Saboune v Chief Commissioner of State Revenue

Relevant Legislative Provisions 17Land tax is payable by the owner of land upon the taxable value of the land owned by the owner as at midnight on 31 December immediately preceding the year for which the land tax is payable and which is not exempt from taxation under the Act. 18Section 10 of the Act sets out various categories of land that enjoy exemption from land tax under the Act. Section 10, so far as it is relevant in relation to the "principal place of residence exemption", provides as follows: "10 Land exempted from tax Except where otherwise expressly provided in the Act the following lands shall, subject to sections 10B, 10D, 10E, 10G and 10P, be exempted from taxation under this Act: ... land that is exempt from taxation under the principal place of residence exemption, as provided for by Schedule 1A." 19Clause 2 of Schedule 1A to the Act, which sets out in detail the provisions dealing with the principal place of residence exemption, is as follows: "2 Principal place of residence exemption 1)Land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under this Act, in respect of the year commencing on 1 January 2004 or any succeeding year, if: (a) the land has a land value in respect of the year of less than the premium tax threshold, and (b) the land is: (i) a parcel of residential land, or (ii) a lot under the Strata Schemes (Freehold Development) Act 1973 or a lot under the Strata Schemes (Leasehold Development) Act 1986. 1)Land is not used and occupied as the principal place of residence of a person unless: (a) the land and no other land, has been continuously used and occupied by the person for residential purposes and for no other purposes since 1 July in the year preceding the tax year in which land tax is levied, or (b) in any other case, the Chief Commissioner is satisfied that the land is used and occupied by the person as the person's principal place of residence. (1)If the owner of land is entitled to the exemption conferred by this clause, no other person is liable to be assessed for taxation under this Act in respect of the land during the period of the owner's entitlement to the exemption. (2)The exemption conferred by this clause is referred to as the principal place of residence exemption. (5) The principal place of residence exemption is subject to the restrictions set out in Part 4." 20"Residential land" is defined in Clause 3 of Schedule 1A as follows: "(1) In this Schedule, residential land means land that is used and occupied for residential purposes and for no other purpose, that use and occupation being use and occupation of a building or buildings designed, constructed or adopted for residential purposes, other than a building or buildings: (a) comprised of lots within a strata plan or residential units, or (b) containing (out of the total of all rooms in the building or buildings) occupancies other than that of the owner, or (c) from any part of which income is derived. (2) Land does not cease to be used and occupied as provided by subclause (1) by reason of there being on that land any building or improvement that is used or occupied for a purpose ancillary to the purposes for which the building is, or the building are, designed, constructed or adapted." 21Clause 6 of Schedule 1A exempts unoccupied land if the owner intends to use and occupy the land as his or her principal place of residence at the completion of the proposed building works. The relevant provisions for this application are in the following terms: "6 Concession for unoccupied land intended to be owner's principal place of residence (1) An owner of unoccupied land is entitled to claim the land as his or her principal place of residence, if the owner intends to use and occupy the land solely as his or her principal place of residence. In such a case, the owner is taken, for the purpose of the principal place of residence exemption, to use and occupy the unoccupied land as his or her principal place of residence. Note . It is an offence under section 55 of the Taxation Administration Act 1996 to make a statement to a tax officer, or give information to a tax officer, orally or in writing, knowing that it is false or misleading in a material particular. (2) This clause does not apply unless: (a) the land is unoccupied because the owner intends to carry out, or is carrying out, building or other works necessary to facilitate his or her intended use and occupation of the land as a principal place of residence, and (b) if those building or other works have physically commenced on the land, no income has been derived from the use and occupation of the land since that commencement, and (c) the intended use and occupation of the land is not unlawful. (3) This clause applies in respect of the assessment of a person's ownership of land only in the period of: (a) 4 tax years immediately following the year in which the person became owner of the land, or (b) if the land is used and occupied for residential purposes by a person other than the owner at any time after the person became owner, 4 tax years immediately following the tax year in which the building or other works necessary to facilitate the owner's intended use and occupation of the land are physically commenced on the land. (4) (Repealed) (5) ... (6) ... (7) ... (8) For the purpose of this clause: unoccupied land means land that is not being used or occupied for any purpose." 22"Principal place of residence" of a person is defined in s 3(1) of the Act as "the one place of residence that is, among one or more places of residence of the person within or outside Australia, the principal place of residence of the person". 23Clause 12 of Schedule 1A restricts the principal place of residence exemption to only one place of residence for all members of the same family.

Submissions 24The applicants' case was "that under Clause 2(b), the Chief Commissioner ought to have been satisfied that the owners 'used and occupied' the property as their principal place of residence". Alternatively, it was argued that the applicants were entitled to the concession found in Clause 6 of Schedule 1A to the LT Management Act to an exemption for the two relevant land tax years "whilst the owners commenced construction of the principal place of residence". 25The applicants relied on the following facts: "The owners' intentions were at all times to use the subject property as their principal place of residence. The property was purchased with funds realised from the sale of the previous PPR property. The owners have not claimed any other property as their PPR during the relevant tax years. The owners sought merely to transfer their PPR exemption from one family home to another." 26In his written submissions, Mr Gerard submitted that the "Chief Commissioner (and the Tribunal on review) has no discretion, under clause 2(2)(b) of Sch. 1A to the LT Management Act to treat the Strathfield property as the applicant's PPR for the 2007 and 2008 land tax years: Chief Commissioner of State Revenue v Aldridge & Anor (RD) [2003] NSWADTAP 50 (" Aldridge ")". This submission was further expanded as follows: "37 So far as Clause 2(2)(b) is concerned, the respondent submits the 'limited discretion' provided for in cl2(2)(b) of Sch. 1A does not assist the applicants in this case because on the material before the Tribunal the applicants did not use and occupy the Strathfield property as their PPR at either 31 December 2006 or 31 December 2007 or at all. To this extent, cl2(2)(b) of Sch. 1A, in the context of the former s.3(3)(b) of the LT Management Act , was considered in Aldridge as follows: 'Section 3(3)(b) of the Act does not confer a true discretion on the Chief Commissioner. If the evidence of the factual circumstances supports that a particular parcel of land is used and occupied by a person as the person's principal place of residence (as defined in Section 3(1) of the Act) as at midnight on 31 December in a particular year, the Chief Commissioner must be 'satisfied' of that fact. If the factual circumstances do not support that a particular parcel of land or a flat is used and occupied by a person as the person's principal place of residence as at midnight on 31 December in a particular year, the Chief Commissioner cannot be 'satisfied' of that fact." (emphasis in original) 38 As pointed out in Aldridge , cl2(2)(b) of Sch. 1A does not confer a true discretion, in that if the facts establish that the land in question was not at the relevant date used and occupied by the owner as his or her PPR, the Chief Commissioner cannot be satisfied of that fact. The section is to be contrasted with the general power of dispensation considered in Chief Commissioner of State Revenue v Doney (No. 2) (RD) [2006] NSWADTAP 23, which conferred a broad discretion to apply the relevant exemption where, inter alia , the Chief Commissioner was satisfied that it is 'fair and reasonable' to do so: see at paras. [7], [27]-[28] and [33]." 27At the hearing, Mr Gerard could only provide one situation when the "limited discretion" under clause 2(2)(b) would be exercised by the Chief Commissioner - in circumstances where an owner was not able to occupy for the first time his or her principal place of residence by 1 July in the year preceding the tax year in which land tax was levied. 28The Chief Commissioner's response to the applicants' alternative basis was as follows: 41 Clause 6 of Sch.1A does not assist the applicants so far as the 2007 and 2008 land tax years are concerned. 42 Clause 6 of Sch.1A extends, in limited circumstances, the exemption from land tax for a person's PPR to land that a person intends will become their PPR. To that end, cl.6(1) provides that an owner of unoccupied land is entitled to claim the land as their PPR, if the owner intends to use the land solely as their PPR so that in such a case the owner is taken, for the purposes of the PPR exemption, to use and occupy the unoccupied land as their PPR. 43 "Unoccupied land" is defined in cl.6(8) to mean, " land that is not being used or occupied for any purpose ". 44 Clause 6(1) Sch.1A is a deeming provision. Subject to strict limiting criteria set out in cl.6(2),(3),(5),(6) and (7) requires that the land be "unoccupied" and that the owner "intends" to use the unoccupied land as their PPR. ... 46 For the period 25 November 2006 to April/May 2008 (the period squarely relevant to 2007 and 2008 land tax years) the Strathfield property was land occupied by ... under the terms of a residential tenancy entered into by ... and the applicants. Quite directly, the Strathfield property cannot qualify as unoccupied land - " land not being used and occupied for any purpose " - when it is land that, for the 2007 and 2008 land tax years, was being used and occupied by ... for residential purposes. In turn, axiomatically, so far as the 2007 and 2008 land tax years are concerned, the applicants could not meet the criteria set out in cl.6(2)(a) and (b) of Sch. 1A. Due to the land not qualifying as unoccupied land the applicants fail to meet the criteria of cl.6, for the 2007 and 2008 land tax years, in every sense. 29In respect to the imposition of market rate interest in this matter, the Chief Commissioner's short submission was that, on the principles settled in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19 and in other Tribunal decisions there were no "exceptional circumstances" to justify a remission of the market rate interest.

Discussion and Reasons 30The applicants' case was essentially that the discretion found in clause 2(2)(b) should have been exercised by the Chief Commissioner to grant them the principal place of residence exemption under s 10(1)(r) of the LT Management Act. The Chief Commissioner's submission was that clause 2(2)(b) "does not confer a true discretion on the Chief Commissioner" as held by the Appeal Panel in Aldridge and that it was in any case a "limited" discretion which could only be exercised to allow an owner the exemption where an owner was not able to commence use and occupation of his or her principal place of residence by 1 July of the preceding year. 31In order to properly consider this issue it is necessary to revisit the decision of the Appeal Panel in Aldridge . The Appeal Panel formulated the test to determine the exemption under s 10(1)(r) as follows: "... (i) (to satisfy the principal place of residence definition in Section 3(1) that land must be the one place of residence that is, among the one or more places of residence of owner within and outside Australia, the principal place of the owner (as ( sic ) midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied) AND (ii) (to satisfy Section 3(3)(a) that land and no other land or flat must, since before the first day of July that last preceded the commencement of that year, have been continuously used and occupied by the owner for residential purposes and for no other purpose OR (b) in any other case, the Chief Commissioner must be satisfied that the land is used and occupied by the owner as the owner's principal place of residence (as ( sic ) midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied); AND (iii) (to satisfy Section 10(1)(r)) that land must be used and occupied (as at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied) as the principal place of residence of the owner and for no other purpose except as provided in Section 10." 32The Appeal Panel noted that if "any one of the conditions referred to above is not satisfied, Section 10(1)(r) of the Act will not apply" and applied the test in Aldridge as follows: "26 We agree with the Appellant that the Tribunal at first instance erred at law in holding that the Chief Commissioner had a discretion to treat the Respondents' Croydon property as the Respondents' principal place of residence and in purporting to exercise that discretion in favour of the Respondents. Section 3(3)(b) of the Act does not confer a true discretion on the Chief Commissioner. If the evidence of the factual circumstances supports that a particular parcel of land or a flat is used and occupied by a person as the person's principal place of residence (as defined in Section 3(1) of the Act) as at midnight on 31 December in a particular year, the Chief Commissioner must be "satisfied" of that fact. If the factual circumstances do not support that a particular parcel of land or flat is used and occupied by a person as the person's principal place of residence as at midnight on 31 December in a particular year, the Chief Commissioner cannot be "satisfied" of that fact. ... 28 The Croydon property neither satisfied, nor on the evidence could it have satisfied, paragraph (a) nor (b) of section 3(3) nor Section 10(1)(r) of the Act for the 1998 tax year in question. This is because as at the relevant time, namely, midnight on the thirty-first of December 1997, the Respondents did not retain any right to possession or control of possession of the property. They had granted a lease of the property the term of which included midnight on the thirty-first of December 1997. As such, the Respondents did not and could "occupy" the property at the relevant time. Accordingly, the subject property was not exempt from land tax under Section 10(1)(r) in the 1998 year in question." 33In reaching the conclusion that s 3(3)(b) was not a "true discretion", the Appeal Panel, placed a great deal of reliance on the requirement that it was necessary to determine each of the three stages of the test as at midnight on 31 December of the preceding year. 34The scheme of the Act is quite simple. It is only necessary for purposes of s 8 of the Act to determine the date of ownership of land in New South Wales. That section provides that land tax shall be charged on land as owned at midnight on the thirty-first of December immediately preceding the year for which the land tax is levied. Section 8 makes it clear that unless a person is an owner of land on 31 December of the preceding year, there is no liability to land tax. There is no other connection with the exemptions or concessions set out in the provisions found in Schedule 1A to the Act. 35In the current provisions, Clause 2(2)(a) and (b), which are exactly in the same terms as s 3(3)(a) and (b) considered in Aldridge , there is no requirement that a determination must be made by the Chief Commissioner that the land was used and occupied as the principal place of residence of the owner as at midnight on 31 December of the preceding year. The provisions quite simply provide for a straightforward test for purposes Clause 2(2)(a). Under this test, the owner of the relevant land will be entitled to the exemption provided it is the only land that has been continuously used and occupied by the owner for residential purposes and for no other purpose since 1 July in the year preceding the tax year in which land tax is levied. The words, "continuous use and occupation" must, of course be read as explained by his Honour Gzell J in Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68 - "28 The continuous use and occupation required by s 3(3)(a) of the Act means that the use of land for residential purposes must remain constant throughout each relevant eighteen month period. If portion of a residence is converted into a shop, the land no longer answers the description of continuous use for residential and no other purpose. The plaintiff's land having at all times been used as a dwelling, it satisfied this requirement. 29 In my opinion continuous physical presence on the land is not required to constitute continuous occupation. If a person leaves his or her premises for a holiday, it would defeat the purpose of the Act to conclude that occupation had ceased to be continuous. So long as the person retains the right to possession and controls possession, that person remains in occupation, in my view. The observation of Sir Nigel Bowen in Christie that physical presence over all the land is not necessary to establish occupation is equally apposite when there is some hiatus in physical presence over time." 36It is also important to note that his Honour Gzell J explained that the test requires the determination to be made by having regard to the use and occupation of the land "throughout each relevant eighteen month period" and not just by considering the use and occupation as at midnight on the 31 December of the preceding year. The suggested approach in this matter is consistent with his Honour's observations. 37On the other hand the provisions found in Clause 2(2)(b), provide that "in any other case" (emphasis added), the exemption is only available if "the Chief Commissioner is satisfied that the land is used and occupied by the person as the person's principal place of residence". In "any other case", would be a case where the owner has not continuously used and occupied the land for residential purposes and for no other purpose since 1 July in the year preceding the tax year in which the land tax is levied. Such a situation would arise in what was described in Flaracos as "hiatus in physical presence" over a short period with the owner surrendering the possession and control over the land during that period. 38Neither provision requires the owner to satisfy the relevant provision as at midnight on 31 December in the preceding year. The Appeal Panel, by including that requirement, concluded that it was "not a true discretion". The discretion is broadly worded without any limitation. In the absence of any express direction in the relevant legislation as to how the discretion is to be exercised in a particular case, the decision-maker must be guided by the underlying purpose and policy "... so far that is manifested" in the relevant Acts: see Giris v Federal Commissioner of Taxation (1969) 119 CLR 365, Windeyer J at page 384. In Federal Commissioner of Taxation v G M Swift and Others 89 ATC 5101, French J (at page 5116) in considering a discretion of a similar nature stated that the "dispensing power is incidental and ancillary to the primary object of the legislation" and that its exercise must not "undermine the primary purpose" of "the scope and objects of the Act". 39In Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1985-86] 162 CLR 24, Mason J (at 40) stated the approach to be to be taken when exercising a discretion of this nature as follows: "... this court has held that, where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard." 40The Chief Commissioner considered his discretion as set out in s 3(3)(b) in his Revenue Ruling No. LT 20 (Principal Place of Residence) issued on 8 November 1989, which was replaced on 15 August 2008 by Revenue Ruling No. LT 82 (The Principal Place of Residence Exemption). In LT 20 the Chief Commissioner set out his understanding of the discretion in s 3(3)(b) as follows: "Chief Commissioner's discretion 12 The Chief Commissioner has a discretion to grant the exemption where one or more of the requirements in section 3(3)(a) are not met. In exercising the discretion, each case will be considered on its merits. Examples where exercise of the discretion may be justified include circumstances in which: (a) the owner did not take up residence until after the preceding 30 June, particularly where the owner purchased the land after 30 June; (b) for part of the period after the preceding 30 June, the residence was rented out, but the arrangement was only temporary, e.g. the owner went on a holiday, or; (c) part of the residence was used for non-residential purposes after the preceding 30 June, but that use was temporary or was of a relatively minor nature." 41The Chief Commissioner also used this discretion when on 11 January 1999 Revenue Ruling No. LT 59 (Leases of principal places of residence during Olympics) was issued to allow owners to lease their principal place of residence to persons attending the Olympic Games or the Para Olympic Games through the "Homestay" program involving Ray White Real Estate. Owners were allowed to lease their homes for a period not exceeding eight weeks without affecting their exemption to the principal place of residence exemption. 42In the most recent Revenue Ruling LT 82, the Chief Commissioner has ruled that the discretion under Clause 2(2)(b) would relevant in the following circumstances: "If the land has been purchased after 1 st July, or if the owner has otherwise commenced or resumed occupation after 1 st July, the exemption will be allowed if the Chief Commissioner of State Revenue is satisfied that the land is then used and occupied as the principal place of residence of the owner." 43In my opinion a "true" discretion is given to the Chief Commissioner under Clause 2(2)(b). Historically, its predecessor provisions were available to the Chief Commissioner to attend to cases as suggested by the Chief Commissioner in his Revenue Ruling LT 20. But I agree with the submission made by Chief Commissioner that it is a limited discretion in the context of the current provisions found in Schedule 1A to the Act. That is the case because since LT 20 was issued, the law relating to the principal place of residence exemption has been expanded and now there is a fairly comprehensive code in Schedule 1A. There are now a number of concessions in Schedule 1A that allow an owner to retain the exemption without fully satisfying the principal requirements set out in Clause 2(2)(a). For example, Clause 5 permits the owner to use one room of the principal place of residence for incidental business purposes and may derive income from this use. Clause 8 which permits an owner to retain the exemption when absent from the principal place of residence also allows the owner to derive income from "a lease, licence or other arrangement under which a person has a right to occupy the former residence and the total period for which any such right of occupation is conferred does not exceed 6 months in the tax year". In his Revenue Ruling LT 82, the Chief Commissioner has confirmed that under Clause 8 - "Short-term letting - "peak holiday season" The principal place of residence exemption will generally continue where the owner lets the dwelling for a short time during the December - January holiday period, provided the property is not let under a Residential Tenancy Agreement over that period, and provided the owner's absence is temporary." 44In the present matter, unfortunately, the difficulty the applicants faced was that they had not used the Strathfield property as their principal place of residence during and prior to the period when it was let out. The Strathfield property was leased under a Residency Tenancy Agreement at market rate rental soon after purchase and until May 2008. During that period the Strathfield property was used as an investment property notwithstanding its future use by the applicants as their principal place of residence. There were, therefore, no circumstances that justified the exercise of the discretion by the Chief Commissioner to grant them the exemption for the 2007 and 2008 land tax years under Clause 2(2)(b). 45Any exercise of the discretion against the factual background in this matter would also "undermine" the policy intent of the exemption in particular Clause 6, on which the applicants placed some reliance. Clause 6 extends by way of a concession the exemption to unoccupied land intended to be the owner's principal place of residence. This clause does not apply unless: "(a) the land is unoccupied because the owner intends to carry out, or is carrying out, building or other works necessary to facilitate his or her intended use and occupation of the land as a principal place of residence, and (b) if those building or other works have physically commenced on the land, no income has been derived from the use and occupation of the land since that commencement, and (c) the intended use and occupation of the land is not unlawful." 46Unoccupied land is defined in Clause 6(8) to mean "land that is not being used or occupied for any purpose". 47The Strathfield property was not "unoccupied", an essential requirement to be entitled to the concession under Clause 6, in the period from 25 November 2006 to May 2008. During the period which determined their land tax liability for the 2007 and 2008 land tax years, the Strathfield property was leased and the applicants derived rental income. The exemption under Clause 6 was accordingly also not available to the applicants for those land tax years. 48The matter that remains is the imposition of the market rate interest in the assessment for late lodgement of their land tax return for the land tax years under review. This can be dealt with shortly. As submitted by the Chief Commissioner, the market rate interest can only be remitted in exceptional circumstances "otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations in time ...": Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor [2004] NSWADTAP 19 at [60]. Exceptional circumstances would include "... cases where the 'tax default' is entirely due to a fault of the Chief Commissioner ... [and] situations completely out of the control of the taxpayer, such as postal strikes, serious illness of the taxpayer and natural disasters (bush fires, floods and earth quakes).": Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 at [27]. In this matter, there were no "exceptional circumstances" before the Tribunal to warrant any remission of the interest imposed at market rate. 49The assessment for the relevant land tax years must accordingly be affirmed.

Decision 50The assessment for the 2007 and 2008 land tax years is affirmed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Administrative Decisions Tribunal. 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: 19 January 2011