Sagovac vc Chief Commissioner of State Revenue [2005] NSWADT 91

CITATION: Sagovac vc Chief Commissioner of State Revenue [2005] NSWADT 91 DIVISION: Revenue Division PARTIES: APPLICANTS John Sagovac & Linda Sagovac FILE NUMBER: 046017 HEARING DATES: 22/12/2004 SUBMISSIONS CLOSED: 12/22/2004 DATE OF DECISION: 04/28/2005

BEFORE: Hole M - Judicial Member APPLICATION: Land tax exemption - principal place of residence MATTER FOR DECISION: Principal matter LEGISLATION CITED : Land Tax Management Act 1956 Atomic Skifabrik Alois Rohrmoser v Registrar of Trade Marks (1987) 71 IPR 551 BBLT Pty Ltd v Chief Commissioner of the Office of State Revenue [2003] NSWSC 1003 CASES CITED: Caltex Oil Australia Pty Ltd v Howard Smith Industries Pty Ltd (1973) 2 NSWLR 89 Georgoriou v Chief Commissioner of State Revenue [2003] NSWADT 145 Secara v Secretary, Department of Social Security (1998) 3(3) SSR 29 Watson v Bristol-Myers Co. (1985) 5 IPR 333 APPLICANTS REPRESENTATION: In person RESPONDENT T Jowett, barrister ORDERS: The assessments of the Chief Commissioner of State Revenue for the land tax years 2002 and 2003 are affirmed.

REASONS FOR DECISION Introduction 1 John and Linda Sagovac purchased a vacant block of land at Valley Heights in November 1999. They intended to build their residence on the land and had financed the purchase by the sale of their home at St Marys. They then lived with John's parents in a granny flat and commenced the design of their proposed new home. John was to build the house and it was hoped that they would be able to move in as soon as it was completed. The house was not completed as at the date of the hearing. 2 John and Linda also own other properties, those properties are negatively geared. 3 On 7 November 2003 the Respondent forwarded a notice of assessment for land tax for the land tax years 2000, 2001, 2002 and 2003. Land tax was assessed on the Valley Heights property for 2002 and 2003. The Issues 4 One. Was the land at Valley Heights eligible for exemption from land tax under a provision of the Land Tax Management Act 1956, specifically Section 10T. 5 Two. If the land at Valley Heights is eligible for an exemption pursuant to Section 10T, may that exemption be extended by 2 years and if so on what basis. History of purchase and construction 6 When John and Linda purchased the land they sold their home and moved to John's parents. They have resided there from November 1999 to the date of the hearing. 7 Both John and Linda have continued to work and John obtained an owner builder licence. 8 The house design went through an extended sequence of refinement to allow the natural features of the land to be accommodated. Some discussions were held with officers of the Local Council and an application was lodged with the Council on 17 November 2000. The Council granted permission to commence construction in mid December 2000. 9 From January 2001 to December 2004 John and Linda continued to construct their home at Valley Heights. 10 They have encountered various difficulties as owner-builders, including juggling full time employment, to be able to sustain themselves. The structure of the financial gearing of their other properties would have been ruined if they had sold those other properties. They believed that if they had done so then they would have had insufficient funds, in any event, to complete the project. 11 The difficulties encountered included the requirement to alter the design and construction to accommodate the site and shape of the land. It was also necessary to make changes following the bushfire which occurred in December 2001 in the immediate vicinity. Some of the changes were:- - Shape of home had to change to a more difficult curve plan to follow the shape of the natural land. - Floor had to be suspended to the fall of the land, no (sic) just placed on the ground. - Floor is concrete & walls double brick to protect against bushfire and prolific termites. - Full perimeter sprinkler system to protect against bushfire. - Installation of 65,000 Lt concrete tank under house to protect against bushfire. - Shell built from structural steel to protect against termite and bushfire. 12 There was a resultant increase in cost and the time to build was increased 3 – 4 times beyond the original estimate. 13 John and Linda have resided with John's parents from the time of the sale of their former residence at St Marys. As this residence does not belong to them they are unable to claim exemption from land tax for this property, as their principal place of residence. This residence is equivalent to them being in separate rented premises. Whilst it is an advantage to them to live in these premises, it is their principal place of residence and accordingly any other properties that they own are liable to land tax unless there is an applicable available exemption. 14 John and Linda submitted that they were unaware of any available exemption and as they believed that the new home was to be their principal place of residence the land tax would not be applicable, John and Linda would have been required to obtain an occupation certificate to be able to live in the new house prior to them moving in, and therefore residing in the premises as their principal place of residence in any event. Applicable legislative provision 15 Section 10T of the Land Tax Management Act 1956 ("LTM Act") provides a concession for unoccupied land intended to be the owner's principal place of residence in certain circumstances at Section 10T(4). The section is limited in application to the two tax years immediately following the tax year in which (in this case) the persons became the owners. John and Linda purchased the land in November 1999. Accordingly they were (albeit unknowingly) entitled to an exemption for the tax years 2000 and 2001. This exemption has been applied to the assessments. 16 Section 10T(4)(b) also provides that the exemption may be extended on the basis of "an acceptable delay to the owners resumption or commencement of residing in the premises as the principal place of residence". It is this extension to the exemption that John and Linda believe should apply in their circumstances. 17 Section 10T(5) provides that an acceptable delay in the commencement or completion of the building work (which would have allowed John and Linda to occupy the house as their principal place of residence) is a delay that the Chief Commission of State Revenue is satisfied is primarily due to reasons beyond the control of the owner. Submissions 18 John and Linda submitted that the reasons for the delay in being able to complete the building to allow them to reside in the house were beyond their control. The examples given were specifically: - their wish to build themselves to be able to save as much money as possible whilst they were employed full time - the design required changes to take into account the natural elements of the land and requirements of the Council - the changes and extra requirements to protect the property from bushfire damage into the future following the December 2001 bushfire in the area - the inability to capitalise their other properties to provide finance for the building works as their future superannuation would have been ruined and the resultant funds would not have been sufficient to complete the house. 19 John and Linda believed that the land at Valley Heights was their principal place of residence. They also submitted that they had done everything within their control to complete their house as quickly as possible. 20 The Chief Commissioner of State Revenue submitted that John and Linda had not satisfied the requirements of Section 10T(5) as the delay was not due primarily to reasons beyond their control. The submission included reference to various cases and to the view that John and Linda had choices available to them insofar as the speed with which the house would be built. These choices included: - the option to retain their other properties - the option to reside with John's parents - the option to be owner-builders while maintaining full time employment - the option to design and build the house personally 21 The Chief Commissioner of State Revenue drew attention to the cases which had considered the phrase "beyond the control of" and in particular to: BBLT Pty Ltd v Chief Commissioner of the Office of State Revenue [2003] NSWSC 1003 Georgoriou v Chief Commissioner of State Revenue [2003] NSWADT 145 Caltex Oil Australia Pty Ltd v Howard Smith Industries Pty Ltd (1973) 2 NSWLR 89 Secara v Secretary, Department of Social Security (1998) 3(3) SSR 29 Atomic Skifabrik Alois Rohrmoser v Registrar of Trade Marks (1987) 71 IPR 551 Watson v Bristol-Myers Co. (1985) 5 IPR 333 22 Each of the above cases required consideration of the term "beyond the control of" and where the finding was that the control of the delaying event lay with another person or authority (or even where the physical condition or state of mind of the applicant precluded the applicant from pressing his application) then it was beyond the control of the persons concerned. 23 John and Linda are an industrious and enterprising couple who are working assiduously together to provide themselves with a comfortable home and future. Their ability to maintain employment whilst attempting to build a unique home in difficult terrain whilst maximising their financial situation has led them to this position where during a period from December 1999 to December 2004 they have been and continue to construct their home. The choices they have made have related to their desire to build a unique dwelling at the least cost. Some aspects of the construction have required changes to design. Their chosen site has the difficulties of being in an area subject to bushfire and white ants which has required adaptation of their chosen design. This is not an unusual occurrence where a one off design is owner-built in the region where they are building by choice. 24 John and Linda's principal place of residence is at John's parents as shown on their application. It is their intention that the house at Valley Heights be their principal place of residence, when they move in there. 25 Consideration of each of the items submitted by John and Linda, as ones which were beyond their control within the parameters set out in the cases referred to, discloses that there was not a person (other than them) who, or an authority which, had control of the delaying event. The basis of the protracted building period is the choice of John and Linda to maximise the financial advantages that their industriousness permitted to achieve the best possible resulting home and a secure financial future. 26 The only delay caused by something beyond their control was the bushfire that extended building time by one week. As at the date of the hearing this lost week would not impact on the land tax year 2005 as at 31 December 2004 John and Linda could still not reside in the house and completion was expected in June 2005. 27 The provision of a two year period in Section 10T(4) is designed to accommodate a sufficient period anticipated for construction in these circumstances. The provision in Section 10T(5) is intended to redress situations where the time for building is extended due to, for example, an interposed legal interest or strikes or illnesses or unilateral withdrawal of finance. 28 Not one of the described delaying events nor an accumulation of events described in this case permits the application of the provisions of Section 10T(5). Decision 29 I find that the assessments of the Chief Commissioner of State Revenue for the land tax years 2002 and 2003 are affirmed.