This dispute is about surcharge land tax (SLT), which has been assessed to Mr and Mrs Middleton, the applicants, in respect of the 2018 land tax year.
The land the subject of the assessments is a parcel of residential land in Harrington Park. The applicants bought the property as a vacant block in 2016. They built a house on the property and have lived in the house, as their principal place of residence, since May 2018. They have been entitled to the principal place of residence land tax exemption for every land tax year since they became the owners.
Nevertheless, the Chief Commissioner took the view that Mr and Mrs Middleton were liable to SLT for the 2018 land tax year because they were in Australia on temporary visas. According to the Chief Commissioner, that meant they were not 'ordinarily resident' in Australia and so were liable to the surcharge.
The applicants both objected to the assessments on the ground that the surcharge did not exist when they exchanged contracts on the purchase of the property. They say the tax cannot apply to them.
I have concluded that the assessments of surcharge land tax are correct and must be confirmed. Following are my reasons for reaching this conclusion.
[2]
The legislation
SLT was introduced by the State Revenue Legislation Amendment (Budget Measures) Act 2016 (NSW) (the Amendment Act). Subsection 2(2) of the Amendment Act provides that SLT commenced from the date of assent, which was 28 June 2016.
SLT is an ongoing annual tax. It applies to any taxing event (the taxing event is the ownership of property at midnight on 31 December in any year) that occurs after the commencement date of 28 June 2016. In other words, it applies to the 2017 land tax year (31 December 2016 being the taxing date for that land tax year) and to every subsequent land tax year.
SLT is payable under the Land Tax Act 1956 (NSW) (the LTA) on residential land owned by a 'foreign person': LTA, s 5A. Subsection 5A(6) as in force at 31 December 2017 explains that the expression 'foreign person' has the same meaning as in Chapter 2A of the Duties Act 1997 (NSW).
Chapter 2A of the Duties Act contains s 104J(1), which says the expression 'foreign person' means 'a person who is a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975 of the Commonwealth, as modified by this section'. I will refer to the Commonwealth Act as the FAT Act; the modifications referred to do not apply to the applicants' circumstances.
In the FAT Act, a 'foreign person' is an individual who is not 'ordinarily resident' in Australia (s 4). Section 5 says an individual who is not an Australian citizen is 'ordinarily resident' in Australia at a particular time (and is therefore not a 'foreign person') if and only if both of the following paragraphs (a) and (b) apply:
1. the individual has actually been in Australia during 200 or more days in the period of 12 months immediately preceding that time; and
2. at that time -
1. the individual is in Australia and the individual's continued presence in Australia is not subject to any limitation as to time imposed by law; or
2. the individual is not in Australia but, immediately before the individual's most recent departure from Australia, the individual's continued presence in Australia was not subject to any limitation as to time imposed by law.
[3]
The applicants' circumstances
The applicants arrived in Australia from the United Kingdom in December 2013. In October that year they had each been granted a Temporary Work (Skilled) (subclass 457) visa on the basis of Mr Middleton's employment with Transport for NSW. Those visas allowed the Middletons to stay in Australia until 17 October 2017.
The visas were still current when Mr and Mrs Middleton exchanged contracts for the purchase of the property in January 2016. New subclass 457 visas were granted in November 2017, allowing them to stay until 3 November 2019.
In December 2017 each of Mr and Mrs Middleton applied for a permanent visa, of the kind known as an Employer Nomination (subclass 186) visa. At the same time they were each granted a 'Bridging Visa A', which would come into effect on the expiry of their subclass 457 visas on 3 November 2019, but only if the subclass 186 visas had not been granted by then. The subclass 186 visas were granted on 5 July 2018. The Middletons have since become Australian citizens.
It is clear from that brief summary that on 31 December 2017, the taxing date for the 2018 land tax year, both Mr and Mrs Middleton were in Australia on (temporary) subclass 457 visas.
[4]
How does the law apply to those facts?
It is common ground, and I find, that both Mr and Mrs Middleton were in Australia during 200 or more days in the period of 12 months immediately preceding the relevant time for the 2018 land tax year (midnight 31 December 2017). That means they satisfy paragraph (a) of the definition of 'ordinarily resident': [10] above. But they also have to satisfy paragraph (b); otherwise each of them will have been a 'foreign person' at the relevant time.
Satisfying paragraph (b) requires the applicants' continued presence in Australia not to have been 'subject to any limitation as to time imposed by law' as at midnight 31 December 2017. They were both on temporary visas at that time. Does that mean their continued presence was 'subject to any limitation as to time imposed by law'? Yes, it does.
The 'Visa Grant Notice' for the renewed subclass 457 visa for Mr Middleton is at page 3 of the Respondent's Tender Bundle (RTB). Mrs Middleton's is at page 11. They both have a 'Visa Grant Date' of 3 November 2017 and the 'Stay Period' is shown as 3 November 2019. It is clear to me that, as at 31 December 2017, the applicants were not authorised to stay lawfully in Australia beyond 3 November 2019.
Similar circumstances were considered in Li v So [2019] VSC 515 and Galle v Chief Commissioner of State Revenue [2022] NSWCATAD 285, and the same conclusion reached.
The subclass 457 visas can be contrasted with the subclass 186 visas the Middletons were granted in 2018 (RTB pages 60 and 66). These show the 'Length of stay' as 'Indefinite from the date of each arrival'. If the subclass 186 visas had been in place at midnight on 31 December 2017 then the Middletons' continued presence in Australia would not have been 'subject to any limitation as to time imposed by law'.
[5]
The PwC article
The applicant's main argument against the assessments was that they could not be liable to SLT because they exchanged contracts prior to the commencement date of the SLT, namely 28 June 2016. They rely on an article by PwC, originally published in Taxation in Australia, Vol. 51(2), and reproduced at RTB pages 18-24. The article is titled 'Foreign Purchaser Surcharge' and deals with some of the new provisions introduced by the Amendment Act and broadly similar legislation in Victoria and Queensland.
Mr Middleton focused on the following statement at page 22:
In a bid to create certainty, transitional arrangements exist to prevent the surcharge from applying retrospectively. In all three States, the date of entry into the contract (even if those agreements settle after the commencement of the surcharge) is generally intended to be the relevant point for determining whether the surcharge applies (even if this is not the duty trigger).
But, as the Chief Commissioner points out, that statement is concerned not with surcharge land tax, but with the surcharge purchaser duty that was introduced at the same time. (The surcharge purchaser duty was introduced by the Amendment Act but it had a commencement date of 21 June 2016.)
The difference between the two surcharges is that the surcharge purchaser duty is a once-only impost. It is payable when a dutiable transaction occurs unless contracts were exchanged before the commencement date.
The surcharge land tax, on the other hand, is a recurring annual impost. It applies to every land tax year from 2017 onwards. The date of exchange of contracts has no bearing on whether the surcharge land tax is payable. I note the PwC article says nothing different.
[6]
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: 22 December 2022
Parties
Applicant/Plaintiff:
Middleton
Respondent/Defendant:
Chief Commissioner of State Revenue
Legislation Cited (4)
State Revenue Legislation Amendment (Budget Measures) Act 2016(NSW)