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VIDLER v FC of T

Members:
SE Frost M

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2009] AATA 395

Decision date: 1 June 2009

ATC 2952

SE Frost (Member)

Introduction

1. In 2004 and 2005, Braith Vidler sold three properties - two blocks of land that he describes as "vacant residential land", and one block of land described as "grazing land". The Commissioner says that Mr Vidler owes GST on those sales.

2. On the sales of the vacant residential land, Mr Vidler paid no GST. On the sale of the grazing land, he paid GST but, the Commissioner says, he did not pay enough.

3. The Commissioner made assessments of the various amounts of GST claimed to have been underpaid. The Commissioner also made assessments of administrative penalty, on the basis that Mr Vidler's failure to pay the right amount of GST amounted to a failure on his part to exercise reasonable care in complying with a taxation law: ss 284-75 and 284-90 in Schedule 1 to the Taxation Administration Act 1953 ("Administration Act").

4. Mr Vidler's objections against the various assessments were disallowed. He has now applied to the Tribunal for review of those objection decisions.

The issues

5. In relation to the two blocks of land described as "vacant residential land", the question is whether the supplies were "input taxed" under s 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 ("GST Act"). That question turns on whether the supply, in each case, was of "residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)" for the purposes of s 40-65(1). The parties have agreed that, as a first step, I should deal only with the question whether each block of land was "residential premises" as defined in the GST Act. If I decide that either block of land was within that definition, then the hearing will need to be resumed for the purpose of exploring the remaining issues in s 40-65(1).

6. In relation to the block described as "grazing land", Mr Vidler agrees that his supply of the land was a taxable supply. What I am required to do is to identify the consideration for that supply.

7. I will set out the background facts before dealing with the issues.

The first property

8. The first block of "vacant residential land" is at North Booval, in Ipswich, Queensland. I will refer to it as the "Gledson Street property" or "the first property".

9. In August 2004, Mr Vidler entered into a contract to purchase the property for $1,000,000. In December that same year, he entered into a contract to sell the property for $2,350,000. Throughout the period when he owned it, the property, consisting of 2.7 hectares of vacant land, was zoned residential low density. It was connected to an electric power supply. It was also able to be connected, but was not in fact connected, to gas, water and sewerage infrastructure at the boundaries of the property.

10. Mr Vidler explained in an affidavit sworn on 5 August 2008 (Exhibit A1):

  • "[10] At the time I purchased the Gledson Street property I had identified it as a property on which I would construct a dwelling for myself and my daughter and use the balance of the land for private purposes for grazing of our horses. After attending the Ipswich City Council, I became aware that the Q100 flood line had moved and I became aware that the whole of the Gledson Street Property could be sub-divided for residential purposes. I did not however, make any development application to sub-divide the property.
  • [11] I did not advertise the Gledson Street Property for sale. The Gledson Street Property was listed by me for sale with Bernard Dalton Real Estate. The Gledson Street Property was sold as vacant residential land just as I had purchased it. The special conditions to the contract dated 31 December 2004 provided that the contract was conditional upon the buyer being satisfied as to every aspect of the property (including for example its zoning, its condition and its potential)."

    ATC 2953

The second property

11. The second block of "vacant residential land" is at Sadliers Crossing, also in Ipswich. I will refer to it as the "Gladstone Road property" or "the second property".

12. In May 2004, Mr Vidler entered into a contract to purchase the property for $175,000. In April 2005 he entered into a contract to sell the property for $285,900. Throughout the period when he owned it, the property, consisting of 2,428 square metres of vacant land, was zoned Character Mixed Residential (which allows 50 dwellings per hectare). It was able to be connected, but was not in fact connected, to an electric power supply and a water supply, both of which were available at the boundaries of the property. It was also able to be connected, but was not in fact connected, to existing sewerage infrastructure which passed through the property.

13. In his affidavit he explained:

  • "[18] At about the time I purchased the Gladstone Road property I also purchased adjoining residential properties on which there were existing dwellings known as 15 Gladstone Road, Sadliers Crossing and 1 Able Street, Sadliers Crossing. The Gladstone Road property by itself could have been used for the construction of a dwelling or duplex. I was aware however, that the Gladstone Road property had a probably greater development potential if it was sold with 1 Able Street, Sadliers Crossing and 15 Gladstone Road, Sadliers Crossing. I didn't however proceed with any development application nor market any of the properties as a development site.
  • [19] The Gladstone Road Property was sold to an acquaintance who was involved in property development. The special conditions provided that the sale of this vacant residential land was subject to and conditional upon the contemporaneous settlement of contracts for the sale of the residential property at 1 Able Street, Sadliers Crossing and 15 Gladstone Road, Sadliers Crossing."

The third property

14. I will refer to the block of grazing land as the "Rody Burke Road property" or "the third property". It is located in Gowrie Junction, near Toowoomba in Queensland.

15. In August 2005, Mr Vidler entered into a contract to purchase the third property. In October 2005, he entered into a contract to sell the property for $2,600,000. Special condition 5.1 of the sale contract provided as follows:

"The Buyer acknowledges that it is a fundamental condition of this contract that the Buyer pays the sum of $110,000 (inclusive of GST) to the Seller or as directed by the Seller as compensation for the failure by the Buyer to complete the purchase of the Land pursuant to a previous contract."

16. The previous contract referred to in special condition 5.1 had provided for the earlier sale, to the same buyer, of the property for $2,600,000, with settlement to occur thirty days from the contract date. Mr Vidler had purported to terminate the previous contract as a result of the buyer's failure to complete within that thirty day period. As a result of the default by the buyer, Mr Vidler had forfeited the deposit paid by the buyer (shown in the previous contract as $50,000).

17. In respect of the sale of the property, Mr Vidler and the buyer agreed to apply the margin scheme to work out the amount of GST payable. Under that scheme, provided for in Division 75 of the GST Act, GST is payable on the difference between the consideration for the supply of the land (selling price), and the consideration for the supplier's acquisition of the land (purchase price). The Commissioner says that, in making that calculation, Mr Vidler should have included in the selling price the so-called "compensation amount" of $110,000 paid by the buyer under special condition 5.1. Because Mr Vidler did not include that amount in the calculation, the Commissioner says that Mr Vidler has underpaid GST by $10,000.

18. There is a further small amount of $491 of GST that the Commissioner claims has been underpaid as a result of Mr Vidler's inadvertent double claiming of input tax credits for the Rody Burke Road property. Mr Vidler concedes this liability, and also the consequential administrative penalty, imposed at 25% but reduced by 80% for voluntary disclosure, on that underpayment of $491.

ATC 2954

Administrative penalty

19. Administrative penalty on the shortfall amounts said to have arisen with respect to the sale of the first and second properties was originally imposed at 25% for failure to take reasonable care. However, the Commissioner has since determined to "waive" those amounts of penalty, totalling $33,202.

20. Penalty was also imposed at 25% on the shortfall amount of $10,491 with respect to the third property, but reduced by 80%, under s 284-225 in Schedule 1 to the Administration Act, for voluntary disclosure. Because Mr Vidler concedes the liability to administrative penalty on the $491 shortfall referred to in [19] above, the only amount of penalty now in issue is the $500 relating to the understated selling price of the third property. As far as this amount is concerned, Mr Vidler accepts that the penalty will follow the primary tax: in other words, if the consideration for the sale of the third property includes the $110,000 compensation amount, then the $500 penalty on the shortfall is appropriate.

Did Mr Vidler make supplies of "residential premises"?

21. The preliminary question in relation to the first and second properties is whether they were "residential premises" at the time Mr Vidler sold them.

22. Mr Vidler sold both properties as vacant land. While they were both zoned for residential use, they had no buildings on them at the time of sale, and there is no evidence that they have ever had any buildings on them.

23. The expression "residential premises" is defined in s 195-1 of the GST Act, but the definition has been amended twice since the GST Act was originally enacted. To understand its current meaning, it is necessary to trace its history through those two amendments. In its original form, the definition was as follows ("the original definition"):

" residential premises means land or a building occupied or intended to be occupied as a residence, and includes a *floating home."

24. In 1999, the definition was substituted by the A New Tax System (Indirect Tax and Consequential Amendments) Act 1999 (Act No. 176, 1999), to read as follows ("the 1999 amended definition"):

" residential premises means land or a building that:

  • (a) is occupied as a residence; or
  • (b) is intended to be occupied, and is capable of being occupied, as a residence; and includes a *floating home."

25. Then, in 2006, in response to the judgment of the Full Federal Court in
Marana Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 307; (2004) 141 FCR 299; 57 ATR 521; 2004 ATC 5068, the definition was substituted again, this time by the Tax Laws Amendment (2006 Measures No 3) Act 2006 (Act No. 80, 2006). It would now read as follows ("the current definition"):

" residential premises means land or a building that:

  • (a) is occupied as a residence or for residential accommodation; or
  • (b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;

    (regardless of the term of the occupation or intended occupation) and includes a *floating home."

26. Both the 1999 amendment and the 2006 amendment were expressed to have retrospective effect from 1 July 2000, the date of commencement of the GST.

27. It appears to be common ground that paragraph (a) of the current definition cannot apply because the properties were not, at the time of supply, "occupied as a residence or for residential accommodation". Therefore, the case turns on the question whether, at the time that each of them was supplied by Mr Vidler, the property was "intended to be occupied, and … capable of being occupied, as a residence or for residential accommodation (regardless of the term of the occupation or intended occupation)".

"Capable of being occupied"

28. The Commissioner submits that vacant land (whether zoned for residential use or otherwise) can never be "capable of being occupied" as a residence or for residential accommodation at the time of its supply. That is

ATC 2955

because, according to the Commissioner, land is not capable of being so occupied unless, at the very least, it has upon it a structure that contains facilities required for day to day living.

29. The Commissioner says this submission is consistent with the Explanatory Memorandum ("EM") to the Bill introducing the 1999 amendment. The EM said this, at paragraphs 1.167 and 1.168:

  • "1.167 Item 157 repeals the definition of residential premises and substitutes a new definition. The new definition requires that for land to be considered residential premises it must be intended to be occupied, and capable of being occupied, as a residence. That is, it is permissible to use the land for residential purposes and the land has some facilities ordinarily associated with residences (i.e. water and sewerage).
  • 1.168 The amendment ensures that sales of vacant residential land will not be input taxed under section 40-65. The supply of land is not input taxed where it is:
    • • vacant residential land;
    • • commercial land; or
    • • new residential premises."

30. Of course, it was the 1999 amendment that introduced the requirement that premises be "capable of being occupied". However, even after that amendment, there was still no reference, in the definition of "residential premises" itself, to occupation of the premises - whether actual, intended or otherwise - "for residential accommodation": that reference would come only in 2006. The EM must be of limited assistance because it addresses a proposed form of the definition of "residential premises" that is different from the one in issue in this case.

31. That form of the definition, however, was the one considered by the Full Federal Court in Marana Holdings. That case concerned the sale of a lot (unit) in a new strata plan of subdivision of a building which had formerly been a motel. One of the questions for the Full Court was whether the motel of which the unit had been a part had previously been sold as "residential premises". If it had been, then the unit would not be "new residential premises" and its sale now would be input taxed. At [63] the Court said:

"As far as we can see, there is no evidence concerning the physical suitability as at the date of [the earlier sale], of the premises for use as a residence, as to whether they were then capable of being so occupied or as to whether such use would have then been lawful. As it was apparently necessary to modify the premises, obtain council permission for the change of use and convert the title to strata title, it seems likely that they were neither intended to be, nor capable of being occupied as a residence as at the date of sale. In any event the onus of establishing these matters was upon the appellants, and they seem not to have sought to discharge it. We conclude that the premises were not occupied as residential premises at the date of [the earlier sale], and that they were not then intended to be, and capable of being so occupied. It follows that the premises were 'new residential premises' as at the date of sale to Ms Wells."

32. That passage followed an extensive examination of the dictionary definitions of the words "reside", "residence" and "residential", as a result of which the Court concluded that all three words suggested the notion of permanent or long-term occupation (although, as will be seen from [25] above, the 2006 amendment has removed the length of the term of occupation or intended occupation as a factor).

33. The general thrust of the dictionary definitions was that:

  • • "reside" means to settle; to have one's abode; to dwell permanently or for a considerable time;
  • • "residence" means the place, especially the house, where one resides; one's dwelling place or abode; and
  • • "residential" means adapted or used for residence; connected with, pertaining or relating to, residence or residences.

34. Apart from permanence (or at least some long-term element), these definitions bring to mind a notion of shelter and of facilities designed for, or suitable for, day to day living.

35.

ATC 2956

The Court referred to a number of United Kingdom decisions in which it had been held that the expression "residential accommodation" was significantly wider than the term "residence" and encompassed lodging, sleeping or overnight accommodation irrespective of the term of the occupation. At [45] to [47] it said:
  • "45 The decision in
    Urdd Gobaith Cymru v Commissioners of Customs and Excise [1997] V & D R 273 was concerned with accommodation facilities established at two centres in Wales for students and their teachers attending educational courses at the centres. The question was whether such accommodation was residential accommodation for the purposes of the VAT legislation. The Tribunal held at [13]:

    'I agree that "a residence" clearly implies a building with a significant degree of permanence of occupation. However the word loses that clear meaning when used as an adjective. In ordinary English "residential accommodation" merely signifies lodging, sleeping or overnight accommodation. It does not suggest the need for such accommodation to be for any fixed or minimum period.'

  • 46 In
    Denman College v Commissioners of Customs and Excise [1998] V & D R 399, the Tribunal again considered residential accommodation for students. At [111] the Tribunal referred to the decision in Urdd Gobaith Cymru and continued:

    'So understood, the words "residential accommodation" cover the two accommodation blocks with which the present appeal is concerned. The fact that they have no facilities, included within the block, for providing meals for the occupants does not mean that they are any the less residential accommodation for students.'

  • 47 The Tribunal referred at [12] to an earlier decision of the Court of Appeal in
    Owen v Elliott (Inspector of Taxes) [1990] 1 Ch 786, to which we will presently refer, and observed:

    'That reasoning, albeit in a different context, drives home the conclusion that the present accommodation blocks, which admittedly convey no kitchen or catering facilities, are nonetheless "residential accommodation".'"

36. Ultimately, the Court rejected this wider meaning of "residence" and "residential", holding that an element of permanent or long-term occupation was required.

37. However, that changed in 2006 when the words "(regardless of the term of the occupation or intended occupation)" were added to various provisions, including the definition of "residential premises" in s 195-1 and the substantive exemption provisions in s 40-65.

38. The effect of the 2006 amendments was put succinctly by Stone J in
South Steyne Hotel Pty Ltd v Commissioner of Taxation [2009] FCA 13; (2009) 71 ATR 228; 2009 ATC 20-090, where at [31] her Honour said:

"… the definition of 'residential premises' in the GST Act now requires the term of the occupation or intended occupation to be disregarded. In my view, that leaves as necessary only the element of shelter and basic living facilities such as provided by a bedroom and bathroom."

39. From that statement, according to paragraph 45 of the Commissioner's written submissions, it follows that:

"… vacant land, whether or not zoned as residential land, cannot be 'residential premises' because, at the time of the supply, the land does not (by definition) have shelter and basic living facilities that permit it to be used as a residence or for residential accommodation."

"Intended to be occupied"

40. The Commissioner then submits that, not only were these properties not "capable" of being occupied as a residence or for residential accommodation, they were also not "intended" to be so occupied. That follows, so it is said, from the Full Court's explanation in Marana that the use of the word "intended" does not invite an enquiry as to the subjective intention of any person, whether the supplier or the

ATC 2957

recipient. Instead, the proper approach is clarified at [62]:

"In our view the word 'intended' in the definition is used in a different sense. The relevant meaning of the verb 'intend' is, according to Shorter Oxford, '[h]ave as one's purpose (an action etc.)'. The verb may also be used in the passive form to describe the object of an intention. In the present case, the passive verbal form 'is intended' has as its grammatical subject the connective 'that', standing in place of the words 'land or a building'. The person having the relevant intention is not identified. This sentence structure is commonly used to describe characteristics of the subject of the sentence, which subject is the object of the relevant intention. To say that a building is 'intended' to be occupied as a residence implicitly describes the intention with which it was designed, built or modified, which intention will be reflected, to greater or lesser extent, in its suitability for that purpose . …" (emphasis added by the Commissioner)

41. It is true that the focus in that excerpt is on a "building" rather than on "land", but there is no reason to suppose that the considerations with respect to land should be any different. The question must be as to the suitability of the land for the relevant purpose - remembering that the relevant purpose is occupation as a residence or occupation for residential accommodation, and not the more general "use for residential purposes".

42. Mr Vidler argues that the Commissioner's approach is too narrow. He says that the practical effect of the Commissioner's approach is to undertake an "impermissible legislative rewriting of the provision", such that the opening part of the definition of "residential premises" is altered from "land or a building" to "land with a building".

43. I disagree: and so, not surprisingly, does the Commissioner.

44. The Commissioner's written submissions specifically accept that the definition of "residential premises" speaks of "land or a building". They then go on to say at [36] to [40]:

  • "36 … 'Land' is not defined in the Act. It therefore bears the prima facie meaning given to it by s 22(1)(c) of the Acts Interpretation Act 1901 (Cth):

    ' Land shall include messuages tenements and hereditaments, corporeal and incorporeal, of any tenure or description, and whatever may be the estate or interest therein'.

  • 37 That definition is sufficiently wide to encompass both vacant land and land upon which a dwelling-house (or messuage) has been constructed.
  • 38 However, the meaning in s 22(1)(c) does not apply if a contrary intention appears. In addition, orthodox principles of statutory construction require 'land' to be read with due regard to the context in which it is found in the Act: see e.g.
    Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 at [69]. In Blue Sky, the High Court noted:
    • '[69] The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined "by reference to the language of the instrument viewed as a whole". In Commissioner for
      Railways (NSW) v Agalianos [(1955) 92 CLR 390], Dixon CJ pointed out that "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". Thus, the process of construction must always begin by examining the context of the provision that is being construed.
    • [70] A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions. Reconciling conflicting provisions will often require the court "to determine which is the leading provision and which the subordinate provision, and which must give way to the other". Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme.' (footnotes omitted)

      ATC 2958

  • 39 It is also important to recognize that words of general application will often be constrained by their context. In
    CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408, Brennan CJ, Dawson, Toohey and Gummow JJ said:

    'Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in
    Isherwood v Butler Pollnow Pty Ltd [(1986) 6 NSWLR 363 at 388], if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.'

  • 40 In the present case, the meaning of the word 'land' is confined by the fact that the land must be intended to be occupied, and be capable of being occupied, 'as a residence or for residential accommodation'. In the respondent's submission, land is not capable of being so occupied unless, at the very least, it has upon it a structure that contains facilities required for day to day living."

45. Once it is accepted, in reliance on the statement of Stone J in South Steyne, that residential premises require both shelter and basic living facilities, it must also be accepted that only a building or structure of some kind can deliver those two necessary components. And so, residential premises can be constituted by:

  • • land, incorporating a building, intended to be occupied and capable of being occupied as a residence or for residential accommodation; or
  • • a building intended to be occupied and capable of being occupied as a residence or for residential accommodation.

46. The introductory words of the definition of residential premises simply accommodate those two possibilities.

47. In relation to the phrase "intended … and is capable of being occupied", Mr Vidler's written submissions rely on the decision of the High Court in
Federal Commissioner of Taxation v Sidney Williams (Holdings) Ltd (1956) 100 CLR 95 to draw a distinction between a legal ability and a practical ability to secure physical occupation. It is then suggested that "capable of being occupied" should be read in the sense of "permitted as a matter of law".

48. At [11] to [14] the submissions continue:

  • "11 In the Applicant's submission that is the preferred construction of the definition of residential premises. The decision of the Full Court in
    Marana v FCT, relied upon by the Commissioner is not binding authority to the contrary. First, on its facts, it was not concerned with 'land' per se. Second, the joint judgment recognizes the very conundrum identified above, between a legally permitted use and occupation, as opposed to, an immediate, practical, physical occupation. Thirdly, within paragraph [62] the joint judgment stated:

    'It is true that this meaning may overlap with the further requirement that the building be capable of occupation as a residence. However, as we have pointed out, the 1999 amendment appears to have been concerned primarily with land. It may not be surprising that it is a little awkward in its application to buildings. In any event para 1.167 of the Explanatory Memorandum which accompanied the amending legislation suggests that the draftsman may have thought that "intended" meant " permissible " and "capable" meant " having necessary qualities ".' (emphasis added by Mr Vidler)

  • ATC 2959

    12 The language of 'appears'; 'surprising'; 'a little awkward'; and 'suggests' is not that of a definitive precedent. That there is inherent uncertainty is demonstrated by the observations of Gibbs J in
    DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties 82 ATC 4125 at 4130 in the context of the expression 'to be vested' as follows:

    'The words "to be", before a past participle, and used in relation to a noun, can express obligation, intention, possibility or even simple futurity; the sense must in every case depend on the context in which the words appear.'

  • 13 Most significantly, on the facts in Marana, soon after the sale the appellants obtained council approval to use the premises as residential apartments and applied for division into strata title lots. [As the Full Court said at [63]:]

    'As far as we can see, there is no evidence concerning the physical suitability as at the date of sale by Hajuku to Tarfex, of the premises for use as a residence, as to whether they were then capable of being so occupied or as to whether such use would have then been lawful . As it was apparently necessary to modify the premises, obtain council permission for the change of use and convert the title to strata title, it seems likely that they were neither intended to be, nor capable of being occupied as a residence as at the date of sale.' (emphasis added by Mr Vidler)

  • 14 In the Applicant's contention, the judgment of the Full Court has not decided and in fact left open the question whether the phrase 'is intended to be and is capable of being occupied' refers to a permitted 'lawful' use that is 'legally capable'."

49. Even if those submissions were to be accepted, it is difficult to see how they advance Mr Vidler's case. The question is whether the properties, at the time of their supply by Mr Vidler, were "intended to be occupied, and [were] capable of being occupied, as a residence or for residential accommodation". Whether that is a question as to legal or practical capability is in my view irrelevant. That is because a vacant block of land is neither legally nor practically capable, in its condition as a vacant block of land, of being occupied as a residence or for residential accommodation. This is the inescapable conclusion to be drawn from the statement of Stone J in South Steyne at [31], referred to above at [38]. And the reason why its capability of occupation for one of those purposes is to be assessed in its condition as a vacant block of land is that that is its condition at the time of supply, and it is in that condition that it is to be characterised as satisfying, or not satisfying, the definition of "residential premises".

50. Mr Vidler's submissions also focus on the Commissioner's public ruling GSTR 2000/20 and the draft ruling, GSTR 2000/D4, which preceded it. Paragraphs 82 and 83 of the draft had said:

  • "83. To be residential premises, land that has no buildings need only be intended for and capable of occupation as a residence at some time in the future. To be residential premises, land must have some of the facilities ordinarily associated with residences, such as water and sewerage, and should be zoned for residential occupancy. If land has any buildings attached, it is the character of the buildings that will determine whether or not the premises are residential.
  • 84. The concept of residential premises is wider than that of commercial residential premises. There are no classes of premises given in the former definition. The identity of residential premises must therefore be defined in the broadest terms." (footnote references omitted)

51. By the time the draft became finalised as GSTR 2000/20, the relevant paragraphs (24 and 25) were in the following terms:

  • "24. The definition of 'residential premises' in section 195-1 refers to land or a building that is occupied as a residence or for residential accommodation or is intended and capable of being occupied as a residence or for residential accommodation.

  • ATC 2960

    25. The definition requires that land must have a building affixed to it and that the building must have the physical characteristics that enable it to be occupied or be capable of occupation as a residence or for residential accommodation. Vacant land of itself can never have sufficient physical characteristics to mark it out as being able to be or intended to be occupied as a residence or for residential accommodation."

52. Mr Young, who appeared for Mr Vidler, did not suggest that the draft was binding either on the Commissioner or on the Tribunal, or that it represented anything other than the Commissioner's preliminary view. He claimed that its importance lay in the reasoning process, which, he said, stressed the terms of the EM to the 1999 amending Bill, and specifically paragraph 1.167 quoted above at [29].

53. I am not persuaded that the reasoning in the draft ruling is of any assistance to Mr Vidler. That draft was written in 2000, before important amendments made in 2006 and several years before the authoritative judgments in Marana and South Steyne were delivered. The final ruling, although also bearing a 2000 date, has been reviewed by the Commissioner since then, most recently in 2006, according to the Australian Taxation Office website. The current version of the final ruling more closely corresponds to the Marana and South Steyne judgments and for that reason its statements are more reliable than those in the draft.

Conclusion as to "residential premises"

54. Neither the Gledson Street property nor the Gladstone Road property satisfied the definition of "residential premises" at the time that Mr Vidler sold them. They both lacked the necessary elements of shelter and basic living facilities without which, according to Stone J in South Steyne, a property cannot satisfy the definition of "residential premises".

55. Given that conclusion, it is unnecessary to explore whether the remaining words of s 40-65(1) of the GST Act apply. Mr Vidler's supply of the first and second properties cannot be input taxed under s 40-65(1).

What was the consideration for the supply of the third property?

56. Section 75-10 of the GST Act provides relevantly as follows:

  • "(1) If a *taxable supply of *real property is under the *margin scheme, the amount of GST on the supply is 1/11 of the *margin for the supply.
  • (2) Subject to subsection (3) and section 75 11, the margin for the supply is the amount by which the *consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question."

57. The critical element of the "margin" for Mr Vidler's supply of the third property is the "consideration for [that] supply".

58. The Dictionary in s 195-1 of the GST Act explains that:

" consideration , for a supply or acquisition, means any consideration, within the meaning given by section 9 15, in connection with the supply or acquisition.

Note: This meaning is affected by sections 75-12, 75-13, 75-14, 78-20, 78-35, 78-45, 78-50, 78-65, 78-70, 79-60, 79-65, 79-80, 80-15, 80-55, 81-5, 82-5, 82-10, 99-5, 100-5, 100-12 and 102-5."

59. None of the provisions mentioned in the "Note" has any application here.

60. Section 9-15 provides relevantly:

  • "(1) Consideration includes:
    • (a) any payment, or any act or forbearance, in connection with a supply of anything; and
    • (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.
  • (2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply."

61. The question is whether the payment of the compensation amount of $110,000 by the buyer is a "payment … in connection with …, in response to or for the inducement of [the] supply".

62. The Commissioner says that it is a payment "in connection with" Mr Vidler's supply of the third property. As to this element

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of the definition of "consideration", the Commissioner says at paragraphs 67 and 68 of his written submissions:
  • "67. The expression 'in connection with' is to be given a wide meaning:
    Our Town FM Pty Ltd v Australian Broadcasting Tribunal (No 1) (1987) 16 FCR 465 at 479;
    Burswood Management Limited v Attorney General (1990) 23 FCR 144 at 146; cf
    HP Mercantile Pty Limited v Commissioner of Taxation (2005) 143 FCR 553 at 563. A payment may be made in connection with something even though the payment is not made in return for that thing: see
    Berry v Federal Commissioner of Taxation (1953) 89 CLR 653 at 657-659. So long as the payment is related to, or 'has to do with', a contemplated event or outcome, the payment will be consideration for the purposes of section 9-15: cf
    Claremont Petroleum NL v Cummings (1992) 110 ALR 239 at 280; see also Body Corporate,
    Villa Edgewater CTS 23092 v Federal Commissioner of Taxation 2004 ATC 2056 at [34]. It is not necessary for the applicable payment to be made 'in return for' the supply: see EM to the Act at [3.9] ['Consideration for GST is broader than it is for contractual purposes.']
  • 68. It is clear that the compensation payment was made 'in connection with' the supply by the applicant of the 3rd property pursuant to the sale contract. The compensation payment was made pursuant to a clause that the parties agreed was a 'fundamental condition' of the sale contract. The failure by the Buyer to make the payment would therefore entitle the applicant to refrain from supplying the 3rd property. This circumstance demonstrates that the compensation payment was a sine qua non of the supply of the property."

63. While it is true that the expression "in connection with" is to be given a wide meaning, it is not without limitation. In Burswood Management, Lockhart, Wilcox and Hill JJ said at 146:

"The words 'in connection with' are words of wide import; and the meaning to be attributed to them depends on their context and the purpose of the statute in which they appear. As Davies J said in Hatfield [v Health Insurance Commission (1987) 15 FCR 487] at 491:

'Expressions such as "relating to", "in relation to", "in connection with" and "in respect of" are commonly found in legislation but invariably raise problems of statutory interpretation. They are terms which fluctuate in operation from statute to statute … The terms may have a very wide operation but they do not usually carry the widest possible ambit, for they are subject to the context in which they are used, to the words with which they are associated and to the object or purpose of the statutory provision in which they appear.'

Reference to particular reported cases is of little assistance in determining the meaning of the words 'in connection with' because they take their meaning from the particular statute in which they appear."

64. While the Commissioner's summary, in paragraph 67 of his submissions ([62] above), of what was said in
Berry v Federal Commissioner of Taxation is reasonably accurate, it is desirable to set out some of the broader context and reasoning in that case. The taxpayer received a sum of money for a personal covenant against competing in business with the persons making the payment. The issue in the case was whether the sum was received as consideration "for or in connection with goodwill". At 658-659 Kitto J said:

"The question, then, is whether the consideration received by the appellant for his covenant against competition answers the description of 'any consideration in connection with' the goodwill which the Pecks thus acquired. Mr Hardie contended that a consideration could not be said to be 'in connection with' a goodwill unless it was received for a part of that goodwill. I am unable to accept that view. The words 'for or in connection with' imply that a consideration may satisfy the definition as being 'in connection with' one of the subjects mentioned, although not 'for' it. Now, while it is true that a payment cannot be described as a consideration 'for' anything but that which is given in exchange for it, to speak of a consideration being 'in

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connection with' an item of property parted with is to use language quite appropriate to the case of a payment received as consideration 'for' something other than the property in question, so long as the receipt of the payment has a substantial relation, in a practical business sense, to that property. A consideration may be 'in connection with' more things than that 'for' which it is received."

65. The GST Act uses expressions such as "make [a] supply for consideration" (s 9-5(a)) and "consideration for the supply" (s 75-10(2)), but then, in the Dictionary in s 195-1 and also in the definition in s 9-15(1)(a), embraces within the concept of "consideration" any payment that is made "in connection with" a supply. The introduction of that broader concept "in connection with" cannot have been accidental. It must be assumed that the object of the legislation is to cast the net more widely than would have been the case if, in both s 195-1 and s 9-15(1)(a), the relationship between "supply" and "consideration" had been governed by the word "for" rather than the expression "in connection with".

66. Mr Vidler's submissions in reply did not address this issue of consideration. Mr Vidler's contentions therefore go no further than those raised by his solicitor in the Statement of Facts, Issues and Contentions filed with the Tribunal prior to the hearing. They were as follows (paragraphs 47 to 49):

  • "47. The Applicant is not liable for goods and services tax on the receipt of the Compensation Payment since the Compensation Payment was not received by him for the making of a taxable supply (section 9-5 of [the GST Act].)
  • 48. The Compensation Payment is not consideration received in respect of a 'supply' since it is not a 'supply' as defined by section 9-10 of [the GST Act].
  • 49. The Compensation Payment is not analogous to the forfeiture of the deposit held as security for a purchaser's obligation and the decision in
    FC of T v Reliance Carpet Co Pty Limited [2008] HCA 22 is not presently relevant."

67. The contention in paragraph 47 fails to acknowledge the difference in language between s 9-5 on the one hand and s 195-1 and s 9-15(1)(a) on the other. The question is not whether the payment was received "for" a taxable supply, but whether it was made "in connection with" Mr Vidler's supply of the third property.

68. As for paragraph 48, the suggestion seems to be that, since:

  • • there is a relationship or association between the payment and the buyer's failure to proceed with the earlier purchase; and
  • • that failure to proceed (or perhaps Mr Vidler's purporting to terminate the contract because of that failure) is not a supply,

the payment is not in respect of a supply. (I note that the expression used in the contention is "in respect of", rather than any of the expressions used in the statute - "in connection with", "in response to" or "for the inducement of".)

69. That is not the correct approach. It is not sufficient to establish a relationship or an association of some kind between a payment and some act, activity or event that is not a taxable supply, or perhaps not a supply at all, and argue from that position that the payment is not consideration for a supply. For if, despite that relationship or association, there is nevertheless a "connection" between a payment and some act, activity or event that is a supply, then that payment will form (at least part of) the consideration for that supply.

70. Here, the payment of the compensation amount is a payment "in connection with" Mr Vidler's supply of the third property. To borrow some of the language of Kitto J in Berry, Mr Vidler's receipt of the payment has a substantial relation, in a practical business sense, to his supply of the property. The compensation amount must be factored into the calculation of the "margin" for the purposes of s 75-10(2) of the GST Act.

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Decision

71. The objection decision in relation to matter 2008/1300 (assessment of net amounts for the quarters ended March 2005, June 2005 and December 2005) is affirmed.

72. The objection decision in relation to matter 2008/4628 (administrative penalty):

  • • is varied to the extent necessary to give effect to the Commissioner's decision to waive the administrative penalty in respect of the shortfall amounts arising from the sale of the first and second properties; and
  • • is otherwise affirmed.


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