Mills v Chief Commissioner of State Revenue [2006] NSWADT 189

CITATION: Mills v Chief Commissioner of State Revenue [2006] NSWADT 189

DIVISION: Revenue Division

APPLICANT PARTIES: Stephen Richard Mills RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 066017

HEARING DATES: 31/05/2006

SUBMISSIONS CLOSED: 06/21/2006

DATE OF DECISION: 06/28/2006

BEFORE: Hole M - Judicial Member

CATCHWORDS: Land tax exemption - principal place of residence

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : First Home Owner Grant Act 2000 Land Tax Management Act 1956

APPLICANT In person REPRESENTATION: RESPONDENT S Benjamin, solicitor

ORDERS: 1. The decision of the Chief Commissioner of State Revenue to assess land tax on the subject property is affirmed

REASONS FOR DECISION 1 The applicant has applied for review of the decision of the Chief Commissioner of State Revenue to assess his property at Kellyville ("the subject property") for land tax for the 2005 tax year and the 2006 tax year. 2 The applicant purchased the subject property on 15 December 1998 and he did so with the intention that he would build a home on the subject property which would become his principal place of residence. The applicant does not own any other land in New South Wales. 3 The land value of the subject property was below the threshold for payment of land tax for each of the years prior to the 2005 tax year. 4 The State Government abolished the tax free threshold for the 2005 tax year. This was a result of a mini budget initiative announced by the Government during April 2004. The threshold was reintroduced for the 2006 tax year and the new threshold for that year is $352,000.00. The land value of the subject property for the 2006 tax year was $365,000.00. 5 From January 1999 to April 2004 the applicant was working in rural New South Wales. In April 2001 the applicant was made redundant from his employment in rural New South Wales and returned to Sydney to look for employment. In November 2002 the applicant obtained another fulltime job. 6 On 9 May 2005 the construction commenced of a home on the subject property. 7 The home remains uncompleted at the time of hearing. 8 On 29 October 2005 the applicant provided a statutory declaration to the Office of State Revenue ("OSR") seeking an exemption in respect of the subject property from assessment to land tax. The declaration disclosed the date of purchase of the subject property on 15 December 1998 and that construction of the premises commenced on 9 May 2005. The applicant forwarded a letter dated 27 October 2005 together with the statutory declaration to the OSR setting out the reasons why there was delay in commencing to use and occupy the land as his principal place of residence. 9 The information provided to the OSR was considered and the applicant was advised on 11 November 2005 that his request for an exemption had been unsuccessful. The applicant forwarded a formal letter of objection dated 18 November 2005 to the OSR. The applicant advised in that letter that the reasons for not commencing building a home at an earlier date were beyond his control and requested that his circumstances be reassessed. On 6 December 2005 the OSR forwarded a letter to the applicant advising him that his reasons for objection had been considered and that they had been disallowed. Legislation 10 The applicable legislation for the tax years 1998 to 2004 is as set out in Section 10T(1) and Section 10T(4)(a) of the Land Tax Management Act 1956 ("the Act"): Section 10T(1) "10T Concession for unoccupied land intended to be owner's principal place of residence (1) If the Chief Commissioner is satisfied that the owner of land (or, if there are joint owners, any one or more of them) intends to use and occupy the land solely as his or her principal place of residence, that intended use and occupation of the land is to be regarded as its actual use and occupation for the purposes of section 10 (1) (r). … Section 10T(4)(a) (4) This section applies to a person's ownership of land only for the 2 tax years immediately following the tax year in which: (a) the person became owner, or … unless the Chief Commissioner extends or further extends its operation in a particular case on the basis of an acceptable delay in that case." 11 The applicable legislation for the tax years 2005 and 2006 is as set out in Schedule 1A Clause 6 of the Act: Clause 6 – Schedule 1A "Schedule 1A – Principal place of residence exemption 6. Concession for unoccupied land intended to be owners 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 subclause (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. …" Applicant's submissions 12 The applicant submitted that he had purchased the subject property in 1998 with the intention of building his home thereon, that he had been working in rural New South Wales and that while he was doing so it would have been impractical and difficult to commence building on the subject property. That when he returned to Sydney in April 2001 he looked for suitable employment that would permit him to service a mortgage for the construction of his home and he was not able to satisfy this requirement until November 2002. He submitted that he was not able to obtain a mortgage prior to being employed in a fulltime position, as a lending institution would not have been willing to offer him a loan for the purposes of the construction. 13 After being in his current fulltime employment for 18 months, the applicant decided that he was in a position to commence construction of a home on the subject property and proceeded to look for a suitable home style and builder. He was not able to commence construction prior to May 2005 and once construction had been commenced he had an expectation that the home would be completed within 7 months and thus he expected that the home would be completed in December 2005. Unfortunately there was a delay in construction as the builder could not obtain material that had been delivered to the docks as there had been a strike on the docks and then there was the delay caused by the usual 5 week shutdown over the Christmas/New Year period. 14 The applicant has still not accepted handover of the home from the builder due to defective work and the matter is now in the hands of the Department of Fair Trading. There have been two aborted attempts between the builder and the applicant to agree to the practical completion of the project which would allow the applicant to obtain an occupancy certificate. The applicant provided copies of correspondence confirming these difficulties. 15 In response to the respondent's further written submissions that there had been no requirement for transitional provisions following the introduction of Clause 6 of Schedule 1A of the Act the applicant made further written submissions. These submissions were related to the effect of the imposition of the 2 year time limit from the date of purchase of the land. The applicant submitted that it was unfair and unreasonable that, when a new home was physically being constructed on the land, land tax for the 2005 tax year was assessed. 16 The applicant submitted that he had been able to obtain a First Home Owner Grant for the subject property at Kellyville for the purposes of construction of the new home. He had obtained this Grant in 2005. Respondent's submissions 17 The respondent's representative examined the applicant under oath. The applicant impressed the Tribunal as an honest and straightforward witness and that he answered the questions put to him in a forthright manner. 18 The respondent's representative submitted that at the time that the applicant purchased the subject property in 1998 the applicable legislation was Section 10T of the Act. That pursuant to that provision there was an exemption from land tax for two tax years immediately after purchase to permit a principal place of residence to be constructed and occupied. That after 1 January 2003 the applicable legislation was Clause 6 of Schedule 1A of the Act which extended to vacant land as and for the 2004 tax year and thereafter. The provision in Clause 6 is also related to the first two years of ownership and also includes a discretion whereby the Chief Commissioner of State Revenue may extend this period where there is delay primarily due to reasons beyond the control of the owner. 19 The respondent's representative submitted that the applicant had purchased the subject land in 1998 and that any exemption pursuant to Section 10T of the Act applied to the two years immediately after purchase. That the commencement of the operation of Clause 6 of Schedule 1A did not provide the applicant with a new opportunity to obtain a further two years in which to construct his principal place of residence and therefore Clause 6 of Schedule 1A was inapplicable. 20 The respondent's representative submitted that the applicant had confirmed in cross examination that the applicant had worked in rural New South Wales of his own accord, that between 2001 and November 2002 the applicant sought financially suitable employment so that he could build and that when the applicant was employed in rural New South Wales he had chosen not to build on the subject land because it would not have been impractical. 21 The respondent's representative confirmed that the land tax had been paid. That there was no requirement for a transitional provision in respect of the application of Section 10T and Clause 6 as the same time provisions were continued. Reasons for decision 22 Section 10T of the Act applied to the subject property at the time that the applicant purchased it. This permitted the applicant two years within which to construct and occupy a principal place of residence. He did not do so while Section 10T applied, that is prior to the coming into effect of Clause 6 which was applicable for the 2004 tax year and beyond. 23 The subject land was below the threshold for the assessment of land tax until the 2005 tax year when there was no threshold and $1,460.00 was assessed. The 2006 tax year is subject to a threshold of $352,000.00 and $321.00 was assessed. The land tax has been paid. 24 The reasons given by the applicant for the delay in commencing building beyond 2001 are entirely related to the applicant carefully arranging his finances to ensure that he had appropriately remunerated employment first in rural New South Wales and then closer to the subject land. 25 The applicable legislation in this instance is Section 10T which applied for the period from the purchase to two years immediately thereafter. Any entitlement to an exemption was exhausted at that time. Thus the provision of any exemption pursuant to Clause 6 is inapplicable. The applicant was concerned that where an owner of a block of land does build a home on that land after the expiry of the two year period and then uses that as their principal place of residence then land tax has been assessed on that home. Once an owner commences living in the home as the principal place of residence then the usual exemption for an owner's principal place of residence is applicable after that time and related to the 31 December of the year occupation commenced. Land tax is correctly assessed for the land tax years between the expiry of the two year provisions and the commencement of occupation as the principal place of residence. 26 The delays now experienced by the applicant, and since early 2006 in respect of the unacceptable construction are not relevant in the circumstances. 27 The grant of the First Home Owner Grant to the applicant is provided under the First Home Owner Grant Act 2000 and is unrelated to the exemption sought from assessment for land tax. ORDER 1. The decision of the Chief Commissioner of State Revenue to assess land tax on the subject property is affirmed.