University of Melbourne v Commissioner of State Revenue

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

TAXATION LIST

S ECI 2020 02747

THE UNIVERSITY OF MELBOURNE (ABN 84002705224)	Appellant
v
COMMISSIONER OF STATE REVENUE	Respondent

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JUDGE:	M Osborne J
WHERE HELD:	Melbourne
DATE OF HEARING:	9 February 2021
DATE OF JUDGMENT:	1 April 2021
CASE MAY BE CITED AS:	University of Melbourne v Commissioner of State Revenue
MEDIUM NEUTRAL CITATION:	[2021] VSC 156

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LAND TAX — Applicability of charitable use exemption pursuant to s 74(1)(a) of the Land Tax Act 2005 (Vic) — Land leased by a charitable institution to a non-charitable lessee —Whether the provision of student accommodation by a third party commercial operator lessee under a lease from a charitable institution lessor can be a use by the charitable institution itself — Whether the provision of student accommodation by a third party commercial operator under a lease from a charitable institution lessor can be a use by a charitable institution lessor exclusively for charitable purposes — Whether the charitable use exemption can apply where relevant land is used by multiple users — Whether exclusivity of use relates to active physical use of the land or to the purposes of the charitable institution — Ryde Municipal Council v Macquarie University (1978) 138 CLR 633 — Chief Commissioner of State Revenue v Metricon (Qld) Pty Ltd (2017) 105 ATR 11 — R vSandhurst and Northern District Trustees Executors and Agency Co Ltd [1915] VLR 682 —Salvation Army (Victoria) Property Trust v City of Richmond (1956) 1 VLR 250.

WORDS AND PHRASES — Meaning of ‘use’ under s 74(1)(a) of the Land Tax Act 2005 (Vic) — Meaning of ‘exclusively’ under s 74(1)(a) of the Land Tax Act 2005 (Vic).

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Ms J Batrouney QC with Mr C Sievers	Ashurst
For the Respondent	Mr C Young QC with Ms S Gory	State Revenue Office

HIS HONOUR:

Introduction

This is an appeal by the University of Melbourne (‘the University’) against land tax assessment number 25745114 (‘the Assessment Notice’) issued by the Commissioner of State Revenue (‘the Commissioner’) under the Land Tax Act 2005 (Vic) (‘the Act’)[1] for the period 1 January 2019 to 31 December 2019 (‘assessment period’) in relation to land owned by the University at 108-128 Leicester Street, Carlton and at shop 108-128 Leicester Street, Carlton (collectively, ‘the land’).
[1]Section 8 of the Act imposes a tax each year on all taxable land in Victoria.

The land is leased by the University to CLV (Melbourne) Pty Ltd (‘CLVM’), pursuant to a lease which commenced 7 April 2016. The lease is for a term of 38 years at a peppercorn rent of $1 per annum. Under clause 1.1 of the lease, the land is permitted to be used ‘for … the provision of student accommodation together with the provision of accommodation for other persons in accordance with the Project Deed’.

The Project Deed is an agreement between the University and CLVM pursuant to which CLVM designed and constructed a student accommodation facility on the land known as ‘Student Village, The University of Melbourne’ (‘Student Village’), comprising 648 beds with ancillary retail services, landscaping and other public use facilities (‘the Project’). Campus Living Villages Pty Ltd (‘Campus Living’), a global specialist student accommodation provider, has been appointed by CLVM as the operator of the facility.

On 15 February 2019 the Commissioner issued the Assessment Notice. In a letter dated 15 April 2019, the University objected to the Assessment Notice (‘the Objection’) pursuant to s 96 of the Taxation Administration Act 1997 (Vic) (‘TAA’) on the basis that the land should be exempt from land tax in whole or in part pursuant to s 74(1)(a) of the Act.

Section 74(1)(a) of the Act provides an exemption from land tax if the land is used by a charitable institution exclusively for charitable purposes. It provides:

(1) Land is exempt land if the Commissioner determines that –
(a)it is used by a charitable institution exclusively for charitable purposes; or

(b)       it is -
(i)        owned by a charitable institution; and
(ii)       vacant; and
(iii)declared by its owner to be held for future use for charitable purposes.

(2)If the Commissioner is satisfied that only a part of land is used by a charitable institution exclusively for charitable purposes –
(a)land tax is assessable on the remaining part of the land, unless another exemption applies to that part; and

(b) section 22 applies, if necessary, for that purpose.
(3)To obtain an exemption from land tax under this section, the owner of the land must –
(a) apply to the Commissioner for the exemption; and
(b)give the Commissioner any information the Commissioner requests for the purpose of enabling the Commissioner to determine whether the land is exempt under this section.

By a letter dated 28 February 2020, the Commissioner disallowed the University’s Objection to the Assessment Notice (‘Notice of Determination’).

By the Notice of Determination, the Commissioner determined that the exemption did not apply on the basis that the land was not ‘used’ by the University within the meaning of s 74 of the Act. The Commissioner contended that the land was used by CLVM to operate a commercial student accommodation facility. Accordingly, the Commissioner was not satisfied that these activities amounted to use of the land by students of the University, such that there was no use of the land by a charitable institution within the meaning of s 74(1)(a) of the Act.

By a letter dated 29 April 2020, the University requested that the Commissioner treat the Objection as an appeal pursuant to s 106(1) of the TAA, and accordingly on 29 June 2020 the Commissioner caused the Objection to be set down for hearing.

It is not in dispute that the land was used to provide student accommodation during the assessment period. Nor is it in dispute that the University is a charitable institution for the purposes of s 74(1)(a) of the Act, or that CVLM and Campus Living are not charitable institutions. The Commissioner also accepts that the provision of student accommodation by a university is a charitable purpose.

The applicability of the s 74(1)(a) exemption turns on the proper interpretation of the words ‘used’ and ‘exclusively’ in that section, ie, that the land is ‘used by a charitable institution exclusively for charitable purposes’ (emphasis added).

Factual background

The University was established on 11 April 1853 and is incorporated as a body politic and corporate under the University of Melbourne Act 2009 (Vic) (‘UOM Act’).

The University became the registered proprietor of the consolidated title of the land on 13 February 2014 and has held the parent titles of parts of the land since 27 October 2005. The preamble to the UOM Act refers to the inception of the University on 11 April 1853 and notes that the relevant Act at that time set in motion ‘the appointment of a council to manage … the affiliation of colleges and licensing of other establishments as student residences’. The first college, Trinity College, was established in 1870 and since then the University has continued to expand its student accommodation offerings.

Presently, the University advertises on its website halls of residences, colleges and other student accommodation, located adjacent to its Parkville campus. Some of the halls of residence and colleges are operated by a third party pursuant to operating agreements. The website describes the Student Village as ‘individual furnished bedrooms provid[ing] ample work space and village facilities [which] have been designed specifically for students’ and which are located next to the University’s Education and Law Faculties.

In 2011, the University carried out a feasibility study into the development of the land for student accommodation. At the time, the University had estimated that, over a five year period, the cumulative demand for student accommodation would be in the range of 2000 to 3390 beds. In response, the University developed a student accommodation strategy for the provision of an additional 2000 beds within the next five years.

The University’s Chief Operating Officer, Allan Tait, deposed that the University had considered a range of delivery and finance options for increasing student accommodation. Mr Tait deposed that the University recognised that the needs and expectations of students had evolved over time. The traditional model offered by the affiliated residential colleges was expensive, and that the type of experience underpinning each college was not necessarily what all students wanted. The University had previously explored securing student accommodation through private providers, but had found those arrangements unsuitable because the University would have had no power to supervise the activities of the private providers, the quality of the accommodation, or the experience provided to students. The University wanted to procure purpose-built student accommodation facilities that it could control and that would provide students with a holistic experience that included student support and pastoral care. The University also recognised a need to provide students with more diverse and affordable accommodation options. This ultimately led to the introduction of an affordability criterion of 90% below market rental for student accommodation projects, which was the criterion underpinning the rent charged by CVLM to residents of the Student Village.

Following the feasibility study, the University conducted an open ‘expressions of interest’ campaign in March 2012 for the development of the land. The University invited tenders in relation to the development of a facility with over 600 beds under a ‘Build Own Operate Transfer’ (‘BOOT’) arrangement. Under this arrangement, the University would contribute the land, and the successful tenderer would build, own, and operate the facility. At the end of an agreed period, the building would be transferred to the University.

The University chose to proceed with CLVM, and in December 2012 the University sought approval from the Minister for Higher Education and Skills to allow the University to enter into an agreement to lease the land for a period of up to 42 years. The agreement was formally approved in February 2014.

In September 2013, the University’s Finance Committee approved proceeding with CLVM. Subsequently, the University and CLVM entered into a number of agreements including the Project Deed, an agreement for lease, and an operator’s side deed between the University, CLVM, and Campus Living.

The Project Deed set out the University’s objectives in clause 2.2, which included:

(a)To obtain good quality, well-located, secure and competitively priced facilities that meet students’ reasonable expectations;

…
(e)For the University to facilitate a good quality contemporary student residential living and learning community which contributes materially to a developing University community spirit, with an appropriate level of Residents’ support services and integrating with services to and opportunities for University students by and at the University;
(f)For the continuing ability of the University to ensure appropriate standards and requirements are met, for example, with respect to amenities, Residents’ support services, security and rental levels but with no day-to-day management obligations.

The requirements imposed on CLVM for the development of the land included allowing the University to appoint a representative with authority to participate in the Project Control Group and Services Monitoring Group meetings, and to monitor, audit, and test CLVM’s compliance with the Project Deed.

The requirements also included the preparation of a detailed design for accommodation to ensure compliance with the objects of the Project Deed.

The Project Deed also set out a number of specific support services which had to be provided to residents. These included 24/7 onsite assistance and a detailed induction for all new residents designed for students with diverse backgrounds to assist them to settle into shared living arrangements. The induction program was to be coordinated with the ‘University Student Orientation and Transition Program’. CLVM also granted the University an irrevocable licence to enter the land at least every six months for the purpose of surveying residents in relation to the accommodation and its operation, as well as the adequacy of student support services.

Whilst the lease restricted the use of the land to the certain ‘permitted uses’ under the lease, the allocation of accommodation to residents by CLVM was prescribed by the terms of the Project Deed. The Project Deed required accommodation to be allocated, first, to students of the University; second, to temporary visiting staff or invitees of the University, and finally, any remaining beds to be occupied by students affiliated with other universities or TAFE colleges. In practice, this meant that applications by persons from outside the University could only be accepted if CLVM was having difficulty filling the Student Village.

Each year, the residents’ fees were required to be submitted by CLVM to the University for approval. The fees were inclusive of most of the costs of the ‘Residential Life Program’ provided by CLVM to encourage residents to participate in life at the Student Village. Michael Lynch, at that time the General Manager of the Student Village, deposed that the Residential Life Program was intended to form an important part of the experience for students and to deliver a student experience to residents beyond the provision of accommodation.

The charitable use exemption

Whether the exemption applies in this case turns on two critical questions. First, what is the proper interpretation of the word ‘used’ in s 74(1)(a)? Is it, as the University submits, a word of wide import extending to the grant of a lease by the University to CLVM, or is it, as the Commissioner contends, limited to an active physical use of the land by the lessee, CLVM?

The second critical question is whether the word ‘exclusively’ governs the use of the land (regardless of whether the wider meaning of ‘use’ is adopted or not), or whether it relates to the purposes of the charitable institution. The Commissioner contends for the former interpretation in arguing that the charitable institution must be the exclusive user of the land. The University in contrast argues that the exclusivity relates to the purposes of the charitable institution user; that is, that the ‘use’ must be exclusively for the University’s educational (and hence, charitable) purposes.

The process of statutory construction both starts and concludes with the text itself. The relevant principles are outlined by the High Court in Thiess v Collector of Customs:[2]
[2](2014) 250 CLR 664, 671–2.

22Statutory construction involves attribution of meaning to statutory text. As recently reiterated [in Federal Commissioner of Taxation v Consolidated Media Holdings (2012) 250 503 at 519 [39]]:
“’This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text’. So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text.”

23Objective discernment of statutory purpose is integral to contextual construction. The requirement of s 15AA of the Acts Interpretation Act 1901 (Cth) that “the interpretation that would best achieve the purpose or object of [an] Act (whether or not that purpose or object is expressly stated … ) is to be preferred to each other interpretation” is in that respect a particular statutory reflection of a general systemic principle. For [to quote Cabell v Markham (1945) 148 F (2d) 737 at 739, quoted in Residual Assco Group (2000) 202 CLR 629 at 644 [27]:
“it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.”

The Victorian equivalent to s 15AA of the Acts Interpretation Act 1901 (Cth), s 35(a) of the Interpretation of Legislation Act 1984 (Vic) outlines:

… a construction that would promote the purpose or object underlying the Act or subordinate instrument (whether or not that purpose or object is expressly stated in the Act or subordinate instrument) shall be preferred to a construction that would not promote that purpose or object …

An examination of the statutory text shows that the exemption applies regardless of the user of the land: the user may be the owner or another person. Other exemption provisions contained in the Act require, at least in part, that the land be owned by a particular body or person.[3] In addition, entitlement to the exemption turns on the question of use, not occupancy, which some other exemption provisions require.[4] However, the use must be by a charitable institution (rather than for a particular activity or activities).[5] Finally, as a matter of drafting, the word ‘exclusively’ appears immediately after the phrase ‘by a charitable institution’ and immediately before the phrase ‘for charitable purposes’.

Ryde Municipal Council v Macquarie University (‘Ryde’)[6] and Chief Commissioner of State Revenue v Metricon (Qld) Pty Ltd[7] (‘Metricon’)

[3]See, eg, s 73(1), which deals with land owned and solely occupied by a racing club; s 73A(1), which deals with land owned and solely occupied by a non-racing club; s 80(1), which deals with land owned by a public statutory authority; s 81(1), which deals with land owned by a municipal council; s 83(1), which deals with land owned by, or held in trust for, armed service personnel; s 84(1), which deals with land owned by, or held in trust for, a friendly society; s 85, which deals with land owned by, or held in trust for, a body established to conduct agricultural shows, farm field machinery days or similar activities.

[4]See, eg, s 75(1)(a), which deals with land used and occupied as a rooming house; s 75(1)(b), which deals with land used and occupied primarily for low cost accommodation; s 76(1)(a), which deals with land occupied, or currently available for occupation as a residential care facility; s 76(1)(b), which deals with land occupied, or currently available for occupation as a supported residential service; s 78(1), which deals with land occupied, or currently available for occupation, as a retirement village.

[5]Unlike, eg, s 75(1)(a), which deals with land used and occupied as a rooming house; s 75(1)(b), which deals with land used and occupied primarily for low cost accommodation; and s 80(2)(c), which deals with land not used exclusively as a public open space or as a park.

[6](1978) 139 CLR 633 (‘Ryde’).

[7](2017) ATR 11 (‘Metricon’).

Whilst the parties agreed that there is no decided authority on the meaning of s 74(1)(a) of the Act, the University submitted that guidance as to the proper interpretation of the provision is provided by the reasoning of the majority of the High Court in Ryde.

Ryde concerned land that was vested in Macquarie University. Parts of a building erected on the grounds of the university were leased to commercial tenants who conducted retail businesses including a travel centre and two banks. The rent payable by the tenants to the university was set at commercial rates.[8] The shops and banks principally served the convenience of the staff and students of the university, but were also open to the general public.
[8]Unlike the present case where the annual rent is $1.

The case concerned the applicability of s 132(1)(fii) of the Local Government Act 1919 (NSW) (‘LGA’), which relevantly provided as follows:

(1)All land in a municipality or shire (whether the property of the Crown or not) shall be rateable except –
…
(fii)land which is vested in the Macquarie University, or in a college thereof, and is used or occupied by the University or college, as the case may be, solely for the purposes thereof …

By a majority of three to two, the High Court affirmed the decision of the New South Wales Court of Appeal and determined that the land was exempt.

In coming to his conclusion, Gibbs ACJ held that the word ‘solely’ did not govern the phrase ‘by the University’.[9] His Honour emphasised the position of the word in the paragraph, the presence of the commas, and the words ‘as the case may be’, all of which pointed to the linkage between solely and the purposes of the University.[10]
[9]Ryde (n 6) 636 (Gibbs ACJ).
[10]Ibid (Gibbs ACJ).

Gibbs ACJ concluded that land may be ‘used’ by a university, in the ordinary and natural sense of the word, where the university had granted a lease of the land for the university’s purposes. In reaching that conclusion, his Honour referred to the fact that s 132(1)(fii) of the LGA made it clear that ‘used’ was not meant to be synonymous with ‘occupy’; accordingly ‘use’ must refer to some form of use other than actual occupancy.

At 638, Gibbs ACJ stated:

A person who owns land may be said to use it for his own purposes notwithstanding that he permits someone else to occupy it, even under a lease. That is almost beyond argument when the owner’s purpose is to acquire income. In the ordinarily accepted meaning of the word a building is “used” for the purpose of acquiring income if rents are derived from it, and an owner of premises who leases them is making use of those premises by employing or applying them for the purpose of letting … But that is not the only way in which an owner of land may use it by letting it to someone else. An employer who provides premises in which he requires an employee to live so that the employee may perform more efficiently the duties of his position is in my opinion himself using those premises. That this is so is clear when the employee occupies them under a licence rather than under a lease. In Glasgow Corporation v Johnstone (1965) AC 609, it was held by the House of Lords that a house occupied rent free as a residence by a church officer, who was bound to occupy the house during his employment by the church, was “wholly or mainly used for charitable purposes” within a rating statute. Lord Reid said:
(23)“They (the congregational board of the church) use the house to have a servant on the spot to assist them in the more efficient performance of their charitable activities. I think that it is much too narrow a view simply to see whether any charitable activity is carried on in the house … If the use which the charity makes of the premises is directly to facilitate the carrying out of its main charitable purposes, that is, in my view, sufficient to satisfy the requirement that the premises are used for charitable purposes.”

His Honour also considered that there was nothing in the legislative history of the relevant amendment of the LGA which supported a restrictive meaning being given to the word ‘use’ where it appeared in s 132(1)(fii).[11] His Honour observed that s 132(1)(fii) was inserted into the LGA by an amendment effected by the Macquarie University Act 1964 (NSW). Section 7(b) of that Act provided that ‘the University … may, for the purpose of discharging its functions, provide such facilities for its undergraduates and students and other persons as it deems desirable’.
[11]Ibid 639-40 (Gibbs ACJ).

Gibbs ACJ further noted that it had become customary for universities to permit some commercial enterprises to be carried out within their grounds long before 1964.[12] As such, the framers of the relevant exemption must have contemplated that there would probably be small commercial establishments to provide for the needs of students and staff on the land vested in Macquarie University.[13] His Honour considered that one could not suppose that it was the intention of the legislature that the university would retain the exemption if it provided such services itself, but lose the exemption if it engaged an independent contractor or granted a lease to a person to conduct the service.[14] Accordingly, his Honour concluded that, naturally construed, the relevant exemption provision extended to any direct or indirect ‘use’ of the land including the granting of a lease.[15]
[12]Ibid 640 (Gibbs ACJ).
[13]Ibid (Gibbs ACJ).
[14]Ibid (Gibbs ACJ).
[15]Ibid (Gibbs ACJ).

His Honour considered that the evidence showed that Macquarie University had arranged for the relevant building to provide such facilities as it saw fit for the functioning of a university under modern conditions.[16] In reaching that conclusion, his Honour distinguished the arrangement in that case from a scheme where the land would be let by the university for the independent object of obtaining rental revenue, which he considered would not have been a ‘use’ of the land for the purposes of Macquarie University.[17]
[16]Ibid 644 (Gibbs ACJ).
[17]Ibid 643-4 (Gibbs ACJ).

Stephen J (with whom Murphy J agreed) concurred but provided separate reasons. Like Gibbs ACJ, Stephen J commenced his analysis with the word ‘solely’.[18] His Honour emphasised the particular positioning of the words, and considered that the phrase ‘solely’ was concerned with exclusiveness of use for the university’s purposes and not with exclusive use by the university.[19]
[18]Ibid 646 (Stephen J).
[19]Ibid (Stephen J).

At 646 his Honour stated:

It is convenient to begin with the word “solely”. Does this refer to “University” or, rather, to “used … for the purposes thereof”: must land be used solely by the University or is it its use which must be solely for University purposes? Positioned as it is immediately before the words “for the purposes thereof”, “solely” must, I think, be concerned with the particular use rather than the particular user, with exclusiveness of use for University purposes and not with exclusive use by the University. This is certainly the effect which the particular sequence of the words in the phrase has upon its meaning. With it may be contrasted a phrase containing the same words but in different sequence – “used solely by the University for the purposes thereof”. Had that been the wording of the phrase, “solely” would clearly enough have qualified “the University”, the user and not the use. As it is in fact worded, the contrary is the case.

His Honour then turned to the question of the meaning of the phrase ‘used by the university’.[20] Having regard to the adjacent sub-provisions in s 132(1) of the LGA, his Honour extended the meaning of the word ‘use’ to the land being made available for use by others for a particular purpose.[21] His Honour held that this interpretation of the phrase ‘used by the university’ applied to the use of land for the purposes of tertiary educational institutions, where the principal use of the land involved the provision of facilities in which students undertook their tertiary studies.[22]
[20]Ibid 647 (Stephen J).
[21]Ibid (Stephen J).
[22]Ibid (Stephen J).

Aickin J dissented, reaching a different conclusion. Acceptance of his Honour’s reasoning is implicit in the Commissioner’s submissions in this case. His Honour encapsulated the critical question in the case as follows (at 659–60):

A question arises as to the meaning of the phrase “used” by the University “solely for the purposes thereof”. It may mean first that only the University uses it and such use is solely for the purposes of the University, or second, that in so far as the University uses it, such use is solely for University purposes. If it bears the first meaning the University cannot succeed because, even if it is used in the relevant sense by the University, it is also used by the tenants for their own purposes. Thus the use of the land is not solely by the University.

His Honour held that the first meaning of the expression was the correct one; accordingly, the exemption did not apply.[23]
[23]Ibid 660 (Aickin J).

Nevertheless, Aickin J also considered the two overlapping questions which would arise if the phrase had the second meaning.[24] The first question was whether the university used the land at all. His Honour considered that ‘use’ meant physical use and that mere letting did not, in the context of the exemption, constitute use.[25] The second question asked whether the university used the land solely for its own purposes.[26] Aickin J concluded that, while the operation of commercial facilities on the premises was convenient, it did not satisfy the university’s stated purposes in the Macquarie University Act 1964 (NSW).[27]
[24]Ibid (Aickin J).
[25]Ibid 664-5 (Aickin J).
[26]Ibid 660 (Aickin J).
[27]Ibid 665 (Aickin J).

The Commissioner sought to diminish the relevance of Ryde, arguing that the language of s 74(1)(a) of the Act differs from s 132(1)(fii) of the LGA, and that an examination of the legislative history which precedes s 74(1)(a) supports a different interpretation of the word ‘exclusively’ and the breadth of the meaning of ‘use’ than that provided by Ryde.

The Commissioner also relied upon the decision on appeal in Metricon.[28] That case concerned land which had been purchased for the purposes of land banking or development but which had, in the short term, been leased to tenants who used the land for the maintenance of cattle. The exemption claimed by the taxpayer arose pursuant to s 10AA(3) of the Land Tax Management Act 1956 (NSW) (‘the Land Tax Act’) which involved an exemption from land tax for land used for primary production. Primary production was defined as land ‘the dominant use of which [was] for’ one of various specified agricultural purposes which were then set out in the provision.
[28]Metricon (n 7); Metricon Qld v Chief Commissioner of State Revenue [No 2] [2016] NSWSC 332 (at first instance) (‘Metricon [2016]’).

The Commissioner rejected the claim for exemption on the basis that the land was planned to be used for land banking or development, which was not primary production. At trial, the primary judge concluded that though the land was held for the purposes of land banking or development, that was not the current ‘use’ of the land.[29] The primary judge held that although s 10AA(3) of the Land Tax Act did not need to be read down to require that competing use must be a physical use, the section was only concerned with current use and not intended future use.
[29]Metricon [2016] (n 29) [71] (White J).

The Commissioner in the present proceeding relied upon Barrett AJA’s finding on appeal that ‘use’ in relation to land has a core meaning independent of statutory context.[30] Barrett AJA stated that the examination of activities undertaken upon the land was central to the identification of use.[31] His Honour went on to say that the concept of ‘use’ relevant to s 10AA(3) of the Land Tax Act involved the physical deployment of the concrete physical mass comprising the land.[32] The Commissioner argued that on applying Barrett AJA’s interpretation, CLVM is providing the accommodation services and is the relevant user of the land.
[30]Metricon (n 7) [45]-[46] (Barrett AJA).
[31]Ibid [46] (Barrett AJA).
[32]Ibid [61] (Barrett AJA).

In my opinion, Metricon provides no real assistance to the respondent. Metricon involved consideration of the specific exemption of ‘land used for’ primary production (emphasis added). The use of that particular phrase was central to the Court’s reasoning,[33] as was the fact that each of the six activities listed in subparagraphs (a) to (f) of 10AA(3) of the Land Tax Act involved deliberate physical acts in relation to the land.[34] Additionally, and unlike the present case, s 10AA(3) was concerned with ‘use’ at large rather than use ‘by’ any particular person.[35]
[33]Ibid.
[34]Ibid [49] (Barrett AJA).
[35]Ibid [47] (Barrett AJA).

Further, in Metricon, the Court made reference to Ryde for its recognition of a species of ‘use of land’ involving the granting of leases,[36] and noted that care must be taken when applying approaches adopted in different statutory contexts.[37] As Stephen J acknowledged in Ryde,[38] it is a truism that ‘use’ is not a word having any single precise meaning, but is ‘a word of wide import and its meaning in any particular case will depend to a great extent upon the context in which it is employed’.[39]
[36]Ibid [28] (Barrett AJA).
[37]Ibid [45] (Barrett AJA).
[38]Ryde (n 6) 651 (Stephen J).
[39]Ibid (Stephen J), quoting Taylor J in Newcastle City Council v Royal Newcastle Hospital (1957) 96 CLR 493, 515.

The legislative history

Whilst the process of statutory interpretation must start and end with the text of the provision, the process of interpretation must occur in relevant context. Both parties agreed that it is appropriate to consider the legislative history as part of the contextual interpretation of the exemption. Each submitted that the history supported their respective interpretations of ‘used’ and the relevance of ‘exclusively’ in s 74(1)(a) of the Act.

The Commissioner submitted that the arc of amendments to the Act reveals a shift from a focus on ownership towards a focus on use of the land. The Commissioner contends that three key propositions emerge from an analysis of s 74(1)(a) of the Act in light of its history:

(i) first, the word ‘exclusively’ qualifies the use of the land and not the use to

which a charitable institution puts the land; and

(ii) secondly, whether the user of the land is using it for charitable purposes based on an ownership or leasehold interest is immaterial to the exemption; and

(iii) thirdly, that the insertion of the words ‘by a charitable institution’ in 1996 was intended to confine the exemption to land being used by a charitable institution.

The Commissioner’s second key proposition can be readily accepted. The third proposition, and to some extent the first, beg the question as to the proper meaning of ‘use’. In that respect, the Commissioner submits that the extrinsic materials and legislative history focus on the active physical use of the land, which ‘use’ is, in this instance, by CLVM.

Relatedly, the Commissioner submits that if, as it contends, the meaning of ‘use’ means active physical use, then the deployment of the land for advantage, such as by way of lease to CLVM, does not constitute a use for the purposes of the exemption. Alternatively, the Commissioner submits that if deployment of land by way of lease does constitute a use of the land within the meaning of the exemption, then the land was being used by both the University and CLVM, and as such was not being used exclusively for the University’s purposes.

By contrast, the University contends that the legislative history and extrinsic materials show that the exemption in s 74(1)(a) of the Act was not intended to narrow the exclusion as it applied under s 9(1)(d) of the Land Tax Act 1958 (Vic) (the ‘1958 Act’), and that the few minor policy changes, which had occurred from time to time and which were reflected in various amendments, were for the benefit of the taxpayer.

Secondly, the University points to the wording of the statutory text which requires a determination of whether the land ‘is used by a charitable institution exclusively for charitable purposes’. The University submits that this determination requires an analysis of the use of the land by a charitable institution, regardless of ownership of the land and regardless of whether it is ‘leased or occupied for any business purposes’ by a third party. This is because, so the University argues, when the exemption in s 74(1)(a) in the Act is read together with the removal of the exclusion in s 9(2)(b) in the 1958 Act, it is clear that it is the charitable purpose of the charitable entity that is relevant, not any business purpose of a third party leasing or occupying the land.

Thirdly, the University contends that the legislative history suggests that the existence of a commercial lease to a non-charitable institution will not, in and of itself, deny the operation of the exemption. This is to be contrasted with other landholders, such as statutory public authorities and municipal councils, where the availability of the exemption is expressly excluded where land is leased or occupied by another entity for business purposes. Parliament removed a similar exclusion which applied to non-charitable institutions from s 9(1)(d) of the 1958 Act, and that removal was carried over to the Act. The University submits that if Parliament had intended to exclude the exemption in all cases where a charitable institution entered into a commercial lease of the land, it could have readily done so. Instead, and to the contrary, it specifically removed the exclusion.

In order to examine these rival contentions, it is necessary to examine the legislative history in some detail by canvassing the arc of amendments to the charitable purposes exemption from its inception in 1910 to its current form in the Act.

The Land Tax Act 1910 (Vic)

The exemption for land used exclusively for charitable purposes was initially found in s 9 of the Land Tax Act 1910 (Vic) (‘the 1910 Act’). The exemption provided as follows:

9Except as otherwise expressly provided in this Act land shall be exempt from tax in the cases and to the extent following:

…
(2) Land used exclusively for –
…
(j) Charitable purposes
…
(l)Public technical and working-man’s schools and colleges including schools or colleges affiliated before the commencement of this Act with the University of Melbourne or thereafter so affiliated with the consent of the Governor in Council.

(m) The University of Melbourne.

(emphasis added)

Section 9(2)(j) of the 1910 Act provided a general exemption for land used exclusively for charitable purposes. Specific exemptions for land used for the residential colleges and for the University were found in ss 9(2)(l) and 9(2)(m) respectively. More relevant for present purposes is the charitable purposes exemption in s 9(2)(j), which provided that land was exempt where the land was used exclusively for charitable purposes.

In R vSandhurst and Northern District Trustees Executors and Agency Co Ltd (‘Sandhurst’),[40] the Full Court of the Supreme Court of Victoria considered the applicability of the charitable purposes exemption in the 1910 Act to land which was held on trust where the terms of the trust required all rents and profits to be applied for specified public charitable purposes. The land in question had been leased on commercial terms, but the taxpayer had applied the rent received for charitable purposes in accordance with the terms of the trust. The Full Court held that the land was not exempt from land tax, holding that the land in question had been let to tenants and occupied by them for business, residential and agricultural purposes. Although the proceeds of ownership of the land had been applied for charitable purposes, the land itself had not been.
[40][1915] VLR 682 (‘Sandhurst’).

The Full Court interpreted the phrase ‘land used exclusively for … charitable purposes’ in s 9(2)(j) as follows:[41]

The effect of that language is, as it appears to me, and without any difficulty whatever that I can see, that there shall be exempted from tax land used for charitable purposes exclusively – I alter the position of the words. It is land that is to be exempt, not rent derived from land, but land which is used – ie, being used – for some purpose for which land can be used – ie, for habitation, or other similar purposes – and it is to be used apparently exclusively for charitable purposes. The land is to be used, and unless it is used exclusively for charitable purposes it is not to be exempt.

[41]Ibid 687 (Madden CJ, Hodges and Hood JJ).

The Full Court held:[42]

… in this particular case, as it appears that portion of the trust estate under the will of Dean Backhaus has been let to tenants and occupied by them for business, residential, or agricultural purposes, to the extent that they are let for such purposes, they are not exclusively used for charitable purposes. They are to be used for the industrial or other purposes for which they are occupied …

[42]Ibid 688 (Madden CJ, Hodges and Hood JJ).

Thus, land leased to a tenant who occupied the land for business, residential or agricultural purposes would not constitute land used exclusively for charitable purposes, even if the rental income for the lease was applied towards charitable purposes. Sandhurst establishes that at least under the 1910 Act, in such a case, it is the rental income received by the University that is being used ‘for charitable purposes’ and not the land, such that the exemption would not apply.

The Land Tax Act 1928 (Vic)

The 1910 Act was repealed by the Land Tax 1928 (Vic) (‘1928 Act’) and the exemptions from the 1910 Act were reproduced in the same form, now in ss 9(2)(j), (l) and (m). A footnote to the printed version of the 1928 Act referenced the decision in Sandhurst.

Land Tax (Exemptions and Rates) Act 1953 (Vic) and the Land Tax Act 1958 (Vic)

In 1953, the Land Tax (Exemptions and Rates) Act 1953 (Vic) amended the wording in s 9(2)(j) of the 1928 Act as follows:

“Land used exclusively for charitable purposes or (where the land is vested in any charitable institution) the proceeds of which are devoted solely to religious, charitable or educational purposes”.
(emphasis added)

The exemptions specifically applicable to residential colleges affiliated with the University and to the University itself, as expressed respectively in ss 9(2)(l) and 9(2)(m) of the 1928 Act, remained unchanged.

The 1953 amendment enlarged the scope of the exemption: where the land was vested in a charitable institution, a lease of the kind referred to in Sandhurst would not disentitle the landowner from an exemption, provided that the rental proceeds derived from the ownership of the land by that charitable institution were devoted solely to religious, charitable or educational purposes.

The exemptions in the 1928 Act, as amended in 1953, were carried forward in ss 9(2)(j), (l) and (m) of the Land Tax Act 1958 (Vic) (‘1958 Act’).

The Land Tax Act 1970 (Vic)

Section 3 of the Land Tax Act 1970 (Vic) (‘the 1970 amendments’) repealed and replaced s 9 of the 1958 Act with the following:

(1) Subject to this Act –
…
(b)land which is vested in any public statutory body constituted under the law of Victoria;
(c)land which is vested in trustees appointed pursuant to an Act of the Parliament of Victoria and which is held in trust for public or municipal purposes or which is vested in any municipality;
(d)land which is vested in any person or body and used exclusively by that person or body for charitable purposes;
(e) land which is vested in or held in trust for an association of ex-servicemen or of dependants of ex-servicemen and which is used by the members for the purposes of the association;
(f) land which is vested in or held in trust for any friendly society or trade union;
(g)land which is vested in any body corporate or unincorporated that exists for the purpose of providing or promoting cultural or sporting recreation or similar facilities or objectives and that applies its profits in promoting its objectives and prohibits the payment of any dividends to members and which is used for out-door sporting recreation or cultural purposes or similar out-door activities;

…
is exempt from land tax.
(2)Sub-section (1) does not apply to land or to a portion of land referred to in paragraph (b), (c), (d), (e), (f) or (g), if the land or the portion -
…
(b)is leased or occupied for any business purposes by any person or corporation not being a person or corporation referred to in any of the said paragraphs.

The exemptions in ss 9(2)(l) and (m) of the 1928 Act (which related to public, technical and working man’s schools or colleges affiliated with the University of Melbourne) were not carried forward.

The second reading speech for the Bill described the amendments in the following terms:[43]

The changes effected by this portion of the Bill are twofold. Firstly, certain owners who are exempt from land tax will lose that exemption in respect of land which is let or occupied for business purposes. Secondly, the owners of land which is exempt will become liable for a special land tax when that land ceases to be used for the exempt purpose.

[43]Parliamentary Debates, Legislative Assembly, 19 November 1970, 2203.

The key amendment relevant for present purposes is the introduction of s 9(2). As reflected in the second reading speech, the effect of the new provision was to exclude the operation of the exemption where the land was leased or occupied for any business purposes by any person or corporation that was not a qualifying entity. Relevantly, the insertion of s 9(2) in 1970 removed from the scope of the exemption any land leased or occupied for any business purposes by an entity that was not itself a charitable institution.

Thus, the new subsection narrowed the scope of the exemption which had been expanded in 1953, retaining it only in a modified form and dependent on the characteristics of the lessee. Under the new subsection, a Sandhurst-style lease arrangement would result in the loss of the exemption, save where the lessee was a person or entity of the kind referred to in ss 9(1)(b), (c), (d), (e), (f) or (g).

However, section 9(2)(b) is significant in that it expressly removes certain instances which would otherwise fall within s 9(1). If s 9(2)(b) takes away that which would otherwise fall within s 9(1), the ‘use’ referred to in s 9(1)(d) (as well as ss 9(1)(e) and (g)) must include a ‘use’ in the sense of being put into service (including by means of granting a lease to another). If it does not, then there would be nothing for s 9(2)(b) to take away. The interplay of these provisions point therefore to a meaning of ‘used’ in s 9(1) which encompasses a wider meaning of the word than active physical use, in much the same sense as was subsequently recognised by the majority in Ryde in their consideration of the LGA.

The Land Tax (Amendment) Act 1994 (Vic)

A new s 9(1)(d) was inserted into the 1958 Act by the Land Tax (Amendment) Act 1994 (Vic) (‘1994 Act’). Following the amendment, s 9(1)(d) provided:

(1) Subject to this Act –
…
(d)land which is used exclusively for charitable purposes,
is exempt from land tax.

Section 9(2) remained, reading:

(2)Subsection (1) does not apply to land or to a portion of land referred to in paragraphs (b), (c), (d), (e), (f) or (g) if the land or the portion –
…
(b)is leased or occupied for any business purposes by any person or corporation not being a person or corporation referred to in any of the said paragraphs.

Prior to the amendment, the relevant provision read ‘(d) land which is vested in any person or body and used exclusively by that person or body for charitable purposes’.

The Parliamentary debates in the Legislative Council record that the purpose of the amendment was to ‘clarif[y] the operation of the charity exemption provision’.[44] The second reading speech accompanying the Bill said:[45]

The bill also clarifies the operation of the exemption from land tax for properties used for charitable purposes. The practice of the State Revenue Office has been to interpret the exemption as extending to tenants using the land for charitable purposes. However, some doubt has arisen as to whether this interpretation is correct. The Bill adopts a simplified but effective form of exemption which resolves those doubts and confirms the existing practice of the State Revenue Office.

[44]Parliamentary Debates, Legislative Council, 7 December 1994, 1279.

[45]Ibid.

The Explanatory Memorandum stated:[46]

This provision exempts from land tax any land which is used exclusively for charitable purposes.

[46]Explanatory Memorandum, Land Tax (Amendment) Bill 1994 (Vic), 1.

The deletion of any reference in the new s 9(1)(d) to the entity in whom the land was vested sat inelegantly with the retention of s 9(2)(b), which section referred back to the persons or corporations referred to in ss 9(1)(b), (c), (d), (e), (f) and (g). In the case of s 9(1)(d), there was now in fact no person identified to which s 9(2) could refer.

The State Taxation (Omnibus Amendment) Act 1996 (Vic)

Section 9 of the 1958 Act was then amended by the State Taxation (Omnibus Amendment) Act 1996 (Vic) (‘the 1996 amendment’). The exemption was put into the form currently found in s 74(1)(a) of the Act:

9 (1) Subject to this Act –
…
(d)land which is used by a charitable institution exclusively for charitable purposes is exempt from land tax.

(emphasis added)

The Explanatory Memorandum for the 1996 amendment also stated:[47]

Clause 19 amends section 9(1)(d) of the Land Tax 1958 to clarify that it is land which is used exclusively for charitable purposes by an institution which is also charitable that attracts the exemption from land tax.

Section 9(2) remained unaltered.

[47]Explanatory Memorandum, State Taxation (Omnibus Amendment) Bill 1996 (Vic), 5.

The Explanatory Memorandum for the 1996 amendment stated:

Clause 19 amends section 9(1)(d) of the Land Tax 1958 to clarify that it is land which is used exclusively for charitable purposes by an institution which is also charitable that attracts the exemption from land tax.

In the second reading speech, the Treasurer stated:[48]

An amendment to the charitable exemption ensures that land must be used by a charitable body for charitable purposes in order for that land to be exempt from land tax.

[48]Parliamentary Debates, Legislative Assembly, 16 May 1996, 182.

The 1996 amendment thus partly ameliorated the inelegance and any uncertainty which arose from the 1994 amendments.

The State Taxation (Further Miscellaneous Amendments) Act 2001 (Vic)

Section 9(2)(b) of the 1958 Act was then amended by the State Taxation (Further Miscellaneous Amendments) Act 2001 (Vic) (‘the 2001 amendments’) as follows:

(2)Subsection (1) does not apply to land or to a portion of land referred to in paragraphs (b), (c), ~~(d)~~, (e), (f) or (g) if the land or the portion –
…
(b)is leased or occupied for any business purposes by any person or corporation not being a person or corporation referred to in any of the said paragraphs.
(strikethrough added)

Section 9(1)(d) remained unchanged.

The effect of the 2001 amendments was to delete the exclusion in s 9(2)(b), relating to the leasing out of land, from the exemption in s 9(1)(d). The exclusion was retained for the other exemptions identified in s 9(2)(b).

The 2001 amendments also inserted a new s 9(2AAA) to the 1958 Act to allow a proportional exemption to be claimed under s 9(1)(d), providing:

If the Commissioner is satisfied that part only of land is used by a charitable institution exclusively for charitable purposes –
(a)land tax is assessable on the remaining part of the land, unless an exemption (other than subsection (1)(d)) applies to the remaining part; and

(b) section 3A applies, if necessary for that purpose.

As to the purposes of the amendments, the Explanatory Memorandum provided that:[49]

Part 3 of the Bill clarifies the application of the exemption under the Land Tax Act 1958 which applies when the land is used for a charitable purpose. The proposed amendments provide that the exemption is applied on a pro rata basis, so that any portion of land used for a charitable purpose will attract the exemption. Similarly, land owned by a charitable institution but used for a non-charitable purpose will be liable to land tax.

The 2005 Act

[49]Explanatory Memorandum, State Taxation Acts (Further Miscellaneous Amendments) Bill 2001 (Vic), 2.

The Act was introduced as part of the modernisation of the land tax framework. In relation to the relevant provisions:

(a) the wording of the exemption in s 9(1)(d) was reproduced in s 74(1)(a) of the Act;

(b) the proportional exemption in s 9(2AAA) was retained in s 74(2) of the Act; and

(c) the removal of the exclusionary operation of s 9(2)(b) of the 1958 Act from the exemption (s 9(1)(d) of the 1958 Act) was carried over to the Act.

The exclusion was retained for other exemptions, namely land owned by a public statutory authority, under s 80(3) of the Act (s 9(1)(b) of the 1958 Act); land owned by a municipal council, under s 81(2) of the Act (s 9(1)(c) of the 1958 Act); land owned by an association of armed services personnel, under s 83(2) of the Act (s 9(1)(e) of the 1958 Act); and land owned by a friendly society under s 84(2) of the Act: s 84(2) (s 9(1)(f) of the 1958 Act).

The Explanatory Memorandum to the Land Tax Bill 2005 (Vic) describes s 74 of the Act as follows:[50]

Charities (Division 4) – this Division exempts land used exclusively for charitable purposes. The exemption is based on the use of the land and applies regardless of ownership of the land.
…
Clause 74 provides an exemption for land used by a charitable institution exclusively for charitable purposes or where land is owned by a charitable body and is declared vacant for future use by that charitable body or charitable purposes. Where only part of land is used for charitable purposes, the taxable value of the land not used is apportioned as in clause 22.

[50]Explanatory Memorandum, Land Tax Bill 2005 (Vic), 15–17.

In the second reading speech, the Minister described the Bill in the following terms:[51]

The Bill is a rewrite of the Land Tax Act 1958 in non-drafting language, with the removal of obsolete provisions and with the Taxation Administration Act 1997 applying to it. The Bill is not intended to alter any of the fundamental concepts as to how land tax is assessed, calculated or collected. The Bill does not alter land tax rates or exemptions. There are only a few minor changes contained in this Bill and these almost exclusively reflect existing practice and the current understanding of how land tax operates. The Bill does not remove any existing taxpayer rights and there is no expectation that the Bill will have an appreciable effect on revenue.
…
Exemptions
The Land Tax Act contains a broad range of exemptions based on use of the land by the landowner. The key exemptions include principal place of residence (introduced from 1998), primary production land, charitable, Crown land, outdoor sporting, recreational and cultural land, agricultural shows, mines, retirement villages, municipal land, clubs et cetera. A number of these exemptions are qualified to the extent that land is owned and used fully for the purpose specified or that it is used or occupied solely by the owner as defined under the legislation. The bill does not delete any of these exemptions; rather they are clarified, re-ordered and drafted in modern language. In some instances, where necessary, this includes the insertion of revised definitions, ensuring consistency between exemptions and clarifying certain provisions. Further, as already noted, both the primary production land exemption and the outdoor club exemption are being expanded.
[51]Parliamentary Debates, Legislative Assembly, 8 September 2005, 717–19.

Proper interpretation of s74(1)(a) of the Act

Confining myself initially to the text itself, I agree that the wording of s 132(1)(fii) of the LGA, as considered in Ryde, is a little clearer than s 74(1)(a) of the Act. In particular, the fact that s 132(1)(fii) of the LGA refers to the phrase ‘used or occupied’ within the same specific exemption provision necessarily speaks to different meanings for ‘used’ and ‘occupied’. Additionally, the presence of the commas and the phrase ‘for the purposes thereof’ are strong textual indicators that the sole use must relate to purposes of the university which are not present in s 74(1)(a) of the Act.

However, having regard to the surrounding exemption provisions in the Act, those points of difference substantially diminish. Whilst the phrase ‘used or occupied’ does not appear in s 74(1)(a), it is used in some exemption provisions in the Act,[52] while other exemption provisions refer to occupancy alone.[53]
[52]See, eg, ss 80(3)(b) and 81(3)(b), which deals with land that is used or occupied by persons carrying on business in movable stalls in a market during some but not all of the ordinary business hours in a week. However, nb. s 75(1) states ‘used and occupied’ (emphasis added).
[53]See, eg, s 76(1), which deals with land occupied, or currently available for occupation as (a) a residential care facility; or (b) a supported residential service; and s 78(1), which deals with land occupied, or currently available for occupation, as a retirement village.

Analysis of the text of s 74(1)(a) of the Act in light of the surrounding exemption provisions suggests that ‘used’, for the purpose of s 74(1)(a), is not synonymous with ‘occupy’. An occupier of land must necessarily use the land, but a user of land need not occupy the land. The text alone points to a wider meaning of ‘use’ than the active physical use consistent with occupation.

Further, the presence of the commas in s 132(1)(fii) of the LGA assisted the Court in Ryde as to the proper construction of the provision. For my part, I consider the textual placement of the word ‘exclusively’ in s 74(1)(a) of the Act as immediately preceding the phrase ‘for charitable purposes’ rather than before ‘used’ as significant (in much the same way as Stephen J did in the case of a relevantly similar sentence structure in Ryde).[54]
[54]Ryde (n 6) 646 (Stephen J).

A wider meaning of the word ‘used’ is also consistent with the legislative history, particularly the amendments to the 1958 Act introduced by the 1970 Act and the 2001 amendments.

The 1970 amendments to the 1958 Act introduced an exclusion in s 9(2) from the scope of the exemption which otherwise applied under s 9(1)(d). This is consistent with a wider interpretation of the word ‘used’ similar to that adopted by the majority in Ryde, which was decided in 1978.

The University submits, and I accept, that if a narrow interpretation of ‘used’ was adopted, then s 9(2) would have no work to do. In other words, if the reference to ‘used exclusively’ by that ‘person or body’ in s 9(1)(d) of the Act after the 1970 amendments meant that land which had been leased could not still be used by the lessor, then there would be nothing for the exclusion in s 9(2) to operate on.

Although Ryde concerned a rating statute and not a taxing statute, the concepts involved in both species of legislation are similar. In both, a liability is imposed upon the owner of the land based upon the characteristics (or use) of the land. Moreover, and unsurprisingly, there are many references in the decided cases to guidance being obtained in the construction of taxing acts by reference to rating acts and vice versa.[55]
[55]As was the case for example in Ryde.

Presumably, the sense in which the word ‘used’ was construed by the majority in Ryde was a matter that the legislature would have been aware of when it passed the subsequent amendments to the exemption provision, including those in 1994, 1996, 2001 and the Act itself in 2005.

Section 9(1)(d) as introduced by the 1994 amendment reads ‘land which is used exclusively for charitable purposes’. Considered without reference to s 9(2), the history of the charitable use exemption and the reasoning in Ryde, the words alone might provide some support for the interpretation urged by the Commissioner. However, such an interpretation puts to one side the fact that s 9(2) was retained in 1994 and, in any event, ignores the 1996 amendments which introduce the phrase ‘by a charitable institution’ after the word ‘used’.

In my opinion, these matters point to an interpretation of ‘used’ that is consistent with the construction of the phrase by the majority in Ryde in a relevantly analogous exemption provision.

The University also points to the 2001 amendments, which remove the s 9(2) exclusion from the scope of the charitable use exemption. The University contends that this amendment is a further contextual indicator of legislative intent that a lease of the land by a charitable institution landowner does not disallow that landowner from relying on the exemption, provided that the grant of the lease is exclusively for charitable purposes (much as the grant of the leases by Macquarie University in Ryde was to further the university’s purposes).

The Commissioner submits that the removal of the s 9(2) exclusion by the 2001 amendments is explained by the insertion of the new s 9(2AAA), which provides that a proportional exemption can be claimed under s 9(1)(d). Relatedly, the Commissioner contends that when read together, ss 9(1)(d) and 9(2AAA) (the effective equivalent of ss 74(1)(a) and 74(2) of the Act) point to active physical use of the land, or in any event ‘use’ which, however interpreted, must be exclusively by the charitable institution for the exemption to apply (whether for the whole or part of the land). The 2001 amendments provide the most support for the Commissioner’s preferred interpretation, particularly as to the role to be played by ‘exclusively’.

Section 9(2AAA) does not have as wide an effect as the Commissioner submits. Prior to its removal from the ambit of s 9(1)(d), s 9(2) excluded from the scope of the s 9(1)(d) exemption land either in whole or in part which had been leased by a charitable institution to a tenant not being a charitable institution. If the tenant was a charitable institution, the exemption continued to apply notwithstanding the lease. A lease of the kind considered in Ryde would have the effect of depriving leased land from the benefit of the exemption, despite the fact that the land was still being used by the University, in the wider sense of ‘used’ endorsed by the majority in Ryde, exclusively for the University’s purposes, simply because the lessee was not a charitable institution.

After the removal of the s 9(2) exception from the ambit of s 9(1)(d) by the 2001 amendments, land the subject of a lease of the kind considered in Ryde would still attract the exemption provided the land was being used exclusively for charitable purposes, when considered from the standpoint of the charitable institution lessor. So too, and with even greater force,[56] the current lease to CLVM would have fallen within s 9(1)(d), and now falls within s 74(1)(a) of the Act.
[56]Because of the peppercorn rental, there could be no suggestion that the purpose of the lease was to generate rental moneys that could then be invested to further the university’s purposes; cf the lease in Sandhurst.

Plainly enough, not all leases entered into by a charitable institution lessor will be of the kind considered in Ryde (because the business carried on by the lessee may be unconnected to the purposes of the charitable institution), or of the same kind as the University’s lease to CLVM (because the terms of the lease provide for a commercial rental). It is not difficult to conceive that a charitable institution may own land but enter into a lease with a commercial tenant for part of the land for the sole purpose of generating a rental return. Unlike the lease in Ryde or the lease by the University to CLVM, the nature of the active physical use of the land by the lessee may have no relevance to the purposes of the charitable institution. For example, part of the land may be leased to a lessee as office space who then uses the space for a business completely unrelated to the purposes of the charitable institution. A lease of such a type was considered in Sandhurst.

The part of the land that is the subject of such a lease would now fall within s 74(2), and so outside the scope of the exemption, because the land is not being used exclusively for charitable purposes but rather is being used (in the wider sense) by the charitable institution for the purposes of generating a rental return.

In conclusion, I consider that the manner in which the provision is drafted supports a wider meaning given to ‘used’ than active physical use, and I do not consider that the legislative history points to a narrower interpretation to the word ‘used’ than that adopted by the majority in Ryde. The wider interpretation is also consistent with the insertion of s 9(2) by the 1970 amendments.

In addition, the manner in which the provision is drafted points to an interpretation of ‘exclusively’ which is linked to the purposes of the charitable institution. I do not consider that the history sufficiently points to an interpretation of ‘exclusively’ which mandates that the use must be by the University alone, as opposed to the use being exclusively for the University’s purposes. The latter interpretation sits logically with the order in which the words appear in the provision itself. The former would in effect amount to a rewriting of the section as to read ‘it is used exclusively by a charitable institution for charitable purposes’ (emphasis added).

Does the provision of student accommodation by the University facilitate its charitable purpose of advancing education?

In the Notice of Determination, the Commissioner expressed doubt that the provision of student accommodation by the University facilitated its charitable purpose of advancing education. In its written submissions, the Commissioner accepted that the provision of student accommodation by the University to students is a charitable purpose but did not accept that every means by which that purpose is fulfilled would be charitable.

The Commissioner argued that the Court should infer that the agreements entered into by CLVM under which it has agreed to provide student accommodation and services on the land were entered into by CLVM for profit. So much may be readily accepted.

The Commissioner then argued that the fact that CLVM carried on its activities on the land for profit is significant and ultimately fatal to the University’s proposition that the land was exclusively used by the University for charitable purposes. The Commissioner submitted that as soon as CLVM’s purpose is considered, the land is no longer used exclusively for the University’s charitable purposes.

Cast in this way, the Commissioner’s submission is simply another way of contending that the reference in s 74(1)(a) of the Act to ‘used by a charitable institution exclusively for charitable purposes’ is not satisfied because CLVM is using the land at least in conjunction with the University, and that CLVM’s purposes are not charitable. Because of my conclusion that the land is used by the University and that the reference to ‘exclusively’ is referrable to the University’s purposes in so using the land, I do not accept the Commissioner’s submission.

Furthermore, and to the extent to which it is suggested by the Commissioner, because of the interposition of CLVM in the provision of student accommodation, I reject the submission that the University is not itself providing the accommodation so as to enliven the exemption.

It is true that the University is not providing the student accommodation itself; but, by virtue of the agreements which it has entered into with CLVM, it has determined to ensure that student accommodation is provided to students at the University so as to facilitate their education. Whilst the University’s provision of student accommodation is indirect , I do not consider that the provision of the service in this way disentitles the University from relying upon the exemption.

Not only is the University’s use of the land in this manner consistent with what I consider is the proper interpretation of s 74(1)(a), the University has ensured that in entering these agreements, it has been able to play an ongoing role in monitoring the provision by CLVM and Campus Living of the student accommodation and ancillary services.[57] This was done to ensure that the University’s objectives with respect to the enhancement of the students’ overall educational objectives are maintained. The arrangements that have been entered into by the University and CLVM, including those in the lease, give the University an ongoing involvement in the activities conducted on the land in a manner which goes beyond the arrangements which would ordinarily be part of a standard commercial lease.
[57]See, eg, the right to entry on the land every six months to survey students (see [23] above) and to oppose the fees charged to residents (see [25] above).

The café

A small, but nevertheless distinct, part of the land is occupied by a subtenant of CLVM, E.P.S.G. Investments Pty Ltd, which conducts a café on part of the premises trading under the business name ‘Stovetop’.

This matter, and hence the Commissioner’s reliance upon s 74(2) of the Act, was not a ground upon which the Objection was disallowed and therefore the Commissioner’s case cannot now rely upon that ground without leave being granted pursuant to s 109 of the TAA.

In accordance with the Commissioner’s request, I would grant the Commissioner leave but I reject its submission that the land occupied by the café is not exempt land. Notwithstanding that this ground had not been raised by the Commissioner in the Notice of Determination, the affidavits relied upon by the University made reference to the existence of the café and described it as one of a number of facilities made available to students on site to enhance the student living experience. Mr Lynch deposed that the sublessee was chosen specifically in order to enhance the student living experience providing residents with wholesome food at reasonable prices, and that the café space constitutes a common area for residents.

In Salvation Army (Victoria) Property Trust v City of Richmond (‘Salvation Army’),[58] the Full Court of the Supreme Court of Victoria considered whether land was used for charitable purposes and accordingly whether it was exempt from municipal rating under s 249(b)(ix) of the Local Government Act 1946. The Salvation Army is a recognised charitable institution, which had funded the establishment of a hospital on certain land. The land also contained nurses’ homes, a pathological block, an x-ray department and a dental clinic.
[58](1956) 1 VLR 250 (‘Salvation Army’).

The City of Richmond (‘the City’) contended that because of the presence of these other facilities which were not used exclusively for charitable purposes, the land was not exempt. The City submitted that the presence of more than one purpose for the use of the land (despite one purpose being charitable) meant that the land was not used exclusively for charitable purposes. The Full Court rejected that submission, contending that the instances of use, namely the nurses’ home, the pathological block, the x-ray department and the dental clinic, were all instances of a use of the land incidental or ancillary to the main charitable purpose of carrying on the hospital.[59]
[59]Ibid 252 (Lowe, Gavan Duffy and Dean JJ).

By parity of reasoning, and having regard to Mr Lynch’s unchallenged evidence, the provision of the café and the attendant services provided by its operator were established in order to enhance the student living experience and to provide a further meeting place for residents to complement the other common areas in the Student Village.

Therefore, in my opinion, the café on part of the land constitutes an incidental or ancillary use to the main charitable purpose of providing student accommodation.

I am less persuaded by the argument that the part of the land operated for the purposes of the café can be disregarded by application of the de minimis principle.

I doubt whether the use of a distinct parcel of land which is leased by the sublessee for $70,000 per annum could properly be regarded as a trifling matter and excluded on the de minimis principle.

I note that in Salvation Army, the Full Court founded its decision in respect of the nurses’ home, pathological block, x-ray department and the dental clinic on the basis that the instances of such use were incidental or ancillary to the main charitable purpose and not on the de minimis ground. In that case, the Court relied upon the de minimis principle only with respect to a part of the land used as a garage and the provision of a home for an aged Salvation Army officer.[60]
[60]Ibid (Lowe, Gavan Duffy and Dean JJ, by way of obiter).

Disposition

Accordingly, I would allow the University’s appeal.

I direct the parties to confer and bring in proposed minutes of order to give effect to these reasons within seven days. Subject to any submission to the contrary, my preliminary view is that the orders should provide for the Commissioner to pay the University’s costs of the appeal on the standard basis.

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Citations

University of Melbourne v Commissioner of State Revenue [2021] VSC 156

Cases Citing This Decision

0

Cases Cited

3

Statutory Material Cited

0

Residual Assco Group Ltd v Spalvins [2000] HCA 33

Metricon Qld Pty Ltd v Chief Commissioner of State Revenue (No 2) [2016] NSWSC 332

Council of the City of Newcastle v Royal Newcastle Hospital [1957] HCA 15

[2021] VSC 156

1 April 2021