Vatner v Chief Commissioner of State Revenue

1. [1]

   MITCHELMORE JA: The appellant, Anthony Mark Vatner, was the registered proprietor of lots 1, 2 and 3 in Strata Plan 4655 (SP4655), which were located in an apartment block in Tamarama, New South Wales for the 2020, 2021, and 2022 land tax years (the relevant years). I will refer to these lots collectively as Lots 1 to 3.

2. [2]

   The respondent, the Chief Commissioner of State Revenue (the Commissioner), assessed the appellant for land tax on the taxable value of Lots 1 to 3 for each of the relevant years in accordance with s 9B of the Land Tax Management Act 1956 (NSW) (the Act). The appellant objected, relying upon the principal place of residence (PPR) exemption in s 10(1)(r) and Sch 1A of the Act. The Commissioner disallowed the appellant’s objections.

3. [3]

   The apartment block which included Lots 1 to 3 was the subject of extensive redevelopment works which commenced in 2019 and were completed in 2022. The works relevantly included the demolition of Lots 1 to 3 and the construction and fit out of a new, four-level unit which the appellant intended would become the principal place of residence for himself and his family. On 21 February 2024, a new strata plan of subdivision (SP107340) was registered in which the new four-level unit was Lot 7.

4. [4]

   It was common ground that the appellant did not occupy Lots 1 to 3 as his principal place of residence in the relevant years, and indeed occupation was not possible as Lots 1 to 3 had been demolished. However, he maintained that the PPR exemption applied by reason of cl 6 of Sch 1A of the Act. In broad terms, cl 6 entitles the owner of “unoccupied land” to claim the PPR exemption with respect to that land if the owner intends to use and occupy that land solely as the owner’s principal place of residence.

5. [5]

   By his amended summons filed in the Equity Division, the appellant brought an appeal under s 97 of the Taxation Administration Act 1996 (NSW) seeking to set aside the assessments. In dismissing the amended summons, Richmond J concluded that the PPR exemption did not apply to Lots 1 to 3 for the relevant years. His Honour found that at each of the relevant taxing dates, the appellant did not intend to use and occupy all of Lots 1 to 3 solely as his principal place of residence. Instead, he intended to occupy the cubic meterage of air space which would comprise Lot 7, which was significantly different as compared to Lots 1 to 3.

6. [6]

   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 the Act. His various grounds of appeal raise two central issues. The first issue relates to the identification of the “unoccupied land” to which cl 6 applies. In summary, 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. The second issue challenged the primary judge’s conclusion that there was not a substantial coincidence between the location and size of Lots 1 to 3 and what ultimately became Lot 7. For the reasons set out below, his Honour did not err in respect of either of the two central issues. The appeal should be dismissed.

7. [7]

   The Commissioner also filed a notice of contention concerning the interaction between cl 6(1) and cl 14 of Sch 1A of the Act, which restricts the application of the PPR exemption where a residence comprises 2 or more lots in a strata plan. Although it is not necessary finally to resolve the issues arising on the notice of contention in light of the result I have reached on the appeal, I consider that his Honour erred in his approach to cl 14.

Background to the appeal

1. [8]

   The background may be stated shortly and by reference to the primary judge’s reasons at [5]-[18], which neither party challenged on the appeal.

2. [9]

   Lots 1 to 3 formed part of SP4655 which was registered under the Strata Schemes Development Act 2015 (NSW) (the SSD Act). The appellant purchased lot 3 in 2003, lot 2 in 2004, and lot 1 in 2006. At the time of purchase, each of Lots 1 to 3 was a single-storey apartment. Save for a period between 2006 and 2008 when the appellant lived in lot 2, he used Lots 1 to 3 as investment properties: at [6]. Lots 1 to 3 were located on top of each other in a split-level apartment building in Kenneth Street, Tamarama, at the rear of the building overlooking the ocean. There were three other lots (lots 4 to 6) which were located at the front of the building, closest to the street: at [5].

3. [10]

   In around 2007, the owners corporation for SP4655 (the Owners Corporation) determined that significant remediation works were necessary due to various structural deficiencies including “concrete cancer”: at [6]. In 2011, a development application was lodged with Waverley Council (the Council) for redevelopment works. On 24 July 2012, the Council issued a development consent: at [7].

4. [11]

   Between 2011 and 2017, the owners of all lots in the apartment block discussed significant modifications to the design of the renovations, including demolishing the rear section of the block (containing Lots 1 to 3) and installing a lift to service all units: at [7]. On 3 July 2017, the Owners Corporation lodged an application to modify the existing development consent: at [8]. On 7 December 2017, the Council approved the modification application. The primary judge described the effect of the development consent as modified (Development Consent) at [8]:

5. [12]

   The appellant’s evidence was that, from 2017 onwards, he intended that once the new four-level unit to replace Lots 1 to 3 was completed, it would become the principal place of residence for himself and his family, and that the new lot was designed with his family’s needs in mind: at [10].

6. [13]

   On 18 April 2018, the Owners Corporation and each lot owner individually entered into a Deed of Agreement: at [11]. The Owners Corporation agreed to enter into a building contract for the works and that contributions would be levied from the lot owners in accordance with their respective unit entitlements (cl 2). The “Works” to which the Deed applied included “the addition of various areas to be included in Lot Owners title in the future (including balcony extensions, new balconies, additional terrace areas and car space adjustments)” (cl 3.1). Additionally, some lots would be “reconfigured as part of the Works” and parts of lots “may be required to be transferred to the Owners Corporation title as part of the Strata Plan of Subdivision (including space for the installation of a lift and reconfiguration of common services)” (cl 3.2). The term “Strata Plan of Subdivision” was defined to mean:

7. [14]

   Upon registration of the Plan of Subdivision with the Registrar-General (cl 3.3), the building works contained within the lots in accordance with the plan (including fit-out works carried out in individual lots) would become the property of the respective lot owners (cl 3.5).

8. [15]

   Between 31 August 2018 and 18 June 2019, Lots 1 to 3 were vacated: at [12]. In July 2019, the principal redevelopment works commenced. They were completed in July 2022 and an occupation certificate was granted on 5 August 2022: at [13]. In July 2021, separate fit-out works commenced on the appellant’s four-level unit, for which an occupation certificate was granted on 10 August 2022: at [13]. In September 2022, the appellant and his family moved into Lot 7: at [15]. A separate occupation certificate issued on 10 October 2022 in respect of a plunge pool on the lower level of the four-level unit (which the Council had approved in May 2021): at [9], [13].

9. [16]

   Aerial photography of the apartment block showed that, as at 31 December 2019, the back section of the building (containing Lots 1 to 3) had been demolished, with work not yet completed on the foundations and formwork for the structure that was to contain the new four-level unit: at [14]. Photos taken on 31 December 2020 and 31 December 2021 showed a structure for the new four-level unit comprising the external walls and roof, but did not show the extent of construction of the internal spaces: at [14].

10. [17]

    The primary judge described Lot 7 in the strata plan of subdivision for SP107340 as “materially different” from former Lots 1 to 3: at [18]. His Honour identified the following differences:

11. [18]

    In relation to the area transferred from Lots 1 to 3 to common property that his Honour identified in (2) above as 4.25m2, the sum of the two areas described in the immediately following parenthetical comment was 4.15m2.

The application of the principal place of residence exemption

1. [19]

   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 from taxation under this Act”. As White JA observed in Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378; 96 ATR 875 at [34], pursuant to ss 9(2), (3) and (4) and s 9AA, the taxable value of the land on which land tax is payable is calculated by reference to an average of land values entered in the Register of Land Values kept under s 14CC of the Valuation of Land Act 1916 (NSW). In the case of land that is subject to the SSD Act, s 9B of the Act sets out the basis on which land tax is levied and paid:

2. [20]

   Section 10 of the Act is titled “Land exempted from tax”. Subsection (1) provides that except where otherwise expressly provided in the Act, “the following lands shall … be exempted from taxation under this Act”. Relevantly for present purposes, s 10(1)(r) refers to “land that is exempt from taxation under the principal place of residence exemption, as provided for by Schedule 1A”. Section 3(1) of the Act defines “principal place of residence” to mean “the one place of residence that is, among the one or more places of residence of the person within and outside Australia, the principal place of residence of the person”.

3. [21]

   Schedule 1A of the Act is titled “Principal place of residence exemption”. Clause 2 provides:

4. [22]

   It can be seen from cl 2 that in order to come within the PPR exemption, the land needs first to meet the criteria in cl 2(1), namely:

   1. (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. (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)).

5. [23]

   As the primary judge noted at [28], and as was common ground on the appeal, the phrase “subject to this Schedule” in the context of strata lots in cl 2(1)(b) refers to cl 14 of Sch 1A, as it is the only provision that qualifies the entitlement of two or more strata lots to the PPR exemption. I will return to cl 14 shortly.

6. [24]

   Clause 2(2) of Sch 1A imposes further criteria on the application of the PPR exemption: land is not used and occupied as the principal place of residence of a person unless “the land, and no other land, has been used and occupied by the person for residential purposes and for no other purposes since 1 July in the year preceding the tax year in which the land tax is levied” (cl 2(2)(a)), or the Commissioner is otherwise satisfied that the land is used and occupied by the person as the person’s principal place of residence (cl 2(2)(b)).

7. [25]

   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: De Marco v Chief Commissioner of State Revenue (2013) 83 NSWLR 445; [2013] NSWCA 86 at [25] (McColl JA), [94] (Gzell J). Clause 6 of Sch 1A, on which the appellant relied in the present case, 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”. The primary judge concluded that as the definition of “unoccupied land” was equally applicable to both categories of land identified in cl 2(1)(a) and (b), there was no reason why cl 6 should not apply to a strata lot or lots: at [52(4)]. The Commissioner did not challenge that conclusion.

8. [26]

   As at the relevant dates for the present appeal, cll 6(1) to (7) of Sch 1A provided as follows:

9. [27]

   As the primary judge recognised at [52(3)], the purpose of cl 6 “is to extend the exemption in cl 2(1) to land which is unoccupied … and consequently would not satisfy the key requirement of cl 2(1) which is that the land be used and occupied by the owner as his or her principal place of residence on the relevant taxing date”. Pursuant to cl 6(1), an owner of unoccupied land is entitled to claim “the land” (being the “unoccupied land”) as the owner’s principal place of residence “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” (emphasis added).

10. [28]

    The primary judge also recognised that cl 6 contains a number of restrictions: at [52(5)]. The only ones that were relevant in the present case were:

    1. (1)

       in cl 6(1), that the owner of the unoccupied land intends to use and occupy the land solely as his or her principal place of residence, and

    2. (2)

       in cl 6(7)(c), the exclusion of land that is capable of having more than two residences lawfully built on it.

11. [29]

    Apart from the restrictions within cl 6, it was also necessary to consider cl 14 of Sch 1A, which restricts the application of the PPR exemption where there is a residence comprising 2 or more lots in a strata plan. Clause 14 relevantly provided as follows:

12. [30]

    The primary judge noted that pursuant to cl 14(2), the relevant lots will only be a single residence if there is “internal access between all the strata lots (other than any ancillary lot)”. The use of the words “such as” in cl 14(2) indicated that internal connecting doors or internal staircases were not the only means by which the internal access requirement could be satisfied: at [52(2)].

The decision of the primary judge

1. [31]

   The primary judge identified three issues for determination at [38]:

2. [32]

   The first of these issues was the subject of the appeal. The third issue is relevant to the appeal given the appellant’s reliance on his Honour’s reasoning on that issue and because it was the subject of the notice of contention.

3. [33]

   His Honour commenced the analysis by identifying the nature of a “strata lot” under the SSD Act, to which cl 1(1) of Sch 1A refers: at [47]-[51]. A “lot” is defined in s 4(1) of the SSD Act to mean “one or more cubic spaces shown as a lot on a floor plan relating to the strata scheme”. The term “floor plan” is defined in s 4(1) to mean a plan that:

4. [34]

   His Honour noted that the boundaries of a lot are described in s 6 of the SSD Act, subs (1) of which relevantly provides:

5. [35]

   The term “common property” is defined in s 4(1) of the SSD Act in relation to a strata scheme or a proposed strata scheme to mean “any part of a parcel that is not comprised in a lot including any common infrastructure that is not part of a lot”.

6. [36]

   The primary judge described each of Lots 1 to 3 as “land” for the purposes of cl 2(1)(b) of Sch 1A, which comprised “a particular cubic meterage of air space identified by reference to the floor plan for the strata plan”: at [50]. Consistently with s 6 of the SSD Act, the boundaries of Lots 1 to 3 “were the inner surface of walls making a vertical boundary in which the base of the wall corresponded substantially with a base line shown on the floor plan for that strata plan, the upper surface of the floor and the under surface of the ceiling, together with each balcony for those lots shown on the floor plan to a height of 8 feet and 6 inches”: at [47].

7. [37]

   Lots 1 to 3 were also “unoccupied land” for the purposes of cl 6(1) of Sch 1A at the taxing date (31 December) in the relevant years: at [53]. The question for determination was “whether [the appellant] had the intention at the relevant taxing date to use and occupy that cubic meterage of air space as his principal place of residence once the building works permitted by the Development Consent were complete”: at [54]. His Honour’s answer to that question was as follows:

8. [38]

   The appellant submitted, and maintained on the appeal, that the differences between the cubic meterage of airspace represented by Lots 1 to 3 and Lot 7 were de minimis and could be ignored on that basis. His Honour accepted that absent a contrary intention, a statute is to be construed in accordance with the principle that the law does not concern itself with trifling matters, with the question of whether something is so trivial that it can be ignored depending on the statutory provision in question: at [58]. However, his Honour did not accept the appellant’s contention, stating at [58]:

9. [39]

   It followed that the PPR exemption did not apply to Lots 1 to 3 for the relevant years: at [59].

10. [40]

    In addressing this issue, the primary judge proceeded on the assumption that cl 6 was satisfied in relation to Lots 1 to 3 for the relevant years: at [80]. On that assumption, his Honour would not have regarded cl 14 as an impediment to the appellant claiming the PPR exemption for Lots 1 to 3 for the relevant years: at [80]. His Honour accepted the Commissioner’s submission that cl 14 applies in circumstances where cl 6 is relied on: at [81]. However, his Honour considered that in applying cl 14 it was necessary to accommodate the deeming provision in cl 6(1), stating at [82]:

11. [41]

    Applying that construction to the present case, it followed that if cl 6 had been satisfied for Lots 1 to 3 the appellant “would be deemed for the purposes of, relevantly, cl 14 to use and occupy Lots 1 to 3 as his one place of residence on each taxing date notwithstanding that, in reality, they were not physically capable of being a residence”. It was “a short step then to conclude that this one residence satisfies each of the requirements of cl 14(1)”: at [86]. The construction his Honour adopted avoided what he described as the “capricious result” of the Commissioner’s construction, namely:

The appeal

1. [42]

   The appellant’s written and oral submissions were not structured by reference to the individual grounds of appeal in the amended notice of appeal. Nonetheless, the grounds provide an indication of the scope of the two issues on the appeal that I have summarised above in [6]. In relation to the first issue, the grounds raised:

   1. (1)

      the primary judge’s reliance on Lots 1 to 3 of SP4655 as the subject matter of cl 6(1) instead of Lot 7 in SP107340, “notwithstanding that the deeming effected by cl. 6(1) operates upon Lots 1-3 in SP4655 on each of the relevant taxing dates” (ground 2);

   2. (2)

      the primary judge’s reliance in this context on the cubic meterage of airspace identified by reference to the floor plan for Lots 1 to 3 on the taxing dates for the relevant years rather than the land value of the land vested in the Owners Corporation that was referable to Lots 1 to 3 (ground 3);

   3. (3)

      the primary judge’s failure to have regard to the fact that, although Lots 1 to 3 existed as lots on the taxing dates in the relevant years, they did not exist as habitable residences as at those dates (ground 4);

   4. (4)

      the primary judge’s focus on the regime for charging land tax under ss 7, 8 and 9B of the Act instead of “focusing upon the statutory fiction created by the deeming in cl 6(1)”, which the primary judge did when his Honour came to assess the Commissioner’s construction of cl 14 as part of the third issue (ground 6); and

   5. (5)

      relatedly, the primary judge’s failure to adopt and apply to cl 6 the principles of statutory interpretation that he applied when addressing the proper construction of cl 14 and its interaction with cl 6 (ground 7).

2. [43]

   The second issue was the subject of ground 5, by which the appellant contended that the primary judge erred “by requiring a substantial coincidence, within the parcel of land vested in the owners’ corporation for SP4655, of the location and size of Lots 1-3 in SP4655 relative to Lot 7 in SP107340 for the purposes of enlivening the deeming effected by cl. 6(1) upon Lots 1-3 in SP4655”.

3. [44]

   The appellant’s primary focus on the appeal was the primary judge’s error in treating the subject matter of the test in cl 6(1) as Lots 1 to 3 of SP4655 instead of Lot 7 of SP107340 (ground 2). The appellant submitted that the primary judge adopted the “novel approach” of applying the statutory concept of a “strata lot” under s 4(d) of the SSD Act by reference to the legal title to the cubic meterage of air space rather than considering the lots “in a practical physical sense”. He contended that in so doing, the primary judge overlooked several aspects of the statutory scheme. In particular, he submitted that, having regard to the terms of the “Note” to cl 6(1) (which refers to the offence under the Taxation Administration Act of making a false statement about a taxpayer’s taxation affairs to the Commissioner), cl 6(1) was either “a subjective test or a combined subjective and objective test”. The appellant submitted that, against that background, the relevant question under cl 6(1) was whether the appellant intended to use the residence that would eventually be designated as Lot 7 as his principal place of residence. This was so for three reasons:

   1. (1)

      Clause 6(1) is a test of intention as to future use, based on a future state of affairs not in existence throughout the tax years, because the non-existence of that future state of affairs is the explanation for the land constituted by 2 or more strata lots being unoccupied throughout those relevant years.

   2. (2)

      Lots 1 to 3 were not a single residence so could not qualify as a PPR (the definition of PPR in s 3(1) of the Act mandates that it must be a single residence).

   3. (3)

      Lots 1 to 3 were at no stage susceptible to being used as a PPR because they were not “designed with [the appellant’s] family’s needs in mind”, as opposed to Lot 7.

4. [45]

   It is necessary to consider the appellant’s submissions regarding the application of cl 6 in the context of Sch 1A and the broader legislative context. As Payne J observed in Antegra Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 107; 112 ATR 777 at [89], land tax is levied on particular “parcels” of land. Section 9B(1) provides that land subject to the SSD Act is to be levied and paid in respect of each lot comprised in a parcel. In the relevant years, Lots 1 to 3 were lots comprised in a parcel, that parcel being the land subdivided by registration of SP4655. A plan is registered when the Registrar-General records on the plan, in the Register or in another record kept by the Registrar-General, the matters about the plan that the Registrar-General considers appropriate: s 121(2) of the SSD Act.

5. [46]

   Land tax was levied and payable on Lots 1 to 3 pursuant to s 9(1) of the Act unless the lots were “exempt from taxation under this Act”. Consistently with the scheme of the Act, the appellant invoked the PPR exemption with respect to Lots 1 to 3. It was possible for the PPR exemption to apply in the relevant years to the three strata lots “subject to this Schedule” (cl 2(1)(b)), relevantly, to the application of cl 14 (which was the subject of the notice of contention). However, in the relevant years, none of Lots 1 to 3 was used and occupied by the appellant as his principal place of residence.

6. [47]

   As the lots were not used in those years for any purpose within the meaning of “unoccupied land” in cl 6(8), the concession in cl 6 of Sch 1A might apply if the criteria in cl 6 were otherwise satisfied. Read in context, the “unoccupied land” to which cl 6 refers could only be Lots 1 to 3, as the land that would otherwise be subject to land tax. The question that his Honour posited at [54] was whether the appellant’s intention, at the taxing date for the relevant years, was to use and occupy Lots 1 to 3 as his principal place of residence once the building works permitted by the Development Consent were complete.

7. [48]

   In his oral submissions on the appeal, counsel for the appellant accepted that the question his Honour posed in [54] was the correct question. However, he submitted that in answering that question his Honour should have focused on Lot 7. That lot was not a candidate for the inquiry his Honour posited, or for the application of the PPR exemption in the relevant years, for the simple reason that it did not exist. The strata plan of subdivision for SP107340 was not registered until 21 February 2024 and, as the Commissioner submitted, the SSD Act does not make provision for registration of a plan of subdivision to operate retrospectively.

8. [49]

   Contrary to the appellant’s complaint that the primary judge failed to have regard to the fact that Lots 1 to 3 did not physically exist at the taxing dates for the relevant years (ground 4), the primary judge recognised this practical reality. His Honour also recognised that the plans to rebuild that were the subject of the Development Consent involved a reconfiguration of the cubic meterage of Lots 1 to 3 into a single unit, being Lot 7. The primary judge thus answered the inquiry in [54] by reference to the area of Lots 1 to 3 (which were subject to land tax in the relevant years) and the appellant’s intention with respect to the area that comprised those lots. The intention of the owner to which cl 6(1) relevantly refers is the owner’s present intention with respect to the land for which the exemption is claimed, albeit with respect to a future state of affairs. So much is confirmed by other subclauses in cl 6, including:

   1. (1)

      cl 6(2)(a), which provides that cl 6 does not apply unless, relevantly for present purposes, “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 a principal place of residence” (emphasis added);

   2. (2)

      cl 6(3), which provides that the clause only applies in the period of 4 tax years immediately following the year in which the person became the owner of the land (cl 6(3)(a)), or, if after the person became the owner and before the building work or other works physically commenced, the land was used and occupied for residential purposes by another person, the 4 tax years immediately following the tax year in which the other person ceased to use and occupy the land for those purposes (cl 6(3)(b));

   3. (3)

      cl 6(4), which imposes a limitation on the operation of cl 6(3)(b), namely, the Commissioner has to be satisfied that by the end of the first of the 4 tax years the building works or other works will be, or have been, physically commenced or significant steps will be, or have been, taken to enable those works to commence (and if the works have not physically commenced by the end of that tax year, or significant steps have not been taken, the exemption is taken not to have applied in respect of that tax year and land tax liability is to be assessed or reassessed accordingly); and

   4. (4)

      cl 6(5), pursuant to which the PPR exemption is revoked if the person fails “to actually use and occupy the land as the person’s principal place of residence by the end of the period in which this clause applies … and to continue to so use and occupy the land for at least 6 months”.

9. [50]

   What his Honour found, at [55], was that the appellant “did not intend at each of the relevant taxing dates to use and occupy all of the unoccupied land [being Lots 1 to 3] as his principal place of residence” because there was disconformity between the areas of Lots 1 to 3 and the area of proposed Lot 7 which his Honour did not consider to be de minimis. In answering the question in that way, his Honour gave effect to the requirement, in cl 6(2)(a), that the relevant works be undertaken to facilitate the intended use and occupation of “the land” as the principal place of residence. As his Honour stated at [56], read in context “the land” referred to in that subparagraph can only be a reference to the unoccupied land at the relevant taxing date.

10. [51]

    In oral submissions, counsel for the appellant contended that the primary judge had accepted, or appeared to have accepted, that Lot 7 could have been a suitable candidate to satisfy the requirements of cl 6(1) had there been a complete or substantial coincidence between the cubic meterage of airspace between Lots 1 to 3 on the one hand and Lot 7 on the other. That submission misunderstood the inquiry that the primary judge undertook. It is apparent both from his Honour’s question in [54] and his response to that question in [55]-[58] that the focus of his Honour’s consideration was Lots 1 to 3. It was the absence of substantial conformity between the cubic meterage of airspace that Lots 1 to 3 comprised, and the space that the appellant intended to occupy upon completion of the works as Lot 7, that meant that the appellant could not satisfy cl 6 with respect to Lots 1 to 3.

11. [52]

    The appellant submitted, at least in writing, that the primary judge “failed to appreciate” that the general rule in cl 2(1), which focuses on an existing piece of land for the purposes of imposition of tax, was inapplicable in the case of a deemed entitlement to exemption in cl 6(1). Those submissions reflected a misunderstanding of the relationship between cl 2 and cl 6 in Sch 1A. As the Commissioner submitted responsively, cl 6(1) is not a standalone exemption but rather is a concession that feeds into the PPR exemption in cl 2 by deeming the owner to use and occupy their unoccupied land as a PPR. The context and purpose of cl 6 require that the “unoccupied land” and “the land” referred to in cl 6(1) be the same land as that to which the PPR exemption in cl 2(1) may apply.

12. [53]

    The appellant’s related submission, that the focus of cl 6(1) was a parcel of land constituted by “2 or more strata lots” which “[did] not exist on the taxing dates” but which would be “suitable for use and occupation as a PPR in the opinion of its owner and which will exist at a future point in time”, reflected the same misunderstanding. Contrary to the italicised words, the land the subject of a claim for the PPR exemption is necessarily owned by the owner claiming the exemption at the taxing date, even if cl 6 permits that land to be “unoccupied land” as at that date. The focus of cl 6(1) is the owner’s intention with respect to that land. As the Commissioner submitted, the fact that the land meets that definition on the taxing date because of actual or intended building works does not change the identity of the “unoccupied land” as “land” then owned by the taxpayer.

13. [54]

    The appellant also relied on a perceived difference between the operation of cl 2 and cl 6 as they apply to a parcel of residential land and a strata lot (or two or more strata lots). As I understood this submission (which appeared to relate to ground 3), it commenced with the notion that in relation to strata lots, the land the subject of the imposition of land tax was owned by the Owners Corporation; and that ownership did not change in the relevant tax years even if the respective unit entitlements of lot owners in the strata plan changed. It followed, the appellant submitted, that where the formula for lot entitlements played no role in the subject matter of the lot holders’ intentions to use and occupy a single residence to become a PPR in the future for purposes of cl 6(1), the correct operation of the statutory scheme in relation to land comprising two or more strata lots “required the regime for the imposition and allocation of land tax between lot owners in a strata scheme enacted in ss 7, 8 and 9B of the Taxation Administration Act to operate both consistently and sympathetically with the separate and distinct regimes for granting each of them exemptions from land tax” (emphasis added). That approach, in turn, required “the rules for determining whether the PPR exemption in cll 2 and 6 are available to be given their intended operation unfettered by a separate and distinct regime for imposition and allocation to lot holders of liability for land tax”.

14. [55]

    The logic of the submission is difficult to follow. As the Commissioner submitted, it confused the subject matter of land tax in the case of a strata lot and the land value apportioned to the lot under the Act. True it is that for land subject to the SSD Act the land value of the parcel of land determines the land value of a lot within that parcel (by reference to the proportion that the unit entitlement for the lot bears to the aggregate unit entitlement) (see s 9B(2)(a) of the Act). However, the land tax is levied and paid “in respect of each lot comprised in a parcel”. The exemption regime, far from being separate and distinct, also applies by reference to each lot comprised in a parcel.

15. [56]

    The appellant submitted that his Honour’s construction of cl 6 was inconsistent with a number of principles of statutory construction which he submitted were properly applied by the primary judge in relation to cl 14 (ground 6). The first of these principles was that specific provisions prevail over general provisions, on the proper application of which the general regime for the imposition of tax must give way to the regime creating specific exemptions from liability for the tax. The appellant took the Court to authorities in this regard including Smith v The Queen (1994) 181 CLR 338 at 348; [1994] HCA 60, and Goodwin v Phillips (1908) 7 CLR 1; [1908] HCA 55 in which O’Connor J said at 14:

16. [57]

    The next principle of construction that the appellant relied on related to the beneficial nature of cl 6 as expanding the scope of an exemption from taxation liability. The appellant relied on Dixon CJ’s observation regarding the legislation at issue in Nash v Sunshine Porcelain Potteries Ltd (1959) 101 CLR 353 at 361; [1959] HCA 7, that “it is well settled that the right of compensation conferred by the Act is not to be restricted or denied because of difficulties in fitting the clauses relating to the computation of the compensation to the circumstances of the case”. However, what Dixon CJ there said in no way supported what the appellant sought to do on the present appeal, which was to alter the clear operation of the regime for the levying and payment of land tax (and any relevant exemptions therefrom) by reference to particular parcels of land as at the relevant taxing dates, to suit the particular circumstances of his case. The fact that legislation is beneficial does not permit the Court to give it a construction that is unreasonable or unnatural: IW v City of Perth (1997) 191 CLR 1 at 12; [1997] HCA 30.

17. [58]

    The next “principle” on which the appellant relied was “the statutory fiction created by the deeming”. However, the statutory fiction created by cl 6(1) relates to the particular strata lot or lots for which the lot owner is seeking to be exempt from land tax. Subject to the lot owner holding the requisite intention with respect to the use and occupation of that lot at the taxing date for the relevant year, the fiction created is that the lot is used and occupied by the lot owner as their principal place of residence. The exemption in cl 6(1) does not operate on a fictional lot, which is what the appellant wished to rely on it for. So much was apparent from his submission taking issue with the primary judge’s reliance on the difference in the floor area and unit entitlement of Lot 7, relative to the floor areas and unit entitlements of Lots 1 to 3, with the appellant contending that the difference in the floor areas and unit entitlement of Lots 1 to 3 relative to Lot 7 “could not justify substitution, in the test in cl 6(1), of an impractical group of residences (Lots 1 to 3) for the only practical residence which could rationally qualify as a PPR (Lot 7)”. The extent of the effect of the deeming in cl 6(1) is that existing land is used and occupied as a PPR; it does not deem the land to be other than it is.

18. [59]

    I reject the appellant’s broader submission that the primary judge should have adopted a more practical approach to the circumstances. His Honour’s approach was a practical one which remained within the parameters of the Act.

19. [60]

    Finally, the appellant contended that the primary judge failed to adopt and apply the principles of statutory interpretation that he adopted at [80]-[89] in addressing cl 6(1) for the discrete purpose of interpreting cl 14 (ground 7). The appellant placed particular reliance on the reasoning in [86], where the primary judge assumed satisfaction of cl 6(1) by reference to his earlier decision at [59] that the subject matter of cl 6(1) was Lots 1-3. He submitted that the principles applied in [83]-[88] should have applied in determining what cl 6(1) meant and how it operated in a multiple strata lot case. Moreover, he submitted that cl 14 was a threshold question for the deemed satisfaction of cl 2(1)(b) by the actual satisfaction of the test creating a fiction by reference to subjective intention (or objective intention having regard to that subjective intention) specified in cl 6(1).

20. [61]

    The primary difficulty with the appellant’s arguments in this regard is that this part of the primary judge’s reasons proceeded on the express hypothetical premise that his earlier conclusions in [46]-[59] were wrong. A second difficulty is that the asserted “point of divergence” between the primary judge’s reasoning and the appellant’s contentions involved a misunderstanding of the purpose of the deeming in cl 6(1), to which I have referred above. As the Commissioner submitted, the deeming does not operate to create a fiction that the “unoccupied land” owned by the taxpayer should be taken to be anything other than the land actually owned on the taxing date.

21. [62]

    I note that by ground 2 of the notice of contention, the Commissioner submitted that in circumstances where his Honour had earlier found that the appellant did not intend, by the proposed four-level unit which was ultimately registered as Lot 7, to use and occupy Lots 1 to 3, his Honour erred in proceeding on the basis, even if hypothetical, that the relevant land for the purposes of cl 14 was the four-level residence identified in the approved plans attached to the Development Consent (being Lot 7): at [86]. The Commissioner’s complaint in this regard has logical force. As counsel for the Commissioner submitted, although his Honour stated that this part of the reasoning proceeded on the basis that cl 6(1) was satisfied with respect to Lots 1 to 3 he did not specify on what basis he made that assumption.

22. [63]

    It follows that the appellant’s grounds taking issue with the primary judge’s determination of the application of cl 6 of Sch 1A by reference to Lots 1 to 3, being grounds 2, 3, 4, 6 and 7, should be dismissed.

23. [64]

    In his oral submissions, counsel for the appellant characterised as the second contention that the primary judge relied on his earlier findings of fact, in [18], to inform his application of the de minimis principle in [58]. It is useful for present purposes to repeat what his Honour said at [58]:

24. [65]

    The appellant submitted that his Honour wrongly focused on what the appellant later acquired but did not own on either of the three taxing dates in terms of cubic metreage of airspace; and also focused on an erroneous calculation of land tax in order to assess market value of what was surrendered to the Owners Corporation for the purposes of applying the de minimis principle. The appellant submitted that, having found that Parliament could not have intended that the exemption would be available for land not intended to be used and occupied as the principal place of residence, his Honour should have focused on the amount of airspace which was owned on the taxing dates by the appellant but which was surrendered before his use and occupation of the new lot (which was 4.15m2). The appellant submitted that that area was less than 1% of 507m2, being the area of Lot 7, which, in his submission, was de minimis.

25. [66]

    For my part, having regard to the operation of the statutory regime with respect to particular parcels of land, there is a real question as to whether the Act evinces an intention that is contrary to the application of the de minimis principle. However, the Commissioner, who advanced a number of issues on a notice of contention, did not challenge the correctness of his Honour’s application of the principle in the context of this regime.

26. [67]

    On the assumption that the principle applies, the legislative context in which it applies in the present case involved the levying of a tax on ownership of a particular parcel of land (or strata lot), subject to any applicable exemption. The application of the PPR exemption rests upon the use and occupation of the particular land (or lot) for a particular purpose, subject to the operation of one or more of the concessions in Part 3, such as cl 6 The focus of cl 6 is whether the owner of the land (or lot) had a present intention at the taxing date in the relevant year with respect to the future use of that land as the owner’s principal place of residence. As the primary judge stated in [57], “[i]t would be an odd result, and one which Parliament could not have intended, if cl 2 through the operation of cl 6 gave an exemption for land in circumstances where part of that land is not intended to be used and occupied as the taxpayer’s principal place of residence once construction of the proposed residence is complete”.

27. [68]

    In my view, that focus necessarily bears upon the extent to which a part of the land (or lot) would be characterised as de minimis. In the present case, as the primary judge noted at [18], Lot 7 was “materially different” from Lots 1-3, for the reasons he there identified (see [17] above). Lot 7 was a much larger floor area, with the addition of an extra level compared to the three levels of Lots 1 to 3 and the assumption of areas that were formerly common property. The walls, floors and ceilings of Lot 7 were configured differently to those in Lots 1 to 3 and did not match with the previous configuration, including an entirely newly constructed section of the building as the living area that did not incorporate the previous structure in which the living areas in Lots 1 to 3 were located.

28. [69]

    Areas of Lots 1 to 3 were also transferred to common property, which formerly comprised balcony/courtyard and parking/storage. It is the case, as the appellant contended, that this area of land was, in total, small, certainly by comparison with the area of Lot 7. However, the question was whether the appellant (in this case) intended to use and occupy Lots 1 to 3 solely as his principal place of residence. The excision of 4.15m2 from those Lots was not, in my view, de minimis.

29. [70]

    In reaching this conclusion, I have not relied on the market value of the area to be excised from Lots 1 to 3 or the associated calculation of the land tax, matters to which the primary judge referred. Nonetheless, I do not consider that the primary judge erred in concluding at [58] that cl 6 of Sch 1A was not satisfied in relation to Lots 1 to 3. It follows that I would dismiss ground 5.

Notice of Contention

1. [71]

   In light of my decision on the appeal, it is unnecessary to determine the Commissioner’s notice of contention, the focus of which was the interaction between cl 6 and cl 14 which was the subject of the primary judge’s third issue. However, as I have noted above, approaching that issue on the hypothetical basis that his Honour did was understandable but logically problematic. Without needing finally to determine the precise relationship between cl 6 and cl 14 given my conclusion on the appeal, I make the following observations.

2. [72]

   As a textual matter, the deeming in cl 6(1), being one of the concessions in Part 3 of Sch 1A, is directed at satisfying the PPR exemption in respect of “unoccupied land”, being land not used and occupied “for any purpose”. Where cl 6 is satisfied in a relevant year, the owner of the land is taken to use and occupy the land as the owner’s principal place of residence even though the land is “unoccupied land”. As I explained above in relation to the appellant’s arguments regarding Lot 7, the deeming in cl 6 does not operate to change the identity of the land, or the lots, in question.

3. [73]

   Clause 14 is one of the restrictions in Part 4 to which the PPR exemption is expressly subject: see cl 2(5). Clause 14(1) provides that the PPR 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 … as the principal place of residence unless”, relevantly, the strata lots comprise a single residence: cl 14(1)(c) (emphasis added). Clause 14(2) expands upon the need for a single residence: two or more strata lots “are not to be regarded as comprising a single residence unless there is internal access between all strata lots” (emphasis added). As the Commissioner submitted, where the land is comprised of two or more strata lots the requirements of cl 14(1) are additional to the requirement in cl 2 that the land be used and occupied by the owner as the owner’s principal place of residence.

4. [74]

   The primary judge assumed that cl 6, if satisfied, would operate also to satisfy the requirements of cl 14. That is apparent from [86], where his Honour stated that “if cl 6 had been satisfied in relation to Lots 1 to 3, the plaintiff would be deemed for the purposes of, relevantly, cl 14 to use and occupy Lots 1 to 3 as his principal place of residence on each taxing date notwithstanding that, in reality, they were not physically capable of being a residence”. In my view, that reasoning suffered from the same textual difficulties that attended the appellant’s reliance on Lot 7 as the proper subject of cl 6, namely, it did not reflect that the subject of the exemption in cl 2 of Sch 1A is the land (or lots) as at the taxing date in the relevant year. Lots 1 to 3 did not satisfy the requirement in cl 14(1)(c) at the taxing date in the relevant years. It follows that the requirement in cl 2(1)(b) was not satisfied with respect to Lots 1 to 3.

5. [75]

   I do not accept the primary judge’s characterisation of the result of the construction of cl 14 for which the Commissioner contended, as capricious: at [87]. His Honour reached that view on the basis that the concession in cl 6 would be available where it was being applied to one lot but not in respect of two or more strata lots “simply because there was no actual residence against which to test the requirements of cl 14” (emphasis added): at [87]. The italicised words highlight the same logical flaw that marked the reasoning in [86].

Conclusion

1. [76]

   I propose the following order:

   1. (1)

      The appeal is dismissed with costs.

2. [77]

   McHUGH JA: I agree with Mitchelmore JA.

3. [78]

   GRIFFITHS AJA: I agree with Mitchelmore JA.