Mrs Wang and Mr Chen are spouses, who jointly own a residential property in Sydney. Though not Australian citizens, they are permanent residents of Australia. They have been separately assessed to surcharge land tax in respect of their Sydney property, under section 5A of the Land Tax Act 1956.
Mrs Wang seeks review of her assessment for the 2021 tax year. She says that at all relevant times the property was her home, or principal place of residence. In early 2020, she travelled to China with Mr Chen and their child to live with her parents, but were prevented from returning to Australia until September 2021 by flight cancellations caused by the advent of the COVID-19 pandemic.
Mr Chen seeks review of his assessments for the tax years 2017, 2018, 2019, 2020, 2021 and 2022. At all times from 2016, he says that he lived in the house for various periods, and regarded the property as his principal place of residence, even when he was overseas or lived elsewhere in Sydney. From September 2021, he says that, despite his desire to return from China to Sydney to live with Mrs Wang and their child, he has felt obliged to remain in China to care for Mrs Wang's elderly parents, who have significant health issues and are in need of care.
On the basis of those facts, the applicants ask the Tribunal to find that they are not liable to surcharge land tax. In the alternative, they ask the Tribunal, in the exercise of discretion, to exempt them from tax, or reduce the tax payable and impose what Mrs Wang described as a 'fair amount'.
The Chief Commissioner says that each applicant is liable to surcharge land tax, because:
1. In each of the relevant tax years, section 5A imposed surcharge land tax on residential land owned by foreign persons,
2. The applicants fell within the definition of foreign persons.
3. In respect of the 2017 tax year, the legislation provided no exemption from surcharge land tax on the basis that the land was the taxpayer's principal place of residence,
4. From 2018 onward, section 5B provided an exemption from surcharge land tax if the land was the taxpayer's principal place of residence, but only if, among other things, the taxpayer used and occupied the land for a continuous period of 200 days in the land tax year,
5. Mrs Wang did not satisfy that requirement during 2021, as she was overseas until September of that year, and
6. Mr Chen has not satisfied that requirement in respect of any of the relevant tax years.
The issues for determination may be summarised as follows.
1. Whether the applicants fell within the definition of 'foreign persons' in each relevant tax year.
2. In respect of Mrs Wang, whether she used and occupied the property as her principal place of residence in 2021, and satisfied the 200-day requirement of section 5B.
3. In respect of Mr Chen:
1. In respect of the 2017 tax year, whether any exemption was afforded by the legislation and, if so, whether he satisfied the criteria for eligibility.
2. In respect of the 2018 and later tax years, whether he used and occupied the property as his principal place of residence, satisfying the 200-day requirement of section 5B.
The Chief Commissioner has disallowed objections made by the applicants to their respective assessments, so the Tribunal has power to review the assessments: section 96, Taxation Administration Act 1996. The applicants bear the onus of proving their case on review: section 100(3).
[2]
Applicants' evidence
Though Mr Chen did not provide a written statement to the Tribunal, Mrs Wang provided three statements on behalf of both applicants. They were comprised of evidence, submissions and rhetorical questions. In summary, she said that in about 2012, she and Mr Chen migrated from Shanghai to Sydney. It is common ground that they jointly purchased the house in question and lived in it. Mrs Wang said that from 2016 to 2018, she and Mr Chen moved out of the house in order to live nearer the child's school, returning to live in their house in 2018. While living in rented accommodation, they rented their house to others.
The evidence indicates that from 8 August 2015 to 1 August 2018 the house was leased to various tenants, except for 6 days in 2016 (6 August 2016 to 11 August 2016), and about 100 days in 2017 (10 February 2017 to 20 May 2017). I interpret Mrs Wang to mean that they leased the house to others during the periods of the leases. I accept that both spouses considered this a temporary arrangement, and that they lived elsewhere from about 8 August 2015 to about 1 August 2018.
She said that in 2019 they upgraded their kitchen, as they did not propose to rent the property out again.
In March 2017, she said, Mr Chen's mother had passed away in Australia, while visiting from China. She suffered from cancer.
In early 2020, Mrs Wang and Mr Chen travelled to Shanghai with their children in order to visit their surviving parents, who live there but have no other children living there. Mrs Wang explained that her parents were living in her brother's house in Shanghai, while her brother lived in the United States. Both parents, she said, are elderly, have serious health conditions and are in need of care.
She said that she and her husband had planned to return to Sydney in 2020, but flights were cancelled due to the COVID-19 pandemic. She produced an airline certification that her flight on 2 July 2020 had been cancelled for that reason.
She said that, rather than leave the Sydney house vacant while they were stranded in China, they caused their belongings to be stored, and rented it out on a temporary basis.
In September 2021, she and their child managed to secure a flight back to Sydney, and returned to live in their Sydney home.
Mr Chen, meanwhile, remained in Shanghai to look after Mrs Wang's parents, as it is the custom for children to look after their parents, the parents were in need of care, there was no other family member available to look after them, and if either of them was admitted to hospital, it might not be possible to return to China in time to see them before he or she passed away. Mrs Wang observed it might not even be permissible, given the strict quarantine requirements which persist in China.
At all times, Mrs Wang said, she and Mr Chen regarded the house in Sydney as their home, and intended to occupy and use it as their permanent residence.
Mr Chen has since remained in China, looking after Mrs Wang's parents.
Mrs Wang's evidence, as summarised above, is uncontradicted by other evidence, and I accept it as true.
Mrs Wang attended the hearing in Sydney in person. Mr Chen attended by telephone from China. For the Tribunal's assistance, they indicate that a table of days spent by each of them in Australia and overseas in each year from 2016 to 2021, reproduced in the Chief Commissioner's written submissions, was accurate. In summary, the table provided that:
1. Mr Chen had spent less than 200 days in Australia in 2016, 2017, 2018, 2019 and 2020, none at all in 2021, and none at all from 1 January 2022 to 30 June 2022, and
2. Mrs Wang had spent only 20 days in Australia in 2020, and 107 days in 2021.
[3]
Legislation
Section 5A of the Land Tax Act 1956 imposes surcharge land tax on residential property owned by foreign persons in respect of the tax years 2016 to 2022.
From the 2018 tax year, section 5A(4)(g) has provided for an exemption in respect of a person's principal place of residence, if the person is eligible under section 5B.
Section 5B(1) sets out three eligibility criteria. They are:
1. That the person was a permanent resident at midnight on 31 December of the preceding year.
2. That the Chief Commissioner is satisfied that they intend to use and occupy the land as the principal place of residence during the tax year 'in accordance with the residence requirement'.
3. That the person lodges a declaration of that intention with their land tax return.
The Chief Commissioner says the second requirement is not satisfied, because the residence requirement has not been met, and no intention to meet it is proven. That requirement is set out in section 5B(2), which provides:
The person must use and occupy the land as the person's principal place of residence for a continuous period of 200 days in the land tax year. This requirement is referred to as the residence requirement.
Section 5B(3) provides that, if the residence requirement is not met, surcharge land tax is assessable 'as if the … exemption from liability … had never applied'.
[4]
Foreign persons
As indicated, section 5A has at all material times imposed surcharge land tax on residential land owned by a 'foreign person'. At all relevant times, the definition of 'foreign person' has adopted the definition in Chapter 2A of the Duties Act 1997, which in turn adopts the meaning set out in section 4 of the Foreign Acquisitions and Takeovers Act 1975 (Cth). That section provides that a foreign person is one who is not 'ordinarily resident' in Australia.
Section 5 of the latter Act provides that, at any time, an individual who is not an Australian citizen is ordinarily resident in Australia if, among other things:
the individual has actually been in Australia during 200 or more days in the period of 12 months immediately preceding that time.
The words 'has actually been in Australia' require an individual to have been physical present in Australia: Gao v CCSR [2020] NSWCATAD 216.
Section 5A(2) of the Land Tax Act 1956 provides that surcharge land tax is charged:
in respect of the taxable value of all the residential land owned by the foreign person at midnight on 31 December … for the period of 12 months commencing on 1 January in the next succeeding year.
As for all land tax, the taxing date is 31 December in the year immediately preceding the tax year. It follows that, in order to be 'ordinarily resident' for a particular tax year - and therefor, not a 'foreign person' as defined - a non-citizen must have been in Australia for 200 days in the 12 months preceding 31 December in the previous year.
On the basis of the respondent's table, accepted as accurate by the applicants, Mrs Wang fell within the definition of 'foreign person' in respect of the 2021 tax year, because she was not in Australia for 200 days or more during the period of 12 months preceding 31 December 2020. Accordingly, surcharge land tax was assessable in respect of the 2021 tax year, unless an exemption applied.
Mr Chen also fell within the definition of 'foreign person' in respect of each tax year from 2017 to 2022 inclusive, because he was not in Australia for 200 days or more during 2016, 2017, 2018, 2019, 2020 or 2021. Accordingly, surcharge land tax was assessable in respect of each tax year unless an exemption applied.
[5]
2017 tax year
The only exemption relied on by the applicants was the principal place of residence exemption. As indicated, the legislation provided for that exemption only in respect of the 2018 tax year and following. It was not available in the 2017 tax year.
It follows that Mr Chen's application for review cannot succeed in respect of the 2017 tax year, unless the Chief Commissioner, or the Tribunal on review of his decision, has discretion to exempt him from tax or, as Mrs Wang put it in oral submissions, to reduce the amount of tax payable and impose a 'fair amount', having regard to the circumstances in which the spouses found themselves.
The legislation does not provide a discretion to the Chief Commissioner, or to the Tribunal on review, to exempt a taxpayer from the payment of surcharge land tax in respect of any tax year, or to reduce the amount of tax payable. That is so, even if the taxpayer is absent from Australia either for reasons beyond his control, or for other good reason. There is likewise no discretion to exempt a person from tax, or to reduce the tax payable, on the grounds of unfairness, or failure by the Chief Commissioner to warn the taxpayer in advance that surcharge land tax is or might become assessable: Du v Chief Commissioner of State Revenue [2022] NSWCATAD 329; Galle v CCSR [2022] NSWCAAD 285, Chu v CCSR [2021] NSWCATAD 238.
It follows that, with respect to Mr Chen, the assessment for 2017 must be confirmed.
[6]
2018 tax year
The principal place of residence exemption was potentially available to foreign persons in respect of the 2018 tax year and following years, subject to the provisions of section 5B, which requires among other things that the owner use and occupy the land as his or her principal place of residence for a continuous period of 200 days in each tax year.
As indicated, in 2017 and 2018 the applicants leased their Sydney property to tenants while they lived elsewhere, except for a period of about 100 days in 2017, and the period 2 August 2018 to 31 December 2018, which is less than 200 days. By its nature, a lease provides the tenant with a right to exclusive occupation. That is inconsistent with 'use and occupation' by the owners as their principal place of residence: Chief Commissioner of State Revenue v Aldridge [2003] NSWADTAP 50.
It follows that, in respect of the 2018 tax year, Mr Chen did not use and occupy the house as his principal place of residence for the required period of 200 days, and his assessment in respect of that year must be confirmed.
[7]
2019 tax year
According to the agreed table, Mr Chen spent 93 days in Australia in 2019. The respondent says that he was here from 1 January 2019 to 27 February 2019, and again from 2 July 2019 to 6 August 2019. At all other times, he was overseas. The applicants do not submit otherwise, and I accept that he was in Australia for two discontinuous periods of 58 days and 36 days respectively. The two periods together amount to 94 days rather than 93, but nothing turns on it.
There is no evidence that the Sydney property was leased in 2019. I accept that, during the 94 days when Mr Chen was in Australia, he resided there with Mrs Wang, and used and occupied the property as his principal place of residence.
Doing my best to understand the language used in Mrs Wang's statement of 24 October 2022 - bearing in mind that it is not her use of language, but the usage of an interpreter who has interpreted her statement from Mandarin into English - from 2019 to 2022, Mr Chen has been living in a house owned by her brother in Shanghai from.
To be eligible for the exemption, Mr Chen must demonstrate that he used and occupied the Sydney property as his principal place of residence for a continuous period of 200 days in 2019. As I am satisfied that he did so for two discontinuous periods equalling 94 days, the issue is whether he also used and occupied it as his principal place of residence when he was overseas, for a further period of 106 days.
As the two periods of residency in Sydney are more than 106 days apart, the requisite use and occupation must have fallen on one side or another of the period 2 July 2019 to 7 August 2019, or both. Having regard to what follows, nothing turns on it.
Whether a house is a person's principal place of residence is to be assessed objectively, having regard to the actual occupation of the dwelling: Chief Commissioner of State Revenue v Ferrington [2004] NSWADTAP 41. Relevant factors include the person's intention, whether their connection to the land is of a permanent character, as distinct from transient, temporary, contingent or passing, the length of their residence there, and the nature of their occupation: Ferrington at [42].
I accept that, even when overseas in 2019, Mr Chen sincerely desired to reside in his Sydney property with his family, and intended to do so as soon as his family circumstances allowed, but was prevented by what he considered were his moral obligations to care for family members in Shanghai.
Intention, though relevant, is not alone determinative: Ferrington.
As the former Administrative Decisions Tribunal observed in Zakariya v Chief Commissioner of State Revenue [2003] NCWADT 26 at [18] in relation to section 12(1) of the First Home Owner Grant Act 2000:
The phrase "principal place of residence" does not assume that an applicant need only live at one place, but that she or he may have two or more places of residence. However, the [First Home Owner] grant may only be paid in relation to the "principal" one of those places …
In that case, Needham JM found that occupation of a property for two or three days per week by its owner, who at other times lived at another property, was insufficient to establish that the first property was the principal place or residence, even accepting the owner's intention to live there permanently.
On the evidence here, Mr Chen spent 94 days living in the Sydney property in 2019, and the remainder of the year living in his brother-in-law's house in Shanghai. Even allowing for the fact that Mr Chen has no property interest in the Shanghai house, it appears to have been his main residence in 2019, because that is where he resided most of the time.
The fact that a person is forced to reside at a place away from their home through circumstances beyond their control is a relevant factor, at least where the objective facts otherwise point to the home being the principal place of residence. However, there is no evidence here that Mr Chen was forced to remain in China in 2019. He chose to do so, in order to care for his parents-in-law. His actions were in accordance with both custom and duty, and highly commendable, but that does not establish that he was forced to remain away from Sydney. He made a choice to live in Shanghai. In his view, and doubtless in Mrs Wang's view, that choice was the appropriate one. Put another way, his family circumstances simply did not favour a return to Sydney in 2019.
For all those reasons, though I am satisfied that Mr Chen resided in the Sydney property for the 94 days that he was in Sydney, and that he intended to do so permanently as soon as his family circumstances in China allowed, I am not satisfied that he occupied the Sydney property as his 'principal' place of residence for 200 continuous days during the 2019 tax year.
The requirements of section 5B were not met in 2019, and the assessment of the Chief Commissioner must be confirmed.
Mrs Wang relied on the decision in Chu v Chief Commissioner of State Revenue [2021] NSWCATAD 266 (to which she referred in submissions simply as file number 2020/00130594), as authority for the proposition that a person who is unable to live in Australia for more than 200 days in a tax year due to work duties overseas is immune from surcharge land tax.
Chu is not authority for that proposition. The Tribunal did not decide whether Ms Chu was assessable to surcharge land tax. It declined an application by her for costs against the Chief Commissioner, in circumstances where the Chief Commissioner had conceded, two days before the hearing, that having regard to the evidence and submissions filed by Ms Chu, she was entitled to the principal place of residence exemption. The Tribunal was not prepared to find that the respondent's defence (prior to its withdrawal) had no tenable basis in fact or law, or that it was lacking in substance.
[8]
2020 and 2021 tax years
The uncontested evidence shows that the property was leased to tenants from 18 January 2020 to 26 July 2021, except for ten days in January 2021. In other words, it was leased:
1. for the whole of the 2020 tax year except for a short period of 17 days from 1 January 2020, and
2. for most of the 2021 tax year, being a period of about 206 days.
It follows that the 200-day residence requirement was not satisfied in 2020 or 2021, and that neither Mrs Wang nor Mr Chen qualifies for exemption under section 5B, even if they could otherwise satisfy the principal place of residence requirement.
The assessments of Mr Chen for 2020 and 2021, and of Mrs Wang for 2021, must be confirmed.
[9]
2022 tax year
By the hearing date on 21 November 2022, Mr Chen had been living outside Australia for the whole of 2022. He had been living in Shanghai. It follows that he cannot satisfy the 200-day residence requirement in that year.
As indicated, I accept his oral advice to the Tribunal that he desires and intends to use and occupy the Sydney property as his principal place of residence as soon as his family circumstances allow. However, for the reasons already given in respect of the 2019 tax year, the evidence establishes that throughout 2022, his main residence has been the house at which he has been residing in Shanghai. It follows that the Sydney home cannot be or have been his 'principal' place of residence, notwithstanding his continuous intention and desire to live there as soon as family circumstances permit.
In any event, according to the agreed table, from 1 January 2020 Mr Chen has lived outside Australia, with the exception only of eighteen days in 2020. As at the taxing date on 31 December 2021, his use and occupation of the Sydney property had been, for some years, of a transient or temporary nature, and I cannot be satisfied that his use and occupation of it had a permanent character.
For all those reasons, the Commissioner's assessment in respect of the 2022 tax year must be confirmed.
[10]
Conclusion
For the reasons given:
1. the assessment of Mrs Wang to land tax in respect of the 2021 tax year is confirmed, and
2. the assessments of Mr Chen to land tax in respect of the 2017, 2018,2019, 2020, 2021 and 2022 tax years are confirmed.
[11]
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: 09 January 2023