Feng v Chief Commissioner of State Revenue

Facts

1. The applicant is not an Australian citizen. She was born overseas and married her husband (an Australian citizen) in 2017.
2. On 20 August 2020, the applicant was granted an Australian permanent residence visa. This was a sub-class 801 visa and was not limited as to time.
3. The applicant and her husband signed a contract dated 2 October 2020 (Contract) for the purchase of a vacant block of land in Box Hill, NSW (Property) as joint tenants. The applicant's name was hand-written as a purchaser on the Contract and not initialled. Her husband's name was typed.
4. Shortly before entering into the Contract, the applicant's husband signed a standard form contract with a developer for the construction of a new dwelling (Building Contract). The street (the same as the Property) but not the street number was shown on the contract. There is no complete copy of this contract before the Tribunal. One version shows the husband as the owner; another version provided by the applicant has the applicant added as an owner. The applicant says it was signed on 31 August 2020 and entered into by both her and her husband.
5. On 22 October 2020, the applicant completed a Purchaser/Transferee Declaration - Individual form relating to the purchase of the Property. In that form she stated: 1. Her current residential address (which was not the Property); 2. She was not a foreign person, because she was a person who was "ordinarily resident in Australia"; 3. She was an exempt permanent resident who would occupy the Property as her principal place of residence for a continuous period of 200 days within the first 12 months after the liability date (i.e. the date of the Contract); and 4. The sale of the Property was "off the plan", and she would occupy the Property as her principal place of residence for a continuous period of at least 6 months commencing within 1 month from the date of settlement of the Contract.
6. The Contract settled on 11 December 2020. The applicant and her husband have been recorded as the registered owners of the Property as joint tenants on and from that date.
7. A Complying Development Certificate was issued on or about 3 February 2021 in respect of the construction of a house on the Property, consistent with the Building Contract.
8. The construction of the house was subject to various delays due to COVID-19 lockdowns imposed in NSW.
9. The applicant has variously stated that the house was completed: 1. on 3 February 2021 (in her objection to the respondent - see para 19(2) below); and 2. on 21 January 2022 (in her submissions to the Tribunal).
10. At the hearing, the applicant confirmed the completion date should be accepted as 21 January 2022. This is consistent with the documentary evidence that shows that: 1. an Application for an Occupation Certificate was lodged on 30 November 2021; and 2. an Occupation Certificate was issued on 21 January 2022.
11. Photographs produced as evidence by the respondent show that: 1. construction of the house was still under way as at 7 August 2021, having regard to the presence of construction fencing at the street frontage of the Property; and 2. construction appears to have still been ongoing on 6 October 2021, with no dividing fences or driveway apparent.
12. Based on the documents and photographs, I find on the balance of probabilities that the house on the Property was first available to be legally occupied as a residence on and from 21 January 2022.

Investigations by the respondent

1. On 1 June 2023 the respondent wrote to the applicant, advising that they were investigating whether she was liable for SPD on the purchase of the Property. The letter invited further evidence or disclosure by the applicant.
2. There was no evidence before the Tribunal of any responses to that invitation.
3. The respondent produced movement records of the applicant. These records are not disputed. They evidence that the applicant was not actually in Australia for 200 or more days in the period of 12 months immediately preceding 2 October 2020 (the Contract date). The applicant departed Australia on 27 December 2019 and did not return to Australia until 5 September 2020. By the respondent's calculation, the applicant was actually present in Australia during this period for 113 days.

The Assessment and objection

1. On 16 August 2023 the respondent processed a Notice of Assessment. This was sent to the applicant with a cover letter dated 17 August 2023 which advised the investigation was concluded. The Notice of Assessment showed an amount payable of $27,635.57, comprising: 1. SPD of $18,250.00; 2. penalty tax of $4,630.00; and 3. interest of $4,485.57.
2. On 27 September 2023, the applicant's conveyancer (Mr Ma of Auchland & Co) sent an objection to the respondent, which was signed by the applicant and dated 26 September 2023. The objection relevantly said that: 1. the applicant was eligible for a 12-month deferral of any payable duty as the Property was an "off-the-plan" purchase under s 49A of the Duties Act; and 2. the house on the Property was completed on 3 February 2021 (relying on the Occupation Certificate application form dated 3 December 2021 which showed a "relevant consent" date for CC/CDC No 210038/1 of 3 February 2021).
3. On 11 October 2023 the respondent notified the applicant by letter that her objection had been determined by disallowing it.

The relevant law

1. Surcharge Purchaser Duty (SPD) commenced in 2016 with the insertion of Chapter 2A of the Duties Act titled "Duty charged on certain residential land transactions involving foreign persons".
2. Relevantly, SPD is charged under s 104L(1)(a) of the Duties Act on a dutiable transaction which is a transfer of residential-related property to a foreign person. It is charged at a rate of 8% of the dutiable value: s 104U. This is additional to any duty chargeable under Chapter 2: s 104G.
3. There was no dispute between the parties that under the Duties Act: 1. there was a "dutiable transaction" arising from the Contract; 2. the Property was "residential land" as defined in s 104I(1); and 3. the Property was "residential-related property" as defined in s 104K.
4. There was also no dispute that the Property was purchased by the applicant and her husband as joint tenants, and that the husband is an Australian citizen. In this regard: 1. If any of the transferees are not foreign persons, SPD is charged only on the proportion of the dutiable value of the residential-related property that is the same as the proportion of the share or shares in that property transferred to foreign persons: s 104U(2); and 2. Joint tenants of dutiable property are taken to hold the dutiable property as tenants in common in equal shares, such that relevant duty - if applicable - is charged as to 50% to each: see s 104V and s 14 of the Duties Act.
5. The liability arises at the date of the Contract (the "liability date"), being 2 October 2020: see s 104Q, s 12 and the Dictionary (definition of "instrument") of the Duties Act.
6. "Foreign person" is defined in s 104J of the Duties Act (relevantly) as follows: (1) In this Chapter - foreign person means a person who is a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975 of the Commonwealth, as modified by this section. … (2) The definition of foreign person in the Foreign Acquisitions and Takeovers Act 1975 of the Commonwealth is modified as follows - (a) an Australian citizen is taken to be ordinarily resident in Australia, whether or not the person is ordinarily resident in Australia under that definition, …(b) a New Zealand citizen who holds a special category visa, within the meaning of section 32 of the Migration Act 1958 of the Commonwealth, at any particular time is taken at that time to be an individual whose continued presence in Australia is not subject to any limitation as to time imposed by law.
7. Under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), a foreign person is an individual who is not "ordinarily resident" in Australia, defined under s 5(1) of the FATA as follows (with my underlining): (1) An individual who is not an Australian citizen is ordinarily resident in Australia at a particular time if and only if: (a) the individual has actually been in Australia during 200 or more days in the period of 12 months immediately preceding that time; and (b) at that time: (i) the individual is in Australia and the individual's continued presence in Australia is not subject to any limitation as to time imposed by law; or (ii) the individual is not in Australia but, immediately before the individual's most recent departure from Australia, the individual's continued presence in Australia was not subject to any limitation as to time imposed by law.

Was the applicant a foreign person at the liability time?

1. The applicant was a foreign person at the liability time, being 2 October 2020 (the Contract Date).
2. The reasons are as follows: 1. She is not an Australian citizen or a New Zealand citizen. Therefore the test is considered solely under the FATA, because the modifications in s 104J(2) of the Duties Act do not apply. 2. She would only be ordinarily resident in Australia at the particular time (2 October 2020) if she met both of the requirements in paragraphs (a) and (b) of s 5(1) of the FATA. 3. She did not satisfy the first requirement in s 5(1)(a), because she had not actually been in Australia during 200 or more days in the period of 12 months immediately preceding 2 October 2020. 4. Even though she satisfied s 5(1)(b)(ii) - because she was in Australia on 2 October 2020 and her continued presence in Australia was not subject to any limitation as to time imposed by law - that does not make her ordinarily resident in Australia, because the tests in ss 5(1)(a) and 5(1)(b) must both be satisfied.
3. There is no discretion in the legislation that allows the Tribunal to override the clear terms of s 5 of the FATA. This is despite the impact of COVID-19 restrictions, or otherwise. The Tribunal has previously confirmed this in Chu v Chief Commissioner of State Revenue [2021] NSWCATAD 238 at [29]: The position in this State is quite clear: in order to be "ordinarily resident" in Australia the taxpayer must have been physically present in Australia and the reasons for a person not actually being in Australia for the 200-day period are not relevant.
4. I therefore find that the applicant was a foreign person at the relevant date (2 October 2020) for the purpose of Chapter 2A of the Duties Act because she was a foreign person within the meaning of the FATA: s 104J(1) of the Duties Act.
5. Accordingly, I find that she was subject to subject to SPD under s 104L of the Duties Act in respect of her 50% interest in the Property.

Was the applicant exempt under s 104ZKA?

1. The applicant submits she was an "exempt permanent resident" under s 104ZKA(1) of the Duties Act, and therefore not liable for SPD. Section 104ZKA provides as follows: 104ZKA Exemption for certain permanent residents in respect of principal place of residence (1) No surcharge purchaser duty is chargeable on a transfer, or an agreement for the sale or transfer, of residential-related property if each transferee under the transfer or agreement who would otherwise be liable to pay that duty is an exempt permanent resident. (2) A transferee under a transfer or agreement is an exempt permanent resident if - (a) the transferee is a permanent resident when a liability for duty charged by Chapter 2 on the transfer or agreement arises (or would arise but for a concession or exemption from duty under that Chapter), and (b) the Chief Commissioner is satisfied that the transferee intends to use and occupy the residential land to which the residential-related property relates as a principal place of residence in accordance with the residence requirement. (3) If there is more than one transferee under the transfer or agreement who is a foreign person (a foreign transferee) and the Chief Commissioner is satisfied that at least one, but not all, of those transferees is an exempt permanent resident - (a) surcharge purchaser duty is to be reduced in proportion to the share or shares in the residential-related property transferred to foreign transferees who are exempt permanent residents, and (b) none of those exempt permanent residents is liable to pay surcharge purchaser duty on the transfer or agreement. (4) The residential land must be used and occupied by the exempt permanent resident as his or her principal place of residence for a continuous period of at least 200 days within the first 12 months after the liability date. This requirement is referred to as the residence requirement. (5) The liability date is the date on which liability to surcharge purchaser duty first arose in respect of the share in the residential-related property transferred, or agreed to be transferred, to the exempt permanent resident. (6) If the residence requirement is not complied with in relation to the residential land, the Chief Commissioner must assess or reassess the surcharge purchaser duty chargeable on the transfer or agreement as if the exemption under this section had never applied. (7) A reference in this section to the use and occupation of residential land as a principal place of residence in accordance with the residence requirement includes - (a) in the case of a land use entitlement, a reference to the use and occupation of the building or part of the building to which the entitlement relates, as a principal place of residence in accordance with the residence requirement, and (b) in the case of a utility lot (within the meaning of the Strata Schemes Management Act 2015), a reference to the use of the utility lot in conjunction with a strata lot used and occupied as a principal place of residence in accordance with the residence requirement.
2. As a permanent resident when the liability for duty arose, the exemption applies if the respondent is satisfied that the applicant intends to use and occupy the residential land as a principal place of residence in accordance with the residence requirement.
3. The residence requirement is that the residential land must be used and occupied by the applicant as her principal place of residence for a continuous period of at least 200 days within the first 12 months after the liability date: s104ZKA(4).
4. On the Purchaser/Transferee Declaration form, the applicant answered "yes" to the question: If yes, is the purchaser/transferee an exempt permanent resident who will occupy the property as their principal place of residence for a continuous period of 200 days within the first 12 months after the liability date (date of agreement)?
5. I find, on the balance of probabilities, that the applicant did not use and occupy the Property as her principal place of residence for a continuous period of at least 200 days within the period of 12 months after the Contract Date of 2 October 2020 (i.e. within the period from 3 October 2020 to 2 October 2021), because: 1. the Occupation Certificate for the completion of the house on the Property was not issued until 21 January 2022, and indeed the applicant submitted that this was the date her occupation commenced; 2. No other evidence from the applicant shows actual occupation and use as her principal place of residence for the required continuous period of 200 days, noting that: 1. the Certificate of Insurance produced by the applicant commenced on 31 January 2022; 2. The Alinta Energy gas bill dated 23 October 2021 shows zero usage in the period between 2 August 2021 and 19 October 2021; 3. At least as of 28 July 2021, the applicant by her own admission was receiving correspondence from their builder regarding delays in the construction at the Property; 4. As late as 13 December 2021, the applicant had stated on other documentation (R1 at p 110-111) that her residential address was other than the address of the Property; 5. There is no issue date on the drivers licence produced by the applicant, although it shows the Property as her residential address and expires on 19 January 2031; and 1. The date of 21 January 2022, which I find on the balance of probabilities was the date of commencement of the Property as the applicant's principal place of residence, was more than 12 months after the Contract Date.
6. The applicant submitted that due to delays arising from COVID-19, the Property was always intended to be used as the principal place of residence. Further, this was the only property owned by the applicant (their other residence being a tenancy), and therefore the principal place of residence test should apply to the Property. 1. However, in Ghali v Chief Commissioner of State Revenue [2013] NSWCA 340 at [24] ff, Basten JA reconfirmed that an intention to use the property as a residence at a future time is insufficient to constitute "use and occupation" of a property as a residence: The reasoning of the Tribunal was erroneous for one or both of two reasons. Either it took the view that the intention of the appellant to return to Beecroft Road, once he had completed renovations at Harold Avenue (a process which took six years and was not completed within the relevant period), demonstrated "use and occupation" of Beecroft Road, or it took the view that the use of the property by his wife, with his permission, constituted use for residential purposes. So far as the first view is concerned, an intention to use and occupy land in the future does not by itself demonstrate present physical use and occupation. So far as the second view is concerned, the statutory reference to use and occupation of the land as a residence is to use and occupation by the owner as his or her residence, not use and occupation by another person with his or her consent. Were it otherwise, an owner would always use and occupy residential premises as a residence, but that would not conform to the statutory purpose. 1. There is no scope in s 104ZKA to either extend or waive the residence requirement because of delays caused by COVID-19 or for any other reason.
7. I therefore find that the requirements of s 104ZKA were not satisfied and the applicant was not an "exempt permanent resident" at the relevant time.
8. As a result, s 104ZKA(6) applies. This states: If the residence requirement is not complied with in relation to the residential land, the Chief Commissioner must assess or reassess the surcharge purchaser duty chargeable on the transfer or agreement as if the exemption under this section had never applied.
9. There is no discretion given to the Chief Commissioner (or, therefore, to this Tribunal) in this regard. Accordingly, as the applicant was not exempt under s 104ZKA, the respondent was correct to raise the assessment to SPD.

Deferral of Duty under s 49A of the Duties Act

1. Section 49A of the Duties Act allows for a deferral of the payment of duty for an "off the plan purchase agreement" (see below). However, it does not apply to the facts of this case.
2. Firstly, as I have found above, the applicant was a "foreign person", and therefore s.49A cannot apply. Section 49A(3) states (my emphasis): This section does not apply in relation to an off the plan purchase agreement if any purchaser or transferee under the agreement is a foreign person (within the meaning of Chapter 2A).
3. Secondly, there was in any case no "off the plan purchase agreement": 1. The applicant's representative submitted that the Contract for the acquisition of the Property met the definition of an "off the plan purchase agreement", because the Building Contract was signed before the Contract was entered into, and the loan from the bank clearly showed that the loan funds were for both a purchase of the land, and construction of a house. 2. The legislative definition in s 49A(4) says (my emphasis): off the plan purchase agreement means an agreement for the sale or transfer of dutiable property, being land on which a residence is to be erected or developed before completion of the agreement for the sale or transfer. 1. I accept the submissions of the respondent that the Contract was not an "off the plan purchase agreement" because: 1. The Contract was an agreement for the transfer of vacant land. 2. No evidence was presented to the Tribunal that the transfer of title was conditional or dependent on the erection or completion of the house. 3. The "completion of the agreement for the sale or transfer" was effected on the settlement date of the Contract. Although there is no timeline of the construction, the residence had not been (nor was there any evidence it was intended to be) erected or developed before that date. Practically, the construction would take a period of time well beyond settlement of the Contract; 4. In any event, there is no complete copy of the Construction Contract before the Tribunal, nor is it required because of my conclusions above that the section cannot apply due to the applicant's status as a foreign person.

Interest and penalties

1. Payment of SPD is due 3 months after the liability to pay the duty arises. Under s 104W of the Taxation Administration Act 1996 (NSW) (TAA), non-payment on or before 2 January 2021 - being 3 months after the Contract date of 2 October 2021 - gave rise to a tax default which in turn triggered a liability for: 1. interest (imposed under s 21 of the TAA at an interest rate equal to the sum of the market rate component and the premium component in accordance with s 22 of the TAA); and 2. penalty (imposed under s 26 of the TAA).
2. The Notice of Assessment imposed the ordinary rate of penalty tax of 25% provided for in s 27(1)(a) of the TAA.
3. No written submissions were made by the applicant regarding any request for remission of the interest or penalties imposed, either on objection, or before the Tribunal. Further, as the party who bears the onus of proof, I would not have been satisfied that the applicant presented any facts to the Tribunal that would have justified a remission of any penalties or interest.
4. The interest and penalty decisions of the respondent are therefore affirmed as the correct and preferable decisions.

Costs

1. The general rule in the Tribunal is that each party pays their own costs.
2. However, the respondent has submitted that the Tribunal should order that the respondent's costs be paid by the applicant or, alternatively, by the applicant's representative, as permitted by s 60(2) of the CAT Act.
3. Section 60 of the CAT Act provides as follows: 60 Costs (1) Each party to proceedings in the Tribunal is to pay the party's own costs. (2) The Tribunal may award costs in relation to proceedings before it only if it is satisfied that there are special circumstances warranting an award of costs. (3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following - (a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings, (b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings, (c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law, (d) the nature and complexity of the proceedings, (e) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance, (f) whether a party has refused or failed to comply with the duty imposed by section 36(3), (g) any other matter that the Tribunal considers relevant. (4) If costs are to be awarded by the Tribunal, the Tribunal may - (a) determine by whom and to what extent costs are to be paid, and (b) order costs to be assessed on the basis set out in the legal costs legislation (as defined in section 3A of the Legal Profession Uniform Law Application Act 2014) or on any other basis. (5) In this section - costs includes - (a) the costs of, or incidental to, proceedings in the Tribunal, and (b) the costs of, or incidental to, the proceedings giving rise to the application or appeal, as well as the costs of or incidental to the application or appeal.
4. The respondent submitted that "special circumstances" existed, as required by s 60(2), having regard to the following: 1. On 14 March 2024, the respondent wrote to the applicant's representative, Mr Ma. The letter: 1. advised that the respondent had reviewed the information and material provided by the applicant in their submissions and advised that the applicant's case was "without merit and her application should be withdrawn"; 2. set out the respondent's position regarding the legal tests and their analysis as to why SPD would be required to be paid; and 3. concluded as follows: For the above reasons, the Applicant has no tenable legal basis to challenge the assessment of surcharge purchaser duty. To avoid the unnecessary time and cost of the Respondent preparing submissions and arguing the matter at hearing, the Applicant is invited to withdraw her application for review. If the Applicant chooses to pursue her application for review, the Respondent reserves the right to seek costs in defending the application. 1. At the hearing, the respondent pointed the Tribunal to: 1. the paucity of the submissions made by the respondent and the material proffered in support of those submissions; 2. the disconnect between the material relied upon and the statutory tests to be applied; and 3. previous Tribunal decisions which made clear the position relating to this application (noting, in particular, the recent decision of the Tribunal in Huang t/as Auchland & Co v Fang & Luk [2023] NSWCATAP 200, where the firm of Mr Ma was ordered to pay damages to a client in similar circumstances to those in this case).
5. Although the term "special circumstances" is not defined in s 60 or elsewhere, s 60(3) provides that, in determining whether there are special circumstances which warrant a costs award, the Tribunal may have regard to the matters set out in paragraphs (a) to (f) of s 60(3) as well as "any other matter that the Tribunal considers relevant": s 60(3)(g).
6. In The Owners - Strata Plan No 55773 v Roden (Costs) [2020] NSWCATAP 197, the Appeal Panel of this Tribunal held at [46] in relation to a costs application concerning Tribunal proceedings at first instance: Having found the Proceedings were complex and that "special circumstances" exist to warrant an award of costs, the Tribunal has a general discretion in respect of costs. In these circumstances costs are compensatory and the starting position is that costs should follow the event.
7. Section 60(4) states that if the Tribunal does award costs, it may determine by whom and to what extent costs are to be paid, and order costs to be assessed in accordance with legal costs legislation pursuant to the Legal Profession Uniform Law Application Act 2004 (NSW) or on any other basis.
8. In Ceepee Pty Ltd v Roads and Maritime Services [2015] NSWCATAD 130, Montgomery SM said: 10 Where a court or a tribunal is conferred with the discretion to award costs, such discretion must be exercised judicially and not capriciously (Oshlack v Richmond River City Council (1998) 193 CLR 72 at 81). The fundamental rationale for the awarding of costs is that such an award is compensatory, not punitive: Latoudis v Casey (1990) 170 CLR 534 at 543; Oshlack v Richmond River Council (1998) 193 CLR 72 at 97.
9. The applicant for costs bears the onus of establishing an entitlement to costs in a jurisdiction where the primary rule is that each party bears their own costs: Kurmond Homes Pty Ltd v Spiteri [2015] NSWCATAP 48 at [18].
10. In considering whether there are "special circumstances" for the purpose of s 60 of the CAT Act, I have had regard to the submissions of the respondent in light of all of the matters set out in s 60(3). I am not satisfied that there has been undue obfuscation, delay or other detrimental conduct of the applicant for the purposes of s 60(3)(a) or (b). The primary position of the respondent relates to the circumstances in s 60(3)(c) and (e) regarding the prospects of the applicant satisfying their onus in respect of the legal issues.
11. Insofar as the respondent seeks an order that the applicant herself pay the costs of the respondent, I decline to make such an order. In respect of "other matters", I observe that the applicant was not present at the hearing and although Mr Ma acknowledged receipt of the respondent's letter and confirmed to the Tribunal that he spoke to his client about it, there is no evidence that she was fully aware of the details of the position put by the respondent.
12. Insofar as the respondent seeks an order against Mr Ma as the conveyancer for the applicant (and, indeed, as the representative for the applicant in these proceedings), the position is more finely balanced. Having regard to the case of Huang t/as Auchland & Co v Fang and Luk (citation above), Mr Ma should have been "on notice" that the requirements were not satisfied even before receipt of the respondent's letter. However, having observed Mr Ma during the hearing, particularly in respect of his oral submissions, I am not satisfied that Mr Ma (who is not a lawyer) fully understood or appreciated the legal analysis required, or the strength of the legal position I have set out above. Accordingly, notwithstanding some elements of s 60(3) exist, I have therefore decided not to exercise the discretion to make the order sought by the respondent, on the basis that I have not reached the degree of satisfaction in respect of special circumstances to support the award of costs.

Orders

1. I make the following orders: 1. The decision under review is affirmed. 2. No order as to costs.

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: 05 June 2024