Nguyen v Chief Commissioner of State Revenue

Legislation

1. Surcharge duty is chargeable on dutiable transactions listed in the Duties Act, s104L(1) (surcharge duty transaction). This includes a transfer or an agreement for sale or transfer of residential-related property to a foreign person.
2. There is no dispute in these proceedings that the property is residential-related property: Duties Act, s104K.
3. Section 104J of the Duties Act provides: 104J Meanings of "foreign person" and "foreign trustee" (1) In this Chapter - 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. foreign trustee means a person who is a foreign person because of the person's capacity as the trustee of a trust. (2) The definition of foreign person in the Foreign Acquisitions and Takeovers Act 1975 of the Commonwealth is modified as follows - (a) an Australian citizen is taken to be ordinarily resident in Australia, whether or not the person is ordinarily resident in Australia under that definition, (b) a New Zealand citizen who holds a special category visa, within the meaning of section 32 of the Migration Act 1958 of the Commonwealth, at any particular time is taken at that time to be an individual whose continued presence in Australia is not subject to any limitation as to time imposed by law. Note - Section 5 of the Foreign Acquisitions and Takeovers Act 1975 of the Commonwealth provides that 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 - (a) the individual has actually been in Australia during 200 or more days in the period of 12 months immediately preceding that time, and (b) at that time - (i) 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 (ii) 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) For the purposes of charging surcharge purchaser duty on a surcharge duty transaction, a person is taken to be a foreign person if the person is a foreign person when a liability for duty charged by Chapter 2 on the transaction arises (or would arise but for section 53A or a concession or exemption from duty under that Chapter). Note - See section 12.
4. Section 104N provides that, in respect of a surcharge duty transaction that is an agreement for sale or transfer, the transfer occurs at the time the agreement is entered into.
5. Section 104Q provides that s 12 of the Duties Act applies in respect of surcharge duty in the same way as it applies in respect of duty charged under Chapter 2 of the Duties Act. Section 12 provides that a liability for duty arises when a transfer of dutiable property occurs, and that where such a transfer is affected by an instrument, liability arises when that instrument is first executed.
6. There is an exemption for certain permanent residents in respect of principal place of residence in s 104ZKA of the Duties Act. This provides as follows: 104ZKA Exemption for certain permanent residents in respect of principal place of residence (1) No surcharge purchaser duty is chargeable on a transfer, or an agreement for the sale or transfer, of residential-related property if each transferee under the transfer or agreement who would otherwise be liable to pay that duty is an exempt permanent resident. (2) A transferee under a transfer or agreement is an exempt permanent resident if - (a) the transferee is a permanent resident when a liability for duty charged by Chapter 2 on the transfer or agreement arises (or would arise but for a concession or exemption from duty under that Chapter), and (b) the Chief Commissioner is satisfied that the transferee intends to use and occupy the residential land to which the residential-related property relates as a principal place of residence in accordance with the residence requirement. (3) If there is more than one transferee under the transfer or agreement who is a foreign person (a foreign transferee) and the Chief Commissioner is satisfied that at least one, but not all, of those transferees is an exempt permanent resident - (a) surcharge purchaser duty is to be reduced in proportion to the share or shares in the residential-related property transferred to foreign transferees who are exempt permanent residents, and (b) none of those exempt permanent residents is liable to pay surcharge purchaser duty on the transfer or agreement. (4) The residential land must be used and occupied by the exempt permanent resident as his or her principal place of residence for a continuous period of at least 200 days within the first 12 months after the liability date. This requirement is referred to as the residence requirement. (5) The liability date is the date on which liability to surcharge purchaser duty first arose in respect of the share in the residential-related property transferred, or agreed to be transferred, to the exempt permanent resident. (6) If the residence requirement is not complied with in relation to the residential land, the Chief Commissioner must assess or reassess the surcharge purchaser duty chargeable on the transfer or agreement as if the exemption under this section had never applied. (7) A reference in this section to the use and occupation of residential land as a principal place of residence in accordance with the residence requirement includes - (a) in the case of a land use entitlement, a reference to the use and occupation of the building or part of the building to which the entitlement relates, as a principal place of residence in accordance with the residence requirement, and (b) in the case of a utility lot (within the meaning of the Strata Schemes Management Act 2015), a reference to the use of the utility lot in conjunction with a strata lot used and occupied as a principal place of residence in accordance with the residence requirement.

Taxation Administration Act 1996 (NSW)

1. Under s 21 of the Taxation Administration Act 1996 (NSW) (TAA), interest accrues on unpaid amounts of tax on a daily basis where there has been a tax default. The interest accrues at both the premium and market rate: TAA, s 22. The Chief Commissioner has a discretion to remit interest in whole or part in circumstances where the Chief Commissioner considers it appropriate to do so.
2. It is important to note that under TAA, s 100(3), in a review proceeding such as this, Mr Nguyen has the onus of proving his case which requires him to prove, on the balance of probabilities, all matters necessary to enable the Tribunal to answer the statutory question in his favour absent which, the assessment prevails: Cornish Investments Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 25; 94 ATR 348 at [31]; B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187 per Allsop P at [87] and [104]; Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at 89 per Mason J.

Materials relied on

1. Mr Nguyen relied on: 1. Statement of Mr Nguyen dated 4 July 2022; 2. Submission of Mr Nguyen dated 30 August 2022; 3. Oral submissions made by Ms Thi Hong Hanh Nguyen at the hearing on behalf of Mr Nguyen.
2. The Chief Commissioner relied on the following: 1. Documents filed under s 58 of the Administrative Decisions Review Act 1997 (NSW) (ADR Act); 2. A supplementary tender bundle filed on 2 September 2022 which comprised the Revenue NSW Surcharge Purchaser Duty Guide and correspondence from the Respondent inviting Mr Nguyen to withdraw the proceedings; 3. Submissions dated 27 July 2022; 4. Oral submissions from Ms Morgan at the hearing.

Ordinarily resident

1. The assessment of surcharge duty depends upon whether Mr Nguyen is considered a "foreign person" for the purposes of the Duties Act, a question which is answered at the time the liability for duty arises.
2. Where the dutiable transaction is an agreement for sale, the date at which liability arises is the date the agreement was entered into. In this case, that date was 13 June 2019.
3. Mr Nguyen needs to demonstrate that as at 13 June 2019 he was "ordinarily resident" in Australia within the meaning of s 5 of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) (and as adopted by s 104J of the Duties Act). This means Mr Nguyen needs to demonstrate that he had actually been in Australia for a period of 200 days or more preceding 13 June 2019 and his continued presence in Australia was not subject to any limitation as to time.
4. There is no dispute that Mr Nguyen was a permanent resident and so his presence in Australia was not subject to any limitation as to time. However, Mr Nguyen had only been in Australia for 114 days in the 12 months period prior to 13 June 2019. This means he had not been in Australia for the required 200 days.
5. Consequently, Mr Nguyen was not "ordinarily resident" as at 13 June 2019 and as a "foreign person" was liable to surcharge purchaser duty on the Property unless an exemption applied.

Principal Place of Residence Exemption

1. The exemption in s 104ZKA of the Duties Act applies where the Chief Commissioner (and, on this review, the Tribunal) is satisfied that Mr Nguyen intends to use and occupy the residential land as his principal place of residence under the residence requirement. The "residence requirement" is that provided for in s 104ZKA(4). To satisfy the residence requirement, Mr Nguyen needs to demonstrate that the residential land was used and occupied by him as his principal place of residence (PPR) for a continuous period of at least 200 days within the first 12 months after the liability date.
2. The Chief Commissioner contended that this meant Mr Nguyen was required to use and occupy the Property as his PPR for a continuous period of 200 days by 13 June 2020 (being 12 months from the liability date of 13 June 2019). As the land remained vacant and there was no residence on the land to use and occupy, the Property could not be used and occupied as Mr Nguyen's PPR. At the very latest, Mr Nguyen would need to have used and occupied the Property by 26 November 2019 to meet the test of "continuous period of at least 200 days within the first 12 months after the liability date". This was several months before Australia implemented travel restrictions due to COVID-19.
3. Mr Nguyen argued that he could not use and occupy the land before 13 June 2020 as a result of the COVID-19 pandemic, and, in particular: 1. Mr Nguyen was not able to return to Australia until 16 April 2021 having been out of Australia since 15 October 2019; 2. He was not able to secure any airfare to get to Australia for the whole of 2020; 3. He had difficulties obtaining permits during the COVID-19 lockdowns; 4. Mr Nguyen's builder had difficulties coordinating work on the land during lockdowns and the construction certificate took a very long time to get issued; 5. If Mr Nguyen had been able to return to Australia he would have purchased a Same Day Granny Flat (being one which did not require council approval) to place on the land and live in while construction under the development application occurred.
4. Mr Nguyen also contended that the "residence requirement" does not require the period of 200 continuous days to commence and end within the 12 month period. Rather, Mr Nguyen argued that the residency requirement is satisfied if the resident moves into the property within 12 months of the liability date and occupies the property for at least 200 days thereafter. Mr Nguyen says that he called Revenue NSW on 27 July 2022 and they confirmed that his interpretation of "residency requirement" was correct.
5. I do not accept Mr Nguyen's interpretation of s 104ZKA(4). The legislation makes clear that the 200 continuous day period must fall within the first 12 months from the date of liability.
6. On all of the evidence before me, I find that Mr Nguyen has failed to satisfy the residence requirement in s 104ZKA(4). Mr Nguyen was required to use and occupy the land for a period of 200 continuous days before 13 June 2020. This meant that in order to qualify for the exemption, at the very latest, Mr Nguyen was required to have moved into the Property by 26 November 2019. I note that this was well before there was any COVID-19 pandemic, lockdowns or border closures in Australia. While the COVID-19 pandemic may have affected his ability to return to Australia from March 2020 and any building and construction issues once the consent had been granted to build on the land, I find that it did not impact upon his ability to comply with the residence requirement.
7. As a result, Mr Nguyen was not "ordinarily resident" within the meaning of FATA, s 5; and was a foreign person at the time the Contract was entered into. Further, as the residence requirement is not satisfied, no PPR exemption applies and the Contract is liable to surcharge duty.

Discretion of the Chief Commissioner - unfairness

1. I reject the Mr Nguyen's submissions that I should exercise a discretion to exempt him from surcharge duty on the basis that it would be unfair.
2. As I noted in Galle v Chief Commissioner of State Revenue [2022] NSWCATAD 285 at [27] there is no legislative provision or authority which gives the Chief Commissioner or the Tribunal a discretionary power to exempt a taxpayer from surcharge duty if the statutory criteria are not met: Chu v Chief Commissioner of State Revenue [2021] NSWCATAD 238 at [30].
3. Arguments based on notions of "fairness" and "justice" cannot succeed in the absence of any foundation in the legislation: Commissioner of Taxation v Ryan (2000) 201 CLR 109 at 123. Consequently, questions of unfairness including on the basis that Mr Nguyen could not come to Australia because of travel restrictions during COVID-19 and construction industry lockdowns which impacted upon the ability of the house to be built on the property are not relevant. The Chief Commissioner is required to administer the law in accordance with its terms.
4. In any event, I do not accept on the evidence before me that the travel ban or the construction industry lockdowns had the impact on Mr Nguyen that he contends. First, no development application had been lodged in respect of the house to be constructed on the land until 14 October 2019; nor was there evidence that within the first 200 days a granny flat was proposed to be constructed on the land. Further, the period within which Mr Nguyen would have had to have come to Australia (26 November 2019) had already expired by the time the travel ban was imposed (March 2020).
5. As I have already determined that the statutory criteria for surcharge duty have been met in this case and as there is no statutory power to exempt Mr Nguyen from surcharge duty on the basis of unfairness, the correct and preferable decision is that the Contract is liable to surcharge duty.

Interest

1. At the hearing, Mr Nguyen sought remission of the market rate of interest on the tax liability from the date of tax default (from 13 September 2019). The Chief Commissioner had already remitted the premium rate component and only the market rate of interest in the amount of $392.37 was imposed.
2. The market rate component of interest may be waived in exceptional circumstances. Examples include if the tax default is due to the fault of the Chief Commissioner; if there are natural disasters or the serious illness of a taxpayer: Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19 at [60]; Lease A Leaf Property Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADTAP 41 at [34]-[35]; Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 at [27].
3. It was not clear precisely which exceptional circumstances Mr Nguyen was relying on as the basis for his request for the market rate of interest to be remitted. It appeared to me that he was relying on the travel restrictions from March 2020 as being something beyond his control.
4. However, as I have already found, the tax default did not arise as a result of the COVID-19 pandemic. Rather, the 200 day continuous period of use and occupation of the property had to have commenced by 26 November 2019 for the residence requirement to be satisfied and that was well before COVID-19 commenced in Australia.
5. It was also submitted that, but for the COVID-19 pandemic he would have at least built a granny flat on the land to live in. However, there was no evidence before me that Mr Nguyen had considered building a granny flat on the land prior to March 2020.
6. I am not satisfied on the evidence before me that there is a basis for remitting the market component interest in this case.

Orders 1. The Respondent's assessment of surcharge duty 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: 10 November 2022