcy Act; s 139K. The amount prescribed as the maximum amount of income under paragraph (c) of the definition is $2,500.00 as indexed under s 304A(1) of the Bankruptcy Act: Bankruptcy Regulations 1966 (Regulations); r 6.15A(2).

The trustee’s duty to assess a bankrupt’s income and contribution to the bankrupt estate

As soon as practicable after the start of each CAP, the trustee must make an assessment under s 139W. The trustee may vary that assessment in the circumstances set out in s 139W(2). There is no time limit for making an assessment under s 139W[43] but, as soon as practicable after making an assessment under s 139W, the trustee “… must give to the bankrupt written notice setting out particulars of the assessment and informing the bankrupt about the possibility of variation under s 139T.”[44]
[43] Bankruptcy Act, s 139WA
[44] Bankruptcy Act, s 139W(4). Section 139T is concerned with the determination of a higher income threshold in cases of hardship.

In making an assessment of the income that was likely to be derived, or was derived, by a bankrupt during a CAP, the trustee may have regard to any information provided by the bankrupt and any other information in the trustee’s possession. If the trustee considers that information provided by the bankrupt either is, or may be, incorrect, he or she may disregard it.[45]
[45] Bankruptcy Act, s 139X

A. What is an “assessment”?

Whether it is the original assessment or a later one,[46] s 139W requires the trustee to make an assessment of three matters. The first is the income that is likely to be derived, or was derived, by the bankrupt during that CAP. The second is the actual income threshold amount that is applicable when the assessment is made. In practical terms, the third is to carry out the calculation set out in s 139S and calculate the amount of contribution (if any) that the bankrupt is liable to pay in respect of the period.[47]

[46] Bankruptcy Act; s 139K; definition of “assessment”

[47] Bankruptcy Act, s 139W(1)

B. How is the amount of contribution calculated?

The amount of any contribution is worked out under s 139S on the basis of assessed income minus the actual income threshold amount divided by two. The “assessed income” means “… the amount assessed by the trustee to be the income that the bankrupt is likely to derive, or derived, during the contribution assessment period”. The “actual income threshold amount” is “… the actual income threshold amount assessed by the trustee to be applicable in relation to the bankrupt when the assessment is made.”[48]
[48] Bankruptcy Act, s 139S

B.1 What is a bankrupt’s “actual income threshold amount”?

A bankrupt’s “actual income threshold amount” is determined by reference to the “base income threshold amount” and whether he or she has dependants. If, for example, a bankrupt has one, it is the “base income threshold amount” but if a bankrupt has more than four dependants, it is the “base income threshold amount increased by 36%”.[49] The amount of the “base income threshold amount” is determined by reference to whether the CAP is for a period of a year or less than a year. If it is a period of a year, it is an amount equal to 3.5 times the amount that, at that time, is specified in Column 3, Item 2 of Table B, Point 1064-B1 of the Pension Rate Calculator in the Social Security Act 1991.[50]
[49] Bankruptcy Act; s 139K
[50] Bankruptcy Act; s 139K

B.2 What is a bankrupt’s “base income threshold amount”?

The “base income threshold amount” is assessed at the time an assessment is made in relation to a CAP. When the CAP is a whole year, it is 3.5 times the amount that, at that time, is specified in column 3, item 2 of Table B of Point 1064-B1 of the Pension Rate Calculator A in the Social Security Act 1991.[51]
[51] Bankruptcy Act, s 139K

B.3 Variation of actual income threshold amount in cases of hardship

If a bankrupt considers that he or she will suffer hardship if required to pay the contribution assessed by the trustee under s 139W, he or she may apply for a variation of the amount taken to be the actual threshold amount and used in the calculations under s 139S. The basis of the application will be that the amount taken to be the actual threshold amount should be a higher amount than it would otherwise be so that the resulting contribution is smaller. Section 139T permits a bankrupt to make an application of this sort only if the hardship claimed is caused by one of the five circumstances set out in s 139T or for a reason prescribed in the regulations.

C. What is “income”?

For the purposes of Division 4B, the word “income” is given its meaning by s 139L. It is to have its “ordinary meaning” subject to the qualifications set out in that section. Section 139L(1)(b) sets out those amounts that are not income even if they come within the ordinary meaning of that word. Section 139L(1)(a) sets out those amounts that are income whether or not they come within its ordinary meaning. Of relevance in this case is that described in s 139L(1)(a)(v):
“income, in relation to a bankrupt, has its ordinary meaning, subject to the following qualifications:
(a) the following are income in relation to a bankrupt (whether or not they come within the ordinary meaning of ‘income’):
(i)-(iv) …
(v) the value of a benefit that:
(A)is provided in any circumstances by any person (the provider) to the bankrupt; and
(B)is a benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 as in force at the beginning of 1 July 1992 (other than a benefit that would be an exempt benefit for the purpose of that Act if the provider were the employer of the bankrupt as an employee and the provider had provided the benefit in respect of the employment of the bankrupt);
being that value as worked out in accordance with the provisions of that Act but subject to any modifications of any provisions of that Act made by the regulations under this Act;
(vi)-(vii) …”

C.1.1 What is a “benefit” within the meaning of s 139L(1)(a)(v)(A)?

The word “benefit” is not defined in the Bankruptcy Act but, I suggest, it should be read broadly according to its ordinary meaning – “something good gained or received … advantage or sake …”[52] – to reflect both the purpose of the Bankruptcy Act and the requirement in s 139L(1)(a)(v)(B) that it be a “benefit” within the meaning of the FBTA Act. That Act gives the word an expansive definition as appears from the next section of my reasons and that breadth is consistent with the purpose of the Bankruptcy Act. In Australian Securities and Investments Commission v Forge,[53] Branson and Stone JJ said:
“ The Act as a whole reflects legislative recognition of the public interest, as well as private interests, in the management of personal insolvency. It seeks to achieve a balance between the public interest in creditors of an insolvent being paid rateably from the property of the insolvent and the public interest, as well as the private interest of the debtor, in the debtor not being reduced to a mendicant. It also reflects a balance between the public interest in limiting the capacity of insolvent persons to incur debts that they will not be able to satisfy and the public and private interest in eventually allowing insolvent persons to be free from the burden of past debts to start financially afresh.”[54]
[52] Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers (Chambers)
[53] [2003] FCA 274; (2003) 133 FCR 487; Branson, Emmett and Stone JJ
[54] [2003] FCA 274; (2003) 133 FCR 487 at [4]; 488

The context in which that balance is achieved shows that the public interest extends beyond the balance reached between debtor and creditor to encompass the community’s interest in there being such a balance. Their Honours said:
“ Bankruptcy legislation is not for the determination of disputes arising between citizens or between citizen and State. It is legislation designed for the benefit of the community as a whole. Thus, in considering whether or not to exercise powers under the Act, the court must have regard not only to the rights of the parties to the proceedings, but to the community as a whole. …”[55]

C.1 What is a “benefit” within the meaning of s 139L(1)(a)(v)(B)?

[55] [2003] FCA 274; (2003) 133 FCR 487 at [29]; 493

C.1.1 It is a “benefit” within the meaning of the FBTA Act

The FBTA Act is incorporated in the Fringe Benefits Tax Act 1986 (FBT Act) and must be read as one with it.[56] When read together, they impose a tax calculated on the value of certain fringe benefits provided in respect of employees’ employment. The FBT Act imposes tax in respect of the “fringe benefits taxable amount of an employer of a year of tax”.[57] The rate of tax is determined by s 6. The machinery provisions necessary to determine what amount to a “fringe benefits taxable amount of an employer of a year of tax” is left to the FBTA Act.
[56] FBT Act; s 3
[57] FBT Act; s 5

Section 136(1) of the FBTA Act defines what is meant by the word “benefit” and that definition is not modified by the Regulations. Unless the contrary intention appears:
“benefit includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:
(a)an arrangement for or in relation to:
(i)the performance of work (including of a professional nature), whether with or without the provision of property;
(ii)the provision of, or of the use of facilities for, entertainment, recreation or instruction; or
(iii)conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;
(b)a contract of insurance; or
(c)an arrangement for or in relation to the lending of money.”

It is clear that the particular circumstances referred to in paragraphs (a), (b) and (c) do not limit the breadth of the opening words specifying that a “benefit includes any right …, privilege, service or facility …”.

C.1.1 What is an “exempt benefit”?

Section 139L(1)(a)(v)(B) expressly excludes a benefit that would be an “exempt benefit” for the purposes of the FBTA Act. The expression “exempt benefit” is not defined with other terms in s 136(1). Instead, reference is made in particular sections in Part III of that Act to the circumstances in which a certain benefit is an exempt benefit. Examples are found in relation to a car benefit,[58] a loan benefit[59] and a property benefit[60] as well as in Division 13 in relation to various benefits that are grouped together under the heading of “Miscellaneous Exempt Benefits”.
[58] FBTA Act; s 8
[59] FBTA Act; s 17
[60] FBTA Act; s 41

C.2 When is a benefit “provided” by a person to a bankrupt?

In the context of ascertaining a bankrupt’s income for the purpose of the Bankruptcy Act, it would seem to me that a benefit is provided if it is supplied[61] or given to the bankrupt.

[61] Chambers

C.3 How is the “value of a benefit” determined under the FBTA Act?

The “value of a benefit” that meets ss 139L(1)(a)(v)(A) and (B) is “that value as worked out in accordance with the provisions of that [FBTA] Act subject to any modifications …”. I will look first at how the FBTA Act works out value before I look at how those provisions are modified by the Bankruptcy Act.

C.3.1 What “value” is to be determined under the FBTA Act as at 1 July 1992?

The task under the FBTA Act is not to assess the value of a benefit but to assess the “taxable value” of each fringe benefit. This comes about because, as I have said, the FBT Act imposes tax in respect of the “fringe benefits taxable amount of an employer of a year of tax”.[62] Having regard to the FBTA Act as in force at the beginning of 1 July 1992, as I am required to do by s 139L(1)(a)(v)(B), the:
“fringe benefits taxable amount’, in relation to an employer in relation to a year of tax (in this definition called the ‘current year of tax’), means the sum of the following amounts:
(a)the sum of the taxable values, in relation to the current year of tax, of all the fringe benefits (other than amortised fringe benefits) in relation to the employer in relation to the current year of tax;
(b)the sum of the amortised amounts, in relation to the current year of tax, of all the amortised fringe benefits in relation to the employer in relation to the current year of tax and any other year of tax;
reduced by the sum of the reduction amounts, in relation to the current year of tax, of all the reducible fringe benefits in relation to the employer in relation to the current year of tax.”[63]
[62] FBT Act; s 5
[63] FBTA Act; s 136(1)

Section 136(1) does not define what is meant by “taxable value”. Instead, it provides for its assessment in provisions of Part III dealing with particular types of benefits. I will take as an example, a “housing benefit”, which is given its meaning by s 25[64] but it should be noted that the terms of that section, or any others in Part III, were not to limit the generality of the meaning of “benefit”.[65] Section 25(1) provides:
“The subsistence during the whole or a part of a year of tax of a housing right granted by a person (in this section referred to as the ‘provider’) to another person (in this section referred to as the ‘recipient’) shall be taken to constitute a benefit provided by the provider to the recipient in respect of the year of tax.”

A “housing right”:

“… in relation to a person, means a lease or licence granted to the person to occupy or use a unit of accommodation, insofar as that lease or licence subsists at a time when the unit of accommodation is the person’s usual place of residence”.[66]

[64] FBTA Act; s 136(1)

[65] FBTA Act; s 6

[66] FBTA Act; s 136(1)

A housing benefit is a “benefit” but the FBTA Act does not provide for the calculation of a benefit but for the calculation of a “taxable value of a housing fringe benefit”. That appears from s 26 of the FBTA Act. That means that the benefit that is a housing benefit must also be a “fringe benefit” if it is to be a “housing fringe benefit”.[67] If it is to be a “fringe benefit” it must come within the terms of the definition of that term in s 136(1). That definition reads, in part:
[67] FBTA Act; s 136(1)
“In this Act, unless the contrary intention appears:
…
‘fringe benefit’, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit –
(a)provided at any time during the year of tax; or
(b)provided in respect of the year of tax,
being a benefit provided to the employee or to an associate of the employee by –
(c)the employer;
(d)an associate of the employer; or
(e)a person (in this paragraph referred to as ‘the arranger’) other than the employer or an associate of the employer under an arrangement between –
(i)the employer or an associate of the employer; and
(ii) the arranger and another person,
in respect of the employment of the employee but does not include –
(f)…
(g)a benefit that is an exempt benefit in relation to the year of tax;
(h)-(p)”.

Having identified the housing fringe benefit, its taxable value is calculated according to ss 26 to 29A of the FBTA Act. Those calculations have regard to what is described as the “recipients rent”. That is an expression defined in s 136(1) of the FBTA Act to mean:
“… in relation to a housing fringe benefit in relation to an employee of an employer in relation to a year of tax, means the amount of any rent or other consideration paid to the provider or to the employer by the recipient or the employee in respect of the subsistence, during the year of tax, of the recipients housing right reduced by the amount of any reimbursement paid to the recipient in respect of that consideration.”

C.3.2 What is the effect of the modifications made by the Regulations?

Schedule 4 to the Bankruptcy Regulations 1996 (Regulations) contains provisions modifying provisions of the FBTA Act in its application under s 139L(1)(a)(v) of the Bankruptcy Act. Regulation 30.3 requires the FBTA Act to be read as if the definition of “fringe benefit” had been omitted and the following definition substituted in s 136L(1):
“fringe benefit, in relation to a bankrupt, in relation to a contribution assessment period means a benefit provided at any time during the period by any person to the bankrupt, other than:
(a)a benefit provided to the bankrupt by his or her spouse under, or because of a genuine maintenance agreement between the spouses; or
(b)a benefit provided under a maintenance order, within the meaning of the Bankruptcy Act 1966 as in force from time to time; or
(c)the benefit of an order by a court in favour of the bankrupt in respect of costs of litigation; or
(d)educational expenses paid by any person in respect of a child of:
(i)the bankrupt; or
(ii)the bankrupt’s spouse; or
(e)the amount of a refund, or part of a refund, due by the Commissioner to the bankrupt under a law of the Commonwealth, being an amount that the Commissioner has lawfully offset against a tax liability, within the meaning of the Taxation Administration Act 1953 as in force from time to time, of the bankrupt; or
(f)subject to subsection (1A), a benefit of a kind referred to in paragraphs (f) to (p) (inclusive) of the definition of ‘fringe benefit’ in this Act (in its unmodified form) as in force at the beginning of 1 July 1992;^[[68]] or
[68] Paragraph (h) is modified by r 30.4 of the Regulations but it is not relevant in this case.
(g)support by way of one or both of the following:
(i)lodging (including any board); or
(ii)occasional use of a motor vehicle used for domestic purposes;
up to a value of $250 a week, if the support is provided by a person in the person’s principal place of residence, and the person is:
(iii)a close relative; or
(iv)a brother or sister (including a half-brother, half-sister, adoptive brother or adoptive sister);
of the bankrupt.
Note: Close relative, in relation to a person, is defined in section 136 of the Fringe Benefits Tax Assessment Act 1986 as:
(a)the spouse of the person; or
(b) a child or parent of the person; or
(c) a parent of the person’s spouse.” (emphasis added)

Schedule 4 of the Regulations also modifies other provisions of the FBTA Act relating to specific benefits. It does so, for example, in relation to s 26 relating to housing fringe benefits. Item 13 of Schedule 4 to the Regulations requires me to read the FBTA Act as if s 26 were omitted and the following section substituted:
“Subject to this Part, the value of a housing fringe benefit in relation to a contribution assessment period is the portion of the market value of the recipient’s current housing right that exceeds the recipient’s rent.”[69]
[69] Regulations; Schedule 4, Item 13.1

Section 28 relating to an indexation factor for the valuation of non-remote housing and ss 29 and 29A relating to the valuation of remote area accommodation are all omitted for the purposes of s 139L(1)(a)(v)(B).[70] The expression “contribution assessment period” is treated as if its definition in s 139K of the Bankruptcy Act were added to s 136(1) of the FBTA Act.[71]
[70] Regulations; Schedule 4, Items 14.1, 15.1 and 16.1
[71] Regulations; Schedule 4, Item 30.1

The effect of the modifications made by the Regulations to the FBTA Act mean that the only benefits that are being valued for the purpose of the Bankruptcy Act are those that are a “benefit” within the meaning of s 139L(1)(a)(v)(A) as well as both a “benefit” within the meaning of s 136(1) of the FBTA Act and a “fringe benefit” within the meaning of the definition substituted in s 136(1) by the Regulations for the purposes of s 139L(1)(a)(v)(B).

CONSIDERATION

Has Mr Pescott received a “benefit” within the meaning of s 139L?

Mr Pescott’s residing at Trawalla House is a benefit within the meaning in which it is used in the opening words of s 139L(1)(a)(v) as well as within the meaning it is given in s 136(1) of the FBTA Act. The fact that he has shelter and food is an advantage to him and is a privilege, if not a right, he enjoys, and so a benefit within the meaning of the definition of that word in s 136(1). Although the identity of the person providing the benefit is yet to be resolved, it is a benefit “provided” to Mr Pescott. He has been provided with it in the sense that he has been given it. That means that he has received a benefit of a type that satisfies the requirements of both ss 139L(1)(a)(v)(A) and (B).

What is that benefit for the purposes of valuing it under the FBTA Act?

The benefit has been described as a “right to occupy”. Mr Giacco submitted that it was the right to occupy the whole of Lot 1 on which Trawalla House is located. That is so, he submits, despite Traland’s having sold Trawalla, including Lot 1, to Ms Richmond’s nominee, TPPL. Mr Pescott states that his right is much more circumscribed and is limited to the Homestead and the garden surrounding it.

In the absence of evidence to support it, I do not accept Mr Giacco’s submission that Mr Pescott has access to the whole of Lot 1. The evidence that I do have, is the written evidence in the form of the Contract of Sale and subsequent transfer of Trawalla, including Lot 1, to TPPL and the oral evidence of Mr Pescott. The Contract of Sale referred to a “Farming Business” as being sold as well as the land on which that business was conducted. Once Traland sold the land, it sold its entire interest in that land being an estate in fee simple subject only to the Special Conditions.[72] As Isaacs J explained in The Commonwealth v New South Wales,[73] citing a passage from Challis’s Real Property:
“… ‘In the language of the English law, the word fee signifies an estate of inheritance as distinguished from a less estate … A fee simple is the most extensive in quantum, and the most absolute in respect to the rights which it confers, of all estates known to the law. It confers, and since the beginning of legal history it always has conferred, the lawful right to exercise over, upon, and in respect to, the land, every act of ownership which can enter into the imagination, including the right to commit unlimited waste; and, for all practical purposes of ownership, it differs from the absolute dominion of a chattel, in nothing except the physical indestructibility of its subject. …’”[74]

That meant that Traland no longer had any right to use, occupy or enjoy any part of Trawalla unless it had reached an agreement to the contrary with the new owners, TPPL.

[72] Property Law Act 1958 (Vic); s 60

[73] (1923) 33 CLR 1; Knox CJ, Isaacs, Higgins, Gavan Duffy and Starke JJ

[74] (1923) 33 CLR 1 at 42 per Isaacs J

That takes me to the Special Conditions in the Contract of Sale between Traland and Ms Richmond and, ultimately, her nominee, TPPL. Subject to conditions, Special Condition 3 provides that the directors of Traland and their immediate family shall retain the right to occupy the main homestead of the Property for a period of up to six months after Settlement. Putting aside the identity of the persons upon whom that right is conferred for the moment, the next task is to identify that part of Trawalla over which the right is given.

It is a right to occupy the “main homestead of the Property”. What is encompassed within that description is not expanded upon in any further detail but it is clear that it is part of the Property and not the whole of it. Beyond that, there is no definitive evidence identifying what is meant by the homestead. In that, it is to be contrasted with Church Paddock, which is the subject of a Conservation Covenant. Church Paddock has been clearly identified as an area of 49.54 hectares. The very nature of a Conservation Covenant and its restrictive terms clearly indicate that it cannot be regarded as part of the “main homestead of the Property”, which, by its description as a “homestead” must mean that it is a residence and not a conservation area.

There are three factors that lead me to conclude that a reference to the Homestead is a reference to the two storey house, ancillary buildings, gardens, swimming pool and tennis courts together with the five hectares on which they are located. The first is the very practical consideration that a farming business is being undertaken on Trawalla. Once Traland sold it and the farming business, there is no reason for Mr Pescott to move about the property generally or on Lot 1 in particular. The only reason he and the family would have for doing that is to gain access to that part of the property they are permitted to occupy. If there is no right of access to that part other than by means of roads built on land now owned by Trawalla, it seems to me that an implied right to traverse those roads must be read into the contractual right to occupy the “main homestead of the Property”. It cannot be more than contractual and something in the nature of an easement for a right to occupy does not confer any title or interest in the land upon the person enjoying the right.[75]
[75] In Hinkley v Star City Pty Ltd [2010] NSWSC 1389, Ward J reviewed a number of cases regarding the creation of easements, either expressly or by implication. He concluded at [238]: “However, the principle expressed in the above cases concerning the imputation of a common intention on the part of the parties to confer such property rights as are reasonably necessary to the enjoyment of and additional upon the main grant, is one that relates to the grant of property, and not to a grant of contractual rights to occupy and remain on property or to use property for a particular purpose.” Appeal dismissed Star City Pty Ltd v Hinkley [2011] NSWCA 299; (2011) 284 ALR 154; Giles and Young JJA and Tobias AJA

The second reason I have for reaching my conclusion is that it is consistent with the way in which the property has been described in both the advertising brochure that preceded the sale as well as the valuation of Trawalla prepared in 2007. Both describe the Homestead in a way that is consistent with its including the main two storey residence, ancillary buildings and the gardens surrounding it and no more. In all, those buildings and garden occupied five hectares of Lot 1. It may well be that the purchasers of Trawalla saw only the brochure and not the valuation but the fact that the two documents describe the Homestead in similar terms supports my finding that a reference to the Homestead was a reference that was understood in the terms those documents describe. They were documents written by different authors with the valuation prepared by Landlink and the brochure by Elders. The former would not have been approved by Traland but it is reasonable to expect that the advertising material would have been approved by it.

The third reason is that the material supports Mr Pescott’s oral evidence that the right to reside at Trawalla House is limited to the house, ancillary buildings and gardens. His evidence and the material are also consistent with Mrs Pescott’s making the gardens available for inspection by groups of interested persons but there being no reference to making Trawalla generally open. Emails dated 12 August 2012 between Mrs Pescott and others relate to such an inspection during the Australian Garden History Society’s (AGHS) National Conference held in Ballarat in November 2012.[76] The emails relating to that event support my finding that Mrs Pescott gave the AGHS information about the garden and that it was made available to visitors at that time. It does not go so far as to show that she was involved in the catering but was merely copied into arrangements being made by others. Mr Pescott’s evidence does suggest that she has a more active role in arrangements of that sort but that, apart from the AGHS visit, are limited to a couple of weddings each year.
[76] Exhibits S and 5

Does that benefit have a value under the FBTA Act?

If the benefit is to be assigned a value under the FBTA Act, it must be not only a “benefit” but a “fringe benefit” according to the modified definition of that term in s 136(1). As it was provided during each of CAP2 and CAP3, it is also a “fringe benefit” to the extent that it does not fall within any of the exceptions set out in paragraphs (a) to (g) of that definition.

A. Particularising the benefit

There has been some debate whether a right such as a right to occupy is a lease or a licence but there is no need to consider it because s 136(1) of the FBTA Act defines a “housing right” in terms of its being either a lease or a licence “… granted to the person to occupy or use a unit of accommodation, in so far as the lease or licence subsists at a time when the unit of accommodation is the person’s usual place of residence.” The right to occupy the Homestead on which Mr Pescott relies has been in place since the settlement of the Contract of Sale on 16 January 2012 and continued from time to time. It was not subject to the payment of any monetary amount until Mrs Pescott entered an agreement with TPPL that she pay $1,800 per month with effect from 1 July 2013.[77]

B. What is the value of that benefit?

[77] Exhibit H at [6]-[9]

B.1 Estoppel and related issues

Mr Giacco submitted that the principles of estoppel apply in this Tribunal and that I am estopped from considering the question of the value of the right to occupy Trawalla House on the basis that it has been determined by the Tribunal in proceedings in relation to CAP1. In those proceedings, the Tribunal had before it evidence that supported its conclusion.

B.1.1 Estoppel and res judicata

I have considered the issues of estoppel and res judicata in earlier cases and adopt the analysis I have given in those cases in this.[78] In summary and for the purposes of this case, the relevant principles may be summarised as:
[78] See particularly Re Rana and Military Rehabilitation and Compensation Commission [2008] AATA 558; (2008) 48 AAR 385; 104 ALD 595 at [24]-[92]; 395-420; 603-627 and Re Phillips and Inspector-General in Bankruptcy [2012] AATA 788; (2012) 58 AAR 452; 131 ALD 564 at [450]-[464]; 580-585; 689-694
(1)There is a difference between res judicata and issue estoppel as they apply in the courts:
“… in the first the very right or cause of action claimed or put in suit has in former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by prior judgment, decree or order.”[79]
[79] In Blair v Curran (1939) 62 CLR 464 at 531 per Dixon J
(2)For the reasons I have adopted, I consider that notions of “res judicata” or of estoppel do not apply to Tribunal proceedings.
(a)Its powers are defined and circumscribed not by common law notions but by the Administrative Appeals Tribunal Act 1975 (AAT Act) as modified and applied by the enactment conferring power on the Tribunal to review a particular decision, or type of decision, made under it.
(3)If the Tribunal has previously reviewed a particular decision, it may not review precisely the same decision again unless an enactment has provided to the contrary.
(a)The reason is that the Tribunal will have used all its powers to review that decision and have none left to use i.e. it will be regarded as functus officio.
(4)If the decision is not the same decision (regardless of whether it is made in relation to the same subject matter and examining the same issues), consideration may be given to whether the Tribunal should rely on the provisions of s 33(1)(c) to rely on the findings made by an earlier Tribunal reviewing an earlier decision.
(a)Section 33(1)(c) provides:
“In a proceeding before the Tribunal:
…
(c)the Tribunal is not bound by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate.”
(b)Section 33(1)(c) can be read with the exhortatory provisions of s 2A of the AAT Act:
“In carrying out its functions, the Tribunal must pursue the objective of providing a mechanism of review that is fair, just, economical, informal and quick.”
(c)Section 2A must be read as one of the “general exhortatory provisions”[80] intended to be facultative and not restrictive.[81]
(d)Section 2A relates to the “mechanism of review” and so to the “… arrangements and action by which …” review is achieved:[82]
(i)therefore, its exhortation does not apply to the substance of review; and
(ii)it applies only to procedural issues.
(e)Subject only to the AAT Act and regulations made under it or any other enactment, the Tribunal’s procedure is a matter for it to decide:[83]
(i)that decision must be made bearing in mind its obligation to ensure that each party has a reasonable opportunity to present its case[84] and to accord procedural fairness to them.[85]
[80] Sun v Minister for Immigration and Ethnic Affairs [1997] FCA 324 per Lindgren J
[81] Minister for Immigration and Multicultural Affairs v Eshutu (1999) 197 CLR 611; 162 ALR 577 at 628; 588 per Gleeson CJ and McHugh J and 659; 613 per Hayne J and see also similar views expressed by Gaudron and Kirby JJ at 635; 592-594
[82] Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers
[83] AAT Act, s 33(1)(a)
[84] AAT Act, s 39(1)
[85] See, for example, Sullivan v Department of Transport (1978) 1 ALD 383; 20 ALR 323 at 402-3; 342-343 per Deane J

B.1.2 The discretion under s 33(1)(c): some relevant considerations

The decision I am being asked to rely upon is a conclusion reached in the course of the Tribunal’s reviewing the Inspector-General’s decision in relation to CAP1. In so far as the housing right is concerned, the issue is the same but it is raised in the context of decisions that relate to CAPs 2 and 3 and not CAP1. Therefore, this is not a case in which the Tribunal is functus officio and has no powers left to review the decisions made in relation to CAPs 2 and 3. It is a case in which I need to consider whether, as a matter of discretion arising under s 33(1)(c), I should have regard to the earlier Tribunal’s conclusion regarding the value of the housing right.

In deciding whether to exercise that discretion, it seems to me that I should first satisfy myself of several matters. One is that the factual matter to be decided is indeed the same. Except for the different CAPs, that is the case. In some cases, that could be a crucial difference for a difference in timing could lead to a difference in value of a housing right that has not otherwise changed.

The second matter that I consider relevant is that the basis on which the earlier Tribunal reached its conclusion is apparent from its reasons. This is important because it had, and I have, a duty to review the decision on its merits and come to what is, in law, the correct decision and, in the case of a discretionary decision, also the decision that is to be preferred to any other that could be lawfully made.[86] The correct or preferable decision can only be made after it has ascertained the relevant law, isolated the relevant issues to be decided, analysed the evidence and, on the basis of that evidence, made the findings of fact required to decide the issues. That means that it cannot start from a preconceived position as to what that correct or preferable decision might be or from an assumption that the decision under review is correct and that the applicant must show it to be incorrect. If I cannot ascertain the earlier Tribunal’s reasons, I cannot ascertain whether it has reviewed the decision in this way. If I cannot do that, I do not consider that I have a proper basis for exercising the discretion under s 33(1)(c) to have regard to it.
[86] Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60 at 590, 70 per Bowen CJ and Deane J

Until 1 July 2013, the right to occupy the Trawalla House was subject to the requirement to “properly maintain the main homestead” but no rental was payable to TPPL. Mr Pescott’s evidence was to the effect that the obligation extended to the maintenance of the garden and this is supported by Mrs Pescott’s statement that she continues to have an obligation to look after minor maintenance and the garden. The right to occupy given by TPPL following the sale and later renewed would seem to be an understandable act of kindness extended to Mrs Pescott, who had grown up on Trawalla as had previous generations of her family, and who, on Mr Pescott’s evidence, is committed to the garden of Trawalla House.

For the purposes of the FBTA Act and, in turn, of the Bankruptcy Act, that act of kindness has a value and the only evidence that I have of its value is based on the lease that Mrs Pescott recently entered with Rosegrange. The monetary consideration is fixed in that lease at $1,800 per month but, given the obligation to maintain the main homestead, must be regarded as representing the net rental payable for Trawalla House. To use the words of Scott LJ in Robinson Brewers, the “real rental” would have been $1,800 per month plus an amount attributable to the work on the garden and effectively credited from the rent that would otherwise have been payable. Inclusion of an amount attributable to the work on the garden is also consistent with the definition of “recipients rent” in s 136(1) of the FBTA Act. If any is paid, the recipient’s rent is the amount by which market value of the recipient’s housing right is reduced in order to calculate the value of the housing fringe benefit. I have set out the definition at [54] above but note specifically that it refers to “the amount of rent or other consideration paid to the provider …” (emphasis added).

I will call the amount attributed to the work on the garden as “$x per month”. That means that the rental payable and the rental that can be taken to be the real rental, and so the market rental in a case such as this where there is a limited market of one family unit, is ($1,800.00 + $x) x 12 per year. That is the real rental payable from 1 July 2013 and so the market rental value of Trawalla House. I have no evidence to suggest that it would have been at a lesser rate had it been payable in the previous eighteen months.

C.1.6Value of housing fringe benefit: assessing the value of Mr Pescott’s housing right benefit up to 30 June 2013

Some mention was made of Mr Pescott’s only using a limited number of rooms in Trawalla House but, given the photographic evidence he supplied of some of the rooms and the size of the house, it would seem that only a relatively few rooms may be in regular use by any member of the family. He did not provide any support for the proposition that his access to the property was limited. Therefore, I have attributed half of the market value of residence at Trawalla House to Mr Pescott so that the market value of his housing right benefit in each of CAP2 and CAP3 was assessed according to the formula:

C.1.7Value of housing fringe benefit: reconciling deduction of rent from market value of housing right and limited exclusion of board and lodging as income

Whether rent is being paid is a question of fact but I think that it is important to note that it is paid, in effect, for a lease or licence to occupy. It is not paid in return for food. I give my reasons for reaching that conclusion below. To characterise any agreement as being either for the payment of rent or for the payment of board and lodging requires careful analysis for it cannot be characterised as both under the modified provisions of the FBTA Act. If it were able to be, the value of the fringe benefit, and the amount taken to be the bankrupt’s income, would be reduced by that amount under s 26 and then discounted by a further $250 because it has been provided by a close relative or brother or sister. That cannot be the intention of Parliament.[133]
[133] The difficulty that I have had in reconciling the modified provisions of the FBTA Act with the Bankruptcy Act leads me to think that the marriage of provisions directed to ensuring that tax is paid on the value of certain fringe benefits in respect of a person’s employment and the value of benefits to a bankrupt is not a harmonious one. The FBTA Act is cast in terms that have their foundation in a relationship of employment but the Bankruptcy Act must take account of relationships that go far beyond that of employment. It seeks to deal with situations where benefits are provided by friends, colleagues, family members and so on. This leads to difficulties in assessing the value of fringe benefits relating to the normal arrangements of living with the family. The FBTA deals separately with housing right fringe benefits, living away from home allowance fringe benefits (ss 30-34) and board fringe benefits which are clearly limited to meals (ss 35-37). As I have noted, those provisions are modified in their application for the purposes of the Bankruptcy Act. That includes s 36 relating to the assessment of the value of board fringe benefits but it continues to apply only to the provision of food (Regulations; Schedule 4, Item 19). The modification made to s 136(1) by the Regulations then adopts the language of “lodging (including board)”. That is not consistent with the language of the FBTA Act. It is, of course, possible that “lodging (including board)” would be a fringe benefit by virtue of being a residual fringe benefit for the purposes of s 45 of the FBTA Act, which provides: “A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).” The outcome would not be any different from treating it as a housing right fringe benefit for the assessment of the value of a residual fringe benefit is no different: “Subject to this Part, the value of a residual fringe benefit in relation to a contribution assessment period is the cost to the provider of providing the benefit, reduced by the amount of the recipient’s contribution.”: FBTA Act; s 50 as modified by Regulations, Schedule 4, Item 25.

I think that the resolution of the modified s 26 of the FBTA Act and s 136(1)(g)(i) of the modified definition of “fringe benefit” is that, if a person is paying an amount of money that is rent for the purposes of s 26, that amount is deducted from the market value of the housing right to obtain the value of the housing fringe benefit. To the extent that a bankrupt is paying rent, he or she cannot be said to receive “support by way of … lodging (including any board) …” within the meaning of s 136(1)(g)(i). That means that the payment of any sum of money to a person said to be providing a benefit in the form of support must be analysed to ascertain its purpose.

C.1.8 Value of housing fringe benefit: what is “rent”?

I now need to have regard to the amount of any “rent” paid by Mr Pescott to the provider of the housing right for any such amount is deducted from the market value of his current housing right in order to determine the value of the housing fringe benefit.

In its ordinary usage, the word “rent” denotes “… money paid periodically to the owner of a property by a tenant in return for the use or occupation of that property …”.[134] That accords with the ordinary use of the word in law. In ICI Alkali (Aust) Pty Ltd (In vol liq) v Commissioner of Taxation of The Commonwealth of Australia,[135] McInerney J said:
“… In general, of course, the word ‘rent’ means’... “a sum issuing out of the land demised payable by the lessee to the lessor for the right to occupy that land and all that went with it and use it for the purpose for which it was demised." per Owen, J in Junghenn v Wood, [1958] SR (NSW) 327, at p. 330.”[136]

As McInerney J recognised, though, the meaning of the word has been extended to money paid in respect of a right of occupation. He referred to Metcalfe & Morris Pty Ltd v Reekie,[137] where Maguire J had said “rent”:

“… is a word which in its strict sense denotes a consideration to be rendered by a lessee to his lessor, but it is a word commonly used by laymen to denote a payment being made in respect of occupation of premises, even though the occupation be that of a licensee.”[138]

[134] Chambers

[135] [1977] VR 393; [1977] VicRp 48

[136] [1977] VR 393; [1977] VicRp 48 at 398

[137] [1963] NSWR 459

[138] [1963] NSWR 459 at 462

What is the meaning to be given to the word “rent” in the context of s 26 of the FBTA Act as it applies in the context of the Bankruptcy Act? Clearly, it is intended to apply to consideration paid by lessee to lessor but does it extend to a lesser right or licence to occupy premises or something that is not exclusive occupancy of premises?

In order to answer that question, I have gone first to the meaning of “lodging (including any board)” in s 136(1)(g)(i) of the modified definition of “fringe benefit”. The ordinary meaning of the word “lodging” is that of “… a room or rooms rented in someone else’s home, often temporarily.”[139] In this context, the word “board” means “… a person’s meals, provided in return for money …”.[140] In the context of s 136(1)(g)(i), I do not think that Parliament has intended to limit the meaning of “lodging” to a temporary form of accommodation for it is lodging provided by, and in the principal place of residence of, a close relative or brother or sister of the bankrupt. Given that a “close relative” includes a spouse of the bankrupt person, any suggestion that the arrangement is necessarily temporary is dispelled. Although I would not want to suggest that lodging and board referred to in s 136(1)(g)(i) is akin to that in a lodging house or a boarding house or that the close relative or brother or sister is a landlord, the paragraph is broad enough to capture both temporary board and lodging and that available on a more permanent basis in those establishments.
[139] Chambers
[140] Chambers

In view of the conclusions I have reached earlier regarding the reconciliation of modified s 26 of the FBTA Act (and its accompanying definition of “recipients rent”) and s 133(1)(g)(i), it seems to me that the word “rent” referred to in s 26 is a reference to its broader meaning of an amount of money or other consideration paid periodically to the lessor of a property by a bankrupt in return for the use or occupation of that property. That is consistent with the definition of “recipients rent” which specifically refers to rent or other consideration paid to the provider “in respect of the subsistence … of the recipients housing right”. The “housing right” is a “lease or licence to occupy or use a unit of accommodation” and is not limited to a lease alone.

C.1.8Value of housing fringe benefit: who provided that benefit?

Until 30 June 2013, I find, the housing right fringe benefit has been provided by TPPL and not by Mrs Pescott. Since 1 July 2013, it has been provided by Mrs Pescott as that is the date on which she began to pay rent in money as well as in kind to TPPL. It seems to me that this takes their arrangement from one in which she has a mere personal right of occupancy to one in which she has been given an interest in Trawalla House as a lessee. As the rental is payable on a monthly basis, the lease must be viewed as a lease from month to month.

I will begin with the document dated 17 January 2012 and described as a Tenancy Agreement between Mr and Mrs Pescott. It was based on an incorrect premiss. That premiss was that Mrs Pescott was the sole beneficiary of the right to occupy granted under the Special Conditions to the Contract of Sale. Had that been the case, there would be a question whether she could enter a lease when all she holds is a right to occupy. As it is, that question does not arise because Mr Pescott already had a right to occupy under that same Special Condition and it was a right no different from that given to Mrs Pescott. That follows from the fact that it was given to “The directors of the Vendor and their immediate family”. Mrs Pescott was a director of the Vendor and her husband is a member of her immediate family.

The right to occupy given under the Special Conditions was a right to occupy the homestead up to six months after settlement took place. Before that six month period expired in July 2012, TPPL wrote to Mrs Pescott extending that right for a further twelve months. I have reproduced the essential parts of that letter at [21] above. Before setting out the details of the conditions to which the right is subject, the letter states that “… the right to occupy the main homestead at Trawalla has been extended for a further twelve months to Mrs Caroline Pescott, under the same conditions as specified in the contract of sale …”. On its face, that letter suggests that the right was given to Mrs Pescott when, in fact, it was given to Mrs Pescott and her immediate family. Given that TPPL was simply intending to extend the right to occupy the homestead on the same conditions as before, it must be understood that the right to occupy was given to the same persons as before i.e. Mrs Pescott and her immediate family and so to Mr Pescott as a member of her immediate family. It was given by the same person as before i.e. Ms Richmond. Mr and Mrs Pescott cannot change that by restating the terms of the original right and signing a Tenancy Agreement. That agreement has no effect.

C.1.9Value of housing fringe benefit: to whom did Mr Pescott make a contribution?

On the basis of Mr Pescott’s evidence, I find that Mrs Pescott undertakes the garden and minor maintenance and also provides all of the garden tools and equipment required. In his letter, he has referred to his wife’s being “responsible” for those matters.[141] I understand from his oral evidence that he maintains the swimming pool if required but that his wife otherwise undertakes the work required. On that basis, I find that he is not entitled to a deduction from the value of his current housing right on the basis that he has given TPPL “other consideration” in the form of his labour.
[141] Exhibit S at [59(a)(ii)]

Any monetary amount that Mr Pescott has paid to Mrs Pescott up until 30 June 2013 is not an amount that can be regarded as his rent as he has not paid it to the provider of the housing fringe benefit i.e. TPPL. Therefore, it cannot be deducted from the amount I have determined to be the market value of Mr Pescott’s housing right benefit in CAP2 and CAP3.

C.1.10Market value of the housing fringe benefit: is Mr Pescott paying rent after 1 July 2013?

Since 1 July 2013, the provider of Mr Pescott’s housing right benefit has been Mrs Pescott. That follows from the fact that it is she who has, I have found, entered a lease agreement with TPPL since she began paying rent in monetary form. Mr Pescott is not a party to that lease. He stated that he had been paying his wife an amount representing rent for his accommodation. In so far as Mr Pescott has been paying rent to Mrs Pescott, I find that he has not been paying it under a Tenancy Agreement that was to any effect for it was based on an incorrect premiss. Despite that, I have considered whether Mr Pescott could be regarded as Mrs Pescott’s tenant on some other basis.

One factor suggesting a tenancy might be Mr Pescott’s payment of an amount of money at regular intervals to his wife. Another might be the areas of the property that constitute the half said to have been let to him. As I have said before, I do not have any evidence that Mr Pescott is limited to particular rooms of the house or that he has exclusive possession of a particular half of the house. It is clear from the photographs of the un-renovated rooms in Trawalla House that there is no restriction on his going about the whole of the house. Certainly, the photographs were taken by his sons, he said, but he was well familiar with what they would find and in what rooms the photographs were taken. He said of the swimming pool that if it was cleaned, he would be the person cleaning it. These are matters indicative of a person who is living in a house without restriction and perhaps as a licensee rather than of a person living there as a tenant. As Dodds-Streeton J said in Tolhurst Druce & Emmerson (a firm) v Maryvell Investments Pty Ltd (in liq):[142]
“Exclusive possession is a characteristic hallmark of a lease. In Australian law, it is the decisive factor which distinguishes a lease from a licence.[143]”[144]
[142] [2007] VSC 271
[143] “Radaich v Smith [1959] HCA 45; (1959) 101 CLR 209; Metcalfe and Morris Pty Ltd v Reekie [1963] NSWR 459 at 463; Goldsworthy Mining Ltd v Federal Commissioner of Taxation [1973] HCA 7; (1973) 128 CLR 199; ICI Alkali (Aust) Pty Ltd (in vol liq) v Federal Commissioner of Taxation [1977] VicRp 48; [1977] VR 393.”
[144] [2007] VSC 271 at [141]

In view of these matters, can it be said that any amount paid by Mr Pescott to Mrs Pescott can be said to be a payment of rent (within the meaning of the definition of “recipient’s rent”) so that it is deducted from the market value of Mr Pescott’s current housing right in order to arrive at the value of his housing fringe benefit? If that is the case, the reduced amount is assessed as part of his income. Alternatively, is the value of his housing fringe benefit taken to be its value without deduction but then reduced by an amount of $250 under paragraph (g) of the definition of “fringe benefit” in s 136(1) of the FBTA Act as modified by the Bankruptcy Regulations? Resolution of that issue requires a consideration of what is meant by “rent” in s 26 of the FBTA Act as it reads for the purposes of the Bankruptcy Act and “lodging (including board)” for the purposes of paragraph (g).

I have already set out my understanding of the arrangements between Mr and Mrs Pescott. Given the absence of any apparent tenancy agreement, his unlimited access to Trawalla House and its gardens and the provision of his food, I do not consider that he is paying rent in respect of a housing right. That is different from saying that he does not have a housing right for he does as he has a licence to occupy or use Trawalla House and it is his usual place of residence. What it is to say is that it is, on the evidence in this case, Mr Pescott is not paying rent for that occupancy or use even if he is giving Mrs Pescott money on a regular basis. He is giving Mrs Pescott an amount of money towards his licence to occupy and as a contribution towards food and electricity.

D. Exempt income: lodging or board

Where payment is made for food as well as for a right to occupy or use, it would seem that Parliament intended it to be regarded as “lodging (including board)”. It is a contribution he chooses to make but only an amount up to $250 of it each week can be discounted from the assessment of his income for the purposes of making an assessment in relation to CAP3 and then only from 1 July 2013. On the basis that Mrs Pescott is providing his lodging and his board, that amount regarded as Mr Pescott’s fringe benefits should be reduced by that amount.

DECISION

For the reasons I have given, I have decided:
(1)to set aside the decision of the respondent dated 14 January 2013 setting aside the decision of the Trustee dated 20 September 2012 to issue contribution assessment notices in respect of contribution assessment periods, CAP2 and CAP3; and
(2)for that decision substitute, in part, a decision that:
(a)the value of the applicant’s housing fringe benefit at the property described either as Trawalla House or as the Homestead at Trawalla including approximately five hectares of gardens is to be calculated according to the following formula:

where:

$1,800 represents that part of the rental paid in cash monthly; and

$x represents the value in money terms of the work undertaken on the garden by Mrs Pescott; and
(b)the amount of income assessed to the applicant as fringe benefit in relation to each contribution assessment period being CAP2 and CAP3 is reduced by $250 per week; and

(3)adjourn further consideration of the decision that should be substituted to enable the parties to:
(a)obtain evidence relevant to the calculation of the value of $x in the formula; and
(b)address matters other than fringe benefits, if any, to which I should have regard in reviewing the Trustee’s assessments.

I certify that the one hundred and thirty three preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,

Signed: ....(sgd).........................................................

Leah Berardi Associate

Dates of Hearing  22 and 23 August 2013
Date of Decision  24 September 2013
Self-represented Applicant                 Mr R Pescott
Solicitor for the Respondent              Mr J Giacco and Ms S Senaratne
Insolvency Trustee Service Australia

*Direct Comparison Approach (rate psm land area)*
Land area:	3,318.2 ha @ $5,100/ha	$16,921,902
*Adopt, total market value:*	$17,000,000”[7]

Low Lying Grazing	325.00 ha	$4,450 per ha	($1,800 per acre)	$1,446,250
Undulating Grazing	550.00 ha	$4,550 per ha	($1,850 per acre)	$2,502,500
Raised Bed Cropping	1,200.00 ha	$5,200 per ha	($2,100 per acre)	$6,240,000
Additional Cropping	400.00 ha	$4,800 per ha	($1,950 per acre)	$1,920,000
Arable Grazing	388.48 ha	$4,700 per ha	($1,900 per acre)	$1,825,856
Creek and Escarpment	375.00 ha	$2,500 per ha	($1,000 per acre)	$ 937,500
Bush Reserve	49.54 ha	$2,500 per ha	($1,000 per acre)	$ 123,850
Structures and Working Improvements	30.00 ha	$4,450 per ha	($1,800 per acre)	$ 133,500
Compound
*Total Value for Land*	*$15,129,456*
Main Homestead and Ancillary Structures	$ 1,469,160
Domestic Improvements	$ 259,190
Working Improvements	$ 154,000
*Total Value Indication*	$ 17,11,806
*Rounded to:*	*Rounded to*		*$17,000,000*”[8]