Prendiville v Chief Commissioner of State Revenue - [2010] NSWADT 270

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CITATION: Prendiville v Chief Commissioner of State Revenue [2010] NSWADT 270

DIVISION: Revenue Division

PARTIES:
APPLICANT
John and Katherine Prendiville
RESPONDENT
Chief Commissioner of State Revenue

FILE NUMBER: 106039

HEARING DATES: 2 November 2010

DATE OF DECISION:
15 November 2010

BEFORE: Needham J SC - Deputy President

CATCHWORDS: Land Tax - principal place of residence exemption – meaning of “capable of being used for separate occupation” – time of assessment of state of residence as to capability of being used for separate residence – standard and kind of occupation required – exemption requires occupation as a residence.

LEGISLATION CITED: Land Tax Management Act 1956
Taxation Administration Act 1996
Valuation of Land Act 1916
A New Tax System (Goods and Services Tax) Act 1999

CASES CITED: Prendiville v. Chief Commissioner of State Revenue [2009] NSWADT 273
Ryan v. Commissioner of Land Tax (1982) 1 NSWLR 305
Warriewood Valley Pty Ltd (as trustee of the Jill Trust) v. Federal Commissioner of Taxation (1993) 93 ATC 4653
Chapman v. Chief Commissioner of State Revenue [2010] NSWADT 124
Australian Finance Direct Ltd v. Director of Consumer Affairs Victoria [2007] HCA 57; 234 CLR 96
Triguboff v Valuer General [2009] NSWLEC 9
Flemington Properties Pty Ltd v. Raine & Horne Commercial Pty Ltd (1988) 83 FCR 411 at 418

REPRESENTATION:
Mr Prendiville representing himself and the second applicant
Mr Mitchell instructed by Ms Poon of the Crown Solicitor’s Office

ORDERS: 1.The decision of the Chief Commissioner is confirmed.
Costs
2.The Chief Commissioner has sought to reserve his position on costs
3.The respondent has sought leave to be heard on costs. Any costs application should be made by serving and filing submissions on costs, including any submissions on whether the application for costs can be heard “on the papers”, within two weeks of the date of publication of these reasons for decision
4. The applicant should then file and serve any submissions in answer within a further two weeks, and the respondent can deal with any matters in reply in writing filed and served within a further two weeks
5.If no application for costs is to be made, the respondent should let the Registry and the Applicant know within the period of the first two weeks.

REASONS FOR DECISION

1 These proceedings concern determination of a question as to whether a house in Cobbittee Street, Mosman (“the Cobbittee Street house”) owned by the Applicants was “capable of being used for separate occupation” as at midnight, 31 December 2008, for the purposes of determining the applicants’ eligibility for the “principal place of residence exemption” under Schedule 1A of the Land Tax Management Act 1956 (“the Act”).

2 This deceptively simple question has a relatively long history. The facts appear from the decision of Judicial Member Verick in Prendiville v. Chief Commissioner of State Revenue [2009] NSWADT 273 at [4] ff as follows (taken from the written submissions of the respondent at first instance, which facts were not in dispute):-

“4.The applicants entered into a contract for sale to purchase the Cobbittee Street property on 28 March 2008. Settlement occurred on 28 July 2008. Since that time, the Cobbittee Street property has been jointly owned by the applicants.
5.At the time of the sale, the house on the Cobbittee Street property was occupied by the vendors, …
6.The Cobbittee Street property adjoins the property at … Pretoria Avenue, Mosman (“Pretoria Avenue property”). The applicants jointly owned that property as at 31 December 2008.
7.On 18 December 2008, the applicants wrote to the Chief Commissioner seeking an exemption from the payment of land tax with respect to the Cobbittee Street property. In that letter, the applicants informed the Chief Commissioner that they had lodged a Development Application with Mosman Council to “amalgamate” the Cobbittee Street property and the Pretoria Avenue property with a view to having the one residence on the amalgamated site.
8.On 12 January 2009, the Chief Commissioner issued a Land Tax Notice of Assessment for the 2009 land tax year (“the Assessment”). The Assessment required the payment of land tax with respect to the Cobbittee Street property, in the amount of $16,025.30. An exemption from land tax was granted for the Pretoria Avenue property on the basis that it was the applicants’ principal place of residence.
9.By letter dated 13 January 2009, the Chief Commissioner informed the applicants that the principal place of residence exemption could not apply to the Cobbittee Street property, given cl. 13 of Sch. 1A to the LT Management Act.
10.On 19 February 2009, Mosman Council granted approval of the Development Application. It seems the approval provided for, inter alia, the amalgamation of the two adjoining lots, demolition of the existing dwelling and carport (on the Cobbittee Street property) and additions to the dwelling on the Pretoria Avenue property.
11.On 20 February 2009, the applicants lodged an objection to the Assessment. The applicants asserted that the principal place of residence exemption should apply to both the Cobbittee Street property and the Pretoria Avenue property on the basis that both lots should be “valued together” as a single parcel of land. They pointed to the Council’s approval to amalgamate the two lots. They also referred to the decision in Triguboff v Valuer General [2009] NSWLEC 9; 166 LGERA 128 (“Triguboff”).
12.By letter dated 23 March 2009, the applicants informed the Chief Commissioner that they lodged their application with the Department of Lands to consolidate the two lots.
13.On 22 May 2009, the Chief Commissioner disallowed the applicants’ objection.
14.On 12 June 2009, the applicants lodged an application with the Tribunal seeking a review of the Chief Commissioner’s decision to impose land tax with respect to the Cobbittee Street property.”

3 Judicial Member Verick’s decision was to the effect that the “physical separation test” in Ryan v. Commissioner of Land Tax (1982) 1 NSWLR 305 was no longer an issue as long as the two lots were adjoining and accessible to each other in accordance with Schedule 1A cl 13(2)(a1).

4 On the basis of this finding, Judicial Member Verick concluded (at [27]):-

“It was decided, with agreement with the parties at the hearing, that the Tribunal would consider the principal issue in this matter and if it was decided against the Chief Commissioner the matter would be remitted to the Chief Commissioner to enable him to consider the second issue with such further evidence that he may require to be satisfied that the building was not capable of being used for separate occupation. The applicants were not represented and it was agreed that the remission would give them the opportunity to produce evidence to support their case that the building was not on 31 December 2008 capable of being used for separate occupation.”

5 The matter was remitted to the Chief Commissioner accordingly.

6 The respondent sent a letter to the applicant seeking answers to questions regarding the Cobbittee Street house, including:-

a the date(s) the utilities (electricity, gas, telephone etc) were disconnected;
b what, if any, demolition had occurred from acquisition date in July until 31 December 2008 specifying the nature and description of such works;
c details of items disposed of following such demolition and the timeframe that such work occurred ...
d a description of the state of the building at 31 December 2008. That is, whether the house was still capable of being “locked up” for security purposes; the building was still “habitable” in the at the roof, exterior/interior walls were still in place, etc”

(Exhibit RX1, Supplementary Documents filed pursuant to s 58 of the Administrative Decisions Tribunal Act 1997).

7 The applicants answered the request on 19 February 2010. Their evidence will be dealt with in more detail below, but essentially they took the view that the house was uninhabitable.

8 On 20 February 2009 the Chief Commissioner, after consideration, determined that the exemption in clause 13 of Schedule 1A did not apply, and accordingly land on which the Cobbittee Street house stood was subject to land tax for the 2009 tax year. The applicants sought a review of the reconsidered decision.

Legislation

9 The legislation provides (relevantly) as follows:-

10 It was accepted for the purposes of this application for review that if the applicants demonstrated that the Cobbittee Street house was not “capable of being used for separate occupation”, then they would be entitled to the principal place of residence exemption.

11 This hearing was part of the original proceedings (see s 65 of the Administrative Decisions Tribunal Act 1997) and so technically Judicial Member Verick was part-heard. Two issues flow from that:-

12 The hearing took place on 2 November 2010. Mr Prendiville represented himself and his wife, and Mr Mitchell of counsel, instructed by Ms Poon, represented the Chief Commissioner. Mr Prendiville relied upon the evidence filed in the proceedings before Judicial Member Verick, the letter of 19 February 2010 referred to above and a letter dated 19 October 2010 which was Exhibit AX3. The respondent relied upon the s 58 documents and supplementary documents, a bundle of evidence (which became Exhibit RX1) including affidavits from three deponents, and submissions (Exhibit RX3). Mr Prendiville was cross-examined and did not seek to cross-examine the respondent’s witnesses.

The applicants’ case

13 The applicants argued that the time at which the question of capacity of the Cobbittee Street house for use as separate occupation should be determined is at midnight on 31 December 2008. The property must be looked at that point in time, and a determination made on the state of the house as at that time.

14 The evidence brought by the applicant was that:-

15 Mr Prendiville was cross-examined closely on his evidence. While it is fair to say that some of his letters to the Chief Commissioner did not fairly represent the state of the house (for instance, a description of the house as “dilapidated” shortly after sale when the photographs of the house do not support that description), I found that he was honest and open in admitting those cases where he had used an inopportune description. Another example is when he was cross-examined about the state of the kitchen and whether there was a dishwasher in the house; he thought not, and that impression was borne out by the contract for sale which did not mention a dishwasher as an inclusion (or, for that matter, as an exclusion, but as the stove was mentioned as an inclusion it would be logical for a dishwasher to be mentioned if it were included in the sale).

16 Overall I found him to be a witness of truth, doing the best he could to describe the house and its condition as at 31 December 2008. As he explained, he did not take a specific note, nor extensive photographs, of the house because there was never any intention to do anything except demolish it. It was not used between its purchase and its eventual demolition (in 2009) except for some limited storage, and for his children to play in what they referred to as the “world’s largest cubby house”.

17 There was some criticism of Mr Prendiville as a witness, and adverse comment on the failure to call his wife, but I am happy to accept, on my assessment of him as a witness of truth, that the state of the house was set out in paragraph 14 above. I have taken into account, in assessing the criticisms, the statements of Lockhart J in Warriewood Valley Pty Ltd (as trustee of the Jill Trust) v. Federal Commissioner of Taxation (1993) 93 ATC 4653, and Judicial Member Hirschhorn in Chapman v. Chief Commissioner of State Revenue [2010] NSWADT 124 at [130] where caution about accepting uncorroborated statements of taxpayers is urged. Further, I have taken into account the fact that the onus is on the applicants to prove their case (see s 100(3) of the Taxation Administration Act 1996).

18 The applicants argued that, as a result of the deterioration of the condition of the house and the removal of fixtures, particularly the internal toilet, and the disconnection of the utilities, the house was not “capable of separate occupation” as at midnight 31 December 2008. Mr Prendiville said that he would not have lived there. There was an external toilet which he described as housing some “rather bold spiders”. Mr Watkins, whose parents had owned the house prior to the applicants, noted on a plan that the external toilet was rarely used (although he said he had used it when visiting his parents).

19 The applicants submitted that in addition to the time of ascertaining whether the house was capable of separate occupation, the Tribunal should read into the words “separate occupation” the words “as a residence”. Within the context of Schedule 1A, it would be inapposite to exclude from the principal place of residence exemption a property which had on it only, say, a garden shed, on the basis that that shed was able to be occupied by pots and plants. Accordingly, the applicants argued that the house needed to be capable of occupation by persons as a residence, and that it was, at the stroke of midnight on 31 December 2008, not so capable.

20 The applicants were upset, as one can quite reasonably understand, by the fact that land tax was payable on a property which, had the relevant local council determined the application for Development Approval and demolition of the Cobbittee Street house on schedule, would have been part of an amalgamated block which would have qualified for the principal place of residence exemption, as at 31 December 2008. The applicants argued that if any discretion were available it was a case where that discretion should have been exercised in favour of the applicants due to circumstances outside their control.

21 The respondent argued on three main bases:-

22 The respondent argued that the factual matters put forward by the applicant did not mean that the house was incapable of occupation, either as a residence (counsel for the respondent suggested a student share flat would not mind a toilet without a cistern, but this Tribunal cannot comment on that issue), or for other purposes. The respondent pointed to the storage of some furniture in one of the rooms as a kind of “occupation”. The respondent pointed to the fact that the applicants were content to give their children (who were aged between 8 and the mid-teens) the keys to the Cobbittee Street house, and that they were confident that the house would not “fall down around their ears”. The applicant agreed that they were happy to let their children play there. The respondent suggested that if they were content to let their children play in the house, it must have been in a state suitable for “occupation” as a residence, or for any other purpose.

23 As noted above, submissions were made that the applicants (and in particular Mr Prendiville) were significantly overstating the state of the residence. I have found that they were not. I am of the view that Mr Prendiville’s stated position that he would not be prepared to occupy the Cobbittee Street house significantly informed his view as to whether the house was uninhabitable.

24 As for the question of occupation for a particular purpose, the respondent noted that the Schedule did not use the words “as a residence” whereas those words were used elsewhere (see, for example, Schedule 1A cl 2(a) (“occupied ... for residential purposes and for no other purposes”) and cl 3(2) (“occupied for a purpose ancillary to the purposes for which the building is, or the buildings are, designed, constructed or adapted”). Accordingly, the respondent argued, the word “occupation” without any designated purpose meant that occupation by, say, stored furniture, would be sufficient to bring the matter within the Schedule.

25 The Commissioner submitted that this less restrictive interpretation of “occupation” was consistent with the purpose of the Act and its context.

Interpretation of s 13(2)(b) of Schedule 1A

26 There are no decided cases which deal with cl 13(2)(b) of the Schedule (which was, of course, only enacted recently).

27 Each of the parties referred to the Second Reading Speech for the State Revenue Legislation Amendment Bill 2008 (Hansard, 25 June 2008 page 9258) in support of their or his respective propositions. The relevant parts of the Second Reading Speech provided:-

28 The reference to the Valuation of Land Act 1916 is to section 26, which provides (relevantly):-

29 As in the Land Tax Management Act, there is no definition of “occupation” in the Valuation of Land Act. Accordingly, the word must be given its usual meaning in the context of the legislation, the purpose of the provision and its context – see Australian Finance Direct Ltd v. Director of Consumer Affairs Victoria [2007] HCA 57; 234 CLR 96 at [37-[40] per Kirby J.

30 The Land and Environment Court judgment in Triguboff v Valuer General [2009] NSWLEC 9 deals with s 26 of the Valuation of Land Act, but not in a relevantly useful manner. In Flemington Properties Pty Ltd v. Raine & Horne Commercial Pty Ltd (1988) 83 FCR 411 at 418, the valuation question was referred to by Kiefel and Merkel JJ as:-

“The criteria chosen for a multiple lot valuation are based on a characteristic of the land (that is, its capacity to be separately occupied or let) rather than a characteristic of the tenancy ... The criteria chosen are consistent with the purpose of the valuation which is to determine the market value of the unimproved freehold or fee simple interest. The legislation has chosen the criteria of separate occupation or separate lettings for determining whether market value is to be determined on a single or a multiple lot basis”.

31 I do not take the reference to “occupied or let” to be definitive of the test in relation to the Land Tax Management Act – the Valuation of Land Act has specific references to leasing which do not appear in the Land Tax Management Act. However, the discussion is useful because it points to the purpose behind the Act being not how the building in question is actually used, but how it could be used.

32 The Tribunal was taken to a number of cases which deal with similar wording in other legislation, including ss 195-1 and 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999 (which refers to property being residential premises to be used “predominantly for residential accommodation). “Residential Premises” in that Act is defined as “land or a building that ... is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation”. While that definition includes the question of “capability” of being occupied, it does not assist particularly in construction of the provision in question because of the clear intent that the property be able to be occupied as a residence.

33 In my view the word “occupied” in the context of the Schedule to the Land Tax Management Act means “occupied by as a residence”. That construction fits with the requirement of the purpose of that Act (and of the Valuation of Land Act) to impose a tax on land which is capable of being occupied by persons – thus, the exemptions for particular kinds of occupation by people, as residences of various kinds. It would not fit in with the purpose of the Act – which is to regulate the taxation of property with reference, at least in the Schedule, to the kind of human occupation which takes place on those properties – to have separate assessment of land tax merely on the basis of the land having erected on it a structure suitable only, say, for storage. I accept the applicants’ argument on this point, and find that the words “capable of separate occupation” refer to the suitability of the Cobbittee Street house for occupation as a residence.

34 As to the time at which the question of such capability should be determined, I accept the submission of the respondent that it is not the stroke of midnight on 31 December that is the relevant time, but a reasonable time before or after that time. The construction urged for by the applicant is far too strict an interpretation to be easily imported into the legislation. As the respondent submitted, were the applicants’ argument accepted, it would easy to ensure that a property was not capable of separate occupation by removing some fixtures and turning off utilities for a short period of time, and then returning the property to its former state once the taxing date passed.

35 There does not appear to be any direct law on this point. The construction of the provision needs to have some practical effect, and it would be stretching the purpose of the legislation to say that a building which was not able to occupied on one day because of some structural issue was exempt from land tax, when that issue may be able to be remedied in the space of a week.

36 The final issue is what was the actual state of the building, and was it, on 31 December 2008 or within a reasonable time of that date, was it capable of being separately occupied? It is unfortunate that there were no photographs contemporaneous with 31 December 2008 taken; however, as I have said, it is explicable given the intention of the applicants that they were to amalgamate the title and demolish the house. It is further unfortunate that apart from Mr and Mrs Prendiville, and some of their garage sale customers, nobody entered the house between the purchase and the taxing date except perhaps their young children, so nobody was able to give contemporaneous evidence as to the state of the house at the relevant time.

37 However, I am able, given the photographic evidence that there was (taken six and three months prior to December 2008, and some months after it) to say that certainly the external structure of the house remained intact. The pictures taken before and after the taxing date by the applicants’ architect shows a building, perhaps showing its 50-odd years, but in solid shape and structurally intact. There was no evidence of external deterioration to a point where it would not be safe, or appropriate, to occupy it.

38 As for the internal condition, the evidence is that the main demolition or removals took place in the bathroom. The cistern of the toilet had been removed, as had the vanity unit and (it appears) at least part of the shower screen. Each of these would be able to be easily repaired in order to have the house in a fit state to occupy. The respondent submitted that the property would be “capable of separate occupation” even without the repair or reinstatement of the bathroom, given the existence of the external toilet; with this submission I agree. The standard of occupation is not specified in the Schedule, and while the applicant would not wish to live in the building with the associated rising damp and some roof leaks, that most certainly would not apply to the entirety of the relevant population of Sydney.

39 The applicants did not suggest that the absence of air conditioners would make the house unoccupiable. The holes left by the removal of the air conditioning units are, it appears, small. There was no evidence of the extent of the rising damp and in the light of there being no cross-examination of Mr Watkins, the son of the former owners, who gave evidence that the rising damp was not a problem in mid-2008, I find that the rising damp did not render the house unoccupiable as at 31 December 2008.

40 As for the utilities, the applicants merely had the accounts stopped. The phone was disconnected but the connections for future telephone connections remained. The same applied to the electricity and gas, and there remained a water and sewer service to the house (although no bills were being rendered for any of these utilities, or no significant bills).

41 In my view the house was capable of separate occupation on 31 December 2008, in that it was in a fit state to be occupied as a residence, and needed only minor reinstatement and the reconnection of utilities to be in a fit state to be let (although fitness for letting is, of course, not the test). I use that analogy because it shows starkly the closeness of the house to being a commercial proposition should the applicants have chosen to rent it out for the duration rather than wait for the approval for demolition.

42 The question of what the applicants actually did with it is irrelevant to the question of whether the house was capable of being occupied. The fact that they chose not to occupy it, and chose not to have it occupied by others, is not determinative. The applicants would need to show that the house was in a state which rendered it not “capable” of separate occupation. They have, rather, shown that it was not in a state which lent itself to comfortable occupation on an immediate basis, which is a different thing.

43 There is no legislative discretion in the relevant Schedule, and accordingly the Commissioner was correct when his counsel submitted that no discretion to relieve from land tax existed.

44 The decision of the Chief Commissioner is confirmed.

Costs

45 The Chief Commissioner has sought to reserve his position on costs.

46 The respondent has sought leave to be heard on costs. Any costs application should be made by serving and filing submissions on costs, including any submissions on whether the application for costs can be heard “on the papers”, within two weeks of the date of publication of these reasons for decision.

47 The applicant should then file and serve any submissions in answer within a further two weeks, and the respondent can deal with any matters in reply in writing filed and served within a further two weeks.

48 If no application for costs is to be made, the respondent should let the Registry and the Applicant know within the period of the first two weeks.

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Citations

Prendiville v Chief Commissioner of State Revenue [2010] NSWADT 270

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Prendiville v Chief Commissioner of State Revenue [2009] NSWADT 273

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CITATION:	Prendiville v Chief Commissioner of State Revenue [2010] NSWADT 270
DIVISION:	Revenue Division
PARTIES:	APPLICANT John and Katherine Prendiville RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	106039
HEARING DATES:	2 November 2010
DATE OF DECISION:	15 November 2010
BEFORE:	Needham J SC - Deputy President
CATCHWORDS:	Land Tax - principal place of residence exemption – meaning of “capable of being used for separate occupation” – time of assessment of state of residence as to capability of being used for separate residence – standard and kind of occupation required – exemption requires occupation as a residence.
LEGISLATION CITED:	Land Tax Management Act 1956 Taxation Administration Act 1996 Valuation of Land Act 1916 A New Tax System (Goods and Services Tax) Act 1999
CASES CITED:	Prendiville v. Chief Commissioner of State Revenue [2009] NSWADT 273 Ryan v. Commissioner of Land Tax (1982) 1 NSWLR 305 Warriewood Valley Pty Ltd (as trustee of the Jill Trust) v. Federal Commissioner of Taxation (1993) 93 ATC 4653 Chapman v. Chief Commissioner of State Revenue [2010] NSWADT 124 Australian Finance Direct Ltd v. Director of Consumer Affairs Victoria [2007] HCA 57; 234 CLR 96 Triguboff v Valuer General [2009] NSWLEC 9 Flemington Properties Pty Ltd v. Raine & Horne Commercial Pty Ltd (1988) 83 FCR 411 at 418
REPRESENTATION:	Mr Prendiville representing himself and the second applicant Mr Mitchell instructed by Ms Poon of the Crown Solicitor’s Office
ORDERS:	1.The decision of the Chief Commissioner is confirmed. Costs 2.The Chief Commissioner has sought to reserve his position on costs 3.The respondent has sought leave to be heard on costs. Any costs application should be made by serving and filing submissions on costs, including any submissions on whether the application for costs can be heard “on the papers”, within two weeks of the date of publication of these reasons for decision 4. The applicant should then file and serve any submissions in answer within a further two weeks, and the respondent can deal with any matters in reply in writing filed and served within a further two weeks 5.If no application for costs is to be made, the respondent should let the Registry and the Applicant know within the period of the first two weeks.