Lei v Chief Commissioner of State Revenue

Relevant legislation - liability to SPD

1. SPD is chargeable on a transfer or an agreement for sale or transfer of residential-related property to a foreign person: Duties Act 1997 (NSW), s 104L.
2. By s 104J of the Duties Act, a foreign person is a person who is a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the Commonwealth Act).
3. In the Commonwealth Act, s 4, a foreign person is an individual who is not ordinarily resident in Australia.
4. As far as relevant to this case, the Commonwealth Act, s 5, provides that an individual who is not an Australian citizen is ordinarily resident in Australia at a particular time if and only if:

• the individual has actually been in Australia during 200 or more days in the period of 12 months immediately preceding that time; and
• the individual's continued presence in Australia was not subject to any limitation as to time imposed by law.

1. However, no SPD is chargeable if the transferee is an exempt permanent resident: Duties Act, s 104ZKA. Not only must such a person be a permanent resident (but see the following paragraph) when the liability for duty arises, but also:

• the Chief Commissioner must be satisfied that the person intends to use and occupy the residential land as a principal place of residence in accordance with the residence requirement (s 104ZKA(2)(b)); and
• the person must actually satisfy the residence requirement - which requires the residential land to be used and occupied as the person's principal place of residence for a continuous period of at least 200 days within the first 12 months of the liability date (s 104ZKA(4)).

1. For the purposes of s 104ZKA, a person who holds a retirement visa (subclass 405 or 410 or equivalent) is treated as if they are a permanent resident: s 104ZKB.

What are the facts?

1. Mr Lei is a citizen of China. He is not an Australian citizen.
2. Mr Lei has been on an Investment Retirement visa (subclass 405) since early 2018.
3. Mr Lei entered into a contract for the purchase of an apartment on the Central Coast on 29 November 2019.
4. Prior to entering into the contract, Mr Lei's international movements had been as follows:

• Departed Australia 25 July 2018, returned 4 March 2019;
• Departed Australia 18 March 2019, returned 19 September 2019;
• Departed Australia 4 November 2019.

1. He was still outside Australia on 29 November 2019.
2. It follows that in the 12 months prior to 29 November 2019, Mr Lei was actually in Australia during a total of 62 days (15 days from 4-18 March 2019 and 47 days from 19 September 2019 to 4 November 2019).
3. On 2 December 2019 Mr Lei completed a Purchaser Declaration in respect of the apartment he purchased. He declared he was a foreign person and was an exempt permanent resident who would occupy the apartment as his principal place of residence for a continuous period of 200 days within the first 12 months after the liability date (which was the date of the agreement).
4. Mr Lei was unable to return to Australia because of travel restrictions imposed during the global COVID-19 pandemic. He eventually returned to Australia on 3 February 2022.
5. In the 12 months following 29 November 2019, Mr Lei was not in Australia at all.
6. The agreement for Mr Lei's purchase of the apartment was processed under the Electronic Duties Return system on 14 February 2020. Duty was calculated at $19,957. It was processed without any foreign interest being declared and no SPD was included.
7. On 7 March 2023 the Chief Commissioner issued a Notice of Investigation to Mr Lei, indicating that he may be liable to SPD.

Mr Lei's position

1. Mr Lei's response to the Notice of Investigation indicated he hadn't been able to live in the apartment until February 2022 as he was in China and couldn't return to Australia because of the COVID-19 travel restrictions. In September 2020 he had asked the Department of Home Affairs for an exemption from the restrictions but that had been refused.
2. He explained to the Chief Commissioner that it had always been his intention to travel to Australia and use the apartment as his principal residence. He provided to the Tribunal a screenshot of what appeared to be an appointment with an eye specialist in Sydney in April 2020, which Mr Lei said he had had to cancel because he was still in China. He submitted that this showed his intention to return to Australia. He asked the Chief Commissioner to take his circumstances into account.
3. After the hearing, and without leave, Mr Lei sent a further bundle of documents to the Tribunal. Included in the bundle is a 3-page document in Chinese. Also in the bundle is a document that may be an English translation of that document, and in which it is stated: In the nearly three years of Covid-19 restrictions, the federal government has adopted a compassionate approach to dealing with vacant property taxes. Despite being unable to occupy the new property during 2020-2022 due to the pandemic and border controls, I was exempted from vacant property taxes. In conclusion, I request [the Tribunal] to consider the objective circumstances and, in light of the federal government's handling of vacant property taxes during the pandemic, exempt me from overseas buyer stamp duty, penalties, and interest.
4. The Chief Commissioner opposed my granting leave to receive the late submission and other documents from Mr Lei. I have read the entire bundle Mr Lei provided to the Tribunal and I consider it contains nothing new. The Chief Commissioner submitted the invoice from Mr Lei's conveyancer, which he had not provided at any earlier stage of the proceedings, was 'new evidence', the acceptance of which would be potentially prejudicial to the Chief Commissioner. But its content is so vague that I remain unconvinced that it adds anything to Mr Lei's case.

The Chief Commissioner's position

1. The Chief Commissioner's position was, and remains, straightforward.
2. SPD will not be payable if Mr Lei satisfied both requirements in [8] above, but he didn't satisfy either of them.
3. Failing that, as the holder of a retirement visa, he would be exempt from SPD if he satisfied both requirements in [9]. He didn't satisfy the second one.
4. The Chief Commissioner says it is irrelevant that the COVID-19 travel restrictions prevented Mr Lei from returning to Australia.
5. In relation to Mr Lei's late material, the Chief Commissioner also submits it is irrelevant that the federal government may have granted some concessions with respect to the FIRB vacancy fee.
6. The Chief Commissioner maintains the SPD assessment is correct.

Liability for SPD

1. The starting point is that SPD is chargeable on the agreement to purchase the apartment unless Mr Lei was not a foreign person as at the date of the agreement. That means he must satisfy both requirements in [8] above.
2. Clearly, he did not satisfy the first requirement (200 days in Australia in the relevant period), as he had only been in Australia during 62 days in the 12 months prior to the date of the agreement.
3. He also did not satisfy the second requirement, as his subclass 405 visa is a temporary visa, and as a result his continued presence in Australia was subject to a limitation as to time imposed by law: Li v So [2019] VSC 515.
4. Because Mr Lei was a foreign person as at the date of the agreement, SPD is chargeable on the agreement unless there is an exemption available.

Exemption from SPD

1. Exemption from SPD is available for certain foreign persons under the 'principal place of residence' provisions (the PPR provisions). These provisions are summarised in [9] above.
2. For the purposes of the PPR provisions, Mr Lei is to be treated as if he were a permanent resident because he was on a subclass 405 visa: Duties Act, s 104ZKB.
3. Mr Lei made the Purchaser Declaration in December 2019 (see [17] above), and that was sufficient to satisfy the Chief Commissioner that he intended to use and occupy the apartment as his principal place of residence in accordance with the residence requirement. But he also had to actually use and occupy the apartment as his principal place of residence for a continuous period of at least 200 days within the first 12 months after the date of the agreement. Plainly he did not do that, since he wasn't even in the country again until 3 February 2022.
4. The fact that Mr Lei was outside Australia owing to the COVID-19 travel restrictions does not alter the fact that he did not meet the residence requirement. The exemption provision is only concerned with whether Mr Lei did in fact use and occupy the apartment as his principal place of residence in the relevant period. And he didn't. If his return to Australia had been prevented by illness (either his own or that of a member of his family), or war, or earthquake, or volcanic eruption, or imprisonment, or abduction, or any other unforeseen occurrence, the outcome would have been the same. There are no exceptions for unforeseen occurrences or exceptional circumstances.
5. Mr Lei says it is unfair that he should be required to pay the SPD in circumstances where his inability to use and occupy the apartment was beyond his control. But, as this Tribunal has emphasised on a number of occasions, neither the Chief Commissioner nor the Tribunal has the power to grant an exemption based on some vague notion of 'fairness' that is not provided for in the legislation.
6. The exemption from SPD is not available, and as a result the assessment in relation to SPD is correct.

Relevant legislation - interest and penalty tax

1. A failure by a taxpayer to pay, in accordance with a taxation law, the whole or part of tax that the taxpayer is liable to pay is called a tax default: TA Act, s 3(1).

Interest

1. If a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid, calculated on a daily basis: TA Act, s 21(1).
2. The interest rate is the sum of the market rate component, and the premium component: TA Act, s 22(1).
3. Either or both of the market rate component and the premium component may be remitted in such circumstances as are considered appropriate: TA Act, s 25.
4. In Mr Lei's case, interest totalling $11,782.70 was imposed.

Penalty tax

1. In addition to interest, a penalty of 25% is imposed on a tax default: TA Act, s 27(1). However, the Chief Commissioner (or the Tribunal on review) may determine that no penalty is payable if satisfied the taxpayer took reasonable care, or the tax default was beyond the control of the taxpayer: TA Act, s 27(3).
2. The penalty that would ordinarily be imposed at 25% will be reduced to 20% if the taxpayer makes a disclosure during an investigation.
3. Penalty tax may be remitted in such circumstances as are considered appropriate: TA Act, s 33.
4. In Mr Lei's case, penalty tax of $8,720.00 was imposed, calculated at the reduced rate of 20%. The reduced rate was applied because Mr Lei had disclosed, early in the Chief Commissioner's investigation, that he had been unable to meet the residence test.

Should the interest be remitted to any extent?

1. As indicated above, interest may be remitted 'in such circumstances as are considered appropriate'.
2. While Mr Lei was granted the prospective exemption under s 104ZKA, that was conditional on his satisfying the residence requirement in subsection (4). That meant he had to use and occupy the apartment as his principal place of residence for a continuous period of at least 200 days within the first 12 months after the liability date, 29 November 2019. In practical terms, he had to start living there no later than 14 May 2020.
3. Mr Lei had acknowledged this 200-day requirement in the Purchaser Declaration he made on 2 December 2019 (Ex R1, p. 24).
4. Once that critical date of 14 May 2020 had passed and Mr Lei had not commenced living in the apartment, it is 'as if the exemption under [s 104ZKA] had never applied': s 104ZKA(6). With no exemption available, the SPD should have been paid within 3 months after the liability date of 29 November 2019: Duties Act, s 17(1). There was an ongoing tax default while the SPD remained unpaid, and interest was payable accordingly.
5. What are the circumstances that might render it 'appropriate' to remit the interest, either in whole or in part?
6. Mr Lei stresses the border restrictions as the underlying reason why he eventually failed to satisfy the residence requirement. But that doesn't help him as far as the interest bill is concerned. The interest is imposed not because he failed the residence requirement but because he didn't pay the SPD on time.
7. Mr Lei doesn't explain what he did around 14 May 2020, the latest date on which he had to start living in the apartment. Did he speak to his conveyancer or anyone else, to explain his situation? Did he notify the Chief Commissioner, and ask for advice? If he had done either of those things, there may have been some justification for at least partial remission of the interest.
8. Mr Lei claims it was the Chief Commissioner's responsibility to notify him of his liability. But his claim fails to acknowledge that he himself knew he had to occupy the apartment as his principal place of residence for a continuous period of 200 days within the first 12 months after 29 November 2019. This is clear from the declaration he signed on 2 December 2019. If he had done the calculation he would have known that 14 May 2020 was the very last day on which he had to start living in the apartment. Once that day came and went, he should have been aware that he couldn't satisfy the 200-day requirement, the exemption was now lost, and the SPD was payable. It wasn't paid for another 3 years.
9. That amounts to a tax default. There was nothing to prevent him from paying the SPD without delay; he simply failed to make the payment. In the circumstances it is proper that interest was imposed. I have not identified any circumstances that would make it appropriate to remit the interest to any extent.
10. The assessment of interest is correct.

Should the penalty tax be determined under TA Act s 27(3) to be not payable, or, if that is not the case, should it be remitted under TA Act s 33?

TA Act s 27(3)

1. The Chief Commissioner, or the Tribunal on review, must be satisfied either that the taxpayer took reasonable care to comply with the law, or that the tax default occurred solely because of circumstances beyond the taxpayer's control. I am satisfied as to neither of those things.
2. In Mr Lei's case, reasonable care required him to do something, and to do it no later than May 2020 - perhaps ask for advice from his conveyancer or another practitioner, or volunteer his circumstances to the Chief Commissioner. But there is no indication he did anything when the exemption was lost in May 2020. (The invoice from his conveyancer, referred to in [25] above, refers to 'advice' but in the context in which it appears I think the proper inference to draw is that any advice given to Mr Lei concerned the purchase of the apartment itself and not his liability to SPD.)
3. I have found nothing in the evidence to suggest that Mr Lei took reasonable care.
4. Neither is it the case that the tax default (which was his failure to pay the SPD on time) occurred solely - or at all - because of circumstances beyond his control.
5. I decline to determine under TA Act s 27(3) that the penalty tax is not payable.

TA Act s 33

1. The question under s 33 in relation to penalty tax is the same as the question under s 25 in relation to interest.
2. I have not identified any circumstances that would make it appropriate to remit the penalty tax to any extent.
3. The assessment of penalty tax is correct.

Order

1. The assessment of SPD, interest and penalty tax is 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: 31 January 2024