1 Rocky Point Pty Ltd (No 4) v Chief Commissioner of State Revenue [2011] NSWADTAP 52

Summary

The taxpayer sought a review of the decision of the Chief Commissioner of State Revenue (”Chief Commissioner”) to disallow their objection to land tax assessments issued for the 2008 land tax year pursuant to the Land Tax Management Act 1956 ("the LTMA") in respect of the applicants' property at Lennox head ("the property"). At issue was whether the property was exempt from land tax because it was the principal place of residence of the beneficiary of a resulting trust.

At first instance, the Tribunal affirmed the decision of the Chief Commissioner that the PPR exemption did not apply because the registered owner was a company. On appeal, the Appeal Panel affirmed the decision of the Tribunal in an ex tempore judgment.

Background

The taxpayer sought review of the respondent's decision to assess the applicant for land tax for the 2008 land tax year pursuant to the Land Tax Management Act 1956 ("the Act") in respect to a parcel of land at Lennox Head ("the property").

The property was purchased in March 2005 by the applicant company as agent for its sole director, NH. NH provided the purchase money for the transfer of the land. It was agreed between the parties that the applicant company held the property on a resulting trust for NH. Whether NH occupied the property as his principal place of residence was in issue between the parties.

The Chief Commissioner determined the Objection to the assessment on the basis that the taxpayer could not take the benefit of the principal place of residence "(PPR") on the basis that Sch.1A cl.11(1)(a) precluded the PPR because "the land is owned, or jointly owned, by a company".

The matter was listed for hearing on the basis that the Tribunal would make a final determination on the legal question of whether the taxpayer, the registered proprietor of the property, being a company, can take the benefit of the PPR by virtue of the operation of s.10(1)(r) and Sch.1A cl11(1)(a) of the Act. At the hearing of the matter, the Tribunal reframed the question to be "If NH occupied the property at Lennox Head as his principal place of residence at all material times for the 2008 Land Tax Year, whether the Chief Commissioner's assessment in respect of the property was correct".

The taxpayer's arguments were:

1. Because the applicant company held the property on a resulting trust and was the registered proprietor of the land, it was not an owner in the relevant sense pursuant to the definition contained in s.3 of the Act. This submission was made on the basis that the applicant was neither entitled to an estate of freehold in possession nor to receive the rents and profits from the land. If NH was the only relevant owner, he may be able to attract the PPR, but the company was not liable to land tax, not being an owner.
2. If, however, the taxpayer is held to be an owner, Sch.1A cl.2(3) prevents the applicant being assessed to land tax on the basis on NH's PPR claim and as owner to the exclusion of the taxpayer company, and Sch 1A cl.11(1)(a) does not operate.
3. Further, in the alternative, the applicant relied on a construction of the Act, that once Sch.1A cl.11(6) is met, Sch.1A cl.11(1)(a) does not operate. In other words, if the taxpayer could make good the submission that NH is a deemed owner to the exclusion of the company, the taxpayer could then take the benefit of Sch.1A cl.2(3), which provides that "if the owner of land is entitled to the [principal place of residence] exemption…no other person is liable to be assessed for taxation under this Act", to avoid liability. The taxpayer made extensive submissions on the meaning of "deem".

The taxpayer sought to distinguish the decision in Chief Commissioner of Land Tax v Macary Manufacturing Pty Limited (1999) 48 NSWLR 299, as not applying to a situation of resulting trust.

The parties agreed that, for the purpose of the determination, the Tribunal was to assume that NH occupied the property as his principal place of residence.

Tribunal Decision

On the question of whether the taxpayer as bare trustee was the "owner" of the land, the Tribunal agreed with the Chief Commissioner and held that (applying Chief Commissioner of Land Tax v Macary Manufacturing Pty Limited (1999) 48 NSWLR 299 affirmed in BBLT Pty Limited v Chief Commissioner of the Office of State Revenue 2003 ATC 5063), a registered proprietor of land which holds it on trust, even on a bare trust, enjoys an estate in possession, and is entitled to the rents and profits of the land (as per both limbs of the meaning of "owner" under the Act).

The Tribunal concluded that the principle in Chief Commissioner of Land Tax v Macary Manufacturing Pty Limited applied to resulting trusts.

In terms of the construction of the Act, the Tribunal noted:

• Sch 1A cl.2(5) provides that the PPR is subject to the restrictions set out in Part 4 of the Schedule.
• The effect of Sch.1A Pt 4 cl.11(1)(a) is to preclude the PPR exemption from applying to land owned either wholly or in part by a company, and discloses Parliament's intention to do so, hence cl.2(3) has no operation (and therefore cl.11(6) cannot be engaged).
• In relation to the applicant's third argument, the Tribunal noted that there is nothing in Sch.1A cl.2(3) which has the effect of deeming NH to be the owner to the exclusion of the company. Rather Clause 2(3) cannot apply as the exemption was precluded by operation of cl.11(1)(a).

Accordingly, the Tribunal affirmed the decision of the Chief Commissioner to assess the taxpayer for land tax.

Appeal Panel Decisions

The substantive issue

1. The Appellant appealed from the decision of Judicial Member Perrignon, and the appeal was heard on 16 February 2011. Judgment was given ex tempore on that date. The Appeal Panel affirmed the decision of the Judicial Member and determined that the Court of Appeal decision in Chief Commissioner of Land Tax v Macary Manufacturing Pty Limited (1999) 48 NSWLR 299 (Macary) was fatal to the appeal. In the Court of Appeal decision, Spigelman CJ (at para 1) and Shellar JA (at para 94) agreed with Mason P’s finding (at para 59), that:

   “The registered proprietor of an estate in fee simple holds (at law) an estate in possession notwithstanding the imposition of a trust requiring the proprietor to hold that estate on behalf of beneficiaries. Nothing turns on whether the trust is active or bare.”

Costs

2. The Appeal Panel held that consideration of s88(1A) requires reaching satisfaction that it is "fair" to order costs having regard to a number of factors. In this case a significant issue was the relative strengths of parties’ claims including whether a party has made a claim that has no tenable basis in fact or law".The Appeal Panel determined that there was no basis of fact or law which would enable the Appellant to succeed. Further it was determined that the interlocutory decision by Judicial Member Verick was merely that the matter could proceed to a final hearing, and the findings of Judicial Member Verick were not binding on the Appeal Panel. When the meaning of "owner" in the Land Tax Management Act 1956 and the Court of Appeal decision in Macary were reviewed, the appeal was bound to fail. The Appeal Panel determined that "there was indeed no basis of fact or law which would enable the applicant to succeed."In examining the issue of fairness, the Appeal Panel held that the decision at first instance was clearly correct and as such the subsequent appeal was bound to fail. After the decision of the Tribunal below, the Appellant was on notice that Macary was adverse to its success and that proceeding to have a determination of an appeal in the circumstances was "untenable". Therefore while it would not be "fair" to impose costs for the hearing at first instance, it was "fair" to impose the costs of the application before the Appeal Panel.Accordingly, the Appeal Panel's decision was that the costs of the appeal and of the application for costs be paid on the ordinary basis by the Appellant. The Appeal Panel declined to make a costs order for the matter at first instance.

Link to decisions

1 Rocky Point Pty Limited v Chief Commissioner of State Revenue (no 2) [2010] NSWADT 138