Kouayder and anor v Chief Commissioner of State Revenue [2003] NSWCA 91 | Case summary

REASONS FOR DECISION Introduction 1 The applicants, who are sisters, seek the review of a decision of the Chief Commissioner of State Revenue ("the Chief Commissioner") requiring them to repay a First Home Grant of $7,000 ("the Grant") given to them under the First Home Owner Grant Act 2000 (NSW) ("the FHOG Act"), together with a penalty of 20 percent ($1,400). 2 The applicants also seek the review of a decision made by the Chief Commissioner to revoke the duty exemption granted to them in accordance with the First Home Plus Scheme ("the FHP Concession") under the Duties Act 1997 (NSW) ("the Duties Act"). The Chief Commissioner has issued an assessment requiring the payment of the duty together with an interest amount imposed on the duty payable. 3 The Grant and the FHP Concession were in respect of a property at 15 Cardigan Road, Greenacre ("the Greenacre property"). Factual Background 4 The facts are as follows. 5 On 26 June 2004, the applicants entered into a contract for the purchase of the Greenacre property, which was transferred to the applicants by way of Transfer, dated 13 August 2004. 6 The applicants' bank applied on their behalf for the Grant on 9 August 2004. The Chief Commissioner paid the Grant on 11 August 2004. The applicants were also granted the FHP Concession in respect of the transfer of the Greenacre property. 7 In a letter dated 3 February 2006, the Chief Commissioner sought confirmation that the residence requirement under the FHOG Act had been satisfied. On 3 March 2006, Khadiga Kouayder responded and forwarded a statutory declaration in which she declared that she occupied the Greenacre property between December 2004 and 1 February 2006. Contrary, to that statement she also acknowledged that she did not occupy the property. In a letter attached to the statutory declaration she indicated that she lived at the Greenacre property with the previous owners "for over the year", spending a few days with her parents who live in the property next door and for a few days at the Greenacre property during the week. She also indicated that currently the property was being renovated for her and her sister to live in. She also explained that as she used her parents' address she was not able to provide the various utility bills, which had been requested by the Chief Commissioner. 8 Against that background, the Chief Commissioner on 13 April 2006 reversed the decision to pay the Grant to the applicants and issued an assessment to recover the Grant and also imposed a penalty of 20 percent of the Grant amount. On the same date, the Chief Commissioner also reversed his decision to allow the FHP Concession to the applicants. A Duties Notice of Assessment was issued to recover the duty payable on the transfer with interest. 9 The applicants in a letter dated 11 May 2006 requested the Chief Commissioner to reconsider his decision to repay the Grant. The Chief Commissioner in his written submissions has usefully summarised their grounds for review as follows: "Their solicitor did not make it clear to them that they must occupy the Greenacre Property within the 12 month period; They had always intended to occupy the Greenacre Property; Although they tried to occupy the property, it was not "liveable" and Khadiga Kouyader became sick. They then moved back in with their mother in the property next door; They purchased the house to renovate it because it was not "in a liveable state". However, they had only recently started to renovate the property because "the money that was supposed to come through to renovate the house fell through"; Had their solicitor made them aware of the need to occupied (sic) the house, they would have asked for an extension of time to comply with the residence requirement, due to their financial circumstances; They are not able to afford to pay the Grant back because of their financial circumstances." 10 The Chief Commissioner responded on 24 May 2006 to their request by indicating that he had reviewed the original decision taking into consideration the additional information provided but he was "still of the opinion that the original decision was correct". 11 At the hearing, the applicants lodged a "Timeline" for the Greenacre property which for purposes of this matter, indicated that the previous owner moved out on 26 December 2005 and, on inspection, they found the house not "liveable" requiring major renovation. In January 2006, the applicants commenced to clean up the property for the necessary repairs and renovations, which were carried out between 26 March 2006 and June 2006. The applicants moved into the house on 10 June 2006. 12 The applicants also produced a copy of a bill for $35,200 from the business that carried out the repairs and renovations. In addition, the applicants produced an energy bill indicating that the security deposit of $200 was due on 2 March 2006 and copy of a phone bill in the name of one of the applicants sent to the Greenacre property address for charges due on 21 July 2006. 13 At hearing, it was confirmed that, because the necessary funding for the renovation and repair work did not come through as hoped, the applicants decided to allow the former owner and her family to continue to live in the property as tenants. The Tribunal was also told that the former owner, who had intended to move interstate, had not been able to do so when the settlement occurred. Relevant Legislative Provisions FHOG ACT 14 Historically, the FHOG Act was introduced to encourage and assist home ownership and to offset the effect of the Goods and Services Tax on the acquisition of a first home. The scheme has been continued to assist first home buyers to purchase or build their first homes. The entitlement requirements for a grant are set out in section 7 (1) of the FHOG Act as follows: "A first home owner grant is payable on an application under this Act if: (a) the applicant or, if there are 2 or more of them, each of the applicants complies with the eligibility criteria, and (b) the transaction for which the grant is sought: (i) is an eligible transaction, and (ii) has been completed." 15 In the applicants' case, the "eligible transaction" was the contract for the purchase of the Greenacre property in terms of section 13(1)(a) and was completed under section 13(5)(a) of the FHOG Act when the applicants were entitled in August 2004 to possession of the Greenacre property. 16 The eligibility criteria is set out in Division 2 of Part 2 of the FHOG Act which requires an applicant to satisfy 5 "Eligibility Criteria" to obtain a grant. 17 For the present purposes, the relevant eligibility criterion at issue is the fifth criterion set out in section 12(1) of the FHOG Act. There are various historical versions of this provision, the version that applies in this matter is as follows: "12 Criterion 5 - Residence requirement (1) An applicant for a first home owner grant must occupy the home to which the application relates as the applicant's principal place of residence for a continuous period of at least 6 months. (1A) However, if the Chief Commissioner is satisfied there are good reasons to do so, the Chief Commissioner may: (a) approve a shorter period, or (b) exempt the applicant from the requirement to comply with sub-section (1). (1B) The period of occupation required under sub-section (1), or the shorter period approved under sub-section (1A)(a), must start within 12 months after completion of the eligible transaction or a longer period approved by the Chief Commissioner. (2) If an application is made by joint applicants and at least one (but not all) of the applicants complies with the residence requirement, the non-complying applicant or applicants are exempted from compliance with the residence requirement." 18 Subject to conditions a grant can be paid under section 20 of the FHOG Act in advance in anticipation of the residence requirement. Section 23 of the FHOG Act gives the Chief Commissioner power to vary or reverse a decision made in respect of an application for a grant where he is later satisfied that the decision is incorrect. 19 Power to require repayment and impose penalties is given to the Chief Commissioner under section 45 of the FHOG Act. DUTIES ACT 20 In tandem with the grant scheme, the government has also introduced the FHP Concession scheme under the Duties Act 1997. Section 69 of the Duties Act 1997 sets out the scheme as follows: " 69 The nature of the scheme This scheme is intended to help people who are acquiring their first home. Under the scheme, the acquisition and any mortgage given to assist the financing of the acquisition is subject to a concession or exemption from duty." 21 Under section 70 the following transactions and instruments are eligible for consideration under the scheme: "(a) agreements for sale or transfer entered into on or after 4 April 2004, (b) transfers that occur on or after 4 April 2004 (other than transfers made in conformity with an agreement for sale or transfer entered into before 4 April 2004), (c) mortgages over land the subject of those agreements or transfers." 22 Section 74 deals with eligible agreements of transfers and restricts the concession to agreements or transfers for the acquisition of a first home or the acquisition of a vacant land intended to be used as the site of the first home. Under section 80 of the Duties Act 1997 no duty is chargeable on an agreement or transfer of a dwelling valued up to $500,000 or $300,000 in the case of a vacant block of residential land if the application concerning an eligible agreement or transfer is approved by the Chief Commissioner. 23 An applicant under the FHP Concession scheme must comply with section 76 of the Duties Act 1997 which, at the relevant time, provided as follows: " 76 Residence requirement (1) The home must be occupied by the person or persons who are acquiring it as a principal place of residence for a continuous period of at least 6 months, with that occupation starting within 12 months (or such longer period as the Chief Commissioner may approve) after completion of the agreement or transfer. This requirement is referred to as the residence requirement. (2) The Chief Commissioner may, if satisfied there are good reasons to do so in a particular case: (a) modify the residence requirement by approving a shorter period of occupation by the person or persons, or (b) exempt the person or persons from the requirement to comply with the residence. (3) In the case of an agreement or transfer for the acquisition of a vacant block of residential land, it is sufficient that the Chief Commissioner is satisfied that the vacant block is intended to be used as the site of a home to be occupied by the person or persons who are acquiring it as their principal place of residence. (4) The residence requirement does not apply to a person who acquires an interest in the property concerned solely for the purpose of assisting the other purchaser or purchasers in financing the acquisition. (5) For the purpose of this section, an agreement or transfer is completed when a purchaser or transferee becomes entitled to possession of the home and, if the interest in the land acquired by the purchaser or transferee is registrable under a law of the State, the interest is so registered. (6) (Repealed)" Findings and Reasons 24 The applicants failed to occupy the Greenacre property within 12 months for a continuous period of at least 6 months after the completion of the eligible transaction as required by section 12(1) of the FHOG Act and section 76(1) of the Duties Act 1997. 25 Accordingly, in relation to the Grant and the FHP Concession the only issue is whether the Chief Commissioner should exercise his discretion given to him by section 12(1A) of the FHOG Act and section 76(2)(b) of the Duties Act 1997 to exempt the applicants from the residence requirement. 26 The Chief Commissioner's submissions in relation to the scope of the discretionary power were as follows: "60 In the absence of any express conditions governing the exercise of the discretion … the decision-maker (that is, the Tribunal) must be guided by the underlying purpose and policy of the FHOG Act and Duties Act respectively "… so far as that is manifested in" the relevant Act: see Giris v Federal Commissioner of Taxation (1969) 119 CLR 365, at 384. Thus, the circumstances which would constitute "good reasons" and, therefore, the scope of the discretionary power, must be determined in the context of the FHOG Act and the Duties Act : see for example K & S Lake City Freighters Pty Ltd v Gordion & Gotch Ltd (1985) 60 ALR 509, at 514; see also CIC Insurance Limited v Bankstown Football Club Limited (1995) 187 CLR 384, at 408. As Spigelman CJ stated in Deputy Commissioner of Taxation v Clark [2003] NSWCA 91 (" Clark "), at para. [115]: "Parliament has chosen to use words of great generality in the phrase 'other good reason' in the various statutory provisions in which it appears. A phrase of this character must take its colour from its surroundings. The contemporary approach to statutory interpretation is literal but not literalistic and requires words to be construed in their total context." (citations omitted) 61 The discretionary power … must be exercised in a manner which does not 'defeat the fundamental legislative objectives of the scheme of regulation within which the dispensing power is located": see Chief Commissioner of State Revenue v Pacific General Securities Ltd & Finmore Holdings Pty Ltd (No 2) (RD) [2005] NSWADTAP 54. Thus, the discretionary power must not be exercised in a manner which would be inconsistent with other fundamental provisions of the FHOG Act and the Duties Act including those which give effect to the objectives of the relevant Act: see generally Chikonga v Minister of Immigration and Multicultural Affairs [1997] 47 ALD 49, at 51 and Ross v R (1979) 141 CLR 432, at 440. As French J noted in Federal Commissioner of Taxation v Swift (1989) 18 ALD 679 in relation to the dispensing power available to the Commissioner in that case (at 696): "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 a threshold beyond which it would defeat the primary object of the legislation." 62 See Abadier v Chief Commissioner of State revenue [2008] NSWADT 16 … at paras. [24] and [25], where the Tribunal agreed with this approach; Agisostratis v Chief Commissioner of State Revenue [2008] NSWADT 23 … at para. [26]." 27 Having regard to the above principles the Chief Commissioner submitted that there are at least two primary limitations on the scope of the discretionary power: "Firstly, the power must not be exercised to defeat the object of the legislation to encourage and assist first home ownership. Secondly, the exercise of the discretionary power must not be inconsistent with the stringent obligation imposed on an applicant to fulfil the residence requirement …" 28 It was further submitted by the Chief Commissioner that, in the present case, the discretionary power should not be exercised in favour of the applicants because there was a period of almost 16 months during which the Greenacre property was occupied by tenants and the applicants received rental income; the house was "liveable" for the previous owners; the lease with the tenants could have been terminated; it took 6 months to carry out the repairs; there was failure on the part of the applicants to inform the Chief Commissioner of their failure to satisfy the residence requirement and their financial problems were not a relevant matter. It was submitted, "when considered in whole, the circumstances of this case do not constitute 'good reasons' for the exercise of the discretion". 29 When the discretionary powers to exempt an applicant from the residence requirement were introduced in relation to the Grant by the State Revenue Legislation Further Amendment Act 2003 (NSW) and the FHP Concession by the State Revenue Legislation Amendment Act 2004, in the second reading speeches and explanatory notes to the bills which preceded the enactment of the relevant discretionary powers, no guidance was suggested as to the circumstances when the discretions should be exercised. The Chief Commissioner has also chosen to remain silent and has issued no rulings or guidelines. 30 Both discretions are identical and can be exercised if the Chief Commissioner is satisfied that there are good reasons to do so in a particular case. They have been inserted obviously for a role in the administration of the First Home Owner Grant and the FHP Concession. The original design of the law "set strict boundaries" and required applicants to occupy their first home for at least six months within 12 months of settlement without any power with the Chief Commissioner to approve a shorter period of residence or exempt the applicant from the residence requirement. Critical observations were made in cases where the outcome was inequitable because of the "strict boundaries". These may have led to the changes that have given the Chief Commissioner power to allow a shorter period and a discretionary power to exempt an applicant from the residence requirement in particular cases. 31 I agree with Mr Al Hage, who appeared for the Chief Commissioner, that care has to be taken to ensure that the exercise of the discretionary power does not undermine the primary objective of the FHOG Act and in the case of the Duties Act 1997, the objective of the FHP Concession scheme. 32 The First Home Owner Grant scheme was introduced in 2000 "to encourage and assist home ownership, and offset the effect of the Goods and Services Tax on the acquisition of a first home". In tandem the FHP Concession "scheme was introduced to help people who are acquiring their first home". Under the FHP Concession scheme the acquisition of the first home and any mortgage given to assist the financing of the acquisition is subject to a concession or exemption from duty. 33 The Greenacre property is situated next door to the residence owned by the applicants' parents, which had been their principal place of residence for a number of years. The vendor of the Greenacre property, their neighbour, was on a very friendly relationship with the applicants and their parents. The property was sold because the vendor had intended to move interstate. However, the plans to move interstate were delayed and, by a friendly arrangement, they continued to reside in the property for another 16 months. This suited the applicants because their plans to refurbish the Greenacre property to a "liveable" condition accordingly to their standards were frustrated as the applicants were not able to raise the necessary finance to carry out the work. Eventually, after the vendor moved out of the residence they were able to get the finance and carry out the refurbishment and necessary repairs to the Greenacre property. The applicants have since occupied the Greenacre property as their principal place of residence. During the period the vendor continued to live at the Greenacre property, one of the applicants often resided in the Greenacre property and the applicants had a right of access to the Greenacre property. 34 Against this quite unusual factual background, the Tribunal is required to consider if the applicants are entitled to the exemption from the residence requirement under both the FHOG and Duties Acts. The decision to recall the grant and withdraw the FHP Concession was made by the Chief Commissioner on 13 April 2006, before the renovation and repair work was carried out by the applicants and prior to their occupation of the Greenacre property. The Chief Commissioner relied largely on the fact that the Greenacre property had remained let to the vendor until 26 December 2005. 35 The decision made by the Chief Commissioner at that time was on the basis that the applicants had failed to comply with the residence requirement. However, the Tribunal is required under section 6 of the Administrative Decisions Tribunal Act 1997 (the "ADT Act") to arrive at the correct and preferable decision "having regard to the material then before it". Accordingly, the Tribunal is required to consider all the relevant facts and surrounding circumstances including the subsequent events that occurred in relation to the Greenacre property after 13 April 2006 up to the date of hearing of this matter. 36 The applicants have now clearly satisfied the residence requirement by establishing the Greenacre property as their principal place of residence. The only offensive feature is the period when the vendor continued to reside in the property. It was not a rental sought by the applicants; it just happened that the circumstances suited them and the vendor. They did not seek a real estate agent to let the Greenacre property and soon after the vendor was able to move interstate the applicants commenced work, first of cleaning the place and thereafter at some cost to them the refurbishment of the Greenacre property to make it "liveable" to their standards. 37 The property was not acquired by the applicants to earn rental income, the vendor continued to live there as a tenant essentially due to the circumstances that confronted both the vendor and the applicants. It was suggested by the Chief Commissioner that "it was always open for the applicants to terminate the lease with the tenants after purchase of the property, carry out repairs and move into the Greenacre property within 12 months of settlement, as required under the conditions of the Grant". This ignores the reality of the circumstances. The applicants were friends of the vendor and both had their problems. The vendor could not move interstate as planned and the applicants had difficulty in raising the necessary funds to carry out the repair and refurbishment work. In those circumstances, it is understandable why the vendor continued to live for almost 16 months in the property after its sale. 38 This was not a case like Abadier or Agiostratis, cases relied upon by the Chief Commissioner. In both those cases the property continued to be let to tenants under commercial leases for extended periods and never occupied by the applicants. 39 The Chief Commissioner's argument that as the vendor had used the Greenacre property as a residential property, it was "liveable" for the applicants is logical but not necessarily correct. "Liveable" standards vary from person to person and there is no general rule. 40 Financial difficulty encountered by a purchaser of a first home is a matter that may arise due to bad financial management on the part of an applicant and as the Chief Commissioner has correctly submitted is "primarily of their own doing (and choice)" in some cases. But in this matter the extra finance to carry out the repair and refurbishment work "fell through" soon after the applicants had purchased the property and outside their control. They were however able to organise ultimately the necessary finance and carry out the work. In some cases delays caused in those circumstances should be considered favourably to either extend the 12 months period or exempt an applicant from the residence requirement. 41 In the present matter, which in my opinion, is a borderline case but when all the facts and surrounding circumstances are taken into account there is justification to exempt the applicants from the residence requirement. The applicants were not properly advised in the early stages by their solicitor. It appears that banks which act as agents for the Chief Commissioner to arrange first home owner grants do not explain the necessary eligibility criteria to applicants, especially applicants with limited understanding of the language. The applicants have carried out the necessary repair and refurbishment and have since June 2006 occupied the Greenacre property as their principal place of residence. And to grant them the exemption from the residence requirement would be within the objective of the First Home Owner Grant and FHP Concession schemes. 42 The applicants genuinely intended to occupy the Greenacre property after its purchase but failed to occupy within the 12 months period due to a change in circumstances after the purchase of the property. 43 The extended period of occupation by the vendor on a rental basis was quite special and to some extent due to the personal relationship of the vendor and the applicants. There was also joint physical presence in the Greenacre property whenever one of the applicants stayed there overnight, which occurred on a regular basis. There was some control by the applicants over the Greenacre property during the period it was occupied by the vendor and in that sense they did not hand over exclusive possession to the vendor as the tenant. 44 Taking all the factors into consideration I have formed the view, in this unusual set of circumstances, that this is a particular case where there are good reasons to grant the residence requirement exemption to the applicants without undermining the objectives of the First Home Owner Grant and FHP Concession schemes. Orders The decisions of the Chief Commissioner to recall the First Home Owner Grant and withdraw the FHP Concession are accordingly set aside.

Kouayder and anor v Chief Commissioner of State Revenue

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