CITATION: Harvey & anor v Chief Commissioner of State Revenue [2006] NSWADT 240 DIVISION: Revenue Division APPLICANTS PARTIES: Adam Peter Harvey and Amanda Phelan RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 056093 HEARING DATES: 7/02/2006 SUBMISSIONS CLOSED: 02/07/2006 DATE OF DECISION: 08/09/2006 BEFORE: Greenwood J - Judicial Member CATCHWORDS: First Home Owners grant - reversal of original decision MATTER FOR DECISION: Principal matter LEGISLATION CITED : First Home Owner Grant Act 2000 Allam v Chief Commissioner of State Revenue [2005] NSWADT 172 Calcaro v Chief Commissioner of State Revenue [2004] NSW ADT158 Gharakhan v Chief Commissioner of State Revenue NSWADT, unreported, 6 April 2005 McKenzie v Chief Commissioner of State Revenue [2005] NSWADT 214 CASES CITED: Rauf v Chief Commissioner of State Revenue [2005] NSWADT 176 Snow v Chief Commissioner of State Revenue (No 1) [2005] NSW ADT 244 Tarak Adasi v Chief Commissioner of State Revenue NSWADT, unreported, 27 September 2004 Yucel v Chief Commissioner of State Revenue [2004] NSW ADT 53 Zhang and Zhou v Chief Commissioner of State Revenue [2005] NSWADT 178 APPLICANTS In person REPRESENTATION: RESPONDENT S Benjamin, agent ORDERS: The decision of the Chief Commissioner of State Revenue is affirmed Reasons for Decision The Facts 1 The applicants jointly purchased a unit located at 2/4 Frederick Street, North Bondi, (the subject property) pursuant to a contract of sale dated 27 June 2003, for the sum of $449,000.00. 2 The applicants lodged an application for the First Home Owner Grant with the Chief Commissioner's office via email, through the Westpac Banking Corporation on or about 5 August 2003. The applicants disclosed that occupation of the subject property was to occur on 5 March 2004. 3 The sale of the subject property was completed on 5 August 2003 and the First Home Grant ("FHOG") in the sum of $7,000.00 was paid to the applicants on 5 August 2003. 4 The applicants had a child, born 7 July 2003. 5 The applicant Mr Harvey was informed in July 2004 that he would be required to take up employment in New York in December 2005. 6 The applicants continued to remain in their rental accommodation located at 3/34 Francis Street Bondi until they left Australia to take up alternate rental accommodation in New York which had a proposed 2 year, duration as from December 2005 to January 2007. 7 The applicants rented the subject property to a tenant for the sum of $350.00 per week and registered the bond with the rental bond board on 18 August 2003, some 13 days after settlement. 8 The applicants came to the attention of the Chief Commissioner's Office as a result of the random audit program and the applicants' response in a declaration signed 8 March 2005. 9 The Chief Commissioner issued a S. 45 Notice dated 30 March 2005 seeking repayment of the FHOG and a penalty of 20% totalling $8,400.00. 10 As a result of disallowing the applicants' objection, the applicants filed an application for review with the ADT on 27 September 2005. The Legislation 11 The applicants received the payment of the grant pursuant to the operation of the First Home Owner Grant Act 2000 (FHOG Act). 12 The provisions applicable to this case are listed below: Section 7 – Entitlement to grant (1) A first home owner grant is payable on an application under this Act if: (a) the applicant or, if there are 2 or more of them, each of the applicants, complies with the eligibility criteria, and (b) the transaction for which the grant is sought: (i) is an eligible transaction, and (ii) has been completed. (2) Despite subsection (1)(a), an applicant need not comply with the eligibility criteria to the extent the applicant is exempted from compliance by section 9(2) or 12(2) or both. (3) Despite subsection (1)(b), a first home owner grant is payable before completion of the relevant eligible transaction, as authorised by section 20. (4) Only one first home owner grant is payable for the same eligible transaction. 13 12 Criterion 5 – Residence requirement (Effective from 1 January 2004) (1) An applicant for a first homeowner grant must occupy the home to which the application relates as the applicant's principal place of residence for a continuous period of at least 6 months. (1A) However, if the Chief Commissioner is satisfied there are good reasons to do so, the Chief Commissioner may: (a) approve a shorter period, or (b) exempt the applicant from the requirement to comply with subsection (1). (1B) The period of occupation required under subsection (1), or the shorter period approved under subsection (1A)(a), must start within 12 months after completion of the eligible transaction or a longer period approved by the Chief Commissioner. (2) If an application is made by joint applicants and at least one(but not all) of the applicants complies with the residence requirement, the non-complying applicant or applicants are exempted from compliance with the residence requirement. 14 Section 12 – Criterion 5 – Residence requirement (Provisions relevant until 31 December 2003) (1) An applicant for a first home owner grant must occupy the home to which the application relates as the applicant's principal place of residence within 12 months after completion of the eligible transaction or a longer period approved by the Chief Commissioner. (2) If an application is made by the joint applicants and at least one (but not all) of the applicants complies with the residence requirement, the non-complying applicant or applicants are exempted from compliance with the residence requirement. 15 Section 20 – Payment in advance subject to Statutory Conditions The Chief Commissioner may authorise payment of a first homeowner grant: (a) before completion of the relevant eligible transaction, if the Chief Commissioner is satisfied that it is appropriate to do so in particular circumstances, or (b) in anticipation of compliance with the residence requirement, if the Chief Commissioner is satisfied that each applicant who is required to comply, but has not yet complied, with the residence requirement, intends to occupy the home as his or her principal place of residence within 12 months after completion of the eligible transaction or a longer period allowed by the Chief Commissioner, or both. (1) If a first home owner grant is paid before completion of the relevant eligible transaction, the payment is made on condition that, if the transaction is not completed within 12 months of the commencement of the transaction or a longer period allowed by the Chief Commissioner, the applicant must within 14 days after the end of the period concerned: (a) give written notice of that fact to the Chief Commissioner, and (b) repay the amount of the grant. (2) If a first home owner grant is paid in anticipation of compliance with the residence requirement, the payment is made on condition that, if the residence requirement is not complied with, the applicant must within 14 days after the end of the period allowed for compliance: (a) give written notice of that fact to the Chief Commissioner, and (b) repay the amount of the grant. (3) A person who fails to comply with the condition prescribed by this section is guilty of an offence. Maximum penalty (subsection (4)): 50 penalty units. 16 Section 23 – Power to correct decision (1) If the Chief Commissioner decides an application and is later satisfied (independently of an objection under this Act) that the decision is incorrect, the Chief Commissioner may vary or reverse the decision. (2) A decision cannot be varied or reversed under this section more than 5 years after it was made. 17 Section 45 – Power to require repayment and impose penalty (1) The Chief Commissioner may, by written notice, require an applicant (or former applicant) for a first home owner grant to repay an amount paid on the application if: (a) the amount was paid in error, or (b) the Chief Commissioner reverses the decision under which the amount was paid for any other reason. (2) If, as a result of an applicant's dishonesty, an amount is paid by way of a first home owner grant, the Chief Commissioner may, by the notice in which repayment is required or a separate notice, impose a penalty not exceeding the amount the applicant is required to repay. (3) If an applicant (or former applicant) for a first home owner grant fails to make a repayment required under this section or the conditions of the grant, the Chief Commissioner may, by written notice, impose a penalty not exceeding the amount the applicant is required to pay. (4) If an amount is paid in error on an application for a first home owner grant to a third party, the Chief Commissioner may, by written notice, require the third party to repay the amount to the Chief Commissioner. 18 Section 46 – Power to recover certain amounts (1) This section applies to the following amounts: (a) an amount that an applicant (or former applicant) for a first home owner grant is required to repay under the conditions of the grant or by requirement of the Chief Commissioner under this Act, (b) the amount of a penalty imposed on an applicant (or former applicant) for a first home owner grant, (c) the amount that a third party is required to repay under section 45. (2) An applicant (or former applicant) for a first home owner grant is liable to pay an amount referred to in subsection (1)(a) or (b) to the Chief Commissioner and, if there are 2 or more applicants, the liability is joint and several. (3) If an applicant (or former applicant) who is liable to pay an amount referred to in subsection (1)(a) or (b) has an interest in the home for which the first home owner grant was sought, the liability is a charge on the applicant's interest in that home. (4) A person referred to in subsection (1)(c) is liable to pay an amount referred to in that paragraph to the Chief Commissioner. (5) The Chief Commissioner may recover an amount to which this section applies as a debt due to the Crown. (6) The Chief Commissioner may enter into an arrangement (which may include provision for the payment of interest) for payment of interest) for payment of a liability outstanding under this section by instalments." The Evidence and application of the Legislation 19 The applicants case is set out in its submissions which is marked Exhibit "1" and contains copies of documents upon which the applicants rely. Their arguments for not taking up occupation within the requisite period are: a) Moving was too traumatic for the mother and the new born baby, due to their medical condition, the mother having stitches. b) That the applicants were subject to an impending move to New York due to employment considerations and had no option but to accept the overseas posting to avoid a negative affect on his career as a journalist and the resulting financial implications of embarking on that course. c) That they had the intention to purchase the property as their first home d) That the applicants were not aware of the legislative rules which allowed them to seek an extension of the period in which to take occupation of the subject property. 20 The applicants submit that their circumstances are of the kind which fall into the special category of a kind that prevented them or even one of them from meeting the residence criteria. 21 Both of the applicants gave further verbal evidence, in relation to the abovementioned 4 circumstances. The applicants did not produce any independent evidence of the medical condition of the mother, however the same condition was not viewed by them as restricting any move overseas to fulfil the career opportunity. 22 A number of cases in this Tribunal have dealt with the nature of special circumstances and in those cases where discretionary relief is afforded. The reasons are mostly circumstances which arise out of consequences which were not created by the applicant. 23 In this case the 4 circumstances relied upon by the applicants were the consequences of actions taken by the applicants themselves. The most telling is the installation of a tenant 13 days after settlement of the contract of sale, when the "employment opportunity", on the applicants' evidence, "was vague" and not a known opportunity until July 2004, some 11 months after the occupation period commenced. The employment opportunity period in fact was a future period commencing in 2005 for 2 years. This is a period well outside the requisite occupancy period. 24 In McKenzie v Chief Commissioner of State Revenue [2005] NSWADT 214 at paragraphs 14 and 15 the applicant in that case also sought to rely on employment considerations amongst other circumstances and a discretionary power at paragraphs 13, 20 and 21, President O'Connor states:- [13] "there is a long line of cases in the Tribunal which have held in those circumstances there is no discretionary relief that can be afforded to the applicant to take account of any special circumstances that may have meant that the person could not occupy within the twelve months period. There is no doubt that in this case there are special circumstances of a kind that, were there a discretion in favour the applicant, it might well have been exercised" [20] " The Parliament intended to set strict boundaries. The Usual strict boundary is provided by the 12 month rule, that is people can have the grant in advance, but they must move in within twelve months. This view is borne out by the following provisions –S7(1)(b)(ii), S7(2); S12(1); and s20(2)." [21] "The scheme of the Act contemplates certainty as to the period within which person must move in. Any change must be made known ahead of the expiry of what might be called the usual period…" 25 In this case the applicants did advise the Commissioner of the proposal to delay occupation, but in this case the Commissioner declined to allow the extension on the basis that it was not a matter attracting special circumstances, sufficient to displace the overriding parliamentary boundary requirement of residential occupancy within the prescribed period. According the applicants' request for a review, must fail. Application of the penalty 26 The Tribunal has considered in numerous matters the question of imposition of a penalty on top of the grant where applicants have failed to fulfil eligibility criteria mentioned above. 27 Where the recipient of the grant has had the enjoyment of the funds, has been recognised in the decision delivered by the Tribunal Judicial Member J Needham, in the matter of Tarak Adasi v Chief Commissioner of State Revenue NSWADT, unreported, 27 September 2004. 28 The imposition of a penalty of 20% for the failure to use and occupy the property has been also supported in the decision of the Tribunal in Yucel v Chief Commissioner of State Revenue [2004] NSW ADT 53 [para 1 & 24-28]. However in this case the Chief Commissioner had already reduced the penalty rate from 20% to 10%. 29 Further, the issue of penalty has been also considered and supported under para 62 in the decision delivered in the matter of Calcaro v Chief Commissioner of State Revenue [2004] NSW ADT158. 62 The question that then arises is one of the amount of the penalty. Applying the criteria discussed above, the factors relevant to the determination of penalty in Mr Calcaro's case are: (a) the need to deter others from not complying the conditions of grant; (b) the fact that Mr Calcaro provided incorrect information as to when he would be occupying the premises in his application to grant; (c) the fact that (as I have found) Mr Calcaro's initial intention was to live in the premises as his own home at the end of the tenancy; (d) the fact that Mr Calcaro's original intention was frustrated by his own financial circumstances; (e) the opportunity cost factor; (f) the fact that Mr Calcaro showed little respect for matters of propriety and less attention to detail in his dealings with the Administrator; (g) Mr Calcaro's failure to be candid with the Administrator and the Tribunal; (h) Mr Calcaro's straitened financial circumstances. 30 In other cases the Tribunal has upheld the penalty, although at various rates as follows:- Gharakhan v Chief Commissioner of State Revenue NSWADT, unreported, 6 April 2005, wherein the penalty rate was reduced from 20% to 17%. This matter involved $7,000 in grant. Zhang and Zhou v Chief Commissioner of State Revenue [2005] NSWADT 178, wherein the penalty rate was reduced from 20% to 15%. The matter involved $14,000 in grant and $2,800 in penalty. Rauf v Chief Commissioner of State Revenue [2005] NSWADT 176, wherein the penalty was reduced from 20% to 15%. This matter involved $7,000 in grant. 31 A decision published on 27 October 2005 in the matter of Snow v Chief Commissioner of State Revenue (No 1) [2005] NSW ADT 244, the President of the Tribunal, O'Connor DCJ saw no reason to interfere with the Chief Commissioner's judgment setting the penalty tax at the capped amount of 30%. In this case a Naval Officer with the Royal Australian Navy claimed that he had stayed at the property he purchased for a short period, although it became clear during the hearing that he only stayed there a few days only. 32 In Allam v Chief Commissioner of State Revenue [2005] NSWADT 172 the Tribunal considered the correctness of a penalty imposed in respect of an applicant's failure to repay a grant. The Tribunal affirmed the decision of the Chief Commissioner to impose a 20% penalty in the circumstances described above. It is noted that the Tribunal referred in its reasons to provisions of the Taxation Administration Act 1996 governing liability for interest in the event of a tax default. 33 In particular, at para 14, Ms Hole (Judicial Member) reviewed a number of Tribunal decisions and observed that: "In each of these matters the answers to the five questions referred to in paragraph 13 above disclose that where the person was honest, had an initial intention to move in then did not do so for discrete reasons, had retained the grant for approximately two years and arranged to repay the grant then a penalty interest of 20% was a suitable impost". 34 Given the circumstance of this case, the Chief Commissioner's contention is that the applicants did not meet the key criteria under the Scheme, which is, taking up occupation of the grant property and using it as the applicants' principal place of residence within 12 months from the date of settlement, which is a statutory requirement. 35 The intention of the grant was to assist a first home purchaser to acquire a first home to be used as that person's principal place of residence. It is not intended to help purchase a property to be used as an investment property, even if this were to be an unintentional outcome. 36 In Bates v Chief Commissioner of State Revenue [2004] NSWADT 13, Judicial Member Higgins has said, paragraph 45: "… policy and purpose is to provide first home owners with assistance in purchasing their first home and the eligibility for such assistance is expressly stated to include a requirement that the applicant occupies the property the subject of the grant as his or her principal place of residence within twelve months of a grant. That is, the Act does not provide assistance where an applicant fails to occupy the premises within the requisite period and rents out that property notwithstanding the applicant's intention to ultimately make the property his or her permanent place of residence". 37 The Chief Commissioner of State Revenue has taken note of the applicants' circumstances and has conceded that they might have had the intention to occupy the property. But intention alone is not sufficient to satisfy the requirements of the First Home Owner Grant Act 2000. In this case that intention has not yet been performed, even as at the date of the hearing, the failure of performance may, potentially continue into 2007 on the applicants' evidence as to his employment conditions. 38 Consequently, the Chief Commissioner's decision to recall the grant with a 20% penalty is the preferable decision and consequently should be affirmed. 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