Mr Rengasamy and Ms Vinoth (the Applicants) are the owners of a home in Sydney (the Property) which had been renovated. The Chief Commissioner of State Revenue (the Respondent) refused to approve payment of a First Home Owner Grant (FHOG) in respect of their purchase of the Property as it was not a "substantially renovated home". The Applicants now seek a review of this decision..
I have decided that the correct and preferable decision is to affirm the decision of the Respondent for the reasons that follow.
[2]
Background
On 1 July 2017, the Applicants executed a contract for sale of the Property for the sum of $575,000. The vendor under the contract was Mr Nikola Podobnik who had originally purchased the Property in December 2010 for $265,000.
When Mr Podobnik purchased the Property it consisted of three bedrooms; one bathroom; kitchen and dining area; living room and laundry. There was a concrete porch at the front of the Property and a carport on the side of the residence.
On 1 August 2014, a development application (DA) for the Property was approved by Blacktown City Council which noted it was for "alterations/additions" to the Property. The DA was for the construction of an extension of 27.95 square metres at the front of the Property and entailed removing one bedroom and extending the living room in the existing part of the dwelling; constructing a bedroom with an attached toilet in the extension; constructing a study or fourth bedroom in the extension and included footings and a slab for concrete to extend the porch and carport.
Some further works were done to the Property by Mr Podobnik prior to selling to the Applicants. Those works included:
1. Upgrading the front door;
2. Raising the front brick wall adjoining the living areas to reduce the height of the windows;
3. Upgrading the floors in the two bedrooms;
4. Upgrading the windows in a bedroom;
5. Upgrading the sink in the bathroom;
6. Adding built in wardrobes in the two bedrooms;
7. Removing and replacing the wall between the kitchen and dining hall, installing new pantry, cupboards, stove and oven in the kitchen;
8. Various external improvements including replacing the carport with a tandem attached garage, concreting the driveway, installing colourbond fencing, landscaping the gardens, enclosing the veranda and patio.
The Applicant relied on photographs of the Property at various points in time including 2006, 2007, 2010, 2017 and 2019. These photographs showed some of the changes to the Property over that period.
On 7 April 2021, the Applicants applied for the FHOG. The Respondent requested further information in support of the application. The Applicants provided information including a purported statement of Mr Podobnik listing the renovations he had made to the Property.
On 17 May 2021, the Applicants' application for the FHOG was refused.
On 21 July 2021, the Applicants objected to the decision on the ground that the Property as purchased by them constituted a substantially renovated property. This objection was slightly outside the 60 day time limit for lodging an objection but the Respondent exercised his discretion to extend the time and permitted the objection under s 90 of the Taxation Administration Act 1996 (NSW) (TAA).
On 15 November 2021, the Respondent disallowed the Applicants' objection determining that the work undertaken on the Property involved mostly cosmetic changes without removal or replacement of all or substantially all of the building.
[3]
Legislation
Entitlement to the FHOG is set out in the First Home Owner Grant (New Homes) Act 2000 (NSW) (FHOG Act). Section 7 provides as follows:
7 Entitlement to grant
(1) 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, and
(c) the total value of the transaction does not exceed the eligibility cap for the type of first home owner grant that is available in respect of that transaction.
(1A) (Repealed)
(2) An applicant need not comply with the eligibility criteria to the extent the applicant is exempted from compliance with the eligibility criteria by this Act.
(3) A first home owner grant is payable before completion of the relevant eligible transaction if payment is authorised under section 20.
(4) Only one first home owner grant is payable for the same eligible transaction.
Under s 7(1)(i), the transaction must be an "eligible transaction". This is defined in the FHOG Act, s 13, which states:
13 Eligible transactions
(1) An eligible transaction is -
(a) a contract made on or after 1 October 2012 for the purchase of a new home in New South Wales, or …
The expression "new home" is defined in FHOG Act, s 4A as follows:
4A New homes
(1) A new home is a home that has not been previously occupied or sold as a place of residence, and includes a substantially renovated home and a home built to replace demolished premises.
(2) A substantially renovated home is a home that -
(a) has been created through renovations in which all, or substantially all, of a building is removed or replaced (whether or not the renovations involve the removal or replacement of foundations, external walls, interior supporting walls, floors or staircases), and
(b) as renovated, has not been previously occupied or sold as a place of residence.
(3) A home is a home built to replace demolished premises if -
(a) the home has been built to replace demolished premises on the same land, and
(b) the home, as built to replace the demolished premises, has not been previously occupied or sold as a place of residence, and
(c) the owner of the home did not occupy the demolished premises as a place of residence before they were demolished.
The FHOG Act, s 3 defines building as including "part of a building".
The jurisdiction of the Tribunal to review the Commissioner's decision is found in FHOG Act, s 28. Under s 28(3) of the FHOG Act (like s 100(3) of the TAA), in a review proceeding such as this, the Applicants have the onus of proving their case which requires them to prove, on the balance of probabilities, all matters necessary to enable the Tribunal to answer the statutory question in their favour: 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].
[4]
Materials relied on
The Applicants relied on the following material:
1. The Application for Administrative Review dated 18 January 2021.
2. A Bundle of documents filed on 31 March 2022 which included written submissions with photographs of the Property in 2006, 2007, 2010, 2017 and 2019; residential and property tax depreciation schedules; development application dated 16 May 2014; various compliance certificates for windows, doors, waterproofing, installation smoke alarm; occupation certification: valuation report from WBP Property Group.
3. A bundle of documents filed on 3 May 2022 including reply submissions, email chain correspondence between the Applicants and the Respondent between 25 and 28 April 2022.
The Respondent relied on the following material:
1. Documents filed on 8 March 2022 under s 58 of the Administrative Decisions Review Act 1997 (NSW).
2. Submissions dated 20 April 2022.
3. Supplementary s 58 documents filed on 31 March 2022.
[5]
Submissions of the parties
Mr Rengasamy contended that due to the substantial renovations undertaken on the Property at the time of purchase it met the definition of "new home" in the FHOG Act. This would make the Property eligible for the FHOG.
It was argued that the nature of the renovations to the home by Mr Podobnik were such that they met the threshold of substantial within the meaning of the FHOG.
Mr Rengasamy explained he was unable to obtain supporting documents for the building materials such as invoices for the work done by Mr Podobnik during the time he was the owner/builder of the Property because Mr Podobnik refused to assist.
Although there was a statement signed by Mr Podobnik, Mr Rengasamy explained that he had prepared the statement for Mr Podobnik and the real estate agent got Mr Podobnik to sign it (apparently by putting it under Mr Podobnik's door). Mr Rengasamy said the statement only included some of the works that had been done. This was allegedly for the reason that Mr Podobnik had not obtained council approval for all of the renovations and so he was reluctant to help the Applicants in this proceeding.
There was no evidence before the Tribunal from the real estate agent about the making or signing of Mr Podobnik's statement.
In these circumstances, I am unable to be satisfied as to the accuracy of Mr Podobnik's statement and I give it very little weight.
Mr Rengasamy also relied on a valuation and tax depreciation schedule. The estimates given in those reports were relied on to support the Applicants' argument that the increase in value of the property demonstrates the property is substantially renovated.
The Respondent argued that there is insufficient evidence to substantiate the extent of the renovations, and that regardless, the renovations were not of the kind where all, or substantially all, of the property was removed or replaced.
The Respondent's submissions referred to a number of decisions of the Tribunal.
In O'Connor v Chief Commissioner of State Revenue [2019] NSWCATAD 260 at [24]-[29] the Tribunal stated as follows:
"[24] The definition of a 'substantially renovated home' requires 'a home that has been created through renovations in which all, or substantially all, of a building is removed or replaced (whether or not the renovations involve the removal or replacement of foundations, external walls, interior supporting walls, floors or staircases)'.
[25] The applicants were unable to say at the hearing if the renovations involved removal or replacement of any of the foundations, external walls, internal supporting walls, floors (except removal of bathroom floor tiles) or staircases. The letter from Mr Eggert and the photographs suggest that none of these elements were removed or replaced.
[26] The applicants' submissions rely on the words in parentheses in s 4A of the Act (i.e. 'whether or not the renovations involve the removal or replacement of foundations, external walls, interior supporting walls, floors or staircases') which they say qualify the requirement that all or substantially all of the building must be removed or replaced for the home to be regarded as substantially renovated. I regard the removal or replacement of all or substantially all of the building as the primary test.
[27] The applicant's argument cannot carry the weight that they seek to load onto it. It is not possible to say all, or substantially all of this building has been removed or replaced. Although it may not be necessary for all five elements of the building to have been removed or replaced for a home to be regarded as substantially renovated, when it appears that none of those five elements have been removed or replaced in any material sense (and the original roof has remained the same) the statutory requirement is not satisfied.
[28] The applicants also argue that the whole of the interior and exterior of the home had been 'affected' by the renovation. The only items that they could point to as removed or replaced were some dividing walls in the interior of the home, some gyprock, and fixtures and fittings (for example new kitchen cupboards and a new stove, new sink and taps, new bath and shower recess and new bathroom tiles, and new fixed floor coverings).
[29] These items do not represent all or substantially all of the building."
In Pandanas Qld Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 106 under consideration there was whether there had been substantial renovations for the purposes of the New Home Grant: see Duties Act 1997 (NSW), Ch 2, Pt 8, Div 1A. The Tribunal at [28] stated as follows:
"I am not satisfied that the evidence establishes that on the balance of probabilities the works performed to renovate the motel satisfy the statutory requirements to be described as 'substantial renovations' so as to fall into the statutory definition of a new home. As I see it, the evidence does not establish that all or substantially all of the building was removed or replaced. The applicants bear the onus of proof in this matter as I have mentioned above and I am not satisfied that the onus has been discharged."
A third case referenced by the Respondent was one where substantial renovations were considered with reference to A New Tax System (Goods and Services Tax) Act 1999 (Cth). In SM Ho & KW Loh & TT Low & WW Orr and Commissioner of Taxation, Re [2018] AATA 3911 at [40]-[42] the Tribunal stated:
"[40] …Residential premises are new if they have not previously been sold as residential premises, have been created through substantial renovations of a building or have been built or contain a building that has been built to replace demolished premises on the same land. …
[41] In correspondence from the applicant concerning Lot 2 (406 Queens Parade) the applicant said that that property had undergone what might be described as significant renovation. In an email of 27 August 2015 the applicant said both 404 and 406 were extended for more floor space and rooms. The works carried out were estimated to be 50 per cent each. That statement was made in response to an earlier email from the ATO to the applicant which asked:
'We require information pertaining to the time 406 Queens Parade was used as temporary residential accommodation, and additionally we require detailed explanation as to what works were carried out on property 406 Queens Parade, as well as the attribution calculations used to distinguish between 406 and 404.'
[42] The applicant contends that 406 Queens Parade was not new residential premises, and merely spruced up for sale by painting the building, and that the only permit sought was for the painting and related works, and that the statements concerning renovations were a reference to units constructed at the rear of 404 and 406 Queens Parade. There is no evidence to support the applicant's assertion. There is no evidence of planning permits sought and not sought, as asserted. Further, the context in which the renovation statements were made does not appear to be newly constructed apartments. And the language used in the statements made is inconsistent with the statements being a reference to newly constructed apartments: - a wholly new apartment is unlikely to be referred to in terms of extension, more floor space and more rooms. In these circumstances, the applicant has not proven that 406 Queens Parade was not substantially renovated, and therefore was not new residential premises.'
Mr Rengasamy argued that it was not appropriate for me to rely on O'Connor v Chief Commissioner of State Revenue as the Applicants had provided various documents from Blacktown Council and provided the statement from Mr Pobodnik to prove the extent of the renovations.
[6]
Consideration
I have had regard to all of the evidence before me including the various photographs and the documents from Blacktown City Council including a document prepared by Concept Design Pty Ltd dated 29 April 2014 (Concept Design) which formed part of the approval of the construction certificate.
I am not satisfied that the evidence establishes, on the balance of probabilities, that the renovations to the Property can be described as "substantial renovations" so as to fall into the statutory definition of a new home. The evidence does not establish that all or substantially all of the building was removed or replaced. The Concept Design document shows the existing dwelling as at the time of preparation of the certificate and the proposed alterations and additions that were subsequently made to the home. It demonstrates that only part of one existing exterior wall was modified and one internal wall removed to accommodate the extension to the front of the Property.
Mr Rengasamy accepted during the hearing that painting the walls, removing and replacing carpet and flooring and installing new cupboards were cosmetic changes. These are aesthetic improvements and do not involve the removal or replacement of structural elements of the Property. These are not the type of renovations that s 4A FHOG Act is directed towards.
I note some of the photographs relied upon by the Applicants were after the date of their acquisition of the Property and some before the time that Mr Podobnik purchased the Property. These demonstrate, by way of example, that the roof tiles had already been replaced by the time that Mr Podobnik purchased the Property. The photographs also demonstrate that the renovations between the period Mr Podobnik purchased the Property and the Applicants acquired it, were mainly cosmetic.
The valuation report relied on by the Applicants show there was an increase in the value of the Property as a whole over time, but does not prove that the increase represents the amount spent on the improvements or renovations (as contended for by the Applicants). Likewise, the depreciation schedule does not prove the amount spent on the renovations. I note the maker of this schedule was not before the Tribunal. It was not possible to know what was taken into account in the preparation of this schedule or for the maker of the schedule to be cross-examined. In any event, the cost of renovations is not determinative of the question whether the Property is substantially renovated.
Further, works to the upgrade of the driveway, gardens and veranda are not renovations to the home building. They do not involve the removal or replacement of any part of the home.
The threshold for what is a substantial renovation is a high one. Modification of walls and windows, the addition of two small rooms and cosmetic changes to the Property do not constitute a substantially renovated home under the FHOG Act, such that a new home is created. The Applicants have failed to meet that threshold.
I am unable to be satisfied that the home is a substantially renovated home within the meaning of s 4A(2)(a) of the FHOG.
[7]
ORDER
1. The Respondent's decision is affirmed.
[8]
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: 17 August 2022