Set aside by Appeal : Set aside by appeal on 24 November 2003 CITATION: Mesiti v Chief Commissioner of State Revenue [2003] NSWADT 99 DIVISION: Revenue Division APPLICANT PARTIES: Sharyn Mesiti RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 026034 HEARING DATES: 20/01/2003 SUBMISSIONS CLOSED: 01/20/2003 DATE OF DECISION: 05/13/2003 BEFORE: Verick A - Judicial Member APPLICATION: Land tax exemption - principal place of residence MATTER FOR DECISION: Principal Matter LEGISLATION CITED : Land Tax Management Act 1956 Buckley v CLT (NSW) (1975) 5 ATR 269 CASES CITED: Flaracos v Chief Commissioner of State Revenue (2003) NSWSC 68 Commissioner of Land Tax v Christie (1973) 2 NSWLR 526 Council of the City of Newcastle v Royal Newcastle Hospital (1959) 100 C.L.R 1 APPLICANT REPRESENTATION: In Person RESPONDENT H R Sorensen, Barrister ORDERS: The decision of the Chief Commissioner under review is set aside and the objection against the assessments for the 2000, 2001 and 2002 land tax years is allowed. Introduction 1 The Applicant seeks a review of an objection decision made by the Chief Commissioner of State Revenue (Chief Commissioner) in relation to land tax assessments for the 2000,2001 and 2002 land tax years issued on 27 February 2002. 2 The issue in this matter concerns the exemption under the Land Tax Management Act 1956 (NSW) ("the LTM Act") from land tax, land that is used and occupied as the principal place of residence of the owner of the land. In particular, the matter raises the following question for determination: Having regard to the provisions of section 3(1) and 3(3) of the LTM Act, is the Applicant entitled to the exemption from land tax under the provisions of section 10(1)(r) of the LTM Act in respect of the Applicant's property situated in Willoughby? Background 3 The Applicant submitted to the Tribunal the following statement of facts relevant to her claim for exemption: "(a) My home at 100A Sydney Street, Willoughby was my principal place of residence up until I sold it in June 2002. (b) I lived at Willoughby with my two sons. (c) I met my partner (now husband) in 1997 and during 1998, as I was spending more and more time at his residence in Drummoyne, decided to move the bulk of my clothing to his place. I still kept everything else I owned at Willoughby and when my partner was away on business and on other occasions when circumstances dictated would go home to spend time with my sons, cook them a meal and make sure they were looking after the home. (d) My sons at no time paid rent to live in their family home. They paid the utility bills and I paid the rates and insurance. (e) The reason we did not spend more time at Willoughby instead of Drummoyne was that we wanted to give our relationship the best chance possible and I didn't feel that I could do that with my sons living in the same house. (f) I wanted to keep my home as it was until I was sure that our relationship was going to work and had a firm commitment from my partner. We had both been married before and wanted to be absolutely sure before we committed ourselves permanently. If things hadn't worked out I knew that I still had my home to return to. (g) I changed my licence details in 1998 purely for convenience as I was spending more of my time at Drummoyne. (h) In October 2000 I was diagnosed with Breast Cancer and as I needed an operation and subsequent radiotherapy my partner suggested that I give up full time work and take over all our personal/business matters to make his professional life a little easier. I then changed my address on the electoral role as I was living at Drummoyne full time. (i) In September I informed my sons that I would be selling our home at Willoughby early in 2002 as my partner and I were to be married in October and were planning to buy a home together. (j) I did not (and do not) have any financial interest in my husband's property at Drummoyne. With the money received from my home at Willoughby we have since bought a block of land and plan to build a new home together. (k) Up until June 2002 I considered Willoughby my home and principal place of residence as did my sons. I had full control over the property at all times and the only reason I didn't sell it when I took up full time residence at Drummoyne was because I still considered it my home while my children were living there and I wasn't prepared to ask them to leave their family home while there was even the slightest chance that my relationship would not be permanent." 4 As part of his written submissions, the Chief Commissioner produced the following chronology: "Nov 1994 Applicant purchased and commenced occupying 1997 Applicant met her partner ("P") - who is now her husband 1998 Applicant commenced living at P's Drummoyne house (11B Drummoyne Avenue) 22 Dec 1998 Applicant's driver's licence address details changed from Willoughby to Drummoyne Oct 2000 Applicant ceased previous full-time employment to take care of her and P's personal/business matter Nov 2000 Applicant's Electoral Roll address details changed from Willoughby to Drummoyne Sep 2001 Applicant determined Willoughby would be sold, she and P having decided to marry Feb 2002 Willoughby property placed on the market for sale 27 Apr 2002 Contracts for sale of Willoughby exchanged 11 June 2002 Lodgement of 2002 Initial return 25 Jun 2002 Settlement of sale of Willoughby 13 Jun 2002 Notices of assessment for 2000, 2001 and 2002 issued 15 Jul 2002 Applicant objected to assessments 6 Sep 2002 Objection disallowed" 5 The factual content of the statement made in writing by the Applicant and the Commissioner's chronology are not in dispute. The Applicant's case 6 The Applicant case is that she continued to treat and regard her home in Willoughby as her principal residence during the relevant period notwithstanding her absences when she stayed with her partner, now husband, at his residence in Drummoyne. The Applicant also claims that she had possession and full control over the Willoughby property during the relevant tax years. The Chief Commissioner's case 7 The Chief Commissioner accepts that Willoughby was also a place of residence of the Applicant but submits that, on the facts, Drummoyne, her other place of residence during the period, was her "principal place of residence". The Chief Commissioner takes this view largely on the basis of the following facts which he has set out in paragraph 10 of his written submission: '(i) The Applicant commenced living at Drummoyne in 1998. (ii) In 1998 the Applicant moved the bulk of her clothing to Drummoyne. (iii) By 1998 the time spent by the Applicant at Drummoyne compared with that spent by the Applicant at Willoughby was such that in December 1998 the Applicant changed her driver's licence address to Drummoyne "for convenience". (iv) By October 2000 the Applicant was "living at Drummoyne full time". (v) The Applicant had her Electoral Roll address details changed from Willoughby to Drummoyne in October/November 2000.' 8 The Chief Commissioner in his submissions proceeds to consider the application of s 10(1)(r)(ii) and s 3(3)(a) to the facts and concludes that the 'evidence does not establish that at all material times Willoughby "and no other land" was relevantly "continuously used and occupied by" the Applicant for residential purposes and for no other purpose'. 9 In a supplementary submission, made by the Chief Commissioner after the hearing of the case, the Chief Commissioner submits that no issue of the Commissioner exercising the discretion given to the Chief Commissioner by the provisions of s 3(3)(b) arises in this case. The Chief Commissioner takes the view that the discretion only arises 'in a case where in respect of any year the subject land - (a) is not land as described by s.3(3)(a) - s.3(3)(b) operates only in respect of land "in any other case"; and (b) is used and occupied by the person as the person's "principal place of residence" - as defined by s.3(1) of the Act.' 10 The Chief Commissioner further expanded his submission in relation to the exercise of the discretion in the following paragraphs: '3. Thus if the owner of land did not commence use and occupation of that land as a principal place of residence until say 31 December, and on and after 30 January leased the land to tenants on a continuing basis, the Commissioner could determine not to exercise the s.3(3)(b) discretion and so deny a s.10(1)(r) exemption in respect of the land: cf Revenue Ruling LT 20, para 20. 4. Section 3(3)(a) cannot apply here because (as accepted by the applicant) there are two places of residence (Willoughby and Drummoyne). On the Commissioner's view of the facts the Commissioner concluded that Willoughby was not 'used and occupied as the principal place of residence" as defined in s.3(1) - it therefore followed that no issue of the Commissioner exercising the s.3(3)(b) discretion arose. 5. If the Tribunal determines on the facts as presented that Willoughby was "used and occupied as the principal place of residence" then, and only then, does any issue of the s.3(3)(b) discretion arise.' 11 The Chief Commissioner also takes the view that the question as to which 'of the two residences is the applicant's "principal place of residence" is an objective question of fact once the meaning of "the principal place of residence " has been determined: see Buckley v CLT(NSW)(1975) 5 ATR 269 at 272.2.' Reasons and decision 12 So far as it is relevant for purposes of this matter, Section 10(1)(r) of the LTM Act provides that a land that is used and occupied as the principal place of residence of the owner of the land and for no other purpose is exempt from land tax. The qualifying criteria for the exemption are set out in s 10(1)(r) of the LTM Act. Section 10 (1)(r) states as follows: "with respect to taxation leviable or payable in respect of the year commencing on 1 January 1998 or any succeeding year, land that has a land value in respect of the year of less than the premium tax threshold and that is used and occupied as the principal place of residence of the owner of the land (or, if there are joint owners, as the principal place of residence of one or more of them) and for no other purpose (except as provided by subparagraph (iii), being: (i) a strata lot, or (ii) a parcel of residential land, or (iii) a parcel of residential land on which there is also one of the residential occupancies referred to in subsection (1D)(b)(ii) (A)-(F), unless the owner or all of the joint owners who so used and occupied the lot or parcel (as appropriate) is such an owner by reason only of being a trustee". For purposes of the exemptions found in paragraphs 10(1)(r)(ii) and (iii), "residential land" is defined in s 10(1D) to mean "land that is used and occupied for residential purposes and for no other purpose, that use and occupation being use and occupation of a building or buildings designed, constructed or adapted for residential purposes". 10(1) (r). 13 This exemption has to be read with the provisions of s 3(1) and s 3(3) of the LTM Act. 14 The term "principal place of residence" is defined in s 3(1) of the LTM Act as follows: "principal place of residence" of a person means the one place of residence that is, among the one or more places of residences of the person within and outside Australia, the principal place of residence of the person". Section 3(3) provides that: "(3) For 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. 15 Section 3(3) was introduced in 1975 and commenced to apply from 31 December 1975 to restrict the exemption to, in terms of the Explanatory Note, "to limit land tax exemptions and concessions relating to residential land used as the principal place of residence of the owner of the land". In introducing the Bill containing this amendment, Mr Coleman, the then Minister for Revenue and Assistant Treasurer, had this to say in relation to this particular amendment: "The amendments to sections 3 (1) and 3 (2) impose a requirement that a residential unit owned by reason of the ownership of land or the holding of shares in a company must be the owner's principal place of residence. The new section 3 (3) defines the principal place of residence of a person as land, and no other land, that has been continuously used and occupied by that person for residential purposes and no other purpose since before the first day of July that last preceded the commencement of a tax year or, where the period of residence cannot be satisfied, if the Commissioner of Land Tax is satisfied that the land is occupied by that person as his principal place of residence. At present an exemption is provided in respect of what has been defined as residential land. However, cases have occurred where persons have been able to demonstrate that they use more than one property as their residence, and others have got around the spirit of the legislation by vesting one property in the name of the husband and another in the name of the wife. In other cases it has been evident that, while persons own a residence in this State, their principal place of residence is outside the State. The new definition will limit the exemption to one property but the impact of this change will be reduced by other amendments in the bill." 16 In Revenue Ruling LT 20 (PRINCIPAL PLACE OF RESIDENCE) issued on 8 November 1989, the Chief Commissioner set out his views in relation to the operation of s 3(3). Discretion is given to the Commissioner under s 3(3)(b) to allow the exemption in circumstances, which do not come within the criteria, set out in s 3(3)(a). 17 There are, in my opinion, three basic requirements specified in s 3(3)(a) that have to be satisfied for the exemption to operate. They are, namely: (a) the land must have been continuously used and occupied by the owner since 1 July preceding the commencement of the tax year; (b) it must be used and occupied for residential purposes and for no other purpose; and (c) the owner must not have used and occupied any other land as a principal place of residence since 1 July preceding the tax year. 18 The "use" and "occupation" requirements of this exemption have been recently considered in a judgment handed down on 14 March 2003 by his Honour Gzell J in the Supreme Court of New South Wales in Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68. These requirements have also previously been considered in the context of the forerunner of s 10(1)(r) by the New South Wales Court of Appeal in Commissioner of Land Tax v Christie[1973] 2 NSWLR 526. 19 His Honour in Flaracos was considering a set of facts in relation to exemption found in s 10 (1) (r) and, in considering the requirements of "use" and "occupation", his Honour relied on the interpretation of these terms suggested by the Court of Appeal in Christie. 20 In relation to "use" Bowen JA, with whom Jacobs P agreed, said in Christie at page 533: "Use" has regard to the purpose to which the land is put. Under sec 9 (3) (e) it must be shown to have been devoted to the purpose of constituting the site of the dwelling house. Provided there is a unity in the land in question in a physical sense and a unity in what is done in devoting it to the purpose of providing or constituting the site, and provided there is a sufficiently proximate and not too remote connection between the dwelling house and its requirement or requirements of its users or occupants on the one hand, then this element will be sufficiently established to demonstrate "use" as the site of the dwelling house. 21 In relation to "occupation", Bowen JA in Christie went on to say, at pages 533-534: "Occupation" is not synonymous with legal possession. It includes possession, but it also includes something more: see Newcastle City Council v Royal Newcastle Hospital. It involves an element of control, or preventing or being in a position to prevent the intrusion of strangers (Newcastle City Council v Royal Newcastle Hospital). It is for this reason that physical presence on the land and fencing are evidence of occupation. But continuous physical presence on every part of the land does not have to be shown in order to establish occupation. 22 In Flaracos, his Honour Gzell J expressed his opinion as what constitutes "use and occupation" as follows: "28. The continuous use and occupation required by s 3(3)(a) of the Act means that the use of the land for residential purposes must remain constant throughout each relevant eighteen month period. If portion of a residence is converted into a shop, the land no longer answers the description of continuous use for residential and no other purpose. The plaintiff's land having at all times been used as a dwelling, it satisfied this requirement. 29. In my opinion continuous physical presence on the land is not required to constitute continuous occupation. If a person leaves his or her premises for a holiday, it would defeat the purpose of the Act to conclude that occupation had ceased to be continuous. So long as the person retains the right to possession and controls possession, that person remains in occupation, in my view. The observation of Sir Nigel Bowen in Christie that physical presence over all the land is not necessary to establish occupation is equally apposite when there is some hiatus in physical presence over time." 23 There is also support for the view that "legal possession" and "occupation" have different meanings, in the following observations made by Lord Denning in the Privy Council in Council of the City of Newcastle v. Royal Newcastle Hospital [1959] 100 C.L.R. 1 at page 4: "But legal possession is not the same as occupation. Occupation is a matter of fact and only exists where there is sufficient measure of control to prevent strangers from interfering … There must be something actually done on the land, not necessarily on the whole, but on part in respect of the whole. No one would describe a bombed site or an empty unlocked house as 'occupied' by anyone …" 24 In the present matter, when the decision was made by the Chief Commissioner to disallow the objection against the assessment, it was made on the grounds "that a 'continuous use and occupation' had not been occurring since 1999". The Chief Commissioner, in making this decision, accepted that the applicant maintained the property and had her personal goods and effects at her Willoughby home and that the property was used as a residence. 25 The Chief Commissioner's case was essentially based on the fact that the applicant lived at the residence of her partner and therefore had failed the "continuous occupation" test. Some reliance was also placed by the Chief Commissioner on the fact that the applicant had changed her driver's licence address and her Electoral Roll address to Drummoyne. The Chief Commissioner in taking this view ignored what he had said in relation "use and occupation" in his own ruling, LT20. In clause 6 of that ruling the Chief Commissioner accepted as follows: '6. An owner need not be continuously resident on the land to meet the "use and occupy" test. Provided the land is maintained as the owner's principal residence whenever the owner wishes to use it, the exemption will apply. This would be so even though the land may not be physically occupied by the owner at any time during a particular year.' 26 In taking his position the Chief Commissioner, instead, relied on what can only described as a strict interpretation of s 3(3)(a) without any regard to the policy intent of the provisions which were explained in particular in the Parliamentary Speech when the section was introduced. 27 At that time, unfortunately, the Chief Commissioner did not have the advantage of his Honour, Gzell J's decision in Flaracos. In view of the decision in Flaracos, it is now clear that it is not necessary to satisfy any "continuous physical presence" test and that an owner is entitled to the exemption if, during the physical absence, the owner "retained the right to possession and maintained his rights of control over the land'. 28 For the Applicant to succeed she has to demonstrate that (a) her Willoughby residence was used as a residential property; (b) that she had the right to possession and controlled that possession during the relevant period and (c) she did not "use and occupy" any other land as her principal place of residence. 29 In the present matter, there is no evidence to show that the Applicant ceased to have possession or control until she sold her Willoughby home. On the contrary, the evidence would suggest that the Applicant retained possession and control of her property until it was sold. In her statement to the Tribunal she made it clear that, other than moving the "bulk of my clothing", she "kept everything else I owned at Willoughby and when my partner was away on business and on other occasions when circumstances dictated would go home to spend time with my sons, cook them a meal and make sure they were looking after the home". 30 The Applicant also regarded the Willoughby as her home and principal place of residence until June 2002 when it was sold. I am satisfied that the Applicant clearly met with the requirements of (a) and (b) as set out in paragraph 29. 31 The final question that needs to be considered in relation to the requirements of s 3(3)(a) is whether the Applicant had "used and occupied" any other property as her principal place of residence during the relevant period. 32 The Chief Commissioner's submission that the Applicant by staying at the Drummoyne home of her partner had "used and occupied" another property is in my opinion based on an incorrect interpretation of the provisions of s 3(3)(a). The provisions found in s 3(3)(a) that relate to the exemption being available to only one residential property have to be read very carefully. The requirement is in respect of any other "land or flat" which has "been continuously used and occupied". It would apply where an owner had two properties, which were used for residential purposes. The exemption will be available to only the property that could properly be described as the owner's principal residence. The restriction found in those provisions cannot, in my opinion, apply where an owner of a single residence also spends time living with a friend gratis. In the present matter, the Applicant did not have a lease or any interest in relation to the Drummoyne property. The "use and occupation" test required by s 3(3)(a) in respect of that property would not apply to the Applicant because, legally, the Applicant did not have possession nor any control over possession of that property. She was there entirely due to the friendship and generosity of her partner. 33 Accordingly, the Applicant only had the Willoughby property, which, in my opinion, was used for residential purposes and no other purpose during the relevant period and remained the Applicant's principal and only residential property. I should add that the view I take is consistent with the view the Chief Commissioner has expressed in his ruling and also with the policy intent of the amendment to the LTM Act, which introduced s 3(3) to ensure that owners were only entitled to the exemption for one residential property. The Applicant only owned the Willoughby property during the relevant period and I consider the Chief Commissioner's approach to deny her exemption not only wrong in law but also very harsh on the facts of the case. 34 In order to fully deal with this matter, I will also consider the operation of the discretion found in s 3(3)(b), generally and against the facts in this matter. 35 His Honour, Gzell J did not, in Flaracos, express any view about the discretion given to the Chief Commissioner under s 3(3)(b). My own view is that it operates in cases where the taxpayer is not able to demonstrate that the residence has been "continuously used and occupied by the owner" for residential purposes. The discretion will become relevant where, for example, the residence is let out for a very short term because the owner is away or absent due to work or holiday purposes to be at some other location, or where some part of the residence is used for non-residential purposes (example a home office). In those cases, the Chief Commissioner is able to exercise his discretion to treat a property as the owner's principal place of residence if all the facts and surrounding circumstances warrant that the Chief Commissioner take that view although the owner has failed to satisfy one or more of the strict requirements of s 3(3)(a). The question of "continuous physical presence" may arise for consideration under the discretion although it is a question to be tested against "possession and control". 36 There is support for this view in the statement made by the Minister in his Parliamentary Speech when introducing this provisions - "where the period of residence cannot be satisfied, if the Commissioner of Land Tax is satisfied that the land is occupied by that person as his principal place of residence. The Chief Commissioner in his Revenue Ruling No LT 020 acknowledges this position in paragraph 12 - 'The Chief Commissioner has a discretion to grant the exemption where one or more of the requirements in section 3(3)(a) are not met.' 37 The Chief Commissioner has, in submission contained in the supplementary submissions in relation to the discretion, submitted that the discretion only applies in the present matter if it is determined that the Willoughby was "used and occupied as the principal place of residence". This submission was based on the Chief Commissioner's interpretation of the provisions of s 3(3)(a) which, in his view, required "continuous physical presence" of the Applicant at her Willoughby home. In view of interpretation given to the words "continuously used and occupied" by the court in Flaracos, the Chief Commissioner's submission was clearly based on an incorrect understanding of the law. 38 In any case, if for any reason it can be shown that the Applicant has not fully satisfied the requirements of s 3(3)(a), I am of the opinion there are sufficient grounds in this matter for the Chief Commissioner to exercise his discretion and allow the exemption. 39 The Willoughby property remained the Applicant's home during the period and where all her possessions, other than her clothes, were kept. The property was used as a residential property during the period and for no other purpose. The Applicant did not own any other property nor leased any other property during the relevant period. Until her decision to sell and the eventual sale it was her home. Living in Drummoyne was essentially to establish her relationship with her partner. These facts and all the surrounding circumstances of this case clearly warrant the exercise of the discretion if any of the requirements for the s 10(1)(r) exemption found in s 3(3) have not been fully met by the Applicant. 40 The policy behind the exemption is clearly that owners of property in New South Wales are entitled to, subject to the upper limit of the value of the residence, exemption from land tax in respect of their principal residence. The provisions have to be read to give effect to that policy intent. In my opinion the language used in the relevant provisions is unambiguous and can easily be read to give this policy intent of the legislation. Section 3(3) was introduced after the decision of the Supreme Court of New South Wales in Buckley v CLT (NSW) (1975) 5 ATR 269 where the taxpayer successfully claimed an exemption under the old law for two residential properties. 41 Accordingly, the decision under review should be set aside and the objection against the 2000, 2001 and 2002 land tax assessments allowed. 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.