CITATION: Summerville v Chief Commissioner of State Revenue [2006] NSWADT 159 DIVISION: Revenue Division PARTIES: APPLICANTS David Rodney Summerville and Jennie Christine Summerville FILE NUMBER: 066009 HEARING DATES: 12/05/2006 SUBMISSIONS CLOSED: 05/12/2006 DATE OF DECISION: 05/30/2006 BEFORE: Hole M - Judicial Member CATCHWORDS: Land tax exemption - principal place of residence MATTER FOR DECISION: Principal matter LEGISLATION CITED : Land Tax Management Act 1956 CASES CITED: Crea & Anor v Chief Commissioner of State Revenue [2002] NSW ADT 125 Wilks v Chief Commissioner of State Revenue [2002] NSW ADT 248 APPLICANTS In person REPRESENTATION: RESPONDENT S Benjamin, solicitor ORDERS: 1. The Chief Commissioner of State Revenue's decision to assess land tax is affirmed REASONS FOR DECISION 1 Ms Summerville represented herself and her husband at the Tribunal. She provided various documents to the Tribunal on the day of hearing. The documents included a "Consent of Owner" signed by the applicants on 11 November 2003 directed to a builder. 2 The applicants have applied to the Tribunal to have the decision of the respondent to assess the property they own at Woodville for land tax for the 2005 year. 3 The applicants lived in a property at Morpeth, which they owned, as their principal place of residence in September 2003. They purchased a vacant block of land at Woodville ("the subject property") in September 2003 upon which they intended to build their new home. 4 The principal place of residence of the applicants at Morpeth was placed on the market for sale on 15 April 2004, it was co-listed with two agents. During the period from 15 April 2004 to 13 May 2005 there were two offers made on the house, each of which was accepted by the applicants. Unfortunately the first potential purchaser, who made the offer on 27 August 2004, did not proceed. The property was placed with the agents for sale on the basis that all offers would be submitted to the applicants to consider. Both offers were below the sale price which had been expected and the suggested sale price. At the time of the purchase of the subject property and then the sale of the principal place of residence the applicants did not enquire about their land tax liability. 5 During the period from 11 November 2003 to the date of hearing on 12 May 2006, the applicants awaited on the builder, that they had contracted to build their new home on the subject property, to complete the new home. They continued to live in their home at Morpeth until completion of the sale of that home. 6 As at 31 December 2003, the applicants owned both the property, being their principal place of residence at Morpeth and the subject property. They were not liable for assessment for land tax for the 2004 tax year as the Morpeth property was exempt as their principal place of residence and the land value of the subject land was below the tax free threshold of $317,000 as then applicable. 7 As at 31 December 2004, the applicants still owned the two properties. However in April 2004 the New South Wales State Government had abolished the tax free threshold so that, in this instance, the Morpeth property was exempt being the principal place of residence of the applicants and, if there was no exemption available and if the applicants remained the owners of both properties as at 31 December 2004 (as they were) then the subject property would be assessed for land tax for the 2005 tax year. 8 The respondent issued a land tax assessment to the applicants for the 2005 tax year in respect of the property at Woodville. The applicants objected to the assessment which was considered by the respondent. The objection was disallowed and an email was forwarded to the applicants on 9 January 2006 notifying them of the decision. The applicants have applied to the Tribunal for review of that decision. 9 The assessed land tax has been paid by the applicants. Applicable legislation 10 Land Tax Management Act 1956 ("the Act") Section 3 Definitions "principal place of residence" of a person means the one place of residence that is, among the one or more places of residence of the person within and outside Australia, the principal place of residence of the person." Clause 6 – Schedule 1A Schedule 1A – Principal place of residence exemption 6 Concession for unoccupied land intended to be owners 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. … Clause 7 – Schedule 1A 7 Concession for sale of former principal place of residence (1) If the Chief Commissioner is satisfied that, on a taxing dated ("the relevant taxing date"): (a) a person is the owner of land ("the former residence") that was the principal place of residence of the person on the relevant taxing date or was the principal place of residence of the person on the preceding taxing date, and (b) the person is the owner of other land ("the new residence") that is being or is intended to be used and occupied by the person as his or her principal place of residence. both the former residence and the new residence are taken, for the purpose of the principal place of residence exemption, to be used and occupied by the person as the person(s) principal place of residence on the relevant taxing date. (2) This clause applies in respect of land owned by a person only if the Chief Commissioner is satisfied that: (a) the former residence has not been used or occupied except as the person(s) principal place of residence, and no income has been derived from the use or occupation of the residence, since the preceding 1 July, except: (i) income derived from an excluded residential occupancy (within the meaning of clause 4), or (ii) income derived under a lease or licence entered into by the purchaser under a contract fro the sale of the former residence for a period pending completion of the sale, and (b) the person became the owner of the new residence within the period of 6 months before the relevant taxing date, and (c) since the person became owner of the new residence the new residence has not been used or occupied except: (i) as the person(s) principal place of residence, or (ii) by a tenant under a lease entered into by the previous owner, and (d) the person intends to dispose of the former residence within 6 months after the relevant taxing date. (3) If the principal place of residence exemption applies by operation of this clause to land not actually used and occupied by a person at the relevant taxing date, the exemption is revoked if: (a) the person fails to dispose of the former residence within 6 months after the relevant taxing date, or such further period as may be approved by the Chief Commissioner, or (b) the person is not actually using and occupying the new residence as his or her principal place of residence by the next taxing date immediately following the relevant taxing date. (4) The effect of the revocation is that the principal place of residence exemption is taken not to have applied in respect of any tax year to which, but for the revocation, it would have applied. Land tax liability is to be assessed or reassessed accordingly. (5) For the purposes of this clause, a person "disposes" of a former residence if: (a) the person ceases to be an owner of the former residence, or (b) the person enters into an agreement for the sale of the former residence. Applicants' submissions 11 The applicants submitted that they had placed the principal place of residence at Morpeth on the market for sale at the earliest opportunity after they had purchased the subject property, had accepted both of the only two offers which had been made and would have sold the property earlier if there had been a purchaser. 12 The intention of the applicants was to sell the principal place of residence at Morpeth as soon as was possible after 15 April 2004 and, when their new home was completed, to move in. During the period between sale of the property at Morpeth and being able to move into the new home on the subject property they had alternative accommodation available. 13 The applicants submitted that the situation was beyond their control in that the builder was slow and there had been delays. That following their execution of the consent of owner in favour of the builder and payment of an unrefundable deposit of $5,000.00, they were subject to the delays of the builder and the situation was beyond their control. 14 During the period of construction of the home on the subject property, the applicants have been liable to the mortgage payments on the property. They believed that if they had sold the Morpeth property straight away that they would not have incurred extra costs nor any land tax. 15 Ms Summerville submitted that she had contacted the respondent by telephone early in 2005 and that she had received incorrect advice to the effect that they could choose which property upon which land tax would be levied. As the land value of the Morpeth property was less than that of the subject property then any liability would be accordingly less on the Morpeth property and that they would have chosen that property to be assessed for land tax. 16 Ms Summerville submitted that the sale of properties at Morpeth is slower than other areas and that they had done everything they could to sell. The documents provided by the applicants supported the submissions that both offers made had been accepted. 17 The applicants believed, in September 2003, that the new home would be completed approximately 9 months after then. The consent of owner form directed to the builder was dated 11 November 2003. A building contract was signed on 5 July 2004 with provision for completion in 30 weeks, with extensions available for delays. It became apparent that the builder was unreliable and the applicants believed they could not do anything as they would lose the $5,000.00 deposit. 18 Ms Summerville produced to the Tribunal the applicants' copy of the Building Contract, copy draft plans dated 8 September 2003, loan documents referring to provision of a mortgage for the purposes of construction of the new home, invoice for first payment dated 17 November 2003 and copy of Development Approval dated 26 May 2004. 19 Ms Summerville submitted that they understood that their situation did not fit neatly into the concessions available. That they intended to sell and build quickly and that due to circumstances beyond their control this did not occur. Respondent's submissions 20 The respondent's representative cross examined Ms Summerville and elicited the following information. Ms Summerville is a para-planner with a Financial Planner, her employment requires her to devise financial plans and statements of financial advice, she does not devise strategies although she understands financial planning. 21 The respondent's representative submitted that the applicants were not liable for land tax for the 2004 tax year as, even though they owned the principal place of residence and the subject property, the land value of the subject property was below the threshold and; the principal place of residence was exempt. Insofar as the 2005 tax year was concerned, that the exemption provided in Clause 6 of Schedule 1A was not applicable as the applicants also owned the home at Morpeth and this was their principal place of residence. That by virtue of the definition of principal place of residence in Section 3 the applicants could have only one place of residence and that was the home at Morpeth. Further that the concession available pursuant to Clause 7 Schedule 1A was, by reason of application of Clause 7(2)(b) only available if the applicants had become the owners of the new residence (the subject property) within the 6 months before the relevant taxing date – that is during the period between 1 July 2004 and 31 December 2004. 22 The respondent's representative submitted that the assessment of land tax in this matter had occurred as a result of the time lapse which occurred between the purchase of the subject property and the sale of the principal place of residence which had the effect of disentitling the applicants to the concession available by application of Clause 7 Schedule 1A as they had owned the property (new residence) for some 15 months before the relevant taxing date, and the threshold had been removed. 23 The respondent's representative referred to Crea & Anor v Chief Commissioner of State Revenue [2002] NSW ADT 125 and Wilks v Chief Commissioner of State Revenue [2002] NSW ADT 248 being decisions relating to the application of an exemption for a parcel of land which was intended to be the principal place of residence once a home had been built thereon while owning another property which was used as the owner's principal place of residence. Each of these decisions related to the now repealed Section 10T of the Act being the applicable concession which is now provided in Clause 6 of Schedule 1A. 24 At the time of the introduction of the exemption which had been provided in the repealed Section 10T the Minister commented, in the Second Reading Speech: "… A 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 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 owner's total taxable land holdings are valued at $160,000 or more, which is the current exemption threshold. It is therefore proposed to provide an exemption for a vacant or unused residential block of land where the purchaser intends to build his or her principal place of residence. The land will be exempt for two years from the date of purchase, to 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. The exemption will not apply if the owner already owns a residence which is exempt. This measure is expected to cost no more than $100,000 per annum." 25 The respondents' representative submitted that the provisions of Clause 6 Schedule 1A only apply if the owner does not own another residential property that is used as the owner's principal place of residence and that the provisions of Clause 7 Schedule 1A provide a timeframe to allow the sale of the former principal place of residence. The Chief Commissioner has a discretion to extend the 6 months deadline for the property to be sold and that in this case the Chief Commissioner did not consider that there were compelling reasons beyond the control of the applicants that would warrant exercising this discretion. Decision 26 The evidence provided to the Tribunal by the applicants did not substantiate that the circumstances of delay were such that the delays were beyond their control. The applicants signed a consent of owner with the builder within 6 weeks of purchasing the subject property. This consent did provide for a refund of 'portion' of the $5,000.00 paid to cover initial costs if the applicants did not enter into a Building Agreement with the named builder. 27 The applicants stated intention was to build a new home on the subject property, to move into that property within approximately 9 months and to sell the property at Morpeth. 28 The applicants were unconcerned about the imposition of land tax as, even if they retained both properties then one would be exempt as their principal place of residence and the other would have a land value below the threshold. Events overtook the applicants in that the threshold was removed by the State Government which meant that the only possible relief would be through any available concession. Unfortunately to avail themselves of a concession for the 2005 tax year it would have been necessary for the applicants to have purchased the subject property no earlier than 1 July 2004. They had purchased the land in September 2003. 29 The sale of the principal place of residence was subject to the vagaries of the market place which had been affected by a slowing in sales/purchases after September 2003. Consequently, apart from the usual delays in selling property outside the large metropolitan areas of the State, the opportunities to sell were reduced no matter what sale price was sought. The applicants accepted the only two offers made, if the first potential purchaser had proceeded then this matter would not be before the Tribunal. 30 The respondent has assessed the land tax in accordance with the legislation and has not been unreasonable in doing so. The applicants have stated that there have been numerous delays in the building process including Council delays and builder delays, such as waiting on tradesmen and draftsmen. If the building had been completed and they had moved into the subject property as their principal place of residence then, as a direct result of the removal of the threshold, the applicants would have been assessed for land tax on the Morpeth property rather than the subject property. 31 The contract with the builder was signed on 5 July 2004 (10 months after purchasing the subject property) and the home remained incomplete at the date of hearing (21 months after the building contract). It is clear that there have been delays in building although these delays were not shown to be outside the control of the applicants. 32 Unfortunately, through the operation of the legislation and the effect of the removal of the threshold for the 2005 tax year, and as a direct result of the inability to find a purchaser the applicants are obliged to pay land tax. The option to have land tax assessed on the subject land as the applicants' principal place of residence rather than the property at Morpeth was frustrated as they could not move into the property on or before 12 December 2004. ORDER 1. The Chief Commissioner of State Revenue's decision to assess land tax is affirmed. 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.