Appeal Panel - Internal CITATION: Chief Commissioner of State Revenue v White and anor [2008] NSWADTAP 27 APPELLANT Chief Commissioner of State Revenue PARTIES: RESPONDENTS Victor White Janina White FILE NUMBER: 079062 HEARING DATES: 28 February 2008 SUBMISSIONS CLOSED: 28 February 2008 DATE OF DECISION: 6 May 2008 BEFORE: Needham J SC - Deputy President; Handley R - Judicial Member; Bennett C - Non Judicial Member CATCHWORDS: Jurisdiction - leave to extend to the merits MATTER FOR DECISION: Principal matter DECISION UNDER APPEAL: White and anor v Chief Commissioner of State Revenue [2007] NSWADT 241 FILE NUMBER UNDER APPEAL: 066105 DATE OF DECISION UNDER APPEAL: 02/28/2008 LEGISLATION CITED : Interpretation Act 1987 (NSW) Land Tax Management Act 1956 CASES CITED: N/A APPLICANT A Rider, barrister REPRESENTATION: RESPONDENTS R Richards, solicitor ORDERS: The appeal is upheld. The decision of the Chief Commissioner assessing the subject property for land tax for the 2006 year is affirmed. REASONS FOR DECISION 1 The appellant, the Chief Commissioner of State Revenue ('the appellant" or "the Commissioner"), appeals against a decision dated 5 October 2007 by which his decision disallowing an objection relating to the principal place of residence exemption by Mr and Mrs White ("the respondents") was set aside. The effect of that decision was that the respondents would be entitled to the exemption for property at Point Piper as their principal place of residence. 2 The facts are reasonably simple and are taken from the decision in the Tribunal below. 3 The respondents, Mr and Mrs White, were living at their property at 5/59 Bream Street, Coogee ("the Coogee property") when they purchased a property at 4A Wentworth Avenue, Point Piper ("the Point Piper property) on 10 January 2004. They rented the Point Piper property to tenants, it being a residential property. 4 In May 2005 the respondents commenced renovation of the Point Piper property. They demolished part of the dwelling house, rebuilt it with a second storey, installed a swimming pool and built a retaining wall and landscaping. 5 In August 2006 the respondents moved into the property and they occupied it as their principal place of residence at that time. 6 The Chief Commissioner assessed the respondents as being liable for land tax on the Point Piper property for the 2006 tax year. The respondents filed a Notice of Objection, and that objection was disallowed by letter dated 27 April 2006. The Legislation 7 The applicable legislation is section 10(1)(r) and Schedule 1A of the Land Tax Management Act 1956 ("the Act"). The relevant parts of what is known as the "principal place of residence exemption" are as follows: Section 10 10 Land exempted from tax (1) Except where otherwise expressly provided in this Act the following lands shall, subject to sections 10B, 10D, 10E, 10G and 10P, be exempted from taxation under this Act: … (r) land that is exempt from taxation under the principal place of residence exemption, as provided for by Schedule 1A … Schedule 1A. 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 1 January 2005 or any succeeding year, if the land is: (a) a parcel of residential land, or (b) a lot under the Strata Schemes (Freehold Development) Act 1973 or a lot under the Strata Schemes (Leasehold Development) Act 1986. (2) 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. (3) 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. (4) 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. … 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. (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) 2 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, 2 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) The Chief Commissioner may extend the period in which this clause applies if the owner of the unoccupied land demonstrates that: (a) there is a delay in the completion or, in a case referred to in sub-clause (3)(b), the commencement of the building or other works necessary to facilitate the owner's intended use and occupation of the land, and (b) the delay is due primarily to reasons beyond the control of the owner. (5) 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. (6) 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. (7) This clause does not apply in respect of land owned by a person if: (a) the person or any member of the person's family (within the meaning of clause 12) is entitled to have his or her actual use and occupation of other land taken into account under section 9C or under this Schedule, or (b) the person owns land outside New South Wales that is the principal place of residence of the person or a member of the person's family (within the meaning of clause 12), or (c) the land, or the land if combined with any adjoining land of which the person is an owner, is capable of having more than 2 residences or residential units lawfully built on it. (8) For the purposes of this clause: unoccupied land means land that is not being used or occupied for any purpose. … 12 Only one principal place of residence for all members of same family (1) For the purposes of the principal place of residence exemption, only one place of residence may be treated as the principal place of residence of all members of the same family. (2) If members of a family own (whether jointly or separately) more than one residence used and occupied by any of them as a principal place of residence, the Chief Commissioner is to treat the one place of residence elected as the principal place of residence of the family as the principal place of residence of all members of the family in respect of a tax year. (3) Such an election is to be made, by or on behalf of the members of the family, in writing and must be lodged with the Chief Commissioner within the period for the lodging of objections under section 89 of the Taxation Administration Act 1996. … (6) For the purposes of this clause, a family consists of the following: (a) a person and his or her spouse (if any), (b) any dependent child or dependent step-child of the person and his or her spouse (or of either of them) who ordinarily resides with the person or his or her spouse." … 8 The concession in sub-clause 6(1) of Schedule 1A will be referred to as "the 6(1) concession". The issue in the proceedings 9 The proceedings turn on a simple issue of statutory construction relating to the 6(1) concession. In particular, whether the respondents are entitled to that concession or whether any entitlement to the concession is excluded by sub-clause 6(7). 10 The respondents contended, successfully in the Tribunal below, and again before this Appeal Panel, that they were entitled to elect to treat the Point Piper property as their principal place of residence despite the fact that they did not live in the property as at the taxing date of 31 December 2005 and that they were then living in, and entitled to claim, the principal place of residence exemption for, the Coogee property. 11 The appellant contends that the respondents are unable to "opt out" of the principal place of residence exemption in relation to the Coogee property or to elect to treat the Point Piper property as their principal place of residence, and contends that the home-under-construction exemption embodied in the 6(1) concession does not apply if the taxpayer is entitled to an exemption in relation to another property. The decision below 12 The respondents contended before the learned Tribunal member below that: a) the 6(1) concession was a concession to which they were entitled; b) they were entitled to elect to have the Point Piper property considered as their principal place of residence; c) thus, the fact that they were entitled to a concession for the Coogee property was irrelevant in the light of the election; and d) the legislative purpose behind clause 6 and the 6(1) concession was to allow owners of two properties to choose which one the concession would apply to in circumstances where a new home had been purchased and was being refurbished with the intention that the owners would, and in fact would, occupy the refurbished property as their principal place of residence. 13 The learned Tribunal member accepted that: a) the respondents satisfied all paragraphs of sub-clause 6(2), and sub-clauses 6(3) and (5). b) the election was not pursuant to clause 12, as that section was not applicable to the facts. 14 It was submitted by the respondents, and accepted by the learned Tribunal member, that "the construction of paragraphs 6(1), 12(2) and 6(7)(a) is clear, simple, straightforward and reasonably open (on the applicants' particular circumstances) that as a consequence of the transition to a new residential property, deeming occurs to make that new property the principal residence and paragraph 6(7)(a) cannot, as a matter of proper construction, have any application" (paragraph [38]). 15 The learned Tribunal member noted that the Commissioner relied on clause 6(7)(a) because the respondents actually occupied the Coogee property and clause 12 did not allow for an election in those circumstances. That submission was rejected as it "would appear to improperly subvert the intention of Parliament to provide protection for property owners in transition to a new residential property that requires building work or other work" (paragraph [40]). The learned Tribunal member referred to the 2003 Second Reading Speech in support of this holding. 16 The Tribunal considered the second reading speech when the State Revenue Legislation Further Amendment Bill (later, Act) 2003 was introduced. The section relied upon appeared in paragraph [21] of the decision, with analysis of it in paragraph [22], and those paragraphs are reproduced here in full. "21 The Tribunal has been provided with the second reading speech of 14 November 2003 which introduced the State Revenue Legislation Further Amendment Bill amendment in paragraph 6: "The bill amends the Land Tax Management Act 1956 provisions relating to land tax concession for an owners principal place of residence. The amendments will allow an owner to claim the concession for two residences where the owner has bought a new residence and has not been able to complete the sale by the taxing date. The bill will also remove certain restrictions on the current exemption on the land where a new family residence is being built or an existing one is being refurbished provided the owner takes up residence in the completed house within two years and remains in residence for at least 6 months …" 22 The policy behind the amendments therefore indicated here is an intention by the legislature to recognise transition, of moving between places of residence and an indication that persons who are tax payers are not unfairly penalised during the period of transition and time associated with the transition. The legislation also sets conditions in order to avoid abuse." (emphasis added in original decision, grammar slightly corrected) 17 The learned Tribunal member relied throughout her decision on the expressed policy of the legislature, as construed by her, to protect owners who are refurbishing a house with the intention of moving into that house in the future. The appellant's submissions 18 The appellant lodged lengthy written submissions and spoke to them. A number of grounds of appeal were listed, but generally speaking they can be summarised by the following: a) the Tribunal member misconstrued the application of the principal place of residence exemption and 6(1) concession; and b) the Tribunal member misapplied or misunderstood the policy behind Schedule 1A and that misapplication or misunderstanding flawed her reasoning in applying the various provisions of Schedule 1A. 19 The appellant submitted that there was a "golden rule of the principal place of residence exemption" enshrined in the Schedule, which is embodied in clause 2(2) of Schedule 1A and is that "there is only one principal place of residence", which "golden rule" is derived from the statutory words of "land, and no other land". Clause 1 lists a series of objective facts, which must be established in order for the land to be subject to the concession. 20 The submission was developed through the objective facts to reach a statement that it is the land, not the taxpayer, who is exempt, and the taxpayer may not opt out of a principal place of residence exemption. In other words, if the land is subject to the conditions set out in clauses 2(1) and (2) of Schedule 1A, the concession applies, and there is no ability in the taxpayer to choose whether the concession applies or not. 21 In order to be eligible for the principal place of residence exemption, land must strictly comply with the requirements (including the restrictions in clause 4 which are not currently relevant). In clause 6(1), the words "principal place of residence" refer back to the definition in clause 2. As a result, if a taxpayer owns one piece of land, which is exempt under clause 2, then s/he may not own another to which the 6(1) exemption would apply. 22 It was submitted that this conclusion was strengthened by the provisions of clause 12, which sits outside clauses 2 and 6 of Schedule 1A, and which is an anti-avoidance provision. In any event, it is submitted, clause 12 only relates to circumstances of actual, not deemed use. 23 In summary, the appellant says that it is not possible to relinquish a principal place of residence exemption where it exists, and substitute by election a property where there is no actual occupation. 24 The Commissioner sought an extension of the appeal to the merits. He says that the learned Tribunal member misconstrued the policy behind clauses 6 and 12 and in that case, the interpretation of the facts was likewise misconstrued. Accordingly, it was submitted that it was appropriate to extend the appeal to the merits on the basis that the facts were not properly explored given the incorrect application of policy. The respondent's submissions 25 The respondent sought to reiterate their submissions at the hearing below. Those submission may be summarised as follows (from paragraph [6] of the respondent's Written Submissions): a) For the 2006 Land Tax year ("the Tax Year") the Respondents were prima facie entitled to have their … Coogee Residence exempted from land tax (clause 2 of Schedule 1A of … the Act; b) For that Tax year the Respondents were also entitled to have land owned by them which was situated at … Point Piper exempted from land tax they being deemed to have used and occupied that land as their principal place of residence [see the 6(1) concession]; c) However only one place of residence may be treated as the principal place of residence of the respondents (clause 12(1) of Schedule 1A of the Act). Members of a "family" who are entitled to claim two or more principal places of residence can elect which of those places should be treated by those persons as their principal place of residence (paragraph 12(2) of Schedule 1A of the Act), they only being able to claim one such residence as their principal place of residence. The respondents are a "family" as defined by clause 12(6) of Schedule 1A of the Act; c) The respondents elected that for the Tax Year that the (Point Piper) Property should be treated as their principal place of residence; d) Because the respondents are deemed to have used and occupied the Property as their principal place of residence for the purpose of their principal place of residence exemption, and have in fact elected to treat the (Point Piper) property as their principal place of residence under paragraph 12(2) of Schedule 1A of the Act, that property was exempt from land tax in the Tax Year. Consideration 26 This matter turns on the construction of the provisions of Schedule 1A. Moving through the Schedule, it is apparent that the Commissioner's "golden rule" is a thread of the principal place of residence exemption. This can be seen from the terms of clauses 2(1) and 2(2) which limit the principal place of residence exemption to the land described in sub-clause 2(1) and to "no other land" (clause 2(2)(a)). There is nothing specific in the terms of the legislation to the effect that, as submitted by the Commissioner, if land fits the description and conditions of the principal place of residence exemption, the owner of that land may not "opt out" of the concession and, for example, pay land tax in any event. However, as far as the question of whether land may be "deemed" to be a principal place of residence when it is not so used and occupied by the owner goes, it is clear that land so used and occupied is entitled to the exemption. 27 Clause 3 applies to the respondents' factual situation, and its application is not in contention. Nor are the complexities of clauses 4 or 5 an issue in this case. 28 Moving on to the question of when the concession applies, the next relevant clause is clause 6, which contains the 6(1) concession. It is clear from the ordering of the schedule that clause 6 is a concession which applies to a sub-set of persons who may be entitled to the principal place of residence exemption, if they satisfy the conditions of the concession. Accordingly, all of the conditions must be satisfied. As noted above, there is no issue that the respondents fulfil sub-clauses 2, 3, 4, 5 and 6 (where relevant). The issue arises out of sub-clause 7. 29 For ease of reference, we will reproduce sub-clause 7: "(7) This clause does not apply in respect of land owned by a person if: (a) the person or any member of the person's family (within the meaning of clause 12) is entitled to have his or her actual use and occupation of other land taken into account under section 9C or under this Schedule, or (b) the person owns land outside New South Wales that is the principal place of residence of the person or a member of the person's family (within the meaning of clause 12), or (c) the land, or the land if combined with any adjoining land of which the person is an owner, is capable of having more than 2 residences or residential units lawfully built on it." 30 Sub-paragraph (a) exempts land where, in summary, a member of the family (defined in clause 12) is entitled to have their actual use and occupation of other land taken into account. There is no question at all that the respondents are and were in the 2006 tax year entitled to have their actual use and occupation of the Coogee property taken into account, but for the purported election under clause 12 that they would prefer not to. This is, in our opinion, putting an unreasonable gloss on the words of sub-paragraph 6(7)(a). The clear words of the statute say that if the respondents are entitled to claim an exemption elsewhere, they may not take advantage of the 6(1) concession. 31 The respondents seek to meet the above interpretation of the clause by pointing to clause 12, and the policy, which they submit, is embodied in the second reading speech. Clause 12, therefore, would need to counter what appears to be a clear operation of sub-clause 6(7) in denying the concession to the Point Piper property. 32 Again, the relevant portions of clause 12 are inserted here in full for ease of reference: 12 Only one principal place of residence for all members of same family (1) For the purposes of the principal place of residence exemption, only one place of residence may be treated as the principal place of residence of all members of the same family. (2) If members of a family own (whether jointly or separately) more than one residence used and occupied by any of them as a principal place of residence, the Chief Commissioner is to treat the one place of residence elected as the principal place of residence of the family as the principal place of residence of all members of the family in respect of a tax year. (3) Such an election is to be made, by or on behalf of the members of the family, in writing and must be lodged with the Chief Commissioner within the period for the lodging of objections under section 89 of the Taxation Administration Act 1996. … (6) For the purposes of this clause, a family consists of the following: (a) a person and his or her spouse (if any), (b) any dependent child or dependent step-child of the person and his or her spouse (or of either of them) who ordinarily resides with the person or his or her spouse." 33 Clause 12, in clear terms, refers to the principal place of residence exemption rather than the 6(1) concession. While the 6(1) concession is part of the greater picture, the principal place of residence exemption is set out in clause 2. Accordingly, unless necessity points to a wider reading, clause 12 must be read as limiting the operation of the principal place of residence exemption to, as the heading explains, "only one … for all members of the same family". 34 It is not in contest that the Whites are a "family" for both clause 12 and for the purposes of sub-clause 6(7) where that definition is referred to. 35 Read on its own, sub-clause 12(1) does not assist the respondents if one accepts, as we do, that the principal place of residence exemption applies to properties actually used and occupied as a principal place of residence. The sub-clause, read with sub-clause 12(2), places an onus on persons who are within the definition of "family" and who actually use and occupy more than one principal place of residence for whatever reason, to elect which of them should be considered as such for the purpose of the payment of land tax. It is in relation to this clause, and this clause alone, that an election is able to be made. But does clause 12 interrelate with clause 6 in these circumstances to allow the respondents to make an election to treat the Point Piper property as the exempt property? 36 In our view it does not, for two reasons. Firstly, sub-clause 6(7) excludes the operation of the concession by reason of the entitlement of the respondents to claim an exemption for the Coogee property. Secondly, clause 12 refers in terms to multiple residences "used and occupied … as a principal place of residence". Point Piper was not, at the relevant taxing date, used and occupied as a principal place of residence. 37 It was argued that clause 6 had the effect of "deeming" Point Piper to be a principal place of residence. Indeed, but for sub-clause 6(7), sub-clause 6(1) would have that effect, as property which is relevantly unoccupied (see sub-clause 6(2)) 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". However, the clear terms of sub-clause 6(7) cannot be ignored or read down, and so there was only one relevant principal place of residence owned by the respondents at the relevant taxing date. 38 The learned Tribunal member dealt only lightly with the construction of sub-clause 6(7). In paragraph [31] she said, apparently approvingly, that "The applicants contend they are not entitled to have had their Bream Street, Coogee land taken into account … under Schedule 1A". And in paragraph [38] it is said: "In the Applicants' submission the constructions of paragraphs 6(1), 12(2) and 6(7)(a) is clear, simple, straightforward and reasonably open (on the applicants' particular circumstances) that as a consequence of the transition to a new residential property, deeming occurs to make that new property the principal residence and paragraph 6(7)(a) cannot, as a matter of proper construction, have any application". 39 In considering the relevance of clause 6(7) the learned Tribunal member said (at paragraph 40): "In contrast the Chief Commissioner contends that section 6(7)(a) applies because the applicants actually occupy the Coogee property … This argument is somewhat circular and would appear to improperly subvert the intention of parliament to provide protection for property owners in transition to a new residential property that requires building work or other work and it is rejected by the Tribunal because section 6(7) and section 12 would appear to deal with couples together and couples separated and multiple family members claiming separate exemptions for jointly held properties, some of which may be interstate and this aspect is specifically mentioned in the 2003 second reading speech". 40 With all due respect to the learned Tribunal member, there is nothing in clause 6(7) which would, on proper principles of construction, restrict it to circumstances where it applies only to multiple family members, either together or separated, claiming separate exemptions. That concept is only introduced into the Schedule by clause 12. It is clear from the words of the Schedule that the 6(1) concession is limited to situations where no other property owned by the taxpayer is actually used and occupied as a principal place of residence. In so construing the 6(1) concession, it is useful to note that clause 8 of the Schedule ("Concession for absences from former residence") preserves the principal place of residence exemption for a former residence where that person uses and occupies land elsewhere that is not owned by that person (for example, during an absence required by study or employment). There is no reason for excluding the operation of 6(7) in the circumstances of the respondents. 41 The only way in which the words of clause 6(7) could be otherwise construed would be if they were ambiguous or resulted in a manifestly absurd or unreasonable result. Section 34 of the Interpretation Act 1987 (NSW) allows judicial examination of extrinsic materials in those circumstances. 42 In our view the learned Tribunal member did not need to seek recourse to the second reading speech given that there was no relevant ambiguity or manifest unreasonableness. However, she was entitled under section 34(1)(a) to have recourse to that material to "confirm" her interpretation of the ordinary meaning of the relevant clauses. It is our view that the portion of the second reading speech which is reproduced in paragraph 16 above does not entitle the Tribunal to read down the words of sub-clause 6(7) so that the words "is entitled" should be read, effectively, as "has elected to". 43 It is this Appeal Panel's view that the portion of the second reading speech extracted above and relied upon by the learned Tribunal member refers to two different parts of Schedule 1A. The first, referring to the amendments which would "allow an owner to claim the concession for two residences where the owner has bought a new residence and … has not been able to complete the sale by the taxing date", is a clear reference to clause 7 of Schedule 1A ("Concession for sale of former principal place of residence"). The second reading speech then goes on to say "the bill will also remove certain restrictions on the current exemption on the land where a new family residence is being built or an existing one is being refurbished …". Two separate aspects have been conflated by the learned Tribunal member into a "policy" that two places of residence may be considered as "principal places of residence" for the purposes of the exemptions. In our view, this is not so, except in the very specific situations contemplated by clauses 7 and 12. 44 Putting the clauses of Schedule 1A into context, the situation is this. Clause 2 provides an exemption for the Coogee property only. Sub-clause 6(1) provides a concession so that the Point Piper property could be considered as a principal place of residence. However, sub-clause 6(7) excludes the Point Piper property from eligibility for the concession by reason of the entitlement of the respondents to have their actual use and occupation of the Coogee property taken into account for the principal place of residence exemption. On that analysis, there is only one entitlement, in relation to the Coogee property, for the principal place of residence exemption, and so sub-clause 12(2) cannot apply, because it refers to more than one residence being used and occupied by members of a family. As sub-clause 12(2) is the only part of Schedule 1A which entitles persons to make an election, the conditions precedent for the making of the election have not been fulfilled. Conclusion 45 The learned Tribunal member erred in not applying sub-clause 6(7)(a) to the eligibility for the 6(1) concession which, had the respondents not owned the Coogee property, would have been available to them. She further erred in treating as valid the sub-clause 12(2) election which, in the circumstances, was not an option available to the respondents, as their use and occupation of the Point Piper property was not such to entitle them to a principal place of residence concession. 46 Accordingly, the decision of the Chief Commissioner that the Point Piper property is not subject to the principal place of residence exemption for the 2006 year is affirmed. It should be noted that the Coogee property, on the evidence before the Appeal Panel, would be exempt from land tax for that year. 47 The appeal is allowed. Order The appeal is upheld. The decision of the Chief Commissioner assessing the subject property for land tax for the 2006 year is affirmed. 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