Creamer v Chief Commissioner of State Revenue [2006] NSWADT 272

CITATION: Creamer v Chief Commissioner of State Revenue [2006] NSWADT 272

DIVISION: Revenue Division

APPLICANT PARTIES: Alan Creamer RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 066070

HEARING DATES: 15/09/06

SUBMISSIONS CLOSED: 09/15/2006

DATE OF DECISION: 09/20/2006

BEFORE: Block J - ADCJ (Judicial Member)

CATCHWORDS: Land tax exemption - principal place of residence

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : Land Tax Management Act 1956

CASES CITED: Federal Commissioner of Taxation v G.M. Swift and others 89 ATC 5101 Mills v Chief Commissioner of State Revenue [2006] NSWADT 189

APPLICANT In person REPRESENTATION: RESPONDENT Chief Commissioner of State Revenue

ORDERS: The decision under review is affirmed.

REASONS FOR DECISION Part A Introduction and Background 1 The decision under review in this matter relates to a parcel of real property situate at 10 Express St, Marmong Point, New South Wales (" the Property "). Land tax was imposed in respect of the Property (and two other parcels of real property in New South Wales owned by the Applicant) in respect of the 2004 and 2005 land tax years. Those two land tax years are referred to collectively as "the relevant years". 2 The Tribunal had before it with the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act 1997 together with certain written evidence submitted by the Applicant and more fully referred to later in this decision. 3 The Property was purchased as vacant land on 20 September 1995. The Applicant claims that he purchased it in order to construct a residence which would become his principal place of residence ("PPR"). Construction commenced on 22 September 2004, about 9 years after acquisition. 4 During the land tax years 1996 to 2003, both years inclusive, no land tax was payable because the land value of the Property, combined with the value of the two other parcels of real property in New South Wales owned by the Applicant amounted in aggregate to a sum which was below the tax-free threshold. Land tax was imposed for the first time in respect of the 2004 year; land tax imposed for the 2005 year was higher because the tax-free threshold was abolished in respect of the 2005 year. (A threshold of $352,000 was reintroduced with effect from the 2006 year; the Applicant became entitled to the PPR exemption in respect of the Property in the 2006 year) 5 The written evidence includes a certificate (very much of a hearsay nature) dated 30 March 2006 by Dr Colin Fair of Warners Bay Medical Centre reading as follows: Mr. Creamer informs me that he has been living with his elderly mother since the mid-1990s. He is a single gentleman and has been acting as his mother's carer who has had numerous problems over the past 10 years. He states that this coincided with his purchase of land at Marmong Point which he tells me he has now improved with a house. He has not done this earlier due to his ongoing commitment to care for his mother- 6 The Applicant in a letter to the Respondent dated 7 April 2006 said in part: I purchased the block in 1995 to build my principle (sic) place of residence and my intent is evidenced by my now living here. The application for construction certificate was signed 22.3.04 with construction commencing 24.09.04 after the Council approval. At no time has the block been income producing. The delay in the commencement of construction was wholey (sic) and soley (sic) as a result of the sudden deterioration of my mother's health resulting in my need to act as my mother's carer. Supporting evidence is by way of attached copy of letter from my mother's doctor The deterioration of my mother's health shortly after the purchase of the land resulted in my acting as my mother's carer was unforeseen and outside my control. I received no financial assistance during this time and I believe that the state (illegible) dollars by my mother not having to rely on state services. 7 The Applicant in support of his application submitted a statutory declaration by his mother, Joyce Creamer, dated 29 August 2006 reading as follows: since the mid-1990s for a period of about 10 years my son Alan has been acting as my carer and due to a number of medical problems that I have had. during this time he has provided me with personal assistance, including convalence (sic) after hospitalization along with general household duties including cooking and washing shopping transporting me to various medical appointments and general maintenance of my house. This has prevented Alan from building his own home any earlier. As I am in my 80's he is still helping me putting his own behind time. 8 The assessment in respect of the 2004 year indicates that in addition to the Property, the Applicant owned other real property in New South Wales, the land values in respect of which were $209,000 and $106,000 respectively. 9 The Applicant's contention in essence is that his mother's state of health and his obligation to care for her prevented him from building a residence on the Property until nearly 9 years after he purchased it. Part B. The oral evidence of the Applicant, and including cross-examination. 10 It should be noted that the Applicant's oral evidence was elicited in the first instance by his making statements from the bar table almost entirely in answer to questions by the Tribunal. Subsequently and because Mr Benjamin wanted to ask the Applicant some questions, he moved to the witness stand and took the oath. Before doing so, and for reasons set out later in this decision, he was offered a postponement to enable him to furnish certain desirable, and indeed necessary, evidence. He declined that offer, and after taking the oath commenced by confirming that his previous statements (made from the bar table) were true and correct. Those statements constituted in effect his examination in chief. The content of this part B relates to all of his evidence and thus including statements not made under oath, but which were subsequently confirmed under oath. 11 The Applicant is a clerk who works for a firm in Hexham. The Property was purchased in 1994 at a cost of about $80,000; it is some 800 square metres in extent and it has a view of Lake Macquarie. The Applicant said that within a short time after he purchased the Property, sketch plans for the construction of a residence on it were prepared by Montgomery Homes; however the Applicant was not able to produce any such sketch plans. Had the house on the Property been constructed at that time the cost of construction would have been in the region of $150,000; when it was built in 2004, the cost of construction was $300,000. This amount was paid in cash and there is no mortgage on the Property. 12 The Applicant owns two other parcels of real property. A house in Marylands was purchased by him for a consideration of $132,000. It is a rental property which is let to tenants at a rental of $210 per week. In addition he owns a rental property at Boolaroo which is very close to (and only a few doors away from) his mother's home in Fourth Street Boolaroo; the latter rental property was purchased in 1988 at a cost of $40,000 and is let to tenants at a rental of $180 per week. The two rental properties are together mortgaged to a building society in the Newcastle area; the amount owing on both properties is $135,000; and monthly instalments of $1400 are payable to the building society. The Applicant said that the current (combined) value of both rental properties is about $490000. 13 In the early 1980s, the Applicant's mother, Mrs Joyce Creamer purchased 42 Fourth Street Boolaroo. It was purchased soon after his father's death and is about 5 km from the Property. The Applicant, who is single, lived in his mother's home from that time until he moved into the Property more than 20 years later. 14 The Applicant said that his mother suffered from a number of medical problems and including in particular a gallbladder difficulty and rectal bleeding. She has also suffered from diabetes for a number of years. The Applicant said that his mother now has a Zimmer frame although she does not use it all of the time. She owns a car but her driving licence is restricted. When he left her home in order to move into the Property (after the residence on it was completed) he made arrangements for cleaning services and also arranged for her to obtain meals from Meals on Wheels. His mother's home is some 25 km from his place of employment in Hexham. The Applicant said also that over past 9 years, his mother's health (even though she is now in her eighties) has improved; this is so in particular because of operations on her gallbladder and to relieve the bleeding. 15 The house on the Property consists of four bedrooms, two bathrooms, a lounge, dining room and a rumpus room. The rumpus room is used to house his model trains. When asked why he needed four bedrooms, he said that at the time of purchase of the Property he was seeing a young lady but that relationship ended years later when she "lost patience". 16 The Applicant had two siblings. His eldest brother, Colin, who died recently, lived near Gosford. Another older brother Graham lives in Lake Macquarie and near to his mother's home. Graham is a train driver and Graham's wife, the Applicant's sister-in-law, runs a canteen. 17 In answer to questions put to him by Mr. Benjamin the Applicant agreed that he could have procured the construction of the residence when he acquired the Property; he agreed also that that he could have done so, and at a much lower cost and that he could have let it out until he required it himself. The Applicant said in this context that it would be his "dream house". The Applicant agreed also that it would have been possible for him to arrange for his mother to receive care in a home but that he would not have done so. 18 As indicated previously the Applicant was offered a postponement to enable him to procure relevant and necessary evidence and in particular the sketch plans made at the time of acquisition of the Property and also medical evidence as to his mother's state of health. The certificate by Dr. Fair records merely statements made to him by the Applicant and does not indicate that Dr Fair ever examined or for that matter ever met the Applicant's mother. As set out previously that offer was declined. 19 The Applicant appeared to me to be a rather shy and reticent man. He is either remarkably canny or remarkably frugal (or both) because he has accumulated a real property estate in which his equity is somewhere between $500,000 and $1m. I do not doubt that he has been and remains a dutiful son. The extent to which his mother requires care is not clear; as I have indicated the medical evidence tendered is far from satisfactory and does not in fact furnish any assistance at all. It is my view that the evidence before me permits of two possibilities. It is conceivable that his mother has been and is in need of care of such a nature that he was obliged to stay with and care for her for 9 years after the Property was purchased. It is equally conceivable (and in my view and having regard to the absence of real evidence more likely) that he stayed with her in what was after all his family home for so many years for a variety of reasons and including filial concern and love and a desire for company. There can however be no doubt about the fact that the residence on the Property could have been constructed when the Property was acquired, and then leased, until required for his own use. That he did not do so was clearly a matter of personal choice. (He could also had he so desired moved into either rental property when it became available for occupation by him.) 20 I have not formed the impression that the Applicant's evidence was untruthful although I do consider that some of it was coloured or exaggerated to suit the circumstances. If a sketch plan was prepared when the Property was purchased its importance was surely so obvious that it would have been produced. The medical evidence produced was as I have said, quite remarkably inadequate. The "young lady" who "lost patience" may have been an afterthought bearing in mind that there was never any previous mention of her. Moreover and assuming there was such a relationship at the time when the Property was purchased, and that sketch plans were prepared at that time having regard to that relationship, and so that a large residence was then required, the Applicant's evidence was that the relationship ended after a few years, and thus probably before commencement of the construction of the residence. The fact that the Applicant refused the offer of a postponement is in my view significant to some extent although it might have arisen from his desire to dispose of the matter. Costs were not a consideration because he was not represented. Part C The legislation 21 Clause 6 of schedule 1 A to the Land Tax Management Act 1956 ("the Act") reads as follows. Clause 6 – Schedule 1A "Schedule 1A – Principal place of residence exemption 6. Concession for unoccupied land intended to be owner's principal place of residence (1) 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 the unoccupied land as his or her principal place of residence. (2) This clause does not apply unless: (a) the land is unoccupied because 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 building or other works have physically commenced on the land, no 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. (3) This clause applies in respect of the assessment of a person(s) ownership of land only in the period of: (a) 2 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 the person became owner, 2 tax years immediately following the tax year in which the building or other works necessary to facilitate the owner(s) intended use and occupation of the land are physically commenced on the land. (4) The Chief Commissioner may extend the period in which this clause applies if the owner of the unoccupied land demonstrates that: (a) there is a delay in the completion or, in a case referred to in subclause (3)(b), the commencement of the building or other works necessary to facilitate the owner(s) intended use and occupation of the land, and (b) the delay is due primarily to reasons beyond the control of the owner. 22 A similar exemption was previously contained in section 10T (repealed in 2003) of the Act as follows: 10T Concession for unoccupied land intended to be owner's principal place of residence (1) If the Chief Commissioner is satisfied that the owner of land (or, if there are joint owners, any one or more of them) intends to use and occupy the land solely as his or her principal place of residence, that intended use and occupation of the land is to be regarded as its actual use and occupation for the purposes of section 10 (1) (r). (2) This section does not apply unless: (a) (Repealed) (b) the Chief Commissioner is satisfied that the intended use and occupation of the land is not unlawful, and (c) while the owner is the owner, the land is not used or occupied except as his or her principal place of residence. (2A) Subsection (2) (a) does not apply in respect of the land referred to in subsection (4) (b). (3) A person is not entitled to have his or her intended use and occupation of land taken into account for land tax purposes if: (a) the person or any joint owner of the land is entitled to have his or her actual use and occupation of other land taken into account under section 9C or 10 (1) (r), or (b) the person has already received the exemption in respect of any other land in respect of a previous tax year, or (c) the person or any joint owner of the land owns land outside New South Wales which is the principal place of residence of the person or joint owner. (4) This section applies to a person's ownership of land only for the 2 tax years immediately following the tax year in which: (a) the person became owner, or (b) the person, whose land was eligible for an exemption from tax under section 10 (1) (r) in that tax year, ceased to be able to use and occupy the land as his or her principal place of residence because of damage to or destruction of the residence on the land by an event such as fire, earthquake, storm, accident or malicious damage, unless the Chief Commissioner extends or further extends its operation in a particular case on the basis of an acceptable delay in that case. (4A) This section does not apply in respect of land referred to in subsection (4) (b) unless the land concerned was the principal place of residence, for the purposes of section 10 (1) (r), of the person referred to in subsection (4) (b) immediately before the relevant damage or destruction occurred. (5) An acceptable delay is a delay in the commencement or completion of the building or other work necessary to enable the intended use and occupation of the land to become its actual use and occupation that the Chief Commissioner is satisfied is due primarily to reasons beyond the control of the owner. 23 When the exemption in question was introduced into the Act in 1991 the Minister assisting the Premier in a second reading speech said; "any person who purchases vacant residential land with the intention of building a house may be liable for land tax unless the house is completed and occupied by the taxing date, which is the midnight on 31st December preceding the tax year. Delays in building a house may not be the fault of the owner, but a land tax liability may be incurred if the owners total taxable land holdings are valued at $160,000 or more or which is the current exemption threshold. It is therefore proposed to provide an exemption for vacant land or unused residential block where the purchaser intends to build his or her principal place of residence. The exception will also extend to the situation where an existing residence on a newly acquired block is demolished to make way for a new residence. The land will be exempt for two years from the date of purchase to and allow sufficient time for the building of a new residence, with provision for extension of time if there is a delay in construction which is beyond the owner's control" Part D Case law 24 The Tribunal was referred to Mills v Chief Commissioner of State Revenue [2006] NSWADT 189 (handed down on 28 June 2006). In her decision the learned judicial member, Ms M. Hole, referred to the legislation both before and after clause 6 of schedule 1A was introduced. In particular she included parts of section 10T (now repealed) and clause 6 of schedule 1A. She, correctly in my view, rejected a suggestion that the effect of the legislative change was to allow for a second period of two years, in addition to the first period under the repealed legislation. 25 Even though she accepted the Applicant's evidence as truthful, Ms Hole affirmed the decision under review in Mills; clauses 22 to 25 of her decision read as follows; 22 Section 10T of the Act applied to the subject property at the time that the applicant purchased it. This permitted the applicant two years within which to construct and occupy a principal place of residence. He did not do so while Section 10T applied, that is prior to the coming into effect of Clause 6 which was applicable for the 2004 tax year and beyond. 23 The subject land was below the threshold for the assessment of land tax until the 2005 tax year when there was no threshold and $1,460.00 was assessed. The 2006 tax year is subject to a threshold of $352,000.00 and $321.00 was assessed. The land tax has been paid. 24 The reasons given by the applicant for the delay in commencing building beyond 2001 are entirely related to the applicant carefully arranging his finances to ensure that he had appropriately remunerated employment first in rural New South Wales and then closer to the subject land. 25 The applicable legislation in this instance is Section 10T which applied for the period from the purchase to two years immediately thereafter. Any entitlement to an exemption was exhausted at that time. Thus the provision of any exemption pursuant to Clause 6 is inapplicable. The applicant was concerned that where an owner of a block of land does build a home on that land after the expiry of the two year period and then uses that as their principal place of residence then land tax has been assessed on that home. Once an owner commences living in the home as the principal place of residence then the usual exemption for an owner's principal place of residence is applicable after that time and related to the 31 December of the year occupation commenced. Land tax is correctly assessed for the land tax years between the expiry of the two year provisions and the commencement of occupation as the principal place of residence. 26 I would respectfully disagree with the reasoning in Mills in one respect and that is the statement that section 10T applied in respect of the land tax years which were relevant in Mills (the 2005 and 2006 years). It is my view that the correct approach requires a consideration in respect of each relevant land tax year (individually) of the land owned by the taxpayer as at the immediately preceding 31st December, followed by a consideration of the legislation which is applicable in respect of that land tax year. Put in other words, the section which should have applied in Mills, and which applies in this case is clause 6 of schedule 1A. A comparison of clause 6 of schedule 1A and section 10T indicates that there is not, for the purposes of this matter, any relevant difference. Pursuant to clause 6 the Respondent is vested with the power to grant discretionary relief under clause 6(4); under the prior section 10T he was empowered to grant relief under section 10T(4) but subject to section 10T(5). Put in other words the power to grant discretionary relief was not at large in the sense that it could be granted for any reason at all; it could be granted only where there was delay in relation to the completion or commencement of the building works in question, and that delay arose primarily for reasons beyond the control of the owner. 27 It must be noted that if the Applicant had built the residence within the statutory period of 2 years but had not moved into it because he elected to stay with his mother he would not have been entitled to the PPR exemption until it became his PPR. That said the fact remains that there was not reason why the residence could not have been constructed within that period. Finance was clearly not as aspect which presented a problem. Part E Conclusion 28 I have come to the conclusion that the discretion referred to in clause 6(4) of schedule 1A cannot be exercised in favour of the Applicant because he cannot satisfy the provisions of clause 5(4)(b). Construction was not delayed by reason of circumstances beyond his control; on the contrary they were delayed as a matter of personal choice. 29 In Mills, the Tribunal found that the circumstances in which the delay occurred were not relevant. In this matter my finding is that the delay occurred in circumstances which arose (as I have said) as a matter of personal choice on the part of the Applicant. 30 I should, if only as a matter of completeness note, to the extent that it might be relevant, that I would in any event and having regard to Federal Commissioner of Taxation v G.M. Swift and others 89 ATC 5101 (and see in particular French J at p 5118) consider that the exercise of the discretion in favour of the Applicant after so long a period would not be proper because it would defeat the object of the statute. 31 In the circumstances the decision under review is affirmed.