Bradto Pty Ltd v. Commissioner of State Revenue

[2006] VCAT 1052

---

(Judgment by: M.F. Macnamara, Deputy President)

Bradto Pty Ltd
v Commissioner of State Revenue

Court:

Judge:
M.F. Macnamara, Deputy President

Subject References:
Taxation List
50 year Crown lease of land
Lease granting lessee right to remove improvements from a portion of subject land
Whether lessee taxable as deemed owner under Section 43(1) of Land Tax Act 1958
Whether right to remove improvements constitutes 'a right ... of acquiring the fee simple of the land'
Right to remove improvements not such right
Lessee deemed to be owner under Section 43 and liable to land tax
Respondent's determination affirmed

Judgment date: 5 June 2006

---

Judgment by:
M.F. Macnamara, Deputy President

REASONS

BACKGROUND

1 This proceeding concerns the Palace Entertainment Centre in the Lower Esplanade, St Kilda. This complex is part of what has been described as the ' triangle site' in St Kilda. It has been the subject of recent legislation by the State Parliament to facilitate re-development and the subject of lengthy and complex litigation, as to possession and access by the Crown as lessor as against lessee Bradto Pty Ltd which is applicant in this proceeding. The access issues were dealt with in Proceeding R129/2005 in the Retail Tenancies List of this Tribunal. The grant by Judge Bowman of an interlocutory injunction in support of the Crown's right of access was the subject of a recent decision in the Court of Appeal - Bradto Pty Ltd v State of Victoria [2006] VSCA 89 . This proceeding deals with Bradto's liability to land tax on its portion of the triangle site.

2 The Commission issued Assessment No. 039264160 on 25 February 2005 assessing Bradto liable to land tax in the sum of $95,017 land tax under the Land Tax Act 1958 with respect to the Palace complex. This assessment was subsequently amended so as to require payment of tax in the sum of $86,229.50.

3 Solicitors acting for Bradto lodged an objection to the original assessment dated 13 April 2005. A delegate of the Commissioner published a decision dated 16 June 2005 disallowing the objection in toto. By letter dated 11 August 2005 Bradto's solicitors requested that their client's objection be referred to the Tribunal. The Palace site was the subject of a Crown lease for a term of 50 years commencing 1 April 1956 in favour of a lessee company known as Palais de Danse Pty Ltd. This Crown lease was registered under the Transfer of Land Act 1958 and was the subject of successive transfers most recently in favour of the applicant Bradto Pty Ltd pursuant to Transfer S36851H registered 28 July 1992. The Commissioner's assessment is made by reference to the ownership of the land as at the previous 31 December, in this case 31 December 2005 (Section 15(1) Land Tax Act 1958). A delegate of the Minister of Planning signed the Notice to Quit dated 3 December 2004 requiring Bradto to deliver up the subject land to the Crown's vacant possession ' no later than 31 March 2006' . The Crown's position is that the 1956 lease has now expired and that it is entitled to immediate possession. There are proceedings pending in the Retail Tenancies List of the Tribunal in which the Crown seeks an order that it be granted possession. That proceeding stands fixed for final hearing commencing 31 July. Since however the tax liability of Bradto must be judged in accordance with Section 15 of the Land Tax Act 1958 as at 31 December 2004 the dispute as to possession and the contentions put by Bradto as to its claimed further entitlements as tenant need not as conceded by its Counsel, Mr Mitchell McKenzie, be considered in this present land tax dispute.

4 The 1956 Crown lease appears to be in a standard printed form. Clause 2(n) requires Bradto to yield up the premises at the expiration of the lease:

Together with all buildings, erections, extensions and improvements thereon (except machinery and appliances which can be removed without material injury to the land, buildings, erections, extensions and improvements) in good order and substantial repair and condition.

5 Clause 3(e) provides that the improvements to a portion of the land coloured red on the plan attached to the lease become the property of the Crown at the expiration of the lease. Clause 3(f) however provides with respect to land coloured yellow on the same plan that at the expiration of the lease:

It shall be lawful for the lessee to take down and remove from that portion of the said land coloured yellow all buildings, erections, extensions and improvements now or hereafter built, erected, constructed or made by the lessee on that portion of the demised premises coloured yellow doing as little injury as may be to that portion of the demised premises coloured yellow by the removal and making good such injury as may unavoidably be done.

COMMISSIONER'S DETERMINATION

6 Following objection by Bradto a delegate of the Commissioner, Ms Andrea Sherko, confirmed the Commissioner's assessment. At paragraph 17 of her determination she said:

Section 43 of the [ Land Tax ] Act [1958] deems a person entitled to any leasehold estate, whether legal or equitable, in land under lease from the Crown who has no right, either absolute or conditional, of acquiring the fee simple to be the owner of the land and liable for land tax.

APPLICANT'S CASE

7 The applicant advanced a large number of contentions in its objection. At the hearing its Counsel, Mr Mitchell McKenzie, relied upon one matter only. He said that in the circumstances his client was outside the deeming provisions of Section 43 of the Land Tax Act 1958 since it had a right to acquire the fee simple of the land, or at any rate, valuable rights approximating a right to acquire the fee simple and so ought not be deemed to be the owner and liable for land tax. He said that the right of removal granted to Bradto with respect to the portion of the land coloured yellow on the plan was a bundle of rights so extensive it properly should be treated as the equivalent of a fee simple.

THE COMMISSIONER'S CONTENTIONS ON REVIEW

8 Mr Horan of Counsel represented the Commissioner. In his written outline of argument filed in advance of the hearing he dealt with a large number of matters raised by Bradto on its objection which were not pursued at the hearing. He denied that the rights given to Bradto under the lease with respect to the land coloured yellow amounted to a fee simple interest or anything approaching it. Further, he submitted that independently of Section 43 of the Land Tax Act in the circumstances Bradto fell within the definition of ' owner' in Section 3 of the Act. In particular paragraph (b) fell within the definition of owner

Every person entitled to any land under any lease or license from the Crown as to which he has any right either absolute or conditional of acquiring the fee simple.

9 Hence, said Mr Horan, if Bradto managed, contrary to his primary contention, to exclude itself from the deeming operation of Section 43 as a Crown lessee with an entitlement to acquire the fee simple in the subject land it did no more than bring itself to charge as a taxable owner of land under this provision in the definition of owner. The framework of the Act was he said, to ascribe the status of ' owner' to every piece of land in Victoria except unreserved Crown land and to subject all those pieces of land to tax in the hands of their owners or deemed owners subject only to the various exemptions granted.

10 Mr McKenzie on behalf of Bradto submitted that I ought disallow the Commissioner from placing any reliance upon the definition of ' owner' in Section 3. The Commissioner he said should be required to rest solely upon the reliance which he had placed upon Section 43 of the Act in his Notice of Determination. This he said accorded with Section 26(1)(a) of the Land Tax Act 1958 which limited the Commissioner at a Tribunal review ' to the grounds upon which he has disallowed the objection' . I noted that at a directions hearing on 27 January I granted Bradto leave to amplify its grounds of objection. The same sub-section of Section 26 would have confined it to the matters enunciated in its objection. Mr McKenzie said that he sought leave merely to amplify his client's reliance upon arguments relative to the proper construction of Section 43 of the Act and it would be wrong to use that as a ground for opening up further contentions by the Commissioner in support of his assessment.

11 As to the meaning of ' fee simple' Mr Horan relied upon the following formulation by Sir Isaac Isaacs describing a fee simple as:

The most extensive in quantum, and the most absolute in respect to the rights which it confers of all estates known to the law. It confers, and since the beginning of legal history has conferred, the lawful right to exercise over it, upon, and respect to, the land, every act of ownership which can enter the imagination ...

The Commonwealth of Australia v New South Wales (1923) 33 CLR 1 , 43

12 He said that fee simple was the equivalent of full ownership of land. He referred to Fejo v Northern Territory (1998) 195 CLR 96 , 126 and gave an interest which was unencumbered and subject to no conditions. He referred to Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610 , 623. Hence he said the right to remove building erections, extensions and improvements ' does not constitute a right to the fee simple in the land' .

CONCLUSION

13 In the absence of any other matters being pressed it would seem that the assessment against Bradto is valid if Bradto can be seen to be an owner of land within the meaning of the Land Tax Act 1958 on 31 December 2004. The Commissioner's principal contention is that in the events that have occurred, Bradto is such an owner by virtue of Section 43(1) of the Land Tax Act 1958. This proposition is denied by Bradto. Section 43(1) states:

Any person entitled to any leasehold estate whether legal or equitable in land under lease from the Crown who has no right either absolute or conditional of acquiring the fee simple ... shall be deemed for the purposes of this Act to be the owner of the land; and shall be assessed and liable for tax.

14 The authorities relied upon by Mr Horan correctly characterise the concept of ' fee simple' . These authorities were not called into question by Mr McKenzie on behalf of Bradto. What remains to be done therefore is to characterise the rights that Bradto holds with respect to the land coloured yellow on the plan to ascertain whether those rights amount to a right to acquire the fee simple in the subject property or are rights so similar to that that they meet the statutory requirement and so take Bradto outside the deeming effect of Section 43(1).

15 As a judge of the Court of Appeal, Ormiston JA delivered a lengthy judgment upon the standing of tenants fixtures in light, in particular, of the rights given to a tenant under Section 28(2) of the Landlord and Tenant Act 1958 with respect to such fixtures. His judgment in Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue [2004] VSCA 10 concludes that before Section 28(2) was enacted in 1907 there was considerable uncertainty at Common Law as to whether a fixture which a tenant had the right to remove during the term of his lease viz. a trade, domestic or ornamental fixture erected by the tenant himself was prior to its severance part of the land or not. His Honour concluded that Section 28(2) of the Victorian Landlord and Tenant Act resolved that issue with certainty by providing that such fixtures should be the property of the tenant, implicitly providing that they do not become part of the land whilst subject to the rights given to the tenant under the sub-section.

16 In the case of the present lease the clause relied upon includes no general statement that the improvements referred to remain the property of the tenant. Indeed the clause is wide enough to extend to improvements erected before the commencement of the lease. I conclude therefore that the clause gives a right of removal to a group of assets, some or all of which are part of the land and have lost their chattel like quality.

17 A right to remove fixtures has been held to create an equitable interest in the subject land in favour of the person holding the right to remove the fixtures. Craven v Geal [1932] VR 172 , 177 per Cussen ACJ; Kay's Leasing Corporation Pty Ltd v CSR Provident Fund Nominees Pty Ltd [1962] VR 429 , 436 per Adam J. But does the right to remove these improvements give Bradto a fee simple much less a right to acquire the fee simple in the land? Aside from whether these rights could be characterised as ' fee simple' at all, in so far as they relate only to improvements rather than the entire interest in the land and further, relate only to improvements on a certain portion of the land, on any view they are an entitlement to part only of the rights relative to improvements on the land. They seem to fall short of what is required to attract the proviso to Section 43. The copy of the lease produced to me was a black and white photocopy so I was not in a position to compare the relative significance of the ' land coloured yellow' to the total parcel the subject of the lease. Normally a reference to ' the fee simple' would be regarded as a reference to the entire fee simple. So when the now repealed Section 221P of the Income Tax Assessment Act 1936 fixed special priority liabilities upon a ' trustee' where the property of an employer taxpayer passed into his control it was held that the section operated only where the whole or substantially the whole of the property so passed. Russell v AGC (Advances) Limited [1988] VR 97 , 102-3 per Marks J. I need not stay to consider issues relative to undivided shares in the fee simple interest in subject land for the purposes of Section 43(1) of the Land Tax Act . Here there is a physical division between the land coloured yellow and the balance of the land the subject of the Crown lease. The geographically restricted nature of the right to remove improvements is in itself a reason why the proviso to Section 43(1) of the Act cannot operate here. Even if that were wrong, by no stretch of the imagination could the mere right to remove certain improvements, even if that right extended to the whole of the land, be characterised as a ' fee simple' entitlement relative to the land, or anything approaching to or equivalent to a fee simple. The authorities relied on by Mr Horan shows that the ' fee simple' estate is the closest thing that our land law recognises to absolute ownership of land. A mere right to remove improvements within a limited time frame falls far short of such an entitlement.

18 The sole ground relied upon by Bradto on this review having failed, the respondent's determination must be affirmed.

19 In the end it is unnecessary to determine whether the Commissioner would if his views on Section 43 had not prevailed should be entitled to rely upon paragraph (b) of the definition of ' owner' in Section 3 of the Act. The overall scheme of the statute seems to be to regard a Crown lessee with a right to acquire the fee simple of the subject land to be an owner within the primary defined meaning of that term and hence liable to the tax for his ownership of the subject land and to regard a Crown lessee without the right to acquire the fee simple as a deemed owner of the land under Section 43. To put it another way there seems to be no exempt species of Crown lessee at least with regard to the lessee's entitlement or lack of entitlement to acquire the fee simple in the subject land. In the end however it is unnecessary for me to express a concluded view on these matters.