Set aside by Appeal : Set aside by Appeal on 13 October 2003 CITATION: Aldridge & Anor -v- Chief Commissioner of State Revenue [2003] NSWADT 120 revised - 13/10/2003 DIVISION: Revenue Division APPLICANTS PARTIES: Gregory Neville Aldridge Rebecca Reay FILE NUMBER: 026021 HEARING DATES: 23/12/2002 SUBMISSIONS CLOSED: 12/23/2002 DATE OF DECISION: 05/22/2003 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 Taxation Administration Act 1996 CASES CITED: Mesiti v Chief Commissioner [2003] NSWADT 99 Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68 APPLICANTS REPRESENTATION: In Person RESPONDENT D Martin, Agent ORDERS: The decision of the Chief Commissioner under review in relation to the 1998 is set aside. The decision in relation to the 1999 and 2000 years is affirmed. Introduction 1 In this matter the Applicants seek a review of an objection decision made by the Chief Commissioner of State Revenue ("Chief Commissioner") in relation to land tax assessments for the 1998, 1999 and 2000 land tax years issued on 8 March 2002. 2 The principal issue in this matter concerns the exemption under s 10(1)(r) of the Land Tax Management Act 1956 (NSW) ("the LTM Act") from land tax, land that is used or occupied as the principal place of residence of the owner of the land. In particular, the matter raises the question whether the Chief Commissioner should exercise his discretion found in s 3(3)(b) of the LTM Act to treat the Applicants' property situated in Croydon New South Wales as being their principal residence in the years in question. 3 A subsidiary question is raised by the Applicants in relation to the interest imposed by the Chief Commissioner under section 22 of the Taxation Administration Act ("TA Act"). In this application to the Tribunal the Applicants seek a remission of the interest under s 25 of the TA Act. An additional ground relating to the valuation of the land was raised in the application but, as the Tribunal had no jurisdiction to consider the ground, the applicants did not pursue with that at the hearing of their application. Background 4 The Applicants purchased the Croydon house in July 1995. In July 1997 Mr Aldridge was appointed to a position at Queanbeyan, New South Wales. At that time, Mr Aldridge was uncertain as to whether this was to be a permanent position. His wife, the second applicant, and his children remained resident at the Croydon house until the end of November 1997. It was only rented out on 1 December 1997 for a short lease. The house remained partially furnished with their furniture and personal belongings. 5 During the years 1999 and 2000, the Applicants and their children returned to the family home for several extended stays. In particular, they spent 1 July 1998 - August 1998 (one month) and May 1999 - June 1999 (two months) in residence at the Croydon house. The reasons for the stay in the Croydon house during these periods was essentially "to be closer to family" and seek employment in Sydney as the original position in Queanbeyan was not as Mr Aldridge had "wished it to be". 6 Eventually Mr Aldridge's "position in Queanbeyan was expanded and upgraded in late 1999" and the Applicants "decided to move permanently from Sydney". Until then the Applicants regarded their Croydon house as their principal residence. The Applicants bought a property in Hughes ACT in January 2000 and sold the Croydon property in April 2000. 7 The Applicants had not lodged any land tax returns in respect of their Croydon house for the relevant years under review as they considered it to be exempt under s 10(1)(r) of the LTM Act being their principal residence. 8 The Chief Commissioner had, through his own investigations taken the view that the property was not exempt and issued an assessment dated 8 March 2002 for the 1998 to 2000 years in which the Chief Commissioner also imposed interest at both market and premium rates for failure to lodge the land tax returns for the relevant years. 9 The Applicants objected against the assessments on the 18 March 2002 and further expanded their grounds in a letter dated 2 May 2002. The Applicants, inter alia, sought a remission of the interest imposed on the grounds that it was their "understanding that the family home (unless its land value was greater than about $1m) was immune from this tax" and that their accountant who prepared their tax returns had at no time drawn their attention to any land tax liability. In relation to the assessment of the property, the Applicants objected against the 1998 year assessment on the ground that they had been charged with land tax for the entire year when, in fact, they occupied the house until late November 1997. 10 The Chief Commissioner allowed the objection against the premium rate of interest but disallowed the objection against the market rate of interest that had been included in the assessment and the liability to land tax for all the tax years including the 1998 year. 11 The Chief Commissioner, in written and viva voce submissions at the hearing, takes the view that, because the property was rented out from November 1997, the property was not used and occupied by the Applicants for residential purposes in the relevant years. In relation to the interest imposed at market rate, the Chief Commissioner submitted that there are no grounds to make any remission because the "market rate of interest is imposed to compensate the State for being denied the use of the funds to which it is entitled". Reasons and decision 12 In a recent decision of the Tribunal, Mesiti v Chief Commissioner [2003] NSWADT 99 (see paragraphs 12 - 24), I considered in some detail the provisions relating to the exemption under s 10(1)(r) and the application of the provisions of s 3(3)(a) and (b) of the LTM Act. I concluded in Mesiti that there were three requirements that had to be satisfied before the exemption in s 10(1)(r) is available to a taxpayer when the provisions of s 3(3)(a) apply. These are, namely: (a) the relevant land (residential property) must have been continuously used and occupied by the owner since 1 July preceding the commencement of the tax year in question; (b) it must be used and occupied for residential purposes and for no other purpose; and (c) the owner or owners must not have used and occupied any other land (residential property) as a principal place of residence since 1 July preceding that year. 13 In relation to the "continuously used and occupied" test, relying on the recent authority of the Supreme Court in Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68 and the cases cited in that judgment, I took the view that it was not necessary to satisfy this test by any "continuous physical presence". An owner would satisfy the test and be entitled to the exemption, subject to all other requirements being satisfied, provided that, during the period of any physical absence, the owner retained the right to possession and maintained his rights of control over the land. 14 Accordingly, for the Applicants to succeed they have to satisfy the three requirements specified in s 3(3)(a) of the LTM Act. The requirements are: (a) the Croydon home was continuously used and occupied by the Applicants (that is, the Applicants had possession and control over the property) since 1 July preceding the commencement of each of the tax years in dispute; (b) that during the relevant period, the Croydon home was used and occupied for residential purpose; and (c) the Applicants did not use and occupy any other property as a principal place of residence since 1 July preceding each of the tax years in dispute. 15 In the present matter, the facts are not in dispute. The Applicants accept that the property was leased at the end of November 1997 for a short period and was leased under further leases until it was sold. 16 The Applicants also accept that the Croydon house was not their principal place of residence for tax years 1999 and 2000. But they claim that, in the 1998, tax year it was their principal place of residence for eleven months and the Chief Commissioner should grant them the relevant exemption. 17 Liability to land tax in New South Wales rests with the owner on the status of the property as at midnight on 31 December of the preceding year. In this matter, the Croydon house was at that time and on that date in each year leased to tenants. The Applicants were not only physically not present at their Croydon house but they had also given possession and control to a third party, being their tenants. Accordingly, the Chief Commissioner was correct in terms of s 3(3)(a) to deny the Applicants the exemption for the relevant years including the 1998 tax year by taking the view that the Croydon property was not the principal place of residence as at the various taxing dates. There is unfortunately no provision in the land tax law for any apportionment of tax payable where a substantial part of the relevant period is in a sense "tax free". 18 In considering the objection, the Chief Commissioner did not consider his discretion under s 3(3)(b) of the LTM Act. My views in relation to that discretion have also recently been expressed in some detail in my decision in Mesiti v Chief Commissioner [2003] NSWADT 99. In considering the discretion in this matter, I will adopt the following passage found in paragraph 30 of that decision: 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". 19 In a submission dated 28 November 2002 to the Tribunal, the Applicants have drawn attention to the fact that they did not decide to permanently vacate their Croydon house until about May 1998 and that, during the first six months they moved from our Croydon house on a trial basis. The Croydon house was, accordingly, only rented on a short-term lease for six months from November 1997. The Applicants "decided to move permanently to Canberra and relinquish the Croydon house" only sometime in May 1998. 20 In Revenue Ruling LT 20 the Chief Commissioner in considering his discretion found in s 3(3)(b) indicates in paragraph 12 that that the exercise of the discretion may be justified to include circumstances as for example where "the residence was rented out, but the arrangement was only temporary, e.g. the owner went on a holiday". My views expressed in Mesiti are clearly consistent with the Chief Commissioner's understanding of the discretion and also, as explained in that case, supported by what was said by the Minister in his Parliamentary Speech when introducing this provision in the land tax legislation. 21 In the present matter, the first lease was, as indicated by the Applicants, for a short term and it was not until May 1998, that a decision was made to abandon the Croydon house as their principal residence. The Applicants were themselves staying in a rental property on that basis. They only purchased another property in January 2000 which became their principal residence. The Croydon house was sold in April 2000. I am of the view that the strict application of the provisions found in s 3(3)(a) in relation to 1998 year produce a fairly harsh result for the applicants. When all the facts and surrounding circumstances are taken into account, there is justification for the Chief Commissioner to exercise his discretion and treat the Croydon house as the Applicants' principal residence, at least in relation to the 1998 year. I will, accordingly, exercise the discretion and allow the objection against the assessment for the 1998 year. 22 I agree with the Chief Commissioner that there are no grounds to remit the interest that has been included in the assessment for late lodgement of the relevant returns. That interest, as the Chief Commissioner contends, is imposed correctly to compensate the State for being denied the use of the funds to which it was entitled to at an earlier point in time. 23 In the circumstances, I will set aside the objection decision made by the Chief Commissioner in relation to the 1998 tax year but will affirm the Chief Commissioner's decision to disallow the objection against the 1999 and 2000 tax years. 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.