CITATION: Gibbons v Chief Commissioner of State Revenue [2007] NSWADT 181 DIVISION: Revenue Division APPLICANT PARTIES: Shaun Denis Gibbons RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 066112 HEARING DATES: 10 July 2007 SUBMISSIONS CLOSED: 10 July 2007 DATE OF DECISION: 10 August 2007 BEFORE: Verick A - Judicial Member CATCHWORDS: Land tax exemption - principal place of residence - Taxation Administration Act - liability to pay interest MATTER FOR DECISION: Principal matter Land Tax Management Act 1956 LEGISLATION CITED : State Revenue Legislation Further Amendment Act 2003 Taxation Administration Act 1996 Commissioner of State Revenue v Aldridge [2003] NSWADTAP 50 CASES CITED: Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68 Chief Commissioner of State Revenue v. Incise Technologies Pty Ltd [2004] NSWADTAP 19 Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 APPLICANT Dr D S Gibbons AM, agent REPRESENTATION: RESPONDENT H El Hage, Solicitor Advocate ORDERS: The objection decision under review is affirmed REASONS FOR DECISION 1 The applicant seeks a review of the decision made by the respondent to disallow the applicant's objection to land tax assessment issued under the Land Tax Management Act 1956 (" the LT Management Act") requiring the applicant to pay land tax for the 2002, 2003, 2004, 2005 and 2006 land tax years (" the relevant land tax years") in respect of land at 13 Magill Street, Randwick. 2 The essential issue in dispute is whether the principal place of residence exemption applied in respect of the land at 13 Magill Street for the relevant land tax years. Factual Background 3 The general factual background to this matter has been usefully summarised by the respondent in his written submissions as follows: "4. The applicant acquired the land at 13 Magill Street on 19 November 1992. The applicant's father resides at 11 Magill Street. 5. On 13 April 2006, the Chief Commissioner issued to the applicant a Land Tax Notice of Assessment for the 2002, 2003, 2004, 2005 and 2006 land tax years. The assessment requires the payment of $10,978.80 being the land tax payable in respect of the land at 13 Magill Street for those tax years and interest. 6. On 10 May 2006, the applicant wrote to the Chief Commissioner objecting to the assessment for the relevant land tax years. 7. On 13 July 2006, the applicant wrote a further letter to the Chief Commissioner. In that letter, the applicant stated that he did not live at 13 Magill Street 'because of the actions of the owner/residents of 15 Magill Street since that property was purchased'. The applicant attached copies of various photographs, correspondence and court orders documenting the ongoing dispute the applicant and his father were having with the residents of 15 Magill Street, since at least 2001. The applicant explained that he could not provide the evidence sought by the Chief Commissioner, such as utility bills and the like, relating to any residence at 13 Magill Street between 1 July 2001 and 31 December 2005 because he 'was not living' at 13 Magill Street during that period. 8. The applicant also stated that he was preparing to extend the house at 13 Magill Street to a second level because the 'electrical wiring is a distinct fire hazard'. The photographs taken of the house at 13 Magill Street, attached to the letter of 13 July 2006, show that it was empty and did not contain any furniture or household items. 9. On 17 July 2006, the Chief Commissioner wrote to the applicant seeking, inter alia, information as to where the applicant lived after he acquired 13 Magill Street in 1992 and documentary evidence in support. 10. In his response to the Chief Commissioner, the applicant stated that he has not lived at 13 Magill Street. He stated that he has lived with his mother at 51 Arthur Street, Randwick and also with his father at 11 Magill Street, Randwick. The applicant reiterated his previous statements regarding the dispute with the residents at 15 Magill Street. He stated that he intends to extend the house at 13 Magill Street to a second level using money to be provided by way of a loan from St George Bank. 11. On 27 September 2006, the Chief Commissioner disallowed the applicant's objection. 12. On 10 October 2006, the applicant filed an application in the Tribunal, seeking a review of the Chief Commissioner's decision regarding the land tax assessment for the 2002 – 2006 land tax years." Relevant Legislative Provisions 4 The issue in this matter relates to the exemption from taxation under the provisions of the LT Management Act in respect of land used and occupied as the principal place of residence of an owner. In relation to the 2002 and 2003 land tax years section 3 of the LT Management Act, relevantly provided: "(1) In this Act unless the context or subject-matter otherwise indicates or requires; … principal place of residence of a person means the one place of residence of the person within and outside Australia, the principal place of residence of the person. ... (3) 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." 5 The provisions relating to the principal place of residence were amended by State Revenue Legislation Further Amendment Act 2003 and the substantive provisions dealing with the principal place of residence exemption in s 10(1)(r) and s 3 were included, with additional provisions, in a new Schedule 1A to the LT Management Act. These provisions took effect on 31 December 2003 and apply to the 2004 to 2006 land tax years in this matter. Relevantly, Clause 2(2) of Schedule 1A provides as follows: "(2) Land is not used and occupied as the principal place of residence of a person unless: (a) the land, and no other land, has been continuously used and occupied by the person for residential purposes and for no other purposes since 1 July in the year preceding the tax year in which land tax is levied, or (b) in any other case, the Chief Commissioner is satisfied that the land is used and occupied by the person as the person's principal place of residence." Submissions 6 The primary argument advanced by the applicant is that the dispute with residents at 15 Magill Street made it "impossible to reside in his own home" at 13 Magill Street since purchasing the property and, in particular, in the relevant land tax years the subject of this application. 7 The respondent has submitted that for the principal place of residence exemption to apply, the applicant must establish that he "used and occupied" the land at 13 Magill Street as his "principal place of residence" during the relevant land tax years. In this regard, the respondent submitted that the applicant has failed to "satisfy the following requirements in s. 3(3) of the LT Management Act (in respect of the 2002 and 2003 land tax years and cl. 2(2) of Sch. 1A (in respect of the 2004, 2005 and 2006 land tax years): - Since before the first day of July of the previous year, the land at 13 Magill Street, and no other land, was continuously used and occupied by the applicant for residential purposes and for no other purpose (see s. 3(3)(a) & cl. 2(2)(a)); or - In any other case, the Chief Commissioner is satisfied that the land at 13 Magill Street was used and occupied by the applicant as his principal place of residence, as at midnight on 31 December of the previous year (see s. 3(3)(b) & cl. 2(2)(b))." 8 The respondent has also drawn the attention of the Tribunal to the concession for unoccupied land intended to be an owner's principal place of residence available under s 10T (for purposes of the 2002 and 2003 land tax years) and clause 6 of Schedule 1A (for the purposes of the 2004, 2005 and 2006 land tax years. But the respondent has submitted that the concession allowed by these provisions does not apply to the facts of the present matter. Reasons for Decision 9 Land tax is payable by the owner of land upon the taxable value of the land owned by the owner as at midnight on 31 December immediately preceding the year for which the land tax is payable and which is not exempt from taxation under the Act. 10 In the present matter the applicant claimed that 13 Magill Street should be exempted from land tax in the relevant land tax years on the ground that it was the applicant's principal place of residence. The facts of this matter are not in dispute and reveal the inability of the applicant to have access to 13 Magill Street due to the obstructive and fairly threatening action of the owner and residents of 15 Magill Street. There is evidence that the applicant has sought the assistance of the courts but the situation has not changed very much. 11 The respondent does not dispute that "the aggressive and demeaning behaviour" of occupants of 15 Magill Street has prevented the applicant from living at 13 Magill Street. 12 Unfortunately for the applicant, the tests in the law for the principal place of residence exemption require continuous "use and occupation" of 13 Magill Street during the period of the relevant land tax years, as submitted by the respondent. The applicant has the onus to demonstrate that he has continuously used and occupied 13 Magill Street as his principal place of residence during the relevant land tax years. The applicant's own evidence is that he has not used and occupied 13 Magill Street in the relevant land tax years as required by s 3(3)(a)(for the 2002 and 2003 land tax years) and clause 2(2)(b) (for the 2004, 2005 and 2006 land tax years) of the LT Management Act. 13 The alternative test found in s 3(3)(b) (for the 2002 and 2003 land tax years) and Clause 2(2)(b) of Schedule 1A (for the 2004, 2005, and 2006 land tax years) of the LT Management Act also does not assist the applicant in this matter. The alternative test, which is similar in both provisions, gives the respondent a discretion where there is use and occupation of the land as the principal place of residence of an owner but for some reason the owner is not in continuous use and occupation of the land. For example, if the owner takes a short holiday at a destination away from his principal place of residence, the short absence will not affect the exemption or, as was the case in Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68, where the owner was away from his residence for short periods whilst travelling for work purposes. 14 In the present matter, 13 Magill Street has not been used and occupied by the applicant for residential purposes and has remained vacant during the period of the relevant land tax years. As observed by the Appeal Panel of this Tribunal in Chief Commissioner of State Revenue v Aldridge & Anor (RD) [2003] NSWADT 50 at paragraph 26: "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 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." 15 The above observations made by the Appeal Panel would equally apply to the similar current provisions found in Clause 2(2)(b) of Schedule 1A of the LT Management Act. In the present matter, in the absence of any use and occupation of 13 Magill Street, these provisions also do not assist the applicant. 16 The concession found in s 10T (for the 2002 and 2003 land tax years) and Clause 6 of Schedule 1A (for purposes of the 2004, 2005 and 2006 land tax years) of the LT Management Act is also not available to the applicant. Generally speaking, these provisions allow the principal place of residence exemption for unoccupied land intended to be an owner's principal place of residence. But the provisions (s 10T(4) and Clause 6(3)) only allow the exemption in respect of ownership of such land for the two tax years immediately following the year in which the person became owner to allow for the completion of any building or other work necessary to enable the intended use and occupation of the land. There is power with the respondent to extend that period where the delay in the completion of building works is due primarily to reasons beyond the owner's control. 17 The applicant acquired the land at 13 Magill Street in 1992 and if these provisions applied, they would have only applied in the 1993 and 1994 land tax years and with any further extension at that time. The exemption found in these provisions has no relevance to the land tax years in question. The applicant is only currently proposing to carry out some improvements to the property, which will not affect the years in question. 18 In this matter, the respondent was accordingly entitled to issue the land tax assessment for the relevant land tax years as the exemption for the principal place of residence was not available to the applicant on the grounds that the applicant had not used and occupied 13 Magill Street in the years in question as his principal place of residence. 19 However, this case highlights an inequity in the way the exemptions in the land tax law operate. No exemption or any concession is available to an owner, like the applicant, who is not able to use and occupy his or her land for reasons beyond the control of the owner. 20 The matter that remains is the imposition of interest by the respondent in the assessment made against the applicant. 21 Section 21(1) in Part 5 of the Tax Administration Act 1996 ("the TA Act") provides that if a "tax default" occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day when the payment was due until the day upon which the outstanding tax is paid. The applicable interest rate consists of a variable market rate component and a premium rate component. The market rate component is the Treasury Note yield rounded to the second decimal place unless a market rate of interest is specified by an order of the Minister made under s 22(2)(b) of the TA Act and published in the Gazette. A premium rate component is fixed by s 22(3) of the TA Act at 8 per cent per annum. 22 The respondent is, pursuant to his powers found in s 25 of the TA Act, able to remit the market rate component or the premium rate component of interest, or both, by any amount in such circumstances, as the respondent considers appropriate. 23 The market rate component, as was observed by the Tribunal's Appeal Panel in Chief Commissioner of State Revenue v. Incise Technologies Pty Ltd [2004] NSWADTAP 19, "is intended to compensate the Commissioner (on behalf of the Government of New South Wales) for not having the benefit of the tax payment from the time it was due". The Appeal Panel went on to state as follows: "This, as we see it, is a component that could rarely, if ever, be waived as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time. The Tribunal made the observation at [50] that to justify any remission of the market rate component of interest, it would be necessary to show that in some way the Commissioner contributed to the default. We agree with this observation." 24 In Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 the Tribunal explained the circumstances when the market rate of interest can be remitted as follows: "27 In cases where an amount of interest is imposed by the application of the market rate, only exceptional circumstances would justify any remission. The narrow category of circumstances would include cases where the 'tax default' is entirely due to a fault of the Chief Commissioner. Other circumstances would include situations completely out of the control of the taxpayer, such as postal strikes, serious illness of the taxpayer and natural disasters (bush fires, floods and earthquakes)." 25 In this matter, the applicant's liability was only established through inquiries made by the respondent. Under s 12 of the LT Management Act, the applicant was required to furnish land tax returns but failed to lodge the necessary returns for the relevant land tax years. Section 72(1) of the LT Management Act provides that a taxpayer who "fails or neglects duly to furnish any return or information as and when required by this Act or the Chief Commissioner, or fails to include in any return any land owned by the taxpayer, is taken to have committed a tax default for the purposes of Part 5" of the TA Act 26 As there was a "tax default" on the part of the applicant the respondent was required by the law to impose interest. In the present matter, the respondent, taking into account all the background and circumstances of this case, only imposed the market rate interest. 27 The "tax default" in this matter was entirely due to the applicant's failure to lodge the necessary returns in relation to his land tax liability in respect of 13 Magill Street. No exceptional or special circumstances to justify any remission of the market rate imposed in this matter have been brought to the attention of the Tribunal to warrant any remission of the market rate interest. 28 For the foregoing reasons, having regard to all the material before the Tribunal, the correct and preferable decision on this application is to affirm the decision of the respondent. Order The decision of the respondent on the objection is affirmed. 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.