Pearse v Chief Commissioner of State Revenue [2007] NSWADT 14

CITATION: Pearse v Chief Commissioner of State Revenue [2007] NSWADT 14

DIVISION: Revenue Division

APPLICANT PARTIES: Mark Pearse RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 066058

HEARING DATES: 22/09/2006

SUBMISSIONS CLOSED: 22 September 2006

DATE OF DECISION: 10 January 2007

BEFORE: Hole M - Judicial Member

CATCHWORDS: Land tax exemption - principal place of residence

MATTER FOR DECISION: Principal matter

Environmental Planning and Assessment Act 1979 LEGISLATION CITED : Land Tax Management Act 1956 Taxation Administration Act 1996

Ambiance (Arncliffe) Pty Limited v Chief Commissioner of State Revenue (2002) 51 ATR 550 Coleman v Chief Commissioner of State Revenue [2005] NSWADT 236 Gould Management Pty Limited v Chief Commissioner of State Revenue (2004) 55 ATR 369 CASES CITED: Kamper v Chief Commissioner of State Revenue [2005] NSWADT 256 McNally v Chief Commissioner of State Revenue [2003] NSWSC 118 McTackett v Chief Commissioner of State Revenue (2003) 53 ATR 234 Reuman v Chief Commissioner of State Revenue [2004] NSWADT 96 Ryan v Commissioner of Land Tax [1982] 1 NSWLR 305

APPLICANT In person REPRESENTATION: RESPONDENT I Mescher, Barrister

ORDERS: 1. That the assessment by the Chief Commissioner of State Revenue dated 26 September 2005 is affirmed.

REASONS FOR DECISION 1 The applicant has applied to the Tribunal for a review of the decision of the respondent to impose Land Tax on a property at Gymea Bay ("the property") and to also apply the Land Tax retrospectively to include 2001 to 2005 tax years inclusively. Facts 2 In 1922 a sandstone cottage was built on the property. In 1977 the local council gave consent to the construction of a two storey brick dwelling on the property. This consent was subject to the sandstone cottage being converted to a "water oriented use", as e.g. a boatshed, upon occupation of the new dwelling. The local council consent did not give consent to any continued use of the sandstone cottage as a residence. 3 In 1994 the sandstone cottage was listed as a heritage item, now being item B242 Schedule 2 Sutherland Shire LEP 2000. In 1996 financial assistance was sought, by the then owner of the property, from the local council for the restoration of the sandstone cottage. This application was supported by a summary of the historical data relating to the sandstone cottage and noted that: "The cottage was lived in continuously up to late 1978 first by the Chows followed by the Nicholsons and the Wilsons. We purchased the property in 1973 and lived in it until 1978 when we vacated it and moved into a new house at the top of the cliff. Since then the sandstone cottage has been used as a storage and entertainment area." 4 The property comprised two parcels of land, one being a lot in a deposited plan and the other being a lot in a crown plan. The two lots have as a common boundary the old mean high water mark to Gymea Bay. The eastern current boundary of the lot in the crown plan is defined by a straight line which appears to be along the face of an existing sandstone wall. The sandstone cottage is erected partly across the lot in a deposited plan and the lot in the crown plan. 5 In 1997 the applicant purchased the property. At that time the new two storey brick dwelling approved by the local council had been built. There were outstanding conditions in respect of the approval given in 1977. The new house was leased in January 1998 to a third party and the rental bond lodged. This house has then been the subject of further leases to third parties up to the date of the hearing. 6 In 1999 the local council approved the construction of a ramp, pontoon and inclinator next to the sandstone cottage. This approval was subject to various conditions. There was no reference in this approval to the approval given in 1977. One of the reasons given for the application in 1999 was that the construction was required to carry out maintenance of the existing sandstone cottage. The 1999 consent lapsed on 22 December 2001. Relevant legislation 7 The application has been made on the basis that the property (or part of the property) is the principal place of residence of the applicant. 8 Section 3(1), section 10(1)(r) and clause 2(1) Schedule 1A of the Land Tax Management Act 1956 ("the Act") are relevant: (a) For the 2001 – 2003 land tax years: "Section 10(1)(r) With respect to taxation leviable or payable in respect of the year commencing 1 January 1998 or any succeeding year, land … 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 sub-paragraph (iii)) being: … (i) a parcel of residential land, or (ii) a parcel of residential land on which there is also one or the residential occupancies referred to in ss (1D)(b)(ii)(A)-(F)" (b) For the 2004 land tax year: "Section 10(1)(r) 1) Except where otherwise expressly provided in this Act the following lands shall, subject to sections 10B, 10D, 10E, 10G and 10P, be exempted from taxation under this Act: … … (r) land that is exempt from taxation under the principal place of residence exemption, as provided for by Schedule 1A, …" and "Schedule 1A Clause 2(1)(b)(i) of the Act: 2(1) Land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under this Act, in respect of the year commencing on 1 January 2004 or any succeeding year, if: … (b) the land is (i) a parcel of residential land …" (c) For the 2005 land tax year: Section 10(1)(r)as in (b) above and "Schedule 1A Clause 2(1)(a) of the Act 2(1) Land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under this Act, in respect of the year commencing 1 January 2005 or any succeeding year, if the land is: (a) a parcel of residential land …". 9 Section 3(1) provides a definition of Principal Place of Residence as: '"principal place of residence" of a means the one place of residence that is, among the one or more places of residence of the person within and outside Australia, the principle place of residence of the person.' 10 The provisions of the Environmental Planning and Assessment Act 1979 ("the EP&A Act") in so far as the ability to reside in particular premises are concerned are applicable also. A local council is required to identify the legal use of land and to provide a description of that use to an applicant for a certificate pursuant to Section 149(2) of the EP&A Act. Issues 11 There are two specific issues that must be considered in this case being: (a) Is the sandstone cottage able to be occupied legally as a residence, and (b) If the answer to (a) is "yes" then, was it the principal place of residence of the applicant for the relevant years or any of them. 12 A subsidiary question that was raised by the applicant in support of his application necessitates consideration of the following: Is the sandstone cottage erected on the property or is it possible to divide the lot in the deposited plan from the lot in the crown plan so that it could be considered to be on one of those lots, with the consequence that separate land tax provisions may be applied to each of the lots. Evidence 13 The applicant provided supporting information for his application and Mr Pearse gave oral evidence. The evidence supplied included copies of: (a) the Crown Plan; (b) photographs of the sandstone cottage (exterior and interior) taken at various times between 1947 and apparently 2004; (c) copy of letter from the local council dated 1 September 1994 advising that the sandstone cottage had been included in the final list of heritage items and inviting comment from the applicant; (d) copy of part of an approval for a septic tank and plumbing dated 4 November 1970 by the Board of Health; (e) copy of a site plan in respect of the Development Approval from the local council dated 23 December 1999 together with part of the council's report; (f) copy of part of an application to develop the adjoining property of a neighbour; (g) copy of letter from the local council to the previous owner of the property dated 25 March 1996 concerning an application for financial assistance; (h) copy of part of an affidavit relating to the development application referred to in (f) above; (i) copies of completed Land Tax Questionnaires dated 14 December 2000 and 4 April 2002; (j) copy of Land Tax assessment for 2002 – 2001 – 2000 – 1999 tax years issued 30 October 2002 and an assessment issued for the same years on 23 January 2003; (k) copy of letter from the Office of State Revenue dated 26 September 2005 including an amended Notice of Assessment and copy of letters dated 7 November 2005 and 18 December 2005 to the Office of State Revenue objecting to the amended assessment; (l) copy of letter from the Office of State Revenue dated 13 April 2006. 14 The respondent provided supporting material which included: (a) copies of documents obtained from the local council including: (i) letter dated 17 August 1978 from the then owner of the property to the council noting that the sandstone cottage had been vacated and requesting discontinuance of the sanitary service by boat; (ii) letter dated 6 February 1979 from the then owner of the property to the council requesting discontinuance of the sanitary service to the sandstone cottage and noting that this was in accordance with the requirement of the council as part of the development approval; (iii) notice of approval to the development application for the erection of a new dwelling on the property dated 29 June 1977 including conditions; (iv) approval to amended plan for the new dwelling referred to in (iii) above, reiterating the conditions of approval; (v) letter dated 20 May 1977 from the then owners to the council in support of their development application; (vi) notice of consent to development application dated 22 December 1999 including copies of plans showing proposed site of inclinator from near the water level past the new brick dwelling to a connection with steps to the street; (vii) letter dated 25 March 1996 from the then owners of the property seeking financial assistance for restoration under the Heritage Grants Program to attend to repairs on the sandstone cottage noting that the sandstone cottage had not been lived in between 1978 and 1996, it being used as a storage and entertainment area; (viii) grant of licence for pontoon and ramp commencing 1 August 2000 from Department of Land and Water Conservation. 15 The representative of the respondent cross examined the applicant in response to the provision of the applicant's written material to the Tribunal. The applicant's responses were straightforward and disclosed that he had not used a solicitor or conveyancer when the property had been purchased; that he first became aware of the letter dated 24 June 1977 from the local council to the previous owner of the property in August 2006; that he was unaware of the council's conditions concerning the sandstone cottage until mid July 2006; that he was aware that conditions had been imposed by the council in respect of the construction of the two storey brick house approved on 29 June 1977 and that generally there would be conditions attached to that approval; that the two storey brick house had been let continuously from 1998; that the sandstone cottage had not been converted as required by the conditions of the council's approval and that other conditions had not been complied with at the time of his purchase in 1997 nor since, apart from part of the construction (which was required to be removed) which had fallen down. The applicant's submissions 16 The applicant submitted that the sandstone cottage had been used by each of his predecessors in title for residential purposes, and that due to its design and construction it could not and has not been used as a boatshed. The design, construction and adaptation of the sandstone cottage was for residential purposes and its use had not changed, further that since the building was heritage listed in 1994 its character should not be changed. The applicant conceded that the previous owners, in order to retain "this building after completion of a second house" indicated to the local council that it would be converted to exclude future residential use and that this conversion had not been completed. On purchase by the applicant (and his wife) the sandstone cottage contained: - 2 bedrooms with beds/bunks - Fully fitted kitchen (including sink, electric stove, cupboards, preparation benches, and refrigerator cavity - Lounge room - Fibro Sunroom/Dining room - Bathroom/Laundry - Hot Water Service - External Toilet - Front verandah - Sydney Water service/mains pressure - Telephone line - 3 phase electricity service 17 The applicant and his wife run an agricultural enterprise which is based at a farming property at Robertson ("Robertson Farm"). They own other properties in Robertson which are investments and a property at Boorowa. The applicant submitted that when they purchased the property in June 1977 they moved into the sandstone cottage and their furniture and whitegoods were transported there by marine transport. A post office box at Robertson is used as their mailing address for the convenience of the agricultural business. They had enrolled on the electoral roll for the area of the property in 2003 and had records at the Roads and Traffic Authority changed to the address of the property, care of the Post Office Box, in 2002. The arrangements with the tenant of the two storey brick house were made by telephone and mail was redirected to the post office box. Access to the sandstone cottage was generally by water as there are 270 steps from the road level. 18 Over the four years, prior to the hearing, during the drought conditions it has been necessary to hand feed the stock at Robertson. This has entailed a large amount of travel and has resulted in the applicant's use of the property being irregular. 19 The applicant supplied copies of accounts for the property for insurance, Telstra (there is a phone listed under the name of the applicant in the White Pages directory at the property, there is also a phone listed under the name of the applicant and his wife at the Robertson Farm), electricity and water to the respondent. These accounts were addressed to the post office box. The electricity and water accounts relate to the supply to the two storey brick house and to the sandstone cottage, these accounts are forwarded to the tenant of the two storey brick house. 20 The applicant submitted that the many references to the "sandstone cottage" in letters and documents permitted its continued use as a residence. He also submitted that the local council had not raised any issue in respect of the use of the sandstone cottage as a residence although the plans submitted to council in 1999 show the sandstone cottage as such. The respondent's submissions 21 The representative of the respondent made comprehensive oral and written submissions which were directed to: (i) where an exemption pursuant to Section 10(1)(r) and clause 2(1) Schedule 1A of the Act may be applied; (ii) the lawful use of the property as a residence; and (iii) the requirement for the applicant to show that the sandstone cottage was capable of being the principal place of residence as defined in Section 3(1) of the Act. 22 The material supplied to the respondent and the Tribunal by the applicant disclosed that the applicant had purchased the property in 1997 and there were two buildings thereon, one being the two storey brick dwelling and the sandstone cottage. The applicant rented out the two storey brick building on 29 January 1998 and the applicant has conceded that there is a liability to pay land tax in respect of the part of the property that this building is erected on. 23 The respondent determined on 13 April 2006 that the sandstone cottage was not capable of lawful occupation as a principal place of residence and that the applicant was unable to demonstrate continuous use and occupation of the sandstone cottage over the relevant years as the principal place of residence. 24 The representative of the respondent submitted that the applicant had not satisfied his onus under Section 100(3) Tax Administration Act 1996 ('the TAA Act") to prove his case for review. 25 That the title to the property is comprised of two parcels being a lot in a subdivision and a lot in a crown plan which are both included in an Auto-Consol title. As a consequence each parcel must be considered separately for land tax purposes. The two storey brick house stands on the lot in a subdivision, this house being subject of a lease to tenants for the relevant periods. The sandstone cottage stands substantially on the lot in the crown plan and the issue is then whether this parcel is exempt as the applicant's principal place of residence. 26 Submissions were made relating to whether the two houses are comprised in the one parcel and the possibility that the two parcels could, in circumstances as described in Ryan v Commissioner of Land Tax [1982] 1 NSWLR 305; Kamper v Chief Commissioner of State Revenue [2005] NSWADT 256 and Coleman v Chief Commissioner of State Revenue [2005] NSWADT 236 come within the principal place of residence exemption. 27 The respondent provided copies of the zoning certificates (Section 149(2) of the EP&A Act) to the Tribunal and drew attention particularly to that for the lot in the crown plan. Particular attention was drawn to the permissible land use for the lot in the crown plan being Environmental Protection (Waterways) 7(a): "(b) Development allowed without development consent: * Development for the purpose of: - aids to navigation required by the Waterways Authority, - beach and foreshore protection works if in accordance with a plan of management approved by the Council and undertaken by or on behalf of the Council, - maintenance dredging of Waterways Authority navigation channels. c) Development that requires development consent: * Development for the purpose of: - aquaculture, - beach and foreshore protection works not included in item b), - business activities associated with the provision of recreational activities within the waterways, - marinas, - swimming enclosures, - watercraft facilities, - works to enable public pedestrian access to facilitate recreational use of the waterway. * Demolition not included in item b). * Subdivision. d) Development that is prohibited within the zone: Any development other than development included in item b) or c)." 28 The representative of the respondent submitted that it was relevant to enquire whether the applicant had sought council's approval to the use of the sandstone cottage as a residence. 29 Attention was drawn to Reuman v Chief Commissioner of State Revenue [2004] NSWADT 96 ("Reuman") wherein the applicant sought exemption as a principal place of residence for a structure that the applicant had not applied for approval to construct. 30 The approval to the construction of the two storey brick dwelling on the property by the local council was subject to a condition that the sandstone cottage was to be converted to a use other than as a residence. The prior owners to the applicant had partially complied with the council's requirements as at 20 May 1977 when they requested discontinuance of the sanitary service and that, on completion of the new dwelling, the sandstone cottage was to be converted into a recreational area. The sandstone cottage was not used as a residence by the prior owners from completion of the new dwelling in 1977 to the date that they sold the property to the applicant and his wife in June 1997. 31 The contention that the applicant had relinquished the home at Robertson on the Robertson Farm and had moved into the sandstone cottage has not been supported by evidence to establish this either by documentation or dates of residence. 32 The representative of the respondent submitted that pursuant to Sections 12 and 14 of the TAA Act the respondent is able to issue reassessments or withdraw assessments. In this case assessments were issued prior to 26 September 2005 following consideration of material and circumstances after previous assessments had been issued. The relevant assessment is that dated 26 September 2005 which does not show an exemption for the property as the principal place of residence. No estoppel arises in respect of the issue of prior assessments: see Ambiance (Arncliffe) Pty Limited v Chief Commissioner of State Revenue (2002) 51 ATR 550; McTackett v Chief Commissioner of State Revenue (2003) 53 ATR 234 and Gould Management Pty Limited v Chief Commissioner of State Revenue (2004) 55 ATR 369. 33 The representative of the respondent submitted that the onus on the applicant was to show that, during the relevant period (2000 – 2004) the sandstone cottage was his principal place of residence as defined in Section 3(1) of the Act. Further, that the evidence provided did not establish that the sandstone cottage was used as the principal place of residence (even if it legally could have been) for a sufficient period of time to satisfy the requirements as described in McNally v Chief Commissioner of State Revenue [2003] NSWSC 118. Conclusion 34 When the previous owners to the applicant sought and obtained approval to construct a new dwelling on the property the consent given by the local council was subject to various conditions. The conditions included: "(2) All structures are to be used as ancillary to the dwelling and no separate residential, industrial or commercial use being made of same. Subject to conditions appearing in Building Permit No. 1342/77". "Further, that the existing stone structure at the waterfront be converted in accordance with Conditions Nos 1 – 13 in the above memo." 35 The conditions "1 – 13 in the above memo" referred to above are: "1. The existing sandstone cottage be converted to a water orientated use i.e. boatshed etc. on occupation of the new dwelling. 2. The fibro sunroom enclosing part of the verandah at the south-east corner of the cottage be removed. 3. The open ballistrade be extended and the verandah paving where the sunroom has been removed be replaced. 4. The existing bedroom (indicated as storage on plan on file) be removed. 5. The existing shower room be removed. 6. The toilet at the rear of the cottage be removed. 7. The areas where the bedroom (storage), shower room and toilet were installed be re-paved. 8. A fence and lamp be erected at the north end of the sea-wall to match the verandah fence. 9. The awning at the rear entry be removed. 10. Kitchen appliances be removed. 11. The sandstone cottage is not to be used for residential use, whether permanent or temporary in the future. 12. The existing corrugated roof be painted to Council's satisfaction. 13. A slipway be built from the boatramp." 36 The zoning certificate for the part of the property being the lot in the crown plan clearly described the use that it could be used for as and from March 2004. 37 At the time that the applicant purchased the property the previous owners had not occupied the sandstone cottage as their residence since 1977. The applicant leased the two storey brick dwelling, which had been used as the previous owners residence, to a tenant as and from January 1998. 38 Any use of the sandstone cottage other than for a water orientated use (i.e. boatshed etc) as and from the completion of construction of the two storey brick dwelling was not permissible in accordance with the development approval given on 29 September 1977 up until 15 March 2004. As and from 15 March 2004 any use of the part of the property being the lot in the crown plan other than as set out in the zoning certificate set out at paragraph 24 above were not permissible. During the relevant period the use of the sandstone cottage as a residence was not a legal use of the premises. 39 Whilst the "sandstone cottage" has been referred to as this on most letters and documents and it was lived in from when it was built to 1978, as it was legal to do so, the terminology did not mean that after 1978 it retained the ability to be lived in legally. The listing of the "sandstone cottage" as a heritage item in August 1994 did not revive its possible use as a residence. 40 In order that the exemption provided by Section 10(1)(r) in its various forms and with the assistance of Schedule 1A Clause 2(1)(b)(i) (pre 2004) or Clause 2(1)(a) (after 2004) may be claimed, the use of the construction on the property must be capable of being resided in legally. In this case the use of the construction, being the sandstone cottage, as a residence was specifically precluded by the local council. For the applicant to live there and to claim it as his principal place of residence it would have been necessary to satisfy the requirements of the local council to do so. This requirement is as referred to in Reuman. 41 In the event that the sandstone cottage could be used as a residence, then the applicant bears the onus of proving that it was his principal place of residence. The material supplied by the applicant does not discharge this onus. The invoices and accounts are all directed to the post office box. The change of registration on the electoral role occurred in 2003 and at Roads and Traffic Authority in 2002, whilst being an indication of an intention to reside at the property were not supported by evidence of occupation. The periods of occupation were not collaborated by any evidence from disinterested witnesses. The applicant referred to the difficulties in maintaining his farming business at Robertson and the time taken to travel to the property. During the relevant period the Robertson Farm continued to be the applicant's principal place of residence and when a further property was purchased during the relevant period at Boorowa then from that time that property may have become the applicant's principal place of residence. There is no evidence in respect of this possibility. 42 The sandstone cottage is erected across the common boundary of the lot in the deposited plan and the lot in the crown plan, the majority of the structure being upon the lot in the crown plan. For valuation purposes, both parcels have been included in the area and one total valuation has been identified for land tax purposes. If the sandstone cottage was capable of being used for residential purposes, then a separate valuation would or could be obtained for rating and land tax purposes. As the sandstone cottage cannot be used legally as a residence it is appropriate that the lot in the crown plan be included in the area for valuation as part of the property known by the street address and including the lot in the deposited plan. 43 This application was made by Mr Pearse and it is an application in respect of property owned by him and his wife. No separate evidence was provided by Mrs Pearse, however, the material supplied does indicate that the application is on behalf of both Mr and Mrs Pearse and accordingly the reasons and order apply also to the interest of Mrs Pearse. ORDER 1. That the assessment by the Chief Commissioner of State Revenue dated 26 September 2005 is affirmed.