Keness and another v Chief Commissioner of State Revenue

Background 6I do not understand there to be any dispute about the factual background. 7The Applicants purchased the land in January 2004, apparently with the intention of building a home upon it. At the time they purchased it, the property was vacant acreage land. 8In the period between January 2004 and January 2006 the Applicants took six months to settle on the design of their home and to locate a suitable architect and structural engineers. During this six month period the Applicants apparently learned that making a Development Application (DA) submission for vacant acreage land was more involved than they had anticipated. 9Within that period between January 2004 and January 2006, the Chief Commissioner, on 20 January 2005, issued a Land Tax Notice of Assessment to the Applicants in respect of the land for the 2005 land tax year. 10On or about 10 January 2006, Mr Keness, the male Applicant, lodged a DA in respect of the property with Liverpool City Council (LCC). The DA was received by LCC on 16 January 2006. The proposed development was described as a "split level dwelling, 4 car garage, pool, and entertainment area". 11On 10 January 2006 the Office of Fair Trading issued Mr Keness with an owner builder permit under the Home Building Act 1989. 12On 18 January 2006, the DA was referred by LCC to the Department of Infrastructure, Planning and Natural Resources on the basis that the DA required approval under the Rivers and Foreshores Improvement Act 1948. 13On 14 February 2006, the Chief Commissioner issued to the Applicants a Land Tax Notice of Assessment for the 2005 and 2006 land tax years in the sum of zero. In the Schedule to that assessment for the 2005 and 2006 years, the Chief Commissioner expressly set out that the property was considered exempt from land tax for those years on the following basis: Exemption applied under Schedule 1A clause 6 of the Land Tax Management Act 1956 and assessed under section 10(1)(r) - unoccupied land intended to be an owner's principal place of residence. 14On 28 February 2006 the NSW Department of Planning and Natural Resources advised LCC that the property had conservation significance and was bushfire prone, and that an assessment of the impact of the development under the Threatened Species Conservation Act 1995 should be undertaken. 15On 24 April 2006 the NSW Rural Fire Service advised LCC of its recommended development conditions for the property. 16At some point between April 2006 and 2 June 2006 the Applicants commissioned a Flora and Fauna/Threatened Species Investigation Report by the consulting firm Morse McVey. On 2 June 2006 LCC was advised by an alternative firm, Parsons Brinckerhoff, that the Morse McVey report was inadequate and that additional assessments were required. 17On 6 June 2006, Morse McVey (on behalf of the Applicants) sent through a draft updated Threatened Species Investigation report. 18On 28 November 2006, Anne Clements & Associates Pty Limited completed a Supplementary Flora and Fauna assessment report for the Applicants in respect of the property (the Anne Clements report). 19In December 2006, Building Code & Bushfire Hazard Solutions Pty Ltd completed a Bushfire Hazard Assessment Report in respect of the property (the Bushfire report). 20The Applicants submitted the Anne Clements report and the Bushfire report to LCC on 21 December 2006. 21On 19 January 2007, the Chief Commissioner issued the Applicants with a Land Tax Notice of Assessment for the property for the 2007 land tax year. 22On the same date, 19 January 2007, Dr Stephen Ambrose completed his "Cumberland Plain Land Snail Survey and Assessment" report, which was subsequently submitted to LCC by the Applicants. 23In connection with the assessment for the 2007 land tax year ([21] above), the Applicants on 3 February 2007 completed a "Land Tax - Variation Return" in respect of the property. The Applicants claimed an exemption from land tax for the 2007 land tax year on the basis that the property was the intended principal place of residence. Attached to the Land Tax - Variation Return was a letter from Mr Keness explaining the basis for delay in the building works. The letter stated: During the 2 year exemption which was granted under 'Intended as principal place of residence' we were not able to commence construction. It took 1 year for the architect to prepare all the necessary plans and all the newly introduced certifications and building compliance. These were finally lodged with Liverpool council on January 4, 2006. 24On 23 May 2007 the Chief Commissioner issued to the Applicants a Land Tax Notice of Assessment for the 2007 land tax year in the sum of zero - accepting Mr Keness' explanation for the delay and exercising the discretion to extend the two-year concession period into a third year. 25On 12 December 2007 LCC approved the DA and on 18 February 2008 LCC issued a Construction Certificate. 26In August 2010 Mr Keness' general practitioner diagnosed Mr Keness as suffering from depression and anxiety and referred him to a psychologist for psychological therapy. Between August 2010 and February 2011 Mr Keness attended seven therapy sessions. The psychologist, Rafaela Luca, considered Mr Keness' symptoms to be consistent with the GP's diagnosis. 27On 29 August 2011 Mr Keness completed a "Land Tax Questionnaire" document. In that document Mr Keness indicated that the house "is under construction and should be completed by mid 2012". 28On 13 September 2011 an officer of the Chief Commissioner wrote to Mr Keness regarding the nature of the discretion in clause 6 of Schedule 1A (referred to in more detail below, at [39] and following). Mr Keness followed up his Land Tax Questionnaire and the Chief Commissioner's 13 September 2011 email, with two emails dated 13 September 2011. 29In the first email Mr Keness wrote: Further to our previous email it is noted that Liverpool council approved the construction in February 2008. Under local government Act Construction must commence within two years of the approval. The building works started in October 2009 and progressed to present stage over passed (sic) 2 years. It is common for construction work of this nature and carried out by an owner builder to last more than 4 years ... 30In the second email Mr Keness wrote: The letter from the Office of Fair Trading shows that I am the owner builder in respect of the said property. With the onset of the GFC my income generating business has suffered big loses (sic) which prevented us from completing the dwelling ... 31Between 6 February 2012 and 30 March 2012 Mr Keness visited the psychologist on three, or perhaps four, further occasions regarding anxiety issues. 32On 1 May 2012 the Chief Commissioner issued to the Applicants a Land Tax Assessment Notice in respect of the property for the 2008 to 2012 land tax years. 33The Applicants lodged an objection to that assessment on 3 July 2012. On 29 July 2012 the Applicants supplemented their 3 July 2012 objection with a letter outlining the reasons for delay in the completion of the construction of the property. Mr Keness cited four reasons for the delay in completion, as follows:

• The issues with LCC;
• An "income drop" due to the GFC;
• Onset of depression;
• Limited financial resources. 34The Chief Commissioner disallowed the Applicants' objection to the assessment on 6 August 2012. 35The Applicants filed an "Application for Review of a Revenue Decision" in the ADT on 27 August 2012 in respect of the 2008 to 2012 years. 36The Applicants subsequently filed an Application for Review in the ADT in respect of the 2013 year following the Chief Commissioner's disallowance of their objection against the land tax assessment for that year. 37As at each of the relevant taxing dates, being 31 December 2007, 2008, 2009, 2010, 2011 and 2012, the property was not occupied as a residence by the Applicants, as construction had not been completed. Indeed, it seems that construction was incomplete even at the conclusion of the hearing on 25 October 2013, with the Applicants still not in possession of either an interim or final occupation certificate.

The PPR exemption and the concession for intended use 38Land used and occupied as the owner's principal place of residence is exempt from land tax by s 10(1)(r) and clause 2 in Schedule 1A to the Land Tax Management Act 1956 (the LTM Act). 39Clause 6 in Schedule 1A (the "Clause 6 Concession") extends that exemption to land intended to be used as the owner's PPR, but subject to certain conditions. 40Clause 6 has been amended over the years, but the form of the clause that is relevant to these applications is the form that it took on 31 December 2007, which is the first taxing date for the land tax years under consideration here. 41At that date, clause 6 provided relevantly: (1) An owner of unoccupied land is entitled to claim the land as his or her principal place of residence, if the owner intends to use and occupy the land solely as his or her principal place of residence. In such a case, the owner is taken, for the purpose of the principal place of residence exemption, to use and occupy the unoccupied land as his or her principal place of residence. (2) This clause does not apply unless: (a) the land is unoccupied because the owner intends to carry out, or is carrying out, building or other works necessary to facilitate his or her intended use and occupation of the land as a principal place of residence, and (b) if those building or other works have physically commenced on the land, no income has been derived from the use and occupation of the land since that commencement, and (c) the intended use and occupation of the land is not unlawful. (3) This clause applies in respect of the assessment of a person's ownership of land only in the period of: (a) 2 tax years immediately following the year in which the person became owner of the land, or (b) if the land is used and occupied for residential purposes by a person other than the owner at any time after the person became owner, 2 tax years immediately following the tax year in which the building or other works necessary to facilitate the owner's intended use and occupation of the land are physically commenced on the land. (4) The Chief Commissioner may extend the period in which this clause applies if the owner of the unoccupied land demonstrates that: (a) there is a delay in the completion or, in the case referred to in subclause (3)(b), the commencement of the building or other works necessary to facilitate the owner's intended use and occupation of the land, and (b) the delay is due primarily to reasons beyond the control of the owner. 42The relevant parts of clause 6 stayed in that form until an amendment in 2010 by the State Revenue Legislation Amendment Act 2010 (Act No. 46). However, Act No. 46 inserted clause 51 into Schedule 2 to the LTM Act; that clause reads as follows: Clause 6 of Schedule 1A, as in force immediately before its amendment by the amending Act, continues to apply in respect of a claim for the principal place of residence exemption that is made by a person in respect of the 2011 tax year or a subsequent tax year if clause 6 of Schedule 1A applied in respect of the assessment of the person's ownership of the land in the 2010 tax year or a previous tax year. 43In other words, the form of clause 6, and in particular subclauses (3) and (4), set out in [41] above is the form of the clause that applies to all of the land tax years under consideration in the current applications.

The exercise of the discretion 44The discretion in subclause 6(4) has already been exercised once - in May 2007 in respect of the 2007 land tax year: see [24] above. That was evidently on the basis of the Chief Commissioner's acceptance of Mr Keness' explanation that the Applicants "were not able to commence construction" (my emphasis) because it took "1 year for the architect to prepare all the necessary plans and all the newly introduced certifications and building compliance". 45The question now is whether the discretion in subclause 6(4) should be exercised for any of the land tax years 2008, 2009, 2010, 2011, 2012 or 2013. The answer to that question depends on whether the Applicants can demonstrate that: (a) there is a delay in the completion of the building or other works; (b) the delay is due primarily to a particular reason or reasons; and (c) any such reasons were beyond the Applicants' control. 46Those issues must be addressed in relation to each of the land tax years separately. However, the practicalities of a case such as this are that the circumstances as at the later taxing dates (especially 31 December 2012 - the taxing date for the 2013 land tax year) are more important than those at the earlier taxing dates: see [49] to [56] below. 47If the Applicants can demonstrate that the matters in [45] apply, then the Tribunal as a matter of discretion may (but is not obliged to) extend the concession period into some or all of the land tax years in issue. 48I have emphasised the word "commence" in Mr Keness' explanation (relating to the 2007 land tax year: see [23] and [44] above) to highlight what is the real enquiry in this case in the context of subclause 6(4). It is not why "commencement" was delayed; it is why "completion" was delayed. In the Applicants' circumstances (which are within paragraph (a), not (b), of subclause 6(3)), the reasons for any delay in "commencement" are not in terms part of the enquiry. There is a distinction drawn in paragraph 6(4)(a) between a delay in the completion of the works, on the one hand (for the general run of cases), and a delay in the commencement of the works (for cases covered by paragraph (b) of subclause 6(3)), on the other. And while a delay in commencement will usually result in a delay in completion, the focus in this case must be on the reasons for any delay in completion of the works, not on the reasons for any delay in their commencement.

The effect of subclauses 6(5) and 6(6) 49It is also important to note the terms of subclauses 6(5) and 6(6) in Schedule 1A. These provide as follows: (5) If the principal place of residence exemption applies by operation of this clause to land not actually used and occupied by a person as his or her principal place of residence on a taxing date, that exemption is revoked if the person fails to actually use and occupy the land as his or her principal place of residence by the end of the period in which this clause applies in respect of the assessment of the person's ownership of the land and to continue to so use and occupy the land for at least 6 months. (6) The effect of the revocation is that the principal place of residence exemption is taken not to have applied to the land in respect of any tax year to which, but for the revocation, it would have applied. Land tax liability is to be assessed or reassessed accordingly. 50These subclauses potentially operate in this case. 51The effect of subclause 6(5) is that, if the Clause 6 Concession applies at a particular taxing date (on the basis that the Applicants, although not actually using and occupying the land as their PPR, were intending to do so), the Applicants must actually use and occupy the land as their PPR by the end of the Clause 6 Concession period and then continue to do so for a period of 6 months, otherwise they lose the exemption. And they do not lose it only for the future - they lose it for the past as well. 52The position is best explained by way of an example. At the moment the Clause 6 Concession applies for the 2007 land tax year (that is, on the taxing date of 31 December 2006): see [24] of these reasons. To retain the exemption for that land tax year, the Applicants must either:

• put the land to actual use and occupation as their PPR by the end of that land tax year (that is, by 31 December 2007) and continue to do so for a period of at least 6 months, or
• have the Clause 6 Concession extended for at least a further year. 53They did not put the land to actual use and occupation by 31 December 2007. 54If they fail to achieve a further extension of the Clause 6 Concession, then they will lose the exemption that they had for all the earlier years. (In that circumstance, the Chief Commissioner has indicated that, although he has the power to make new assessments for the earlier years (2005, 2006 and 2007), he does not propose to do so.) 55If, on the other hand, the Applicants are successful in obtaining an extension of the Clause 6 Concession for the 2008 land tax year, then they must either put the land to actual use and occupation as their PPR by 31 December 2008, or get a further extension of the Clause 6 Concession into the 2009 land tax year. And so it proceeds to the next year, and subsequent years. 56What that means in practical terms is that, as the Chief Commissioner has pointed out in paragraph 62 of his written submissions, if the Clause 6 Concession is extended into the 2012 land tax year but not the 2013 land tax year, the PPR exemption will be revoked from the very beginning since, as the evidence now shows, the Applicants failed to actually use and occupy the land by the end of the 2012 land tax year. And of course the Applicants' case must also fail if the Clause 6 Concession ceases prior to the 2012 land tax year.

The delays 57It is clear that there were delays in the commencement of the construction work. From the time the Applicants purchased the land in January 2004, it took them two years to lodge their Development Application with LCC, in January 2006. It then took a further two years for the issue of a Construction Certificate in February 2008. 58Some of that delay can be attributed to the requirements of LCC and the other regulatory bodies. 59Of more significance, though, are the delays that have occurred since then, and the reasons for them. 60At various times Mr Keness has claimed that the delay in completion of the construction was due to: (a) The work having been undertaken by an owner-builder, but nevertheless within normal timeframes (page 38 of the s 58 documents [The documents referred to as the "s 58 documents" are those that were lodged by the Chief Commissioner with the former ADT under s 58 of what was then the Administrative Decisions Tribunal Act 1997 (but which has since been renamed the Administrative Decisions Review Act 1997 by the NCAT Act)]); (b) The onset of the Global Financial Crisis (GFC) and consequential losses suffered by Mr Keness' income generating business (page 38 of the s 58 documents); (c) "Considerable drop of income due to the GFC and all the issues with LCC has taken its toll on my mental health with the onset of depression and anxiety" (page 61 of the s 58 documents); (d) "The process of finding ... contractors ... had to be ... repeated" from the beginning because of the delays in building approval; depression and anxiety (document dated 14 December 2012); (e) "The house is large and complex and is positioned on a slope. The scope of the works is considerably more extensive compared to a standard dwelling"; "[LCC] approval was delayed for no good reason"; "mental illness has slowed the progress as stress was overwhelming at times"; "The heavy and frequent rains also caused delay" (document dated 17 June 2013). 61However, the Applicants now acknowledge that financial difficulties were not a cause of delay. 62As a result, the Applicants' case now consists of little more than vague and unspecific assertions concerning Mr Keness' anxiety and depression, difficulties relating to the engagement of tradesmen, and rain delays. 63The claim about "heavy and frequent rains" must be rejected. It was first mentioned as a cause of delay in June 2013. Mr Keness did not mention rain as an issue when he first responded to the Chief Commissioner's enquiries in September 2011. I infer that it has been added as an afterthought to bolster the remainder of the Applicants' case. 64As for Mr Keness' anxiety and depression, there is evidence to support his claim that he has suffered from these conditions and I accept that evidence. But it is much more difficult to accept that it was a primary cause, or indeed a cause at all, of the delays. Mr Keness' wife, Ms Ma, was capable of interacting with tradesmen and making arrangements for site work to commence or continue. On occasion she asked tradesmen for quotes for specified work. In the circumstances I am not satisfied that any difficulty that Mr Keness may have experienced in keeping things moving had a serious impact on construction progress, if it had an impact at all. The evidence simply does not support the proposition put forward by the Applicants. 65Mr Keness mentioned at the hearing that the Commonwealth's response to the GFC in 2008, including its economic stimulus package incorporating the Building the Education Revolution (BER), had had an impact on the construction of the house on the land at Wallacia. He said that the BER program was aimed at the construction of steel-framed school buildings, that he had wanted steel frames for his house, that builders were busy with the BER and that any quotes that he was able to get incorporated long lead times, contributing to the delays he was experiencing. There is a lack of specific evidence to support these assertions. I am not persuaded that the BER or its impact on builders was a factor in the delays experienced by the Applicants. 66It became clear during the hearing that Mr Keness was aggrieved by, among other things, the Chief Commissioner's failure, at any time between mid-2007 and mid-2011, to alert the Applicants to the need to have the construction completed in a timely fashion. I was left with the impression that the Applicants were unaware of the finer details of the Clause 6 Concession. I find that this lack of awareness was a contributor to the inordinately long time that they have taken to complete the construction of their home. 67Mr Gerard, for the Chief Commissioner, described the "leisurely pace" with which the Applicants approached the construction of the home as a major cause of the delay. That is an apt description of the circumstances. 68The evidence shows that it took the Applicants two years to lodge their Development Application. The Construction Certificate was issued two years later. But it was almost another two years before actual construction work commenced, towards the end of 2009. By then the Applicants had owned the property for just under six years. Four years after that, when the applications were heard in the Tribunal, the construction (undertaken, as a matter of choice, by Mr Keness as an owner-builder) was still not complete, although nearly so. One of the difficulties for the Applicants is that Mr David Hall gave expert evidence, which is unchallenged and which I accept, that the entire construction of the home would have taken between 15 and 20 months from 1 April 2008 to be completed if that construction had been undertaken by a private building contractor at market rates, and assuming that the owners had sufficient financial resources at their disposal (which I find they did).

Conclusion 69The factors that the Applicants rely on are not the primary causes of the delay in completion of the building work. I find that the primary causes of the delay are: (a) The choice of Mr Keness to undertake the work as an owner-builder; (b) The leisurely pace at which Mr Keness progressed the work himself, or caused it to be progressed by builders and other tradesmen; and (c) The Applicants' ignorance of the detailed requirements for the continuation of the Clause 6 Concession. 70The Applicants have failed to demonstrate, as at 31 December 2012 (the taxing date for the 2013 land tax year), that the delay in completion of the construction was primarily due to reasons beyond their control. Taking into account what I have found as the primary causes of the delay, I come to the same conclusion as at 31 December 2010 and 2011. It is a moot point as to whether the same conclusion would be drawn as at 31 December 2007, 2008 or 2009 since, even if the outcome were favourable to the Applicants up to and including 31 December 2009, and even if the Tribunal exercised the discretion in their favour for the 2010 land tax year, the Applicants' failure to use and occupy the land as their PPR by the end of the 2010 calendar year would result in the revocation of the exemption by virtue of subclause 6(5) in Schedule 1A to the LTM Act.

Decision The land tax assessments for the 2008 to 2013 land tax years inclusive are confirmed. 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: 25 February 2014