Khan and anor v Chief Commissioner of State Revenue [2006] NSWADT 193

CITATION: Khan and anor v Chief Commissioner of State Revenue [2006] NSWADT 193

DIVISION: Revenue Division

APPLICANTS PARTIES: Sonia Khan and Ali Rana RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 056095

HEARING DATES: 6/6/2006

SUBMISSIONS CLOSED: 06/06/2006

DATE OF DECISION: 06/23/2006

BEFORE: Hole M - Judicial Member

CATCHWORDS: First Home Owners grant - reversal of original decision

MATTER FOR DECISION: Principal matter

Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Duties Act 1997 First Home Owner Grant Act 2000 Taxation Administration Act 1996

CASES CITED: Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158 Chief Commissioner of State Revenue v Ferrington [2004] NSWADTAP 41

APPLICANTS S Khan, in person REPRESENTATION: RESPONDENT B Baker, solicitor

ORDERS: 1 The decision of the Chief Commissioner of State Revenue to recall the Grant and to impose a penalty of 20% is affirmed

REASONS FOR DECISION 1 The applicants have applied for review of the decision of the Chief Commissioner of State Revenue to recall the First Home Owners Grant ("the Grant") and to assess a 20% penalty on the repayment of the Grant. 2 The applicants were married in April 2003. At that time they moved into their parents' home where they lived continuously as their principal place of residence. In July 2003 the applicants purchased the subject property at an auction and the purchase was settled on 8 August 2003. 3 At the time that the applicants purchased the subject property there were tenants in the subject property and they were given notice to vacate and had vacated the subject property on or before 22 August 2003. 4 On 8 August 2003 the applicants signed a statutory declaration in respect of the residency requirement for the purposes of an application for the Grant dated 4 July 2003. That declaration disclosed that the date of the contract was 24 June 2003 and that they expected to occupy the home on 8 August 2003. 5 As part of the compliance activities of the Office of State Revenue ("OSR") the applicants were forwarded a questionnaire concerning the residency requirement and the applicants signed the statutory declaration supplied with the questionnaire on 28 February 2005 disclosing that their residency of the subject property had commenced on 27 August 2003 and that they had ceased to reside in the subject property on 1 September 2003. 6 On 14 March 2005 the OSR forwarded a letter to the applicants noting that based on their reply to the confirmation of residency letter referred to in the previous paragraph the OSR had reversed the decision to pay the Grant as the applicants did not occupy the home as their principal place of residence within 12 months of settlement. This letter requested that they repay the Chief Commissioner of State Revenue $7,000.00 and a penalty of 20% being $1,400.00. 7 The applicants objected to the decision set out in the letter dated 14 March 2005 by way of the form of objection supplied by the OSR. In that objection they requested that the decision be reversed on the following bases: the applicants had bought the home with the intention that it was to be their principal place of residence; the applicants had connected utilities including water, gas and electricity on or around 25 July 2003; the applicants had insured the subject property for home building insurance for owner occupier purposes; the applicants had married in April 2003 and wanted to move out of the parents' home; the applicants lived in the house for a week, "and a couple of days after we had moved in, Ali my husband lost his job". the applicants stated they knew that they could not afford the repayments of the mortgage without the husband's income and reluctantly they had to move back into the wife's parents' home and to rent the house out; the initial rental agreement was signed for the period of six months although the incoming tenants wanted a one year agreement; the applicants wanted to move back into the subject property as soon as the husband had obtained a reliable source of income; the renting agent was advised about the intention of the applicants to move into the house after six months; after six months the husband had still not be able to secure a stable job with a reliable source of income and accordingly the applicants were not able to move back into the subject property. 8 On 30 May 2005 the OSR requested the applicants to supply further documentary information to disclose that the applicants had resided in the subject property as their principal place of residence from 27 August 2003 to 1 September 2003. The applicants responded to the request for further information by letter dated 9 June 2005 enclosing a copy of the agreement with the rental real estate agent, copy of the lease agreement disclosing that the property had been leased from 1 November 2003 for six months, a copy of the husband's tax returns for 2003 and 2004 and in response to the request for further documents responded as set out below: "The removal of furniture was carried out by us on our own both to the property and back from the property. We borrowed a trailer for this purpose." "No new furniture or whitegoods were purchased and delivered to the property. The required household items were already owned by us and other items we had were received as wedding presents from my parents and relatives." "We did not take out a home contents insurance policy." "Ali arrived in Australia in July 2002, hence does not have a tax assessment for the year ending June 2002." 9 Ultimately on 4 August 2005 the Chief Commissioner of State Revenue advised the applicants that the reasons given by the applicant had been considered carefully but unfortunately the objection had been disallowed and therefore the notice of assessment issued on 14 March 2005 issued correctly. Evidence 10 The applicants provided to the Tribunal a copy of the following documents: water bill, gas bill, electricity bill, home insurance policy, management agency agreement, letter from real estate agent confirming tenants, residential tenancy agreement and of the husband's tax return for 2002/2003 disclosing a taxable income and for the 2003/2004 year showing a nil income for that year. 11 The respondent's representative cross examined Ms Khan and she impressed the Tribunal as a careful witness. Ms Khan's verbal evidence disclosed that her husband worked shift work prior to losing his job and that on the day that they partially moved into the subject property on 26 August 2003 that he had worked the morning shift. Ms Khan is employed in a position where she works Monday to Friday inclusive. On the evenings of 26 August 2003 and 27 August 2003 the applicants moved various items of furniture into the subject property including a refrigerator, washing machine, kitchen appliances, table, bed, sofa and some clothes. They had achieved this by the use of a trailer and as the distance from her mother's home to the subject property was short they were able to this in 2 to 3 trips each night. They did not stay at the subject property on 26 August 2003. They slept at the subject property on the nights of 28 August 2003, 29 August 2003, 30 August 2003 and 31 August 2003. Ms Khan also said that they had stayed at the house on 27 August 2003. 12 The evidence that Ms Khan gave in response to various questions included reference to where they spent time and that the applicants had spent a lot of time at her parents' home, they ate and bathed at her parents' home and they went back to the subject property to sleep on the nights that they did stay there. That there was no particular reason that they had moved in on 26 and 27 August 2003 as they could have moved in the previous weekend. The furniture that they moved into the subject property had been stored at her parents' home and they were mainly wedding presents including the refrigerator. 13 Ms Khan gave evidence that neither she nor her husband had any advance warning of the loss of the husband's job and that she had found out on the evening of 28 August 2003 and that she and her husband had made the decision to move out as they believed they could not afford to service the mortgage in the absence of his income. Ms Khan gave evidence that the applicants were not able to obtain information from the employer of the husband who had given him notice as the business was now owned by a different company and there is no-one there who would know what had happened on 28 August 2003. 14 Ms Khan further gave evidence that they did not have any visitors at the subject property or watch TV there as her parents' house was just down the road. She would go to work and then return to her parents' house for the purposes of meals and showers and only returning to the subject property to sleep there. There was no heating at the subject property and they occasionally turned on lights, there was probably minimal electricity or gas used and the refrigerator was not connected and no food was kept in the house. Following the decision to rent out the house made on 28 August 2003 they had gone to the real estate agent and signed the agency agreement on 30 August 2003 together. The incoming tenant had signed the agreement to lease the subject property as and from 1 September 2003 and accordingly the applicants had moved all of their material out of the subject property on 31 August 2003 with the assistance of her brother. 15 Ms Khan gave evidence that she and her husband had stayed at her parents' house on 31 August 2003 and continue to reside with her parents. 16 Mr Rana was cross examined by the respondent's representative giving evidence which was in the main in agreement with the evidence given by Ms Khan. 17 Mr Rana gave evidence that he believed they had moved in on 27 August 2003 as he was working the morning shift and that he believed that they had moved a bed and some clothes into the subject property and that they would buy other things gradually when they got money to do so. They had borrowed a trailer from Mr Rana's boss for the purposes of moving the items into the subject property. Mr Rana believed that they had slept at the subject property on 27 August 2003 and that there may have been a sofa in the house as well as the bed. Mr Rana believed that there was no refrigerator or washing machine as they did not own one and their intention was to buy things later. He believed there may have been a couple of chairs brought from his wife's parents' home. Mr Rana agreed that they did not eat at the subject property, that they ate at the wife's family home and that they also attended to bathing and dressing at the wife's family home. 18 Mr Rana in response to questions gave evidence that on 28 August 2003 his boss had told him that he could no longer afford to hire him. He had no warning that he was not going to be further employed, he had gone to work on that day and at the end of the day the boss had told him that he could not work there anymore. Mr Rana telephoned his wife to advise her what had happened and he indicated that he knew immediately they could not stay in the subject property and that they would have to rent out the subject property. 19 Mr Rana responded to questions in relation to the notice that he was given by his boss that the notice was verbal and accordingly he had no written documents to prove the date on which this occurred. 20 Mr Rana answered in response to various questions that they had moved the bed back to his wife's parents' house on 31 August 2003, that they had signed the lease on 30 August 2003 and that they had slept at the subject property on 27 August 2003, 28 August 2003, 29 August 2003 and 30 August 2003. He did not recall sleeping at the subject property on 26 August 2003. He and his wife ate at his wife's parents' house and they did all other things at his wife's parents' house except they slept at the subject property. When it was necessary for him to move the bed back to his wife's parents' home a friend had allowed him to use the friend's car and trailer for that purpose. It was not his boss' trailer. Legislation 21 The applicable legislation in respect of this matter is Section 12 Criterion 5 of the First Home Owner Grant Act 2000 ("the Act") being: "12 Criterion 5 – Residence requirement (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 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." 22 Section 45(3) of the Act provides that a penalty may be imposed in particular circumstances. Applicants' submissions 23 Ms Khan, on behalf of the applicants, made comprehensive submissions relating to the occupation of the subject property as the principal place of residence of herself and her husband. Ms Khan submitted that she and her husband had moved into part of her parents' home following their marriage. That their wedding gifts were stored at her parents' home. They had purchased the subject property on 20 June 2003 with the intention of living there as their principal place of residence. There were tenants in the subject property and those tenants vacated the property at least prior to 22 August 2003 being the Friday before the applicants moved into occupation on Wednesday 27 August 2003. 24 Ms Khan submitted that the applicants had connected the utilities including water, gas and electricity and had taken out a home insurance policy in respect of the subject property. 25 Ms Khan also submitted that the termination of Mr Rana's employment had been unexpected and that it was not possible to provide written material concerning his dismissal. It was financially necessary for Mr Rana to be employed to service the mortgage on the subject property. 26 In relation to the imposition of a penalty Ms Khan noted that this was objected to as it had been imposed because the applicants had not informed the OSR and they had not done so as they believed that they had complied with the residency requirements. 27 Ms Khan provided to the Tribunal an advice from a director of the company which owned the business which employed Mr Rana dated 8 September 2003. This advice being addressed to "To whom it may concern" notes that Mr Rana "… was an employee of our company from September 2002 to August 2003.". A written statement by Mr Rana was filed in respect of his employment noting that his boss informed him on 28 September 2003 that the following day would be his last day. Ms Khan signed a declaration which was filed in the Tribunal, this declaration refers to the sequence of purchase, moving into the subject property, loss of Mr Rana's job, decision to rent out and then the subsequent move back to Ms Khan's parents' house. Ms Khan noted that she did not change her address on the electoral roll or at the RTA as she considered those tasks to be secondary and 'any correspondence would in any case be going to my parents' house where I could pick it up easily." Respondent's submissions 28 The respondent's representative submitted that the applicants were only entitled to retain the Grant if they had complied with the residence requirement of Section 12 Criterion 5 of the Act. The Principles set out in Chief Commissioner of State Revenue v Ferrington [2004] NSWADTAP 41 were relevant. 29 The respondent's representative submitted that: The information obtained and provided to the Tribunal disclosed that during the period from 28 August 2003 to 2 September 2003 there were no units of electricity or natural gas consumed. There was no evidence, other than the statements by the applicants and the oral evidence given by each of the applicants, as to the removal of furniture to and from Ms Khan's parents' home and the means of removal. That the oral evidence of the applicants was inconsistent in that each had given differing evidence as to furniture moving and they did not agree as to the furniture that had been moved. That the applicants entered into a management agency agreement on 30 August 2003. Thereafter the subject property had been let. That the applicants had not notified the Chief Commissioner of State Revenue that they had not complied with the residency requirement. 30 The respondent's representative made submissions in respect of the imposition of a penalty with reference to the criteria set out in Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158. The submission was made that in these particular circumstances the imposition of a penalty of 20% was justified as:- a) At the time of settlement, the applicants intended to move into the property within 12 months; b) The applicants moved minimal furniture into the subject property for a period of 4 to 5 days, they slept in the property on 4 nights and their intention to move into the subject property as their principal place of residence existed for one of those nights; c) The applicants have been cooperative and frank although there was some divergence in their oral evidence relating to facts involved in the move of furniture into the subject property; d) The applicants have had the use of the Grant for in excess of two years. Reasons for decision 31 The evidence provided by the applicants and given by each of the applicants under oath, that they had moved into the subject property on 26th/27th August 2003, that they had slept there on 27th, 28th, 29th and 30th August 2003 whilst attending to all their other requirements such as cooking, eating, watching TV, washing and dressing at Ms Khan's parents' house together with the significant diverging evidence as to what furniture had been moved in, when assessed objectively indicate that the connection of the applicants to the subject property was of a transient and temporary nature. 32 The applicants retained Ms Khan's parents' house for all purposes, other than sleeping over on four nights at the subject property. A bed with sufficiently warm manchester would have been required for this purpose. No electricity or gas was used. The applicants did not have any food at the subject property, they did not have visitors there. From the evidence they personally moved an item of furniture into the subject property, slept there and decamped to Ms Khan's parents' house on each morning. The furniture was then removed on 30 August 2003 to permit the agent to proceed to rent the subject property out as and from 1 September 2003. The applicants have not moved into the subject property since. 33 The applicants believed that they had moved into the subject property in a manner sufficient to warrant that it be described as their principal place of residence. The short length of the applicants' residence did not have the requisite degree of permanence to it as, when considered objectively, it was transient and temporary and they only attended at the subject property to sleep over and then for all other purposes returned to Ms Khan's parents' home. 34 The reason given by the applicants for their departure from the subject property were described by them as outside their control as Mr Rana had his employment terminated suddenly and had not obtained a suitable position to financially enable them to take up residence and service the mortgage in the absence of his income. 35 Taking into consideration the common principles as set out in paragraph 42 of Ferrington and applying them to the applicants' situation the respondent's decision to recall the Grant is affirmed: 1. The applicants sought to assert that the subject property was their principal place of residence for the period 27 August 2003 to 30 August 2003 in the ordinary meaning of the residence criteria. 2. Assessed objectively, the actual occupation of the subject property by the applicants was to sleep there for 4 nights whilst maintaining the home of Ms Kahn's parents as their principal place of residence, including for cooking, eating, recreation, washing and dressing, receipt of mail and as their address for the electoral roll and other purposes. 3. When gauged objectively the intention of the applicants may have been to establish the subject property as their principal place of residence, however this period was only until Mr Rana knew of his job termination on 28 August 2003, thereafter they decided that due to financial reasons they would need to rent the subject property out. No evidence from any other source or person, other than the applicants, was provided to verify the date upon which Mr Rana was advised of his job termination. No evidence was provided as to the date on which the tenants had moved out of the subject property after completion of the purchase by the applicants on 8 August 2003, nor as to the date when the applicants could have moved into the property other than a reference, by Ms Khan in cross examination, that they could have moved in earlier. 4. The occupation by the applicants did not have a degree of permanence to it and the connection to the subject property could only be described as transient, temporary, contingent or passing in nature and was therefore insufficient to satisfy the requirements. 5. The length of residence consisting primarily of sleeping there over a period of 4 nights being transient, temporary, contingent or passing could not be objectively considered to be sufficient. 6. The reason for the applicants' departure was for financial reasons. In view of the immediate reaction to the loss of Mr Rana's employment and then letting of the subject property the applicants' have acted in a financially responsible manner and very swift manner for their particular requirements which unfortunately did not allow for the satisfaction of the residency requirement to retain the Grant. 36 The fact that the utilities were connected on 25 July 2003 and insurance obtained for the subject property would have been required as an incidence of the mortgage, and to continue the services to the property for future use. 37 The imposition of a penalty of 20% is supported by reference to the criteria set out in Calcaro and as the applicants had the use of the grant money for a period in excess of 2 years it is the correct percentage to be applied. ORDER 1. The decision of the Chief Commissioner of State Revenue to recall the Grant and to impose a penalty of 20% is affirmed.