White & anor v Chief Commissioner of State Revenue [2007] NSWADT 241

Set aside by Appeal :

CITATION: White & anor v Chief Commissioner of State Revenue [2007] NSWADT 241

DIVISION: Revenue Division

APPLICANTS PARTIES: Victor White and Janina White RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 066105

HEARING DATES: 27 April 2007

SUBMISSIONS CLOSED: 2 May 2007

DATE OF DECISION: 5 October 2007

BEFORE: Greenwood J - Judicial Member

CATCHWORDS: Land tax exemption - principal place of residence

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : Land Tax Management Act 1956 State Revenue Legislation Further Amendment Act 2003

Kidston Goldmines Ltd v Commissioner of Taxation (1991) 30 FCR 77 Loizos v Carlton and United Breweries Ltd (1994) 94 NTR 31 CASES CITED: Mooney Valley City Council v Quadry Industries Pty Ltd (1999) VSC 95 Penrith Rugby League Club Ltd v Commissioner of Land Tax [1983] 2 NSWLR 616 Union Fidelity Trustee Company Ltd v Federal Commissioner of Taxation (1969) 199 CLR 177

APPLICANT I Young, barrister REPRESENTATION: RESPONDENT S Benjamin, agent

ORDERS: The decision of the Commissioner is set aside.

REASONS FOR DECISION Facts 1 The applicants jointly purchased the property 4A Wentworth Avenue, Point Piper, NSW on the 10 January 2004 (herein after referred to as "the Point Piper property"). 2 The Point Piper property was rented out to tenants as a residence after purchase in January 2004. 3 The Applicants commenced and carried out substantial building renovations on the Point Piper property in or about May 2005, after vacation of the property by the tenants and ceased to derive any rental income since 20 May 2005. The renovations included the demolition of a substantial part of the main dwelling house, which was rebuilt with a second storey, the building and installation of a swimming pool and retaining wall and landscaping. 4 After completion of the renovations, the Applicants then took occupation of the Point Piper property in or about early August 2006 and they gave evidence that they have occupied the property as their principal place of residence as from August 2006 to date. 5 At the time of the purchase of Point Piper property the Applicants were living in Unit 5 /59 Bream Street Coogee. 6 The Applicants lodged a Notice of Objection dated 30 March 2006 against a notice of assessment of land tax for the 2006 tax year issued by the Chief Commissioner of State Revenue dated 6 February 2006. 7 The Chief Commissioner disallowed the Applicants' objection by letter dated 27 April 2006 and the Applicants filed their application for review with this Tribunal on the 15 September 2006,together with an application for leave to file out of time pursuant to s57 of the Administrative Decisions Tribunal Act 1997. 8 The applicants were late in filing their application for a review of the Commissioner's determination because they had relied upon a statement in correspondence from the Chief Commissioners office which quoted s10T (which had been repealed) and was therefore incorrect in its representation of the current legislation as it appeared in the Land Tax Management Act 1956. On the 7 November 2006 the Tribunal granted leave to the Applicants to extend time to file the application for review in this Tribunal. The Applicant's Case 9 The Applicants contend that the issue in this case is the proper construction of the Principal Place of Residence (PPR) exemption in Schedule 1A of the Land Tax Management Act 1956 (the Act) and whether the Commissioner's construction is overly narrow and pedantic, and derives from an improper attempt to restrict and constrain Schedule 1A introduced in 2003, by reference to the then Minister's second reading speech on an earlier version of the Act, namely a 1991 speech, which the applicant says refers to clause 10T, an incorrect version of the applicable law . 10 The Applicants exemption claimed in respect of the Point Piper property is for the 2006 year only and therefore it is not year more than two years following the year in which the applicants became the owners of the Point Piper property. 11 The Applicants contended that the amendment of the current legislation, when compared with the previous version, created a deeming provision or a right to elect a principal place of residence and the Tribunal should apply the liberal construction principles to this legislation. This argument, the Applicants contend applies to the construction of Section 10(1)(r) of the Act, as it currently stands, exempts from land tax 'land that is exempt from taxation under the principal place of residence exemption, as provided for by Schedule 1A," and its subsections paragraphs 6(1), 6(2), 6(3), 6(5). 12 In the Applicants' contention, the relevant policy evident throughout Schedule 1A as it is enacted in 2003 and not as it was in 1991, is the prevention of "double dipping" through taxpayers and their extended family actually claiming two or more PPR exemptions: see for example the heading to paragraph 12 – "Only one principal place of residence for all members of same family". The Chief Commissioner's Case 13 The Commissioner, by his "Reasons for decision" sets out the Respondent's case which can be summarised as being the following points of contention: (a) The Applicants purchased the Point Piper property with the intention of occupying it as their principal place of residence after either demolishing and building a new home of their choice or carrying out substantial renovation work. (b) The Applicants were not entitled to claim the tax exemption for the Point Piper property because Clause 6, sub-clause 7, of Schedule 1A operates to deny any exemption as they in fact occupied and used the Unit 5 /59 Bream Street, Coogee as Applicants' principal place of residence because that is "the only property that has been continuously occupied and used by the owners" and further clause 12 does not allow a taxpayer to elect to receive the exemption for a property used by the owners for residential purposes, in addition to which the applicants had included the Point Piper property in a list of properties which were included for land tax in previous years with other properties they owned. (c) The relevant policy rationale for restricting the principal place of residence exemption to one property is set out in the then Minister's second reading speech on 12 November 1991 and a copy of that speech was put into evidence .In addition a copy of the speech dated 14 November 2003 which relates to State Revenue Legislation Further Amendment Bill was also provided. (d) The Tribunal, pursuant to Section 64 of the Administrative Decisions Tribunal Act the Tribunal "must give effect to any relevant Government policy in force at the time the reviewable decision was made except to the extent that the policy is contrary to law or the policy produces an unjust decision in the circumstances of the case". The Legislation 14 The legislation applicable in this matter is the Land Tax Management Act 1956, in particular Section 10(1) (r)- Schedule 1A- Principal place of residence exemption (referred to as "PPR"). Section 10T was repealed on 31 December 2003 and Schedule 1A was introduced by State Legislation Further Amendment Act 2003 (referred to as "SFAA"). The SFAA was assented to on 27 November 2003 and became effective on the 1 January 2004. It modified and introduced the current version of principle place of residence exemption as it applied to this Applicant as at the relevant time of their Land Tax Assessment in this case. 15 Paragraph 2(1) of Schedule 1A of the Act states: '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; or b) a lot under the Strata Schemes (Freehold Development ) Act 1973 and … [which is not presently relevant to this matter] 16 Paragraph 2(2) of Schedule 1A states that certain 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 purpose since 1 July in the year preceding the tax year in which land tax is levied ,or (b) in any other case , the Chief Commissioner is satisfied that the land is used and occupied by the person as the person's principal place of residence . 17 Subparagraphs 2(3) then go on to specify- 2(3) If the owner of the land is entitled to the exemption conferred by this clause, no other person is liable to be assessed for taxation under this Act in respect of the land during the period of the owners entitlement to exemption. (4) ... (5) The principal place of residence exemption is subject to the restrictions set out in Part 4 18 The applicants in the 2006 year did not occupy the Point Piper property, however they did at all times purchase the property with the intention to make the property their residential home and they wished to renovate the property first before occupation. This intention and the representation given by the applicants was accepted by the Chief Commissioner as a bona fide representation. 19 Paragraph 6(1) of Schedule 1A states: 'An owner of unoccupied land is entitled to claim the land as his or her principal place of residence, if the owner intends to use and occupy the land solely as his or her principal place of residence. In such a case, the owner is taken, for the purpose of the principal place of residence exemption, to use and occupy unoccupied land as his or her principal place of residence.' 20 The applicants say that this is their case and Paragraph 6(1) was a concession to which they were entitled and which applied to persons who were changing their place of residence and/or were carrrying out "building works or other works to facilitate the intentended use …" The Respondent does not appear in its case to refute that at all material times, it was the applicants' intention to subsequently occupy the Point Piper property as their principal place, other than to say that the applicants' driving licences and voting registration listed the Unit 5 at the Coogee address as their residence.The Tribunal finds that as a practical and necessary step for the applicants to complete their building an other works on the Point Piper property that they would as a practical necessity need to live elsewhere whilst the building plans are being prepared and approved, whilst the building works a being undertaken and until such time as the Council authorised legitimate occupancy, namely in their first residence until it is possible to move. In addition other legislation such as electoral rolls and the RTA requires citizens to specify where they are located for the efficient and timely management of policing of citizens and the application of other government policies and principals as determined by that separate legislation, may not contemplate other issues such as interim occupancy during relocation due to building work etc, but has other considerations which attach to residency. 21 The Tribunal has been provided with the Second reading speech of 14 November 2003 which introduces the State Revenue Legislation Further Amendment Bill amendment in paragraph 6: "The bill amends the Land Tax Management Act 1956 provisions relating to land tax concession for an owners principal place of residence. The amendments will allow an owner to claim the concession for two residences where the owner has bought a new residence and is has not been able to complete the sale by the taxing date. The bill will also remove certain restrictions on the current exemption on the land where a new family residence is being built or an existing one is being refurbished provided the owner takes up residence in the completed house within two years and remains in residence for at least 6 months …" 22 The policy behind the amendments therefore indicated here is an intention by the legislature to recognise transition, of moving between places of residence and an indication that persons who are tax payers are not unfairly penalised during the period of transition and time associated with the transition. The legislation also sets conditions in order to avoid abuse. 23 Further evidence of the legislative intention is found in Paragraph 6(2) of Schedule 1A, which states: 6(2) 'This clause does not apply unless: a) the land is unoccupied as the owner intends to carry out, or is carrying out, building or other works necessary to facilitate his or her intended use and occupation of the land as a principal place of residence, and b) if those buildings or other works have physically commenced on the land, no other income has been derived from the use and occupation of the land since that commencement, and c) the intended use and occupation of the land is not unlawful.' 24 The Tribunal accepts the Applicants contention that the applicant has presently satisfied all of paragraphs (a) (b) and (c) 25 Paragraph 6(3) of Schedule 1A goes on to set the conditions as follows: "This clause applies in respect of the person's ownership of land only in the period of: a) two tax years immediately following the year in which the person became owner of the land, or b) if the land is used and occupied for residential purposes by a person other than the owner at any time after that person became owner, 2 tax years immediately following the tax year in which the building or other works necessary to facilitate the owners intended use and occupation of the land had physically commenced on the land". 26 The Applicants gave evidence, which was not disputed by the Chief Commissioner that the Point Piper property was purchased in January 2004 and rented until 20 May 2005. In this case the renting was a practical necessity to protect the property (to have it safe from potential vandalism) pending the finalising of approval of plans and all necessary building contracts being obtained and therefore a necessary and reasonable step in the transition process, not the least of which would also have been the financial consideration of funding the transition. In any event such considerations are within the range of possible contingencies which apply to building a residence or renovating one to explain reasonable delay and the usual steps taken during a transition to a new principal place of residence. 27 Certainly, Parliament provided the Chief Commissioner with a power in Paragraph 6(4) to consider matters to facilitate the owner's intended use and to extend time. In this case the applicants only seek the exemption for the 2006 year, that fulfils the two year qualification from the date the building works are commenced. Although no exemption is sought for previous years by the applicants, the intention at point of purchase and the steps in the transition process would fall into the category of "other works" and could accrue to the previous tax years as part of the time conditions allowed in the legislation – see paragraph 6 (6). 28 The intention of parliament to provide for the transition process of one principal place of residence to another is further specified and protected from abuse in clauses Paragraph 6(5) and 6(7) of Schedule 1A: 6(5) "If the principal place of residence exemption applies by operation of this clause the land not actually used and occupied by a person as his or her principal place of residence on a taxing date, that exemption is revoked if the person fails to actually use and occupy the land as his or her principal place of residence by the end of the period in which this clause applies in respect of the assessment of the person's ownership of the land and continue to so use and occupy the land for at least 6 months". 29 The Applicants moved into occupation of the Point Piper property in or about August 2006 after the Council occupation certificate allowed them to do so and they have continued to occupy that place as their principal place of residence to date. 30 6(7) "This clause does not apply in respect of land owned by a person if: (a) the person or any member of the person's family (within the meaning of clause 12) is entitled to have his or her actual use and occupation of other land taken into account under section 9C or under this Schedule; or (b) the person owns land outside New South Wales that is the principal place of residence of the person or a member of the person's family (within the meaning of clause 12); or (c) the land, or the land if combined within any adjoining land on which the person is an owner, is capable of having more than 2 residences or residential units lawfully built on it". 31 The Applicants contend they are not entitled to have had their Bream Street, Coogee land taken into account under either Section 9C or Schedule 1A. The Applicants do not own land outside New South Wales that is their principal place of residence. 32 The Point Piper property cannot be combined with any adjoining land of which the applicants are the owners (in fact there is no such land) and the property is not capable of having more than two residents or residential units lawfully built on it. 33 Paragraphs 12(1) and (2) and (3) of Schedule 1A state: 1) For the purposes of the principal place of residence exemption, only one place of residence may be treated as the principal place of residence of all members of the same family; 2) If members of the family own (whether jointly or separately) more than one residence used and occupied by them as a principal place of residence, the Chief Commissioner is to treat the one place of residence elected as the principal place of residence of the family as .the principal place of residence of all members of a family in respect of a tax year. (3) Such election is to be made, by or on behalf of members of the family, in writing and must be lodged with the Chief Commissioner within the period for the lodging of objections under section 89 of the Tax Administration Act 1996." 34 This clause was included as evidenced by the second reading speech to restrict tax minimisation practices of transfers between family members and that is not the situation in this case and both the applicants are married and cohabitate as the one family and jointly own both the Point Piper property and Unit 5 at Coogee. 35 The Tribunal accepts the applicants contention that paragraph 6(1) of Schedule 1A, the applicants "[are] taken, for the purpose of the principal place of residence exemption, to use and occupy the unoccupied land as [their] principal place of residence". That is a deeming provision which it must be to facilitate the transition process intended, considered and enacted by the legislature to allow taxpayers to change their principal residences over time as a fair and practical policy to avoid being penalised. The Tribunal was referred to quotes of Professor Pearce and Mr Geddes, the learned authors of the fourth edition of Statutory Interpretation in Australia (Butterworths 1996) say at 114, at the end of their discussion of the device of "deeming": "Other expressions such as 'as if' and 'shall be taken to be' are variants on the expression 'deemed' and will be interpreted in the same manner'. The authors cite the decision in Loizos v Carlton and United Breweries Ltd (1994) 94 NTR 31 at 32 per Kearney, Angel and Mildren JJ in support of that proposition . The passage by Professor Pearce is, in turn, expressly quoted and approved in Moonee Valley City Council v Quadry Industries Pty Ltd [1999] VSC 95 at paragraph [23] per Balmford J. 36 By the deeming, the Act "creates a fictitious factual situation": see Loizos v Carlton and United Breweries Ltd (supra) at page 32, line 40. The Act proceeds on "a hypothesis different from the actual fact": see Union Fidelity Trustee Company Ltd v Federal Commissioner of Taxation (1969) 199 CLR 177 at 187 per Kitto J. in the context of an "as if" provision. 37 The applicants are taken and are deemed to "use and occupy the unoccupied land as [their] principal place of residence" for all and not merely some of, the purposes of the principal place of residence exemption as part of the transitional procedure contemplated by the legislation. Because the applicants are deemed, for all the purposes of the PPR exemption, "to use and occupy" the Point Piper property as their PPR, the applicants also made the election under paragraph 12(2) of Schedule 1A by their intention to purchase the Point Piper property as their intended residence and further clarified it as their election set out in their notice of objection against their 2006 assessment of land tax that their Point Piper property should be treated as their principal place of residence and as part of the transitional process the applicants are deemed and taken to use and occupy the Point Piper land as their PPR for all the purposes of the PPR exemption. 38 In the Applicants' submission the construction of paragraphs 6(1), 12(2) and 6(7)(a) is clear, simple, straightforward and reasonably open (on the applicants' particular circumstances) that as a consequence of the transition to a new residential property, deeming occurs to make that new property the principal residence and paragraph 6(7)(a) cannot, as a matter of proper construction, have any application. 39 The Tribunal was referred to the usual construction principals applicable to the interpretation of legislation namely the general principal that a concession or exemption "should not be construed narrowly", see Penrith Rugby League Club Ltd v Commissioner of Land Tax [1983] 2 NSWLR 616 at 622 per Hunt J. Rather it should, if necessary, be given a "benevolent construction": Kidston Goldmines Ltd v Commissioner of Taxation (1991) 30 FCR 77 at 79 per Hill J. 40 In contrast the Chief Commissioner contends that S6(7)(a)applies because the applicants actually occupy Unit 5 , the Coogee property and Clause 12 (part 4 of Schedule 1A)– does not allow the taxpayer to elect the Point Piper property .This argument is somewhat circular and would appear to improperly subvert the intention of parliament to provide protection for property owners in transition to a new residential property that requires building work or other work and it is rejected by the Tribunal because S6(7) and S12 would appear to deal with couples together and couples separated and multiple family members claiming separate exemptions for jointly held properties, some of which may be interstate and this aspect is specifically mentioned in the 2003 second reading speech. 41 Paragraph 12 (2) and 12 (3) of Schedule 1A talk about an election being made and on the evidence before the Tribunal the applicants lodged their objection to the Commissioner in time and made their election clear in three ways, firstly the Point Piper property was purchased with the intention to make it their principal residence after building work was completed and they expressly made that election in their objection and they took up actual occupation within the time allowed after building works were completed and they continue to occupy that property , hence the Tribunal agrees with the construction urged by the Applicants representative that S 6(7) has no application to the context of the Applicants' circumstances as transitional home owners moving from one home to their next. Clearly, the intention of Parliament to protect transitional home owners and the reference to "continual use "or occupation to ground entitlement to principal residence exemption cannot cut down that entitlement by circuitous reliance on continuous occupation of one property, before the moving into the next one. This view is further supported by the fact that a reference to the word "continuously " does not appear in clause 12 of Schedule 1A at all. The phrase "continuously occupied and used appears in clause 2(2) (a) of Schedule 1A, but that clause is further qualified by clause 6 which talks about concessions for unoccupied land intended to be an owners principal place of residence and hence the concept of deeming is brought into operation as it must be conceptually to allow for the transition to a new residence as contemplated by parliament. 42 As the Applicants set out above, the Act deems a hypothesis different from actual fact and that deeming subsists for all purposes. The Applicants are taken to be in use and occupy the Point Piper property as their PPR and the legislation contemplates it, sets timing conditions for it and provides a transitional mechanism to protect transition and its myriad of difficulties. 43 The Tribunal accepts that the policy of the exemption should be construed benevolently and in accordance with Parliaments intention. Whilst both the Applicant and Respondent sought to compare the repealed Section 10T to compare the legislation, it is not necessary to do so here. The Tribunal is required to apply the current law in operation at the relevant time. 44 The Explanatory Note for State Revenue Legislation Further Amendment Bill 2003 says in the Overview section that its object is to: "amend the Land Tax Management Act 1956 to re-enact and revise the principal place of residence exemption and for other purposes". (emphasis added) 45 The language of the legislation and the desire to provide for situations of transitional changes for those moving home, purchasing, selling and building homes and those going through familial reconstructions appear from the speech form the basis of the revising of underlying policy. 46 The Explanatory Note in its substantive discussion of the PPR exemption states: "Schedule 4[5] and [11] repeal and replace the exemption granted under the Act for a person's principal place of residence. In particular, changes are made which: … a) remove certain restrictions for the current exemption for land on which a new family residence is being built or an existing residence is being refurbished, b) allow each family, including dependents under 18, a concession for only one property, except when buying a new principal residence and selling their existing residence." 47 A right to make an election is given to families to select one property as their PPR, except where they are buying and selling, which is not the case here. The Applicants submit that their claim is in fact consistent with the policy underlying the PPR exemption in Schedule 1A. The policy simply is that a person cannot obtain more than one exemption from land tax and a concession was allowed whereby taxpayers could elect which was their PPR. That is what the Applicants have sought to do. 48 The Chief Commissioner refers to section 64 of the ADT Act for the proposition the Tribunal "must consider the Government policy". The elements of section 64 are: a) A relevant Government policy (s.64(1)); b) A certificate by the Premier or Minister that a particular policy was Government policy (s.64(2)); c) That certificate evidences the Government policy (s.64(3)); and c) Government policy is defined in s.64(5) to mean "a policy adopted … that is to be applied in the exercise of discretionary powers by administrators. 49 In the current case the Tribunal was provided with: i. The second reading speeches for both 1991 and 2003 legislation and the Explanatory Note to the 2003 amendments introducing Schedule 1A 50 The Tribunal was not provided with certification by a Minister and no evidentiary certificate tendered. 51 The Tribunal has considered the material before it. 52 The Applicants' application to the Tribunal was limited to the 2006 year. The Applicant's liability to land tax for the 2005 year is not in issue. Accordingly the Tribunal can only deal with the application before it and the Tribunal allows the Applicant's application. Order The decision of the Commissioner is set aside.