Bright v Chief Commissioner of State Revenue

The Applicants' case

1. In summary the Applicants' case is that they occupied the Property as their principal place of residence (PPR) from 1987. In 2011 Mr Bright lost his employment in Sydney and the Applicants were forced to move to Melbourne on 1 June 2011 in order for him to obtain employment. The Property was leased when they moved to Melbourne in order to assist their cash flow. They did not move to make a profit but merely to keep in work as an active member of the community. The Applicants had to visit Sydney while residing in Melbourne in order to see their children and in order to see Mr Bright's father who was ill and who passed away in 2013. The Applicants returned to Sydney on 1 December 2011 but were unable to take up residence at the Property as it had been leased. They wished to sell the Property in mid-2013 however they were unable to do so as the agent they had appointed to deal with the Property on their behalf had re-leased the Property for an additional period without informing them. The Assessment to which they objected has resulted in an unfair and unjust treatment for the Applicants and they submitted that the land tax law was not designed to operate in that way.
2. The Applicants relied on a letter dated 21 January 2014 to the Tribunal from Mr Bright attached to which was a sales agent's agreement commencing 4 January 2011 and a letter dated 26 August 2014 from Seiva, their accountant, to Mr Roberts, the State Member of the Legislative Assembly for Lane Cove. Mr Bright gave oral evidence to the Tribunal and was cross-examined, he also made oral submissions to the Tribunal.

The Respondent's case

1. Ms Tovey submitted that the land tax exemption sought by the Applicants for the Property relates to a statutory concession for absence from a former PPR. The exemption does not apply unless the Chief Commissioner is satisfied that no income has been derived from the use or occupation of the former residence unless the right to occupy does not exceed a continuous period of six months or a total period of 182 days in the relevant tax year, or the income derived is no more than is reasonably required to cover certain specified out-of-pocket expenses in respect of the former residence. A further restriction on the application of the exemption is that it only applies where the owner uses and occupies as a residence land which is not owned by the owner of the former residence in respect of which the exemption is claimed.
2. Ms Tovey submitted that the Applicants were the owners of the Property at each relevant date for assessing land tax and as such were prima facie liable for land tax in respect of the relevant period. Ms Tovey further submitted that, on the evidence before the Tribunal, the statutory concessions were not available to the Applicants and the Chief Commissioner did not and could not take fairness into account in respect of the decision to issue the Assessment, Respondent's written submissions (RS) at [46]. The Tribunal is required to consider the Chief Commissioner's decision by reference to the legislation that dictates whether or not any exemption from land tax applies and not by reference to general notions of 'fairness', RS at [47].
3. The Respondent relied on documents filed with the Tribunal in accordance with section 58 of the Administrative Decisions Review Act 1997 (the s. 58 documents); an affidavit by Holly Morgan, solicitor employed in the office of the Crown Solicitor, made 3 February 2015; and an affidavit by Oliver Berkmann, a senior review officer employed by the Chief Commissioner, made on 5 February 2015. Several documents were attached to each of the affidavits. Ms Tovey provided written submissions on behalf of the Respondent and made oral submissions during the hearing.

Powers of Tribunal on review

1. On a review the Tribunal may confirm, vary or reverse relevant decisions of the Chief Commissioner and make orders as to costs or otherwise as it thinks fit, s. 101(1) of the Taxation Administration Act 1996 (the TA Act).

Issues

1. The decision in issue is the decision of the Chief Commissioner to issue the Assessment in respect of the Relevant Period without exempting the Property from assessment.

Onus of proof

1. The Applicants have the onus of proving their case in a review by the Tribunal, s. 100 of the TA Act. The requisite standard of proof in such a review is the "balance of probabilities" Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [31] and B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187, (2008) 74 NSWLR 481 at [104].

The law

1. Part 3 of the Land Tax Management Act 1956 (LTM Act) provides that land tax is payable by the owner of all land in New South Wales other than land which is exempt from taxation under that Act. The tax year is each period of 12 months commencing on the first day of January and land tax is charged on land owned as at midnight on 31 December immediately preceding the tax year (sections 7-9).
2. The PPR exemption from land tax is located in Schedule 1A of the LTM Act, s. 10(1)(r). Clause 2 of the Schedule conditionally exempts certain land from taxation. 2 Principal place of residence exemption (1) Land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under this Act, in respect of the year commencing 1 January 2005 or any succeeding year, if the land is: (a) a parcel of residential land, or (b) a strata lot or, subject to this Schedule, land comprised of 2 or more strata lots. (2) Land is not used and occupied as the principal place of residence of a person unless: (a) the land, and no other land, has been continuously 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 land tax is levied, or (b) in any other case, the Chief Commissioner is satisfied that the land is used and occupied by the person as the person's principal place of residence.
3. The Applicants sought a PPR exemption in respect of the Property for the Relevant Period during which they were not using and occupying the Property as their PPR.
4. The Schedule provides certain concessions which enable the exemption to be applied in addition to the exemption in clause 2. Clause 8 provides a conditional concession for absences from a former residence. Excerpts from clause 8 which may apply to the Applicants are: 8 Concession for absences from former residence (1) If the Chief Commissioner is satisfied that: (a) a person is the owner of land ("the former residence") that has been used and occupied by the person as his or her principal place of residence for a continuous period of at least 6 months, and (b) the person uses and occupies other land (whether or not in New South Wales), that is not owned by the person, as his or her principal place of residence, the person is taken, for the purpose of the principal place of residence exemption, to continue to use and occupy the former residence as his or her principal place of residence. (6) This clause applies in respect of the assessment of a person's ownership of land in a tax year only if the Chief Commissioner is satisfied that no income has been derived from the use or occupation of the former residence in the preceding tax year, except as permitted by subclause (7). (7) Income may be derived from the use or occupation of the former residence in a tax year if: (a) the income is derived from a lease, licence or other arrangement under which a person has a right to occupy the former residence and the period for which any such right of occupation is conferred does not exceed a continuous period of 6 months, or a total period of 182 days, in the tax year, or (b) the income is derived from any arrangement under which a person occupies the former residence, but the income is no more than is reasonably required to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence. (7A) For the purposes of subclause (7), each overnight stay counts as one day.
5. The background facts are substantially agreed by the parties. It is common ground that the Applicants were entitled to and were granted the PPR exemption for the Property from the date of purchase in 1987 up to and including the 2011 land tax year. The Applicants informed the Chief Commissioner that they resided at the Property from 1 July 1987 to 30 June 2011 and that the Property was rented from 30 June 2011 to at least 3 January 2014 (page 18 of the s. 58 documents). In a letter to the Tribunal dated 21 January 2014 the Applicants informed the Tribunal that they moved to Melbourne on 1 June 2011 under a services contract a copy of which was in evidence and which required the performance of work in Melbourne. I note that the initial term of the contract was for the period 4 January 2011 to 30 June 2011.
6. In a letter dated 5 January 2015, at page 3 of the annexe to Ms Morgan's affidavit, the Applicants stated that they ceased to reside at the Property on 30 May 2011 and the Property was leased from that date to 30 June 2013. In June 2013 the Applicants purchased a property at Shackel Ave, Clovelley in which they resided from 1 July 2013 and in respect of which they were granted a PPR exemption for the 2014 land tax year.
7. In the 5 January 2015 letter the Applicants stated they resided at various locations in the period from 1 January 2011 to 5 January 2015. The locations and the relevant periods are as follows: 1. From 1 January 2011 to 30 May 2011 at the Property. 2. From 2 May 2011 to 20 March 2012 at South Yarra in Victoria. 3. From 22 February 2012 to 15 August 2013 at Paddington in New South Wales's. 4. From 1 July 2013 to 30 June 2014 at Shackel Ave Clovelly. 5. From 1 July 2014 to 5 January 2015 at the Property.
8. The evidence before the Tribunal is that three leases to third parties were entered into in respect of the Property. Those leases were for the following periods: 1. From 30 May 2011 to 29 May 2012. This lease was signed by Mr Bright. 2. From 30 March 2012 to 29 March 2013. Mr Bright's evidence was that this lease was signed on behalf of the Applicants by their leasing agent and the Applicants were aware of the lease. 3. From 30 June 2013 to 30 June 2014. This lease was signed by the Applicant's the leasing agent. Mr Bright's evidence was that the Applicants were not aware that this lease had been entered into in their name and they were not provided with a copy of the lease.
9. Mr Bright conceded that the relevant agency agreement granted power to the agent to enter into and sign tenancy agreements in respect of the Property and that he had read the agency agreement. He submitted that he did not understand the relevant provision at the time he signed the agreement. I observe that the provision, clause E1(4), appears reasonably straight-forward. It states: The Principal authorises the Agent to undertake the following management, administration and leasing duties: (4) Enter into and sign Tenancy Agreements. I observe that the agent was not called to give evidence.
10. No explanation was provided as to the apparent discrepancies as to the date on which the Applicants moved to Melbourne, the date on which the Property was initially leased and the performance period in the service contract.
11. There is no dispute that the Applicants owned the Property and used it as their principal place of residence for a continuous period of at least six months and that from either 2 May 2011, 1 June 2011 or 1 July 2011, until the Applicants moved into the Shackel Ave Clovelly property on 1 July 2013, they used and occupied land not owned by them as their principal place of residence. To this extent it would have been reasonable for the Chief Commissioner to have been satisfied that the provisions of clause 8(1) applied for the benefit of the Applicants from the date in 2011 when they ceased to reside at the Property as their PPR until either 1 July 2013 or 15 August 2013.
12. However subclause 8(6) provides that the clause 8 concession only applies in a tax year if the Chief Commissioner is satisfied that no income has been derived from the use or occupation of the former residence in the preceding tax year, except as permitted by subclause 8(7).
13. Subclause 8(7) provides that income may be derived from the use or occupation of the former residence in a tax year if either of two provisions apply, see [13] above.
14. The first alternative, paragraph 8(7)(a), requires that income is not derived from a lease license or other arrangement under which a person has a right to occupy the former residence for a period which exceeds a continuous period of six months or a total period of 182 days in the tax year. The evidence is that in each of the 2012 and 2013 tax years, the Property was leased from 1 January to 31 December and income was derived for the whole of each relevant tax year. Accordingly I find that the paragraph 8(7)(a) concession does not apply to assist the Applicants.
15. The alternative concession, contained in paragraph 8(7)(b), requires that the income derived from the relevant lease license or other arrangement "is no more than is reasonably required to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence".
16. From 30 May 2011 or 30 June 2011 to 29 June 2013 the Property leases provided for a rent of $6,952.40 per month. From 30 June 2013 the monthly rent was $7,082.75. Some details were provided, from the agent's trust ledger at pages 93-96 of the annexe to Ms Morgan's affidavit, of expenses incurred by the Applicants in respect of the Property. The expenses included council rates, water rates, cleaning, lawn mowing, smoke alarm maintenance, replacement of faulty power points and a door handle, and gas leak investigation/repair.
17. The Applicants did not seriously contend that the rental income was not substantially in excess of the amount reasonably required to provide for the paragraph 8(7)(b) rates charges and costs provided to the Tribunal. Rather, the Applicants submitted that they incurred additional expenses such as the rental cost of their residence in Melbourne, the cost of visiting relatives in Sydney while residing in Melbourne, and the cost of renting other accommodation in Sydney after their return from Melbourne. Their submission was that having regard to these additional expenses they "did not derive a great financial benefit from the rent of" the Property. They also submitted that the "the law has resulted in an unfair and unjust treatment" for their specific circumstances and in the opinion of their accountant the law "was not designed to operate this way". No authority was provided in support of the Applicants' submissions.
18. In my opinion the paragraph 8(7)(b) rates charges and costs all necessarily relate to expenses incurred in respect of the Property. Other expenses such as those incurred by the Applicants in renting alternate accommodation, whether in Melbourne or elsewhere in Sydney, and the cost of flights from Melbourne to visit family members in Sydney while the Applicants resided in Melbourne are not encompassed by paragraph 8(7)(b). Accordingly I find that the concession provided by that paragraph does not apply to the Applicants in respect of either tax year in the Relevant Period.
19. As noted at [10] above land tax is payable by the owner of all land other than land which is exempt from taxation under the LTM Act. The LTM Act does not provide a general discretion to the Chief Commissioner (or the Tribunal) to take into account special circumstances that may apply in respect of a land owner, including hardship, which are not the subject of an exemption under the Act. Volpatti v Chief Commissioner of State Revenue [2007] NSWADT 222 at [12] and [27] and Loomes v Chief Commissioner of State Revenue [2014] NSWCATAD 133 at [37].
20. Section 110(1) of the TA Act provides that the Chief Commissioner may write off the whole or any part of any unpaid tax if satisfied that action, or further action, to recover the tax is impracticable or unwarranted. However even if all or part of the relevant land tax was written off in accordance with s. 110(1), the writing off of tax would not affect the liability of the Applicants to pay the tax or the power of the Chief Commissioner to recover it, s. 110(2).
21. As noted at [9] above the onus lies on the Applicants to prove their case. The Applicants have submitted that the application of the law is unfair and unjust in their circumstances. However they have not provided any evidence, including evidence as to their financial position, to support their submission, nor have they provided any authority to support their implied submission that the Tribunal is empowered to confirm, vary or reverse the relevant decision of the Chief Commissioner other than in accordance with the LTM Act or any other Act.
22. Division 5 of Part 10 of the TA Act provides for a Hardship Review Board. Section 106B provides that in certain circumstances the Board may waive the payment of tax either wholly or in part but only if it is satisfied, other than in the case of a death, that the person liable to pay the tax is in such circumstances that the exaction of the full amount of tax would result in serious hardship for the person or the person's dependents. The Board may also direct the Chief Commissioner to extend the time for payment of tax, s. 106C. However, these are not matters for the Tribunal in these proceedings and in any event no evidence has been provided to the Tribunal concerning any such hardship.
23. Having regard to the above findings on the material before me, the Applicants have not satisfied me on the balance of probability that land tax is not payable by them in respect of the relevant period in accordance with the Assessment.
24. The correct and preferable decision of this Tribunal is that the decision of the Chief Commissioner under review is affirmed. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 April 2015