CITATION: Simpson v Chief Commissioner of State Revenue [2009] NSWADT 55 DIVISION: Revenue Division APPLICANT Christopher Guy Simpson PARTIES: RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 086016 HEARING DATES: 5 December 2008 SUBMISSIONS CLOSED: 5 December 2008 DATE OF DECISION: 13 March 2009 BEFORE: Hirschhorn M - Judicial Member CATCHWORDS: First Home Owner Grant - residence requirement LEGISLATION CITED : First Home Owner Grant Act 2000 Taxation Administration Act 1996 Band v Chief Commissioner of State Revenue [2007] NSWADT 185 Deputy Commissioner of Taxation v Clark [2003] NSWCA 91 Agiostratis v Chief Commissioner of State Revenue [2008] NSW ADT 23 Fisk v Chief Commissioner of State Revenue [2008] NSW ADT 59 CASES CITED: Allam v Chief Commissioner of State Revenue [2005] NSWADT 172 Highlands Ltd v Deputy Federal Commissioner of Taxation (1931) 47 CLR 191 Cam & Sons Pty Ltd v Commissioner of Land Tax (1965) 38 ALJR 462 Philpot v Chief Commissioner of State Revenue [2008] NSWADTAP 18 Cullen v Chief Commissioner of State Revenue [2007] NSWADT 121 Knight & Anor v Chief Commissioner of State Revenue [2008] NSW ADT 83 APPLICANT In person REPRESENTATION: RESPONDENT A Rider, barrister ORDERS: 1 The decision of the Chief Commissioner not to exercise a discretion under s.12(3) of the First Home Owner Grant Act 2000 to extend the time for compliance with the residence requirement is affirmed 2 The decision of the Chief Commissioner to impose a penalty of 20% is affirmed. REASONS FOR DECISION 1 This is an application made by the Applicant for review of a decision of the Chief Commissioner of State Revenue ("the Respondent") on 24 October 2007 ("the original decision") in respect of which the Applicant subsequently made an objection dated 14 November 2007. The Respondent disallowed the objection on 19 December 2007. 2 The Applicant has applied to the Tribunal for review of the decision of the Chief Commissioner made under section 12(3) of the First Home Owner Grant Act 2000 ("the FHOG Act"), that is, a decision not to extend the time for compliance with "the residence requirement" criterion in the FHOG Act in section 12(1). Further, the Applicant also applied for review of the decision of the Chief Commissioner to impose a 20% penalty on the Applicant. 3 The Applicant, who currently resides in the United Kingdom, did not appear at the hearing of the matter. The Applicant's father, Mr Peter Simpson, was an observer (via telephone) at the hearing. He stated to the Tribunal that he was not legally qualified and did not appear as a representative of the Applicant but rather was simply as an observer in relation to the matter. By way of background, the Applicant had previously made an application to the Tribunal that the matter be dealt with on the papers. The Respondent however wished for there to be an oral hearing of the matter. A direction was ultimately made by the Tribunal on 22 October 2008 that the matter would proceed by way of a hearing. 4 Both the Applicant and Respondent filed written submissions. In addition, the Respondent filed the documents required in accordance with Section 58 of the ADT Act, a bundle of documents entitled "Respondent's evidence", a separate bundle of documents entitled "Respondent's Authorities and Legislation" and Counsel for the Respondent, Mr Rider, made oral submissions at the hearing. Facts 5 The facts were not in contest between the parties (with the exception, perhaps, as to the precise nature of a lease in respect of the property in question on or about the time the Applicant purchased the property which is specifically addressed below). 6 The Applicant purchased a property, Lot A, Deposited Plan 110187 (known as 12 Alexander St, Surry Hills NSW and referred to hereafter as "the Property") under a contract for sale dated 18 November 2005. A copy of the contract for sale was provided in the Respondent's evidence bundle. 7 The front page of the contract indicated that the "completion date" of the contract was 22 January 2006. 8 The second page of the contract (being the 2000 edition of the standard contract for sale) contained a heading "CHOICES" and a sub-heading beneath that of "Tenancies". In relation to the sub-heading "Tenancies", neither the "No" or "Yes-subject to tenancies disclosed in contract (clauses 17, 24)" box was crossed on the contract. Further in respect of a heading of "Tenants" further down on the same page, it appears that no copy of a lease and any relevant memorandum or variation was attached to the contract of sale. 9 Clause 17 of the contract (being one of the standard terms and conditions) stated the following; Possession 17.1 Normally, the vendor must give the purchaser vacant possession of the property on completion. 17.2 … 10 From a review of the contract, there did not appear to me to be any other terms or conditions in the contract that displaced standard clause 17.1. The copy of the contract for sale contained in the Respondent's evidence bundle did not contain a copy of clause 24 (being the other clause referred to on the second page of the contract under the sub-heading "Tenancies"). 11 Clause 14.1 of the contract stated the following: Normally, the vendor is entitled to the rents and profits and will be liable for all rates, water, sewerage and drainage service and usage charges, land tax and all other periodic outgoings up to and including the adjustment date after which the purchaser will be entitled and liable. 12 The adjustment date was defined in the contract as being the earlier of the giving of possession to the purchaser or completion. There were no other terms or conditions in the contract that appeared to displace standard clause 14.1. 13 A copy of the transfer for the Property from the prior owners to the Applicant was included in the Respondent's Section 58 documents. Whilst the transfer document itself is undated, a copy of a historical search of the folio (also contained in the Respondent's Section 58 documents) indicates that the transfer for the Property was registered on 2 February 2006. 14 The historical search of the folio for the Property (such search being dated 22 October 2007) does not indicate that there was any registered lease either prior to or at the time of the transfer of the Property to the Applicant on 2 February 2006. 15 On 20 December 2005, the Applicant, through Suncorp Metway Limited, submitted an application for the First Home Owner Grant ("the Grant"). 16 On 12 January 2006, the Applicant received the Grant in the amount of $7,000.00. 17 The application for the Grant indicated that the contract was to be settled on 22 January 2006 (this date being consistent with the date for completion on the front page of the contract). The Applicant however stated in correspondence with the Office of State Revenue on 26 September 2007 that he purchased the property on 23 January 2006. 18 The Respondent's evidence contained a copy of a residential tenancy agreement between the Applicant and three tenants in respect of the Property. The agreement was dated 23 January 2006 and the term of the tenancy was for six months beginning on 23 January 2006 and ending on 23 July 2006. The tenancy appears to have been signed for the Applicant by a person acting under a power of attorney dated 15 January 2006. 19 In relation to the above tenancy, the Applicant said in a written submission dated 15 April 2008 regarding the residence requirement, that: "My going overseas, coupled with my arrangements with the tenants, who were tenants of the previous owner and were already in the property when I bought it, to stay on, and my taking up employment, were all consistent with my statutory obligations. In fact, the same must be said for the lease entered into by the tenants with me. It was for a period of six months only." 20 The Applicant also said in a written submission dated 10 June 2008: The issue as to the Grant is a simple one and until very recently it was the only issue. There has now been raised a "jurisdictional" issue. As to that, the Applicant says that his contract for purchase was settled on a vacant possession on completion basis, and that the tenant's rights would then have been terminated. The Applicant is not a lawyer however, and some other considerations might be relevant. The Applicant has nothing more to submit on this question and will necessarily abide by the decision of the Tribunal". 21 On 31 January 2006, a rental bond for the Property was lodged with the Rental Bond Board. 22 I have reviewed the contract, the residential tenancy agreement, the folio search and the Applicant's evidence in relation to the tenancy and from this I have concluded that the Applicant settled the contract for the purchase of the Property on 22 January 2006. 23 I have also concluded that after settlement, and on 23 January 2006, the Applicant entered into a tenancy agreement of his own with tenants (who appeared to have previously leased the Property from the vendor and it seems from the Applicant's evidence may have simply physically stayed in the Property). There is no evidence to suggest that the Applicant purchased the Property whilst it was subject to an existing lease (either registered or unregistered). Instead, the contemporaneous evidence I have reviewed together with the Applicant's own evidence as to his understanding of what occurred have led me to find that the Applicant entered into his own lease of the Property with the tenants on 23 January 2006. 24 It does appear however that the Applicant allowed the tenants to physically stay in the property during the short period between 22 January 2002 and 23 January 2002 in the absence of any lease, presumably by a mere licence (which was described by the Applicant in his evidence as his "arrangement with the tenants" to "stay on" in the property). 25 My findings in relation to these matters (and certain related findings of law that are explained in the reasons for decision below), as the Respondent has recognised, have implications for when the "residence requirement" commences in relation to the Property under the FHOG Act. 26 On 25 April 2006, the Applicant left Australia to go to the United Kingdom. 27 The Respondent's evidence contained a document indicating that on or about 28 April 2006, the Applicant appears to have been issued an entry visa to the United Kingdom that was valid to 28 April 2008. The observations on the document said "Work restricted to 12 months. No business or professional sports. No recourse to public funds for full 2 years". 28 The Respondent's evidence also contained a letter dated 15 May 2006 from Dresdner Kleinwort Wasserstein in London that made an offer of employment to the Applicant and a copy of a signed temporary employment agreement between the Applicant and Dresdner Kleinwort Wasserstein in London dated 23 May 2006. The agreement contemplated that the employment (in the position of a Vice President in the London office) would commence on or before 23 May 2006 and would continue for a period of 12 months (i.e. to 23 May 2007). 29 On 7 February 2007, the Applicant entered into a further residential tenancy agreement in respect of the Property but with new tenants for a period of 12 months beginning on 21 February 2007 and ending on 21 February 2008. 30 On 14 June 2007, the Applicant entered into a further employment agreement with Dresdner Kleinwort Wasserstein in London. Unlike the prior employment agreement, this agreement did not contain any anticipated term. The Applicant, in correspondence with the Office of State Revenue on 1 November 2007 indicated that he "received an offer from my firm to extend my contract from temporary to permanent and that "at the time it made a lot of financial sense". 31 The Applicant also indicated: I have my temporary contract (and subsequently my permanent contract) and I have my temporary UK visa (and subsequently my permanent). This should provide proof that my stay in UK was initially meant to be short term and it was my intention was (sic) to come back and live in my home. 32 On 2 July 2007, the Applicant was issued a resident permit for the United Kingdom valid until 29 June 2009. The observations stated that the Applicant had limited leave to remain in the UK and no recourse to public funds. 33 On 4 May 2007, the Office of State Revenue issued a Confirmation of Residence letter to the Applicant. 34 In response to the above letter, the Applicant completed a Residence Confirmation – Statutory Declaration (undated but which must have been after 4 May 2007). The Applicant ticked the "No" box in relation to indicate that "the home was not occupied by an applicant for the grant for a continuous period of 6 months, commencing within 12 months of settlement or completion of construction of the home". The Applicant also stated in an attachment to this document the following: At the time I purchased the 12 Alexander St property, and claimed the First Home Owner Grant, I had every intention to utilise this as my primary place of residence for at least six months of the following 12 months (and thereby satisfy the requirement of the Grant). However, soon after my purchase of the house, I decided to travel overseas for two months. Following these two months travel, an opportunity arose to work in the United Kingdom and I made the decision to relocate there. I am still in the UK and intend to remain here at least until the end of this year. However, when I return to Australia it is absolutely my intention to make 12 Alexander Street my primary place of residence. I would like to request an extension of the time available to me to satisfy the criteria, so that I can satisfy it as soon as I get back to Australia. I believe I continue to qualify for this Grant as the house was bought to be my "first home" and will be my "first home" when I return to Australia". 35 On 24 October 2007, following correspondence between the parties, the Respondent wrote a letter to the Applicant and advised him that the Respondent had reversed the decision to pay the Grant to the Applicant. The letter requested repayment of the Grant of $7,000 under Section 45 of the FHOG Act. The letter also indicated that the Office of State Revenue had imposed a penalty of 20% of the Grant amount on the Applicant. Both the grant and the penalty were required to be paid within 21 days of the letter. 36 On 14 November 2007, the Applicant wrote to the Respondent requesting him to reconsider the matter. The letter contained a statement to the effect that if a discretion on the part of the Respondent was available then it could not be against Government policy for the Applicant to get the benefit of the exercise of such discretion. 37 It appears that the Respondent treated the abovementioned letter of the Applicant as an objection. The Respondent disallowed the objection on 19 December 2007. In the objection decision, the Respondent referred to the requirements of section 12(1) and stated that as the Applicant failed to meet the requirements of the section, the decision to recall the Grant was correct. Further the Respondent referred to his discretion under Section 12(3) of the FHOG Act and stated that he did not consider the Applicant's circumstances to be beyond his control and that an extension of time to meet the residence requirement was not warranted. 38 On 12 February 2008 the Applicant filed an application to the Tribunal for a review of: 1) The decision by the Chief Commissioner not to grant the Applicant an extension of time to meet the residence requirement in the FHOG Act pursuant to a discretion to do so under Section 12(3) of the FHOG Act; and 2) A review of the decision to impose a penalty of 20%. 39 The Respondent's Counsel indicated at the hearing that on or about 14 February 2008, the Applicant repaid the grant as well as the penalty to the Office of State Revenue. 40 As at the hearing date of this matter, the Applicant was still residing in the UK and thus has not to date occupied the Property. Relevant legislative provisions 41 At the relevant time, in order for an applicant to be eligible for a First Home Owner Grant, the FHOG Act contained a criterion to be satisfied by the applicant in relation to "residence" in section 12 that was in the following terms: 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) … 42 It will be seen that sub-section 12(1)(a) above required an applicant to commence occupation of the home (to which the application for the First Home Owner Grant relates) as his/her principal place of residence within 12 months after "completion of the eligible transaction" or "the period approved by the Chief Commissioner under this section". In relation to the "completion of the eligible transaction", Section 13 of the FHOG Act provided the following: 13 Eligible transactions (1) An eligible transaction is: (a) a contract made on or after 1 July 2000 for the purchase of a home in New South Wales, or (b) a comprehensive home building contract made on or after 1 July 2000 by the owner of land in New South Wales, or by a person who will on completion of the contract be the owner of land in New South Wales, to have a home built on the land, or (c) the building of a home in New South Wales by an owner builder if the building work commences on or after 1 July 2000. (2) A contract is a contract for the purchase of a home if the contract is a contract for the acquisition of a relevant interest in land on which a home is or is to be built under the contract by or on behalf of the vendor. (3) … (4) The commencement date of an eligible transaction is: (a) in the case of a contract—the date when the contract is made, or (b) in the case of the building of a home by an owner builder: (i) the date when laying the foundations for the home commences, or (ii) another date the Chief Commissioner considers appropriate in the circumstances of the case. (5) An eligible transaction is completed when: (a) in the case of a contract for the purchase of a home: (i) the purchaser becomes entitled to possession of the home under the contract, and (ii) except in the case of a terms contract, if the purchaser acquires an interest in land under the contract that is registrable under a law of the State—the purchaser's interest is registered under that law, or (b) in the case of a contract to have a home built—the building is ready for occupation as a place of residence, or (c) in the case of the building of a home by an owner builder—the building is ready for occupation as a place of residence. (6) … (7) … 43 Under section 20 of the FHOG Act, the Chief Commissioner may authorise payment of a first home owner grant either before completion of the relevant eligible transaction (if the Chief Commissioner is satisfied it is appropriate to do so in particular circumstances) and/or in anticipation of the residence requirement being met (provided the Chief Commissioner is satisfied as to certain matters). 44 If completion of the eligible transaction does not occur with a certain timeframe (section 20(2)) or the residence requirement is not complied with (Section 20(3)) then an applicant is required, within 14 days of the end of the period allowed for compliance, to give written notice of that fact to the Chief Commissioner and to repay the amount of the grant. Failure to do this constitutes an offence (section 20(4)). 45 Under section 45 of the FHOG Act, Chief Commissioner can require an applicant to repay a grant and can also impose a penalty as follows: 45 Power to require repayment and impose penalty (1) The Chief Commissioner may, by written notice, require an applicant (or former applicant) for a first home owner grant to repay an amount paid on the application if: (a) the amount was paid in error, or (b) the Chief Commissioner reverses the decision under which the amount was paid for any other reason. (2) If, as a result of an applicant's dishonesty, an amount is paid by way of a first home owner grant, the Chief Commissioner may, by the notice in which repayment is required or a separate notice, impose a penalty not exceeding the amount the applicant is required to repay. (3) If an applicant (or former applicant) for a first home owner grant fails to make a repayment required under this section or the conditions of the grant, the Chief Commissioner may, by written notice, impose a penalty not exceeding the amount the applicant is required to repay. (4) … 46 The jurisdiction of the Tribunal to review a decision of the Respondent under the FHOG Act is contained in section 28: 28 Reviews by Administrative Decisions Tribunal (1) An objector may apply to the Administrative Decisions Tribunal for a review of the decision (the original decision) to which the objection was made if: (a) the objector is dissatisfied with the Chief Commissioner's determination of the objection, or (b) 90 days have passed since the objection was lodged with the Chief Commissioner and the Chief Commissioner has not determined the objection. (2) The applicant's and respondent's cases on an application for review are not limited to the grounds of the objection. (3) The applicant has the onus of proving the applicant's case in an application for review. (4) … (5) … (6) … (7) … 47 On a review, the Tribunal on review may confirm, vary or reverse the original decision, and make any further orders as to costs or otherwise as it thinks fit. (section 29 FHOG Act). Issues 48 The issues for determination by the Tribunal in this matter can be stated as follows: a. Whether the Respondent made the correct decision not to exercise the discretion in section 12(3)(a) of the FHOG Act to approve the commencement of occupation by the Applicant of the Property as a principal place of residence more than 12 months after completion of the eligible transaction? b. Whether, in all the circumstances, the decision by the Respondent in recalling the grant and imposing a penalty of 20% under section 45(3) of the FHOG Act was correct? Applicant's submissions 49 The Applicant filed three written submissions with the Tribunal. I also reviewed the correspondence between the Applicant and the Office of State Revenue that was contained in the Section 58 documents. 50 The Applicant essentially made the following submissions: (a) He was well aware of the social purpose of the Grant and the last thing he would do is exploit it. At the time he bought his home, the grant was very useful and he probably would not have been able to purchase without it. (b) He applied for the grant and obtained it in good faith. At that time he was employed in Sydney and expected his employment to continue into the future. (c) The opportunity presented itself of employment overseas on better conditions than available in Australia. The possibility of that employment was for a limited time. He did not believe he would strike trouble with the First Home Owner Grant and assumed that the conditions would be flexible enough to accommodate his situation. (d) The Applicant did not feel that he was taking advantage of the Grant but was postponing its utility. The money from the Grant would help him purchase the home by reducing the mortgage from the beginning. (e) He did not intend to let the Property when it bought it. He had intended it to be his home and he still has the same intention when he returns to Australia. (f) If a discretion on the Respondent's part is available, then it cannot be against Government policy for the Applicant to get the benefit of the exercise of that discretion. (g) Having received the Grant, he had 12 months in which to take up occupancy. Nothing that he did showed an intention not to comply with these requirements until his period of extended employment, which was unforseen. (h) The lease he entered into with the tenants in respect of the Property (which tenants had been tenants of the previous owner) was for a period of six months only. (i) The Applicant says that he should have requested an extension of time to meet the residence requirement when the period of employment overseas changed and he regretted this but said that it was due to inadvertence on his part. He expected that had he made the application within time, it might well have been granted. He also clearly rejected a hint that he perceived in correspondence from the Respondent that the Applicant had acted with intent and/or that his submissions were not truthful. (j) The Applicants changed employment conditions constituted "exceptional circumstances" that prevented him from residing in the Property. The new amended business rule (2.5.2(i)(a)) contemplated the factor of overseas employment and provided that it should be taken into account on the matter of approving a period of more than twelve months to commence occupation. There was nothing inherently unlikely in an offer of employment being made while a person was overseas and it was assumed that that was the reason for the new amended Rule. (k) The Applicant did not think it necessary to make separate submissions as to the 20% penalty. He referred to his earlier submissions in this regard and said that it seemed inordinately punitive to be visited with a penalty, let alone one of that size. He submitted that a liability for a penalty must be governed by the seriousness of the case against him and that the circumstances in his case did not justify such a penalty. Respondent's submissions 51 The Respondent filed detailed written submissions as well as made oral submissions at the hearing. 52 The essence of the Respondent's submissions was the following: (a) In relation to a preliminary question as to when the "eligible transaction" in the present case was completed, the Respondent submitted that the Applicant was "entitled to possession of the home under the contract" at the time the contract was settled. This was because at this time, the Applicant became entitled to the "benefit of possession" being the right to receive the rents and profits of the land under the contract. Contrary to a prior decision of the Tribunal in Band v Chief Commissioner of State Revenue [2007] NSWADT 185, the Respondent submitted that possession in the context of s.13 did not mean "physical possession" of the Property and rather, irrespective of how the tenants in this case were occupying the property, it was the time when the "benefit of possession" (i.e. the right to receive the rents and profits) of the land passed under the contract that determined when a person was "entitled to possession" for the purposes of the FHOG Act. (b) The evidence showed that the Applicant was entitled to the rents and profits of the Property (and therefore entitled to possession) on 23 January 2006 when the lease was entered into. However, as the transfer was only registered on 2 February 2006, the eligible transaction was completed (for the purposes of s.13(5)) on 2 February 2006. Under the FHOG Act therefore, the Applicant's time for compliance with the "residence requirement" commenced on 2 February 2006 and expired 12 months later (on or before 2 February 2007). The evidence showed that the Applicant has never occupied the property and has continuously leased it out from the time he settled the purchase. Prima facie, therefore, the Applicant has failed the residence requirement and is ineligible for the grant. (c) In relation to whether the Respondent was correct in declining to exercise his discretion under s.12(3) to extend time for compliance with the residence requirement, the Respondent submitted that it was necessary to have regard to the subject matter, scope and purpose behind the FHOG Act. In this regard, the scheme was to assist persons buying/building their first home and not where a person failed to occupy the home within the requisite period and rented out the property. (d) The Respondent submitted that it had made the correct decision having regard to: (i) the evidence (ii) relevant factors such as that the Applicant had failed to meet the residence requirement, there appeared to be no credible evidence that the Applicant intended to make the property his principal place of residence within the required time-frame, the Applicant left Australia of his own accord and subsequently chose to stay overseas, tenants had exclusively occupied the property throughout the duration of the 22 months since the Applicant purchased the Property, the Applicant was responsible for ensuring the Property was available to meet the residence requirement and the Applicant's circumstances were not beyond his control. (iii) Whilst the Applicant may have intended to occupy the Property as his principal place of residence, of itself, this does not satisfy the residence requirement. (iv) In the absence of any express guidelines for the exercise of the discretion, the Respondent must be guided by the underlying purpose and policy of the Act. The circumstances which would constitute "good reasons" and, therefore, the scope of the discretionary power, must be determined in the context of the Act (Deputy Commissioner of Taxation v Clark [2003] NSWCA 91 at para [115] per Spigelman CJ). (v) The Respondent's discretionary power must be exercised in a manner which does not defeat the fundamental legislative objectives of the scheme of regulation within which the dispensing power is located (Chief Commissioner of State Revenue v Pacific General Securities Ltd v Finmore Holdings Pty Ltd [2005] NSWADTAP 54). The primary object of the Act was considered in Agiostratis v Chief Commissioner of State Revenue [2008] NSW ADT 23 per Judicial Member Verick). (vi) The facts of this case were similar to those in Fisk v Chief Commissioner of State Revenue [2008] NSW ADT 59 where it was concluded that the Applicant was not entitled to any extended period to comply with the residence requirement. (vii) The Applicant's circumstances objectively show that he did not genuinely have an intention to occupy the Property as his principal place of residence within the required timeframe. The Applicant voluntarily chose to lease out the Property the very day he settled the purchase, to allow tenants to occupy the property after the expiry of the lease and to enter into a further 12 month lease of the Property (giving what the Respondent submitted was the character of an investment property) and to continue to work and reside in the UK to the present day with the right to do so under a resident permit valid until 29 June 2009. (viii) It would not have been possible for the Respondent to exercise a discretion to approve a shorter period for compliance (under s.12(3)(b) as the Applicant did not occupy the property at all during the 12 month period). (ix) In relation to the imposition of a penalty by the Respondent of 20% when the grant was recalled, the Respondent submitted that the Applicant had failed to repay the grant as required. The grant was repaid on 14 February 2008 however under the FHOG Act, this amount should have been repaid some 12 months earlier. (x) The imposition of a 20% penalty was appropriate having regard to the decided cases, in particular, Allam v Chief Commissioner of State Revenue [2005] NSWADT 172. Discussion Preliminary issue – completion of the eligible transaction 53 The Respondent, as stated above, raised a preliminary issue for consideration as to when the "eligible transaction" was "completed" pursuant to s.13(5)(a)(i) of the FHOG Act. This date is important because it effectively determines the time from which the residence requirement (in s.12(1)(a)) begins to run. Section 13(5)(a)(i) refers to time when "the purchaser becomes entitled to possession of the home under the contract". The FHOG Act does not itself contain a definition of "possession". 54 The Respondent drew my attention to a previous decision of the Tribunal in Band v Chief Commissioner of State Revenue [2007] NSWADT 185 where the Respondent submitted, the Tribunal had held that "entitled to possession" for the purposes of section 13(5)(a)(i) FHOG Act meant entitled to physical possession of the land. The Respondent noted that "it did not agree with the Tribunal's findings in this regard but did not appeal the decision because he agreed with the Tribunal's overall finding that the applicant, in that case, was entitled to the First Home benefits". 55 As referred to above, the Respondent submitted that a person is entitled to possession for the purposes of the FHOG Act at the time when the "benefit of possession" (i.e. the right to receive the rents and profits) of the land passes under the contract Highlands Ltd v Deputy Federal Commissioner of Taxation (1931) 47 CLR 191 and Cam & Sons Pty Ltd v Commissioner of Land Tax (1965) 38 ALJR 462. In the latter cases, the Respondent submitted that "possession, in context, means possession of the purchaser as purchaser under the contract". (underlining added) 56 It seems to me that the facts in the Band case differ materially to those in the present case. Importantly, in the Band case, there did not appear to be a contract for sale and rather the purchaser and vendor (being related parties) simply completed a transfer in relation to the property (at paragraph [3(1)]). Further, the transfer of the property in that case was also clearly subject to an unregistered fixed term lease in favour of 3 tenants for 11 months, due to expire 7 months after the transfer (paragraph [3(3)]). Accordingly the applicant in that case, took transfer of the land subject to a lease and the Tribunal concluded at paragraph [66] In this case, since the Transfer was accepted by the Applicant subject to the prior existing lease of the Property, the Applicant first became presently entitled at law to possession in fact under the Transfer (or, if applicable, under the eligible transaction pursuant to which the Transfer was made), immediately after the Lease terminated. The Lease terminated upon its expiry on 31 December 2004. Accordingly, both of paragraphs (i) and (ii) of subsection (a) of s13(5) were satisfied and "completion" (within the meaning of the FHOG Act) of the eligible transaction in this case, occurred on 1 January 2005. 57 In the present case, I have made a finding the Applicant settled the contract on 22 January 2006. As at that date, from a review of the terms and conditions of the relevant contract (in particular clause 17.1), he became entitled to vacant possession of the land under the contract. In other words, he became entitled to physical possession of the land as against the vendor under the contract on 22 January 2006. On this same date, he also became entitled to the benefits of possession being any rents and profits of the land under the contract (refer in particular clause 14.1). 58 I have also found that the Applicant entered into a lease of the property the following day, on 23 January 2002. Although it would appear that the lease was with the tenants that had previously leased the property from the vendor and the Applicant allowed them to physically continue to occupy the property, legally, the Applicant was entitled to physical possession of the land under the contract with the vendor as against these tenants on settlement too unless and until he granted them a lease. This is because the Applicant did not purchase the Property whilst it was subject to a lease (in distinct contrast to the situation in the Band case). Rather the contemporaneous documents and the evidence of the Applicant have led me to conclude that the Applicant granted a lease of the property to the tenants on 23 January 2006. 59 I have therefore concluded that as the Applicant was entitled to both physical possession of the land as well as possession of the land in the sense of being entitled to the rents and profits of the land on settlement under the contract (as against the vendors and necessarily any prior tenants of the vendor) it seems to be that the requirements of s.13(5)(a)(i) of the FHOG Act were clearly met in this case on 22 January 2006. On the basis of the Tribunal's decision in Band, 22 January 2006 was the time the Applicant first became presently entitled at law to possession in fact under the contract of sale. Further, pursuant to the Respondent's view of the matter, 22 January 2006 was also the time that the "benefit of possession" (i.e. the right to receive the rents and profits) of the land passed under the contract. Given my conclusion as to the materially different factual situation in the present case, I do not think it is necessary nor appropriate for me to further consider the decision of the Tribunal in Band in the context of deciding the present case. 60 Ultimately, I agree with the Respondent that the Applicant became entitled to possession of the Property on 22 January 2006. However as the transfer for the Property was not registered until 2 February 2006, the latter date in fact is the critical date for s.13(5) and s.12. The commencement of the residence requirement therefore began on 2 February 2006. Unless the Commissioner exercised (or the Tribunal concludes he should have exercised) one of the discretions in sections 12(3) or (4) to extend the period or exempt the Applicant from compliance), the Applicant needed to commence occupation of the Property as his principal place of residence on or before 2 February 2007 in order to satisfy the "residence requirement" in section 12(1) FHOG Act. Extension of time to comply with the residence requirement. 61 It was common ground between the parties that the Applicant, to date, has not occupied the Property. Accordingly the residence requirement in s.12(1) was not satisfied. The matter in dispute in the case therefore was whether the Commissioner made the correct decision not to allow the Applicant additional time to satisfy the residence requirement under section 12(3) of the FHOG Act. 62 As the Respondent correctly pointed out, the power of the Respondent in s.12(3)(a) is a discretion and there are no express conditions or considerations in the legislation itself governing the exercise of the discretion. I agree that the circumstances that would constitute "good reasons" for its exercise and, therefore, the scope of the discretionary power, must be determined in the context of the FHOG Act itself. 63 The Respondent cited in its submissions, the decision of Spigelman CJ in this regard in Deputy Commissioner of Taxation v Clark [2003] NSWCA 91 at [115]. In this case, the issue was whether the respondent director had "good reason" not to take part in the management of the company at the time certain payments of tax were made by the company to the Commissioner of Taxation. His Honour, the Chief Justice, stated at paragraph [116] that the focus of the attention must be on what constitutes a "good reason" for a director not to participate in management for the purposes of the Corporations Law. This consideration required consideration of the duties of directors but the process of interpretation should also commence with recognition that, it was a basal structural feature of Corporations legislation in Australia that directors are expected to participate in the management of the corporation. 64 In the present case, it could be equally said that a basal structural feature of the FHOG Act is that there is a "residence requirement" to be met within a certain timeframe. As has been expressed before by the Tribunal on numerous occasions, the primary object of the legislation is to assist persons buying a "home" not an investment property. In this regard, in Agiostratis v Chief Commissioner of State Revenue [2008] NSWADT 23, Judicial Member Verick said: The Tribunal agrees with the Respondent's submission that "the subject matter, scope and purpose of the First Home Plus provisions of the Duties Act and the FHOG Act is clearly to provide financial assistance to eligible persons who are acquiring a home to live in as their principal place of residence and not to provide financial assistance to persons who fail to occupy the relevant property within the required period and who rent out the property. (underlining added) 65 The Respondent included in its bundle of legislation and authorities, a copy of the Second Reading Speech of State Revenue Legislation Further Amendment Bill 2005. The relevant Act (following the Bill) introduced amendments to the FHOG Act that confirmed that the discretions in sections 12(3) and 12(4) could be exercised at any time (i.e as opposed to only during the original 12 month period following completion of the eligible transaction – refer new section 12(5)). The Second Reading Speech stated the following in relation to the amendments: The bill also clarifies the circumstances in which the Chief Commissioner may exercise certain discretionary powers. Eligibility for the grant includes a residence requirement, which states that the applicant must occupy the home as his or her principal place of residence for at least six months commencing within 12 months of purchase. The Chief Commissioner is given the power to extend the period of 12 months, to reduce the period of six months, or to waive the residence requirement completely. The discretions are intended to allow the grant to be retained in circumstances were the applicant genuinely intended to occupy the home as his or her principal place of residence, but failed to do so due to a change in circumstances after the purchase of the home. The legislation limits the time at which the Chief Commissioner can exercise this discretion. This could have unfair consequences, particularly where a failure to comply with the residence requirement arose from changes to the health, employment or financial situation of the applicant or the applicant's family. The bill confirms that the Chief Commissioner can exercise the discretions at any time" 66 The present case was not merely a case where the Applicant received a job offer in the United Kingdom within the relevant period that was unforseen at the time he bought the property and delayed him taking up residence before 2 February 2007. Instead: (i) The initial temporary employment contract entered into by the Applicant was for a 1 year period from 23 May 2006 for 12 months until 23 May 2007 (ie. if the Applicant remained in the UK and served as an employee for the full term, it meant that he would be unable to satisfy the residence requirement at all). The Applicant did not make any contact with the Office of State Revenue to ascertain the implications of this temporary employment for the grant. This was the case despite the statutory declaration the Applicant signed when he obtained the grant to the effect he would satisfy the residence requirement. (ii) The Applicant also entered into a further lease of the Property to tenants for a 12 month period from 7 February 2007 (i.e. just after the time for completion of the residence requirement expired on 2 February 2007). This meant that even if the Applicant had finished his temporary employment in the UK in May 2007 (ie. the end of the one year contract), it is reasonable to expect that he would not have been able to physically occupy the property until the lease expired in February 2008. The Applicant did not make any contact with the Office of State Revenue at the time he entered into this further lease of the property. (iii) Further, the Applicant, when he accepted an offer of permanent employment in the UK on 14 June 2007, should also have recognised that acceptance by him of this employment would mean that his occupation of the Property as a principal place of residence would again be deferred and he should have considered the implications for the residence requirement of the grant (particularly having regard to the fact that he received a compliance letter from the Office of State Revenue in May 2007). 67 Whilst the Applicant has expressed his regret that he did not contact the Office of State Revenue to seek an extension of time to meet the residence requirement through inadvertance, it does seem to me that before each of the events that occurred above, the Applicant could, and should, have given consideration to the fact that he would be unable to meet residence requirement for the grant and this should have prompted him to contact the Office of State Revenue. 68 Further, the entry into the 12 month temporary contract (which clearly spanned a period that exceeded the time period in which he had to meet the residence requirement), the entry into a 12 month lease of the Property on 7 February 2007 and the acceptance of a permanent offer of employment by the Applicant were all voluntary choices made by the Applicant (i.e. there is no evidence that they were made under any compulsion). 69 This therefore was not a case where there was any compulsion on the Applicant to remain in the United Kingdom (eg in contrast to, say, a person required by an Australian employer to transfer to the United Kingdom and to stay there for a certain time). Instead the Applicant chose to travel to the United Kingdom and to seek or at least be open to work opportunities there. Although I accept that he found better working opportunities there than in Australia and no doubt this was the reason that he chose to take up at first a temporary contract and then a permanent job, these were still choices made by the Applicant himself and the "change in circumstances" of his employment was brought about by the Applicant himself. 70 I do not consider that discretion in section 12(3) was intended to be exercised in circumstances where the failure to meet the residence requirement merely arises from decisions made by an applicant about his own employment situation. If it were the case, then applicants could very easily decide to work and reside for a number of years in a place other than where the relevant property was located and, on the thrust of the Applicant's submission, could indefinitely defer the satisfaction of the residence requirement, provided they retained a genuine intention to make the property their principal place of residence when they returned. In my view, the positive exercise of a discretion in such a case (where there is nothing more than a decision/choice made by an applicant) would defeat the object of the legislature in having a residence requirement (to be met within a certain timeframe) in the first place. 71 I note that a similar conclusion appears to have been reached in Fisk's case per Judicial Member Verick at paragraph [55]: [55] The Applicant's case is that the Commissioner ought to have taken into account the fact he had to go to Canada for career reasons and that on his return he was bound to the lease with the tenants. The secondment to Canada was a choice made by the Applicant…. [56] On 25 January 2005 the property was let to tenants for 12 months until 25 January 2006 notwithstanding that the Applicant was due back from Canada on 25 May 2005. The tenancy was further extended to 2 April 2006 and, on 19 April 2006; a new tenancy was entered into in respect of the property, which continued until 28 July 2007. Effectively, the Applicant treated the property as his investment property earning rental income for some four years… [58] Against the above background and in the absence of any good reasons for not occupying the property after his return from Canada, it is difficult to conclude that the Applicant was entitled to an extended period of some more than four years to comply with the "residence requirement". To grant any discretionary relief would be beyond the threshold for the relief to be within the scopes and objects of the FHOG Act 2000…. 72 Against a factual background where: (a) the Applicant has never occupied the property (i.e. from 22 January 2006 up to the date of the hearing on 5 December 2008 – almost a 3 year period); (b) there was no indication from the Applicant as to when he would be returning to Australia (with the exception of some earlier correspondence with the OSR in 2007 that stated it would not be before at least the end of that year which clearly did not eventuate); (c) the Property was leased to tenants for at least 6 months commencing 23 January 2006 and then for 12 months commencing 7 February 2007; and (d) the Applicant did not contact the Office of State Revenue to seek an extension of time until the Office of State Revenue first sent a compliance letter to him (this latter factor was specifically taken into account by the Tribunal in Fisk v Chief Commissioner of State Revenue [2008] NSWADT 59 at paragraph [56]); it is understandable why the Respondent refused to exercise his discretionary powers to grant an extension of time to comply with the residence requirement and to recall the grant. 73 If discretionary relief had been given, I agree with the Respondent's submissions (based on the comments of Judicial Member Verick) in Agiostratis v Chief Commissioner of State Revenue [2008] NSWADT 23 that that this would have "transgressed" the threshold fixed to achieve the primary object of the FHOG Act. As Judicial Member Verick stated in that case at paragraph [33]: The primary objective of the relevant provisions of the Acts is to assist people resident in New South Wales to acquire their first home and not to purchase their first investment property. The "residence requirement" ensures that the property is used and occupied as his or her principal place of residence by an applicant getting a grant….". (underlining added) 74 Although the Applicant has submitted that his intention when he bought the property was to reside in it as his principal place of residence and the 6 month lease and his temporary UK employment were consistent with this, this submission ignores the latter events referred to above (ie. the entry into the additional lease of the property for 12 months, the acceptance of permanent employment and there being no indication of a return date to Australia). These latter events seem to me to weigh against the Applicant having maintained that original intention. The evidence instead indicates that the Applicant is renting the Property out whilst he resides and works in the United Kingdom. In the period of time since settlement, this has given the Property in fact the character of an investment property which, as stated above, it was not an objective of the FHOG Act to assist with. 75 Finally, the Applicant referred in his submissions to a certain "business rule 2.5.2(i)(a)" which contemplated overseas employment as something that should be taken into account in approving an extended period for compliance with the residence requirement. The Respondent did not refer to these business rules in its submissions although I note that there was an "internal Office of State Revenue" document in the section 58 documents that did refer to the rules. 76 In Philpot v Chief Commissioner of State Revenue [2008] NSWADTAP 18, the Appeal Panel referred to "business rules" in the context of penalties as not being a public document but issued so there is internal consistency within the Office of State Revenue in imposing penalties. The Tribunal in Rauf v Chief Commissioner of State Revenue [2005] NSWADT 176 appears to have commented that it is regrettable that such documents are not made public to the extent that it is used as a basis for decision making that involves the imposition of penalties on citizens of the State. The Appeal Panel in Philpot noted that while there is much to said for consistency in administrative decision making, the need for consistency should not be allowed to trickle over into the realm of inflexibility. 77 I have examined the internal document of the Office of State Revenue and I note that the relevant business rule identified by the Applicant in fact gives specific consideration to whether a person has requested a transfer for overseas employment or not. As stated above, I am of the view that a decision or choice by an applicant about overseas employment is a relevant consideration to be properly taken into account for the reasons already expressed in paragraph [70]-[71] above. It cannot be the case that all overseas employment, of itself, will lead to the discretion under s.12(3) being exercised. 78 Accordingly for all of the above reasons, the Tribunal is of the view that the Respondent made the correct decision in not exercising his discretion under Section 12(3) of the FHOG Act to extend the time to meet the residence requirement. 79 I also agree with the Respondent that it would be inappropriate for the Respondent to have exercised his discretion under section 12(3) to approve a shorter period of occupation of the Property (because no occupation of the Property has ever occurred) or to exempt the Applicant from the residence requirement all together (because there were simply no good reasons on the evidence to do this for the same reasons as expressed above in relation to the discretion in section 12(3)- refer also Cullen v Chief Commissioner of State Revenue [2007] NSWADT 121. Imposition of a 20% penalty 80 Given the Applicant failed to comply with the residence requirement, section 20(3)(b) of the FHOG Act automatically required him to repay the grant to the Respondent within 14 days of 2 February 2007 (i.e. by 16 February 2007). 81 Further, as the Respondent reversed the decision under which the grant was paid (by virtue of the Respondent's power in section 23 of the FHOG Act), the Respondent was empowered under section 45(1)(b) to require the Applicant by written notice to repay the grant. On 24 October 2007, the Respondent requested re-payment within 21 days. 82 The Applicant only repaid the grant on 14 February 2008. 83 The Respondent had the power under section 45(3) to impose a penalty in an amount equal to the grant (i.e. 100%) however only imposed a penalty in this case of 20%. 84 The matters to be taken into account in relation to the imposition of penalties under the FHOG Act were considered by the Appeal Panel of the Tribunal in Philpot v Chief Commissioner of State Revenue [2008] NSW ADTAP 18. 85 In Philpot, the Appeal Panel quoted with approval a passage from a decision of Judicial Member Verick in Knight & Anor v. Chief Commissioner of State Revenue [2008] NSW ADT 83 at paragraph 33: 33 Another approach to determine the appropriate penalty under section 45 of the FHOG Act is to categorise cases, depending on the level of culpability, where it is relevant for the Commissioner to consider the imposition of penalties. Factors that need to be taken into account to determine the level of culpability would include: (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. 86 In the present case, in applying the abovementioned factors from Knight's case to the evidence before the Tribunal: (a) There was nothing in the evidence to suggest that the Applicant was not truthful in his application for the grant. (b) The evidence of the Applicant was that his intention at the time of the grant was to use the Property as his principal place of residence. (c) The Applicant failed to comply with the conditions of the grant, i.e. the residence requirement, because after acquiring the Property an opportunity arose and he chose to accept a temporary job in the UK on better conditions that available in Australia and following this, a permanent job in the UK. (d) The Applicant has not occupied the property as his principal place of residence. (e) The Applicant was truthful in his responses to compliance inquiries –he readily admitted that he had not satisfied the residence requirement after he received the compliance letter from the Office of State Revenue. (f) The Applicant repaid the grant (but this was only done on 14 February 2008) and thus was some time after the due date (16 February 2007) as well as after the date when the Chief Commissioner requested payment by notice on 24 October 2007. 87 In Knight's case, Judicial Member Verick suggested various categories of cases and a range of penalties that may be appropriate. Relevant to the present case would be the third category: 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 percent to 30 percent of the grant would seem appropriate. 88 In Philpot, a penalty of 20% was ultimately affirmed by the Appeal Panel in circumstances where the applicant failed to meet the residence requirement by not residing in the property at all as she was, among other things, unable to find employment in the area, where the applicant did not volunteer the fact of non compliance but did not seek to hide it and did not repay the grant on request but retained the grant for a period of 3&1/2 years. 89 The Respondent also drew to my attention to an earlier decision of the Tribunal in Allam v Chief Commissioner of State Revenue [2005] NSWADT 172 where Judicial Member Hole found that a 20% penalty was appropriate on the basis that the applicant was honest, had an initial intention to move in, but then did not do so for discrete reasons, had retained the grant for approximately two years and had arranged to repay the grant. 90 In all the circumstances, having regard to the factors above, it seems to me that the decision of the Commissioner to impose a penalty of 20% was appropriate in the present case. Orders 91 I make the following orders: 1) The decision of the Chief Commissioner not to exercise a discretion under s.12(3) of the First Home Owner Grant Act 2000 to extend the time for compliance with the residence requirement is affirmed. 2) The decision of the Chief Commissioner to impose a penalty of 20% 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.