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SUPREME COURT OF NEW SOUTH WALES ADMINISTRATIVE LAW DIVISION

CROWS NEST CLUB LTD v COMMISSIONER OF LAND TAX (NSW)

WOODWARD J

22 July 1977 -

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Woodward J    This matter involves an appeal by the plaintiff from the disallowance by the Commissioner of Land Tax of an objection to an assessment of land tax made in respect of land owned by the plaintiff as at 31 October 1972. There was an error in the summons because of the reference to the date at which the land was alleged to have been owned by the plaintiff, but it was clear that the notice of assessment to which objection was made was No 44375 dated 1 June 1976.

   The land in question is situate at Crows Nest in the Municipality of North Sydney and is lots 23, 24 and 25 of s 2 deposited plan 1720 and is owned and used by The Crows Nest Club Limited. It is used and occupied by the club as a site for a club building, solely owned and occupied by the club. The club is an incorporated body, being a company limited by guarantee within the meaning of the Companies Act. It holds a certificate of registration issued under Pt X of the Liquor Act 1912, and claims the benefit of the exemption provided in s 10(1)(g)(iii) of the Land Tax Management Act 1956.

   The memorandum of association of the plaintiff states that the objects for which the company was established are:-

   (a) To form a Club to be known as The Crows Nest Club.

   (b) To purchase, lease or otherwise acquire any real and personal property and any rights or privileges which the Company may think necessary or convenient, to purchase or acquire a liquor licence, tobacco licence or any other licences or quotas.

   (c) To promote the social welfare enjoyment and recreation of its members, and to promote and engage in such sports games and pastimes as the Company may decide.

   (r) To accumulate funds and to admit any person or persons to participate in the profits or assets of the Company.

   (s) To distribute any of the assets for the time being of the Company among the members in kind and to stipulate for and obtain for the members or any of them any property rights privileges or options.

   (u) To assign to any member or class of members any preferential special or qualified rights or privileges over or as compared with any other members as regards participation in dividends or assets or as regards voting or as regards winding up or otherwise howsoever.

   (v) To transfer or give any of the assets of the Company to other Clubs or institutions with objects similar to this company or to charitable institutions to be determined by the Company.

   (w) To do all such things as are incidental or conducive to the attainment of all or any of the above objects.

   Article 63 vested the management and control of the club in the committee, subject to regulations made in accordance with the article. Article 64 enumerates the powers of the committee, including in cl (15) a power to make from time to time regulations in relation to the club, in particular relating to:-

   "(3) As to the entrance fees (if any) payable in respect of membership of the Club.

   

"(4) As to the annual, quarterly or other subscription or payments to be payable by members and honorary members of the Club.

 

"(6) As to the rights and privileges which shall be accorded to the members of the Club."

   The rules and regulations of the plaintiff as in existence at the relevant date provided, inter alia, that:-

   "49. No money shall be lent by the Club or any of its servants to any Member.

   

"56. The profits, if any, and other income of the Club shall be applied solely to the promotion of the objects of the Club as set forth in the Memorandum of Association of the Club and no portion thereof shall be paid or transferred directly or indirectly by way of Dividends, bonus or otherwise howsoever by way of profit amongst the members of the Club or to any of them provided that nothing herein contained shall prevent payment in good faith of any remuneration to any Officer or servant for any services actually rendered to the Club nor prevent the payment of Interest on moneys borrowed from any Member of the Club for any of the purposes of the Club."

   The evidence adduced on behalf of the plaintiff showed that at all relevant times the activities of the plaintiff were "the ordinary activities of a club for business and professional men, providing social amenities, recreation and refreshment facilities, including a dining-room, liquor bars, billiard-room, lounge, meeting rooms and a sauna bath at the premises known as 29-33 Hayberry Street, Crows Nest. The Club organized golf matches and billiard competitions with other clubs, sailing and fishing days and ski-ing trips and other sporting events for members. The Club made no distribution of income, profits, dividends, charitable gifts or any other moneys to its members and has not ever done so".

   The land in question has been at all material times since 1959 owned and occupied solely by the plaintiff company.

   Section 10 of the Land Tax Management Act No 26 of 1956, sets out lands which shall, subject to other provisions, be exempt from taxation under the Act ( s 10(1)). Clause (g) includes in such lands:-

   

"land owned by or in trust for any person or society used or occupied by that person or society solely as a site for-

 

(iii) a building owned and solely occupied by a society, club or association not carried on for pecuniary profit"

.

   It is contended on behalf of the Commissioner that the appellant must establish that the club is "not carried on for pecuniary profit". This he claims involves an assertion by the club that its objects do not permit the club being carried on for pecuniary profit. With this submission the plaintiff does not agree. It contends that the issue is whether in fact it was not carrying on the activities of the club for pecuniary profit at 31 October 1971. The Commissioner to the contrary claims that if the objects of the company envisage it carrying on its operations for pecuniary profit the club is not entitled to the exemption which it claims. Land tax was charged on land owned at 31 October immediately preceding the year for which it was levied. It is claimed by the Commissioner that the provisions of cl. 2(r), (s), (u), (v) disclose the objects of the company and enable the Commissioner to determine at the time when the liability for tax is to be fixed whether tax is to be imposed. It is not a case where the Commissioner has to wait to the end of the year to see whether or not the activities of the plaintiff entitle it to the exemption provided for in s 10.

   Section 10(1) includes amongst the exemptions:-

   

"(d) land owned by or in trust for a charitable or educational institution if the institution, however formed or constituted, is carried on solely for charitable or educational purposes and not for pecuniary profit;

 

(f) land (not being land used to make a pecuniary profit) owned by or in trust for any association of employees or employers …

 

(g) land owned by or in trust for any person or society and used or occupied by that person or society solely as a site for-

 

(iii) a building owned and solely occupied by a society, club or association not carried on for pecuniary profit;

 

(iv) a charitable institution not carried on for pecuniary profit;

 

(viii) a private hospital or nursing home within the meaning of the Private Hospitals Act, 1908, not carried on for pecuniary profit;

 

(ix) an authorized hospital within the meaning of the Mental Health Act, 1958, not carried on for pecuniary profit;

 

(h) land owned by … any club … and used primarily (for specified sports) … and not used for the pecuniary profits of the members of that club or body;

 

(j) land used … for the purpose of holding agricultural shows … and owned by a society … and is not carried on for the pecuniary profit of its members."

   It is clear that when reference is made to the use of land, or to the carrying on of an undertaking for pecuniary profit it is not intended to exclude an exemption merely because in the result the undertaking is not conducted at a loss. The prohibition against the undertaking being carried on for pecuniary profit in my view is a prohibition against an undertaking which is being carried on for the profit of the persons who might be said to be the proprietors of the undertaking; in other words, a distinction is sought to be made, as is made elsewhere in the legislation relating to clubs, between what might be described as a proprietary and non-proprietary club. The Commissioner contends in the present case that because of the provisions of the memorandum of association which could justify the distribution of profits or assets of the club amongst its members the plaintiff is prevented from claiming exemption. If the subject provisions were excluded from the memorandum, it would leave the plaintiff entitled to its exemption despite the fact that by conducting its operations it may do so at a profit and so be said to have carried on its undertaking for pecuniary profit. It is not claimed that merely by making a pecuniary profit out of the undertaking the plaintiff becomes liable to the payment of land tax. The expression "carried on for pecuniary profit" or a similar expression, wherever used must be limited to circumstances where the undertaking is carried on for the pecuniary profit of the shareholders or contributors to the undertaking.

   The substance of the issue here is whether one looks at the way in which it is open to the plaintiff in terms of its memorandum and articles to conduct its business, irrespective of how it does so, or whether, on the other hand, one looks at how the business is conducted irrespective of the powers of the plaintiff. It must to some extent be a question of degree. If the substratum of the plaintiff's objects is to allow for the conduct of a non-proprietary undertaking (such as a club) and there is included, however, some independent powers or objects inimical with such a concept, it may be that the undertaking may be described as "not carried on for pecuniary profit". On the other hand if the incorporating document precludes the club from carrying on its undertaking in any way that could be described as being for the pecuniary profit of its members, or any of them, it would be difficult to sustain a contention that thereafter such a club would be entitled to an exemption despite the fact that in defiance of its memorandum it was being carried on for the pecuniary profits of its members or any of them.

   A similar question arose in Theosophical Foundation Pty Ltd v Comr of Land Tax (1966) 67 SR (NSW) 70. The taxpayer owned a city building and was assessed for land tax in respect of it. One of the questions that arose upon the appeal was whether the taxpayer was entitled to a deduction under s 10(1)(g)(iii) of the Act. Herron CJ agreed with the order proposed by Sugerman JA (as he then was) and his reasons therefor. The latter posed the question as to whether the taxpayer was "a society, club or association not carried on for pecuniary profit" within the meaning of the subparagraph. It was contended for the Commissioner that there could be no question of an exemption in favour of a club whose activities are conducted for profit to it. At 85 his Honour dealt with the varying terms of the exempting provisions which could be explained by the factual background in certain instances, so there may be a special reason for the absence of any reference to members in relation to pecuniary profit. "A club, for instance, may be a proprietary club, as distinct from a members' club, and the intention is, in my opinion, to exclude from exemption … clubs … which are carried on for the pecuniary profit of any person - not merely of the members, but also of any other person, such as the proprietor of a proprietary club." It was his Honour's view that in the general context of the section the exclusion of pecuniary profit refers to the pecuniary profit of individuals. His Honour further said: "For instance, it is not, I think, required that a club, in order to gain exemption, should be carried on at a loss as regards its trading activities with its members or the paid services which it renders them, or should refrain from such activities and from charges to its members and rely for its support entirely upon membership subscriptions and donations". Consequently, if profits derived by the club from its undertaking cannot find their way into the pockets of individuals, the club is not "carried on for pecuniary profit" in the relevant sense. His Honour further said:-

   "And, however that may be in general terms, it seems at least clear that the benefit of the deduction provided for by s 10(2), in combination with s 10(1)(g)(iii), is not lost because profits are derived from the commercial letting of part of the building referred to, since s 10(2) appears to contemplate that very situation.

   

"In the present instance, in my opinion, it appears that the profits which the respondent company derives from its commercial letting of part of Savoy House cannot find their way into the pockets of individuals; the respondent company, that is to say, is not 'carried on for pecuniary profit' in the relevant sense. It is true, as has been pointed out, that it may pay dividends to members in certain categories. But these categories are limited to, or to trustees for, the society or a component lodge, and it has been admitted that the society, and conceded in argument that the component lodges, are not carried on for pecuniary profit."

   My attention was invited to the judgment of Waddell J in Australian Kafarsghab (Lebanese) Association Ltd v Comr of Land Tax (1976) 6 ATR 650. The plaintiff upon appeal relied upon the exemption provided by s 10(1)(g)(iii). It would appear that that case was decided solely upon the provisions of the memorandum and articles of association. His Honour said: "It is common ground between the parties that the entitlement of the plaintiff to the exemption upon which it relies depends upon the provisions (that is of the documents referred to) which have been quoted. It is also common ground that the plaintiff is a society, club or association within the meaning of s 10(1)(g)(iii)". His Honour said: "It seems to me that as one of the objects of the plaintiff is the financial assistance of its members in terms of cl 2(s) of the Memorandum, it cannot be said 'not to be carried on for pecuniary profit'. The circumstance that such assistance is limited to members of the plaintiff is relevant to this conclusion. It is also relevant to observe that under cl 2(s) assistance is not limited to persons whose need is such that its alleviation would be charitable. The plaintiff might validly lend money to one of its members who required assistance in setting up a business. It may well be that if assistance could validly be given to persons who were not members and who were in needy circumstances the plaintiff could be said to be 'not carried on for pecuniary profit' in the relevant sense. However, I do not express any view as to whether this would be so or not."

   I read his Honour's judgment as meaning that there being no evidence before him other than the terms of the relevant documents he had no option but to find as he did. The present case is different in that it is clearly stated in evidence, and this is not disputed, that despite the terms of the memorandum and articles of association and the rules and regulations, the club is in fact "not carried on for the pecuniary profit of its members or any particular person". That being so, I find that the land comes within the terms of s 10(1)(g)(iii) and is exempted from land tax. It is of no consequence in the facts of this case that the land was occupied by a club which could have to some extent carried on its occupation of the premises for the pecuniary profit of particular individuals. It could not have done so, in my view, without a breach of the terms of the licence which it held under the Liquor Act. It is not likely that it would have done so, and in fact I find that it has not at any time occupied the premises as a club or other entity where its occupation has been carried on for pecuniary profit within the meaning of the section. I find positively in favour of the appellant that the premises have not been so occupied.

   I therefore uphold the objection and order the Commissioner to pay the costs of the plaintiff.