Gessner and anor v Chief Commissioner of State Revenue [2005] NSWSC 663 | Case summary

REASONS FOR DECISION Part A. Introduction and background 1 The decision under review is the disallowance of an objection by the Applicants against the imposition of vendor duty in respect of the sale by the Applicants of their residence at 35 Hillview Street, Hornsby Heights ("the "Hornsby Residence" or the "Residence"). 2 A previous application by the Applicants resulted in the grant by decision dated 31 January 2006 to the Applicants of an extension of time within which to bring this application for review of the relevant decision. The decision in respect of that previous application is cited as Gessner v Chief Commissioner of State Revenue [2006] NSWADT 26; it is referred to in this decision as "Gessner No.1"). 3 The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act 1997 together with a number of submissions by the parties. 4 It is convenient (but subject always to the provisions of part B below) to include the content of the Respondent's submissions under the head of "Background"; clauses 1 to 17 inclusive (but excluding all of the footnotes) read as follows: -- Background 1. The Application relates to the principal place of residence exemption in the vendor duty provisions of the Duties Act 1997 ("the Act"). 2. In March 1998 the Applicants purchased a property at 35 Hillview Street, Hornsby Heights ("the Property"). 3. On purchase the Applicants moved into the Property and resided there until July 1998, to total of 5 months. 4. Between July 1998 and June 1999 the Applicants were transferred to work in Japan. The Property was leased during this period, a total of 11 months. 5. Between July 1999 and January 2000 the Applicants lived in the Property as their principal place of residence, a total of 7 months. 6. Between February 2000 and December 2000 the Applicants were transferred to work in the USA. The Property was leased during this period, a total of 10 months. 7. Between January 2001 and April 2003 the Applicants were transferred to work in Germany5. The Property was leased during this period, a total of 28 months. 8. Between May 2003 and 31 July 2004 the Property was used and occupied by the Applicants as their principal place of residence, a total of 15 months. 9. On 9 July 2004 the Applicants entered into a contract for the sale of the Property. The contract price was $520,000. 10. On 15 July 2004, Collins & Thompson Solicitors (the solicitors acting for the Applicants) wrote to the Office of State Revenue seeking a ruling that the Applicants be exempted from payment of vendor duty in relation to the sale of the Property. 11. The Applicants sought an exemption on the basis of the following: (a) The Property was purchased in March 1998 as the Applicants' principal place of residence and not for investment. (b) The Property was the only Property owned by the Applicants from the date of purchase until sale. (c) The Property was lived in as principal place of residence from the date of purchase until the date of sale with the exception of periods of work overseas. (d) The property was sold and replaced with another principal place of residence in a location more convenient to the place of employment of the Applicants. 12. The Applicants' solicitors concede in this letter that the vendors did not appear to satisfy any of the specific eligibility criteria for the principal place of residence exemption as set out in s162B(3) of the Duties Act 1997. The Applicants were therefore apparently seeking confirmation that the Chief Commissioner would exercise his discretion under s 162B (4) (as it applied at the time) to the effect the principal place of residence exemption would apply to the property, thus exempting the sale from vendor duty. 13. The request was denied by letter dated 22 July 2004. 14. On 3 September 2004 the Applicants objected. 15. The objection was disallowed and the Applicants were so advised by letter dated 29 October 2004. 16. On 27 September 2005, the Applicant Mr Gessner lodged an application for review of the Commissioner's decision with the Administrative Decisions Tribunal. 17. On 31 January 2006 Block J - ADCJ (Judicial Member) delivered a decision to grant the Applicants an extension of time on filing the Application for Review. Part B. Evidence on the first hearing day 5 Mr Gessner who represented both of the Applicants throughout gave oral evidence at the hearing. The Tribunal had in respect of its decision in Gessner No.1 inferred that between January 2001 and April 2003, Mr Gessner was transferred by his employers to Germany; see also in this context clause 7 of the Respondent's submissions quoted above. That particular inference was, as Mr Gessner's evidence revealed, incorrect. 6 Mr Gessner was previously employed as an IT analyst by Dow Corning (referred to in brief as "EC"). EC transferred Mr Gessner to Japan and to the USA as set out in the Respondent's submissions. During those periods, the Residence was while the Applicants were overseas, leased out to tenants. The rental so obtained was such that it was somewhat less than total outgoings referable to the Residence and inclusive of mortgage repayments. 7 However it was not EC which sent Mr Gessner to Germany. He resigned from EC in January 2001; he did so in the context of the fact that EC was then about to make its entire IT group redundant. 8 Mr Gessner sought through the Internet and other sources to market his specialist IT skills. He did not confine his search to Australia on the basis that his skills were marketable in other parts of the world. He found work in Munich, Germany with Compaq and as a contractor. He was not an employee in that he did not derive the benefits commonly made available to employees. 9 Mr Gessner's contract with Compaq was initially expressed to endure for six months. It was subsequently renewed periodically and successively for of periods three months each; eventually coming to an end at the beginning of 2003. Mr Gessner then found work for a comparatively brief period as a contractor in Malaysia. The Applicants eventually returned to Australia in May 2003. While they were away in Germany and Malaysia, the Residence was leased on the basis set out in clause 6. 10 Mr Gessner agreed that would have been an exaggeration to say that he was obliged to go overseas and in particular to Germany and Malaysia. He might perhaps have found work in Australia. In 2001 however a contract in Munich was considered to be the most suitable avenue for the exploitation of his particular skills. 11 In their objection the Applicants claimed that they sold the Residence and moved to Cromer because Cromer was more convenient in relation to Mr Gessner's place of work. In cross-examination Mr. Gessner was shown a map depicted the suburb of the Residence. It also depicted the location of Cromer Heights ("Cromer"), and both in relation to certain other relevant suburbs. After returning to Australia, Mr Guest then commenced work with Maxium which was originally located in Gordon and subsequently relocated to North Ryde. 12 As I have said, the Applicants in their objection claimed that the sale of the Residence and the move to Cromer arose from the fact that Cromer was more convenient for Mr Gessner's work. The evidence established that this may not have been correct. The two residences are, taking into account considerations of traffic congestion and other relevant aspects more-or-less equidistant from both residences, and if anything and at least in distance Cromer appears to be further from North Ryde than is Hornsby Heights. 13 Mr Gessner was cross-examined as to his knowledge of the state of the law at or about the time when the Residence was sold. A contract was prepared in April 2004 and prior to the mini- budget speech pursuant to which the pending introduction of the vendor duty legislation was announced. Mr Gessner said that he was aware of the fact that there would be a vendor duty but believed that it would not apply to the Applicants on the basis that, in accordance with the mini budget speech, it would apply to investment properties but not to homes used as principal places of residence. Put in other words there was to be a duty on the sales of investment properties and the Residence did not fall into that category. He recalled some discussion with his solicitors at that time (Collins and Thompson) as to the vendor duty. His evidence indicated that while he was aware of the fact that there was to be duty (not to apply to the sale of homes) he was not aware of the intricacies as to time periods and limitations. It was put to him that he could have made inquiries of his solicitors and even perhaps of the Respondent. The decision in Gessner No.1 might suggest that any such enquiries of his solicitors might not have been productive. 14 Put in summary form the Applicants owned the Residence for a number of years; it was their principal place of residence and was occupied as such while they were in Australia; they did not at any time have any other residence in Australia or in any other country in which Mr Gessner worked. Contracts for the sale of the Residence were exchanged in July 2004; a contract had been prepared in April 2004. 15 The hearing on 9 May 2006 lasted, as it was scheduled, during the whole of the morning. It was then adjourned until 1 June 2006 in particular because it was anticipated that a decision of the Appeal Panel of the Tribunal would be handed down in a matter of Doney (the citation for which appears later in this decision) and that that decision might contain relevant rulings as to the manner in which the relevant discretion should be exercised. The parties were invited prior to the resumed hearing to furnish submissions as to the effect of any such Appeal Panel decision and in the result both parties did so. That invitation indeed resulted in some confusion on the part of Mr Gessner as to what exactly the Applicants would be entitled to furnish to the Tribunal prior to the resumed hearing. Part C. The resumed hearing; additional information provided to the Tribunal. 16 Mr Gessner in submissions as to the Appeal Panel decision in Doney (which was in fact handed down prior to 1 June 2006) went further than the Tribunal had anticipated; he thought that he was entitled to furnish the Tribunal with additional evidence. He was wrong but given that he is a layman his confusion is understandable. 17 It will be recalled that at the objection stage the Applicants had contended they sold the Residence and bought a new residence at Cromer because the latter was more convenient for Mr. Gessner's work. (Mr Gessner had also on the first hearing day mentioned in passing that Cromer was nearer to the northern beaches and near to where members of his family reside) 18 At the resumed hearing Ms Seiden furnished the Tribunal with a map of the area (which had been used in cross-examination on the first hearing day) and which indicates that although Cromer is undoubtedly nearer to the northern beaches, and near to the suburbs where Mr Gessner's relatives reside, it is not and compared with the Residence, nearer to North Ryde. On the contrary and if anything it is further away although traffic conditions particularly on the Pacific Highway may at times have a relevant effect. 19 At the resumed hearing on 1 June 2006 Mr Gessner sought to produce evidence that in Cromer he could obtain high-speed internet access (which was not possible at Hornsby Heights); and that this facility was needed for his work; this was put as a reason for the move. This aspect was never raised at any time in the past and whether at the objection stage or thereafter and including the hearing in respect of Gessner No.1 and I think it proper to disregard it. 20 However there was other evidence which while it was new, could be said to amplify evidence which had been given on the first hearing day; Ms. Seiden did not raise any objections. In respect of the new home at 63 Washington Parade, Cromer Heights (' the Cromer Residence") Mr. Gessner produced evidence that the Applicants first inspected it in March 2004 and that an initial offer was made in April 2004; moreover the vendors of the Cromer Residence had another interested possible purchaser in negotiations. Contracts for its purchase were exchanged on 18 May 2004. The Bill which introduced the vendor duty legislation became available for the first time on 7 May 2004, 11 days prior to exchange. 21 It is clear then that in April 2004 the Applicants had decided (at least in principle) to buy the Cromer Residence and became contractually bound when contracts were exchanged on 18 May 2004. This being so they had no option in practical terms but to sell the Residence; as I have said, a contract in respect of the Residence was prepared in April 2004 even though exchange took place only in July 2004. 22 The following extract (which deals with the mini-budget speech) is taken from Doney v Chief Commissioner of State Revenue[2005] NSWADT 133 (referred to as "Doney" and to be distinguished from the Appeal Panel decision cited as Doney v Chief Commissioner of State Revenue (No.2) [2006] NSWADTAP 23 and which is referred to as "Doney No.2") The case law (set out in greater detail later in this decision) makes it clear that the decision maker must have regard to the policy underlying the relevant statute. Exhibit A3 sets out that it was the intention of the legislature that the 2 1/4 per cent duty be levied "on the sale of properties except for a person's principal place of residence and farms". The following extract is taken from pages 13 and 14 of the Treasurer's Mini-budget speech, delivered on 6 April 2004 [from page 13] The third and fourth measures concern stamp duty on the sale and purchase of properties. Over recent years the property market has boomed. An overheated property market is no good for the economy, it's no good for the community and it's certainly no good for young people and families who are battling to buy their first home and are priced out of the market. [from page 14] An overheated property market is only good for people like me - people who, besides owning their own home, have made good profits by owning an investment or second property. We've made the profits on our property investment, so I believe we can afford to pay a 2¼ per cent stamp duty when we sell the property. This duty, of course, will not apply to the sale of a person's principal place of residence and it will not apply to the sale of farms. To ensure that only property profits are being taxed, properties will be exempt from the duty in cases where the vendor's sale price does not exceed 12 per cent of their original purchase price, with the exemption phasing out between 12 per cent and 15 per cent. Legislation for the new duty will be introduced in May and the new duty will apply as soon as possible but no later than 1 July. During drafting of the legislation consultations will be held with the property industry to prevent any unintended effects and to maximise administrative efficiency and simplicity. Clearly exceptions will need to be put in place for genuine builders to ensure that the duty does not become a value added tax on new homes 23 Ms Seiden contended that the bill containing the vendor duty legislation, having become available on 7 May 2004, the Applicants could have obtained it (using for this purpose Mr. Gessner's computer skills), in order to consider it in detail. The Applicants could on this basis also have made inquiries of their solicitors or the Respondent or even have read and considered the bill themselves, and had they done so would have become aware of the fact that the exemption in respect of principal places of residence was subject to somewhat complex and intricate time restrictions. I do not consider that those contentions are tenable. The Applicants are not lawyers. A lawyer who obtained the Bill when it first became available would have needed time for careful consideration in order to understand all of its implications. Ms Seiden contended that the Applicants should have anticipated that the principal place of residence provisions would of necessity be subject to time restrictions. Again I fail to see why this is so. In the context of land tax an exemption is provided for a principal place of residence in relation to a given land tax year if it is owned and occupied at midnight of the immediately preceding 31 December and also the preceding six months, although the latter requirement is often relaxed in accordance with similar discretionary powers conferred on the Respondent. These latter provisions are remarkably simple in contrast with the legislative provisions as regards principal places of residence in the vendor duty legislation. 24 The mini-budget speech a part of which is set out earlier in these reasons might be said to furnish a clear statement of the purpose of the legislation; that speech might well cause any reader to believe that its purpose (easy to comprehend) was to tax investment properties but not homes. Part D. The case law 25 In addition to the Superior Court decisions as to how discretionary power is to be exercised there are three decisions of the Tribunal which are particularly relevant. They are Doney, Doney No.1, and Full v Chief Commissioner of State Revenue [2005] 2005 NSWADT 190 ("Full"). 26 I referred in Doney and in clauses 22 to26 to a number of relevant Superior Court judgments as follows: 22. In Federal Commissioner of Taxation v G.M. Swift and others 89 ATC 5101 French J made it clear (in relation to a discretion of a similar nature) that the dispensing power is incidental and ancillary to the primary object of the legislation; he noted also that there will be a threshold beyond which the primary object of the legislation would be defeated; see page 5116 as follows: The dispensing power is incidental and ancillary to the primary object of the legislation. On the spectrum of cases in which it could conceivably be exercised, there will be a threshold beyond which it would defeat the primary object of the legislation. It is unnecessary to define that threshold for present purposes. The discretion cannot, however, be limited to the case where a person has not in any way benefited from the evasion giving rise to the recoupment tax liability. And in this respect ground 4(c) of the grounds of appeal was rightly abandoned. The absence of such a simply expressed limitation from the language of sub-s.5 (4) is indicative of the absence of any such legislative intention. That is not to say that it is not open to consider whether a person claiming dispensation under the sub-section benefited from the sale of shares in the subject company. But, it is not, as a general rule, conclusive. 23. See also French J in Swift's case at page 5118 as follows: It may be said that the Tribunal's exercise of its discretion has undermined the objectives of the Act. If that be so, then it is for the legislature to consider confining the dispensing power. But the conflict between the primary purpose of collecting evaded company tax and the ancillary function of dispensation has not risen here to such a level that the primary purpose is defeated. Any dispensation under sub-s.5 (4) will necessarily undermine the primary purpose, for tax which might have been collected will not be collected. That is an inescapable consequence of the operation of Sub-s.5 (4). Its invocation by the Tribunal in this case has not, in my opinion, involved the crossing of that threshold beyond which the exercise of the discretion falls outside the scope and objects of the Act. 24. One of the leading cases in this area is Giris Pty Limited v The Commissioner of Taxation of the Commonwealth of Australia (1968) 119 CLR365. At pages 380 and 381 Menzies J noted that discretions of this nature can be difficult to exercise: The section does confer an extraordinary responsibility upon the Commissioner of Taxation. It requires him, in every case where there is income of a trust estate in a particular year of income, to consider whether it is unreasonable "that this section should apply in relation to that trust estate in relation to that year of income". Unless he forms such an opinion the section applies. The section directs the Commissioner in forming his opinion to have regard to certain facts and circumstances but gives no guidance upon what significance should be given to the presence or absence of the facts or circumstances as specified. Moreover, there appears to be no common principle underlying the various matters specified so as to give the Commissioner a lead to other matters to which he might have regard. Accordingly, whether or not the section is to apply to a particular trust estate has been made to depend upon an opinion which the Commissioner may form, after the close of the year of income, and with no legislative guidance other than that he is to have regard to a medley of facts and circumstances. The enactment of such a provision can only be regarded as an acknowledgment by the legislature of its inability to make laws laying down prospectively what will give rise to a particular taxation liability. It leaves, as a problem for the Commissioner to decide, retrospectively and in the light of what has happened, whether the particular provision should not apply to a particular trust estate in respect of a year that has passed. 25. And at page 384 of Giris Windeyer J said: The Commissioner is to ask himself whether it would be unreasonable that s. 99A should apply to any particular trust estate. But the idea of reasonableness seems to be here amorphous. It is, of course, true that, as a measure in fact of time, space, quantity and conduct, reasonableness is a concept deeply rooted in the common law: and so, in such cases, is the power of a court to say whether a particular decision of that fact is or is not within the bounds of reason. But, in cases of that kind, the circumstances in which the question arises provide criteria for its solution. Here the Commissioner's discretion is apparently at large. It does not clearly emerge from the Act in respect of what matter--or whose interest, that of the taxpayer or of the revenue--he is to consider whether it would be reasonable or unreasonable to apply s. 99A in the case of any particular trust estate. He is to have regard to certain stated matters; but what weight or influence each is to have is not made clear. Moreover, the Act requires that he "shall have regard to such other matters, if any, as he thinks fit". However I assume that he is to be guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it. That would exclude from his consideration and matter which it would be unlawful for him to take as a criterion 26. It is unnecessary for me to refer to a number of other cases to similar effect cited in this context by Ms. Seiden. It is altogether clear that when considering a discretionary power of this nature it is always necessary to have regard to the purpose underlying the statute. However I should refer to Bellinz and others v Commissioner of Taxation (1998) 84 FCR 154 in the context of another aspect, (administrative fairness), raised by the Respondent. See page 167 of Bellinz as follows: It is unnecessary to refer to the numerous other cases, many from areas outside revenue, which were cited to the Court in support of the submission that equality of treatment of taxpayers is an aspect of unreasonableness of decision making. There is little difficulty in accepting that, where a decision-maker, including the Commissioner of Taxation, has a discretion, a principle of fairness will require that that discretion be exercised in a way that does not discriminate against taxpayers: cf Pickering v Commissioner of Taxation (Cth) (1997) 37 ATR 41; 97 ATC 4893 and, in another context, NSW Aboriginal Land Council v Aboriginal and Torres Strait Island Commission (1995) 59 FCR 369 at 387-388 27 The Appeal Panel in Doney No 2 referred to this and other authority; I do not think that it is necessary for me to repeat all of those references, although I deal with the Appeal Panel decision in Doney No.2 in some detail later in this decision more particularly because it did indeed prove to be very helpful. Suffice it to say (at this stage) that the crucial point in my view emerges from the judgment of French J in Swift. A discretionary power must not be utilised in such manner that it defeats the primary purpose of the legislation; there is a threshold beyond which the purpose of the legislation would be defeated, and that threshold must not be crossed. 28 Ms Seiden in additional submissions, sought to distinguish the facts in this matter from those in Doney and Full in the following terms: Doney v Chief Commissioner of State Revenue [2005] NSWADT 133 and on appeal at (No 2) [2006 NSWADTAP23 In Doney: The Applicant and her family who had lived in their property for 21 months found themselves growing out of it. They found a suitable rental property and moved out of their principal place of residence ("PPR"), initially temporarily, in order to have plans drawn up for extensions and for the renovations to be carried out. The property the subject of the application was rented out initially for a period of 6 months. However, due to problems with the architect the process became protracted. Finally, the Applicant found a suitable property to buy and she sold the property the subject of the application and moved her family to the new PPR: see at [4]-[13] of the original decision in Doney. The Tribunal held that the Applicant had sold in substance if not in fact her PPR and further that the circumstances warranted that the discretion ought to apply: at [31] and [32] of the original decision in Doney and affirmed on Appeal. The Appeal Panel 'noted the decision needed to be approached on the merits as they appeared to the learned Tribunal Member: at [35] of the Appeal Panel decision. The Appeal Panel further noted the parallel with Affinity that the decision to sell was influenced by the acquisition of the new premises, prior to the introduction of the vendor duty provisions: [38] of the Appeal Panel decision in Doney. The Applicant in Doney was only 3 months away from satisfying one of the express exemptions: [48] of the Appeal Panel decision. 29 In this case: The Applicants rented out the Property for approximately 50 months and resided at the Property for only 27 months, i.e., the property was only used and occupied for a small percentage of time of ownership. The Applicants would have been required to reside at the premises for an additional 9 months before satisfying one of the express exemptions. There are no compelling reasons given for the Applicants' move within Sydney. Mr Gessner has conceded in cross examination that the move did not result in him being closer to employment (the reason originally cited by the Applicants to attract the exercise of the discretion). In effect, the Applicants' evidence to explain the move is that Mr Gessner grew up in the Northern Beaches and preferred to live there. At the time the Applicants entered into a binding contract to acquire the new premises he was legally represented. However, Mr Gessner's evidence is that he chose not seek any legal advice on whether the vendor duty provisions (which he knew were coming into effect) would apply to his situation. Yet had he done so it would have been discovered that the exemptions (leaving aside the discretion) did not apply to the Applicants. By the tine the Applicants executed the contract to acquire the new premises the Bill had been read for a second time and introduced (relevantly) in the form it was enacted. 30 The facts in this matter distinguish it from Full. 31 In Full: In May 2002 the Vendor bought a residential property at Preston in Sydney. His initial intention was not to occupy the property and hold it as an investment. He let the property from May 2002 to February 2003 , a period of 10 months. Now married, he and his wife decided to make the property the family home, and moved in. They resided at the property from February 2003 to the end of December 2003 , a period of 10 months. In December 2003 they decided to relocate to Canberra, having each accepted new positions with their common employer (the Australian Federal Police). The Vendor placed the property on the market at the end of December 2003 . The Vendor and his wife moved to Canberra in January 2004 (before the announcement about the introduction of the Vendor Duty) to pursue their careers, where they bought a new home. While it remained on the market the property was left unoccupied, with the couple returning regularly from Canberra to maintain it. The Vendor finally contracted to sell the property on 16 October 2004. The property was not leased from December 2003 until the time of sale. This placed the Vendor under great financial strain, with mortgage payments having to be paid on the unsold property, as well as the new home in Canberra.1 32 In this case: The fact that the Applicants had in the past moved overseas to further Mr Gessner's career is not a factor that should weigh in the balance in considering the exercise of the discretion. The Applicants (as opposed to the situation in Full) received rent whilst overseas. Going overseas did not motivate and did not compel the Applicants to sell the premises. By the time the Applicants sold the premises they had been back in Sydney for a substantial period and have remained in Sydney since. The Applicants were neither forced nor required by career considerations to move to the new premises. It was a lifestyle choice. Part E. The legislation and Doney No.2 33 In Full the President of the Tribunal described the relevant legislation as follows: 6 The first provision to note is s 162A which defines a principal place of residence as: ' principal place of residence of a person means the one place of residence that is, among the one or more places of residence of the person within and outside Australia, the principal place of residence of the person.' 7 The whole of s 162B is relevant: ' 162B Principal place of residence exemption (1) A vendor duty transaction is not chargeable with vendor duty in relation to land to which the principal place of residence exemption applies. (2) Subject to this Division, the principal place of residence exemption applies to land used and occupied by the vendor as the principal place of residence of the vendor, and for no other purpose, if the land: (a) is a parcel of residential land, or (b) is a strata lot, or (c) is assessed as if it were a strata lot under section 21A or 21B of the Land Tax Management Act 1956. (3) For the purpose of this Chapter, 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 for a period of at least 2 years ending immediately before the date on which, but for this Division, a liability for vendor duty would arise, or (b) the land has been used and occupied by the person for residential purposes and for no other purposes for a total period of at least 3 years in the 5 years ending immediately before the date on which, but for this Division, a liability for vendor duty would arise and during those 3 years no other land was used and occupied by the person for residential purposes, or (c) if the vendor became an owner of the land less than 2 years before the date on which, but for this Division, a liability for vendor duty would arise, the Chief Commissioner is satisfied that the land has been used and occupied by the person as the person's principal place of residence since the vendor became an owner of the land. (4) Despite any other provision of this Act, the principal place of residence exemption is also taken to apply to any land used and occupied as a principal place of residence if the Chief Commissioner is satisfied that it is fair and reasonable for the exemption to apply in the particular case. (5) For the purposes of the principal place of residence exemption, a vendor of land that is owned by 2 or more persons is not considered to be used and occupied by the vendor as the principal place of residence of the vendor unless the land is used and occupied as the principal place of residence of: (a) at least one of the owners who is a natural person and whose ownership share is 50% or more, or (b) each of 2 or more of the owners who are natural persons and whose combined ownership share is 50% or more.' 34 I referred to the relevant legislation in brief terms in clauses 6 and 7 of Gessner No.1. In relation to clause 7 of Gessner No 1, the reference to 21 months is inaccurate in that it should have referred to 27 months. In other words the actual period of residence was 27 months where the required statutory period was 36 months or three years; if the Applicants had occupied the Residence for another 9 months only this litigation would not have occurred. 35 In Full the President of this Tribunal indicated that the discretionary power was to be used in circumstances which might have been included in the legislation if those circumstances had been foreseen or in other words in circumstances which are exceptional. That particular view was referred to by the Appeal Panel in Doney No 2 and in which it said that it did not agree that the discretion could be exercised if and only the circumstances were "exceptional" or produced an unintended result. The Appeal Panel found that the discretionary power was not so limited; I refer this context to the following (important) clauses of the decision in Doney No 2; 31 The general principles of statutory construction are of use to this decision. The rule that general words are to be given their primary and natural significance, and limitations to those words must ordinarily be demonstrated. Words will be given their plain and ordinary meaning, unless the contrary can be shown: see Cody v. JH Nelson Pty Ltd (1947) 74 CLR 629 per Dixon J at 647. In R v. Ford [1945] SASR 118, Mayo J said:- "It is a well-known principle that where is a discretion is given in the widest language, there is no justification for being at pains to interpolate some artificial limit not implicit anywhere in the context". 32 The Appeal Panel was provided with the Mini-Budget speech of the Treasurer, Mr Egan, on 6 April 2004 in which the vendor duty was introduced, but nothing of great assistance can be found in that speech. The Second Reading Speech by Mr West (on behalf of Mr Knowles) on 7 May 2004 gives an outline of the legislative scheme but provides no real assistance on the manner of the exercise of the discretion which is at the heart of the appeal in this matter. 33 It may be inferred that the legislature's intent in providing such a widely-framed discretion ("… if the Chief Commissioner is satisfied that it is fair and reasonable for the exemption to apply …") was not to limit the breadth of that discretion. In order for the presumption that the words of the statute be given their ordinary meaning to be rebutted, the appellant would need to demonstrate the limiting effect contended for. Consequently, the "just reason condition" and/or the requirement of extraordinary or exceptional circumstances would need to be able to be demonstrated. 34 A legislative principle should be read in such a way that different sections of the Act fit in with each other, and this may be a source of limiting the apparent breadth of a section: see Ross v. R (1979) 25 ALR 137 at 145. In this case, the discretion appears at the end of a series of alternative circumstances which must be satisfied in order to ground the exemption (see s 162B (3)). The discretion to exempt in circumstances which are "fair and reasonable" appears after a list of circumstances in which the duty would not apply. In the absence of some statutory indication that fairness and reasonableness should be found only in a case of exceptional circumstances, or where there was an unintended consequence of the legislation, it is difficult to say that the words of s 162B (4) should be read more restrictively than their plain and ordinary meaning would admit. (Emphasis added by the Tribunal) 35 As for the argument that the discretion should not discriminate against taxpayers, the question before the Tribunal at first instance was "what was the correct and preferable decision?" The Respondent's case needed to be approached on the merits as they appeared to the learned Tribunal member, and as there is no error of principle in the way his Honour decided the issue, the fact that other taxpayers may have been treated differently is not an issue in this Appeal. 36 In his Reply, the Commissioner relied upon the passage in Full cited above and submitted that the Respondent's case was not one which would have been included in the legislation had attention been paid to that kind of case at the time. With all due respect to the learned President, we do not think that he intended his comment to be a solely definitive approach to the application of dispensing powers. The legislature may, as we have noted above, be presumed to have intended to give wide powers if the words they used, not limited by any of the factors dealt with above, have the plain and ordinary meaning of the requisite width. While applying the dispensing power to cases which fall just outside the statutory limitations is an appropriate use, it is not appropriate to limit the discretion only to those cases. (Emphasis added by the Tribunal). 37 Support for the approach taken by the learned Tribunal member is found in the decision of the Supreme Court in Affinity Health Ltd v Chief Commissioner of State Revenue [2005] NSWSC 663 which concerned a "not just and reasonable" discretion of the Commissioner in the land rich duty provisions of the Act. In that case, Justice Gzell held that the fact that amendment legislation applied to render the taxpayer liable to duty in circumstances where there was nothing that the taxpayer could do to avoid its obligations under an agreement entered into prior to amendment legislation meant that the application of the amended provisions to the performance of that agreement would not be just and reasonable [at 69]. 36 I might add that that I found the Appeal Panel decision in Doney No. 2 of particular assistance in respect of this case. Once the manner in which the discretion is to be exercised is not limited as indicated by Full the manner in which this case is to be decided is made considerably easier. The policy of the legislation was to exempt sales of principal places of residence. It would be an odd result indeed if relief were not available where the time requirements were not strictly complied with and where the failure to do so, was, in comparative terms, marginal. 37 There is an important aspect which arises from Affinity (supra). The Appeal Panel found that the judgment of Gzell J in Affinity supported Mrs Doney. In Affinity the taxpayer entered into a contract without prior knowledge of legislation which would affect it adversely. In this case the Applicants knew in April that vendor duty would be imposed but, per the mini-budget speech, not in respect of principal places of residence. As I have said the Applicants became bound to pursue their sale having purchased the Cromer Residence a few days prior to the date of availability of the relevant Bill; put in other words they too committed themselves at a time when they could not know that the legislation would contain restrictions of an intricate nature. 38 The Respondent draws attention to the fact that the Applicants when overseas derived rent. This point too was raised and rejected in Doney No.2; I do not believe that I need refer to the provisions of Doney No.2 in detail in this particular context. This point was not pressed at the hearing and as the Appeal Panel said in Doney No.2 "this somewhat arid point" is disposed of by the opening words of the section which confers the discretion. 39 While it is true that the Bill in respect of the vendor duty became available a few days before contracts for the purchase of the Cromer Residence were exchanged, there is in my view no basis for a contention that the Applicants should by the time of exchange a few days later have been fully aware of all of the detailed implications. When they exchanged contracts in respect of the Cromer Residence in May 2004 they became committed to sell the Residence and believed, and were entitled to believe, that because they were selling their principal place of residence they would not suffer an vendor duty impost. Affinity supports the Applicants; and although in additional submissions the Respondent contended otherwise, Ms Seiden fairly and properly conceded that Affinity is in favour of the Applicants in this case. Part F. Conclusion 40 The Respondent has sought to distinguish the facts in Doney and Full on the basis that in both of those cases the taxpayers were forced to sell and by contrast with the Applicants who were not. There are two answers to that contention; in the first instance and in practical terms the Applicants had to sell the Residence once they had exchanged on the Cromer Residence; in the second place each case turns on his own facts and which will invariably differ to some extent from case to case. In any event the important period in respect of the Residence is the period of years during which it was owned by the Applicants. Throughout that period it was used and occupied by them as their principal place of residence when they were in Australia; they made three trips overseas two of which were forced on them. As to the third there was no logical reason why the Applicants should not go overseas if that course of action favoured Mr. Gessner's career. 41 Ms Seiden contended that if I were to exercise the discretion in favour of the Applicants in these particular circumstances, it would follow that there would be no case in which a decision as to discretion could go against an applicant... (This might be something of an over-simplification of the contention in fact made). However the answer must be that there is a threshold beyond which it would be improper to go. It might be that one relevant factor would be the actual length of occupancy; in this case we have occupancy of 27 out of 36 months; if the period were much less (and for example 3 months) the decision might go the other way. As to where precisely the line should be drawn is not a question which I need answer. It must be remembered also that the Applicants occupied the Residence as their principal place of residence whenever they were in Australia and did not ever own any other residence. I do not think that the fact that there was some contradictory evidence as to why they moved from one suburb to another should be decisive nor do I think that the fact that they were not forced to move, (although having purchased the Cromer residence they had no practical option but to sell the Residence) should be decisive. 42 At the end of the day the question before me is as to whether it is fair and reasonable and thus the correct and preferable decision, that the discretion be exercised in favour of the Applicants. The President in Full considered that the case for Full was stronger than the case for Doney, and I am inclined to agree with that view. In my opinion the case for the Applicants is as strong as was the case for Full. It is just and reasonable that the discretion be exercised in favour of the Applicants; to grant relief on this basis does not in my view transgress the test in Swift (supra). 43 Accordingly the decision under review is set aside and the Applicants are entitled to a refund of the vendor duty paid by them together with interest calculated in accordance with the Taxation Administration Act 1996.

Gessner and anor v Chief Commissioner of State Revenue

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (10 paragraphs)

Parties

Cases Cited (4)

Cited By (9)