Appeal Panel - Internal CITATION: Chief Commissioner of State Revenue v Aldridge & Anor (RD) [2003] NSWADTAP 50 APPELLANT Chief Commissioner of State Revenue PARTIES: FIRST RESPONDENT Gregory Neville Aldridge SECOND RESPONDENT Rebecca Reay FILE NUMBER: 039040 HEARING DATES: 15/08/2003 SUBMISSIONS CLOSED: 08/15/2003 DATE OF DECISION: 10/13/2003 Aldridge & Anor v Chief Commissioner of State Revenue [2003] NSWADT 120 DECISION UNDER APPEAL: BEFORE: Chesterman M - ADCJ (Deputy President); Seve J - Judicial Member; Bennett C - Member CATCHWORDS: statutory interpretation MATTER FOR DECISION: Principal matter FILE NUMBER UNDER APPEAL: 026021 DATE OF DECISION UNDER APPEAL: 05/22/2003 Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : First Home Owners Grant Act 2000 Land Tax Management Act 1956 Commissioner of Land Tax v Christie [1973] 2 NSWLR 526 Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68 House v The King (1936) 55 CLR 499 ISPT Nominees Pty Ltd v Chief Commissioner of State Revenue [2003] NSWSC 697 CASES CITED: Mesiti v Chief Commissioner [2003] NSWADT 99 Newcastle City Council v Royal Newcastle Hospital [1959] AC 248 Stature Pty Ltd v Chief Commissioner of State Revenue [2002] NSWADT 271 Taylor v Caldwell (1863) 3 B&S 826 Teasdale v Walker [1956] 3 All ER 307 Zakariya v Chief APPELLANT R Hamilton REPRESENTATION: FIRST RESPONDENT In person SECOND RESPONDENT First respondent as agent ORDERS: Appeal allowed. Restore decision of Appellant disallowing objection by Respondents in so far as it relates to the land tax assessment for the 1998 tax year and market rate interest in respect to that assessment. 1 This is an appeal from the decision of the Tribunal in Aldridge & Anor v Chief Commissioner of State Revenue [2003] NSWADT 120 to set aside the decision of the Appellant in relation to a land tax assessment and market rate interest for the 1998 tax year. 2 The grounds of appeal are that the Tribunal erred in its construction of Sections 3(3), 8 and 10(1)(r) of the Land Tax Management Act 1956 (hereafter 'the Act') in holding that the Chief Commissioner had an available discretion to allow the Respondents an exemption from land tax for the 1998 tax year once the Chief Commissioner had determined that the relevant property was not used and occupied as the Respondents' principal place of residence as at midnight on 31 December 1997, and in purporting to exercise a discretion in favour of the Respondents in the facts and circumstances of the case as found by the Tribunal. 3 The Respondents submitted in their Notice of Reply to Appeal that the decision appealed did not show an error of law and that the exercise of the discretion by the Tribunal in favour of the Respondents by the Tribunal was not reviewable in the light of the principles enumerated in authorities cited by the Respondents beginning with House v The King (1936) 55 CLR 499. 4 The relevant agreed facts of this case are that the subject property at 13 Lea Street, Croydon NSW was owned by the Respondents at all relevant times and was leased to tenants under a short term 6 months lease which commenced on 1 December 1997 and continued through 31 December 1997, into 1998. The property remained partially furnished with the Respondents' furniture and personal belongings. The Respondents were moving out of this property on a "trial basis" only. It was not until a later year that they decided to move permanently from Sydney. Until then they regarded the Croydon property as their principal place of residence. They sold the Croydon property in 2000. 5 Section 8 of the Act provides that land tax shall be charged on land "as owned at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied". 6 Section 10(1)(r) of the Act confers an exemption from tax on land which, among other things, is used and occupied as the principal place of residence of the owner and for no other purpose. 7 The specific terms of Section 10(1)(r) are as follows (emphasis added): 10(1) Except where otherwise expressly provided in this Act the following lands shall, subject to sections 10AA, 10B, 10D, 10E, 10G and 10P, be exempted from taxation under this Act: ……. (r) with respect to taxation leviable or payable in respect of the year commencing on 1 January 1998 or any succeeding year, land that has a land value in respect of the year of less than the premium tax threshold and that is used and occupied as the principal place of residence of the owner of the land (or, if there are joint owners, as the principal place of residence of one or more of them) and for no other purpose (except as provided by subparagraph (iii)), being: (i) a lot under the Strata Schemes (Freehold Development) Act 1973 or a lot under the Strata Schemes (Leasehold Development) Act 1986, or (ii) a parcel of residential land, or (iii) a parcel of residential land on which there is also one of the residential occupancies referred to in subsection (1D) (b) (ii) (A)–(F), …. 8 It is implicit in the scheme of the Act that the point in time at which the issue of whether or not land is exempt from taxation is to be determined, is the moment in time at which land tax can be charged under Section 8 of the Act, namely, midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied. 9 Section 3(3)(a) of the Act requires that the situation over a specified period of time be taken into consideration, rather than at a precise point of time, such as midnight on 31 December (as is the case under Section 8). Section 3(3)(b) may be applicable where Section 3(3)(a) is not satisfied. 10 Section 3(3) provides as follows: For the purposes of this Act, in respect of any year in respect of which taxation is leviable or payable, land or a flat is not used or occupied as the principal place of residence of a person unless: (a) that land or flat and no other land or flat has, since before the first day of July that last preceded the commencement of that year, been continuously used and occupied by that person for residential purposes and for no other purpose, or (b) in any other case, the Chief Commissioner is satisfied that the land or flat is used and occupied by that person as the person's principal place of residence. 11 Section 3(1) of the Act also includes the following definition: "principal place of residence" of a person means the one place of residence that is, among the one or more places of residence of the person within and outside Australia, the principal place of residence of the person. 12 Given the scheme of the Act aforementioned, it is implicit in Section (3)(3)(b) that the time at which the Chief Commissioner must be satisfied that the land is used and occupied by the owner as the owner's principal place of residence must be as at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied. Accordingly, for land to be exempt from taxation under Section 10(1)(r) of the Act, among other things: (i) (to satisfy the principal place of residence definition in Section 3(1)) that land must be the one place of residence that is, among the one or more places of residence of owner within and outside Australia, the principal place of the owner (as midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied) AND (ii) (to satisfy Section 3(3)) (a) that land and no other land or flat must, since before the first day of July that last preceded the commencement of that year, have been continuously used and occupied by the owner for residential purposes and for no other purpose OR (b) in any other case, the Chief Commissioner must be satisfied that the land is used and occupied by the owner as the owner's principal place of residence (as midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied); AND (iii) (to satisfy Section 10(1)(r)) that land must be used and occupied (as at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied) as the principal place of residence of the owner and for no other purpose except as provided in Section 10. 13 If any one of the conditions referred to above is not satisfied, Section 10(1)(r) of the Act will not apply. 14 Section 10(1)(r) requires that the property "is used and occupied as the principal place of residence of the owner". A subjective intention to occupy is not alone sufficient to bring a property within Section 10(1)(r). In Zakariya v Chief Commissioner Office of State Revenue [2003] NSWADT 26, a case involving a requirement of occupation of property under the First Home Owners Grant Act 2000, Ms Needham, Judicial Member, held at paragraph 14 as follows: It does not appear to me that the subjective intention of the applicant at the date of purchase brings him within the eligibility criteria. Sub-section 12(1) provides that the applicant "must occupy the home as the applicant's principal place of residence" within the twelve-month period. Those words require an actual occupation, not merely an intention to occupy. Accordingly, the applicant's stated intention (which is not contested by the respondent) does not bring him within the eligibility criteria. 15 In respect to the requirement that the land must be "occupied", Bowen JA in Commissioner of Land Tax v Christie [1973] 2 NSWLR 526 stated at 533-534: "Occupation" is not synonymous with legal possession. It includes possession, but it also includes something more: see Newcastle City Council v Royal Newcastle Hospital . It involves an element of control, of preventing or being in a position to prevent the intrusion of strangers ( Newcastle City Council v Royal Newcastle Hospital ). It is for this reason that physical presence on the land and fencing are evidence of occupation. But continuous physical presence or physical presence on every part of the land does not have to be shown in order to establish occupation. If it were necessary to prove physical presence on every part of a residential block to secure the deduction a substantial proportion of residential blocks could well be denied it. It is not uncommon in our community for there to be portions of such blocks which are rarely or never visited. Indeed, as these present cases illustrate, there may well be portions of such blocks which are precipitous, or are under water or are covered with dense bushland and which are, therefore, in a practical sense difficult if not impossible to traverse physically. This does not mean they are not "occupied" in a legal sense. To hold otherwise, would be to subvert the obvious intent of s 9(3)(e). Nor, although the presence of fencing may be some evidence of occupation, does the absence of fencing establish that there is no occupation: Newcastle City Council v Royal Newcastle Hospital. 16 In Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68, Gzell J held at paragraph 29: "So long as the person retains the right to possession and controls possession, that person remains in occupation, in my view." 17 In this case, the Respondents granted a lease of the subject property for a term that included the thirty-first day of December immediately preceding the year for which the land tax was levied. At common law, a lease is a demise of real property that vests in the tenant the right to exclusive possession of the property. A transaction under which a person takes merely the right to use premises, without exclusive possession is a licence and not a lease (Taylor v Caldwell (1863) 3 B&S 826). To ascertain whether a transaction is a lease or a licence, one must look at the substance as well as the form of the transaction (Teasdale v Walker [1956] 3 All ER 307). 18 In Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68, although the defendant Chief Commissioner argued that the plaintiff had leased the subject property, the Court held that the evidence of the plaintiff countered the inference that the transaction was a lease. Gzell J held (at paragraphs 17 and 27): 17 The inference open to the Chief Commissioner that, in leasing his home, he had parted with the possession of it in favour of the tenant was countered by the plaintiff's evidence that he remained in the dwelling, sharing it with the tenant… 27 Notwithstanding the contemporaneous presence of a tenant, it was the plaintiff who maintained control over the premises. This was not a case in which premises were handed over to a tenant who thereby obtained exclusive possession of them. The plaintiff was also in possession and he had the right to control that possession. 19 Obviously, in Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68, the subject property had not been "leased" but had merely been the subject of a non-exclusive licence. As such, in that case, the property was capable of being occupied by the plaintiff during the term of the licence. 20 In this case, there was no evidence that the lease granted by the Respondents was not a lease with exclusive possession given to the tenants. Absent evidence to the contrary, the lease of the subject property was a lease and not a licence. As such, absent evidence to the contrary, the subject property was not capable of being occupied by the Respondents during the term of the lease since the Respondents had given a right to exclusive occupation to the tenants under the lease. The fact that the Respondents regarded the Croydon property as their principal place of residence is not sufficient to bring the property within Section 10(1)(r) if the Respondents did not retain the right to possession and control of possession of the property at the relevant time. 21 To satisfy Section 3(3)(a) of the Act, the subject property must have been "continuously" used and occupied by the owner for residential purposes and for no other purpose since before the first day of July that last preceded the commencement of that year. If an owner grants a lease giving the right to exclusive possession of the subject property to a tenant for a term that includes any date from 1 July to 31 December in a year immediately preceding a land tax year, then, absent evidence to the contrary, the property will not have been continuously occupied by the owner. Paragraph (a) of Section 3(3) cannot be satisfied where the owner has not retained a right to possession and control of possession of the property since before the first day of July that last preceded the commencement of that year. 22 If paragraph (a) of Section 3(3) of the Act is not satisfied, a property can still qualify as a "principal place of residence" under paragraph (b) of Section 3(3) if the Chief Commissioner is satisfied that the land is used and occupied by the owner as the owner's principal place of residence. As aforementioned, given the scheme of the Act, the Chief Commissioner's satisfaction on this issue must be determined as at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied. 23 In this case, the Respondents had granted a lease of the subject property that was in force for a term which included the thirty-first day of December immediately preceding the year for which the land tax was levied. Absent evidence to the contrary, neither of the Respondents was in occupation of the property during the term of the lease. As there was no such evidence to the contrary, neither of the Respondents occupied the property continuously from 1 July to 31 December, for the purposes of Section 3(3)(a). Again, as there was no such evidence to the contrary, it is not possible that the Chief Commissioner could be satisfied in terms of Section 3(3)(b) as at midnight on 31 December. 24 Mr Verick, Judicial Member, in the Tribunal at first instance, relied, at paragraph 18, on his views in respect to Section 3(3)(b), expressed in his decision in Mesiti v Chief Commissioner [2003] NSWADT 99, which is now under appeal. In that case, Mr Verick held as follows at paragraph 35: His Honour, Gzell J did not, in Flaracos , express any view about the discretion given to the Chief Commissioner under s3(3)(b). My own view is that it operates in cases where the taxpayer is not able to demonstrate that the residence has been "continuously used and occupied by the owner" for residential purposes. The discretion will become relevant where, for example, the residence is let out for a very short term because the owner is away or absent due to work or holiday purposes to be at some other location, or where some part of the residence is used for non-residential purposes (example a home office). In those cases, the Chief Commissioner is able to exercise his discretion to treat a property as the owner's principal place of residence if all the facts and surrounding circumstances warrant that the Chief Commissioner take that view although the owner has failed to satisfy one or more of the strict requirements of s 3(3)(a). The question of "continuous physical presence" may arise for consideration under the discretion although it is a question to be tested against "possession and control". 25 Mr Verick in the Tribunal at first instance in this case held as follows at paragraph 21: In the present matter, the first lease was, as indicated by the Applicants, for a short term and it was not until May 1998, that a decision was made to abandon the Croydon house as their principal residence. The Applicants were themselves staying in a rental property on that basis. They only purchased another property in January 2000 which became their principal residence. The Croydon house was sold in April 2000. I am of the view that the strict application of the provisions found in s 3(3)(a) in relation to 1998 year produce a fairly harsh result for the applicants. When all the facts and surrounding circumstances are taken into account, there is justification for the Chief Commissioner to exercise his discretion and treat the Croydon house as the Applicants' principal residence, at least in relation to the 1998 year. I will, accordingly, exercise the discretion and allow the objection against the assessment for the 1998 year. 26 We agree with the Appellant that the Tribunal at first instance erred at law in holding that the Chief Commissioner had a discretion to treat the Respondents' Croydon property as the Respondents' principal place of residence and in purporting to exercise that discretion in favour of the Respondents. Section 3(3)(b) of the Act does not confer a true discretion on the Chief Commissioner. If the evidence of the factual circumstances supports that a particular parcel of land or a flat is used and occupied by a person as the person's principal place of residence (as defined in Section 3(1) of the Act) as at midnight on 31 December in a particular year, the Chief Commissioner must be "satisfied" of that fact. If the factual circumstances do not support that a particular parcel of land or a flat is used and occupied by a person as the person's principal place of residence as at midnight on 31 December in a particular year, the Chief Commissioner cannot be "satisfied" of that fact. 27 The principles enumerated in the authorities cited by the Respondents beginning with House v The King (1936) 55 CLR 499 are not relevant to this case, because the Tribunal at first instance erred at law. 28 The Croydon property neither satisfied, nor on the evidence could it have satisfied, paragraph (a) nor (b) of Section 3(3) nor Section 10(1)(r) of the Act for the 1998 tax year in question. This is because as at the relevant time, namely, midnight on the thirty-first of December 1997, the Respondents did not retain any right to possession or control of possession of the property. They had granted a lease of the property the term of which included midnight on the thirty-first of December 1997. As such, the Respondents did not and could not "occupy" the property at the relevant time. Accordingly, the subject property was not exempt from land tax under Section 10(1)(r) in the 1998 year in question. 29 The Respondents argued that paragraph 12 of Revenue Ruling LT.20 issued by the Chief Commissioner, supported their case. They conceded, however, that they had not relied on it when making arrangements to lease the Croydon property towards the end of 1997. Paragraph 12 of LT.20 provides as follows: Chief Commissioner's discretion 12. The Chief Commissioner has a discretion to grant the exemption where one or more of the requirements in s 3(3)(a) are not met. In exercising the discretion, each case will be considered on its merits. Examples where exercise of the discretion may be justified include circumstances in which: (a) the owner did not take up residence until after the preceding 30 June, particularly where the owner purchased the land after 30 June; (b) for part of the period after the preceding 30 June, the residence was rented out, but the arrangement was only temporary, e.g. the owner went on a holiday, or; (c) part of the residence was used for non-residential purposes after the preceding 30 June, but that use was temporary or was of a relatively minor nature. 30 The Respondents argued that that their case was within paragraph 12(b) of LT.20 in that the Croydon property was rented out (under the lease) for part of the period after the preceding 30 June (ie from 1 December 1997), but the arrangement was only temporary (ie for 6 months) because of one of the Respondents' work arrangements. It was submitted by the Respondents that this reason was more significant than a holiday (which is the example given in paragraph 12(b)). 31 There is no express exclusion in paragraph 12 of LT.20 for leases for a term that includes 31 December in the year preceding a tax year. It is, moreover, stated in paragraphs 8 and 11 of LT.20 that if a property is leased, it is not exempt. To the extent that paragraph 12 of LT.20, read in isolation or as an overriding provision, suggests that the Chief Commissioner has a discretion to allow exemption from land tax where an owner has granted a lease of the subject property for a term that includes 31 December in the year prior to a land tax year, it is wrong and should be withdrawn and preferably replaced by a corrected Ruling. 32 Similarly, to the extent that Revenue Ruling LT.59 suggests that the Chief Commissioner has a discretion to allow exemption from land tax where an owner has granted a lease of the subject property for a term that includes 31 December 2000, it is wrong and should be withdrawn and preferably replaced by a corrected Ruling. Under LT.59, the Chief Commissioner advises that pursuant to the provisions of Section 3(3)(b) of the Act, the principal place of residence exemption is available for the 2001 land tax year to persons who leased (for no greater than 8 weeks) property used as their principal place of residence, to visitors attending the Olympic Games or the Para Olympic Games. Like Land Tax Ruling LT.020, there is no express exclusion in LT.59 for leases for a term including 31 December (2000). For the foregoing reasons, Section 10(1)(r) cannot apply where there is a lease for a term including 31 December of the year preceding the relevant land tax year. It is possible that owners might have leased what was otherwise their principal place of residence in NSW for a term (for no greater than 8 weeks) which included 31 December 2000, and in reliance on LT.59, not lodged a return for land tax in 2001. 33 The Chief Commissioner cannot be estopped from administering the law in accordance with its terms (ISPT Nominees Pty Ltd v Chief Commissioner of State Revenue [2003] NSWSC 697; Stature Pty Ltd v Chief Commissioner of State Revenue [2002] NSWADT 271). As such, the Respondents cannot be exonerated from liability to land tax by virtue of any reliance on a Revenue Ruling published by the Chief Commissioner that is misleading or incorrect. Reliance on a misleading or incorrect Revenue Ruling might be reasonable grounds for waiver of interest or penalties for late payment of land tax, but not the land tax itself. In this case, the Chief Commissioner imposed market rate interest in respect to the 1998 assessment at issue. The Respondents conceded that they had not relied on Revenue Ruling LT.20 when making arrangements to lease the Croydon property at the end of 1997. There was no evidence of reliance on the Ruling in their objection lodged with the Chief Commissioner, nor in the Application for Review lodged with the Tribunal. For these reasons, no reasonable grounds for remission of the market rate interest appear to exist. 34 Application of the Act in cases such as this can produce what might be perceived to be harsh results. This is because liability for land tax and eligibility for exemption are determined by reference to a moment in a year, namely, midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied, and calculation of liability and eligibility for exemption is not apportioned for the period of ownership or the period of relevant use during the preceding year. 35 We would allow the appeal and restore the decision of the Appellant under review in so far as it relates to the land tax assessment for the 1998 tax year and to the market rate interest in respect to the assessment. 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.