Nakhoul v Chief Commissioner of State Revenue [2009] NSWADT 103

CITATION: Nakhoul v Chief Commissioner of State Revenue [2009] NSWADT 103

DIVISION: Revenue Division

PARTIES: APPLICANT Peter Jospeh Nakhoul

FILE NUMBER: 086128

HEARING DATES: 16 April 2009

SUBMISSIONS CLOSED: 16 April 2009

DATE OF DECISION: 12 May 2009

BEFORE: Verick A - Judicial Member

CATCHWORDS: First Home Owner Grant

First Home Owner Grant Act 2000 LEGISLATION CITED : Duties Act 1997 Taxation Administration Act 1996 Administrative Decisions Tribunal Act 1997

Stoke-On-Trent Borough Council v Cheshire County Council [1915] 3 KB 699 Dean v Commissioner of Stamp Duties (Qld)(NO2) [1996] 2 Qd R 557 Chief Commissioner of State Revenue v Ferrington (GD) [2004] NSWADTAP 41 Zakariya v Chief Commissioner of State Revenue [2003] NSWADT 26 CASES CITED: Re Ziino and Commissioner of State Revenue [2004] VCAT 1707 Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19 Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 Knight and Anor v Chief Commissioner of State Revenue [2008] NSWADT 83 Philpot v Chief Commissioner of State Revenue (RD) [2008] NSWADTAP 18

APPLICANT In person REPRESENTATION: RESPONDENT D Mitchell, barrister

ORDERS: The decisions under review are affirmed

REASONS FOR DECISION Introduction 1 The applicant is a registered proprietor of a residence situated at Birrong in the State of New South Wales ("the property"). He purchased the property in 2005 and settlement occurred on 16 February 2005. 2 He applied for and received a $7,000 first home owner grant under the First Home Owner Grant Act 2000 ("the FHOG Act") to assist him to purchase the property. By virtue of the First Home Plus Scheme ("the FHP concession") under the Duties Act 1997 ("the Duties Act"), no duty was paid by the applicant on the transfer or mortgage of the property. 3 On 4 March 2007, following an investigation the respondent formed the view that the applicant had failed to comply with the "residence requirement" under both the FHOG and the Duties Acts. Under s 12 of the FHOG Act and s. 76 of the Duties Act, the applicant was required to occupy the property as his "principal place of residence" for a continuous period of at least 6 months starting within 12 months after completion of the agreement to purchase the property. 4 The respondent on 4 March 2007 proceeded to recall the grant under s. 45 of the FHOG Act and issued an assessment to recover the $7,000 with a penalty of 30%. The respondent also proceeded to reverse his decision to offer the applicant the FHP concession and issued under s 9 of the Taxation Administration Act 1996 ("the TA Act") an assessment to recover the duties payable on the transfer and mortgage of the property ($13,754.32) with an interest amount ($1,043.01). 5 The applicant lodged an objection on 7 May 2007 against both decisions. On 2 October 2007, the respondent notified the applicant that his objection had been disallowed. In this application, the applicant seeks a review of the respondent's decision to disallow the objection. Factual Background 6 In addition to the documents filed pursuant to section 58 of the Administrative Decisions Tribunal Act 1997, the respondent produced a copy of the applicant's "Application for First Home Owner Grant Scheme", copies of the water and electricity bills for the property and a copy of the applicant's bank records in relation to the loan taken by the applicant from the Bank of Adelaide to purchase the property. These were admitted as exhibits. 7 The water bills disclosed a "nil" usage and the electricity bills disclosed a de minimis usage during the relevant period. 8 The applicant produced no evidence. The applicant essentially relied on statements made in a letter dated 13 October 2008 addressed to the Tribunal and statements made on his behalf by his father in the written and viva voce submissions. 9 It was claimed that until 10 October 2005, the applicant resided at the property and that, on that date, the property was rented to tenants for a total period of 44 weeks. It was also confirmed at the hearing that the applicant, along with his parents, have now taken up residence at the property and it is their family home. 10 In the letter dated 13th October 2008, the applicant made the following statement: "As I have told OSR on many occasions a lot of my time was spent at my parents' house, they live at Georges Hall, which is only 1 suburb away from Birrong so I was there during the week and weekends a lot. The only time I would go home was to sleep. If you were in my position and I ask that you put yourself in my shoes, your parents lived around the corner, would you go home by yourself or would you go to your family's house? I come from a very family orientated home and I would go over my family house every day for dinner and to spend time with them. Again, I was only 21 years old at the time, I do not cook, I do not do my washing, my house does not require a lot of cleaning and my mother does all my duties for me at her own home. Not a lot of electricity was used; my day consisted of getting up at 5.30am going to work and going to my parents after work. I would shower there, eat there, do my washing and ironing there. I spent my spare time there. If I had known that it would be a problem I would have put on the lights before I left the house to make sure that the bill would come to a high amount. I do not think that this is entirely fair because I had saved money because I didn't use a lot of electricity I am getting accused of fraudulent activity." 11 In the written submissions, the father of the applicant provided additional explanations. The explanations are summarized as follows: That the applicant did not change the address with the Road Traffic Authority and Electoral Board because he was a young man who did not consider the consequences for not updating his home address. That the applicant "was limiting his consumption of electricity due to financial hardship". The applicant was employed under a plumbing apprenticeship trainee program and earned in the period $2,180.00 per month and his monthly mortgage payments amounted to $3028.14. In these circumstances the applicant "found it very difficult to be at a stable financial position given that his loan repayments were above the amount of income being received". The applicant "had relied upon his family for day to day requirements, including washing, cleaning, cooking, financial matters; therefore a lot of his time was spent at his family's home". The applicant "is an honest, hard working Australian Citizen who has endured an extensive amount of financial hardship and could not have achieved his status without the help of the First Home Owners Grant". Relevant Legislative Provisions FHOG ACT 12 The FHOG Act was introduced to encourage and assist home ownership and to offset the effect of the Goods and Services Tax on the acquisition of a first home. The scheme has been continued to assist first home buyers to purchase or build their first homes. 13 The entitlement requirements for a grant are set out in s 7 (1) of the FHOG Act as follows: "A first home owner grant is payable on an application under this Act if: (a) the applicant or, if there are 2 or more of them, each of the applicants complies with the eligibility criteria, and (b) the transaction for which the grant is sought: (i) is an eligible transaction, and (ii) has been completed." 14 In the applicant's case, the "eligible transaction" was the contract for the purchase of the property in terms of s 13(1)(a) and was completed under s 13(5)(a) of the FHOG Act when the applicant was entitled on 16 February 2005 to possession of the property. 15 The eligibility criteria is set out in Division 2 of Part 2 of the FHOG Act, which requires an applicant to satisfy 5 "Eligibility Criteria" to obtain a grant. 16 For the present purposes, the relevant eligibility criterion at issue is the fifth criterion set out in s 12(1) of the FHOG Act. There are various historical versions of this provision, the version that applies in this matter is as follows: 12 Criterion 5—Residence requirement (1) An applicant for a first home owner grant must; (a) commence occupation of the home to which the application relates as the applicant's principal place of residence within 12 months after completion of the eligible transaction or the period approved by the Chief Commissioner under this section, and (b) occupy the home as a principal place of residence for a continuous period of at least 6 months or the period approved by the Chief Commissioner under this section. (2) This requirement is referred to in this Act as the residence requirement . (3) The Chief Commissioner may, if satisfied there are good reasons to do so, do either or both of the following: (a) approve the commencement of occupation by the applicant of the home to which the application relates as a principal place of residence more than 12 months after completion of the eligible transaction, (b) approve the occupation of the home as a principal place of residence for a period of less than 6 months. (4) The Chief Commissioner may, if satisfied there are good reasons to do so, exempt an applicant from the residence requirement. (5) An approval or exemption under this section may be given by the Chief Commissioner at any time, even if the period of 12 months after completion of the eligible transaction has already expired or the applicant's occupation of the home as a principal place of residence has already ceased. (6) If an application is made by joint applicants and at least one (but not all) of the applicants complies with the residence requirement, the non-complying applicant or applicants are exempted from compliance with the residence requirement. 17 Subject to certain conditions, a grant can be paid under s 20 of the FHOG Act in advance in anticipation of the residence requirement. Section 23 of the FHOG Act gives the Chief Commissioner power to vary or reverse a decision made in respect of an application for a grant where he is later satisfied that the decision is incorrect. 18 Power to require repayment and impose penalties is given to the Chief Commissioner under s 45 of the FHOG Act. DUTIES ACT 19 In tandem with the grant scheme, the government also introduced the First Home Plus Concession scheme under the Duties Act. Section 69 of the Duties Act sets out the scheme as follows: 69 The nature of the scheme This scheme is intended to help people who are acquiring their first home. Under the scheme, the acquisition and any mortgage given to assist the financing of the acquisition is subject to a concession or exemption from duty. 20 Under s 70, the following transactions and instruments are eligible for consideration under the scheme: (a) agreements for sale or transfer entered into on or after 4 April 2004, (b) transfers that occur on or after 4 April 2004 (other than transfers made in conformity with an agreement for sale or transfer entered into before 4 April 2004), (c) mortgages over land the subject of those agreements or transfers. 21 Section 74 deals with eligible agreements of transfers and restricts the concession to agreements or transfers for the acquisition of a first home or the acquisition of a vacant land intended to be used as the site of the first home. Under s 80 of the Duties Act, no duty is chargeable on an agreement or transfer of a dwelling valued up to $500,000 or $300,000 in the case of a vacant block of residential land if the application concerning an eligible agreement or transfer is approved by the Chief Commissioner. 22 An applicant under the First Home Plus Concession scheme must comply with s 76 of the Duties Act which, at the relevant time, provided as follows: " 76 Residence requirement (1) The home must be occupied by the person or persons who are acquiring it as a principal place of residence for a continuous period of at least 6 months, with that occupation starting within 12 months (or such longer period as the Chief Commissioner may approve) after completion of the agreement or transfer. This requirement is referred to as the residence requirement . (2) The Chief Commissioner may, if satisfied there are good reasons to do so in a particular case: (a) modify the residence requirement by approving a shorter period of occupation by the person or persons, or (b) exempt the person or persons from the requirement to comply with the residence requirement. (3) In the case of an agreement or transfer for the acquisition of a vacant block of residential land, it is sufficient that the Chief Commissioner is satisfied that the vacant block is intended to be used as the site of a home to be occupied by the person or persons who are acquiring it as their principal place of residence. (4) The residence requirement does not apply to a person who acquires an interest in the property concerned solely for the purpose of assisting the other purchaser or purchasers in financing the acquisition. (5) For the purpose of this section, an agreement or transfer is completed when a purchaser or transferee becomes entitled to possession of the home and, if the interest in the land acquired by the purchaser or transferee is registrable under a law of the State, the interest is so registered. (6) (Repealed)" TA ACT 23 In reversing his decision to offer the applicant the First Home Plus concession under the Duties Act, the respondent included in the assessment interest at the market plus premium rates under the TA Act. 24 The relevant interest provisions are as follows: 21 Interest in respect of tax defaults (1) If a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day for payment until the day it is paid at the interest rate from time to time applying under this Division. … 22 Interest rate (1) The interest rate is the sum of: (a) the market rate component, and (b) the premium component. (2) The market rate component is: (a) unless an order is in force under paragraph (b), the Bank Accepted Bill rate rounded to the second decimal place (rounding 0.005 upwards), or (b) the rate specified for the time being by order of the Minister published in the Gazette. (3) The premium component is 8% per annum. (4) In this section, the Bank Accepted Bill rate in respect of any day is the yield rate for 90-day Bank Accepted Bills published by the Reserve Bank for the month of May in the financial year preceding the financial year in which the day occurs. … 25 Remission of interest The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount. Discussion 25 The principal issue in this matter was whether the applicant satisfied the "residence requirement" under the FHOG and Duties Acts. The applicant was required under both Acts to reside at the property for a continuous period of at least 6 months starting within 12 months from16 February 2005. Additionally, the applicant was required to establish that the Property was occupied during that period as his principal place of residence. Under s 28(3) of the FHOG Act and s 100(2) of the TA Act the onus was on the applicant to prove his case. 26 The FHOG and Duties Acts do not provide any technical or legal meaning for the expression "principal place of residence" and accordingly, the expression has its ordinary meaning. A person's place of residence is usually understood as "the place where he eats, drinks and sleeps" (per Ridley J in Stoke-On-Trent Borough Council v Cheshire County Council [1915] 3 KB 699 at 706). 27 In ascertaining whether a particular residence of a person is the principal place of residence of that person it is necessary to use an objective test and the conclusion is determined by considering the extent and quality of use and occupation of the residence in each case (per Fryberg J in Dean v Commissioner of Stamp Duties (Qld)(No 2) [1996] 2 Qd R 557 in considering the meaning of the expression "principal place of residence" found in the Stamps Act 1894 (Qld)). The onus to establish one's principal place of residence is usually discharged on the basis of various matters, such as usage of electricity or gas, the presence of furniture/fittings and other personal items, the address of the property as the address for mail, the electoral roll and for all bills and the use of a telephone at the property. Further, it can be discharged by independent evidence, for example, statements by visitors to the property for social purposes. 28 Because the test is an objective test, the subjective intention of an applicant is not enough to bring the applicant within the eligibility criteria if the person did not, in fact, reside at the property as his or her principal place of residence (see Zakariya v Chief Commissioner of State Revenue [2003] NSWADT 26). 29 In Chief Commissioner of State Revenue v Ferrington (GD) [2004] NSWADTAP 41 the Appeal Panel of the Tribunal agreed that "to occupy a home as his or her principal place of residence a person's occupation must have a degree of permanence to it: a connection to a place of residence of a transient, temporary, contingent or passing nature is not sufficient, nor occupation for any other reason". 30 In this matter, the respondent's case was that the objective evidence, which included the water and electricity bills, the failure by the applicant to adopt the property as his residential address on his driver's licence and the electoral roll, the applicant's own statements made in his letter of 13 October 2008 to the Tribunal and in the written submissions by his father on his behalf, supported the respondent's submission that the applicant did not occupy the property as his principal place of residence during the period in question. 31 Mr Mitchell, counsel for the respondent, also referred me to the decision of the Victorian Civil and Administrative Tribunal in Re Ziino and Commissioner of State Revenue [2004] VCAT 1707. In that case, Senior Member Davies in considering whether the applicant had satisfied a similar residence requirement under the First Home Grant Act 2000 (Vic) made the following statement: "In my view, while sleeping by itself in a place can be an indication of a principal place of residence, it is not the sole matter to be taken into account. One needs to look at a whole indicia of matters …One needs to look as well at where the applicant ate; his use of electricity and the furniture and fittings and other matters such as entertainment of friends in the house… Sleeping in a place does not make a residence. It has got to be the whole indicia of things that are done in a home which are described in the cases…" 32 I agree with the respondent's submission. The evidence regarding usage of electricity/water, the failure to change his address to the property in his driving licence and the electoral roll, the amount of time spent at his parents' home and using the property merely to sleep at night during the 6 months period, all combines to found a proper inference as to what was his proper principal place of residence during the relevant period. The only inference that can be made is that he had not abandoned his family home as his principal place of residence during the relevant period. The applicant may have acted on the basis that, so long as he used the property to sleep there at nights during the period of six months, he was well within the conditions of the grant to proceed to let the property at the end of the six months period. It is also important to note that, on his own evidence, he was financially at the relevant time in no position to purchase the property and maintain it as his principal place of residence. His mortgage payment in each month during the period exceeded his income by almost $850. 33 The fact of the matter is that the FHOG and Duties Acts require more than just acquisition of a property and using the property as a place to sleep during a period of six months. It does not seem to me that the applicant did enough to establish that the property was his principal place of residence during the period to bring himself within the terms of the two Acts. As observed by the Appeal Panel in Ferrington "a connection to a place of residence of a transient, temporary, contingent or passing nature is not sufficient, nor occupation for any other reason". The applicant only used the place to sleep during the period and all matters that are performed to make a place a residence were carried out at his family home. 34 Under those circumstances, in my view, the respondent was entitled to recall the grant and also withdraw the concessions given to the applicant pursuant to the First Home Plus scheme. 35 As the applicant failed to comply with the residence requirement, s 20(3)(b) of the FHOG Act required him to repay the grant to the respondent within 14 days of 15 February 2006. Further, as the respondent reversed the decision under which the grant was made, the respondent pursuant to the powers found in s 45(1)(b) of the FHOG Act was entitled to demand repayment of the grant. In this matter, the respondent has issued an assessment requiring the applicant to repay the grant. In addition, the respondent had the power under s. 45(3) to impose a penalty for failure to comply with the residence requirement up to the full amount of the grant. The respondent imposed a penalty of 30% in this matter. 36 In Knight & Anor v Chief Commissioner of State Revenue [2008] NSWADT 83 I suggested an approach to determine the appropriate penalty under s 45 of the FHOG Act. This approach was adopted by the Appeal Panel of the Tribunal in Philpot v Chief Commissioner of State Revenue [2008] NSWADTAP 18. The factors suggested to determine the level of culpability include the following: "(1) the truthfulness of the original statements made by the applicant in his or her application for the grant; (2) the surrounding circumstance including the intention of the applicant in relation to the occupation and use of the property as his or her principal place of residence at the time when seeking the grant; (3) the reasons for failure to comply with conditions of the grant; (4) whether the applicant has occupied the property as his or her principal place of residence; (5) the candour of the applicant in his or her responses to compliance inquiries; and (6) whether the grant been refunded." 37 In Knight, it was also suggested that, having regard to the above factors, it was important then to determine the category in which the case ought to be included to impose the appropriate penalty under s 45. The following approach was suggested: "34 The most serious cases are those where a grant is obtained by fraud or by making serious false or misleading statements with a clear intention to disregard the conditions of the grant as set out in the FHOG Act. These cases should attract heavy penalties under s 45. The penalty could be from 50% to the full amount of the grant. 35 The next category of cases should include cases where applicants do not take reasonable care or act in a reckless manner when obtaining the grant. These are cases where applicants are clearly aware of their factual situations but proceed to make commitments that they can never fulfil, for example, if an applicant is about to leave the country for business or work and intends to stay outside Australia for a period of time that will not allow the applicant to fulfil the residence requirement but, nevertheless, in his or her application makes the claim that the applicant will satisfy that requirement or any other condition of the grant. This category will also include cases where less serious false or misleading statements are made to obtain the grant. These cases should attract penalties from about 30% but not exceeding 50% of the grant. 36 The third category of cases are cases where the original intention of the applicant is "frustrated" by circumstances within the control of the applicant and where by choice made by the applicant the conditions of the grant are not fulfilled. These are cases, for example, where an applicant obtains a grant indicating the date for occupation but then, by choice, takes an extended overseas holiday or seeks a job elsewhere in Australia and is not able to fulfil the conditions of the grant. Penalties of 10% to 30% of the grant would seem appropriate. 37 Cases where applicants are not able to fulfil the conditions of the grant because of circumstances largely or wholly beyond their control (for example illness or where an applicant is required by the employer to perform duties elsewhere in Australia or overseas) and where, for medical or other good reasons, the use and occupation of a property is delayed beyond the 12 months allowed under the FHOG Act should not attract any penalties unless there is a failure on demand to repay the grant. As observed by the President in Elskaf , in this category "none or a minimal penalty may be all that should be imposed". Where there is a failure to repay the grant in this category of cases, a 10% penalty of the grant would seem to be appropriate. 38 It is, of course, necessary that all the relevant circumstances should be taken into account in each case to determine the penalty. The following may be factors that would allow a reduction of at least up to 5% of the penalty that would otherwise be the appropriate penalty -