Valencia v Chief Commissioner of State Revenue

Decision to be made without a hearing

1. Section 49 of the Civil and Administrative Tribunal Act 2013 (CAT Act) requires hearings to be open to the public unless the Tribunal orders otherwise. Section 50 of the CAT Act empowers the Tribunal to make an order dispensing with a hearing if it is satisfied that the issues for determination can be adequately determined in the absence of the parties by considering documents or material lodged with the Tribunal, and if the parties have had an opportunity to make relevant submissions and those submissions have been taken into account.
2. On 13 June 2017, with the consent of the parties, the Tribunal ordered that documents be filed in accordance with an agreed timetable and that the matter be determined by consideration of the relevant documents.

Powers of Tribunal on review

1. Section 101(1) of the Taxation Administration Act 1996 (the TA Act) empowers the Tribunal in some circumstances, to confirm, vary or reverse an administratively reviewable decision and make orders as to costs or otherwise as it thinks fit.
2. The Tribunal Application sought a review of the disallowance decision, rather than a review of the Assessments. However, the Tribunal's review power relates to a decision which has been the subject of an objection rather than the disallowance of the objection itself.
3. Section 96 of the TA Act relevantly provides: 96(1) A taxpayer may apply to the Civil and Administrative Tribunal for an administrative review under the Administrative Decisions Review Act 1997 of a decision of the Chief Commissioner that has been the subject of an objection under Division 1 if …the taxpayer is dissatisfied with the Chief Commissioner's determination of the taxpayer's objection …
4. Section 97 of the TA Act, which empowers the Supreme Court to review a decision of the Chief Commissioner, is in similar terms to s 96. In Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184, Basten JA with whom Giles and Campbell JJA agreed said at [28]: It is also important to note that the right of review under s 97 is given by reference to the operative decision of the Chief Commissioner and not to a ruling made on an objection. Although the existence of an objection is a necessary precondition to the power of review by the Court, and it is the taxpayer's dissatisfaction with the determination of the objection which provides standing to seek review, it is the initial decision which is the subject matter of the review.
5. In Ferella & Anor v Chief Commissioner of State Revenue [2014] NSWCA 378, a matter involving a land tax dispute in which the Tribunal's predecessor, the Administrative Decisions Tribunal, had held "the objection decision under review is affirmed", the Court of Appeal said at [10]: The Chief Commissioner's decision that should have been the subject of the application for review by the Tribunal was the decision the subject of the objection, that is, the decision to make the assessment of land tax, not the decision on the objection (Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184 at [28] and [53]). Nothing turns on this.
6. I note that the Chief Commissioner is well aware of ss 96 and 97 of the TA Act and of the Paspaley and Ferella decisions in the Court of Appeal and did not refer to the Tribunal Application seeking a review of the disallowance decision rather than a review of the Assessments. The Respondent described the Tribunal Application at [2] as "the [Assessments] that are the subject of the [the Application]" and at [51] sought an order that "[the Assessments] be confirmed and the proceedings be otherwise dismissed".
7. The Hargreaves letter described the Application as "an application to [the Tribunal] for relief in respect of [the Assessments] and are requesting a waiver …."
8. At the directions hearing on 13 June 2017 Mr Valencia was informed, and accepted, that the Tribunal's power is to review the Assessments rather than the disallowance decision.
9. In the circumstances, and notwithstanding the wording of the Tribunal Application, the matter is dealt with as if it were an application for a review of the Assessments.
10. In determining the Application, the Tribunal is to decide what the correct and preferable decision is, having regard to the material then before it, including any relevant factual material and any applicable written or unwritten law, s 63 ADR Act.

Brief factual background

1. There is no real dispute as to the underlying facts. The Chief Commissioner provided a brief synopsis of events at [5] to [17]. The Applicants were informed that they had the right to respond to RS but provided no response. Accordingly, the synopsis was unchallenged. Relevantly, the synopsis provides: 5. On 19 July 2011, the Applicants purchased [the Land]. The Land was an old warehouse and was uninhabitable. At the time, the Applicants resided at …. ("the Kensington property"). 6. On 12 October 2011, [a development application] was lodged with Botany Council for [the Land]. This was approved on 18 September 2013. 7. In about April 2013, the Kensington property was sold and [the Land] became the Applicants' intended principal place of residence. The Applicants rented a properly at …. Kensington. 8. On 20 March 2014, a further development application was lodged in response to Council requirements arising from the fact that [the Land] required demolition. 9. [In May 2014], the Office of State Revenue ("OSR") advised Mr Valencia …. that [the Land] would be exempt for the 2014 and 2015 land tax years but not the 2012 and 2013 land tax years. [The Land] had only become the Applicants' intended principal place of residence around April 2013. 10. The OSR also advised that the Applicants "must be using and occupying the property prior to 31 December 2015" otherwise the Applicant would be liable to pay land tax for the 2016 land tax year and Schedule 1A, Clause 6 of the LTMA would apply. 11. On 28 April 2016, a [third] development application …. was submitted to Botany Council for [the Land]. 12. On 8 August 2016, the OSR sent a letter to the Applicants advising that the land tax exemption granted in relation to the Mascot properly as an intended principal place of residence for the 2012 to 2015 tax years was required to be verified to ensure the requirements of the exemption had been met. 13. On 14 December 2016, consent for the third development application … was given for the Land, operating from 22 December 2016. 14. On 20 January 2017, the OSR contacted Mr Valencia. Mr Valencia advised that [the third development application] …. had been approved however he was still waiting for the construction certificate. Mr Valencia advised that the building work had not commenced at that stage but that he hoped it would be completed in 2018. 15. On 27 January 2017, Land Tax Assessment Notices were issued to the Applicants for the 2014 to 2017 land tax years. 16. On 7 March 2017, the Applicants lodged an Objection with the OSR regarding [the Assessments] …. 17. On 23 March 2017, the OSR sent [the disallowance decision] to the Applicants … on the basis that the Applicants had failed to use and occupy [the Land] as their principal place of residence by the end of the 4 year period specified in clause 6 of Schedule 1A to the LTMA.
2. I observe that the disallowance decision informed the Applicants that clause 6 of Schedule 1A of the LTM Act (the Schedule) enabled an owner of unoccupied land to claim the land as his or her principal place of residence if the owner intended to use and occupy the land solely as their principal place of residence. The Applicants were also informed that unless the Land was used and occupied for residential purposes by a person other than the Applicants at any time after they acquired the Land, the clause 6 exemption only applied during the period of four tax years immediately following the year in which they became the owners of the Land. As the Land was not occupied by the Applicants by the end of the relevant four year period, earlier land tax exemptions were revoked.
3. The disallowance decision also stated that the Chief Commissioner had no discretion to reverse the Assessments based on the circumstances of the Applicants' case.

The legislative scheme

1. Part 3 of the Land Tax Management Act 1956 (LTM Act) provides that land tax is payable by the owners of all land in New South Wales other than land which is exempt from taxation under that Act. The tax year is each period of 12 months commencing on the first day of January and land tax is charged on land owned as at midnight on 31 December immediately preceding the tax year (sections 7-9).
2. The Schedule 1A contains conditional exemptions from land tax where land is used and occupied by the owner as his or her principal place of residence, and for no other purpose.
3. Some of the Schedule exemptions, including pursuant to clause 6, apply even if the owner does not occupy the relevant land at certain times.
4. Unless stated to the contrary, all references in these reasons to legislative provisions are to provisions of the LTM Act and all references to clauses are to clauses of the Schedule.

The Applicants' case

1. The Applicants' objection claimed a "Principal Place of Residence Exemption" on the grounds of "Concession for unoccupied land intended to be the owner's principal place of residence".
2. The Tribunal Application made no reference to the Schedule or any provision in the LTM Act. Rather it referred to the building erected on the Land being structurally unsound and unfit for human habitation, the lack of a development approval for a construction certificate, bad advice from the local council and that the Land was the only place the Applicants had and it was intended to become their principal residence. The Applicants asked for a "fair go".
3. The Hargreaves letter requested that land tax for the Relevant Period be waived and any penalties in place be abated or remitted on the bases that: 1. at the time of purchase the Land was a former warehouse and was affected by strict heritage requirements; 2. several development applications were lodged which were stalled for a number of reasons relating to compliance with Council's strict requirements; 3. persons to whom the Applicants had sold an adjoining property objected to aspects of at least one development application in relation to the Land; 4. although the Applicants would have preferred to occupy the land within a temporary dwelling such as a caravan or portable residence they were unable to do so under threat of a fine or imprisonment; 5. as a result of delays and costs of compliance the Applicants had been placed at a financial disadvantage; 6. some of the development approvals were delayed due to concerns about structural stability of the warehouse causing building contractors to refuse to undertake building activities while the unsafe building had to be retained as required by Council; and 7. there was no consistency of approval between council officers dealing with the applications and their various recommendations.
4. In short, the Hargreaves letter submitted that all the matters which prevented the Applicants occupying the building were outside their control and the Applicants believed "they have been unfairly victimised and …. are obliged to meet taxes which in the ordinary course would never have been applicable".
5. I observe that, as with the Applicants' communications in evidence before the Tribunal, the Hargreaves letter made no reference to any relevant provisions of the LTM Act nor did it make any reference to any judicial decision which might support the Applicants' case.

Onus of proof

1. There is no dispute that the Applicants have the onus of proving their case in a review by the Tribunal, s. 100 of the TA Act. The requisite standard of proof in such a review is the "balance of probabilities" Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [31] and B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187, (2008) 74 NSWLR 481 at [104].

The Chief Commissioner's case

1. The Chief Commissioner's case is relatively straightforward. It is that s 7 provides that land tax is levied and paid on all land situated in New South Wales other than land which is exempt under the LTM Act.
2. Clause 6 provides conditional concessions from land tax in relation to unoccupied land intended to be the principal place of residence of the owner. However, the Applicants had not satisfied the conditions and neither he nor the Tribunal had a discretion to waive the conditions.
3. The Chief Commissioner also submitted that his power to make reassessments of the tax liability of a tax payer did not include a discretion to grant the exemption requested by the Applicants.

Issues

1. The general issue for the Tribunal is whether the Assessments are correct. The onus is on the Applicants to prove their case.
2. Specific issues are whether the Applicants prove on the balance of probability on the material before the Tribunal that: 1. they are entitled to the land tax exemption in Clause 6 in respect of any or all of the 2012, 2013, 2014 and 2015 land tax years; or 2. they are otherwise entitled to rely on any discretion of the Chief Commissioner which is exercisable by the Tribunal.

Analysis of clause 6 of Schedule 1A of the LTM Act

1. Clause 6 makes several references to "unoccupied land". Subclause 6 (8) provides that for the purposes of the clause "unoccupied land means land that is not being used or occupied for any purpose".
2. Subclause 6 (4) was repealed for the whole of the Relevant Period and subclause 6 (7) is not relevant. I consider the effect of the remainder of clause 6 below.

Analysis of subclause 6(1)

1. Subclause 6(1) provides: 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.
2. There is no dispute that the Applicants owned the Land at all relevant times and intended to convert it into a dwelling to use and occupy as their principal place of residence.
3. Accordingly, I find that the Applicants have satisfied the requirements of clause 6 (1).

Analysis of subclause 6 (2)

1. This subclause provides some mandatory conditions to be satisfied, failing which the exemption provided by the clause will not apply. The subclause states: 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.
2. It is undisputed that the Land was at all relevant times unoccupied because the Applicants intended to carry out building or other works necessary to facilitate the intended use and occupation of the Land as their principal place of residence.
3. The evidence is that relevant building or other works had not physically commenced on the Land as at 20 January 2017 (page 56 of the s 58 documents).
4. There is no evidence or submission before me that the intended use and occupation of the Land was unlawful.
5. The Chief Commissioner did not submit that subclause 6(2) precluded the operation of the clause.
6. In the circumstances, I find that subclause 6 (2) does not preclude the operation of clause 6.

Analysis of subclause 6(3)

1. This subclause provides a limit for the period in which a person may own relevant land without using it as his or her principal place of residence and still benefit from the clause 6 concession. The subclause states: 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.
2. The maximum period in respect of which clause 6 may apply is the 4 year period in either subclause 6(3)(a) or 6(3)(b).
3. It is undisputed that the Land was purchased by the Applicants 19 July 2011.
4. Section 3, the definition provision of the LTM Act, provides "Tax year or Land tax year means a period of 12 months starting on 1 January for which land tax is leviable and payable."
5. Dealing with subclause 6 (3) (b) first, there is no evidence or submission that the Land was used or occupied for any purpose by any person at any time after its purchase by the Applicants. Therefore, subclause 6 (3) (b) does not apply.
6. Accordingly, in accordance with subclause 6 (3) (a), the maximum period in respect of which the principal place of residence exemption provided by the clause could apply is the four tax years comprising the Relevant Period.

Analysis of subclause 6 (5)

1. Subclause 6 (5) provides for revocation of the clause 6 exemption if an owner fails to commence use of relevant land as his or her principal place of residence by the end of the four year period allowed by subclause 6 (3). The subclause states: If the principal place of residence exemption applies by operation of this clause to land not actually used and occupied by a person as his or her principal place of residence on a taxing date, that exemption is revoked if the person fails to actually use and occupy the land as his or her principal place of residence by the end of the period in which this clause applies in respect of the assessment of the person's ownership of the land and to continue to so use and occupy the land for at least 6 months.
2. The Hargreaves letter conceded that due to delays in the development applications' approval process the Applicants were unable to use and occupy the Land by 31 December 2015.
3. The notice of approval of the final relevant development application is at page 61 of the s 58 documents. The approval is dated and takes effect from 22 December 2016. This is nearly 12 months after the date by which the Applicants were required to use and occupy the Land as their principal place of residence in order to benefit from the clause 6 exemption.
4. I find that the principal place of residence exemption which might otherwise apply by operation of clause 6 "to land not actually used and occupied by a person as his or her principal place of residence on a taxing date" was revoked as the Applicants failed to actually use and occupy the Land as their principal place of residence by 31 December 2015.

Analysis of subclause 6 (6)

1. Subclause 6 (6) states: The effect of the revocation is that the principal place of residence exemption is taken not to have applied to the land in respect of any tax year to which, but for the revocation, it would have applied. Land tax liability is to be assessed or reassessed accordingly.
2. I find that the effect of the subclause 6 (5) revocation is that the exemption does not apply for any year for which it would have otherwise applied pursuant to clause 6. Subclause 6 (6) has retrospective application because, once the revocation takes effect, the land tax liability "is to be assessed or reassessed accordingly".

The Assessments and reassessments

1. Section 8 of the TA Act empowers the Chief Commissioner to make an assessment of a tax liability of a taxpayer which assessment may consist of a determination that there is no particular tax liability.

The 2012, 2013 and 2015 tax years

1. The notices of assessment in respect of 2012, 2013 and 2015, respectively issued on 16 April 2012, 30 January 2013 and 27 January 2017, each provided for a concession in respect of the Land to the extent that it was heritage restricted.

The 2014 tax year

1. The Chief Commissioner issued a land tax assessment notice for the 2014 tax year on 23 January 2014 (Tab 5 in the s 58 documents). That notice provides for an assessment in respect of the Land and allows a concession on the basis that the Land is heritage restricted.
2. On 26 May 2014, the Chief Commissioner issued a further land tax assessment notice for the 2014 tax year (Tab 10 in the s 58 documents). This is a reassessment which provides for a 100% exemption of the Land from land tax on the basis that it is an intended principal place of residence.
3. At Tab 12 in the s 58 documents is a land tax assessment notice for the 2014-2017 tax years. The assessment in respect of the 2014 tax year is a reassessment which replaced the notice issued on 26 May 2014. The reason given for this reassessment is that there is an exemption/concession change in respect of the Land. The concession for the heritage restriction remains. However, the exemption for the intended principal place of residence no longer applies.

Reassessments

1. Section 9(1) of the TA Act empowers the Chief Commissioner to make one or more reassessments of the tax liability of a taxpayer.
2. Section 9 (2) provides that any such reassessment is required to be made in accordance with the legal interpretations and assessment practices generally applied by the Chief Commissioner in relation to matters of that kind at the time the tax liability arose, except to any extent that any departure from those interpretations and practices is required by a change in the law …. made after that time.
3. Section 9 (3) provides a conditional power for the Chief Commissioner to make a reassessment of a tax liability more than five years after the initial assessment of the liability. By implication, the Chief Commissioner's power to make a reassessment of a tax liability within the period of five years is not subject to the restrictions in s 9 (3) although s 9(2) continues to apply.
4. The Applicants made no submission that there was any defective use of the Chief Commissioner's power of reassessment. I make no finding to that effect in respect of the two reassessments of the Applicants' land tax liability for the 2014 tax year. Indeed, subclause 6(6) expressly requires that a reassessment be made once subclause 6 (5) has revoked an earlier assessment allowing a clause 6 exemption which no longer applies.

Amounts and calculations in the Assessments

1. Although the Applicants objected to, and seek a review by the Tribunal of, the Assessments, there is no evidence of nor any submissions to the effect that, any of the amounts or calculations in any of the Assessments are incorrect. Accordingly, I make no finding concerning those amounts or calculations.

Unfair victimisation and the effect of matters outside the Applicants control - exercise of discretion

1. The Applicants submitted that they had been unfairly victimised and placed in a position outside their control where they were obliged to meet taxes which in the ordinary course would never have been applicable. They seek the exercise of a discretion in their favour to waive land tax and penalties.
2. Firstly, I observe that the Assessments do not impose any penalties nor do they impose any interest. The Assessments allow for a concession in each tax year throughout the Relevant Period in respect of a heritage restriction on the Land.
3. Secondly, although there are submissions that the applicants have been "unfairly victimised" there is no evidence before the Tribunal to that effect.
4. Thirdly, I accept that compliance with Council's requirements and any relevant heritage restrictions may well be outside the control of the Applicants.
5. However, neither the Applicants nor their solicitors referred to any statutory provision or judicial authority which would enable either the Chief Commissioner or the Tribunal to exercise a discretion in their favour.
6. The Chief Commissioner submitted: 35. Prior to 2011, clause 6(3) of Schedule 1A to the LTMA provided a concession for unoccupied land intended to be an owner's principal place of residence for a period of 2 tax years. It also included a provision giving the Chief Commissioner a discretion to extend the 2 year period in circumstances where there was a delay in the completion or commencement of building or other works where that delay was primarily due to reasons beyond the control of the owner. 36. In 2010, the LTMA was amended such that the 2 year period in clause 6(3) was increased to a fixed period of 4 years and the provision giving the Chief Commissioner a discretion to extend the period under clause 6(3) was repealed. 37. The effect of these amendments is that in relation to tax years 2012, 2013, 2014 and 2015, the Chief Commissioner has no discretion to extend the period in clause 6(3) beyond the 4 year period prescribed in that clause.
7. Despite having the opportunity to do so, the Applicants did not challenge these submissions. I accept the submissions.
8. Regrettably for the Applicants, I find that there is no evidence before me to the effect that the Chief Commissioner retains any relevant discretion to extend the period of non-use and occupation of the Land for the purpose of granting a land tax liability exemption pursuant to clause 6 as sought by the Applicants. In this matter, the Tribunal may exercise the functions of the Chief Commissioner, s 63 ADR Act. However, there is no submission or evidence, nor do I find, that the Tribunal has greater relevant powers than the Chief Commissioner.
9. Section 110 of the TA Act empowers the Chief Commissioner to write off the whole or any part of any unpaid tax if satisfied that action to recover the tax is impracticable or unwarranted. There is no evidence before me as to the extent, if any, to which the tax liability which arose from the Assessments remains unpaid nor that the Chief Commissioner or the Tribunal should write off the whole or any part of such tax on the basis that action to recover the tax is impracticable or unwarranted. In any event such a write off would not assist the Applicants as s 110 of the TA Act also provides that the writing off of tax does not affect the liability of the taxpayer to pay the tax or the power of the Chief Commissioner to recover it.
10. The Applicants bear the onus of proving their case and I find that they have not satisfied that onus in relation to their submissions as to alleged victimisation and the exercise of a favourable discretion.

Implied submission as to hardship

1. Sections 106A to 106D inclusive of the TA Act provide for a Hardship Review Board (the Board) which may, if authorised by a relevant taxation law, waive the payment of tax either wholly or in part if certain conditions are satisfied.
2. Although the Applicant has submitted that there is victimisation and seeks fairness, there is no evidence before me that any application was made to the Board nor that this Tribunal would have any authority to exercise the powers of the Board.
3. Accordingly, I find that I am not satisfied that the Tribunal has any authority in this matter to exercise the powers of the Board.

Fairness

1. Although the Assessments included a provision for interest they also included a remission by the Chief Commissioner of the whole of the interest. I observed above that the Chief Commissioner has not imposed any penalty tax on the Applicants.
2. The Chief Commissioner's response to the Applicants' claim for 'fairness' included the following unchallenged submission at [44]: In [Vlahos & Ors v Chief Commissioner of State Revenue [2013] NSWADT 215] Senior Member Verick concluded: "[36] In this matter, it is suffice to say that the principle of fairness has no application when considering a revenue legislative provision, which imposes a duty or tax in the absence of any discretionary power in the provision …."
3. I also observe that, absent a discretionary power, the Chief Commissioner is required to administer the law in accordance with its terms. To give a benefit to the Applicants would unfairly disadvantage other taxpayers who have complied with their obligations under the same laws

Decision and orders

1. Having regard to the above findings on the material before me, the Applicants have not satisfied me on the balance of probability that land tax is not payable by them in respect of the Relevant Period in accordance with the Assessments.

Order 1. The decision under review 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: 07 June 2018