Bower and Ors v Chief Commissioner of State Revenue [2006] NSWADT 268

CITATION: Bower and Ors v Chief Commissioner of State Revenue [2006] NSWADT 268

DIVISION: Revenue Division

APPLICANTS PARTIES: Peter Ronald Bower, Patricia Yvonne Jean Bower and Estate of Gertrude Bauer RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 056107

HEARING DATES: 6/09/2006

SUBMISSIONS CLOSED: 09/06/2006

DATE OF DECISION: 09/14/2006

BEFORE: Verick A - Judicial Member

CATCHWORDS: Duties Act - principal place of residence

MATTER FOR DECISION: Principal matter

Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Interpretation Act 1987 Taxation Administration Act 1996

CASES CITED: Doney v Chief Commissioner of State Revenue [2005] NSWADT 133

APPLICANT P Bower in person for all applicants REPRESENTATION: RESPONDENT B Baker, Solicitor

ORDERS: The decision under review is affirmed

REASONS FOR DECISION Background 1 The applicants ("the applicants") have applied for a review of the decision by the Chief Commissioner ("the respondent") to disallow an objection to a vendor duty assessment made under s 146 of the Duties Act 1997 ("the Act") on the sale of the applicants' property situated at Rose Bay ("the property"). 2 In addition to the documents lodged pursuant to the provisions found in section 58 of the Administrative Decisions Tribunal Act 1997, the Tribunal was furnished with submissions made in writing by the parties. The parties also made viva voce submissions at the hearing. 3 The facts are not in dispute. The property was sold on 1 April for $2,750,000 and settlement occurred on 28 May 2005. At the time of sale, the property was co-owned by Gertrude Bauer and her two children, Peter Ronald Bower and Patricia Bower as tenants in common in equal shares. The property was the principal place of residence of Gertrude Bauer when sold. It had been her residence for more than 30 years. 4 The sale had been undertaken by the applicants to finance nursing home accommodation for Gertrude Bauer who was than 94 years old. She is now deceased. 5 The applicants were assessed to vendor duty under s 146 of the Act in the amount of $61,875. On 20 May 2005, the applicants lodged an objection against the vendor duty assessment on the grounds that the property was the principal place of residence of Gertrude Bauer, a co-owner of the property at the time of the sale. On 31 August 2005, the respondent disallowed the applicants' objection on the grounds that Gertrude Bauer did not own a significant interest in the property as required by s 162D of the Act. On 19 October 2005 the applicants applied to the Administrative Decisions Tribunal for a review of the respondent's objection decision under s 96 of the Taxation Administration Act 1996 ("the TA Act"). 6 At the hearing the applicants also sought a review of a decision made by the respondent not to grant the applicants an "Act of Grace" payment with regard to the vendor duty assessment. The objection lodged by the applicants was considered by an officer who recommended that the objection be disallowed. The officer, however, recommended that an "Act of Grace" payment be made with regards to the assessment. A senior officer made a final decision in relation to the "Act of Grace" payment recommendation. The senior officer refused to make the ex gratia payment on the grounds that the "legislation is clear in regard to significant interests and it cannot be argued that we have an anomalous situation here". Relevant Legislation 7 The Government had made an announcement on 5 April 2004 that a vendor duty would be introduced and the relevant legislation was introduced in the Act on 23 June 2004 to apply retrospectively to sale of properties where the contract was exchanged on or after 1 June 2004. The legislation was subsequently amended and vendor duty ceased to apply to sale transactions where the contract was exchanged on or after 2 August 2005. The duty, however, remains chargeable in respect of certain dutiable transactions that occurred before 2 August 2005. In the present matter the relevant transaction attracting vendor duty occurred on 1 April 2005. During the short 15 months operation of the relevant vendor duty provisions, the provisions were amended a number of times and hence it is necessary to consider the application of vendor duty in a particular case by reference to the appropriate historical version of the relevant provisions. 8 In this matter the vendor duty was levied pursuant to the combined effect of the provisions found in Part 1 of Chapter 4 of the Act. Classes of vendor duty exemptions, which included the exemption from vendor duty the sale by a person of his or her principal residence and concessions, were provided in Part 5 of Chapter 4 of the Act. In relation to the principal place of residence exemption section 162B (the historical version applicable to this matter) of the Act provided as follows: 162B Principal place of residence exemption (1) A vendor duty transaction is not chargeable with vendor duty in relation to land to which the principal place of residence exemption applies. (2) Subject to this Division, the principal place of residence exemption applies to land used and occupied by the vendor as the principal place of residence of the vendor, and for no other purpose, if the land: (a) is a parcel of residential land, or (b) is a strata lot, or (c) is assessed as it were a strata lot under section 21A or 21B of the Land Tax Management Act 1956. (3) For purpose of this Chapter, 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 for a period of at least 2 years ending immediately before the date on which, but for this Division, a liability for vendor duty would arise, or (b) the land has been used and occupied by the person for residential purposes and for no other purposes for a total period of at least 3 years in the 5 years ending immediately before the date on which, but for this Division, a liability for vendor duty would arise and during those 3 years no other land was used and occupied by the person for residential purposes, or (c) if the vendor became an owner of the land (or the land use entitlement to which the land is subject) less than 2 years before the date on which, but for this Division, a liability would arise, the Chief Commissioner is satisfied that the land, and no other land, has been continuously used and occupied by the person for residential purposes and for no other purposes since the vendor became an owner of the land (or land use entitlement). (4), (5) (Repealed) 9 Various other provisions in Part 5 are relevant to determine the principal place of residence exemption in a particular case. For purposes of this matter only s 162D is relevant. That section (the relevant historical version) provided as follows: 162D Occupier must be natural person with significant interest in the land (1) The principal place of residence exemption does not apply to the use or occupation of land owned solely by one person unless the Chief Commissioner is satisfied that the land is used and occupied as a principal place of residence by that person and that person is a natural person. (2) The principal place of residence exemption does not apply to the use or occupation of land owned by 2 or more persons unless the Chief Commissioner is satisfied that: (a) the land is used and occupied as the principal place of residence by one or more owners of the land ( an occupying owner ), and (b) the occupying owner or occupying owners are natural persons, and (c) at least one of the occupying owners has a significant interest in the land or the occupying owners together have a significant interest in the land. (3) If land to which a vendor duty transaction relates is owned by 2 or more persons at least one of whom is an occupying owner, and the vendor in relation to the transaction is not an occupying owner, the vendor is entitled to be taken, for purpose of the principal place of residence exemption, to use and occupy the land as a principal place of residence but only if the principal place of residence exemption would apply if the occupying owner or owners were the vendor in relation to the transaction. Note : Subsection (3) extends the principal place of residence exemption to a part owner of land (including a corporate part owner) who does not actually use or occupy the land as a principal place of residence, but only if the land is used and occupied as a principal place of residence by one or more of the other owners of the land, being natural persons who have a significant interest in the land. (4) For the purpose of this section, a significant interest in land is an ownership share, or combined ownership share, in the land of 50% or more. (5) If land is the subject of a land use entitlement, a reference in this section to the owner or the ownership of the land includes a reference to the owner or the ownership of the land use entitlement. 10 In addition, it is necessary in this matter to examine the objection and review provisions found in the TA Act as the applicants are seeking to extend their application for review to include a review of the decision made by the respondent in refusing to approve an "Act of Grace" payment to compensate the applicants for the vendor duty paid. 11 Section 86 of the TA Act grants a taxpayer "who is dissatisfied with (a) an assessment that is shown in a notice of assessment served on the taxpayer, or (b) any other decision (within the meaning of section 6 of the Administrative Decisions Tribunal Act 1997) of the Chief Commissioner under a taxation law" a right to lodge a written objection with the Chief Commissioner. The Chief Commissioner is required under s 91 of the TA Act to determine an objection lodged under s 86. A notification of the Chief Commissioner's decision on the objection is required by s 93 of the TA Act to be served on the taxpayer. Section 96 of the TA Act provides, inter alia, that a taxpayer dissatisfied with the Chief Commissioner's determination of the taxpayer's objection may apply to the Administrative Decisions Tribunal for a review of the decision by the Chief Commissioner that has been the subject of the objection. Submissions 12 The respondent's position in this matter in relation to the principal place of residence exemption is set out in the following paragraphs of the written submissions made available to the Tribunal: 18 Section 162B of the Duties Act sets out the circumstances in which a principal place of residence exemption is available. Section 162D of the Duties Act sets out further criteria for the application of the principal place of residence exemption. Most importantly, s. 162D(2) of the Duties Act provides that the principal place of residence exemption does not apply to the use or occupation of land owned by 2 or more persons unless the Chief Commissioner is satisfied that: (i) the land is used and occupied as the principal place of residence by one or more of the owners of the land (an "occupying owner") (s. 162D(2)(a)), and (ii) at least one of the occupying owners has a significant interest in the land (s. 162D(2)(c)). 19 A "significant interest" is defined in s. 162D(4) to be "an ownership share, or combined ownership share, in the land of 50% or more". 20 It appears to be common ground between the parties that Mrs Bauer was the only owner who used and occupied the land as her principal place of residence within the time prescribed by s. 162B of the Duties Act. It also appears to be common ground between the parties that Mrs Bauer held a 1/3 interest in the property. For this reason, Mrs Bauer did not hold a "significant interest" in the land. 21 In these circumstances, the requirements of s. 162D of the Duties Act are not satisfied. The applicant is therefore not entitled to the principal place of residence exemption provided for in s. 162D of the Duties Act. 22 The Duties Act does not provide a general discretion to the Commissioner, or this Tribunal to grant the applicant a principal place of residence exemption in circumstances where the criteria set out in s. 162D of the Duties Act have not been satisfied. (The discretion in s. 162B(4) having been repealed on 15 December 2004 by Schedule 2 of the Duties Amendment (Land Rich) Act 2004.) 13 The applicants have sought to argue in broad terms that the vendor duty was introduced to tax only the sale of investment properties and that; accordingly, a principal place of residence should be exempted. This, they assert, was made clear by the then Treasurer in his mini-budget speech made on 6 April 2004 when announcing the introduction of the vendor duty he said: "This (Vendor) Duty will not apply to the sale of a person's principal place of residence…" 14 The applicants have more specifically argued that "the vendor duty legislation regarding Principal Place of Residence did not properly or adequately address the unusual but wholly legal situation of people like the Bauer family, who were three way equal share owners as tenants in common of an undisputed principal place of residence (family home) and that the application of the legislation wrought unintended consequences in their case". The applicants have also submitted that the "the repeal of s 162 (4) in the Bauer's case denied them clear access to specific legislative justice and also to natural justice". 15 Finally, the applicants have submitted that the decision by the respondent's senior officer "not to approve the recommendations of the three designated OSR review officers that an Act of Grace payment be provided to the Bauer family was made without taking proper or adequate regard of the existing procedures guidelines and case precedents available". 16 The respondent's response to the applicants' Act of Grace payment submission is simply that this Tribunal does not have jurisdiction to review any decision that cannot properly be made the subject of an objection under s 86 of the TA Act. Reasons and Decision 17 I agree with the respondent's submission that the provisions of s 162D do not assist the applicants. The facts are not in dispute and clearly the interest of the occupying owner in this matter at the relevant time was short of the required significant interest prescribed by the law. The law required an interest of at least 50% or more. Mrs Bauer's interest regrettably only amounted to 33 1/3% of the total interest in the property 18 There is some justification for the applicants to feel that they have been penalised to pay the vendor duty in circumstances where, as suggested by them, it could be argued that the underlying policy of the legislation was not fully implemented in the legislation. Unfortunately, the provisions of s 162D as drafted are simple and clear. The Tribunal is not entitled to ignore the clear intent of the legislation even if it can be argued from what was said by the government ministers in their speeches that the legislation does not fully reflect the intended policy of the legislation. 19 Resort to extrinsic material in the interpretation of legislation is limited by s 34 of the Interpretation Act 1987 (NSW) to legislation which is ambiguous or obscure or if the ordinary meaning of the legislative provisions leads to a result that is manifestly absurd or is unreasonable. That is not the case in this matter. These special rules of interpretation do not apply in cases where an outcome could be described as inequitable or unjust. 20 The applicants' case is further compounded by the removal of the discretion in s 162(4) from 15 December 2004. The discretion was in the following terms: (4) Despite any other provision of this Act, the principal place of residence exemption is also taken to apply to any land used and occupied as a principal place of residence if the Chief Commissioner is satisfied that it is fair and reasonable for the exemption to apply in the particular case. 21 As observed by the Tribunal in Doney v Chief Commissioner of State Revenue NSWADT 133 the discretionary power conferred by section 162B(4) was "cast in wide terms" and "was clearly given to enable the Respondent to relieve taxpayers where the relevant provisions applied in a manner which was unreasonable and harsh". Unfortunately for the applicants, the discretion had ceased to apply when the sale of their property took place. 22 In addition, the respondent has refused to grant an "Act of Grace" payment. Act of Grace payments are made in some jurisdictions under specific statutory provisions. For example, in the case of the Commonwealth Government the authority for Act of Grace payments is provided by s 33 of the Financial Management and Accountability Act 1997 under which the Minister for Finance and Administration, or a delegated officer, may authorise an Act of Grace payment. A number of States and Territories have similar statutory provisions. However, there are no statutory provisions in New South Wales that authorise Acts of Grace payments. In New South Wales the Act of Grace power is recognised as being an executive power that can be exercised by Ministers who have authority to approve ex gratia payments within certain guidelines. 23 The Treasurer has delegated his discretion to make such payments within the Office of State Revenue to the Chief Commissioner. The Commissioner has issued his "Technical & Procedural Instructions No. 404" on 19 September 2001 setting out in some detail the procedures for submissions and in what circumstances he will grant an Act of Grace payment. Among the broad categories which may give rise to claims the Chief Commissioner has included cases where the "application of legislation produces unintended, anomalous, inequitable, unjust or otherwise unacceptable results in the particular circumstances". 24 The review power of this Tribunal is limited by s 96 of the TA Act to decisions of the Chief Commissioner that have been the subject of an objection under s 86 of the TA Act. Section 86 allows a taxpayer who is dissatisfied with (a) an assessment that is shown in a notice of assessment served on the taxpayer, or (b) any other decision of the Chief Commissioner under a taxation law to lodge a written objection with the Chief Commissioner. 25 I agree with the respondent that the decision not to grant an "Act of Grace " payment was not made under a taxation law nor was it made un relation to the objection lodged by the applicants. The respondent in his objection decision the subject of this review had no statutory obligation to indicate his views on the internal recommendation that the applicants were entitled to an ex gratia payment. This Tribunal also has no jurisdiction to consider an "Act of Grace" payment that the respondent is entitled to make in the administration of revenue laws. But, in the circumstances of this matter, it is difficult not to make the observation that the outcome for the applicants' was "inequitable or unjust". 26 Unfortunately, the result in this matter is that the Chief Commissioner's decision under review must be affirmed.