Castle v Chief Commissioner of State Revenue (Rd)

[2008] NSWADTAP 62

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(Decision by: O'Connor K - DCJ, Greenwood J - J, Koutoulas D)

Castle
vChief Commissioner of State Revenue (Rd)

Court:

Judges:
O'Connor K - DCJ (President)
Greenwood J - Judicial Member
Koutoulas D - Non-Judicial Member

Legislative References:
Land Tax Management Act 1956 - s 7; s 10(1)(r); Sch 1A, cl 2(1)(a)
Administrative Decisions Tribunal Act 1997. - s 112; s 113
Interpretation Act 1987 - s 33

Case References:
Chief Commissioner of State Revenue v Geoffrey Harry Coleman & Another - [2007] NSWSC 625
Chief Commissioner of State Revenue v Sacco - [2008] NSWADT 61
Chief Commissioner of State Revenue v Timbs - [2006] NSWADTAP 25
Commissioner of State Revenue v De Campo - [2007] WASCA 136
Patullo v Council of the Municipality of Condobolin - (1918) SR (NSW) 297
Penrith Rugby League Club Ltd v Commissioner of Land Tax - [1983] 2 NSWLR 616
Ryan & anor v Commissioner of Land Tax - [1982] 1 NSWLR 305
Sacco v Chief Commissioner of State Revenue - [2008] NSWADT 32

Hearing date: 2 June 2008
Judgment date: 26 September 2008

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Decision by:
O'Connor K - DCJ
Greenwood J - J
Koutoulas D

[1] This is one of two recent appeals dealing with the operation of the principal place of residence exemption from land tax, in particular, the interpretation and application of the 'parcel of land' element of the exemption. The other appeal has been decided, Chief Commissioner of State Revenue v Sacco [2008] NSWADT 61 (24 September 2008) (the Sacco Appeal decision).

[2] The appellants sought exemption for a block of land owned by them contiguous to the land that they occupy as their principal place of residence, on the basis that the contiguous block formed part of 'a parcel of residential land'.

[3] The current, relevant legislative provisions are: Land Tax Management Act 1956 (LTM Act), s 7, s 10(1)(r), Sch 1A, cl 2(1)(a). They are set out in full in the decision under appeal and in the Sacco Appeal . Earlier versions of the provisions are in materially identical terms so far as the question under notice in this appeal is concerned. Clause 2(1)(a) provides, relevantly:

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 ... if the land is:

(a)

a parcel of residential land

[4] The Tribunal rejected the appellants' review application, affirming the decision of the Chief Commissioner of State Revenue ('the Commissioner').

[5] They now appeal 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.

The Circumstances

[6] The Tribunal described the relevant circumstances as follows:

4 The Respondent [ie the Chief Commissioner of State Revenue] furnished written submissions dated 18 July 2007; those submissions contained a s (cll 3 to 16) entitled "Background". Save as expressly set out in these reasons that content is not in dispute and it is included (but without footnotes) as follows: --

3. The general background to this matter may be summarised as follows.

4. 6 Knox Place is vacant land. It is situated at the rear of the land at 7 Hammond Ave, Normanhurst ("7 Hammond Ave"). The Applicants' residence is located on the land at 7 Hammond Ave

5. In 1995, when the Applicants purchased 7 Hammond Ave, the two lots were not separate, ie, the property at 7 Hammond Ave included the land at, what is now, 6 Knox Place.'

6. In 1998, the Applicants applied to Hornsby Shire Council to sub-divide the original property. This was done on the basis that the sub-division would increase the value of the lot that is now 6 Knox Place.

7. The sub-division was finalised in September 2001. At that time, an existing metal fence facing Knox Place was demolished to give a plumber access to move sewer pipes and install storm water pipes. A replacement wire fence was then constructed on the land facing Knox Place.

8. The Applicants state that the wire fence was not adequate to keep their dog from escaping. They constructed a new wooden fence across the boundary between the two sub-divided lot: (" the wooden fence").

9. According to the Applicants, the wooden fence has never been complete. A gap in the middle of the fence has existed from the time it was constructed (it is not clear when precisely this was the case). The Applicants assert that palings have never been attached to the part of the wooden fence where the gap exists.

10. The Applicants state that they have access to the land at 6 Knox Place through the gap in the wooden fence. To prevent their dog from straying, they would place a temporary wooden door barrier "to close the opening in the fence".

11. The Applicants live in the house at 7 Hammond Ave They assert that they use the land at 6 Knox Place for various activities, including the following:

Mr Castle practising his golf shots;

As a holding area for Louise Castle's building materials;

For obedience training of their dog;

For reading by Kayleen Castle ...

[7] The Tribunal had other evidence including photographs before it. It continued:

7 Between Knox and Hammond and along the whole length of the boundary between them, but excluding only a gap in the middle, there is a wooden fence which is about 2 metres in height. The gap in the middle is about 1 2/3 metres. The wooden fence on either side of the gap is joined by a wooden bar which confers a degree of support on the fence on either side of it. A person wishing to go through the gap must go under or over the bar although, as I understood the Applicants, going under the bar is generally the course adopted. To close the gap is comparatively easy; it is achieved by placing an old door (and also a wheely-bin) in the gap. The gap is often closed so as to ensure that the Applicants' dog cannot gain access to Knox and thence to Knox St where there is a significant risk of his being run over. Mention was made during the hearing of the fact that the Applicants received a warning as to a danger of this nature and indeed mention was also made of the fact that a dog belonging to them was run over in similar circumstances in the past.

8 Although the "Background" quoted earlier in these reasons indicates a degree of imprecision as to precisely when the wooden fence was constructed, Mrs Castle said during the hearing that it occurred in late 2001 at or about the time when the subdivision was finalised. There was in effect no real dispute of fact between the parties and the only question before the Tribunal is as to whether the wooden fence is such that, having regard to the judgement in Ryan's case , (referred to more fully below) Knox and Hammond are physically separate.'

[8] The Tribunal's emphasis on 'physical separation' in these remarks relates to the ground on which the Commissioner decided to reject the appellants' claim for exemption. In Ryan & anor v Commissioner of Land Tax [1982] 1 NSWLR 305 at 310 Hunt J formulated the following test for determining whether a block contiguous to the block upon which the principal place of residence is built forms part of a 'parcel of residential land':

[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.'

[9] As noted in the Sacco Appeal , this test has attained a quasi-legislative status. In the present case there was no dispute that the 'unities', as they have been called, of use, occupation and title were established. The sole question was whether physical unity had been established, or, more precisely, that the two blocks were 'undivided ... by physical separation'.

[10] Between paras [9] and [22] of its reasons, the Tribunal reviewed the legislative provisions in force in the various tax years the subject of the claim for exemption, and the case-law seen to be applicable. It drew particular attention to Hunt J's reasoning in Ryan and to the then recent decision of the Supreme Court (Handley AJ) on appeal from the Appeal Panel of the Tribunal: Chief Commissioner of State Revenue v Geoffrey Harry Coleman & Another [2007] NSWSC 625. The review is in line with the review found in the Sacco Appeal .

Tribunal's Reasons

[11] The Tribunal then turned to determining whether the circumstances in this case were such that it should find that the two blocks were 'undivided by physical separation'.

Part D. Findings and conclusion .

23 I have come to the conclusion that the wooden fence was of such a nature that it had the effect that Knox and Hammond were at all relevant times physically separate. The wooden fence was constructed by the Applicants in order to achieve a physical separation between Knox and Hammond and so as to prevent the Applicants' dog from unrestricted access to Knox and thence to the street. The fact that there was a gap (apparently) easy, at least for human beings, to gain access from Hammond to Knox does not in my view have the effect that there was not the necessary degree of physical separation. That gap could be and was closed when access to Knox was not required and so as to prevent the dog from getting in to Knox; this aspect tends to reinforce the view which I have taken. Put in other words the Applicants by their own actions took steps to ensure that the two properties were physically separated. That they did so for good and proper reasons cannot be doubted but that factor is not to the point. The fact moreover that to obtain a PPR exemption in the future for Knox St would require only the removal of the wooden fence is also not to the point.

24 I note that I attempted a search Austlii of the words " physical separation"; as one might expect it resulted in a large number of entries mainly referable to marriage breakdowns but did not offer any significant guidance in this particular regard to the Tribunal. If it could be said that the wooden fence was in fact properly to be categorised as de minimis, a different view might perhaps be tenable but such a description would not be apt.

...

26 This decision is, it might be thought, somewhat harsh but the binding nature of the judgement in Ryan has the effect that in my view it is the correct and indeed the only possible decision. At the risk of repeating myself the question before me is as to whether the two properties are physically separate and the plain fact is that, regrettably, they are.

27 In the circumstances of the decisions under review must be affirmed.

The Appeal

[12] The appellants' notice of appeal, as amended, sets out seven grounds of appeal under the heading 'question of law', and gives five grounds as a basis for grant of leave to extend the appeal to the merits.

[13] As the Appeal Panel noted in the Sacco Appeal it is difficult to disturb on error of law grounds a finding of fact. However, there the Appeal Panel concluded that the finding of the Tribunal in that case (differently constituted to the Tribunal that heard this case) demonstrated a misunderstanding of the meaning that should be given to the test 'undivided ... by physical separation'. Accordingly the Commissioner's appeal was upheld, and the Commissioner's decision restored.

[14] The result is that it is not open to the appellants in this case to rely on the underlying decision in that case ( Sacco v Chief Commissioner of State Revenue [2008] NSWADT 32) to found its argument that the Tribunal's finding in this case revealed an error of understanding as to the meaning of the physical separation test.

[15] In its grounds of appeal on questions of law, the appellants refer to the cases of Patullo v Council of the Municipality of Condobolin (1918) SR (NSW) 297, and Penrith Rugby League Club Ltd v Commissioner of Land Tax [1983] 2 NSWLR 616. We adopt the treatment of these decisions in the Sacco Appeal . In our view, neither supports the case of the appellants. We are also of the view, contrary to the submissions, that the Tribunal in this case dealt properly with the decision in Chief Commissioner of State Revenue v Timbs [2006] NSWADTAP 25. Clause 2(1) of Sch 1 of the LTM Act deals with two types of residential land holdings that lie outside the ordinary circumstance of one dwelling on a single block of land, ie

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 ... if the land is:

(a)

a parcel of residential land, or

(b)

a strata lot or, subject to this Schedule, land comprised of 2 or more strata lots.

[16] In Timbs the review applicant owned two strata units which together occupied the entire floor of a block of apartments. They were contiguous and opened to a common foyer, of which the applicant had exclusive use under the strata plan because of his common ownership of all units on the floor. The units were separated by a common wall. The evidence, which was uncontested, was that both apartments were used for the residential purposes of the applicant and his wife.

[17] The sole question was whether the words 'strata lot' were to be construed as singular in meaning or embracing the plural, ie 'strata lots'. It will be seen, therefore, that the question in issue in that case was different to the one here. The Appeal Panel (by majority) upheld the primary Tribunal's ruling that the provision extended to 'lots', plural. Accordingly the exemption was granted. We agree with the Tribunal below that Timbs is not relevant to the determination of the question in the present case.

[18] There is another argument in the present case, perhaps influenced by the reasoning of the Appeal Panel in Timbs .

[19] The appellants refer to s 33 of the Interpretation Act 1987 . Section 33 provides:

33 Regard to be had to purposes or objects of Acts and statutory rules

In the interpretation of a provision of an Act or statutory rule, a construction that would promote the purpose or object underlying the Act or statutory r (whether or not that purpose or object is expressly stated in the Act or statutory rule or, in the case of a statutory rule, in the Act under which the rule was made) shall be preferred to a construction that would not promote that purpose or object.

[20] The appellants' submitted that the term 'parcel of land' should be construed by reference to the object of s 10(1)(r) and Sch 1A, ie to provide occupants of land as places of residence with an exemption in respect of that land. In our view, the fundamental purpose of the legislation is to subject all land in the State to tax, qualified by exemptions. The exemptions are to be construed in their terms, without a leaning position. Here the question is what is a 'parcel of residential land'. Our view is that Hunt J's test for the meaning to be given to a 'parcel of residential land' represents the prevailing authority on the point. We do not see this interpretation as, in some way, antithetical to the purpose of the legislation.

[21] The appellants sought to put on further evidence at the appeal that went to some of the conclusions of the Tribunal which, it was said, involved a misunderstanding of the circumstances.

[22] As explained in the Sacco Appeal , there must, at the least, be a substantial lack of physical division at the boundary for contiguous land to be found to be part of an overall parcel of residential land. In undertaking that analysis 'use' considerations (such as the practical purpose served by the physical barrier) can not be brought to bear, because 'use' is a matter to be addressed under another of the criteria propounded by Hunt J. We acknowledge that in this case, in contrast to the Sacco situation, there is a degree of integration of the contiguous land into the appellants' overall residential environment which may be seen as stronger. There is, for example a perimeter boundary fence embracing both blocks, in contrast to the Sacco situation where the second block opens unfenced to neighbouring land and roadways.

[23] The further evidence sought to be admitted is not of such a degree as to put in doubt the Tribunal's conclusion.

[24] The appellants' submissions also refer to the decision of the Court of Appeal of Western Australia, on appeal from the State Administrative Tribunal, where the question was whether an exemption should be granted to an owner of adjoining lots on the basis that they amounted to 'one integrated area that constitutes the place of residence' -- Commissioner of State Revenue v De Campo [2007] WASCA 136. In that case the Tribunal was satisfied that the applicant and her family used the lots as one integrated area. The Court dismissed the Commissioner's appeal. That case was dealing with a different legislative concept to 'parcel of land'. A substantial degree of physical division at a title boundary might not defeat a finding of 'integration'. The Tribunal, in our view, was correct in distinguishing that case.