Kelvin v Chief Commissioner of State Revenue [2009] NSWADT 25

CITATION: Kelvin v Chief Commissioner of State Revenue [2009] NSWADT 25

DIVISION: General Division

APPLICANT Janet Kelvin PARTIES: RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 086069

HEARING DATES: 27 January 2009

SUBMISSIONS CLOSED: 27 January 2009

DATE OF DECISION: 6 February 2009

BEFORE: Handley R - Deputy President

CATCHWORDS: Land Tax exemption – principal place of residence

LEGISLATION CITED : Land Tax Management Act 1956 Taxation Administration Act 1996

Chief Commissioner of State Revenue v Aldridge & Anor [2003] NSWADTAP 50 CASES CITED: Executors of the Estate of William Kevin Hughes v Chief Commissioner of State Revenue [2009] NSWADT 8 Chief Commissioner of Taxation v Ferrington [2004] NSWADTAP 41

APPLICANT N Kelvin, agent REPRESENTATION: RESPONDENT A Rider, barrister

ORDERS: The decision under review is affirmed.

REASONS FOR DECISION 1 On 18 July 2008, Janet Kelvin and her husband Norbert Kelvin filed an application with the Tribunal for the review of a decision of the Chief Commissioner of State Revenue ('the Respondent'), disallowing their objection to a notice assessing Mrs Kelvin as being liable for the payment of Land Tax on her property in Lavender Bay, North Sydney on the ground that it was not her principal place of residence at the relevant time. The Facts 2 There is no dispute about the material facts. In 1987, Mr and Mrs Kelvin purchased a property at Lavender Bay which, for family reasons, was registered in Mrs Kelvin's sole name. From 1987 until 22 April 2002, Mr and Mrs Kelvin resided there. On 23 April 2002, Mr and Mrs Kelvin let the property to tenants and travelled to Ireland where their daughter and her husband (Mr and Mrs Date) had moved to pursue their careers and where Mrs Date had her first child in April 2002. Mr and Mrs Date had difficulty finding suitable family accommodation and asked Mr and Mrs Kelvin for help in finding such accommodation and in caring for their child. Mr Kelvin states that at that time, although suitable rental accommodation at an affordable price was very scarce, purchasing a property was more affordable. As a temporary measure, he and his wife therefore decided to purchase a suitable property to accommodate the family and, in November 2002, purchased a property in Guileen, County Cork, where he and his wife could also stay for short visits while caring for the new baby. 3 Mr and Mrs Date stayed at the property for few weeks but it proved unsuitable because Mr and Mrs Date's business needs had changed such that they needed space for a home office from which to conduct their business. Accordingly, Mr and Mrs Date sought and eventually rented another property near Guileen. This property was, however, too small to enable Mr and Mrs Kelvin to stay overnight and care for their grandchild while Mr and Mrs Date were away on business. When this occurred, the grandchild (and, subsequently, a second grandchild born in September 2004) stayed with Mr and Mrs Kelvin in their property in Guileen. This occurred for frequent short periods amounting to several days and nights per month. Another daughter of Mr and Mrs Kelvin's also stayed with them "for a few months while seeking a job in nearby Cork city". 4 Mr and Mrs Kelvin decided to stay on in Ireland temporarily to help care for their grandchildren. By mid 2007, Mr and Mrs Date had established their careers, their children were a little older, and Mr and Mrs Kelvin decided to sell their Guileen property and return to Australia. Their property was advertised for sale in June 2007 but was not ultimately sold until 1 April 2008. 5 Copies of the residential tenancy agreements for the letting of the Lavender Bay property show that it was let for the following periods: (1) from 23 April 2002 to 21 November 2003, (2) from 21 November 2003 to 20 May 2004, (3) from 24 May 2004 to 24 May 2005, (4) from 22 July 2005 to 21 August 2007, and (5) from 22 August 2007 to 24 April 2008. In each case, except for the third lease, the lease was initially for a term of six months with a continuation clause operative thereafter. The third lease was for a term of 12 months. The total duration of the leases indicate that Mr and Mrs Kelvin were away from the Lavender Bay property for a period of six years and two days. 6 Mr Kelvin stated that he and his wife purchased the Guileen property in their joint names, funding this partly from Mr Kelvin's superannuation and partly from a mortgage on their Lavender Bay property. The rental proceeds from the Lavender Bay property were used to pay mortgage interest and outgoings on the property, for several return trips to Australia by Mrs Kelvin, together with their accommodation costs and living expenses in Ireland. In order to cover their reasonable expenses in Ireland, it was necessary to supplement the income from the Lavender Bay property with Mr Kelvin's earnings from casual work (part-time lecturing and research in the Engineering Faculty at University College, Cork) together with further borrowings using the mortgage facility. Mr Kelvin said after he turned 65 in 2005, he could only obtain casual work at the University and, although he looked for other work, he was unable to find anything suitable because of his age. 7 Mr and Mrs Kelvin were both born in Australia and have maintained their Australian citizenship from birth. They are also able to travel freely in Europe by virtue of their parents' nationalities. Mr Kelvin said that during the time they were away from Lavender Bay home, Mrs Kelvin visited Australia on a number of occasions for family reasons and to inspect their Lavender Bay home, following which she gave instructions for necessary repairs to be undertaken. She also visited her Australian dentist, doctor and eye doctor. During these visits, Mrs Kelvin stayed with family members. 8 While they were away from Australia, Mr and Mrs Kelvin's personal belongings, furniture etc that were not required in Ireland were either stored or held for them by their family in Australia. Mr and Mrs Kelvin also maintained their financial, electoral, professional and family connections in Australia. 9 On 9 November 2007, the Chief Commissioner wrote to Mrs Kelvin, care of the real estate agents through whom the Lavender Bay property was let, asking her to complete a Land Tax questionnaire and enclosing a Land Tax Guide for 2007. A reminder was sent on 4 December 2007. With a letter dated 16 December 2007, Mr Kelvin returned the questionnaire duly completed. On 23 January 2008, the Chief Commissioner issued a Land Tax assessment for the Lavender Bay property for the Land Tax years 2004 to 2008 totalling $30, 919.35 including interest, nominating a date for payment of 3 March 2008. Mr and Mrs Kelvin lodged an objection dated 1 February 2008, pointing to their circumstances and maintaining that the Lavender Bay property had always remained their principal place of residence. 10 Having had no response to the objection, Mr Kelvin wrote a number of follow up letters and ultimately, having been advised on 6 March 2008 that payment might be needed in order to avoid paying further interest, Mr and Mrs Kelvin paid the tax assessed in full. By email dated 1 April 2008, a delegate of the Chief Commissioner sought further information from Mr and Mrs Kelvin, who provided this on 29 April 2008. On 2 June 2008, the delegate decided to disallow the objection. On 18 July 2008, Mr and Mrs Kelvin applied to the Tribunal for a review of this decision. Following directions hearings on 27 August 2008 and 5 November 2008, the matter was set down for hearing on 27 January 2009. 11 In these proceedings, although the application for review was made by both Mr and Mrs Kelvin, I have treated Mrs Kelvin as the applicant because she is the registered owner of the Lavender Bay property. At the hearing, Mr Kelvin sought to appear as an agent for his wife. Pursuant to an amendment to section 71(1) of the Administrative Decisions Tribunal Act 1997 that took effect on 1 January 2009, there being no objection from the Respondent, I granted leave to Mr Kelvin (as required by section 71(1)(b1)) to appear as his wife's agent. The Relevant Legislation 12 I note that pursuant to section 100(3) of the Taxation Administration Act 1996, an applicant for review bears the onus of proving his/her case in the Tribunal. 13 During the relevant period, pursuant to sections 7, 8 and 9 of the Land Tax Management Act 1956 ('the LTM Act'), Land Tax was chargeable on the taxable value of land that was not exempt based on the ownership of the land as at midnight on the 31 December of each preceding year for which Land Tax was to be levied. Thus, Mrs Kelvin, being the registered owner of the land, was presumed to be liable for Land Tax on her land at Lavender Bay for the 2004 to 2008 Land Tax years based on her ownership of the land on 31 December 2003, 2004, 2005, 2006 and 2007, respectively, unless the land was exempt from tax. Section 10(1) provides relevantly: Except where otherwise provided in this Act, the following lands shall ... be exempted from taxation under this Act: ... (r) land that is exempt from taxation under the principal place of residence exemption, as provided for by Schedule 1. 14 'Principal place of residence' is defined in section 3(1): " 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. 15 Schedule 1A, clauses 2 and 8 provide relevantly: 2 Principal place of residence exemption (1) Land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under this Act ... if the land is: (a) a parcel of residential land, or (b) ... (2) 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 purposes 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. (3) If the owner of 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 owner's entitlement to the exemption. (4) The exemption conferred by this clause is referred to as the "principal place of residence exemption". (5) ... 8 Concession for absences from former residence (1) If the Chief Commissioner is satisfied that: (a) a person is the owner of land ("the former residence") that has been used and occupied by the person as his or her principal place of residence for a continuous period of at least 6 months, and (b) the person uses and occupies other land (whether or not in New South Wales), that is not owned by the person, as his or her principal place of residence, the person is taken, for the purpose of the principal place of residence exemption, to continue to use and occupy the former residence as his or her principal place of residence. (2) The maximum period for which a person may be taken, under this clause, to continue to use and occupy a former residence as a principal place of residence is 6 years starting at the end of the last period (of at least 6 months) during which the former residence was used and occupied by the person as a principal place of residence (not including any period for which the person may be taken, under clause 7 or this clause, to have used and occupied the former residence as a principal place of residence). (3) If the principal place of residence exemption applies to the former residence of a person by operation of this clause, the exemption ceases to have effect if the person is the owner of the former residence at the end of the 6-year period referred to in subclause (2) and fails: (a) to resume actual use and occupation of the residence as a principal place of residence by the end of that period, and (b) to continue that use and occupation for at least 6 months. (4) ... (5) ... (6) This clause applies in respect of the assessment of a person's ownership of land in a tax year only if the Chief Commissioner is satisfied that no income has been derived from the use or occupation of the former residence in the preceding tax year, except as permitted by subclause (7). (7) Income may be derived from the use or occupation of the former residence in a tax year if: (a) the income is derived from a lease, licence or other arrangement under which a person has a right to occupy the former residence and the total period for which any such right of occupation is conferred does not exceed 6 months in the tax year, or (b) the income is derived from any arrangement under which a person occupies the former residence, but the income is no more than is reasonably required to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence. 16 Clause 12 provides that for the purposes of the principal place of residence exemption, only one residence may be treated as the principal place of residence of all members of the same family. 'Family' is defined as meaning a person and his/her spouse, and the dependent children who ordinarily reside with them. 17 Mrs Kelvin objects to the assessment of her Lavender Bay land for Land Tax purposes on the ground that the land is exempt by reason of the principal place of residence exemption. The Chief Commissioner submits that this exemption does not apply for the Land Tax years in issue. The Chief Commissioner's Submissions 18 Mr Rider, for the Chief Commissioner, noted that liability for Land Tax rests on the objective facts as at each taxing date: Chief Commissioner of State Revenue v Aldridge & Anor [2003] NSWADTAP 50 ('Aldridge'). He said that as at the taxing dates - the preceding 31 December for each Land Tax year from 2004 to 2008, tenants were in occupation of the Lavender Bay property under the terms of residential leases. Because the property was not Mr and Mrs Kelvin's principal place of residence during the relevant period, the 'principal place of residence' exemption did not apply and Mrs Kelvin was liable for Land Tax for this period. The Chief Commissioner has no discretionary power to exempt Mrs Kelvin from liability for Land Tax as Mr Kelvin suggests. It is a matter of whether the requirements of the statutory exemption are met. 19 Mr Rider submitted that a person's principal place of residence in a particular tax year is the main place they use and occupy in the course of that tax year. Where a person uses and occupies more than one residence, the person's principal place of residence is determined by their temporal and domestic connections, emphasising, in particular, physical occupation. In a legal sense, occupation means a person retaining control of the land and not, for example, leasing the land to another person. 20 The facts of this case establish that from November 2002 until April 2008, the main place where Mrs Kelvin lived with her husband and, from time to time, with other family members, was the Irish property. It was from there that Mr Kelvin travelled to his place of employment. The Irish property was the main place Mr and Mrs Kelvin used and occupied in the course of their domestic life during the relevant period. Thus, pursuant to the definition of 'principal place of residence' in section 3(1) of the LTM Act, it was Mrs Kelvin's principal place of residence through this period. 21 Mr Rider said the Lavender Bay property was not Mrs Kelvin's principal place of residence during this period. She did not live there and she did not retain legal control of the property because it was let. In the case of each six month lease, after the expiry of the term of the lease, the tenants had 'holding over rights' under a continuation clause in the lease and remained in occupation for more than six months. Mrs Kelvin did not therefore satisfy either clause 2(2)(a) or (b) of Schedule 1A. 22 Mr Rider submitted that clause 8 of Schedule 1A could not apply here because, first, Mrs Kelvin owned land outside NSW that was her principal place of residence during the relevant period (clause 8(1) - moreover, pursuant to clause 8(2), the exemption is limited to a period of six years, whereas here the period was six years and two days), and, second, she derived an income from leasing the Lavender Bay property for a period exceeding six months in each of the relevant Land Tax years (clause 8(6) and (7)). 23 With regard to interest on the Land Tax assessed for the relevant Land Tax years, Mr Rider noted that the Chief Commissioner has remitted the premium rate component of such interest, and the interest component of the assessment only comprised the market rate component. There was no basis to remit the market rate component because the Office of State Revenue did not contribute to Mrs Kelvin's tax defaults. (See the discussion of the imposition of interest in Executors of the Estate of William Kevin Hughes v Chief Commissioner of State Revenue [2009] NSWADT 8 ('Hughes'), at [37] to [46]). Mrs Kelvin's Submissions 24 Mr Kelvin noted that there appear to be no Land Tax cases dealing with his and his wife's situation – that is where NSW property owners temporarily own and live in a property overseas. Mr and Mrs Kelvin's intent when they purchased a property in Ireland was to establish a temporary home for their daughter. In the event, they decided to stay in Ireland longer than they originally intended in order to help care for their grandchildren. It was, nevertheless, still a temporary arrangement. 25 Mr and Mrs Kelvin let the Lavender Bay property to pay their expenses in Ireland, and Mr Kelvin supplemented this income by working casually on a part-time basis. They continued to instruct their real estate agent in Sydney to lease their Lavender Bay house for shorter six month periods in case they needed to return home, even though this resulted in lower rental receipts. Mr Kelvin acknowledged there was one exception to this when the property was let for a 12 month period from 24 May 2004 to 24 May 2005. 26 Mr Kelvin said their daughter continued to require his and his wife's help until early to mid 2007. Thereafter, they put the Irish property up for sale with a view to returning to their Lavender Bay home. The Irish property did not finally sell until 1 April 2008. 27 Mr and Mrs Kelvin maintained a close connection with their Lavender Bay home throughout the time they were away, and they continued to regard this as their principal place of residence. They also maintained their professional, financial, electoral and family relationships in Australia. Mr Kelvin said they have owned the Lavender Bay property for a period of 21 years since 1987, whereas they owned the Irish property for a period of five and a half years. 28 Mr Kelvin said he and his wife recognise that all those who are resident in NSW must pay their fair share of taxes in accordance with their capacity to pay. While ignorance of the law is no excuse, he and his wife were not aware of their liability for Land Tax and their real estate agent did not warn them of this possibility. The result of their helping their family in Ireland has been that the Government has imposed a severe tax on their home. Mr Kelvin submitted that they do not fall into either of the two classes of property owners to whom the LTM Act was presumably intended to apply: that is property investors and those who own a second property for use as a holiday home. He and his wife were temporarily absent from their usual home for family reasons and needed the rental income from that property to pay for their accommodation and other expenses in their temporary location. 29 Mr Kelvin submitted that as a matter of fairness, the Tribunal should exercise its discretion to remit the Land Tax assessed, except that for the 12 month period from 24 May 2004 to 24 May 2005 when he conceded that their Lavender Bay property might not satisfy the requirements for it to be regarded as their principal place of residence. Mr Kelvin noted that the Land Tax assessed represented "approximately 15 months of our almost sole source of income during the relevant period" and was very severe given their circumstances as age pensioners. Paying the Land Tax has taken a large portion of their life savings. 30 Mr Kelvin also noted that the Taxation Administration Act 1996 provides for a Hardship Review Board and requested that the Tribunal exercise its powers to provide relief given the circumstances of this case. Discussion 31 I note there is no general discretion in the LTM Act allowing the Chief Commissioner to take into account other special circumstances that may apply in respect of a landowner which are not the subject of an exemption under the Act. Therefore, the issue to be determined in this case is whether the principal place of residence exemption applies to exempt Mrs Kelvin from liability for Land Tax in the Land Tax years 2004 to 2008. In Chief Commissioner of Taxation v Ferrington [2004] NSWADTAP 41, at [42], the Appeal Panel discussed the basis principles used in determining whether a person has used land as their principal place of residence. The Panel emphasised that "consideration of whether a person has been residing or occupying premises as their principal place of residence is to be assessed objectively, in the light of the circumstances relating to the actual occupation of the dwelling". (See also Aldridge at [14].) They said the words 'principal place of residence' "should be given their ordinary meaning in the context in which they appear". 32 I have no doubt that when Mr and Mrs Kelvin went to Ireland to visit their daughter in 2002 and let their house in Lavender Bay, they were not aware of their potential liability for Land Tax. When they decided to remain in Ireland and buy a property there, it was to assist their daughter in securing suitable accommodation and, subsequently, to help in caring for their grandchildren. As Mr Kelvin pointed out, they did not purchase the Irish property as an investment or as a holiday home. Rather, the purchase was for immediate family reasons, and they always intended that the Lavender Bay property should continue to be their permanent home and that they would resume their occupation of it when their daughter and her family no longer needed their help. However, their intentions are not determinative of the issue. As stated above, the facts must be considered objectively with regard to the terms of the principal place of residence exemption provided for in the LTM Act. 33 Mr and Mrs Kelvin were absent from their Lavender Bay home for a period pf six years and two days. During that time, with the exception of two months in 2005, the property was almost continuously let to tenants under the terms of either six or 12 month residential leases. In both cases, the leases contained a continuation clause permitting the tenants to remain in occupation of the property after the expiry of the term of the lease unless or until the agreement was ended in accordance with the terms of the Residential Tenancies Act 1987. Thus, through this period from 23 April 2002 to 24 April 2008, excepting the two months in 2005 when the property was between tenants, Mrs Kelvin had no right to occupy the property. 34 Mr and Mrs Kelvin purchased a property in Ireland in November 2002 where they lived until the property was sold on 1 April 2008. It was there that they cared for their young grandchildren when this was needed, another daughter lived with them there for several months while looking for a job in Cork, and Mr Kelvin travelled from there to his short term and casual employment at the University College, Cork. While I accept that Mr and Mrs Kelvin always viewed living in the property in Ireland as a temporary arrangement and intended to return to live in their house in Lavender Bay, maintaining their financial, electoral, professional and family connections in Australia in the meanwhile, nevertheless I am satisfied that in terms of the ordinary meaning of the words 'principal place of residence', the property in Ireland was their main residence for the period November 2002 to early April 2008. It was only after the last tenants vacated the Lavender Bay property on 24 April 2008, that they were legally entitled to resume occupation of the property. 35 Thus, I am not satisfied from the evidence that the Lavender Bay property was Mrs Kelvin's 'principal place of residence' within the ordinary meaning of that phrase in section 3(1) of the LTM Act for the Land Tax years 2004 to 2008. It follows that the principal place of residence exemption provided for in Schedule 1A does not apply and Mrs Kelvin is liable for Land Tax for the 2004 to 2008 Land Tax years as assessed by the Chief Commissioner. 36 In my view, clause 8 of Schedule 1A does not apply here because, in terms of clause 8(1)(a), Mrs Kelvin did not use and occupy the Lavender Bay property for a continuous period of at least six months during the relevant Land Tax years and, in terms of clause 8(1)(b), she used and occupied other land of which she was a part owner as her principal place of residence. In any event, the period during which Mrs Kelvin did not use and occupy the Lavender Bay property exceeded the maximum of six years provided for in clause 8(2). 37 With regard to the interest on the Land Tax assessed for the relevant Land Tax years, the Chief Commissioner has remitted the premium rate component of such interest, and the interest component of the assessment only comprised the market rate component. The imposition of interest where a 'tax default' occurs is discussed in Hughes, cited above. Pursuant to the Taxation Administration Act 1996, because Mrs Kelvin, admittedly unknowingly, failed or neglected to lodge the required Land Tax returns in respect of the Lavender Bay land, she was taken to have committed a 'tax default' and, pursuant to s 21(1) of that Act, the Chief Commissioner was required to include an interest component in the assessment. 38 In this case, the premium interest rate component has been appropriately remitted, Mrs Kelvin having co-operated with the Office of State Revenue in providing relevant information, having paid the Land Tax assessed, and there being no willful default. The market rate interest component is, however, only remitted in exceptional circumstances, for example, where the tax default is due to the fault of the Office of State Revenue. There is no evidence of such a default here and, in my view, no basis for exercising the discretion to remit the market interest rate component. 39 Finally, Mr Kelvin submitted that the Tribunal should exercise the powers of the Hardship Review Board to provide them with relief from paying the Land Tax. He referred to the particular circumstances in which he and his wife purchased and lived in the property in Ireland, and also to their being age pensioners, to the Land Tax assessed comprising a significant portion of their income in the relevant period, and to payment of the Tax having taken a large portion of their life savings. As Mr Rider pointed out, the Tribunal has no powers in relationship to the Hardship Review Board. It is a matter of Mrs Kelvin applying to the Board for relief should she wish to do so. Decision 40 The decision under review is affirmed.