Vatner v Chief Commissioner of State Revenue [2024] NSWSC 769

Background

The Plaintiff acquired three units (Lot 3 in 2003, Lot 2 in 2004, and Lot 1 in 2006), which at the time of purchase were single-storey apartments located on top of each other at 25 Kenneth Street, Tamarama (“Kenneth Street Property”). The Plaintiff was the registered proprietor of each lot on the taxing dates for the Relevant Years.

In 2007, the owners corporation for SP4655 (“Owners Corporation”) determined that significant remediation works to the Kenneth Street Property was needed due to various structural deficiencies, including the occurrence of ‘concrete cancer’.

In 2011, a development application was lodged with Waverley Council (“the Council”) for significant redevelopment works and was granted approval on 24 July 2012 (“2012 Approval”).

On 3 July 2017, an application was lodged with the Council to modify the 2012 Approval. The modified plans were approved by the Council on 28 November 2017 (“Development Consent”).

The effect of the Development Consent was that:

1. Lots 1 to 3 were to be demolished and replaced by a new four-level unit, being Lot 7 in a new strata plan of subdivision; and
2. There would be significant changes to the boundaries of the lots, including the incorporation of areas that were previously common property and the excision of areas which were previously parts of Lots 1 to 3; and
3. A lift to service all units and staircase were to be installed.

A Deed of Agreement was entered into on 18 April 2018 between the Owners Corporation and each lot owner. The redevelopment began in July 2019 and was completed in July 2022.

The Plaintiff and his family lived in an apartment in Bronte until September 2022 before moving into the new four-level unit, which ultimately became Lot 7 upon registration of SP107340 on 21 February 2024.

On 3 March 2021, the Plaintiff lodged a Land Tax Variation Return stating that he intended for the Lots 1 to 3 to be his principal place of residence (PPR) from 15 June 2019.

On 16 August 2021, the Chief Commissioner issued the Assessments and declined to grant the PPR exemption to the Plaintiff. On 13 January 2022, the Commissioner issued a Land Tax Assessment Notice for the 2022 land tax year.

On 8 October 2021, the Plaintiff objected to the Assessments. On 28 April 2022, the Chief Commissioner disallowed the Plaintiff’s objections to the Assessments.

By amended summons filed on 5 September 2022, the Plaintiff brought an appeal under s 97 of the Taxation Administration Act 1997 (NSW) (“TA Act”) and sought to have the Assessments set aside.  The primary issue in dispute before the Court was whether Lots 1 to 3 (now Lot 7) was exempt from land tax under s. 10(1)(r) of the Land Tax Management Act 1956 (NSW) (“LTM Act”). The Plaintiff claimed the PPR exemption on the basis that his use and occupation of those lots in the Relevant Years satisfied the requirements of cl. 2 of Sch 1A of the LTM Act, read with cl. 6, on the relevant taxing dates.

The specific issues raised by the claim were (at [38]):

1. Whether cl. 6, apart from cl. 6(7)(c), was satisfied in respect of Lots 1 to 3 for any of the Relevant Years?
2. If cl. 6 is otherwise satisfied, did cl. 6(7)(c) disentitle the Plaintiff from claiming the exemption because the land was ‘capable of having more than 2 residences or residential units lawfully built on it’?
3. Did cl. 14, Sch 1A of the LTM Act disentitle the Plaintiff from claiming the exemption?

The Statutory Framework

In the case of a lot under the Strata Schemes Development Act 2015 (“SSD Act”), the basis on which land tax is charged is set out in s. 9B of the LTM Act which provides:

1. Land tax, in the case of land subject to the Strata Schemes Development Act 2015, is to be levied and paid in respect of each lot comprised in a parcel.
2. For the purposes of this Act -
   1. the land value of a lot comprised in a parcel is an amount that bears to the land value of the parcel (within the meaning of section 9 (4)) the same proportion as the unit entitlement of the lot bears to the aggregate unit entitlement, and
   2. the average value of the lot is to be ascertained on the basis of the land value of the lot, as determined under paragraph (a).
3. Expressions used in this section have the same meanings as in the Strata Schemes Development Act 2015.

Section 10(1)(r) of the LTM Act provides an exemption for ‘land that is exempt from taxation under the principal place of residence exemption, as provided for by Sch 1A’.

Cl 2 of Sch 1A provides that the PPR exemption applies to land used and occupied by the owner as the PPR if the land is either a parcel of residential land (cl 2(1)(a)), a strata lot or, subject to the other provisions of Sch 1A, land comprised of 2 or more strata lots (cl 2(1)(b)).

Cl 6 of Sch 1A provides a concession for unoccupied land intended to be the owner’s principal place of residence, provided that:

1. The land is unoccupied because the owner intends to carry out, or is carrying out, building or other works necessary to facilitate the owner’s intended use and occupation of the land as the principal place of residence, and
2. No income has been derived from the use and occupation of the land since the commencement of any building or other works, and
3. The intended use and occupation of the land is not unlawful.

Relevantly, cl 6(7)(c) provides that cl. 6 does not apply in respect of land owned by a person if ‘the land, or the land if combined with any adjoining land of which the person is an owner, is capable of having more than 2 residences or residential units lawfully built on it.’

Clause 14 of Sch 1A, in conjunction with cl. 2(1)(b), extends the PPR exemption to land comprised of two or more strata lots and provides for an exemption if:

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 -
   1. The strata lots (excluding any ancillary lot) have adjoining walls or floors, and
   2. The strata lots are in the same ownership, and
   3. The strata lots comprise a single residence (excluding any additional residential occupancy that may be disregarded under clause 4).
2. For the purposes of this clause, 2 or more strata lots are not to be regarded as  comprising a single residence unless there is internal access between all the strata lots  (other than any ancillary lot), such as internal connecting doors or internal staircases.

Submissions

1. Was cl. 6 satisfied for Lots 1 to 3 in the relevant years?

The Plaintiff submitted that the PPR exemption applied because at all relevant times he intended to make the reconfigured Lots 1 to 3 his PPR such that the requirements of cl. 6(1) of Sch 1A was satisfied (see [39]-[42]). The fact that there was to be the registration of a new strata plan, a change to the lot designation, and changes to the previous boundaries did not alter that conclusion because the space that would become his PPR was the space that Lots 1 to 3 occupied previously.

The Chief Commissioner contended that on a proper construction of cl. 6 there was no scope for the application of the PPR exemption to Lots 1 to 3 because the Plaintiff did not, at the relevant taxing dates, have the requisite intention in respect of Lots 1 to 3 to satisfy cl 6(1) (see [43]-[45]). Rather he intended to occupy Lot 7.

2. Did cl. 6(7)(c) disentitle the Plaintiff from claiming the exemption?

The Plaintiff submitted that on its proper construction cl. 6(7)(c) could have no application to strata lots because it is principally directed to the construction of residences or residential units on freehold land, and not to the reconfiguration or redevelopment of strata lots (see [61]-[64]). Alternatively, even if Lots 1 to 3 were taken to be the land for the purposes of cl. 6(7)(c), the Plaintiff submitted that they were not capable of having multiple residences or residential units lawfully built on them.

The Chief Commissioner contended that cl. 6(7)(c) was drafted sufficiently broadly such that at each of the relevant taxing dates, Lots 1 to 3, being adjoining land owned by the Plaintiff, were capable of having three residential units lawfully built under planning laws.

3. Did cl. 14 disentitle the Plaintiff from claiming the exemption?

The Plaintiff argued that where cl. 6 applies, cl. 14 should be tested in relation to the subject matter of the taxpayer’s intention, which in this case, was a single apartment and therefore not one to which cl 14 applied.

The Chief Commissioner argued that, while the words in cl. 14(1) ‘and that is used and occupied by the lots…as a principal place of residence’ can be read as subject to the deeming in cl 6(1), the requirements in cl. 14(1)(a)–(c) and cl. 14(2) must still be met, and the Plaintiff had failed to establish that they were met in the present case.

Decision

Issue 1: was cl 6 satisfied?

As the word ‘land’ is not defined in the LTM Act, Richmond J began his analysis by considering the nature of a ‘strata lot’ (at [47]-[49]). By importing the definition provided by the SSD Act, he held that ‘strata lot’ meant the “particular cubic meterage of air space identified by reference to the floor plan for the strata plan” (at [50]). It followed that Lots 1 to 3 in SP4655 were each land for the purposes of cl. 2(1)(b) (and Sch 1A generally), as it was the registration of SP107340 on 21 February 2024 that caused Lot 7 to come into existence.

His Honour provided a detailed summary of Sch 1A as applied to strata lots (at [52]), before answering the first question in issue in favour of the Chief Commissioner. On the construction of ‘the land’ which appears twice in the first sentence of cl. 6(1), “what [the Plaintiff] intended to occupy as his principal place of residence was the cubic meterage of air space which would comprise Lot 7… occupying a significantly different cubic meterage of air space than Lots 1 to 3.”

While the answer to the first issue being “no” meant the remaining issues did not arise, his Honour addressed them briefly.

Issue 2: did cl. 6(7)(c) disentitle the Plaintiff?

Without exploring the full scope of cl. 6(7)(c), Richmond J agreed with the Chief Commissioner’s submission that ‘lawfully’ meant that the construction be compliant with planning laws, his Honour considered that other matters were also necessary to consider. Having regard also to the terms of the Deed of Agreement, the only lawful construction on the land was Lot 7 in SP10730. Construction of any other residence would have been in breach and therefore unlawful.  As a result, his Honour concluded that cl. 6(7)(c) was inapplicable in this case.

Issue 3: did cl 14 disentitle the Plaintiff?

Richmond J accepted the Chief Commissioner’s submission that cl. 14 does apply in circumstances where cl. 6 is relied on but needs to be applied taking into account the operation of the deeming provision in cl. 6(1). Having found that cl. 6 did not apply in this case, the question of whether cl. 14 was satisfied ultimately did not arise. His Honour did indicate, however, that had cl. 6 been satisfied in relation to Lots 1 to 3, he would not have regarded cl. 14 as an impediment to the claiming of the PPR exemption for the Relevant Years because “there is nothing in cl. 14 to suggest that Parliament intended cl. 14 to exclude the operation of cl. 6 to unoccupied land to which cl. 6 applies merely because the building works to create the proposed residence were in the course of being undertaken” (at [88]).

Orders

1. Assessments were affirmed.
2. Amended Summons was dismissed.
3. Plaintiff to pay the Defendant’s costs on the ordinary basis, as agreed or assessed.

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