Mentink v Chief Commissioner of State Revenue [2007] NSWADT 34

CITATION: Mentink v Chief Commissioner of State Revenue [2007] NSWADT 34

DIVISION: Revenue Division

APPLICANT PARTIES: Karen Mentink RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 066101

HEARING DATES: 7/02/2007

SUBMISSIONS CLOSED: 7 February 2007

DATE OF DECISION: 9 February 2007

BEFORE: Block J - ADCJ (Judicial Member)

CATCHWORDS: Land tax exemption - principal place of residence

MATTER FOR DECISION: Principal matter

Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Land Tax Act 1956 Land Tax Management Act 1956 Taxation Administration Act 1996

CASES CITED: Chief Commissioner of State Revenue v Aldridge & Anor [2003] NSWADTAP 50 Commonwealth v Verwayen (1990) 170 CLR 394

APPLICANT In person REPRESENTATION: RESPONDENT S Free, solicitor

ORDERS: The decision under review is affirmed but on the basis that:; (a)credit must be allowed for the amount paid in 2005;; (b) interest in respect of the first default is confined on the basis set out in clause 36;; (c) interest in respect of the second default is remitted in full.

REASONS FOR DECISION Part A Preliminary and background 1 The decision under review is the decision by the Respondent disallowing an objection by the Applicant against a land tax assessment made pursuant to the Land Tax Management Act 1956 ("the Act") for the 2003 and 2004 land tax years in respect of the property situated at 8 Ignatius Road, Lindfield (the "property" or "the Lindfield property"). The term "relevant years" refers collectively to the 2003 and 2004 land tax years; each of them is individually referred to by its actual year. 2 The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act 1997; it was in addition furnished with (helpful) written submissions by the Respondent. The Tribunal accepted into evidence as exhibit A1 a statement by the Applicant submitted to the Tribunal on 27 November 2006. 3 The facts fall within a narrow compass. The Lindfield property was at all times relevant to this decision owned by the Applicant and her former husband, Jonathon Mentink, as joint tenants. (Tab 11 of the section 58 documents). In her objection the Applicant stated that the property had been the principal place of residence ("PPR") of herself, the Applicant, and her former husband; they moved out of the property in February 2002 and it was leased out during the period February 2002 to February 2004. During that period it was rented to a tenant; see in this context the rental bond search result; (Tab 6 of the section 58 documents.) The Applicant moved back into the property in February 2004 and it was sold in May 2004. 4 Land tax is calculated in respect of each land tax year by reference to real property owned by a taxpayer on the immediately preceding 31st December. An exception is allowed, put in general terms, for property owned and occupied as a PPR at that date and during the immediately preceding period of six months. In this case the critical date for the 2003 year is 31 December 2002 and for the 2004 year it is 31 December 2003. The objection makes it clear that the property was not occupied by the Applicant or her former husband on either of those dates. 5 In 2005 the Applicant paid an amount of $4866 and being half of the outstanding land tax amount. Part B The evidence by and on behalf of the Applicant 6 As noted previously the Applicant tendered a witness statement, and which was admitted as exhibit A1; the first few paragraphs of that witness statement are included in these reasons as follows: I bought the property known as 8 Ignatius Road with my former husband Jonathan Mentink on 14/9/99, and it was sold following our separation on 11/05/04. The property was rented out for a 2 year period from 11/02/2002 to 3/03/2004. As it was the only property we owned, and as it was our intention to return there, it remained, the principal place of residence for both myself and my husband during this time. Following the dissolution of our marriage this was not possible, and the property was sold. Since I first investigated our potential liability for land tax in 2001, the OSR has repeatedly portrayed in written or verbal communications one thing as being the case when it is actually not the truth. When they have backtracked and then stated what is the truth, they still expect to be able to act as if they had never said those things originally, and apply both land tax and a hefty interest penalty to our principal place of residence. I am quite sure I am not the only person this is happening to, and I believe that the OSR should be accountable for what it states to be the case, whether in print, or verbally by its officers. The reason I am appealing to the ADT is because I believe I have been mislead on several occasions by officers and written communications from the OSR, with respect to whether land tax was payable on the above property. Until receiving the first notice of assessment in October 2005, I was lead to believe that land tax was not payable on the property The advice I was given in 2001 was that it was acceptable to absent yourself from your principal place of residence for a 2 year period without being liable for land tax, provided that you did not own another property or claim another property as your principal place of residence, neither of which applied to us. If officers of the OSR can't provide correct information then how is the general public supposed to understand the law? 7 The Applicant commenced with a somewhat lengthy address which amounted, reduced to its essentials, to a complaint that she has not been treated fairly by the Respondent. She did not in fact give formal evidence in the sense that she took the oath and subjected herself to cross-examination, but as will be clear from a consideration of the content of this part B it was not in fact necessary for her to do so. 8 The Applicant said that the property was leased to the Navy for a term of two years as from February 2002 at a rental of $685 per week. (Attachment B to Tab 2 of the section 58). 9 The Applicant said that before the property was leased to the Navy she spoke to a person in the Respondent's office and was told that there would not in consequence be a land tax impost. She did not keep a record of the name of the person to whom she spoke. 10 The Applicant complained at some length and with some force about the fact that there was a delay in the issue of the assessment. She complained also that the Respondent had seen fit to brief a barrister in a matter of this nature. She said moreover that she required an apology for the misleading advice given to her and the waiver of all penalties imposed. 11 At this stage the Applicant called as a witness her former husband, Mr Jonathan Mentink; his evidence is contained in the succeeding clauses of this part B. 12 Mr Mentink said and that he and the Applicant had some awareness of the fact that there could be a land tax impost in respect of a rental property. A friend came back from overseas and that friend, who had leased out his property was confronted with a large land tax liability. Mr Mentink was vague as to when this occurred but thought that it occurred in either 2000 or 2001. 13 Mr Mentink went on to say that the Applicant made enquiries and having done so informed him that she had ascertained that there was in fact no land tax liability. 14 Mr Mentink said that when the property was sold he himself did the conveyancing having obtained a conveyancing kit for this purpose. That conveyancing kit did not warn him that he should be concerned as to the incidence of land tax. 15 Mr Mentink said that in 2005 he spoke to Barry O'Neil, an employee of the Respondent; because of a computer failure, he could not say when that conversation took place or what was said except that Mr O'Neil suggested that he obtained a copy of the section 46 certificate. (He referred to section 46 on a number of occasions before accepting that the relevant and correct section is in fact section 47). Mr Mentink obtained a copy of the certificate from a Ms Darin who was the solicitor who acted for the purchaser of the property (and she charged him $225 for doing so) because the Respondent, so he said, was unable to furnish one. He was under the impression that if he produced the certificate this would have the effect of eliminating the tax impost. 16 Mr Mentink went on to say that eventually and after a period he could no longer make contact with Mr O'Neil but did manage to make contact with James Chung, also an employee of the Respondent, but whose attitude was that the tax was in fact due and payable. (As Mr Mentink put it, Mr Chung's advice was put in strong terms. 17 In a brief cross-examination by Mr Free, Mr Mentink was first asked whether he had received a copy of the assessment. He said that he received something in his post-box and that this would have occurred after he had spoken to Mr O'Neil and Mr Chung. 18 When asked whether he recalled speaking to Margot Perrone on 18 August 2006, Mr Mentink said that "this might be the lady". He was asked whether he recalled asking her for a copy of the assessment. He answered that she did send it to his post office box address in Warners Bay but he could not remember when, especially as he did not go to the post box often. 19 When asked whether he was aware that he was jointly liable he answered that he was so aware but that the Applicant was dealing with the matter. 20 Mr Mentink said that the section 47 certificate was obtained by the purchaser because it was the purchaser who needed the protection which it afforded. 21 Mr Mentink said that he was not aware of ever having filed a land tax return. When asked whether he was aware of the Applicant filing a return in October 2005, he answered that "she might have done so". 22 In re-examination Mr Mentink said that he did not recall the receipt of an assessment prior to 2006. He said that he became aware when so advised by the Applicant who was going to deal with it. The Applicant asked him whether he would pay half of the assessment and his answer was that this depended on the outcome of this hearing. She again asked him whether he would play the other half of the assessment and he eventually said that he would. Exhibit A1 contains a paragraph towards its end which would tend to indicate that the Applicant does not have much confidence in any such promise; that paragraph reads as follows: Given Jonathan's refusal thus far, and his attitude to financial responsibility for his children, I consider it highly unlikely he will pay half the disputed liability voluntarily. Part C The law. 23 The term "owner" is defined in the Act as follows: "Owner includes: (a) in relation to land, every person who jointly or severally, whether at law or in equity: (i) is entitled to the land for any estate of freehold in possession, or (ii) is entitled to receive, or is in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise" 24 Section 27 of the Act deals with the tax liability of joint owners in the following terms: "27 Joint owners (1) Joint owners of land shall be assessed and liable for land tax in accordance with the provisions of this section. (2) Joint owners (except those of them whose interests are exempt from taxation under section 10) shall be jointly assessed and liable in respect of the land (exclusive of the interest of any joint owner so exempt) as if it were owned by one person, without regard to their respective interests therein and without taking into account any land owned by any one of them in severalty or as joint owner with any other person. (2A) (not relevant). (3) Each joint owner of land shall in addition be separately assessed and liable in respect of (a) his or her individual interest in the land (as if he or she were the owner of a part of the land in proportion to his or her interest), together with (b) any other land owned by him or her in severalty, and (c) his or her individual interests in any other land. (3A) (Repealed) (4) The joint owners in respect of their joint assessment shall be deemed to be the primary taxpayer, and each joint owner in respect of his or her separate assessment to be a secondary taxpayer; and from the land tax payable in respect of his or her interest in the land by each joint owner under subsection (3) there shall be deducted such amount Of any) as is necessary to prevent double taxation. 25 The enforcement of a land tax liability against joint owners is also affected by section 45 of the Taxation Administration Act 1996 ("TAA"). Section 4 of the Act provides that the Act is to be read together with the TAA "which makes provision for the administration and enforcement of [the Act] and other taxation laws". The Act and the Land Tax Act 1956 are "taxation laws" for the purposes of TAA: (Section 4 of TAA). Section 45 of TAA provides: " 45 Joint and several liability (I) If two or more persons are jointly or severally liable to pay an amount under a law, the Chief Commissioner may recover the whole of the amount from them, or any of them, or any one of them. (2) If under a taxation law two or more persons are jointly and severally liable to pay an amount of tax that is payable by any one of them, each person is also jointly and severally liable to pay: (a) any amount payable to the Chief Commissioner under a taxation lain in relation to that amount, including any interest and penalty tax under Part 5, and (b) any costs and expenses incurred in relation to the recovery of that amount that the Chief Commissioner is entitled to recover from any such person. (3) A person who pays an amount of tax in accordance with the liability imposed by this section has such rights of contribution or indemnity from the other person or persons as are just. 26 It cannot be contended (subject only to the possible application of clause 8 of schedule 1A to the Act) that the property was exempt from land tax in the relevant years. An owner cannot be said to occupy land which has been leased to another person. Chief Commissioner of State Revenue v Aldridge & Anor [2003] NSWADTAP 50. 27 Under clause 8 of schedule 1A to the Act there is a concession which can apply in certain circumstances; however it does not apply to the Applicant because she did not after returning to the property live in it for a continuous period of at least six months. (Clause 8(3)(b)) As previously noted in these reasons she returned to the property in February 2004 and it was sold in May 2004. In addition and apart from this aspect, the Applicant derived rental income in excess of the amount permitted under the concession; see clause 8(6) of schedule 1A to the Act. Clause 8 of Schedule 1A reads relevantly as follows: 8 Concession for absences from former residence (1) If the Chief Commissioner is satisfied that: (a) a person is the owner of land ( "the former residence") that has been used and occupied by the person as his or her principal place of residence for a continuous period of at least 6 months, and (b) the person uses and occupies other land (whether or not in New South Wales), that is not owned by the person, as his or her principal place of residence, (c) the person is taken, for the purpose of the principal place of residence exemption, to continue to use and occupy the former residence as his or her principal place of residence. (2) The maximum period for which a person may be taken, under this clause, to continue to use and occupy a former residence as a principal place of residence is 6 years starting at the end of the last period (of at least 6 months) during which the former residence was used and occupied by the person as a principal place of residence (not including any period for which the person may be taken, under clause 7 or this clause, to have used and occupied the former residence as a principal place of residence). (3) If the principal place of residence exemption applies to the former residence of a person by operation of this clause, the exemption ceases to have effect if the person is the owner of the former residence at the end of the 6-year period referred to in subclause (2) and fails: (a) to resume Actual use and occupation of the residence as a principal place of residence by the end of that period, and (b) to continue that use and occupation for at least 6 months. (4) (not relevant) (5) (not relevant) (6) This clause applies in respect of the assessment of a person's ownership of land in a tax year only if the Chief Commissioner is satisfied that no income has been derived from the use or occupation of the former residence in the preceding tax year, except as permitted by subclause (7). (7) Income may be derived from the use or occupation of the former residence in a tax year if: (a) the income is derived 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, or (b) the income is derived from any arrangement under which a person occupies the former residence, but the income is no more than is reasonably required to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence. (8) This clause is subject to clause 12 (which limits members of a family to one principal place of residence exemption). (9) (not relevant) 28 It is clear that the Applicant's only real objection is that she is being pursued for the full amount of the land tax due in circumstances where she feels that her liability should be confined to one half. Section 45(1) of TAA makes it clear that the Respondent is entitled to recover the entire amount from either of the owners. 29 The Applicant is entitled to a right of indemnity against her former husband under section 45(3) of TAA but her rights in relation to her former husband cannot affect the Respondent in any way. 30 The Applicant has asserted that in respect of the sale of the property a certificate under section 47 of the Act was obtained and that that certificate indicated that there was no land tax due. The Respondent noted that the liability became known only in October 2005 in consequence of the completion of a questionnaire. In May 2004 there was no recognized liability which operated as a charge. In any event section 47 (1C) of the Act expressly provides that a certificate issued under section 47 of the Act cannot operate as evidence against the Respondent in favour of a person who was an owner. Section 47 (1C) of the Act reads as follows: (1C) A certificate issued by the Chief Commissioner under this section is conclusive evidence of the matter certified against the Chief Commissioner and in favour of any person (whether or not the person is the person to whom the certificate was issued) except a person who: (a) had notice, when the certificate was issued, of land tax charged on the land that the certificate failed to disclose, or (b) was an owner of the land (other than a genuine purchaser for value who has not obtained possession of the land) when the certificate was issued. Part D. Analysis and conclusion 31 During the course of closing submissions the Applicant (and also Mr Mentink who interrupted on a number of occasions) complained as to a number of matters. The Applicant in particular repeated that she has been unfairly treated by the Respondent. Mr Mentink complained that the Respondent's website is so confusing that it would be better to have no website at all. The Applicant said that if she had known that Mr O'Neil was still employed by the Respondent she would have called him as a witness. 32 Mr Mentink's evidence was that he and the Applicant were aware from either 2000 or 2001 that there could be a land tax impost where a property is leased. The evidence by each of them as to their having been misled by the Respondent was in all respects vague and it is not possible to assign any substantial credence to any of it. In any event there cannot be an estoppel against the operation of the Act; see in this context Commonwealth v Verwayen (1990) 170 CLR 394 at 410; see also Deane J at 433-434. 33 During her opening the Applicant said that she had consulted a solicitor as to this matter and that she had been advised that she had little chance of success. 34 The law in respect of this matter is clear. In respect of each of the relevant years the PPR exemption was not available. In particular and in respect of the 2004 year only and after schedule 1A came into and became a part of the Act, clause 8 of schedule 1 A could not assist the Applicant for the reasons set out previously in this decision 35 The section 47 certificate was obtained at that point in time prior to there being a perceived tax liability; that there was a liability became clear only in 2005 after the Applicant completed a questionnaire. But in any event the section 47 certificate does not assist the Applicant of the reasons set out previously in this decision. 36 As regards interest there were in fact two defaults. The first default arose from the failure by the Applicant to furnish a return as required under the Act. This default (referred to as the "first default") resulted in the imposition of interest (described as "interest on late lodgement" in the Support Schedule which forms part of Tab 1) amounting to $1578.51 for the 2003 year and $767 for the 2004 year. Those amounts included both a market rate component and a culpability component. However the culpability component was remitted resulting in a credit of $957.76 for the 2003 year and $455.95 for 2004 year. 37 There was a further default (referred to as the "second default") in that the relevant is assessment was issued on 20 October 2005 and became due for payment on 29 November 2005. Interest from that date was also imposed. However and towards the conclusion of the hearing Mr Free after consulting with his client advised the Tribunal that the Respondent would remit the interest assessed in respect of the second default in full. He said that the Respondent was prepared to make this concession because of the delay referable to the assessment. It is my view that that concession was in all the circumstances generous. The evidence indicates that there was an awareness of the possibility of a land tax impost as far back as 2000 or 2001. The evidence that the Respondent told the Applicant that there was no such liability in respect of property leased is improbable. Legal or accounting advice of the most elementary kind in respect of this relatively simple area of the law would have established that there was indeed a liability. 38 Mr Free did not place any time limit on his client's offer to remit all of the interest referable to the second default although it is conceivable that he made that offer on the basis and understanding that the balance owing will be paid within a reasonable period. It is possible that the Applicant intends to rely on Mr. Mentink to do so, although and as pointed out previously, the Applicant in her witness statement indicated a lack of belief in his financial willingness to do so. As to whether the Applicant pays the amount due or is able to procure that Mr Mentink does so is not a matter which can or should concern the Tribunal. This must be so having regard to the fact that the Applicant and Mr Mentink are a matter of law jointly and severally liable and the Respondent is entitled to claim against either of them. The Respondent has elected, as he is entitled to do, to claim against the Applicant and the assessment against her must be affirmed. That the Applicant feels aggrieved is understandable, but not to the point. As noted previously in this clause 38 Mr. Free did not offer to remit all interest referable to the second default conditionally on payment of the balance owing and, this being so, the Tribunal does not consider that it should impose any such condition. Interest in respect of the second default is therefore remitted in full. 39 Accordingly the decision under review is affirmed on the basis that: (a) credit is allowed for the amount paid in 2005; (b) interest in respect of the first default is confined to on the basis set out in clause 36; (c) interest in respect of the second default is remitted in full.