CITATION: Poulet v Chief Commissioner of State Revenue [2006] NSWADT 185 DIVISION: Revenue Division APPLICANT PARTIES: David Poulet RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 056036 HEARING DATES: 14/11/2005 SUBMISSIONS CLOSED: 11/14/2005 DATE OF DECISION: 06/19/2006 BEFORE: Greenwood J - Judicial Member CATCHWORDS: Duties Act - First Home Plus Scheme - residence requirement MATTER FOR DECISION: Principal matter LEGISLATION CITED : Duties Act 1997 First Home Owner Grant Act 2000 CASES CITED: Bates v Commissioner of State Revenue [2004] NSWADT 13 APPLICANT T Holzheimer, Solicitor REPRESENTATION: RESPONDENT S Benjamin, Solicitor ORDERS: 1. Decision of the commissioner with the exception of penalty, is affirmed; 2. Penalty tax is reduced to 15% REASONS FOR DECISION The Facts and history 1 The applicant lodged with the Tribunal an application for review of a determination made by the Chief Commissioner of State Revenue (hereinafter referred to as "the Commissioner"). 2 The applicant exchanged a contract for sale of the property situated at 44 Callaghan Street Wagga Wagga on the 17 May 2001 and subsequently completed his purchase pursuant to terms of sale which was subject to the following conditions: a) provided a condition of the sale for the applicant to occupy and take possession on the date of exchange namely the 17th May 2001. b) the sale was subject to vendor finance, where the vendor remained on title until the purchase price was repaid in full to the vendor and set out a repayment schedule and other terms specifically tailored for this sale to the applicant. 3 There was no suggestion that the applicant had not disclosed the full details of the conditions of purchase to the Commissioner, in his application for the grant. 4 Pursuant to an application for the First Home Owners grant (FHOG), correspondence issued by the applicant's legal representatives and a statement signed by the applicant on the 17 March 2003, the applicant undertook: "I David Poulet undertake that if the vendor or I terminate or rescind the contract I will notify the Chief Commissioner in writing within fourteen days and if the vendor or I terminate or rescind the contract I will repay the grant in full to the Chief Commissioner within fourteen days." 5 The grant was paid to the applicant on the 20th March 2003 on an application signed and declared on 9 April 2001 and lodged on or about 15 May 2002 (and therefore within twelve months of the contract date). 6 The applicant 's subsequent actions came to the notice of the Commissioner as a result of a random audit and a further statutory declaration signed by the applicant on the 12 October 2004 making admissions. The Commissioner issued assessments requiring the repayment of the grant and reimbursement of the concession plus penalties on the basis of a failure by the applicant to occupy the home as his principal place of residence within the time prescribed by the legislation. THE EVIDENCE 7 The applicant sought to explain his failure to occupy the home in cross examination and by his evidence in chief as follows:- a) The applicant was in a relationship with a female person, which was in the nature of a "live-in" arrangement with a girlfriend, described by the applicant as his "defacto partner". The relationship had broken down before the purchase of the property and by the time the contract to purchase the property ,was entered into. The girlfriend's name was never included on the contract as a joint purchaser. b) The applicant gave an account of his actions as part of his attempts at reconciliation of his relationship with his then estranged girlfriend. The applicant allowed the girlfriend and her son to occupy the home as from on or about 17 May 2001, whilst applicant moved into and resided in his mother's property. c) The applicant was never able to reconcile his relationship and it emerged was himself in the start of commencing another relationship with a different person. This second girlfriend was as at the date of the hearing, the applicant's legal spouse. On various occasions after 2 January 2002, the applicant issued various directions to the former girlfriend to move out of the subject property and at one point obtained vacation of the property on 3 January 2003 after the former girlfriend had eventually signed a rental agreement and it appears that vacation of the premises was obtained after recourse to tenancy law. d) The applicant says that he was unable to occupy the property due to his involvement in further litigation with the former girlfriend and the damaged state of the property and need for repairs to be made to the premises after she vacated with her new boyfriend. e) On the evidence and submissions provided the applicant finally entered into occupation of the property on 2 March 2003. The applicant contended that he was unable to enter into occupation within the relevant period due to reasons beyond his control and his emotional entanglement in seeking reconciliation with his former girlfriend and her son. The applicant stated that his intention was always for the property to be his residence and he has occupied it since 2 March 2003 as his residence. 8 It is clear on the evidence and submissions that at no time did the applicant seek to apply for an extension of time to occupy and the girlfriend as occupant was not a party to the contract (a matter of some significance to the Tribunal, given the applicant's explanation of his actions), nor could she be considered as a member of the applicant's family, as envisaged by the legislation -the parties were "estranged " and the evidence given clearly identifies that she was living with another male person in the household. 9 The failure to occupy, was uncovered by a random audit initiated by the Commissioner. It is clear that the applicant was honest in his responses to the Commissioner's investigations. The applicant also repaid the grant and the stamp duty to the Commissioner. The Legislation applicable 10 The applicable legislation in this matter as it applied to the applicant is: First Home Owner Grant Act 2000 (FHOG) Act. 11 The provisions applicable to the above case are listed below: 3 Definitions "terms contracts" means a contract for the sale or purchase of land under which the purchaser: a) is obliged to make 2 or more payments to the vendor after execution of the contract and before becoming entitled to a conveyance or transfer of the land , and b) is entitled to possession or occupation of the land before becoming entitled to a conveyance or transfer of the land Section 7-Entitlement to grant (1) A first home owner grant is payable on an application under this Act if: a) the applicant or, if there are 2 or more of them, each of the applicants complies with the eligibility criteria ,and b) the transaction for which the grant is sought: i) is an eligible transaction, and ii) has been completed (2) Despite subsection (1) (a), an applicant need not comply with the eligibility criteria to the extent the applicant is exempted from compliance by section 9(2) OR 12(2) or both. (3) Despite subsection (1)(b), a first home owner grant is payable before completion of the relevant eligible transaction, as authorised by section 20. (4) Only one first home owner grant is payable for the same eligible transaction. Section 12 - Criterion 5- Residence requirement (Provisions relevant until 31 December 2003) (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 requirements, the non-complying applicant or applicants are exempted from compliance with the residence requirement. Section 13. Eligible transactions (1) An "eligible transaction" is: (a) a contract made on or after 1 July 2000 for the purchase of a home in New South Wales, or (b) a comprehensive home building contract made on or after 1 July 2000 by the owner of land in New South Wales, or by a person who will on completion of the contract be the owner of land in New South Wales, to have a home built on the land, or (c) the building of a home in New South Wales by an owner builder if the building work commences on or after 1 July 2000. (2) A contract is a contract for the purchase of a home if the contract is a contract for the acquisition of a relevant interest in land in which a home is or is to be built under the contract by or on behalf of the vendor. (3) However, a contract made on or after 1 July 2000 is not an eligible transaction if: (a) in the case of a contract to purchase a home – the purchaser ad an option to purchase the home granted before that date or the vendor had an option to require the purchaser to purchase the home granted before that date, or (b) in the case of a comprehensive building contract – either party had a right or option granted before that date to require the other party to enter into the contract. (4) The "commencement date" of an eligible transaction is: (a) in the case of a contract – the date when the contract is made, or (b) in the case of the building of a home by an owner builder: (i) the date when laying the foundations of the home commences, or (ii) another date the Chief Commissioner considers appropriate in the circumstances of the case (4) An eligible transaction is "completed" when: (a) in the case of a contract for the purchase of a home: (i) the purchaser becomes entitled to possession of the home under the contract, and (ii) except in the case of a terms contract, if the purchaser acquires an interest in land under the contract that is registrable under a law of the State – the purchaser's interest is registered under that law, or b) in the case of a contract to have a home built – the building is ready for occupation as a place of residence. (5) If a person purchases a moveable building and intends to use it as a place of residence on land in which the person has a relevant interest but on which it is not situated at the time of purchase: (a) this Act applies as if the person were an owner building building a home on the land, and (b) the commencement date of the transaction is taken to be the date of the contract to purchase the moveable building, and (c) the transaction is taken to be completed when the moveable building is ready for occupation as a place of residence on land in which the purchaser has a relevant interest. (6) The "consideration" for an eligible transaction is: (a) in the case of a contract for the purchase of a home – the consideration for the purchase, or (b) in the case of a comprehensive home building contract – the total consideration payable for the building work, or (c) in the case of the building of a home by an owner builder – the actual costs to the owner of carrying out the work (excluding any allowance for the owner builder's own labour). Section 14 Application for grant (1) An application for a first homeowner grant is to be made to the Chief Commissioner or a financial institution or other person with whom the Chief Commissioner has made an administration agreement. (2) An application: (a) must be in a form approved by the Chief Commissioner, and (b) must contain the information required by the Chief Commissioner. (3) An applicant must provide the Chief Commissioner with any further information the Chief Commissioner requires to decide the application. (4) Information provided by an applicant in or in relation to an application must, if the Chief Commissioner so requires, be verified by statutory declaration or supported by other evidence required by the Chief Commissioner. (5) An application may only be made within a period (the "application period"); (a) commencing on the commencement date of the eligible transaction to which the application relates, and (b) ending 12 months after the completion of the eligible transaction to which the application relates. (5) However, the Chief Commissioner has a discretion to allow an application before or after the application period. (6) An applicant may, with the Chief Commissioner's consent, amend an application. Section 20 – Payment in advance, subject to statutory conditions (1) The Chief Commissioner may authorise payment of a first homeowner grant: (a) before completion of the relevant eligible transaction, if the Chief Commissioner is satisfied that it is appropriate to do so in particular circumstances, or (b) in anticipation of compliance with the residence requirement, if the Chief Commissioner is satisfied that each applicant who is required to comply, but has not yet complied, with the residence requirement, intends to occupy the home as his or her principal place of residence within 12 months after completion of the eligible transaction or a longer period allowed by the Chief Commissioner, or both. (2) If a first home owner grant is paid before completion of the relevant eligible transaction, the payment is made on condition that, if the transaction is not completed within 12 months of the commencement of the transaction of a longer period allowed by the Chief Commissioner, the applicant must within 14 days after the end of the period concerned: (a) give written notice of that fact to the Chief Commissioner, and (b) repay the amount of the grant. (3) If a first home owner grant it paid in anticipation of compliance with the residence requirement, the payment is made on 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 written notice of that fact to the Chief Commissioner, and (b) repay the amount of the grant. (4) A person who fails to comply with the condition prescribed by this section is guilty of an offence. Maximum penalty (subjection (4)): 50 penalty units. Section 23 – Power to correct decision (1) If the Chief Commissioner decides an application, and is later satisfied (independently of an objection under this Act) that the decision is incorrect, the Chief Commissioner may vary or reverse the decision. (2) A decision cannot be varied or reversed under this section more than 5 years after it was made. Section 24 – Notification of decision (1) When the Chief Commissioner decides to refuse an application or to vary or reverse an earlier decision on an application, the Chief Commissioner must give the applicant notice of the decision and must state in the notice the reasons for the decision. (2) If the decision is to authorise the payment of a first home owner grant with or without conditions, the payment of the grant is sufficient notice of the decision. Section 45 – Power to require repayment and impose penalty (1) The Chief Commissioner may, by written notice, require an applicant (or former applicant) for a first home owner grant to repay an amount paid on the application if: (a) the amount was paid in error, or (b) the Chief Commissioner reverses the decision under which the amount was paid for any other reason. (2) If, as a result of an applicant's dishonesty, an amount is paid by way of a first home owner grant, the Chief Commissioner may, by the notice in which repayment is required or a separate notice, impose a penalty not exceeding the amount the applicant is required to pay. (3) If an applicant (or former applicant) for a first home owner grant fails to make a repayment required under this section or the conditions of the grant, the Chief Commissioner may, by written notice, impose a penalty not exceeding the amount the applicant is required to repay. (4) If an amount is paid in error on an application for a first home owner grant to a third party, the Chief Commissioner may, by written notice, require the third party to repay the amount to the Chief Commissioner. Section 46 – Power to recover certain amounts (1) This section applies to the following amounts: (a) an amount that an applicant (or former applicant) for a first home owner grant is required to repay under the conditions of the grant or by requirement of the Chief Commissioner under this Act, (b) the amount of a penalty imposed on an applicant (or former applicant) for a first home owner grant, (c) the amount that a third [party is required to repay under section 45 (2) An applicant (or former applicant) for a first home owner grant is liabile to pay an amount referred to in subsection (1)(a) or (b) to the Chief Commissioner and, if there are 2 or more applicants, the liability is joint and several. (3) If an applicant (or former applicant) who is liable to pay an amount referred to in subjection (1)(a) or (b) has an interest in the home for which the first home owner grant was sought, the liability is a charge on the applicant's interest in that home. (4) A person referred to in subjection (1)(c) is liable to pay an amount referred to in that paragraph to the Chief Commissioner. (5) The Chief Commissioner may recover an amount to which this section applies as a debt due to the Crown. (6) The Chief Commissioner may enter into an arrangement (which may include provision for the payment of interest) for payment of a liability outstanding under this section by instalments (7) … 12 In this matter the Tribunal is bound by the legislation and the Tribunal finds: a) that the eligibility criteria to take up residence within the 12 month period was not met by the applicant b) the applicant who was required to take up occupation pursuant to the terms of the contract of sale as from 17/5/2001 as the starting date specified in the contract c) the 17 /5/2001 was the effective commencement date from which time was to run and d) the 17/5/2001 was correctly identified by the applicant as the effective date in his signed application for the FOGH grant. 13 The applicant was, by his own evidence in a state of separation from his former defacto/girlfriend and he did not take up occupation within the 12 month period required by the Act and allowed by the contract of sale. He allowed his former girlfriend into occupation by his own choice at a time when a defacto relationship was not on foot and significantly the property was not purchased in the joint names of the applicant and his girlfriend. The applicant was aware of the significant occupation date as set out in his application, and did not occupy until on or about March 2003. 14 The events and facts indicate the applicant exercised poor judgement, however the control of circumstances and decision to allow his former defacto partner into occupation and the events which followed, remained with him at all times. The applicant had the responsibility to comply with the eligibility criterion of S12(1) to enter into residency as from 17 May 2001, which was the effective date for completion of the terms contract, which he failed to do .In addition he failed to seek an extension of a longer period approved by the Chief Commissioner S12(1) . 15 In this matter, the Tribunal finds that there is no power to extend time after the expiry of the 12 month period and certainly not in circumstances where as in this case no request was ever made by the applicant and there is the overriding principle that Parliament has set strict boundaries and any change " and or request" must be made before the expiry period. The time for the applicant to make that request was before 17 May 2002, in this case on the evidence the applicant never makes a request and does not properly advise the Commissioner until 11 October 2004 and only in response to the audit. 16 The Tribunal accepts that the applicant initially held for some time an intention to occupy, however the applicant resided with his mother and intention by itself is not sufficient to satisfy all the eligibility criteria and factors set out in the relevant legislation and this follows the application of the case of Bates v The Commissioner of State Revenue [2004] NSWADT 13 by Judicial member Higgins at Paragraph 45. 17 Penalty Tax pursuant to S45 now remains an issue to consider in this matter. The applicant has already repaid both the grant of $7,000.00 and the stamp duty. 18 The Commissioner issued a Notice dated 15 November 2004 requiring repayment of the grant and a penalty of 20% and the basis of the Commissioner's reasons were: 1) failure to advise that the applicant would not occupy the property within the required time period 2) failure to repay the grant within 14 days , following the expiry of the 12 months residency requirement period 19 The penalty tax operates with a market rate component (an opportunity cost that revenue suffers by not having the benefit of the money ) and a premium component ( which is an amount representing a general deterrent to misconduct both initial and the continuing nature of the misconduct during the investigation and court process). 20 The applicant represented that he would take occupation as from the 17 May 2001, but did not communicate or inform the Commissioner of this change. The applicant eventually took occupation in or about March 2003. The change in circumstances did not come to light until the random audit, however at that point the applicant was honest in his responses and repaid the grant. Accordingly, the Tribunal acknowledges the candour of the applicant, and his current circumstances and reduces the penalty to the amount of 15%. Orders : 1. Decision of the commissioner with the exception of penalty, is affirmed. 2. Penalty tax is reduced to 15%. 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.