Vatner v Chief Commissioner of State Revenue [2025] NSWCA 35

Introduction

On 31 March 2025, the New South Wales Court of Appeal (the “Court”), with Mitchelmore JA, McHugh JA and Griffiths AJA presiding, dismissed an appeal brought by Mr Vatner (the “Appellant”) against a decision of the Supreme Court of New South Wales which affirmed the notice of assessment issued by the Chief Commissioner of State Revenue (the “Chief Commissioner”) that the Appellant was liable to pay land tax and not eligible for a principal place of residence (“PPR”) exemption pursuant to s. 10(1)(r) and Sch 1A of the of the Land Tax Management Act 1956 (the “Act”).

In appealing the decision of the primary judge, the Appellant contended that the primary judge erred in his interpretation and application of cl 6(1) of Sch 1A of Act.

Grounds of Appeal and Notice of Contention

The Appellant’s various grounds of appeal raised two central issues:

1. The first issue relates to the identification of the “unoccupied land” to which cl 6 of the Act applies. The Appellant contended that the primary judge wrongly proceeded on the basis that the “unoccupied land” was Lots 1 to 3, instead of Lot 7.
2. The second issue challenged the primary judge’s conclusion that the differences between Lots 1 to 3 and Lot 7 were not de minimis and thus precluded the exemption.

The Chief Commissioner also filed a Notice of Contention (“Notice”) arguing the primary judge erred in failing to find that the Appellant’s reliance on the PPR exemption could also be dismissed due to non-compliance with cl. 14 of Sch 1A of the Act.

The Court found, unanimously, that the primary judge did not err in respect of the two central issues, upheld the Respondent’s Notice, and otherwise dismissed the appeal with costs.

Background and Proceedings Below

The Appellant owned three vertically adjacent apartments in Tamarama, which comprised Lots 1 to 3 in registered Strata Plan 4655, during the 2020, 2021, and 2022 land tax years (the “Relevant Years”).

During the Relevant Years, there were significant redevelopment works carried out on the apartment block which included the demolition of Lots 1 to 3 and the construction of a single four-storey unit in which the Appellant intended to live with his family. The single four-storey unit was ultimately registered as “Lot 7” in a new Strata Plan of subdivision 107340 for the apartment block (Lot 7). Lot 7 did not precisely correspond to the airspace comprising Lots 1 to 3, with Lot 7 including an additional 178.7 m2 that was formerly common property and excluding 4.15m2 that was formerly part of Lots 1 to 3.

It was not in dispute that the Appellant did not occupy Lots 1 to 3 as his PPR in the Relevant Years, as Lots 1 to 3 were vacated in June 2019 and until 2022, occupation was not possible as Lots 1 to 3 had been demolished.

The Chief Commissioner assessed the Appellant as liable to pay land tax on Lots 1 to 3 for each of the Relevant Years in accordance with s. 9B of the Act.

The Appellant objected to the Chief Commissioner’s land tax assessment on the basis that Lots 1 to 3 were exempt from land tax by operation of the PPR exemption in s. 10(1)(r) and Sch 1A of the Act. Clause 6 of Sch 1A of the Act provides a limited PPR concession for unoccupied land that the owner intends to use as the owner’s PPR.

The Chief Commissioner disallowed the Appellant's objection.

The Appellant appealed the Chief Commissioner’s decision in the Supreme Court of New South Wales, seeking to set aside the land tax assessments for the Relevant Years.

On 24 June 2024, the primary judge, Richmond J, dismissed the summons and affirmed the assessments, concluding that the PPR exemption did not apply to Lots 1 to 3 for the Relevant Years. Instead, the Appellant intended to occupy the cubic meterage of air space comprising Lot 7, which was significantly different as compared to Lots 1 to 3 (see Vatner v Chief Commissioner of State Revenue [2024] NSWSC 769).

The Statutory Framework

Section 9(1) of the Act provides that “[l]and tax is payable by the owner of land on the taxable value of all the land owned by that owner that is not exempt…”.

In the case of land that is subject to the Strata Schemes Development Act 2015 (“SSD Act”), s 9B of the Act states that land tax is levied on each lot comprised in a parcel (s. 9B(1)) and that land value of a lot comprised in a parcel in the same proportion as the unit entitlement of the lot bears to the aggregate unit entitlement (s. 9B(2)).

Section 10(1) of the Act provides for exemptions to land tax. Section 10(1)(r) refers to “land that is exempt from taxation under the PPR exemption, as provided for by Schedule 1A”.

Schedule 1A of the Act details the PPR exemptions as well as carve outs to those exemptions.

Clause 2 of Sch 1A provides for the definition of PPR exemption. To qualify for the PPR exemption, the land needs first to meet the criteria in cl 2(1), namely:

1. the land is “[l]and used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose” (chapeau to cl 2(1)); and
2. the land is “a parcel of residential land” or “a strata lot or, subject to this Schedule, land comprised of 2 or more strata lots” (cl 2(1)(b)).

Clause 2(2) of Sch 1A imposes further criteria on the application of the PPR exemption such as only one piece of land can be used and occupied by a person for residential purposes to obtain the exemption (cl 2(2)(a)), or the Chief Commissioner is satisfied the land is used and occupied as the person’s PPR (cl 2(2)(b)).

Part 3 of Sch 1A contains a series of “concessions” which have been described as permitting the PPR exemption to apply to land in circumstances that would not otherwise satisfy the criteria in cl 2. Clause 6 of Sch 1A, extends the PPR exemption in cl 2 to “unoccupied land” which is defined in cl 6(8) to mean “land that is not being used or occupied for any purpose”.

Clause 6(1) of Sch 1A provides that an owner of unoccupied land is entitled to claim “the land” (being the “unoccupied land”) as the owner’s PPR “if the owner intends to use and occupy the land solely as the owner’s principal place of residence”.  In “such a case”, cl 6(1) provides that “the owner is taken, for the purpose of the [PPR exemption], to use and occupy the unoccupied land as the owner’s principal place of residence”.

Decision

Issue 1:

The Appellant’s case was built around the interpretation and application of cl 6(1) of Sch 1A of the Act. The Appellant argued that the primary judge erred by treating Lots 1 to 3 (which were demolished) as the relevant “unoccupied land” for the purposes of cl 6(1) and contended that the clause should apply to the land he intended to occupy (namely, Lot 7) even though it did not exist at the taxing dates.

The Appellant provided three reasons as to why the relevant “unoccupied land” should be Lot 7 instead of Lots 1 to 3:

1. cl 6(1) is a test of intention as to future use and occupation;
2. Lots 1 to 3 were not a single residence so could not qualify as a PPR; and
3. Lots 1 to 3 were not “designed with [the Appellant’s] family needs in mind”.

The Appellant also claimed that primary judge’s construction of cl. 6 was contrary to established principles of statutory interpretation, namely that the judge should have interpreted cl. 6 in a way that promoted its remedial purpose (i.e. to allow exemptions for land intended to be used as a PPR).

The Chief Commissioner argued that cl 6(1) of Sch 1A applies only to land that exists and is owned by the taxpayer at the relevant taxing date. Since Lot 7 was not registered or in existence during the Relevant Years, it could not be the subject of the exemption. The relevant land was, therefore, Lots 1 to 3, which were the lots assessed for land tax. The Chief Commissioner further submitted that the Appellant’s intention to occupy Lot 7 was irrelevant because cl. 6 requires the intention to relate to the land owned at the taxing date. The Appellant did not intend to occupy Lots 1 to 3 as his residence; rather, he intended to occupy a materially different lot that did not yet exist.

The Court found that cl. 6 refers to the owner's present intention with respect to the land for which the exemption is claimed and rejected the claims by the Appellant that the primary judge erred in his construction of cl. 6. The Court stated that the fact that cl. 6 was of a beneficial nature did not permit the Court to give it an unnatural construction or alter the clear operation of the regime. To the extent that cl. 6 creates a legal fiction, as was submitted by the Appellant, it merely deems the unoccupied land to be the owner's PPR; it does not deem the physical nature of the land to be other than it is. Finally, the Court found that the primary judge’s approach was sufficiently “practical” within the parameters of the Act.

The Court held that the “unoccupied land” referred to in cl 6 must be the land owned at the taxing date. Since Lot 7 did not exist during the relevant years, it could not be the subject of the exemption.

Issue 2:

The primary judge also found that the Appellant did not intend to use and occupy Lots 1 to 3 as his PPR because there was disconformity between the areas of Lots 1 to 3 and the area of proposed Lot 7.

The Appellant argued that the differences between Lots 1–3 and Lot 7 were minor and should be disregarded under the legal principle de minimis because the 4.15m² excised from Lots 1 to 3 was less than 1% of Lot 7’s area. The primary judge rejected this argument and found that Lot 7 was “materially different” from former Lots 1 to 3, noting the following differences:

1. Lot 7 had four levels; Lots 1 to 3 only had three levels;
2. the walls, ceilings and floors of Lot 7 are configured differently to those in Lots 1 to 3;
3. the living area in Lot 7 is in an entirely new constructed section of the building; and
4. there was a net increase in the floor area of Lot 7 compared to Lots 1-3.

The Chief Commissioner submitted that the differences between Lots 1 to 3 and Lot 7 were significant and could not be dismissed as de minimis emphasising that Lot 7 was not merely a modified version of Lots 1 to 3 but a fundamentally different structure. As such, the Appellant’s intention to occupy Lot 7 did not equate to an intention to occupy Lots 1 to 3.

The Court found that the differences in area (including a 4.15m² excision and 178.7m² addition), configuration, and unit entitlement between Lots 1 to 3 and Lot 7 were significant and not de minimis. In addition, there was no evidence of the Appellant’s intention to occupy Lots 1 to 3, therefore Lots 1 to 3 could not satisfy cl 6(1) and the PPR exemption was not enlivened.

Notice of Contention:

While the Court did not think it was not necessary to resolve the issues arising from the Notice, the Court noted that the primary judge erred in his approach to cl. 14, and that because Lots 1 to 3 lacked internal access, they did not meet the requirements of cl. 14 for multiple strata lots to be treated as a single residence.

Orders

1. The appeal is dismissed with costs.

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