Clark v Chief Commissioner of State Revenue [2010] NSWADT 110

CITATION: Clark v Chief Commissioner of State Revenue [2010] NSWADT 110

DIVISION: Revenue Division

APPLICANT Robert Clark PARTIES: RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 086092

HEARING DATES: 24 February 2010

SUBMISSIONS CLOSED: 24 February 2010

DATE OF DECISION: 11 May 2010

BEFORE: Hole M - Judicial Member

LEGISLATION CITED : Land Tax Management Act 1956 Taxation Administration Act 1996 (NSW)

Chief Commissioner of State Revenue v Ferrington [2004] NSWADTAP 41 Chief Commissioner of State Revenue v Mesiti [2003] NSWADTAP 57 Commissioner of State Revenue v McIlroy [2009] NSWADTAP 21 CASES CITED: Commissioner of Taxation v Miller (1946) CLR 93 Deane v Commissioner of Stamp Duties [1996] 2 QdR 557 Frost (Inspector of Taxes) v Feltham [1981] 1 WLR 452 Nixon v Federal Commissioner of Taxation cited 79 ATC

APPLICANT

REPRESENTATION: A O'Brien, counsel / W Thomas, Thomas and Co.

RESPONDENT A H Rider, counsel / M Twohill, Crown Solicitor's Office

ORDERS: 1. The decision of the Chief Commissioner of State Revenue is confirmed.

REASONS FOR DECISION 1 The applicant has made this application in respect of the assessment to land tax for the land tax years 2003 to 2007 inclusive in relation to a property at Mollymook ("the subject property") in respect of the decision made by the respondent on 9 July 2008. Facts 2 The facts in relation to the ownership of properties is as follows: - the applicant and his wife were the owners of a house in Mosman ("Mosman house") as at 1998; - the applicant purchased the subject property in April 1998; - between September 1998 and 1999 the applicant renovated the subject property; - during the period December 1999 to January 2000 the applicant rented out the subject property for two separate holiday lettings; - the applicant and his wife sold the Mosman house in late 2000 early 2001. They then purchased a townhouse in Mosman ("Mosman townhouse") in late 2000 early 2001; - as at 31 December 2002 the applicant was the registered proprietor of the subject property; - as at 31 December 2002 the applicant and the applicant's wife were the registered proprietors of the Mosman Townhouse; - on 26 October 2004 a Land Tax 2005 Registration Form was forwarded to the applicant and his wife; - in response to the forwarding of the Land Tax 2005 Registration Form that form was completed and signed by the applicant's wife and returned to the OSR dated 22 November 2004. This completed form referred only to the Mosman townhouse claiming exemption as principal place of residence and disclosing the owners being (1) the applicant's wife and (2) the applicant; - on 15 May 2007 a land tax questionnaire was forwarded to the applicant care of his post office box; - the land tax questionnaire was completed on 12 May 2007. This questionnaire discloses both the applicant and his wife as the owners and is signed by the applicant. This questionnaire discloses the subject property and the Mosman townhouse showing 100% owned for the subject property and 50% owned for the Mosman townhouse, the questionnaire is signed by the applicant and claims an exemption for the subject property for principal place of residence; - on 14 June 2007 a letter was forwarded by the OSR to the applicant disallowing the claim for exemption for the subject property as principal place of residence for the 2003 to 2007 tax years. This letter enclosed Land Tax Notice of Assessment for the 2003, 2004, 2005, 2006 and 2007 tax years; and - on 24 June 2007 the applicant forwarded a letter to the OSR disagreeing with the assessment and lodging an objection to that assessment. Legislation 3 The relevant legislation for the 2003 tax year is sections 3 and 10 Land Tax Management Act 1956 ("LTMA") as set out below: " 3 Definitions (1) In this Act, unless the context or subject-matter otherwise indicates or requires: … "principal place of residence" of a person means the one place of residence that is, among the one or more places or residence of the person within and outside Australia, the principal place of residence of the person. … (3) For the purposes of this Act, in respect of any year in respect of which taxation is leviable or payable, land or a flat is not used or occupied as the principal place of residence of a person unless: (a) that land or flat and no other land or flat has, since before the first day of July that last preceded the commencement of that year, been continuously used and occupied by that person for residential purposes and for no other purpose, or (b) in any other case, the Chief Commissioner is satisfied that the land or flat is used and occupied by that person as the person's principal place of residence. … 10 Land exempted from tax (1) Except where otherwise expressly provided in this Act the following lands shall, subject to sections 10AA, 10B, 10D, 10E, 10G and 10P, be exempted from taxation under this Act: … (r) with respect to taxation leviable or payable in respect of the year commencing on 1 January 1998 or any succeeding year, land that has a land value in respect of the year of less than the premium tax threshold and that is used and occupied as the principal place of residence of the owner of the land (or, if there are joint owners, as the principal place of residence of one or more of them) and for no other purpose (except as provided by subparagraph (iii)), being: … (ii) a parcel of residential land …" 4 The relevant legislation for the 2004 to 2007 tax years is section 3, clause 2 Part 2 Schedule 1A, clause 5 and clause 8 Part 3 Schedule 1A and clause 12 Part 4 Schedule 1A LTMA as set out below: " 3 Definitions (1) In this Act, unless the context or subject-matter otherwise indicates or requires: … "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. … SCHEDULE 1A – Principal place of residence exemption … Part 2 - Principal place of residence exemption 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 (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) The principal place of residence exemption is subject to the restrictions set out in Part 4. … Part 3 - Concessions in application of principal place of residence exemption … 5 Concession for land used for incidental business purposes (1) For the purposes of the principal place of residence exemption, if land owned by a person is used and occupied by the owner primarily for residential purposes but not more than one room is used primarily for business purposes, the use of the land for the purpose of the business may be disregarded if the business is primarily conducted elsewhere. (2) Accordingly, land does not cease to be residential land because of the use of one room primarily for business purposes, even if income is derived from the use of the land for that purpose. … 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. … Part 4 Restrictions … 12 Only one principal place of residence for all members of same family (1) For the purposes of the principal place of residence exemption, only one place of residence may be treated as the principal place of residence of all members of the same family. (2) If members of a family own (whether jointly or separately) more than one residence used and occupied by any of them as a principal place of residence, the Chief Commissioner is to treat the one place of residence elected as the principal place of residence of the family as the principal place of residence of all members of the family in respect of a tax year. (3) Such an election is to be made, by or on behalf of the members of the family, in writing and must be lodged with the Chief Commissioner within the period for the lodging of objections under section 89 of the Taxation Administration Act 1996 . (4) An election may be made, in respect of a tax year, by the end of the period allowed for the lodging of an objection to a notice of assessment of land tax liability (being an initial assessment of land tax liability) for that tax year. (5) If an election is not made, the Chief Commissioner is to treat the residence that has the highest land value for land tax purposes as the principal place of residence of all members of the family. (6) For the purposes of this clause, a "family" consists of the following: (a) a person and his or her spouse (if any), (b) any dependent child or dependent step-child of the person and his or her spouse (or of either of them) who ordinarily resides with the person or his or her spouse. (7) A person is the "spouse" of another person if: (a) they are legally married, or (b) they are living together as a couple in a de facto relationship within the meaning of the Property (Relationships) Act 1984 . …" 5 Section 100(3) Taxation Administration Act 1996 (NSW) ("Tax Act") provides that the applicant has the onus of proving the applicant's case in an application for review. History of ownership 6 A comprehensive history of the ownership of property and the activities of the applicant and his wife has been provided by way of affidavit sworn by the applicant on 24 April 2009 and includes the following information: - the applicant has several qualifications including a Bachelor of Commerce in Economics, a Masters Degree in Business Administration and a Post Graduate Diploma in Labour Relations and the Law. The applicant retired in 1996 and now manages investments to provide the best possible standard of living as a retiree by way of his self managed superannuation fund and royalties from books he has written; - the applicant and his wife decided to move out of Sydney after his retirement and selected Mollymook as a suitable place; - the applicant purchased the subject property in April 1998 with the intention to renovate and then live in it; - the applicant and his wife owned the Mosman house where they lived up to the time that they purchased the Mosman Townhouse; - the applicant's wife suffered from various serious health issues from childhood and from cancer from 1997. The applicant's wife required continuous treatment at hospital and with various specialists over the subject years of 2003 to 2007 inclusive; - in the year 2000 the applicant and his wife sold the Mosman house and purchased the Mosman townhouse; - the subject property was rented out for two short periods in 1999/2000. As and from early 2000 the applicant moved items from Sydney to the subject property including: "… included chairs, beds and bedding, linen, crockery and cutlery, electrical items, a large number of books, paintings and prints, my good golf clubs and my easels and painting materials. My desktop computer and computer equipment, my Library, the furniture in the "Storeroom Study" and all my Records remained at the Mosman Townhouse, although I took with me to Mitchell Parade books from my Library on a regular basis. …" - the applicant states that he moved to the subject property during the second half of 2001 with the intention that the subject property thereafter be " my home and principal place of residence ". As and from that date until 30 May 2007 he states that he continued to regard the subject property as his home and principal place of residence. - the applicant stated that he indicated to Shoalhaven Council his intention to move into the subject property and notified his change of residential address to the subject property for the purpose of tax, voting, ASIC, the RTA and other purposes. He states that he did not change his postal address which had been the same address since 1996 and was a postal box at the Spit Junction Post Office. He also states he became a member of the Mollymook Golf Club; - the applicant states that after he moved to the subject property and over a period of time he replaced much of the existing furniture and furnishings. He attended to ongoing maintenance improvements to the subject property including substantial improvements costing approximately a total of $48,000.00. The applicant stated that from the second half of 2001 to mid 2005 he generally spent about six months of the year at the subject property. The applicant's wife spent about 60% of that time there also, that is about 3.5 months. The subject property does not have an office/study and the applicant used dial-up facilities to operate his managed investments related to managing his self managed superannuation fund; - the applicant stated that when he was at the subject property he kept up to date with his interests including his interest in economic, business and financial matters. He engaged in a number of activities including "talking with people who had similar interests, watching news and current affairs programs on television, reading books, newspapers, journals and bulletins and generally considering the business, economic and financial issues of the day". The applicant suffered from Paget's disease and engaged in a medical study program in 2003 related to treatment of that disease at Concord Hospital. As a result the disease became recessive; - on receipt of the letter dated 26 October 2004 from the OSR he noted that the form had already been completed to show a specific client ID and land owner details as himself and his wife. On receipt of the letter and form he stated that he contacted the OSR and spoke to an officer who he recalls gave him certain advice. Pursuant to that advice the applicant asked his wife to complete and sign the form and it was then lodged with the OSR; - on 13 February 2005 a notice was forwarded to the applicant by the OSR disclosing that for the 2005 tax year there was no amount payable; - the applicant stated that he continued to live at the subject property and that his wife spent time with him there up until April 2007 when he placed the subject property on the market for sale; - in December 2006 the applicant and his wife purchased a property at Roseville which is their residential property at present and completion of that purchase occurred on 29 January 2007; - the applicant received a letter from the OSR dated 15 May 2007 enclosing a Land Tax questionnaire. This questionnaire discloses a new client ID number. The applicant completed the questionnaire and dated it 12 May 2007 disclosing that an exemption was claimed for the subject property and that he was the owner of 50% of the Mosman townhouse; - the applicant and his wife completed the sale of the Mosman Townhouse on 30 May 2007; - the applicant paid the land tax as assessed in accordance with the assessments dated 14 June 2007; - the applicant sold the subject property and completion of that sale occurred on 9 November 2007; and - the applicant required his taxation returns to be prepared on the basis that he was an investor for income tax purposes up to and including the 2003 financial year. Pursuant to advice given to him by his accountant he submitted his taxation return for the 2004 financial year as a share trader and continued to do so up to and including 2008. The Australian Taxation Office ("ATO") reviewed the applicant's returns for the 2004 and 2005 tax returns and ruled that he was not carrying on a business as a share trader during those years and the applicant submitted amended returns on the basis that he is an investor and he now submits his returns on that basis. On 10 October 2008 the applicant's attention was drawn to his 2002 tax return which showed a depreciation claim in respect of the subject property and he thereupon instructed his accountant to lodge an amended return to correct that error. The applicant notes that his 2004, 2005 and 2006 tax returns disclose the subject property as his place of business. He states that he is informed by his accountant that this was shown in accordance with a computer program used by his accountant which automatically inserted the tax payer's home address as place of business. He states that this is an error that he did not pick up at the time that he signed the returns. He further stated that the depreciation claims in those years related to his office at the Mosman townhouse. Evidence 7 The applicant supplied a calendar for each of the subject years setting out identification of the weeks at the subject property, the weeks spent at the Mosman property and then the Mosman townhouse, the weeks spent in Sydney for medical reasons, the weeks on holidays and the weeks that are indeterminate (much discussion – accepted a particular chart as being the relevant chart). The applicant did not supply a diary for the subject years and he attested that those diaries had been kept and then they had been thrown out. 8 The applicant relied on affidavits by him filed on his behalf dated 24 April 2009, 16 December 2009 and 16 February 2010 and on an affidavit filed by his wife dated 16 February 2010, this affidavit affirms her knowledge of the information supplied by the applicant in his affidavits. The applicant and his wife gave evidence and were cross examined. 9 The applicant provided a calendar for the years 2002 through to 2007 inclusive which he analysed and then annexed to his affidavit of 16 December 2009. The analysis separated up the times that he believed that he had spent at each of the properties into four categories being the weeks spent at the subject property, the weeks spent at the Mosman townhouse, the weeks spent in Sydney for medical reasons, and the weeks spent on holiday. He also indicated that where the time spent could not be allocated to any of those four categories then they were indeterminate and were left blank. On the basis of this analysis the applicant provided a table of "basic percentages of times spent in each location" as set out below: Year Mollymook Mosman Sydney medical Holidays Indeterminate 2002 46% 8% 31% 8% 8% 2003 38% 26% 15% 13% 8% 2004 31% 25% 27% 2% 15% 2005 21% 42% 21% 12% 4% 2006 33% 13% 42% 8% 4% 2007 38% 8% 15% 0% 38% Approach above is one where carer period is excluded from the analysis. Approach below treats the care period as series of medical incidents. 2005 17% 21% 49% 11% 2% 2006 31% 17% 40% 8% 4% Approach below treats the care role as irrelevant and treats the period the same as any other period. 2005 21% 43% 21% 11% 4% 2006 33% 19% 35% 8% 6%