The Victorian Court of Appeal in its recent decision of Living and Leisure Australia Pty Ltd vs Commissioner of State Revenue (Living and Leisure) dismissed the appeal by the taxpayers and upheld the Victorian Supreme Court’s conclusion that the contended leases in respect of Crown lands within the alpine resorts granted exclusive possession and were leases. The grantees under the contended instruments operated ski lift resorts located in Mount Hotham and Falls Creek.
Under the Land Tax Act 2005 (Vic), land tax can also be issued to a deemed owner, in this case ‘a person entitled to land under a lease of Crown land’. Based on the conclusion that the contended leases were in fact Crown leases (to which the taxpayer’s subsidiaries were lessees), land tax assessments were issued to the land tax group for the 2010 to 2015 land tax years.
The instruments in question had terms of 50 and 70 years and enabled ski lift operators to conduct ski lift businesses on the underlying land. The contended instruments also contained reservation of rights, such as reserving a right to all members of the public to enter upon, use and enjoy the underlying land and mineral rights in favour of the Crown as lessor.
The taxpayer challenged the assessments, submitting that the contended leases (despite its labelling in the instrument) contained rights that fell short of the grant of exclusive possession to the land. Following this, the taxpayer submitted that the instruments in questions were actually licenses and therefore no land tax liabilities should arise in relation to the underlying Crown lands.
Ultimately, the Court of Appeal dismissed the taxpayer’s appeal and agreed with the Commissioner’s position, finding that the instrument in question did grant a right of exclusive possession. In coming to this conclusion, the broader context of the arrangement and commercial exclusivity of the ski lift operators on the land was considered.
As stated by Chief Justice Ferguson and Justice Whelan in Living and Leisure at paragraph 21:
“Mason J recognised, as had the High Court in Radaich v Smith, that when considering whether exclusive possession has been conferred, the terms of the instrument must be read in the context of the nature of the premises and the use to which they are to be put. Restrictions which appear very broad may, in the context, not be inconsistent with the grant of exclusive possession. Mason J held that to be the case in Goldsworthy in relation to restrictions which, in our view, are not dissimilar to those imposed here… [T]he ski lift operators here have exclusive possession notwithstanding the public access provisions because those provisions assume the existence of a right to exclude (absent the provisions) and are explicable by the relationship between the operators and the demised land as previously explained. The nature of their occupation and permitted use is such that while they must have exclusive possession of critical parts of the land they can accommodate public access to other parts for non-commercial use and enjoyment”
Whilst this case serves as a reminder as to the core principles contained in Radaich v Smith  HCA 45 and Goldsworthy Mining Ltd v Federal Commissioner of Taxation  HCA 7 in determining whether an instrument is a lease, it also demonstrates the difficulty in ascertaining the legal question of what comprises exclusive possession and the complexities that can surround leases.
Victorian leases and the State tax implications
Victorian leases (particularly leases to which there has been consideration paid other than rent for the grant or transfer of such leases) often have State tax exposures, primarily in duty and land tax (for the latter, this is limited to Crown leases).
Other direct implications arising from this matter relates to ascertaining dutiable leases. The direct and indirect transfer of dutiable leases and related goods and/or fixed items in Victoria (including relevant acquisitions in landholder entities with such underlying interests) may be subject to duty in Victoria. As duty is calculated based on the underlying market value of the land (rather than the market value of the lease) and market value of related goods and/or fixed items, the duty consequences on a transfer of dutiable leasehold interests in Victoria can be significant. We note that this is an indicative view of the breath of the provisions and that specific exclusions can apply depending on the circumstances and nature of the transfer.
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