1. the wording in paragraph [18] of the reasons for the decision is changed to:

The applicant challenged the allocation of a one-third percentage to her of the rental value of the property. The respondent informed me that the consequence if I should find, as I have, that the applicant succeeded on the rental value, her contribution would be nil. In that event the issue as to the proper percentage is of academic concern, and even if I were satisfied that the percentage allocated to the applicant were erroneous, the result would be no different. Therefore the percentage allocated to the applicant in the reviewable decision may continue to be applied. In any event the respondent led no evidence on this matter and such evidence as was led by the applicant on the point was insufficient to persuade me that any different percentage should apply.

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File Number(s): 2020/0241, 2020/0246, 2020/0247

The reviewable decision is set aside, and the matter remitted to the respondent with the direction that the arm's length or market rental of value of the property at the relevant period was $1,200 per week.

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Taxation and Commercial - bankruptcy - income contribution assessment - housing fringe benefit - market rental assessment - whether appraisals by local real estate agents or method adopted by the respondent is more satisfactory - where consensus among local real estate agents' appraisals - where appraisals by local real estate agents accepted as accurate and reliable - decision set aside and remitted

Bankruptcy Act 1966 (Cth)

Fringe Benefits Tax Assessment Act 1986 (Cth)

1. The applicant and her husband were both made bankrupt for non-payment of legal costs owed to their solicitor for legal proceedings conducted by them in which they were initially successful but in which the judgment was set aside on appeal.

2. The applicant and her husband lived with their daughter in Rose Bay in a house owned by the applicant's mother-in-law. They lived there rent-free, and they were each assessed to have a liability to their trustee for the fair market rental value of the property in which they resided over a three year period between 29 September 2016 and 28 September 2019.

3. Under s 139L(1)(a) of the Bankruptcy Act 1966, the income of a bankrupt is defined to include:

(v) the value of a benefit that:

(A) is provided in any circumstances by any person (the provider) to the bankrupt; and

(B) is a benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 as in force at the beginning of 1 July 1992 (other than a benefit that would be an exempt benefit for the purposes of that Act if the provider were the employer of the bankrupt as an employee and the provider had provided the benefit in respect of the employment of the bankrupt);

being that value as worked out in accordance with the provisions of that Act but subject to any modifications of any provisions of that Act made by the regulations under this Act;

4. The parties accept that the value of the benefit is the notional value of the rental of the property, as defined in s 136 of the Fringe Benefits Tax Assessment Act 1986, namely:

"notional value" , in relation to the provision of property or another benefit to a person, means the amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arm's length transaction.

5. In turn that test, speaking generally, directs attention to the market value of the rental of the property, after allowing for the fact that the applicant and her husband and daughter did not have a sole right of residence in the property.

6. The value of the right of residence was assessed by the trustee at $120,624.79 for three relevant years expiring in September 2019 and the applicant applied to the respondent to review the trustee's income assessment on 19 August 2019. The respondent set aside the trustee's assessment and reassessed the income contribution assessments for all three years at $16,673 in total pursuant to s 139ZD of the Bankruptcy Act 1966.

7. From that decision the applicant applied to the Tribunal for review of the respondent's assessment.

8. The applicant, at the request of the trustee, arranged for rental appraisals to be carried out by local real estate agents. They were done free of charge and were obtained within a short period after the trustee's request that they be obtained. The applicant's mother-in-law declined to allow a further inspection of the property in order to obtain a sworn valuation by an independent valuer as proposed by the trustee.

9. The reviewable decision of the respondent did not depend on the assessments provided by the estate agents, The reviewable decision was made on the basis of an appraisal conducted in February 2015, a desktop appraisal conducted on 10 July 2019, a review of similarly located properties, and the use of an August 2019 yield rate of 2.1% to calculate a suggested weekly rent from a NSW Government Valuer General gross land valuation dated 4 October 2016.

10. The question for the Tribunal is whether the appraisals by real estate agents are more satisfactory than the method adopted by the respondent to fix a rental value.

11. Elders Double Bay inspected the property and a director advised that the property may achieve $1,000 to $1,200 per week as at 4 September 2019.

12. Laing + Simmons Double Bay assessed the rent achievable to be up to $1,200 per week with minor maintenance throughout and pool compliance arranged as required by regulation. The author of the report, signed as General Manager of the Double Bay agency, estimated that with further enhancements including repainting and restoration of the pool, rent of up to $1,500 was assessed to be achievable.

13. Richardson & Wrench Double Bay assessed the rental value to be in the vicinity of $1,200 per week, after re-instating the pool or permanently covering it.

14. I have put to one side another appraisal obtained from another estate agent which was provided by an email addressed to the applicant's husband and said: 'It was good to see you mate'. It was in any event an appraisal at a similar figure of $1,100 to $1,200 per week.

15. The property, although well positioned in Rose Bay, had a number of defects which would reduce its rental value.

16. It seems to me that the consensus demonstrated by the local agents as to likely rent achievable suggests that the appraisals are likely to be accurate.

17. In my opinion, the methods of estimating rental value relied upon by the respondent, and in particular the use of an expired and desktop only appraisal, along with the less direct yield rate calculation, are less reliable than the appraisals of the local agents.

18. In my opinion the correct or preferable view is to assess the arm's length value of the rental value of the property at $1,200 per week, as the applicant submits. There was no challenge by the applicant to the percentage allocated to the applicant of the market value. That percentage should be applied again.

19. The reviewable decision will therefore be set aside, and the matter will be remitted to the respondent with the direction that the arm's length or market rental of value of the property at the relevant period was $1,200 per week.

I certify that the preceding 19 (nineteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President B W Rayment OAM QC

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