The impact of this case on ATO policy is discussed in Decision Impact Statement: Vidler v Commissioner of Taxation (NSD 1480/2009 ).
VIDLER v FC of TJudges:
Full Federal Court, Sydney
MEDIA NEUTRAL CITATION:
 FCAFC 59
SUNDBERG, BENNETT AND NICHOLAS JJ
1. The appellant purchased land at Gledston Street, North Booval in Ipswich in August 2004 for $1,000,000 and sold it in December 2004 for $2,350,000. The land comprised 2.7 hectares of vacant land and was zoned residential low density. It was connected to the electricity supply but not to the gas, water or sewerage, although access to these services was available at the boundaries of the land.
2. The appellant purchased land at Gladstone Road, Sadliers Crossing in Ipswich in May 2004 for $175,000 and sold it in April 2005 for $285,900. Access to electricity, water and sewerage was available, but the services were not in fact connected.
3. The appellant did not pay goods and services tax (GST) in relation to either sale because, in his opinion, they were input taxed as sales of residential premises. On 30 June 2006 the respondent (the Commissioner) issued notices of assessment of GST for each sale: $122,727 on Gledston Street and $10,081 on Gladstone Road. The appellant's notices of objection were disallowed, and the Administrative Appeals Tribunal affirmed the Commissioner's objection decisions. The appellant's appeal to this Court was dismissed:
Vidler v Commissioner of Taxation (2009) 74 ATR 520. The present appeal is from that decision.
4. The question before the Tribunal and later the primary judge was whether vacant land, such as the Gledston Street and Gladstone Road land, is "residential premises" for the purposes of s 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act).
5. Section 40-65(1) of the GST Act provides in part that:
"A sale of real property is input taxed , but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)."
6. The expression "residential premises" is defined in s 195-1 as:
"land or a building that:
- (a) is occupied as a residence or for residential accommodation; or
- (b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;
(regardless of the term of the occupation or intended occupation) and includes a floating home."
7. The context in which the above provisions operate is as follows. The GST Act distinguishes between taxable supplies and those that are not taxable: s 9-5. A person who makes a taxable supply is liable for GST in respect of that supply: s 9-40. The person may be entitled to input tax credits for things acquired or imported to make the supply: Divs 11 and 15. Supplies that are GST-free or input taxed are not taxable supplies and GST is not payable on them: s 9-5. If a supply is GST-free, any entitlement to an input tax credit for things acquired or imported to make the supply is not affected: s 38-1. However, if a supply is input taxed, there is no entitlement to an input tax credit for things that are acquired or imported to make the supply: ss 11-15 and 15-10.
8. The circumstances in which a supply is GST-free or input taxed are found in Divs 38 and 40 respectively. Under s 9-30(1):
"A supply is GST-free if:
- (a) it is GST-free under Division 38 or under a provision of another Act; or
- (b) it is a supply of a right to receive a supply that would be GST-free under paragraph (a)."
9. Under s 9-30(2):
"A supply is input taxed if:
- (a) it is input taxed under Division 40 or under a provision of another Act; or
- (b) it is a supply of a right to receive a supply that would be input taxed under paragraph (a)."
10. Section 40-65(1), which is set out at , is an example of a supply that is input taxed under Div 40.
11. The question before the primary judge was whether the two properties were "intended to be occupied, and [were] capable of being occupied, as a residence or for residential accommodation" within par (b) of the definition of "residential premises". In holding that they were not capable of being so occupied, her Honour applied what she had said about par (b) in
South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation (2009) 71 ATR 228 (South Steyne) at :
"With these [dictionary] meanings in mind it is not difficult to see why the full court [in Marana Holdings Pty Ltd v Federal Commissioner of Taxation (2004) 141 FCR 299] reached the conclusion that an element of permanent or long-term occupation was necessary before premises could be described as residential premises. As indicated above, however, the definition of 'residential premises' in the GST Act now requires the term of the occupation or intended occupation to be disregarded. In my view, that leaves as necessary only the element of shelter and basic living facilities such as are provided by a bedroom and bathroom."
12. The primary judge said that on appeal (
South Steyne Hotel Pty Ltd v Commissioner of Taxation (2009) 180 FCR 409) all members of the Court agreed with the conclusion expressed in the above passage.
13. The primary judge applied South Steyne to the facts as follows at :
"Given that the Gledson Street and the Gladstone Road land were not occupied at the time of sale, if they are to fall within the definition of residential premises they must, at that time, have been capable of providing some shelter and basic living facilities. In terms of the facilities available there was no material difference between the two properties; both were vacant land; electricity, water and sewerage services were available in both cases even if not actually connected at the time. With minor differences that are presently irrelevant, both properties were zoned 'residential'. It may well be that zoning permitting residential occupation is necessary for land or a building to be capable of providing shelter and basic living facilities but it is not sufficient. Neither the Gledson Street land nor the Gladstone Road land provided any element of shelter and basic living facilities."
Her Honour dismissed the application on the ground that the "capable of being occupied" limb of the definition was not satisfied, and accordingly did not need to address the "intended to be occupied" limb.
14. The sole ground of appeal is that the primary judge erred in holding that land is not "residential premises" as defined unless erected on that land is some shelter and basic living facilities.
Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR 299 (Marana) the appellants had purchased a motel in 2002. Soon after settlement they obtained council approval to use the premises as residential apartments and applied to convert the motel to strata title lots. The former motel rooms were converted into apartments. After the strata title conversion was approved, one of the apartments was sold. The Commissioner regarded the sale as a taxable supply. The appellants challenged this on the ground that the sale should be regarded as input taxed under s 40-65 of the GST Act. At the relevant time the section was as follows:
- "(1) A sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation.
- (2) However, the sale is not input taxed to the extent that the residential premises are:
- (a) commercial residential premises; or
- (b) new residential premises other than those used for residential accommodation before 2 December 1998."
The expression "residential premises" was defined as
"land or a building that:
- (a) is occupied as a residence; or
- (b) is intended to be occupied, and is capable of being occupied, as a residence;
and includes a floating home."
It is not necessary to set out the definition of "new residential premises".
16. The Full Court examined numerous dictionary definitions of "reside", "residence" and "residential". At  their Honours said that both "reside" and "residence" have the connotation of permanent, or at least long-term commitment to dwelling in a particular place. At  they said that the Macquarie Dictionary's three meanings of "residential" stress the relationship between "residential" and "residence", suggesting the aspect of permanent or long-term occupation. At  the Court stated its conclusion as to the meaning of "residential premises" in s 40-65:
"Nothing in the GST Act suggests that the expression 'residential premises' should have any meaning other than that adopted by Beaumont J at first instance. It includes premises which are occupied as a residence, or intended to be, and capable of being so occupied. In that context the word 'residence' has the meaning attributed to it by the various dictionary references, involving a degree of permanent or long-term commitment to the occupation of the premises in question."
17. At - the Court examined several decisions of courts in England to the effect that "residential accommodation" encompassed lodging, sleeping or overnight accommodation irrespective of the duration of the occupation. The Court rejected this more ample understanding of the word "residence" in s 40-65.
18. As a result of the Full Court's decision in Marana, s 40-65 was amended so as to assume its present form. Two changes were made to the definition of "residential premises". The first was to insert the expression "regardless of the term of the occupation or intended occupation" after pars (a) and (b). The second was to add the words "or for residential accommodation" in pars (a) and (b).
19. The effect of these amendments on what had been said in Marana was examined by Stone J at first instance in South Steyne. The description of "residential rent" that was in question in South Steyne (s 40-35) is in part as follows:
- "(1) A supply of premises that is by way of lease, hire or licence ... is input taxed if:
- (a) the supply is of residential premises (other than a supply of commercial residential premises ...)."
Stone J held that the supply was of residential premises and not of commercial residential premises, and thus was input taxed.
20. After observing that it was plain from the amendments themselves and from the explanatory memorandum to the bill effecting them that the amendments were designed to displace the Marana holding that the words "residential" and "residence" were limited to extended or permanent occupation, Stone J went on at  to say:
"While the Marana amendments remove the particular difficulty that confronted the taxpayer in Marana, the necessity for some degree of permanence or long-term commitment to the occupation of premises was only one aspect of the concept of residential premises. There is nothing in the Marana amendments that detracts from other aspects of the court's reasoning in that case. In particular, it is still helpful to consider the meanings of the words 'reside' and 'residence', disregarding however the need for any element of permanence or long-term occupation. The question is, taking out those elements, what is left of the concepts."
21. Having reviewed the dictionary definitions summarised in Marana at -, Stone J said that what was left after the excision was "only the element of shelter and basic living facilities such as are provided by a bedroom and bathroom": at . Her Honour went on to say at  that the amendment of the definition to include "residential accommodation" picked up the effect of the English decisions that had been rejected in Marana. We need not pursue this issue because, although important in South Steyne, it is not significant to the outcome of the present case.
On appeal Edmonds J expressly approved Stone J's approach recorded at -: 180 FCR 409 at ,  and . Emmett J, with whom Finn J agreed, said at  that Stone J made no error in the conclusion she reached.
22. The appellant submitted that the Full Court "have not necessarily accepted her Honour's dictum" that the element of shelter and basic living facilities survived the post-Marana amendments. We do not agree. Edmonds J explicitly agreed with Stone J on this point. At  his Honour paraphrased her process of reasoning. This included:
- "(1) The definition of 'residential premises' now requires the term of the occupation or intended occupation to be disregarded: .
- (2) That leaves as necessary only the element of shelter and basic living facilities such as are provided by a bedroom and bathroom: ."
His Honour then described Stone J's process of reasoning on whether the residential premises were "commercial residential premises": .
23. Edmonds J said at -:
"It followed from the reasoning processes in  and  above that the primary judge concluded that, for the purposes of the GST Act, the apartments in the Hotel were 'residential premises' to be used predominantly for residential accommodation and not 'commercial residential premises' and that, in consequence, their supply 'by way of lease' attracted the operation of s 40-35 and such supplies were input taxed.
I agree with her Honour's conclusion, generally for the reasons she has given. I hesitate to go as far as her Honour and conclude that the apartments are 'residential premises', 'even without regard to the inclusion of 'residential accommodation': . In my view, whether accommodation is 'settled' or 'established' involves elements which go beyond mere duration of occupation. Nevertheless, I totally agree with her Honour that the inclusion of 'residential accommodation' puts the matter beyond doubt: .
In my view, there is no error in the primary judge's characterisation of the first category of supply."
24. To reach the conclusion that the supply of each apartment was input taxed, Stone J had to decide that the supply was of residential premises and was not a supply of commercial residential premises. Emmett J agreed with her Honour on both issues. What his Honour regarded himself as deciding is made clear at :
- • if an apartment is not residential premises as defined in the Dictionary in s 195-1, the supply is taxable;
- • if the apartment is residential premises but is commercial residential premises, the supply is also taxable;
- • if the apartment is residential premises but is not commercial residential premises, then the supply is input taxed.
Thus, said his Honour, "the categorisation of the Grant Category depends upon the definitions of residential premises and commercial residential premises".
25. Emmett J then recorded that Stone J concluded that the apartments were residential premises to be used predominantly for residential accommodation and were not commercial residential premises, with the consequence that their supply by way of lease attracted the operation of s 40-35 so that the supply was input taxed. Having set out the definition of "residential premises", and noting the post Marana amendments, his Honour said at :
"The term of occupation is to be disregarded. However, the requirement as to the purpose of the occupation must still be satisfied. Thus, there must still be occupation as a residence or an intention to occupy as a residence. Similarly, there must be occupation for residential accommodation or an intention to occupy for residential accommodation."
This is only a partial rendering of the definition of "residential premises", which his Honour set out in full at .
26. His Honour disposed of the positive requirement in s 40-35 at  by saying:
"Whether or not the apartments are occupied as a residence, they are occupied for residential accommodation, particularly when one is to disregard the term of the occupation or intended occupation."
He then dealt with the negative requirement of s 40-35, and concluded that the apartments were not commercial premises. It was in that context that his Honour said at  that Stone J made no error in concluding as she did, and that the supply of each apartment was input taxed. In other words his Honour agreed with Stone J's conclusion on "residential premises" and "commercial residential premises". If Emmett J had not agreed with her Honour's reasons for reaching her conclusion on those two issues, he would have said so.
27. If, as we think is the case, Emmett and Finn JJ approved of Stone J's view of the continuing relevance of Marana (as Edmonds J did), we should follow that approach. If only Edmonds J did, we should express our own view, which is that we agree with Stone J's conclusion as to the continuing relevance of Marana recorded at - for the reasons her Honour gave at -.
28. The properties here in question were vacant land. At the time of the sales no shelter or basic living facilities were present on the land. As appears from the definitions collected in Marana at  and , "residence" connotes a dwelling, abode or house in which a person may reside. The permanent or long term element was a superadded requirement found in the dictionaries. The removal of that element by the post-Marana amendments undoubtedly left standing the requirement of "residence", namely a dwelling, abode or house in which a person may reside. That was what Emmett J was saying in the passage quoted at . It is clear from par 15.2 of the Explanatory Memorandum that accompanied the amendments that the legislature was unhappy only with those elements of Marana which it identified as the decisions that:
- "• the sale of a unit, which was previously a room in a motel, was the sale of 'new residential premises' and therefore subject to the goods and services tax (GST); and
- • the terms 'reside' and 'residence' connoted a permanent, or at least long-term, commitment to dwelling in a particular place."
The post-Marana amendments were designed to remove those aspects of the Full Court's decision. There is no indication in the amendments or in the explanatory memorandum of an intention to remove the requirement of residence identified by the Full Court, namely the notion of a dwelling, abode or house in which a person may reside, other than the superadded element of permanent, or at least long term, commitment to dwelling in a particular place.
29. In Re Alcan Australia Ltd;
Ex parte Federation of Industrial Manufacturing and Engineering Employees (1994) 181 CLR 96 at 106-107 the High Court affirmed the proposition that where Parliament repeats words which have been judicially construed, it is taken to have intended the words to bear the meaning already judicially attributed to them. The Court said that the presumption was considerably strengthened in that case by the legislative history of the Act in question there. See also
Electrolux Home Products Pty Ltd v Australian Workers' Union (2004) 221 CLR 309 at . In the present case, by analogy, in disagreeing with some aspects of Marana but not with others, the Parliament is to be taken to have approved the latter.
30. The expression "residential accommodation", added by the post-Marana amendments, connotes "lodging, sleeping or overnight accommodation": South Steyne at . Each of the English cases this amendment was designed to pick up involved premises in which lodging, sleeping or overnight accommodation took place - a study bedroom at a residential college, a building to accommodate students for short term courses and "living accommodation".
31. In our view the word "occupied" in the phrase "capable of being occupied" connotes living within or inhabiting a structure. It is, we think, quite artificial to speak of someone "occupying" vacant land "as a residence or for residential accommodation".
32. Marana at  makes clear what is obvious in any event, that land or a building must be capable of being occupied as a residence or for residential accommodation at the time of supply. The appellant's submission that par (b) of the definition is "apt to deal with future use of land", that is to say where the construction of shelter or living facilities is to occur in the future, is at odds with the requirement that land or a building have the required character at the time of supply, in this case the date of sale. Conformably with this, the word "capable" in the expression "capable of being occupied, as a residence or for residential accommodation" must involve more than an ability in the future (ie after the supply) to make the land or building suitable for occupation as a residence or for residential accommodation. Thus in Marana it was held that a motel was not capable of being occupied as a residence at the time of supply because it lacked the qualities necessary for such occupation and had to be modified so as to be suitable for use as a residence.
33. In support of his contention that vacant land can be "residential premises", the appellant stressed the introductory words of the definition - "land or a building". He submitted that in view of the disjunctive "or", there is no warrant to:
- • read "land" to mean land with a building on it because a building is separately mentioned;
- • read "land or a building" as if it was "land with a building"; or
- • read "land ... that is intended to be occupied and is [so] capable" as requiring existing shelter or living facilities.
34. It is common ground that "land", as defined in s 22(1)(c) of the Acts Interpretation Act 1901 (Cth), includes vacant land. However we do not agree that the appellant's exposition recorded at  is a fair reading of the definition as a whole. The definition is not concerned with "land" in the abstract, but with "land that ... is capable of being occupied as a residence or for residential accommodation". Thus the meaning of "land", which in the abstract or in other contexts will include vacant land, may be modified by its context. See for example
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408. For the reasons already given, vacant land is not land that is capable of being occupied as a residence or for residential accommodation.
35. The appellant placed reliance on the explanatory memorandum which accompanied the bill that amended the definition of "residential premises" to require that land or a building be "capable of being occupied, as a residence". Paragraphs 1.167 and 1.168 of the memorandum state:
"1.167 ... The new definition requires that for land to be considered residential premises it must be intended to be occupied, and capable of being occupied, as a residence. That is, it is permissible to use the land for residential purposes and the land has some facilities ordinarily associated with residences (i.e. water and sewerage). 1.168 The amendment ensures that the sales of vacant residential land will not be input taxed under section 40-65. The supply of land is not input taxed where it is:
• vacant residential land;
• commercial land; or
• new residential premises."
36. The appellant sought to derive from these paragraphs that land is "capable" of being occupied as a residence, even if it is vacant, if it is able to be connected to water and sewerage facilities. He submitted that the word "permissible" in par 1.167 should be understood as referring to "intended to be occupied" in par (b) of the definition; in the sense that if land is permitted to be used for a residence, it is "intended" to be so used. He contended that par 1.168 refers to "bare" vacant land, while par 1.167 refers to "serviced" vacant land.
37. This is a very strained reading of the paragraphs. In the definition's original form it required only that the land or building be "occupied or intended to be occupied as a residence". The amendment requiring that the land or building be "capable" of being occupied is an additional requirement. The second sentence of par 1.167 is explaining that additional requirement. Two elements are mentioned: it must be permissible (ie lawful) to use the land for residential purposes, and the land must have some facilities ordinarily associated with residency. However, par 1.167 does not mention vacant land, and the paragraph provides no foundation for a distinction between "bare" vacant land and "serviced" vacant land. The context shows that the memorandum's use of the word "land" is shorthand for "land or a building". Furthermore, in our view par 1.168 shows that vacant land (even with such services laid on) does not come within the definition. Reading pars 1.167 and 1.168 together, we regard the memorandum's reference to the two facilities (water and sewerage) ordinarily associated with residences, as contemplating the existence on the land of structures serviced by water and sewerage, and not, as the appellant would have it, merely the ability to connect vacant land to such services. We agree with the Commissioner's contention that it would be absurd if the mere existence of a tap in the middle of an acre of vacant land transforms the land into "residential premises" for the purposes of the GST Act. We note in passing that it was common ground that "(ie water and sewerage)" in par 1.167 of the memorandum should be understood as examples of "facilities", and that "utilities" is a more apt description of the provision of water and sewerage.
38. The properties here in question were vacant land. At the time of the sales no shelter or basic living facilities were present on the land. No error has been shown in the primary judge's conclusion that at the time of sale neither parcel of land was "residential premises" within the meaning of s 40-65(1) of the GST Act because it was not capable of being occupied as a residence or for residential accommodation. As was the case at first instance, we need not determine whether, at the time of sale, the properties were "intended to be occupied, as a residence or for residential accommodation".