RSAYS Ltd v Commissioner of State Taxation - [2007] SASC 398

SUPREME COURT OF SOUTH AUSTRALIA
(Miscellaneous Appeal: Civil)
RSAYS LTD v COMMISSIONER OF STATE TAXATION
[2007] SASC 398
Judgment of The Honourable Justice Layton
13 November 2007
TAXES AND DUTIES - LAND TAX - EXEMPTIONS - LAND USED FOR ATHLETIC SPORTS
Appeal from decision of Commissioner of State Taxation against assessment of land tax - whether land exempt from land tax – whether land is held mainly or wholly for the purpose of yachting pursuant to paragraph 4(1)(k)(i) of the Land Tax Act 1936 (SA) – whether yachting is an athletic sport or exercise for the purposes of paragraph 4(1)(k)(i) – or alternatively, whether land is held mainly or wholly for the purpose of yacht racing pursuant to paragraph 4(1)(k)(ii) of the Land Tax Act 1936 (SA) – whether land is held mainly for asset protection purposes and therefore subject to land tax.
Held: Appeal allowed – the Court has to have regard to perceived purpose of exemption – given the context, the relevant exemption provisions should be interpreted liberally – paragraphs 4(1)(k)(i) and (ii) encourage and protect the pursuit of certain sporting activities –paragraph 4(1)(k)(i) does not ask the purpose for which land is used, but the purpose for which land is held – it is couched in present tense and applies at the time when exemption is sought – motivation for forming a holding association and purpose for holding land are two distinct questions with potentially very different answers – “purpose” is not limited to intermediate purposes but includes the purpose ultimately being served - facilities incidental or ancillary but nonetheless furthering the purpose of the statutory activity can be considered as furthering that activity – yachting is an athletic sport within the meaning of the exemption – the land is held mainly for the purpose of yachting – no need to make finding as to whether land is held mainly or wholly for yacht racing pursuant to paragraph 4(1)(k)(ii).
Land Tax Act 1936 (SA) s 4(1)(k)(i); s 4(1)(k)(ii); Taxation Administration Act 1996 (SA) s 82; s 92, referred to.
City of Essendon Corporation v Cox [1967] VR 545; Diethelm Manufacturing Pty Ltd v Federal Commissioner of Taxation (1993) 116 ALR 420, applied.
Brookton Co-operative Society Ltd v Federal Commissioner of Taxation (1981) 147 CLR 441; Burt v Federal Commissioner of Taxation (1912) 15 CLR 469; State Transport Authority v Corporation of the City of Adelaide (1980) 24 SASR 481, discussed.
Australian Forge and Engineering Co Ltd v Wollaston (1900) 26 VLR 414; Canwan Coals Pty Ltd v FCT (1974) 4 ALR 223; FCT v Reynolds Australia Alumina Ltd (1987) 77 ALR 543; Federal Commissioner of Taxation v Murry (1998) 155 ALR 67; National Trustees Executors and Agency Co of Australasia Ltd v R (1893) 19 VLR 132; Shell’s Self Service Pty Ltd v DCT (1989) 98 ALR 165; TAB v Federal Commissioner of Taxation (1996) 139 ALR 644; Universal Press Pty Ltd v FCT (1989) 90 ALR 332, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"yachting", "athletic sport or exercise"

RSAYS LTD v COMMISSIONER OF STATE TAXATION
[2007] SASC 398
LAYTON J
Introduction

This is an appeal brought pursuant to s 92 of the Taxation Administration Act 1996 (SA) against an assessment of land tax made by the Commissioner of State Taxation (“the respondent”).
On 17 February 2006, the respondent assessed land tax on property owned by RSAYS Limited (“the appellant”) being the land comprised in Certificate of Title Register Book Volume 581 Folios 87 and 88, being lots 110 and 111 in deposited plan 58698 (“the Land”).
On 12 April 2006, the appellant objected to the assessment by letter to the Treasurer pursuant to s 82 of the Taxation Administration Act 1996 (SA). On 7 January 2007, the Treasurer confirmed the respondent’s assessment and disallowed the appellant’s objection.
The essential issues
The appellant submits that the respondent erred in making the assessment for land tax as the respondent should have found that the Land was exempt from tax on two grounds:
·the appellant holds the Land mainly for the purpose of yachting, pursuant to paragraph 4(1)(k)(i) of the Land Tax Act 1936 (SA) (“the Act”); and
·further, or in the alternative, the appellant holds the Land mainly for the purpose of yacht racing, pursuant to paragraph 4(1)(k)(ii) of the Act.
The respondent, on the other hand, submits that the Land held by the appellant is not exempt from land tax as:
·the main purpose for holding the Land is not for yachting but for asset protection purposes; and
·even if the Land is held for yachting purposes as opposed to asset protection purposes, the appellant has failed to satisfy:
-paragraph 4(1)(k)(i) of the Act that the main purpose for holding the Land is for “athletic” yachting as distinct from “leisurely” yachting; or
-paragraph 4(1)(k)(ii) of the Act that the main purpose for holding the Land is for yacht “racing” with an audience in mind.
The hearing
At the hearing, I admitted into evidence two affidavits sworn by Mr Richard Colebatch (“Mr Colebatch”), the Chairman of Directors of the appellant, who is also a member of the Royal South Australian Yacht Squadron Incorporated (“the Squadron”) Management Committee. The first affidavit with exhibits was sworn on 3 August 2007 (“the first Colebatch affidavit”) and the second affidavit was sworn on 28 September 2007 (“the second Colebatch affidavit”). In addition, Mr Colebatch gave oral evidence.
The credibility of Mr Colebatch’s evidence was not challenged by the respondent, instead it was the interpretation of that evidence in the context of the Act, which was the point of difference between the parties. The appellant and respondent both made helpful oral submissions to supplement their written submissions.
The Legislation
Paragraphs 4(1)(k)(i) and (ii) of the Act relevantly provides as follows:
(1) Taxes are imposed on all land in the State, with the following exceptions:
…
(k) land that is owned by—
(i)an association that holds the land wholly or mainly for the purpose of playing cricket, football, tennis, golf or bowling or other athletic sports or exercises; or
(ii)an association that holds the land wholly or mainly for the purpose of horse racing, trotting, dog racing, motor racing or other similar contests; or
…
and is declared by the Commissioner to be exempt from land tax on the ground that the whole of the net income (if any) from the land is used in furtherance of the objects of the association and not for securing a pecuniary profit for the association or any of its members;
Background facts
In order to determine whether the Land is exempt from land tax by virtue of paragraphs 4(1)(k)(i) or (ii) of the Act and, in particular, whether the appellant holds the Land wholly or mainly for the purposes specified in the two exemptions, a number of factual matters require determination.
I find the following facts based on the evidence before me.
The Land
The Land is located at Outer Harbour and comprises of two allotments, lots 110 and 111. Approximately 50 per cent of the Land is contained in Lot 111, which is essentially underwater and largely comprises a marina. Lot 110 is dry land which surrounds the marina.
Circumstances leading to the acquisition of the Land by the appellant
The Squadron was established on 5 November 1869 and at all relevant times has been incorporated under the Associations Incorporation Act 1985 (SA). Mr Colebatch deposed that the Squadron was established by its founders “to facilitate, extend and foster the sport of yachting generally and to encourage the principle of fellowship amongst its members”. This object is also expressed in its current Constitution, which I discuss hereafter.
From its inception in 1869 to 1923 the Squadron conducted its activities from land and moorings on the Port River and then from 1924 up until 13 July 2001 it leased the Land from various ministers and instrumentalities of the State of South Australia, the last being the South Australian Ports Corporation, which was a statutory corporation established under the now repealed South Australian Ports Corporation Act1994 (SA).
In 2001, in the course of privatising the Port of Outer Harbour, the South Australian Ports Corporation offered to sell the Land to the Squadron. Mr Colebatch deposed in his first affidavit that the Squadron obtained legal and financial advice and decided to form the appellant (“RSAYS Ltd”) to take up the offer for sale. Mr Colebatch also deposed that at the time of the offer for sale, certain events influenced the Squadron’s decision to form the appellant, namely:
·the loss of sailors and yachts at sea during the 1998 Sydney to Hobart yacht race and the threat of legal action against the organising yacht club and its officers; and
·the closure of the Le Fevre Peninsula Maternity Hospital at Semaphore, South Australia, after a large judgment was awarded against the hospital.
In the light of these events, the Squadron decided that it needed to protect its assets from any future liabilities that it might incur. Consequently, the appellant was incorporated on 29 June 2001.
On 17 July 2001, the appellant acquired the Land from the South Australian Ports Corporation. By a registered lease commencing on 1 May 2002, the appellant leased the Land to the Squadron for 399 years.
Constitutional framework of the Squadron and appellant
The Squadron’s current constitution, which was revised in March 2004, relevantly provides that:
·the “Squadron’s Premises” is defined as the Land;[1]
·the Squadron’s objects are “to facilitate, extend and foster the sport of yachting generally and to encourage the principle of fellowship amongst its Members”;[2] and
·the Squadron is prohibited from making any distribution to its Members or Members’ relatives and such a prohibition extends to any winding up and liquidation.[3]
[1]    Sub-clauses 2.5 and 16.1.
[2]    Sub-clause 3.1.
[3]    Sub-clause 3.2.
The appellant is a company incorporated under the Corporations Act 2001 (Cth) and is limited by guarantee.[4] By virtue of its constitution the appellant is a not-for-profit organisation. From the appellant’s constitution, I note that:
·the appellant’s objects are expressed in the same terms as those expressed in the Squadron’s constitution, namely “to facilitate, extend and foster the sport of yachting generally and to encourage the principle of fellowship amongst its Members”;[5]
·the income and property of the appellant “must be used and applied solely to the promotion of its objects”;[6]
·no part of the income or property of the appellant may be distributed to members, former members or associates thereof;[7]
·the members of the appellant are the members for the timebeing of the Squadron;[8]
·voting rights of the members are referable to the types of membership of the Squadron;[9] and
·on winding up or dissolution of the appellant, none of the assets of the appellant, once liabilities have been deducted, are to be distributed to the members. Rather, the assets must be transferred to the Squadron if the Squadron is an income tax exempt body. If the Squadron is not income tax exempt, the assets must be distributed to another organisation whose objects are similar to the Squadron.[10]
[4]    Clause 2.
[5]    Clause 6.
[6] Sub-clause 8.1.
[7]   Sub-clause 8.2.
[8]    Sub-clauses 10.2 and 11.3.
[9] Sub-clause 23.1.
[10] Sub-clause 49.1.
Definition of yacht
In considering what is meant by the expression “yachting” as it is referred to in the constitutions, the term “Yacht” is defined in Clause 2.6 of the Squadron’s constitution as “a vessel on the Yacht Register of the Squadron, whether propelled by sail or power, except where the context means a particular type of vessel”. The appellant’s constitution adopts the same interpretation as that of the Squadron.[11] This broad definition of yacht was the subject of submission by both parties in relation to the meaning of “yachting”. I have discussed this issue later in my reasons.
[11] Sub-clause 4.7.
The vessels registered at the Squadron
As at the date of the hearing, there were 387 vessels registered at the Squadron.[12] Of the total number of registered vessels, 66 are power vessels and the overwhelming majority, 321, are sailing vessels. Mr Colebatch deposed in his first affidavit that approximately 28 per cent of the 321 sailing vessels owned by Squadron members participated in yachting races (that is, 90 vessels), and approximately a further three per cent of the yachts participated in the races behind the scenes.
[12] Exhibit RC7 to Mr Colebatch’s first affidavit sworn on 3 August 2007.
Mr Colebatch deposed in his second affidavit that 42 of the 66 powerboats are berthed at the marina and 24 are dry berthed on the land. Further, he deposed that whilst some powerboats and sailboats may be infrequently used, all the various activities conducted on the Land are “directed to the pursuit of competitive and recreational sailing, rather than powerboat activities”.
The membership of the Squadron and the appellant
The appellant’s members are the members for the timebeing of the Squadron.[13] As at the date of the hearing, there were a total of 1046 members, and this included 118 family memberships.[14] Of the total number of members, 579 have Yachting Australia Registration. This type of registration is required if a member wishes to participate in more than three weekend races per year. Nevertheless, it is noted that just because 579 members of the Squadron are registered does not necessarily mean that they actually compete in three or more weekend races a year. With respect to the 467 unregistered members, they can still participate in three or less weekend races.
[13] Sub-clauses 10.2 and 11.3 of the appellant’s constitution.
[14] Exhibit RC4 to Mr Colebatch’s first affidavit sworn on 3 August 2007.
The Squadron also hosts Twilight races on Wednesday evenings, which are open to both registered and unregistered members. Unregistered members can compete in as many twilight races as they wish.
In summary, approximately 55 per cent of the Squadron’s members are qualified to race in more than three weekend races per year. The other 45 per cent can race in three or less weekend races per year and all members can participate in an unlimited number of Twilight races in a year.
Interpretation of the Act
This case concerns the interpretation of two of the exemption provisions of the Act.
Approach to interpretation of exemption provisions in taxing acts
A number of authorities were cited with respect to the interpretation of exemptions in taxing acts. In Burt v Federal Commissioner of Taxation,[15] Barton J emphasised that taxing acts, when imposing tax, should be specific in their application but that a liberal construction should be given to words of exception. His Honour stated :[16]
Where the construction of such exceptions is seriously in doubt, the interpretation should favour those whose claims are based upon the exceptions. For that position there is the highest authority, if authority be necessary. In Armytage v Wilkinson, the Judicial Committee express their dissent from the principle that in a taxing Act provisions establishing an exception to the general rule of taxation are to be construed strictly against those who invoke their benefit. They point out that such a principle “is opposed to the rule expressed by Lord Ellenborough in Warrington v Furbor, and followed and confirmed in Hobson v Neale. Lord Ellenborough’s words are – ‘I think that when the subject is to be charged with a duty, the cases in which it is to attach ought to be fairly marked out; and we should give a liberal construction to words of exception, confining the operation of the duty’. It is only, however, in the event of there being a real difficulty in ascertaining the meaning of a particular enactment that the question of strictness or of liberality of construction need arise”. [Emphasis added, footnotes omitted]
[15] (1912) 15 CLR 469, 482.
[16] Ibid.
In the same decision, Higgins J agreed that words of exception in taxing acts were to be interpreted liberally.[17] This approach has been followed in a number of cases. [18]
[17] Ibid, 487.
[18] National Trustees Executors and Agency Co of Australasia Ltd v R (1893) 19 VLR 132, 135 (A’Beckett JJ); Australian Forge and Engineering Co Ltd v Wollaston (1900) 26 VLR 414, 416; Canwan Coals Pty Ltd v FCT (1974) 4 ALR 223, 227; FCT v Reynolds Australia Alumina Ltd (1987) 77 ALR 543; Universal Press Pty Ltd v FCT (1989) 90 ALR 332, 337; Shell’s Self Service Pty Ltd v DCT (1989) 98 ALR 165, 178.
However, Wells J in State Transport Authority v Corporation of the City of Adelaide[19] expressed a more cautious approach stating that the burden fell on the taxpayer to “demonstrate convincingly” that the exemption applied:[20]
[A] person who claims the benefit of an exemption from the operation of a general tax must, in my opinion, demonstrate convincingly that he is entitled to that benefit. In cases of doubt, a court should not be astute to enlarge the view the purview of the exemption where there is a real possibility that that enlargement will ultimately increase the burden upon the very much wider segment of the community who must pay the tax.
[19] (1980) 24 SASR 481.
[20] Ibid, 484.
On the other hand, French J in DiethelmManufacturing Pty Ltd v Federal Commissioner of Taxation,[21] expressed a middle ground, stating that the interpretation of an exemption in a taxing act will depend upon the perceived purpose of the exemption:[22]
As a general proposition the taxpayer claiming the benefit of an exemption from the imposition of tax has the burden of proving the facts necessary to fall within the exemption … On the other hand an exemption which exists for the purpose of encouraging, rewarding or protecting some class of activity is not to be given a narrow application. [Emphasis added, footnote omitted]
[21] (1993) 116 ALR 420.
[22] Ibid, 426.
French J’s approach has considerable attraction and was specifically endorsed by Hill J in TAB v Federal Commissioner of Taxation,[23] and is similar to the approach taken by Kirby J in Federal Commissioner of Taxation v Murry.[24] In my view, this approach recognises that tax acts vary in the manner in which exemptions are expressed and the purpose which they serve in the overall regime of taxation. I agree that whilst the taxpayer bears the burden of proving that the exemption applies, in deciding the scope of the exemption, it is necessary for the court to have regard to the perceived purpose of the exemption in order to decide whether it should be given a liberal interpretation.
[23] (1996) 139 ALR 644, 654 – 6.
[24] (1998) 155 ALR 67, 86 – 7.
The exemptions expressed in s 4(1) of the Act
Section 4(1) expresses more than 14 exemptions. They cover a range of land uses and land holdings. A common theme expressed within the sub-sections embraces the promotion of what may be characterised as social purposes within the community. Examples of some of the exceptions to land tax include:
·public land (s 4(1)(b));
·land used for religious purposes, hospital and library institutions (s 4(1)(c));
·land owned by associations assisting necessitous persons (s 4(1)(d));
·land owned by associations for conservation of native fauna and flora (s 4(1)(g));
·land owned by charitable, educational or philanthropic associations (s 4(1)(j)); and
·land used for the benefit of Aboriginal people (s 4(1)(m)).

Sub-section 4(1)(k) has eight placita and is to be viewed in this context. A common theme of these placita include land held for sport and recreational use in which the income, if any, is not for securing a pecuniary profit for any of its members.
In my view, the two exemptions which are the subject of this action, in their statutory context, have the character of encouraging and protecting a class of activity and should be given a liberal application. Their combined purpose appears to encourage the pursuit of certain types of sporting activities (which mostly take place outdoors), by the elimination of the burden of paying land tax for holding such land.
Exemption 1 – The Land is held wholly or mainly for yachting purposes
Paragraph 4(1)(k)(i) of the Act exempts an association from paying land tax if the land is held wholly or mainly for the purpose of named sports “or other athletic sports or exercises”.
In order to determine whether a particular association is exempt from paying land tax, an inquiry into the following is necessary:
·first, the whole or main purpose for holding the land;
·second, whether such purpose is for named sports or athletic sports or exercises; and
·third, if the above two prerequisites are fulfilled, whether the whole of the net income generated from the land is used in the furtherance of the objects of the association.
Interpretation of “holds the land wholly or mainly for the purpose of …”
Considering first the interpretation of this statutory phrase, the appellant’s main submissions as to interpretation included:
·the paragraph does not ask the purpose for which the land is used, but the purpose for which it is held;
·the paragraph is couched in the present tense and applies to the time when the exemption is sought, and not to the future, which may change and may require reassessing;
·the word “purpose” in relation to paragraph 4(1)(k)(i) is not limited to consideration of only the intermediate purpose but has regard to the purpose that is ultimately being served;
·the words “holds the land ‘wholly or mainly’ for the purpose” incorporates uses of the land which further the purpose of athletic sport or exercise. These uses may be described as ancillary or incidental to the purpose; and
·such incidental or ancillary uses must ultimately be wholly or mainly directed to the purpose of the athletic sport or exercise and not to some other purpose, which might be described as collateral or independent.
The respondent’s main submissions on this point included:
·the exemption has a prospective perspective and will also involve looking beyond current usage to consider the objects or purpose for which the association holding the land was established, and thus to the future;
·the intermediate purpose cannot be ignored and it is wrong to seek to identify a single overriding purpose. The Act does not refer to "ultimate purpose"; and
·the "but for" test should be applied. In particular, consideration is required as to the motivation for an association holding the land and whether it would or would not be holding the land, but for the athletic sport or exercise.
Having considered these submissions, I conclude that the paragraph requires a decision maker to decide the purpose for which the land is held. The uses which are made of land may assist the decision-making process, but it does not necessarily answer the fundamental question, namely, what is the whole or main purpose for which the land in question is held.
The paragraph uses the present tense and the question as to whether land is held for the statutory purpose is to be decided at the time of assessment. I consider that Dr Bleby is correct in his submissions on this point and that any future changes which may alter the purpose for which land is held is a matter for future assessment. In support of this proposition, Dr Bleby referred the Court to the High Court decision of Brookton Co-operative Society Ltd v Federal Commissioner of Taxation.[25] In that case, Gibbs CJ considered whether a particular company fell within the description of a “co-operative company” as defined in s 117(1) of the Income Tax Assessment Act 1936 (Cth), that is, “a company which … is established for the purpose of carrying on any business having as its primary object or objects one or more of the following: … (d) the rendering of services to its shareholders”. In reaching the decision that the company did not fall within the meaning of a co-operative company, Gibbs CJ made reference to the fact that “[t]he use of the present tense in the phrase “is established” [in s 117(1) made] it necessary to consider the purpose for which the company was carried on in the relevant year rather than at the time of its formation”.[26] I agree with this proposition, but I would also add that whilst I have concluded that the relevant purpose is to be determined as at the time of assessment, there may be occasions where recent factors or imminent factors may well reflect on the current purpose for the holding of land at the time of assessment.
[25] (1981) 147 CLR 441.
[26] Ibid, 445.
I now turn to consider whether the purpose for which land is held is directed solely to an intermediate purpose or whether a decision maker should have regard to a purpose that is ultimately being served. The paragraph does not refer to "ultimate purpose", however that would not exclude an interpretation which has regard to purposes which may be ultimate or governing purposes, as well as intermediate purposes to attain an ultimate purpose. Both may be relevant in a given case in determining whether the land is being held for the statutory purpose.
As to the words “wholly or mainly”, I agree with Dr Bleby’s submission that these words include land being held for uses which are incidental or ancillary to an athletic sport or exercise so long as such uses are directed wholly or mainly to the athletic sport or exercise. I refer to the case of City of Essendon Corporation v Cox[27] which was concerned with an issue relevant to rates payable under a Local Government Act and whether land was used for "outdoor sporting or recreational purposes" in the context of a racecourse. The court considered whether rates were payable on part of the land occupied and used by caterers, bookmakers and broadcasters. The court held that the provision of those services was incidental and ancillary to the outdoor sporting and recreational purpose of the racecourse.[28] This case is authority for the proposition that facilities which are incidental or ancillary but nonetheless further the purpose of the statutory activity can be considered as furthering that activity. Again, this is a relevant issue in the present case.
[27] [1967] VR 545.
[28] Ibid, 551-2.
Turning now to the respondent’s submission that the "but for" test should be applied to the interpretation of the exemption. Counsel for the respondent, Mr Wait, submitted that a decision maker should consider the motivation for forming the association which holds the land and whether it fulfilled the “but for” test, namely that the association would not have been formed “but for” the purpose of (wholly or mainly) holding land for athletic sport or exercise. In my view, there are at least two reasons for rejecting such an argument.
First, the “but for” test has been applied as a causal connection test in a different context, namely, in connection with negligence and contract actions. The test has no relevance in a statutory context such as this where the question is one of ascertaining the whole or main purpose for holding land.
A second problem with Mr Wait’s argument, which was enunciated by Dr Bleby, is that the motivation for forming a holding association and the purpose for holding the Land are two distinct questions with potentially very different answers. An association might be formed for a variety of different reasons, but by the time it holds the land, regardless of the motivation for its formation, it may in fact be able to prove that it is holding the land wholly or mainly for the purpose of the section. In other words, one does not look back to the motivation for establishing an association, but rather the focus of the exemption is on the purpose for holding land. As a general proposition I agree with Dr Bleby, but I point to the fact that one must be careful about broad propositions. I will consider the application of this matter further when discussing the particular facts in this case.
Interpretation of “ …or other athletic sports or exercises”
The appellant contends that “yachting” is an athletic sport within the meaning of the exemption. This is not an activity which is expressed in the exemption, and requires consideration as to what is encompassed by the words “or other athletic sports or exercises”.
The common usage of “athletic” as defined in the Macquarie Dictionary has the following meanings :[29]
i. physically active and strong.
ii. of, like, or befitting an athlete.
iii.of a physical type characterised by long limbs, a large build and well-developed muscles.
iv.of or relating to athletics.
[29] Delbridge, A et al (eds), The Macquarie Dictionary (3^rd ed, 1997), 124.
The word “athletics” is defined as:[30]
i. (usually construed as plural) athletic sports, as running, rowing, boxing etc.
[30] Ibid.
The word “athlete” is defined as:[31]
i. anyone trained to exercises of physical agility and strength.
ii. one trained for track and field events only.
[31] Ibid.
To complete the common usage as indicated in the Macquarie Dictionary, the word “sport” is defined as:[32]
i.an activity pursued for exercise or pleasure, usually requiring some degree of physical prowess, as hunting, fishing, racing, baseball, tennis, golf, bowling, wrestling, boxing etc.
…
iii.(plural) a meeting for athletic competition.
[32] Ibid, 2049.
Having regard to this common usage of the words “athletic sports or exercises”, some specific examples of which are reflected in the dictionary definitions, the common denominator appears to be activities which are pursued for exercise or pleasure and which usually require some degree of physical prowess. It seems to me that the more extreme definition of being physically strong and of participants having a particular large build and well-developed muscles, are not apposite. For example, one of the athletic sports or exercises specified in the exemption is “bowling” which is frequently an activity undertaken by older persons who may have some frailties, but nonetheless have a skill or prowess and it involves some degree of physical exertion and exercise.
Applying this approach to yachting, Mr Colebatch deposed in his first affidavit that yachting has been recognised as an Olympic sport since 1908.[33] Mr Colebatch also deposed that the Australian Institute of Sport (“AIS”) describes yachting as a sport and has established the AIS Sailing Program.[34]
[33] This is evidenced by the extracts exhibited to Mr Colebatch’s first affidavit sworn on 3 August 2007 from the International Olympic Committee (“RC8”) and the Australian Olympic Committee (“RC9”).
[34] Exhibit RC10 to Mr Colebatch’s first affidavit sworn on 3 August 2007.
Mr Colebatch’s reference to yachting in both his affidavits refers to activity using types of vessels of a more limited description than the definition of “yacht” referred to in the constitutions. He is referring to vessels under sail and not, for example, powerboats without sails. Similarly, the appellant, when contending that the purpose for holding the land was for yachting, was referring to activities using vessels under sail, that is, using sailing vessels.
In his second affidavit, Mr Colebatch describes the physical requirements of yachting by sail, be it recreational or competitively. In particular, Mr Colebatch deposed that:
9.Sailing either recreationally or for the purposes of competing in races provides a great level of physical exertion to ensure the yacht and its passengers reach the required destination, and safely.
…
11.Yachting requires a considerable amount of physical effort to sail, navigate, handle the yacht, including the other physical activities that are connected to yachting.
…
22.The physical activities required from my experience are significant whether sailing recreationally or competitively, as the tasks required are not dissimilar.
I am therefore satisfied that yachting is an activity which is pursued for exercise or pleasure and which requires some degree of skill or physical prowess. It does not require that the sailing vessels must wholly or mainly be used in competition or races, being the limited interpretation that Mr Wait contended. Bearing in mind the overall social policy of encouraging sporting activities within the community, the exemptions should be given a liberal application such that recreational or leisurely sailing would not be excluded, nor would sailing vessels have to always use their sails for the purposes of propulsion. While not an exhaustive list, some of the activities conducted on a yacht, irrespective of whether it is for leisure or competition, include:
·the crew moving constantly around the yacht due to irregular and unpredictable waves and wind;
·the crew using their weight to ensure that the boat does not keel over excessively;
·the crew moving their heads constantly to view the conditions around them and to observe sails for wind movement;
·the crew pulling and releasing ropes to ensure the sails are of the right shape and are facing the right direction; and
·to maximise yacht speed, the crew must continuously adjust the sails.
Although use of power motors for propulsion of sailing vessels is a “lesser athletic pursuit” as Mr Colebatch conceded at the hearing, each of these forms of yachting requires the skipper, and perhaps others persons on board, to apply some degree of skill, physical prowess and exercise.
Application of the interpretation of the exemption in paragraph 4(1)(k)(i) to the facts
I will now consider whether the first two prerequisites for an exemption have been fulfilled, namely, whether the Land is being held wholly or mainly for the purpose of yachting.
The Land, prior to its purchase, had been leased by the Squadron and utilised for the objects expressed in its constitution which focussed, as indicated earlier, on “the sport of yachting”. In using the word “yachting” I am at this point using it in the manner in which it is expressed in the constitutions. The Land then became available for purchase. This opportunity enabled an asset to be acquired to further the Squadron’s constitutional objectives. The Land would still have to be utilised by the Squadron in accordance with its objects, as it had in the past. The Land could have been purchased by the Squadron and held for its constitutional objectives, however that would have exposed that asset to a possible risk of being taken up in satisfying a potentially large future liability, for example, a yachting disaster for which the Squadron may be held responsible. The appellant was formed in order to purchase the Land as means of quarantining the Land from being utilised for any other purpose other than the Squadron’s constitutional objectives as well as the appellant’s constitutional objectives, which mirrored those of the Squadron. As I previously indicated, the exemption is concerned with the purpose for the holding of the Land and not the purpose for the formation of the holder of the Land. In addition, the asset protection purpose which was promulgated by Mr Wait as the purpose for the appellant holding the land, was not an end in itself, but rather an intermediate purpose as a means of achieving a long-term goal of continuing to promote the sport of yachting.
Therefore, I conclude that the main purpose for the appellant holding the Land at the time of assessment is for “the sport of yachting”, together with other incidental purposes which also focus on “yachting” as this expression is used in the constitution.
As the term “yachting” as used in the constitution is broader than the athletic sport or exercise of yachting as I have previously discussed, it is necessary to consider whether the purpose for holding the Land is nonetheless mainly still for the purpose of the activity of using vessels under sail.
Mr Colebatch’s evidence, which I accept, is that some people at the Squadron use the registered 66 powerboats, but most of the powerboats are in the marina or under dry dock for the rest of the year. Further, at the hearing, Mr Colebatch gave evidence that most of the yachting at the Squadron was of a sailing and racing variety, as opposed to power yachting, which he said was of a “lesser athletic pursuit”. I am therefore satisfied that the majority of the activity carried out on the Land relates to the use of sailing vessels and furthering the athletic activity of yachting under sail.
Uses of the Land
The Land has a fully serviced marina which offers facilities for mooring yachts, standing areas for dry docking yachts, crane and ramp facilities, diesel refuelling facilities, barbeque area, toilet and shower facilities, among other facilities. The Land also has car parking facilities, power and water supply to the mooring berths, a clubhouse and bar facilities, training rooms, racing and administration facilities a well as a library dedicated to the sport of yachting.
Mr Colebatch gave evidence that the owners of the powerboats also use the facilities on the Land and was frank in admitting that he cannot say with precision the numbers of members and extent of actual use of the Land by owners and users of power vessels and owners and users of sailing vessels. At the same time, he said that in his experience, powerboats tend to sit there for much of the time rather than being used. He also gave evidence that the majority of activity, be it administrative, technical, racing or social, is carried out by those who are sailors and not powerboat operators.
As I previously discussed, the question posed by the exemption provokes a much broader inquiry than the specific uses of the Land, nonetheless, the use made of land may assist a decision-maker as to the purpose for which land is held. On the evidence in the present case the Land has a number of facilities which support various uses, for example:
·the Squadron hosts private functions and conferences in the club dining room. They take the form of 40 to 50 member functions as well as a dozen non-member functions per year. Although currently running at a loss, these functions make up approximately 25 per cent of the Squadron’s revenue.
·the Game Fishing Club of South Australia rents a clubroom on the Land. Members of this club are allowed to use the Squadron’s dinning room and bar. The rental income is then applied for the purposes of the Squadron.
·Flinders Ports Pty Ltd and the South Australia Fire Brigade rent six berths on the Marina for the purpose of berthing five pilot boats and one fire boat. The income from the rent is applied for the purposes of the Squadron. The appellant submits that the renting of these spaces on the Land is ultimately, as far as the Squadron is concerned, a revenue-making exercise which is then applied to further the purpose of yachting.
·The Squadron also hosts community-based events relating to on-water activities as well as training camps.
These uses of the Land, which may be described as ancillary or incidental, are ultimately, wholly or mainly, directed to the purpose of the sport of yachting. They are not collateral or independent purposes. Indeed, Mr Wait correctly conceded that if the appellant demonstrated that the Land was held mainly for yachting (which fulfilled the statutory requirement), the respondent would not question the other uses of the land.

In summary, I am satisfied that the incidental and ancillary uses of the facilities on the Land are mainly for the purpose of yachting and complement the main purpose for which the Land is held by the appellant, that is, yachting.
Whether the whole of the income generated from the Land is used in the furtherance of the objects of the appellant
By virtue of its constitution, the appellant is a not-for-profit body. The respective constitutions of the appellant and the Squadron prevent members of the Squadron or the appellant from obtaining any distribution, whether in money or property, from the assets of the appellant.[35] The constitution of the appellant also provides that the income and property must be used and applied solely to the promotion of the constitutional objects.[36] These provisions in combination with the evidence and the discussion above, satisfies me that the third requirement of the exemption in paragraph 4(1)(k)(i) applies, that is, that the whole of the net income from the Land is used in the furtherance of the objects of the appellant and not for securing a pecuniary profit for the appellant or any of its members.
[35] Sub-clause 3.2 the Squadron’s Constitution; Clauses 6, 7 and 8 of the appellant’s Constitution.
[36] Sub-clauses 8.1 and 8.2 of the appellant’s Constitution.
I am therefore satisfied that the appellant satisfies the requirements for exemption under paragraph 4(1)(k)(i) of the Act.
Exemption 2 – The Land is wholly or mainly held for yacht racing
At the hearing, the appellant submitted that if the Court reached the conclusion that yachting is an athletic sport or exercise and that the Land is used mainly for that purpose, then there would be no need to consider whether the Land is exempt from land tax pursuant to paragraph 4(1)(k)(ii). I have concluded that the first exemption is satisfied. I note that holding land for yacht “racing” is a narrower concept than holding land for yachting “purposes”.
The evidence before me indicates that the Squadron hosts a number of competitions on the Land. In any given year, 120 races may be held. For example in the 2006 financial year, 132 races were conducted on the Land. Further, in the last five years, the Squadron has hosted over 650 races. Further, about 55 per cent of the membership of the Squadron is qualified to race more than three weekends in each year, and there are other races which are held which do not require registration. This begs the question of how many members race and how often. Dr Bleby submitted that it could not be said with certainty how many members (registered or unregistered) actually engaged in racing in a year.
Mr Colebatch also deposed in his first affidavit that in his view, the facilities on the Land are “primarily utilised by members who participate in racing, due to the calendar of events and the nature of racing”. He refers to the stress placed on racing vessels and the resultant higher level of repair and maintenance than yachts used for cruising. Also there are greater imperatives for the owners of sailing vessels used for racing to use the facilities to make their yachts go faster.
Mr Colebatch further deposed in his second affidavit that from his observation, there is a core group of dedicated people within the Squadron who take part in most of the activity. Dr Bleby candidly, and in my view correctly, submitted that this group takes part in 80 per cent of the activity at the Squadron, that is, “80 per cent of the work is done by 20 per cent of the people”. It follows that there is a much bigger group of people who have occasional use of the Land.
Whilst there are strong arguments which could support the application of this exemption, there are some areas which lack clarity. However, it is not necessary for me to decide this issue, and I do not.
Orders
For these reasons, I make the following orders:
1Appeal allowed.
2The respondent’s assessment dated 17 February 2006 be revoked.
3I declare that the Land comprised in Certificate of Title Register Book Volume 581 Folios 87 and 88, being lots 110 and 111 in deposited plan 58698 is exempt from land tax, pursuant to paragraph 4(1)(k)(i) of the Land Tax Act 1936 (SA).
4The respondent refund the amount of land tax assessed and paid by the appellant.
5The respondent pay interest on the sum of land tax refunded.
The respondent pay the appellant’s costs to be agreed or taxed.