11, 12, 22 August 1977 -

Meares J    This is an appeal by the plaintiff against the decision of the defendant in disallowing the plaintiff's objections to the defendant's assessment of it to land tax for the tax years 1956-1957 to 1975-1976, inclusive, on the grounds that the subject land was, during such period, exempted from land tax by virtue of s 10(1)(g)(iii)and (h) of the Land Tax Management Act 1956.

   It was not disputed that at all material times the plaintiff owned and occupied the land assessed which primarily consisted of a golf course and a club house.

   Both the former club house in use until 1967 and the new club house completed at the end of that year consisted of buildings housing the administrative offices of the club, a dining room, lounge room facilities, a bar, members' locker room, a professional golfer's shop and toilet facilities. The club houses, around which there were car-parking facilities, gardens and a putting green, were used both by members of the club and by members of the public who were entitled to play golf on the club's course in consideration of the payment of green fees. Such members of the public were allowed to use the facilities of the club house with the exception of the locker room. The club houses were, apart from their daily use by golfers and social members of the club, also used for club social functions at nights, including dinner dances, for the private social functions of members such as engagement parties and the like, and by outside clubs and organizations.

   In the club houses there were poker machines, and it would appear from the plaintiff's annual reports and balance sheets that a substantial proportion of the plaintiff's profits came from this source and from bar profits. The membership of the club consisted of playing members (male and female) and social members. As appearing from the report and balance sheet for the year ending 31 March 1976, of a total of 772 members, 161 were social members entitled to use only the facilities offering in the club house for which they paid an annual subscription of $8. During the relevant period the plaintiff had never paid a dividend or made any distribution of any of its property to members or made any loans to any of them.

   The plaintiff's objects in its Memorandum of Association were many and varied, including a wide range of commercial activities. It had power to sell or dispose of any part of its undertaking, to lend money, and to enter into profit-sharing arrangements with other persons or companies. An object set forth in para 2(bb) of the Memorandum was "to distribute any of the property of the Company for the time being in specie among the members" and by virtue of s 19(c) of the Companies Act 1961, the power set forth in cl 23 of the Third Schedule of that Act, namely to distribute any of the property of the company among the members in kind or otherwise but so that no distribution amounting to a reduction of capital shall be made without the sanction required by law, was one of the powers of the company.

   Paragraph 5 of the Memorandum provided: "If upon the winding up or dissolution of the Company there remains after satisfaction of all debts and liabilities any property whatsoever the same shall be disposed of in such manner as shall be determined by a resolution passed by a majority of not less than three-fifths of the members of the Company entitled according to the Articles of Association of the Company for the time being to vote who may be present in person or by proxy at a General Meeting of members of which notice specifying the intention to propose the resolution has been duly given".

   On 31 March 1971, the Memorandum of Association was, at an extraordinary general meeting of the plaintiff, altered by inserting after para 2,  para 2A, the relevant portion of which was in the following terms: "The Income and Property of the Club whencesoever derived shall be applied solely for the promotion of the objects of the Club as set forth in this Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly by way of dividend bonus or otherwise howsoever by way of profit to the members of the Club ..."

   The plaintiff claimed that the land occupied by the club house was exempt from tax under s 10(1)(g)(iii), as being land used or occupied by it as a site for:-


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

   Notwithstanding the provisions of the Memorandum which could justify the distribution of the club's property among the members, the plaintiff relied strongly on Crows Nest Club Ltd v Comr of Land Tax (NSW) (1977) 7 ATR 618 (an unreported decision of Woodward J on 22 July 1977) in which his Honour, in distinguishing a decision of Waddell J in Australian Kafarsghab (Lebanese) Association Ltd v Comr of Land Tax (NSW) (1976) 6 ATR 650 said: "The present case is different in that it is clearly stated in the 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."

   But I have difficulty, with respect to the learned Judge, in reconciling such a view with the decision of the Court of Appeal in Theosophical Foundation Pty Ltd v Comr of Land Tax (NSW) (1966) 67 SR (NSW) 70. In that case Sugerman JA said:

   "And some guidance is to be had from the general context of s 10. I agree with Mr Fox that in general context the exclusion of pecuniary profit refers to the pecuniary profit of individuals. The object is to accord exemption to those societies, clubs and associations, and institutions and bodies of various kinds, whose profits, if any, are applied solely to the advancement of their objects and cannot find their way into the pockets of individuals. 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 ...

   "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." (The emphasis is my own). The abovementioned passages were concurred in by Herron CJ and McLelland JA.

   The accumulated account of the plaintiff was shown in its balance sheet as at 31 March 1976 at $541,624. In my opinion, since the whole or part of the property of the company, including any profits, could have been distributed by the plaintiff to its members, in kind or otherwise, during all of the relevant tax years up to and including the year 1970-1971; that part of the subject land on which the club houses stand was not so exempt under the abovementioned subsection. But notwithstanding the fact that para 2A, in the light of para 2(bb) of the Memorandum, is somewhat inelegantly expressed, in my opinion no income or property of the club could have found its way into the pockets of members of the company after the date of that resolution while the club was being carried on and I do not think that para 5 of the Memorandum of Association takes away the exemption in s 10(1)(g)(iii) which speaks, as I understand it, of a profit situation whilst the club is carried on and not after it ceases to exist.

   Mr Smart, for the defendant, submitted that the club was carried on for pecuniary profit by virtue of the fact that purchases were made in the club house by other than members of the club; but since the exemption is not lost if a club makes a profit from trading with its members, I am unable to see why the exemption should be lost simply because a portion of its profits may be earned as a result of its trading with persons not members but entitled to use the club.

   The plaintiff further relied on s 10(1)(h) of the Land Tax Management Act (supra) which provides for exemption from taxation of: "Land owned by or in trust for, any club or body of persons, and used primarily and principally for the purpose of cricket, football, golf, bowling, tennis or other athletic sports or exercises and not used for the pecuniary profit of the members of that club or body."

   The abovementioned passage from the judgment of Sugerman JA (supra) in my opinion applies also to this subsection and one is entitled furthermore, to consider whether, by virtue of the subsection, the whole of the subject land or any part of it, was exempt (FC of T v Royal Sydney Golf Club (1943) 67 CLR 599).

   Mr Smart argued that the exemption under the subsection was lost because members profited, he submitted, from green fees paid by members of the public which, he pointed out, during the relevant years represented a substantial portion of the club's income; but the fact that part of the revenue of the club was derived from green fees charged to the public as compared with charges made to club members and, accordingly, no doubt probably of advantage both to the members as influencing the amount of their annual subscriptions, and the profit and loss account, is in my opinion irrelevant.

   In my opinion that part of the land occupied by the club houses was not used primarily and principally for golf (cf Melbourne Hunt Club v Federal Comr of Land Tax [1930] VLR 365). Its primary and principal use was, as I understand the evidence, for social purposes, by members and members of the public who used the rest of the land for playing golf and social members only entitled to use the club house. As for the rest of the land, namely the golf course, it was undoubtedly used primarily and principally for the purpose of golf and the plaintiff is by virtue of para 2A of the Memorandum, entitled to exemption from land tax in respect of it as and from the tax year 1971/1972.

   The plaintiff's objections against assessment numbers 44620, 35835, 53440, 59314 and 34920 being assessments for the tax years 1971/1972 to 1975/1976 inclusive are accordingly allowed.

   There will be no order for costs.

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