Chief Commissioner of State Revenue v McFadden [2019] NSWCATAP 202

Summary

This was an appeal to the Appeal Panel from a decision of Senior Member Boxall at first instance that set aside two land tax assessments for the 2016 and 2017 land tax years, issued to the Respondent. The case concerned the application of the principles of common intention constructive trusts to the land tax regime.

The Appeal Panel dismissed the Chief Commissioner’s appeal and found that the Tribunal had not erred in applying the principles of law dealing with common intention constructive trusts.  The Appeal Panel confirmed Senior Member Boxall’s decision that she was entitled to the Principal Place of Residence exemption under s. 10(1)(r) of the Land Tax Management Act 1956 (“LTM Act”).

Background

The Land in question (Lot 2) is one of two lots in a strata plan. The Respondent is the sole registered proprietor of the Land, which she purchased in April 1999. The Respondent and her husband acquired Lot 1 in November 2013 and are the registered proprietors as tenants in common in equal shares.

Between November 2013 and December 2014, the Respondent and her husband undertook building works involving both Lot 2 and Lot 1. Since December 2014 the Respondent and her husband have occupied Lot 2 and Lot 1 as their matrimonial home. Prior to marrying, the Respondent and her husband had entered into a pre-marital agreement (“the Agreement”), which provided for their financial relationship during their marriage and should the marriage break down. Clause 6 of the Agreement provided that:

“The parties agree that any real property purchased by them from the date of this agreement and during the relationship as their matrimonial home shall be owned as tenants in common in proportion to their financial contributions. The parties also agree that until they purchase a property as their matrimonial home they will reside in [the Applicant’s] property at … Neutral Bay and the provision of this property for their joint use shall be a contribution to their shared lifestyle referred to in clause 19 of this agreement.”

Legislative framework

Section 10(1)(r) of the LTM Act deals with the exemption from land tax for principal places of residence. In particular, Schedule 1A clause 14 of the LTM Act applies where the principal place of residence is alleged to comprise two or more strata lots. It provides relevantly as follows:

“14 Application of exemption to residence comprised of 2 or more lots in a strata plan

(1) The principal place of residence exemption does not extend to land that is comprised of 2 or more strata lots, and that is used and occupied by the owner of the lots (or by one of them) as a principal place of residence, unless:

…

(b)   the strata lots are in the same ownership, and

…”

The issue

The issue in dispute was whether the two strata lots are “…in the same ownership…” as required for the PPR exemption to apply under clause 14(1)(b) of Schedule 1A to the LTM Act.

At first instance, the Tribunal found that each lot was beneficially owned by the same persons because Ms McFadden held the Land as a constructive trustee for a beneficial interest held in equity by her husband (paragraph [9]). In reaching this finding, the Tribunal considered that:

1. The Agreement evidenced a common intention that the Respondent’s husband would have a beneficial interest in the Land
2. The Respondent’s husband’s contributions to the costs of the renovations of the Land in 1999, of both a financial and a personal services nature, would not have been made other than with the intention and understanding that he would have an interest in the Land proportionate to his contributions
3. The Agreement could be regarded as recording an overall intention of the parties which is applicable to their acquisition and integration over an extended period of the Land and Lot 1 as a single matrimonial residence.

Appeal Panel decision

The Appeal Panel stated that the issue was whether there was a joint subjective intention of the parties that the husband would have a beneficial interest in Lot 1, evidenced solely from the Agreement, irrespective of strict contractual law principles (at [44]).  The Appeal Panel noted that the “objective” interpretation of the Agreement was irrelevant as it would not prevent the principles of equity intervening to prevent unconscientious conduct (at [45]).

In relation to the two elements for a common intention constructive trust to exist (as summarised by White J in Shepherd v Doolan (2005)NSWSC 42), the Appeal Panel considered that the Tribunal had not erred in finding that:

1. The Agreement evidenced the common intention of the parties; and
2. Mr Woods had acted to his detriment in a way referable to the common intention (at [47]-[51]). The Appeal Panel stated that these were findings of fact and that there was no error of law in the Tribunal’s reasoning process (at [51]).The Chief Commissioner had contended that the Tribunal at first instance failed to make a finding of unconscientious conduct, which is a required element for any equitable relief. The Appeal Panel held that it was not necessary for the Tribunal to make a specific finding of unconscientious conduct, and that the equitable interest arises by reason of the common intention of both parties and one party acting to their detriment, which satisfies the two elements in Shepherd v Doolan (at [56]). The Appeal Panel disagreed with the Chief Commissioner’s contention that the Tribunal failed to consider that the Land had been purchased by the Respondent alone, and determined that the matter had been specifically considered by the Tribunal.

Respondent’s costs application

The Appeal Panel did not agree with the Respondent’s submission that the grounds of appeal were not tenable. It found that in circumstances where the Agreement had to be interpreted for the purpose of deciding the common intention of the parties on the constructive trust issue, the appeal was not untenable.

Orders

(1) The Appeal is dismissed.

(2) The Respondent's application for costs is dismissed.

Link to decision

https://www.caselaw.nsw.gov.au/decision/5d4b76a4e4b02a5a800c2ee5