Huertas v Chief Commissioner of State Revenue [2007] NSWADT 28

CITATION: Huertas v Chief Commissioner of State Revenue [2007] NSWADT 28

DIVISION: Revenue Division

APPLICANT PARTIES: Reinaldo Cruz Huertas RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 066090

HEARING DATES: 29/01/07

SUBMISSIONS CLOSED: 29 January 2007

DATE OF DECISION: 1 February 2007

BEFORE: Handley R - Acting Deputy President

CATCHWORDS: First Home Owners grant - reversal by administrator

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : First Home Owner Grant Act 2000

Adasi v Chief Commissioner of State Revenue (matter no 043208, unreported, 27 June 2004) Basonovic v Chief Commissioner of State Revenue [2006] NSWADT 236 CASES CITED: Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158 McKenzie v Chief Commissioner of State Revenue [2005] NSWADT 214 Snow v Chief Commissioner of State Revenue (No 1) [2005] NSWADT 244 Zakariya v Chief Commissioner of State Revenue [2003] NSWADT 26

APPLICANT In person REPRESENTATION: RESPONDENT H El-Hage, solicitor

ORDERS: The decision of the Chief Commissioner of State Revenue dated 27 February 2006 is affirmed.

REASONS FOR DECISION 1 Mr Huertas seeks the review of a decision made by the Chief Commissioner of State Revenue ('the Commissioner') requiring the repayment of a first home owner grant of $7,000 and imposing a penalty of 20% of that amount ($1,400). Background 2 On 27 October 2003, Mr Huertas applied to the Commissioner for a first home owner grant of $7,000 in respect of his purchase of a unit in Belmore Street, Burwood. The grant was paid on 24 November 2003 in anticipation of settlement of the purchase, which occurred on 3 December 2003. 3 In early 2004, Mr Huertas became aware that his employment as a contractor by Technical Software Services ('TSS') might be terminated. He anticipated that he might, as a result, suffer financial difficulties in making the loan repayments and paying the other outgoings on his unit. He therefore deferred taking occupation of the unit, instead continuing to rent it out to tenants. 4 In about the second week of December 2004, Mr Huertas' employment by TSS was terminated. About two weeks later, he was re-employed as a contractor on a week by week basis until, in February 2005, he was offered and accepted employment by TSS as a permanent employee but on a much reduced salary. In late November 2005, Mr Huertas gained employment with Woolworths at a higher salary and, on 21 November 2005, he took occupation of his unit where he has lived since. 5 By letter dated 29 July 2005, the Commissioner wrote to Mr Huertas seeking confirmation that he had occupied the property as his principal private residence within 12 months of settlement of the purchase. Mr Huertas responded by letter dated 27 October 2005 seeking an extension of time for supplying evidence of his residing at the property, stating that he was intending to move in on 15 December 2005. He explained the financial difficulties he had experienced as a result of the changes in his employment. 6 By letter dated 18 November 2005, the Commissioner required repayment of the grant and payment of a penalty of 20% because Mr Huertas did not notify the Office of State Revenue ('OSR') that he no longer met the eligibility criteria. By letter dated 22 December 2005, Mr Huertas lodged an objection to this decision. On 27 February 2006, a delegate of the Commissioner disallowed the objection and confirmed the decision. On 15 August 2006, Mr Huertas filed an application with the Tribunal for a review of this decision. Relevant Legislation 7 The long title of the First Home Owner Grant Act 2000 ('the Act') states the Act is "to encourage and assist home ownership". Section 7 provides for the payment of grants to first home owners in respect of eligible transactions (s 7(1)(b)(i)). One of the eligibility criteria at the relevant time was that set out in s 12(1), as follows: "12(1) An applicant for a first home owner grant must occupy the house 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." Section 12 has subsequently been amended but only in respect of applications for grants made on or after 1 January 2004. 8 Section 20(1)(b) permitted the Commissioner to pay a grant in anticipation of an applicant complying with the residence requirement. Where payment was made on this basis, s 20(3) provided that: "the payment is made on the 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 notice of that fact to the Chief Commissioner, and (b) repay the amount of the grant." Failure to comply is an offence (s 20(4)). 9 Section 23 empowers the Commissioner to vary or reverse a decision made in respect of a grant where the Commissioner is later satisfied that the decision is incorrect. Section 45(1) empowers the Commissioner, by written notice, to require the repayment of a grant and, relevantly, where a person has failed to repay a grant as required under section 45 or pursuant to the conditions of the grant (for example, under s 20(3)), s 45(3) provides that the Commissioner may "impose a penalty not exceeding the amount the applicant is required to pay". Mr Huertas' Evidence 10 Mr Huertas provided documentary evidence and gave oral evidence at the hearing. He said that at the time he purchased his unit in November 2003, he was working for TSS as a contractor, being paid at the rate of $60 per hour, and working a minimum of 40 hours per week. The purchase price of the unit was $370,000 of which he borrowed $333,000 from his bank. At the time of settlement of the purchase on 3 December 2003, the unit was rented and there were tenants in occupation, whose lease was not due to expire for a couple of months. 11 At about the time of the expiry of the lease, Mr Huertas learned from his boss that his employment as a contractor was likely to be terminated and, in the meanwhile, his ongoing employment could only be on a monthly basis. Mr Huertas, who was then living in cheaper rented accommodation in Campsie, was worried that if he lost his job, he would not be able to afford the housing loan repayments and other outgoings for the unit. He therefore rented out the unit once again. 12 Later in 2004, Mr Huertas was warned that his employment would be terminated in early December 2004. Ultimately, this happened in the second week in December. However, about two weeks later, before Christmas, his boss contacted him and asked him to continue working for TSS on a week by week basis. Mr Huertas agreed to do so and worked for TSS on this basis until February 2005. His boss then informed him that TSS could no longer afford to employ him as a contractor, but offered to employ him in a permanent position as an analyst/programmer at a salary of $52,500 plus superannuation, considerably less than he had previously earned as a contractor. Mr Huertas felt that because of his financial situation and lack of alternative employment, he had no option but to accept. 13 Mr Huertas said his financial situation was further strained by a three month visit from December 2004 by his mother and sister from Columbia, and by his marriage on 16 April 2005. However, he emphasised that the principal cause of his financial problems was his employment situation. 14 Mr Huertas managed to secure a better paid position with Woolworths starting on 28 November 2005 and, as a result, and in anticipation of his financial situation improving, Mr Huertas moved into his unit on 21 November 2005 and has lived there since (Statutory Declaration dated 23 November 2006). He also came to an arrangement with the OSR for the repayment of the grant and the payment of the penalty by monthly instalments, the last of which was paid in mid 2006. Submissions 15 Mr El-Hage, for the Commissioner, noted that Mr Huertas' evidence is generally consistent with the documents. Essentially, the facts are not in dispute and the Commissioner acknowledges that Mr Huertas suffered financial difficulties in 2003/2004. However, the difficulty for Mr Huertas is that s 12 of the Act imposed a mandatory requirement that he occupy the property as his principal place of residence within 12 months of settlement of the purchase. He did not do so until nearly two years after settlement. Mr Huertas' failure to comply gave rise to an obligation to repay the grant under s 20(3). At that time, strict compliance with the residence requirement was required under the Act – an intention to occupy was not sufficient to satisfy the requirement - and the Commissioner had no discretion to waive the requirement for repayment. 16 Mr El-Hage acknowledged that by letter dated 28 October 2005, Mr Huertas sought an extension of time for him to occupy the property. However, s 12 of the Act only permits an extension of time for occupation of the property to be granted where application is made before the expiry of the 12 month period after settlement. Here the application was made 11 months after the expiry of the period, when Mr Huertas was already in default, and the Commissioner had no power to retrospectively extend the time permitted for compliance. 17 With regard to the penalty imposed by the Commissioner, Mr El-Hage submitted that having regard to the principles identified in previous cases, a 20% penalty was appropriate: he acknowledged that Mr Huertas has been frank and co-operative in his dealings with the OSR, but noted that Mr Huertas had the benefit of a grant to which he was not entitled for a period of over two years. 18 Mr Huertas submitted that the first home owner grant scheme should be administered for the benefit of all Australians – like him – and should take account of the particular circumstances of the person concerned. Mr Huertas said he was unable to move into the property within 12 months of settlement because of his financial circumstances at that time, and submitted the Commissioner's decision is unfair because it ignored his circumstances. The Commissioner should have exercised his power to exempt Mr Huertas from the requirement that he occupy the property within 12 months of settlement because of those circumstances. Discussion 19 The issue in this case is whether the Commissioner's decision to require Mr Huertas to repay the grant and to impose a penalty of 20% of that amount was the correct and preferable decision. Pursuant to s 28(3) of the Act, Mr Huertas, being the applicant, bears the onus of proving his case on the balance of probabilities. 20 There is no dispute over the facts. I accept Mr Huertas' evidence that at the time he purchased the unit, he intended to occupy it as his principal place of residence, but later decided to postpone doing so due to his financial circumstances as a result of the uncertainty over his ongoing employment and his capacity to pay the housing loan repayments and other outgoings. 21 The requirement in s 12(1) that the applicant must occupy the property within 12 months of settlement or such longer period as is approved by the Commissioner, is a requirement that must be complied with and which the Commissioner has no power to waive. Because the grant was made in anticipation of compliance with this residence requirement, payment of the grant is subject to the condition in s 20(3) of the Act that if the residence requirement is not complied with, the applicant must, within 14 days after the end of the 12 month period from the time of settlement, give written notice of that fact to the Commissioner and repay the grant. Mr Huertas was, therefore, required to notify the Commissioner of non-compliance with the residence requirement and repay the grant by reason of s 20(3). He did not do so and was, therefore, in breach of the statutory condition to which the grant was subject. The fact that, at the time of the grant, Mr Huertas intended to occupy the premises does not of itself satisfy the residence requirement: Zakariya v Chief Commissioner of State Revenue [2003] NSWADT 26, at par 14. 22 With regard to Mr Huertas' application to extend the 12 month period for compliance, as Mr El-Hage has submitted, because Mr Huertas applied on 27 October 2005, after the time for compliance had expired, the Commissioner has no power to extend the time for compliance: Basonovic v Chief Commissioner of State Revenue [2006] NSWADT 236, at par 25, following a number of similar decisions, for example, McKenzie v Chief Commissioner of State Revenue [2005] NSWADT 214, at par 16. 23 Section 45(1) of the Act is a broad power enabling the Commissioner to reverse a decision and, by written notice, require an applicant to repay a grant. Section 45(3) applies where an applicant fails to make a repayment when required under s 45 or when required by a condition of the grant, and gives the Commissioner a discretion to impose a penalty "not exceeding the amount the applicant is required to repay". Because Mr Huertas was in breach of the statutory condition imposed by s 20(3), the Commissioner could impose a penalty. 24 The factors relevant to the exercise of the Commissioner's discretion in imposing a penalty have been discussed in a number of tribunal decisions: see for example, Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158 ('Calcaro'), Snow v Chief Commissioner of State Revenue (No 1) [2005] NSWADT 244 ('Snow'). One of the relevant factors identified in Calcaro (at par 62), was the need to deter others from not complying with the conditions of the grant. 25 Another factor – the opportunity cost associated with the grant – was discussed in Snow: the President, O'Connor DCJ, said, at par 25, that the cases would be rare when the market rate of interest – the opportunity cost that the State Revenue suffers by not having had the benefit of the money - could reasonably be waived. In Mr Huertas' case, he had the benefit of the grant, to which, ultimately he was not entitled under the Act, for a period of over two years, his having completed repayment of the grant and payment of the penalty by instalments in mid 2006. 26 I note the Commissioner acknowledges that Mr Huertas has been frank and co-operative in his dealings with the OSR. This is also a relevant factor to be taken into consideration. The facts of this case are similar to those in Adasi v Chief Commissioner of State Revenue (matter no 043208, unreported, 27 June 2004) ('Adasi') where the Tribunal found that, apart from giving a wrong date as to his intended occupation of the property, the applicant "had been straightforward with both the Chief Commissioner and the Tribunal". In both cases, the deterrent effect, the lack of compliance (with the residence requirement, and the failure to notify and repay the grant pursuant to s 20(3)), and the opportunity cost have also been relevant factors. In Adasi, a penalty of 20% was considered appropriate; so also in Mr Huertas' case. Thus, I am not satisfied that there is anything to suggest that the Commissioner has not exercised his discretion fairly and in accordance with established principles. The penalty must therefore be affirmed. Decision The Commissioner's decision is affirmed.