Marcus v Chief Commissioner of State Revenue [2005] NSWADT 97

CITATION: Marcus v Chief Commissioner of State Revenue [2005] NSWADT 97 DIVISION: General Division APPLICANT PARTIES: Leonid Marcus RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 043414 HEARING DATES: 23/03/2005 SUBMISSIONS CLOSED: 04/22/2005 DATE OF DECISION: 05/06/2005

BEFORE: Higgins S - Judicial Member APPLICATION: first home owners grant - reversal of original decision - First Home Owners Grant Act - first home owners grant - reversal of original decision MATTER FOR DECISION: Principal matter LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 First Home Owners Grant Act 2000 CASES CITED: Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158 APPLICANT REPRESENTATION: In person RESPONDENT S Benjamin, solicitor ORDERS: The Tribunal affirms the decision of the Chief Commissioner to:; a) reverse, pursuant to s.23 of the First Home Owner Grant Act 2000, a previous decision made under that Act to pay the applicants a grant of $7,000;; b) require, pursuant to s.45(1) of the First Home Owner Grant Act 2000, the applicants to repay the grant of $7,000; and; c) impose a penalty, pursuant to s.45(3) First Home Owner Grant Act 2000, of 20% of the grant (i.e. $1,400.00).

REASONS AND DECISION Background 1 This is an application by Leonid Marcus ("the applicant") seeking review of a decision of a delegate of the Chief Commissioner of State Revenue ("the Commissioner") to dismiss his objection to the Commissioner's decision to request that they repay the $7,000 first home owner grant that he and his wife had been paid pursuant to the First Home Owner Grant Act 2000 ("the FHOG Act"). The basis of the Commissioner's decision to request the repayment of the grant was the failure by he and his wife to occupy the property to which the grant related as their principal place of residence within 12 months of having purchased the property. This was a requirement under s.12 of the First Home Owner Grant Act 2000. 2 In addition to requesting the repayment of the grant amount, the Commissioner imposed a penalty of $1,400. The factual basis on which the Commissioner imposed this penalty, which represented 20% of the grant amount, was the applicant's failure to advise his office that he and his wife would not reside in the property the subject of the grant within the required period of time, and the applicant's failure to repay the grant within 14 days, following the expiry of the 12 months residency requirement period. 3 At the hearing the only issue before the Tribunal was whether the Commissioner's decision to impose a penalty of 20% was the correct and preferred decision. Evidence 4 The Mr Marcus gave oral evidence through an interpreter. This evidence, together with the material that had been filed and served by the Commissioner, was not disputed. In summary, this evidence was to the effect that: (a) on 18 September 2002, he and his wife executed a contract of sale for a unit. That unit was in the same block of units that their daughter also owned a unit. Their daughter had introduced them to the property; (b) in arranging finance to purchase the unit, Mr Marcus approached his mortgagee and asked if he was eligible for the $7,000 first home owner grant. He was told he was eligible and made an application; (c) the application was approved and the applicant and his wife were paid the grant on 13 November 2002; (d) immediately after the applicant and his wife had settled on the purchase of the unit, Mr Marcus placed tenants into it. The unit has continued to be tenanted since that time, although there have been occasions where tenants could not be found. However at all times the unit was available for tenanting; (e) the intention of the applicant and his wife, at the time they purchased the unit was to live in it, however subsequent to this Mr Marcus underwent major surgery. As a result of this surgery, he lost his employment and decided that he and his wife should remain in rented property as their rental payments were less than the mortgage payments for the unit; (f) following receipt of the Commissioner's notice to repay the grant the Commissioner agreed to a re-payment plan as requested by the applicant. 5 In his evidence in chief it was Mr Marcus' contention that the mortgagee gave him a blank piece of paper, which he signed. He also stated that the mortgagee knew he was planning to rent the unit immediately after he had acquired it. He went on to state that he did not at any time realise, nor was he told, that he was required to occupy the unit within 12 months of acquiring it. He understood that the grant was available to anyone who did not have a house or unit. 6 During cross-examination the applicant was shown the original of his application form. He acknowledged that the signature on the form in relation to Applicant 1 was his signature and that the signature in respect of Applicant 2 was that of his wife. He was also pointed to Part A of the application form, which consisted of an eligibility checklist. This list contained seven questions and against each question was a box for the applicant to indicate a 'yes' or 'no' answer. In this case the 'yes' box had been ticked in respect of each of the questions, including Question 6, which said: "Will at least one of the applicant(s) be occupying the home as their principal place of residence within 12 months of either settlement or completion of construction?" 7 Mr Marcus explained that he had not completed these details. These details and all the other details on the form, other than the signatures of his wife and himself, were completed by his daughter. 8 Mr Marcus readily acknowledged that he and his wife were not entitled to the grant and that the Commissioner's decision to reverse his decision and request that they repay the grant was correct. He went on to say that the imposition of the penalty created a significant financial burden on he and his wife and that at no time did he intend to obtain a benefit that he was not entitled to. Relevant legislation 9 The relevant legislation is contained in the FHOG Act. That Act establishes a scheme to assist persons buying or building their first home by providing them with a grant of a prescribed amount of money. To be eligible for a grant, an applicant must satisfy the five eligibility criteria that are contained in Division 2 of Part 2 of that Act. The fifth eligibility criteria is set out in s.12(1) of the FOGH Act and requires the applicant to occupy the property, the subject of the grant, as his/her principal place of residence, within 12 months of completing the purchase. In this case, from the material before the Tribunal, it would appear that the applicants settled the purchase of the unit, the subject of the grant, in late September 2002. This meant that they were required to have occupied it as their home some time before the end of September 2003. 10 Where an applicant is given a grant prior to meeting the residence requirements of s.12 of the FHOG Act, and the applicant subsequently fails to meet this requirement, s.20(3) of the FHOG Act requires the applicant to repay the grant within 14 days after the expiry of the 12 month period, or such longer period as the Commissioner allows. 11 Where an applicant fails to meet the resident requirements of s.12, the Commissioner, pursuant to s.23 of the FHOG Act, is given the power to reverse his decision to give a grant to an applicant. Where the Commissioner makes a decision to reverse an earlier decision, he is also given power, pursuant to s.45(1) of the FHOG Act, to request that the applicant repay the grant. 12 Where the Commissioner requests the repayment of a grant pursuant to sub-s.45(1) of the FHOG Act, sub-s.45(2) & (3) enables the Commissioner to impose a penalty. These sub-ss provide as follows: "45. … (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 repay. (3) If an applicant (or a former applicant) for a first home owner grant failed 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". Penalty 13 As mentioned above, in this case the Commissioner imposed a penalty of 20%. In his letter of objection to the Commissioner's decision, Mr Marcus submitted that the situations specified in s.45(2) & (3) of the FHOG Act did not apply. In the event they did apply, he submitted that no penalty should be imposed as he and his wife had complied with the requirements to the extent they were able to do so. What prevented them from complying fully was the fact that he became ill and was not able to afford to move into the unit. 14 Mr Benjamin, who appeared on behalf of the Commissioner, submitted that the decision of the Commissioner was correct in that the applicant and his wife had lodged their application on the basis that they would make the unit their home within 12 months of purchase and that they then failed to repay the grant, as they were required to do, when they did not make the unit their home within this time. He also submitted that the FHOG Act specifically gives applicants, who are given a grant, 12 months to sort out their personal circumstances and if it cannot be done in this time they are able to seek an extension of the 12 month period. This the applicant did not do. 15 Mr Benjamin also provided the Tribunal with a copy of the Commissioner's policy in respect of how his discretion is to be exercised under s.45 of the FHOG Act. In summary that policy provides as follows: a) no penalty where an applicant makes a voluntary disclosure and re-pays the grant within the time prescribed under the Act; b) 5% penalty where an applicant makes a voluntary disclosure and re-pays the grant outside the time prescribed under the Act; c) 20% penalty where an applicant makes an immediate voluntary disclosure following a "show cause letter" from the Commissioner; d) 30% penalty where an applicant is unable to satisfy the residence requirements or other eligibility requirements following a "show cause letter" from the Commissioner; e) 100% penalty where there is an intentional disregard for the law by the applicant. 16 In my opinion there are considerable difficulties with this policy. For example, the first mentioned circumstances (i.e. (a) above) are circumstances in which the Commissioner could not impose a penalty, as s.45 of the FHOG Act would not apply, unless there was evidence of dishonesty, which would be very unlikely. The policy is also very general in nature and it does not distinguish between penalties imposed by reason of dishonesty pursuant to s.45(2) and those imposed pursuant to s.45(3). Nor does the policy allow for taking into consideration matters that are specific to a particular applicant. Notwithstanding these discrepancies I have had regard to the policy as providing general guidance on the levels of penalty. 17 In my opinion a much more helpful guide on what factors are to be taken into account when exercising this particular discretion is that set out by Judicial Member Molony in Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158 at [51]-[54]. These factors are: a) the deterrent effect of the penalty; b) the nature and extent of the contravention; c) any loss or damage suffered, or gain made, as a result of the contravention; d) the circumstances in which the contravention took place, including deliberateness of the conduct and the period over which it extended; e) whether professional advice had been obtained in relation to the contravention, prior to the breach; f) whether the person has previously been found by a court to have engaged in any related or similar conduct; g) the degree of co-operation with the authorities; and h) in the case of a natural person, the attitude of the offender. 18 The terms of the Commissioner's notice of 25 July 2004, pursuant to s.45 of the FHOG Act, do not clearly state under which particular sub section the penalty was imposed. However, as mentioned in [2] above, the notice does mention the grounds on which a penalty was imposed. These make reference to the applicant and his wife having breached a condition of the grant in not repaying the grant amount within the prescribed time. This is not disputed and the question is whether a penalty can and should be imposed on any other basis. 19 As mentioned above, following receipt of the Commissioner's notice to repay the grant, the applicant and his wife entered into a repayment arrangement with the Commissioner. This means that a penalty could not be imposed on the grounds that the applicant had failed to repay the grant pursuant to the s.45 notice. As pointed out in Calcaro at [58] a notice for repayment cannot simultaneously impose a penalty for the non-repayment of the grant as requested in the notice. 20 The real question is whether the applicant and his wife also acted dishonestly in respect to their application for the grant. I note that the applicant's application was dated 23 September 2002 and that this date had been entered against the signature of both Mr Marcus and his wife. The application also stated that they expected to "occupy" the unit by 21 September 2002, which was two days prior to the signing of the application. The actual application was not lodged with the Commissioner for another 6 weeks, namely 4 November 2002. 21 While I accept Mr Marcus did not fully read the application form that he had signed, I do not accept his explanation that he did not understand that he and his wife were required to occupy the unit within 12 months of acquiring it. I also find that Mr Marcus had sufficient knowledge in reading English to understand what was contained on the application form. In this regard, during cross examination, Mr Marcus said that he had been in Australia for 11 to 12 years and that he has been self employed as a painter for about 10 years. I also noted that when he was shown his application form and directed to various portions of that form he did not appear to have any difficulty in reading and understanding what was said. While there is not sufficient material before the Tribunal to make a finding that Mr Marcus acted dishonestly when making his application, I do find that he failed to ensure that the Commissioner was given the correct information. As a result the Commissioner was given incorrect information to the effect that the applicant and his wife were already occupying the unit at the time the application was lodged. 22 In light of this I also find it difficult to accept Mr Marcus' evidence that he and his wife intended to occupy the unit as their principal place of residence within 12 months of purchasing it. However, I do find that at the time they made the application for a grant that they had an intention to occupy the unit as their principal place of residence at some time in the future. I also accept Mr Marcus' evidence that any penalty that is imposed will create financial hardship for him and his wife. 23 On the basis of the abovementioned findings and having regard to the factors set out in Calcaro and the Commissioner's policy, in my opinion, it is appropriate that a penalty be imposed as a result of the failure by the applicant and his wife to meet the conditions of the grant. I also find that the Commissioner's decision of a penalty of 20% is the correct and preferred decision for the following reasons: a) there is a need to deter others from not complying with the FHOG Act; b) while the applicant and his wife did originally intend to occupy the unit as their principal place of residence they did not necessarily intend to do so within the prescribed time. The subsequent illness of Mr Marcus has caused them financial hardship and prevented them making the unit their home; c) the applicant and his wife do not have any current intention to make the unit their principal place of residence; d) while the applicant did not voluntarily disclose to the Commissioner that he and his wife had failed to comply with the residence requirements of the grant, he has at all times co-operated with the Commissioner following the show cause letter. In this regard he acknowledged that he was not entitled to the grant and entered into an arrangement to repay the grant promptly after receiving the s.45 Notice; e) the applicant and his wife provided incorrect information to the Commissioner in their application for the grant; and f) the applicant and his wife have received the benefit of the grant in that they were able to purchase the unit and they have received rent from the unit since October 2002. That is, the unit has at all times been an investment property. While the FHOG Act enabled the applicant to tenant the unit during the 12 months after it was acquired, the facts in this case are that the grant has been used to purchase an investment property, which is contrary to the objectives of the FHOG Act. 24 For the reasons set out above, the Tribunal affirms the decision of the Chief Commissioner to: a) reverse, pursuant to s.23 of the First Home Owner Grant Act 2000, a previous decision made under that Act to pay the applicants a grant of $7,000; b) require, pursuant to s.45(1) of the First Home Owner Grant Act 2000, the applicants to repay the grant of $7,000; and c) impose a penalty, pursuant to s.45(3) First Home Owner Grant Act 2000, of 20% of the grant (i.e. $1,400.00).