Commissioner's Decision Upheld in Land Tax Exemption Appeal

The Appeal Panel upheld the Commissioner's decision, affirming that land owned by the same person and connected by a gate cannot be considered a 'parcel of residential land' without physical separation, rejecting the Tribunal's ruling on the 'parcel of residential land' exemption under the Land Tax Management Act 1956.

Appeal Panel - Internal

CITATION: [NAME] v [NAME] ([NAME]) [2008] NSWADTAP 61

APPELLANT PARTIES: [NAME] RESPONDENT [NAME]: 089010

HEARING DATES: 4 June 2008

SUBMISSIONS CLOSED: 4 June 2008

DATE OF DECISION: 24 September 2008

BEFORE: O'Connor K - DCJ (President); Hirschhorn M - Judicial Member; Koutoulas D - Non-Judicial Member

CATCHWORDS: Appeal - Land Tax - [ADDRESS] of Residence Exemption - 'Parcel of Residential Land' - Test in [NAME]'s Case - Physically Undivided by Separation - Interpretation - Land Tax Management Act 1956, ss 7, 10(1)(2) - Schedule 1A, cl 2(1)(a)

DECISION UNDER APPEAL: [NAME] v [NAME] [2008] NSWADT 32

FILE NUMBER UNDER APPEAL: 076047, 076048, 076052

DATE OF DECISION UNDER APPEAL: 01/18/2008

LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Land Tax Management Act 1956

[COMPANY] v [NAME] [2006] VSCA 207 Attorney-General (NSW) v X (2000) 49 NSWLR 653 [NAME] v [NAME] [2007] NSWADT 242 [NAME] v [NAME] & [NAME] [2007] NSWSC 625 [NAME] v [NAME] & anor [2008] NSWSC 387 [NAME] v Timbs [2006] NSWADTAP 25 [COMPANY] v [NAME] of Tea Tree Gully (1975) 37 LGRA 325 Collector of Customs v Pozzolanic (1993) 43 FCR 280 CASES CITED: Edwards v Bairstow [1956] AC 14 Lloyd v Veterinary Surgeons Investigating Committee (2005) 65 NSWLR 245 [NAME] v Commissioner of Land Tax [1972] 1 NSWLR 545 [NAME] v. The Council of the Municipality of Condobolin (1918) SR (NSW) 297 [COMPANY] v Commissioner of Land Tax [1983] 2 NSWLR 616 [NAME] & anor v Commissioner of Land Tax [1982] 1 NSWLR 305 [NAME] v [NAME] [2008] NSWADT 32 Ventura Pty Ltd v West Tamar Council [2004] TASSC 136 Ventura Pty Ltd v West Tamar Council [2005] TASSC 99

APPELLANT [NAME], Solicitor Advocate, [NAME]: RESPONDENT [NAME], [COMPANY]

1. Appeal allowed. ORDERS: 2. The decision of the Tribunal is set aside. 3. The Commissioner's decision is affirmed.

REASONS FOR

DECISION 1 This appeal concerns an issue that has now arisen frequently in the Tribunal: the way the principal place of residence exemption from land tax is to be applied to a block of land contiguous to the block of land upon which the principal place of residence is located, where both blocks are owned by the same person and are said to constitute a 'parcel of land'. 2 In the decision under appeal, the [NAME] of the Tribunal (Needham DP) set aside the objection decision of the [NAME] (the Commissioner), and held that the respondent was entitled to an exemption. The Tribunal rejected the Commissioner's view that the existence of a brick dividing fence on the boundary, albeit containing a gate that allowed movement between the two blocks, meant that the two blocks could not be regarded as a 'parcel of land'. [NAME] v [NAME] [2008] NSWADT 32. 3 The Commissioner now appeals pursuant to ss 112 and 113 of the Administrative Decisions Tribunal Act 1997. An appeal may be made, as of right, on a 'question of law'; and, by leave of the Appeal Panel, may be extended to the merits. Legislative Provisions 4 Under the Land Tax Management Act 1956 (LTM Act), s 7, all land in the State is subject to land tax, unless exempt. There are a host of exemptions. 5 In this case the exemption under notice is that given in respect of 'land that is exempt from taxation under the principal place of residence exemption, as provided for by Schedule 1A': s 10(1)(r). It is not necessary to set out the provisions of Sch 1A in any detail. The main provision relevant to this appeal is cl 2, in particular cl 2(1)(a): ' 2 Principal place of residence exemption (1) Land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under this Act … if the land is: (a) a parcel of residential land.' 6 The primary definition of 'residential land' for the purpose of the Schedule is 'land that is used and occupied for residential purposes and for no other purpose, that use and occupation being use and occupation of a building or buildings designed, constructed or adapted for residential purposes': cl 3. The Circumstances 7 The Tribunal's description of the circumstances as they existed in the relevant tax year is not disputed: '[ADDRESS] was purchased first, and since 17 September 2003 he [the respondent] and his family have resided in that property. He purchased [NAME] in 2004 and "decided to purchase it to be used in conjunction with the [ADDRESS] property as the primary residence of myself and my family" (see affidavit sworn 29 May 2007, para 7). When the [NAME] property was purchased it was separated from the [ADDRESS] property by a boundary fence. Soon after purchasing the property [NAME] demolished approximately 2.4 metres (about 8 feet) of the fence "to enable the composite block to be used by myself and my family" to "provid(e) vehicle and individual access throughout the [[NAME]] block". The [NAME] block has a vegetable garden and some play equipment on it, although the play equipment is not constructed on the block. Photographs of the [NAME] property were tendered. Those tendered by the applicant were taken in October 2006 and show a gap in a reasonably substantial fence giving access to a vacant block, which apparently when the photos were taken was either being used or had recently been used for soccer and other family-oriented recreational pursuits. ... 13 The photographs show a substantial brick fence, approximately 183 cm (6 feet) in height. A gate has been installed across the opening. …' 8 (We should note that part of the adjoining block was on the other side of a roadway that ran through the block ([NAME]), and no claim for exemption was made in relation to that part.) Construction of cl 2(1)(a) 9 There is no statutory guidance as to what constitutes a 'parcel of residential land'. '[T]he expression 'parcel of land' is of uncertain meaning and not confined to land within a certificate of title or conveyance': per Underwood J at [17] in Ventura Pty Ltd v West Tamar Council [2004] TASSC 136, a land valuation case; cited with approval by the [ADDRESS], on appeal, Ventura Pty Ltd v West Tamar Council [2005] TASSC 99 (appeal allowed on other grounds). 10 Hunt J in [NAME] & anor v Commissioner of Land Tax [1982] 1 NSWLR 305 at 310 formulated a test. The test has been accepted in two recent Supreme Court cases in New South Wales: [NAME] v [NAME] & anor [2008] NSWSC 387 (Gzell J) ([NAME]); and [NAME] v [NAME] & [NAME] [2007] NSWSC 625 ([NAME]) ([NAME]). It has been applied in a number of Tribunal decisions. It has acquired something of a quasi-legislative status. Hunt J said: '[I]n my view … contiguous blocks of land can comprise a 'parcel of residential land' within s 10(1)(r )(ii) [now Sch 1A, cl 2(1)] only where they are undivided not only by physical separation but also in use, occupation and title.' 11 In so concluding, Hunt J accepted the Commissioner's submissions. His Honour took into account the dictionary meanings, relevant judgments in the fields of land tax and land valuation, and had regard to the canon of statutory construction that terms used in statutes that are in pari materia should be given the same meaning unless there is a clear indication to the contrary. 12 At first instance the Tribunal was called on to examine two limbs of the [NAME] test: whether the second block's use was residential, and whether it was undivided by physical separation. The Commissioner does not now contest the Tribunal's finding that the two pieces of land are undivided in use. The appeal is confined to the Tribunal's ruling that the two pieces of land are undivided by physical separation. 13 The Commissioner has, as we understand it, proceeded since the decision in [NAME] to assess 'parcel of land' claims by reference to whether the four 'unities' as they have been called – use, occupation, title and undivided physical separation – are present. It would seem from the cases that have reached the Tribunal that the Commissioner's interpretation of what is meant by 'undivided by physical separation' is that there must be an absolute absence of any physical division at the boundary line between the first block and the second block. 14 The paragraphs of the Tribunal's decision put in issue by the appeal are [41] to [45]. It is helpful also to set out some of the earlier paragraphs: '28 The Commissioner contends, inter alia, that the two relevant blocks are physically separated for the purposes of the [NAME] test by the brick fence, despite the opening in it for the gate to facilitate access between the two blocks. The Commissioner contends that the application founders on the requirement to meet the [NAME] tests "precisely" by reason of the dividing fence, albeit with a gate, between the two properties. 29 The Commissioner relies upon the decision in [NAME] v. The Council of the Municipality of Condobolin [(1918) SR (NSW) 297] to found a submission that the fence divides the two lots into two separate parcels of land. In his written submissions, [NAME] said: "To the reasonable person standing at [NAME] (that is, the public road), and looking towards [ADDRESS], the two blocks of land would appear to be physically separated by the brick fence between the two lots". 30 In [NAME] v Commissioner of Land Tax [1972] 1 NSWLR 545, Isaacs J, in an obiter comment, notes that in determining whether two allotments of land, under the same title and valued as one entity, were one parcel of land, noted that "There was never any dividing fence between the two allotments or any other physical division of the land". The Commissioner relies upon the existence of the fence to show that the [NAME]'s Case requirement for "physical separation" is not met. 31 The respondent relies upon various cases such as [NAME] v Timbs [2006] NSWADTAP 25 (two strata units comprising the whole floor of an apartment building and used, together, as a couple's residence being held to be within the principal place of residence exemption); [COMPANY] v [NAME] of Tea Tree Gully (1975) 37 LGRA 325 at 335-6 (a parcel of land meaning a "specified and reasonably well defined area of land … defined by clearly established usage …") and most particularly [COMPANY] v Commissioner of Land Tax [1983] 2 NSWLR 616 (the concept of a "site" being applied to areas which are physically seen as a whole despite division by roads, such as [ADDRESS], the (then) Sydney Technical College in Ultimo or, in that case, the club and car parks of [NAME]). 32 It should be noted that Timbs related to a strata unit and therefore to a different exempting provision, while the Christies Sands Case related to a different legislative provision entirely. 33 Hunt J, in the [NAME], noted (at 622) that "[ADDRESS] is literally criss-crossed by roadways". His Honour further noted that "The intention of (the relevant exemption in that case) is clearly enough not to raise [NAME]; it is to relieve certain community groups from the burden of land tax upon the land used an occupied by them. Such an exemption should not be construed narrowly". [The Tribunal then discussed [NAME] decision at first instance said to deal with similar facts and to have reached the conclusion that there was lack of undivided physical separation: [NAME] v [NAME] [2007] NSWADT 242, also on appeal to the Appeal Panel, in this instance by the taxpayer. There some palings were missing from a standard timber paling boundary fence, enabling pets and people to pass through the break onto the adjoining block. The Tribunal distinguished the facts in that case.] 41 As a matter of fact, and in relation to this particular application, I find that the fence, with the substantial gap affording easy access to and travel between the two blocks, does not constitute physical separation. 42 In this decision I am inclined to follow the reasoning of Hunt J in [COMPANY] (supra) in holding that the determination of whether areas of land used for one purpose needed more than merely a road for that land to lose its character as a site, and that in so determining that issue "what must be looked at is not the conveyancing details of the land but rather … its actual use and occupation" (at 621). While his Honour was not evaluating the same legislation as in this matter, the principles are similar; are various areas of land physically separated from each other so as to be removed from an exemption? The land in question here, as in the [NAME], is used as a whole, and the purpose of the fence is not to separate so much as the demolished portion or gate is to unite. 43 I find that the two blocks are not, despite the presence of a fence, physically separated, due to the substance and purpose of the demolished portion or gate. Conclusion 44 The two blocks of land at [NAME] are to be regarded as a "parcel of land" for the purposes of the principal place of residence exemption, being undivided both in use and in physical separation. 45 Accordingly, the decision of the Chief Commissioner should be set aside and the applicant have the benefit of the principal place of residence exemption in relation to the relevant portion of property owned by him at [NAME], Casula.' The Appeal 15 As can be seen, the Tribunal saw itself as engaged in the making of a finding of fact. The law is clear that the question of whether a structure on the boundary has the result that the contiguous land is 'undivided by physical separation' involves the making of a finding of fact. The Appeal Panel does not exist to be a second trial court. 16 Accordingly, findings of fact should only be disturbed on appeal if there is some clear error of law, or some other consideration of justice warranting that course (such as the availability of relevant fresh evidence). This kind of approach has consistently been taken by Appeal Panels in this Tribunal. 17 To similar effect, see Gzell J in [NAME] at [45]: '45 While it is not necessary to identify an error of law to give leave to extend an appeal to the merits ( Lloyd v Veterinary Surgeons Investigating Committee [2005] NSWCA 456, (2005) 65 NSWLR 245 at 257 [63]-[64]) an Appeal Panel should weigh relevant factors in exercising the power to extend an appeal to a review of the merits of the case. It would, I would have thought, be only in the most exceptional circumstances that a first instance finding that an appellant failed to satisfy the onus of establishing that the land in question constituted residential land under the four unities tests in [NAME] that leave to extend a review to the merits would be granted.' 18 The decisions in [NAME] and [NAME] both involved [NAME] appeals from the Appeal Panel where the Supreme Court restored the findings of fact of the primary Tribunal. They underline the difficulty in disturbing first instance findings of fact for supposed error of law. Alleged Errors 19 The only grounds of the notice of appeal that might be seen as raising errors of law in the Tribunal's analysis in this case are grounds (c) and (d), which (paraphrased) state: (c) The Tribunal erred in finding that the [first block] and [the second block] are not physically separated for the purposes of the test in [NAME]'s case ; and (d) The Tribunal erred in finding in relying on the [NAME] case to determine that there was no physical separation between the [first block] and [the second block]. 20 The submissions more clearly articulate an error of law case. The case is, essentially, that, for the Tribunal to have reached the finding it did, it must have misunderstood the meaning to be given to the words 'undivided by physical separation'. The submission is that the finding is not consistent with any of the ordinary meanings that might be given to these words. 21 The submissions refer to the five propositions as to the difference between a 'question of law' and a 'question of fact' formulated by the [ADDRESS] of the Federal Court in Collector of Customs v Pozzolanic (1993) 43 FCR 280 at 289. Of these the most relevant to this appeal is proposition five, i.e.: 'Five, the question, whether the facts fully found fall within the provision of a statutory enactment, properly construed, is generally a question of law.' 22 Moreover we note that the Tribunal in this case was involved in a process of evaluation of competing matters of fact, not the making of a discretionary decision: as to this distinction, see Attorney-General (NSW) v X (2000) 49 NSWLR 653 at 661 per Spigelman CJ. 23 Before turning more fully to the Commissioner's submissions, it is helpful to refer on one point to [NAME], dealing with an appeal from the Appeal Panel in a [NAME] case. The Tribunal at first instance had held that the 'unity of use' was not demonstrated, as the second block had a 'dual use' (one use domestic, the other use a construction site). The Appeal Panel had criticised the conclusion, and whilst accepting that there was construction site activity, it was of the view that a finding of unity of use could still properly be made. 24 The observations of [NAME] at [20] are of assistance. They appear in the following passage: '19 In para [29] the Panel said that the Judicial Member's reasons (properly understood) showed that he had held that the use of the lot as a construction site had impliedly overridden other continuing uses ancillary to the use of Redgum as a principal place of residence. With respect the Judicial Member made no such error. He found that there was dual use, and that use as a construction site could not be disregarded as trivial. In truth it was the Panel which committed this error by holding, inferentially, that the ancillary use of the lot as part of the principal place of residence impliedly overrode its use as a construction site. 20 The Panel also erred in holding (para [29]) that the Judicial Member had adopted too strict a view of the principles in [NAME]'s case in relation to the use of the lot and the construction site as part of the garden environs of Redgum. The Judicial Member said that the conditions in [NAME]'s case had to be compiled with precisely but his finding of a second use that was neither trivial nor ancillary showed, as a matter of law, that the principles in [NAME]'s case were not satisfied. There was nothing restrictive, or excessively restrictive, in this application of those principles. 21 The conclusion in para [30] of the Panel's reasons that there was no division of use as set out in [NAME]'s case was also erroneous in point of law because it was inconsistent with and contradicted the finding of dual use which was clearly one of fact: Edwards v Bairstow [1956] AC 14, 36. 22 Some decisions of the Tribunal were cited in argument which considered the requirement in [NAME]'s case that contiguous blocks must be "undivided by physical separation" if they are to be considered "a parcel". They are of no assistance in considering the effect of dual uses on the availability of this exemption. 23 The respondents did not challenge the Judicial Member's finding that use of the lot as a construction site for [NAME] freestanding building intended for use as a separate dwelling was use for [NAME] purpose within the relevant clauses of the Schedule. Such a submission could not have succeeded in view of the judgment of Nettle JA in [COMPANY] v [NAME] [2006] VSCA 207, 64 ATR 291.' 25 The Commissioner's submission is that the circumstances here could never be consistent with any ordinary meaning of the words 'undivided by physical separation' given the extent of practical separation effected by the fence, even allowing for the 2.4 to 2.5m gate opening. The Commissioner argues that a reasonable person standing on the public road ([NAME]) and looking towards [ADDRESS] would see substantial physical division of the two blocks, and would not understand the two blocks to be 'undivided by physical separation'. 26 There is no assistance by way of illustrations to be found in the higher court authorities on the degree of flexibility of meaning that should be given to the words 'undivided by physical separation'. 27 It was not necessary for Hunt J to descend to a further level of explanation in [NAME]'s case, as the issue there was able to be resolved on the point of lack of unity of title. Mr and Mrs [NAME] owned the home block, but only [NAME] owned the contiguous block. 28 As to the ordinary meaning to be ascribed to the words 'undivided by physical separation', the Commissioner referred to dictionary definitions of the component words. For example, the Oxford English Dictionary defines 'undivided' as 'not separated', 'not broken up into parts'. The Dictionary defines 'separation' as, for instance, 'to make a severance or a division', or 'the action of separating or parting', 'a parting', a 'line of division'. The Dictionary defines 'physical' as 'of or pertaining to material nature, or to the phenomenal universe perceived by the senses pertaining to or connected with matter; material'. 29 Clearly the words are ones which admit of flexibility in interpretation. In our view, [NAME] accepted in [NAME] the appropriateness of a 'precise' approach to a consideration of the presence of each of the unities, but accepted that there should not be an 'excessively restrictive' approach in that regard. To that extent, at least, it is not required that there be no structure of any kind on the boundary for the 'undivided by physical separation' test to be met. A more difficult situation presents itself in applying the criterion of 'undivided by physical separation' to a boundary structure that is in the nature of a solid fence, even with breaks. 30 The submissions also refer to dicta found in land valuation cases. The land tax system is interconnected with the land valuation system. We accept that cases in either sphere dealing with concepts common to both spheres (in pari materia) such as 'parcel of land' are open to be considered. 31 One of these authorities is a case also considered by Hunt J in [NAME]'s case, and referred to by the Tribunal in its reasons, [NAME]. There the court was dealing with the issue of whether subdivisional development activity in connection with a parcel of land had deprived it of its status as a parcel, and valuation should proceed by reference to separate lots. [NAME] said: 'The separation by sale or by construction of streets, or other physical barrier makes such a difference, but not mere intention to sell if a purchaser can be found, and that seems to me to be decisive in the present case. The question of whether parcels are separately held, of course, is primarily a question of fact.' 32 The important point, for the present argument, is the reference to 'physical barrier'. 33 Just as it would be excessively restrictive, to adopt [NAME]'s words in [NAME], to require, we consider, absolute absence of any physical structure on the boundary, the Commissioner's view is that the term 'undivided' can not embrace a situation where there is a substantial physical division between the lots, even if it is not continuous. 34 In our view, the key element of Hunt J's formulation is the word 'undivided'. It flavours the meaning to be given to the remaining words. The overall concept is that of a 'parcel of residential land'. A parcel is 'a quantity of something wrapped or packaged together, a package or bundle' (Macquarie Dictionary, meaning 1). [NAME] meaning is 'a separable, separate, or distinct part or portion or section, as of land' (meaning 4). The adjective of importance in meaning 4 is 'distinct'. 35 Hunt J's criteria are all seeking, as we see it, to promote the idea of seamless occupation and use. There must be commonality of title, commonality of use, commonality of occupation and physical commonality. The parcel, to pick up the adjective in meaning 4, must be 'distinct' from the land around it. 36 In our view, the finding in this case is not consistent with the ordinary meaning of 'undivided'. 37 We do not think that [NAME] is of assistance in concluding that two blocks can be 'undivided' where there is a separation along most of the boundary. 38 In [NAME] the issue was whether the land tax exemption given to a non-profit club in respect of its 'site' included land on the other side of a roadway that lay between it and the club's premises. The land was used as a member car park. Hunt J rejected the view that the term 'site', in its ordinary meaning, carried with it the connotation that a site ended at boundary roads. As the Tribunal noted in its reasons in this case, his Honour referred to many landmark sites in Sydney which had within them roadways. In our view, the value of the discussion is found in his Honour's emphasis on an overall assessment of the subject land – he was looking there for practical unity of use of the overall land area as a single 'site'. 39 The emphasis in Hunt J's formulation in [NAME] is clearly on the word 'undivided'. In our view, the Tribunal's finding of fact in the present case is not consistent with a reasonable and ordinary meaning of the phrase 'undivided by physical separation' when used in the context of assessing whether land forms part of a distinct bundle amounting to a parcel of land. 'Undivided by physical separation' must, at least, bear the connotation 'significantly' or 'substantially' undivided. An opening sufficient to allow a car to pass through on a long otherwise divided boundary does not in our view fit with the ordinary meaning of the phrase 'undivided by physical separation'. 40 In addition, in our view the Tribunal introduced an irrelevant consideration into its analysis of the matter. At [42] and [43], it said: '42 … The land in question here, as in the [NAME] , is used as a whole, and the purpose of the fence is not to separate so much as the demolished portion or gate is to unite. 43 I find that the two blocks are not, despite the presence of a fence, physically separated, due to the substance and purpose of the demolished portion or gate.' 41 At this point it was employing 'use' and 'purpose' considerations to inform its approach. These, in our view, are not matters open to be considered when examining the question of the presence, absence or extent of physical separation. In our view, the four unities of Hunt J are to be assessed independently. Hunt J's is a check list approach. The unity of 'use' is separately to be assessed. 42 What is required when examining whether the two lots are 'undivided (etc)' is an examination of the physical situation only. 43 There is an application for leave to extend to the merits. An error has, in our view, been demonstrated sufficient to justify the grant of leave. 44 There is no need to consider any further evidence. The evidence is not in contest. 45 As the only matter in issue is the proper interpretation of the criterion relating to physical separation, it must follow from our reasoning that the decision of the Tribunal be set aside, and the Commissioner's decision affirmed.

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