Haagen and anor v Chief Commissioner of State Revenue [2008] NSWADT 40

CITATION: Haagen and anor v Chief Commissioner of State Revenue [2008] NSWADT 40

DIVISION: Revenue Division

APPLICANTS Hugo Haagen and Stephanie Francis Haagen PARTIES: RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 076019

HEARING DATES: On the papers

SUBMISSIONS CLOSED: 13 June 2007

DATE OF DECISION: 4 February 2008

BEFORE: Greenwood J - Judicial Member

CATCHWORDS: First Home Owners grant - reversal by administrator

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : N/A

Adasi v Chief Commissioner of State Revenue unreported 24 September [2004] NSW ADT file 043208 Allam v Chief Commissioner of State Revenue [2006] NSW ADT127 Calcaro v Chief Commissioner of State Revenue [2004] NSW ADT 158 CASES CITED: Chief Commissioner of State Revenue v Ferrington [2004] NSWADTAP 41 Elskaf v Chief Commissioner of State Revenue [2006] NSW ADTAP 10 Nguyen v Chief Commissioner of State Revenue [2006] NSW ADT 237 Snow v Chief Commissioner of State Revenue (No1) [2005] NSW ADT 224

APPLICANTS In person REPRESENTATION: RESPONDENT M Twohill, solicitor

ORDERS: The decision of the Chief Commissioner to refuse the grant and impose a penalty of 20 percent is affirmed.

REASONS FOR DECISION The application and the legislative scheme 1 The applicant received a first home owner grant of $7,000.00 under the First Home Owner Grant 2000 ("the Act") on 21 September 2004 in respect of a property at 48 Veterans Parade, Collaroy (the property"). The settlement date for the transaction was on 22 October 2004. The grant was paid in advance of actual occupation of he property pursuant to section 20(1)(b) of the Act. 2 The administrator of the Act and the respondent, the Chief Commissioner of State Revenue ("the Commissioner"), sought confirmation and additional documentation from the applicants as to compliance with the eligibility test. Primary, the applicants were asked to show compliance with the requirement that they had occupied the premises as their principal place of residence within 12 months of the date of settlement for the relevant period. The Applicants, in correspondence with the Chief Commissioner admitted that they had failed to fulfil the residency requirement. The applicants produced documents indicating they leased the property to tenants for a period as from 4 November 2004 to 5 September 2005. The property had on it a single storey residential dwelling. 3 The Respondent required the applicants to repay the grant plus penalty interest at the rate of 20 percent because the applicants, in the opinion of the Commissioner, has failed to satisfy one of the preconditions to the grant. In this instance the Commissioner has found that the applicant failed to occupy the premises as their principal place of residence within 12 months as from the date of settlement, for a period of 6 months. 4 The applicants repaid the grant funds in the sum of $7,000.00 on or about 31 May 2005 and have applied to the Tribunal for review of the Commissioner's refusal to accede to their objection to the decision. Originally the application was made in the sole name of Mr Haagen, however on 7 March 2007 the Tribunal made an order to amend the originating application for review in the names of both co-owners to include Mrs Haagen. The Legislation 5 The right to make an application for a grant is given by section 7 of the Act. The applicant must satisfy the eligibility criteria. Section 45 gives the Commissioner the power to request the repayment of a grant and to impose a penalty for non-compliance with such a request, or with the conditions of a grant. See also subsection 23 and 24. 6 The grant was made upon application by the Applicants who in their application certified by statutory declaration as to the facts, indicated they purchased an established house and expected to occupy the property on the 30 September 2004. The form further provided for an indication by the applicant's to tick contract to build, however that part of the form was not marked and left blank. As a result of an audit, which appeared to occur as a result of a failure by the applicants to answer initial follow up correspondence by the Chief Commissioners office, Commissioner concluded that one of the conditions to which the grant was subject – the "residence criterion" – has not been satisfied. 7 Section 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 (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. 8 The expression "comprehensive home building contract" is defined in section 3 of the First Home Owners Grant Act as follows: Section 3 … "comprehensive home building contract" means a contract under which a builder undertakes to build a home on land from the inception of the building work to the point where the home is ready for occupation and if, for any reason, the work to be carried out under such contract is not completed, includes any further contract under which the work is to be completed." 9 Section 12(1) – Criterion 5 provides: "(1) An applicant for a first home owner grant must occupy the home to which the application relates as the applicant's principal place of residence for a continuous period of at least 6 months." (1A) However, if the Chief Commissioner is satisfied there are good reasons to do so, the Chief Commissioner may: (a) approve a shorter period, or (b) exempt the applicant from the requirement to comply with subsection (1). (1B) The period of occupation required under subsection (1), or the shorter period approved under subsection (1A)(a), must start within 12 months after completion of the eligible transaction or a longer period approved by the Chief Commissioner. (3) If an application is made by joint applicants and at least one (but not all) of the applicants complies with the residence requirement, the non-complying applicant or applicants are exempted from compliance with the residence requirement." 10 The timing set by the legislation for repayment of the grant is set out in Subsection 20(3) of First Home Owners Grant Act: "the payment is made on condition that, if the residence requirement is not complied with, the applicant must within 14 days after the end of the period allowed for compliance: (a) give written Notice of the fact to the Chief Commissioner; and (b) repay the amount of the grant" 11 Section 45 of the First Home Owners Grant Act applicable at the time of this matter was: (1) The Chief Commissioner may, by written notice, require an applicant (former applicant) for a first home owner grant to repay an amount paid on the applicant 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 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 the 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) If an amount is paid in error on an application for a first home owner grant to a third party, the Chief Commissioner may by written notice, require the third party to repay the amount to the Chief Commissioner. The Residence and Penalty Issues 12 The issues in this case are: 1. whether the applicant occupied the premises as a principal place of residence within the time period required by the Act and for the relevant length of time, being a period of 6 months? 2. Whether the applicants should pay a penalty? 13 Section 29(3) of the Act provides that an applicant who seeks review of the Commissioner's determination of an objection has the onus of proving his or her case. That is, the onus of proof rests on the applicant to establish, on the balance of probabilities, those matters which he seeks to put before the Tribunal in support of his case. In this matter the applicants repaid the grant and in their application seek a review of the levy of penalty, by the Respondent. However the applicants in their application for review and in their submissions filed 30 May 2007 seem to imply that they have repaid the grant, with the intention to reapply for it. The wording they have used seems to imply that their application by implication is an application seeking a review of the refusal of the grant and the penalty. 14 The Tribunal notes that the Chief Commissioner has approached the matter on the basis that the applicants have abandoned a review of their principal application for the grant, and the review requested is in relation to the penalty only. However in determining the penalty, the Tribunal must as a necessary step in assessment of penalty, assess all the circumstances giving rise to the grant and in the interests of dealing with all matters expeditiously, the Tribunal will deal with the matter as a review of both the grant and the penalty in this instance, due to the ambiguity of the Applicants' documentation. 15 The applicants' case is that they at all times intended to use the property as their principal place of residence, and that they intended to demolish the existing residence and occupy the new dwelling they intended to build. Their understanding of their entitlement to the grant was that they met the application conditions whilst the home was in the process of construction and that time did not begin to run until the building work was completed. They readily admitted they had not moved into the property, which had a single storey dwelling house. The material produced in evidence to the Tribunal amongst the section 58 documents, were rental records indicating the property was subject to occupation by tenants, from a date prior to the contract of sale, until 5 September 2005. Significantly the applicants signed rental management agreement with a Real Estate Agent on 5 October 2004, some 17 days before settlement. Significantly the applicants showed their address on that agreement as 69 /102 Miller Street Pyrmont, yet provided a statutory declaration to the Chief Commissioner in response to the question "Date you expect to occupy home" the answer provided by the Applicant was completed in handwriting as "30 September 2004." This statutory declaration and application for grant was made 30 August 2004. 16 The applicants also sought to rely on the wording in the application which read: "Part A: Eligibility checklist 6. Will at least one of the applicants be occupying the home as their principal place of residence within 12 months of either settlement or completion of construction? Answer: Yes" 7. "Has each applicant: (a) entered into a contract for the purchase of a home on or after 1 July 2000 (b) signed a contract to have a home built on their vacant land on or after 1 July 2000 (c) in cases of an owner-builder, commenced laying of foundations of a home on their vacant land on or after 1July 2000 Answer: Yes" The documents tendered in evidence by the Chief Commissioner show that: a) The property, which was the subject of the Contract of Sale, was not vacant land. The property had on it a single storey dwelling house, of a standard fit for occupation as a residence proven by the actual occupation by paying tenants. b) The Council Development application was not signed by the applicants until 1 February 2006. c) The demolition Quotation was not signed until 10 May 2006. d) The Masterton new Home Proposal / Contract was dated 21 October 2005 and was presumably accepted some time after the date the document bears. e) By letter from the applicants to the Respondent dated 20 September 2006, the applicants confirm that the DA has not yet been processed or approved by the Council and in further submissions to this Tribunal, state other planning and easement proposals with the Department of Education, remain outstanding f) The application before the Commissioner for a First Home Owners grant was for the contract for sale of an existing dwelling, not a building contract for vacant land. g) The applicants regarded the existing dwelling house as insufficient for the needs of their family. 17 The leading decision in the Tribunal dealing with what is required in order to establish the residence criterion is Chief Commissioner of State Revenue v Ferrington [2004] NSWADTAP 41 considered the criteria applicable to section 12(1) of the Act. 18 In particular, paragraph [42] reads (leaving out citations of cases and breaking the matter into paragraphs, for ease of later reference): "First, the words "principal place of residence" should be given their ordinary meaning in the context in which they appear [in the Act ]. … Secondly, 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 … Thirdly, the intention of the person concerned, gauged objectively, is relevant but not determinative of the issue. … Fourthly, to occupy a home as his or her principal place of residence a person's occupation must have a degree of permanence to it: a connection to a place of residence of a transient, temporary, contingent or passing nature is not sufficient, nor is occupation for some other purpose. … Fifthly, the short length of a person's residence, while relevant, is not determinative of the issue. … This is so since a recipient's occupation of a home, while short, may have the requisite degree of permanence to it. But that will not happen if, when considered objectively, the occupation was transient, temporary, contingent or of a passing nature, or for some other purpose. One may occupy premises for a short time on a transient, temporary, or contingent basis, but one can also occupy for a short time as one's principal place of residence. It is the nature of that occupation which provides the element of permanence. The fact that a period of actual occupation is short, as in the present case, will in practice make it harder for a recipient to show that the occupation was as his or her principal place of residence, but it will not make it impossible … " 19 The first point is a point of statutory construction. The term "principal place of residence" is not defined in the Act , and thus has its ordinary meaning. The word "principal" can mean "main" as well as "only", and does not exclude having another, subsidiary, place of residence (such as with parents or friends). In this case, the applicants did not move into the property or occupy it at all or in any capacity from the date it was purchased and readily admit in submission documents the property is vacant. 20 The second point requires consideration of the "circumstances relating to the actual occupation of the dwelling." In order to "occupy" a dwelling, it seems that the applicant must be the person "with the immediate supervision and control of the premises, and the power of permitting the entry of other persons"(see Chief Commissioner of State Revenue v Ferrington (supra) at [29]. The applicants rented the property to tenants and gave possession rights to those tenants during the period the applicants were required to go into possession themselves. 21 The third point requires a finding as to the intention of the applicant. While intention is not determinative, it is relevant. A mere subjective intention to occupy the property is not enough: see Zakariya v Chief Commissioner of State Revenue [2003] NSWADT 26 at [14]. The Tribunal finds that the applicants' main ground of intention was an intention not to occupy the existing dwelling house on the property as residence at any time, but to demolish it and rebuild a new dwelling house. In this instance the applicants 'intention was a future intention' and that is not enough to discharge their obligations under the Act. 22 The fourth point, the "degree of permanence", requires a finding on the facts of the case as to the permanence, however short, of the occupation. Permanence may be shown by the applicant changing their address with the relevant authorities, introducing substantial furniture to the property, or making changes to it consistent with their permanent occupation. In the case before the Tribunal there was no occupation as a residence of the subject property by the applicants in any form, what so ever. In fact the Applicants state in their submissions the property remained unoccupied by them and unrented since 5 September 2005 and their residence remained the unit at Pyrmont. 23 The fifth point, the length of the residence, requires a finding on the period of time during which the applicant lived in the property. In this case, there is no period of occupancy at any time and the applicants never moved in for the relevant period of 6 months as from 22 October 2004, within the requisite 12 month period. Conclusion 24 Parliament sets the conditions for eligibility for First Home Owner grants and an applicant is required to comply with those conditions to remain eligible for the grant. Primarily, an applicant is required to move in and make the subject property their residence. An applicant is not entitled to embark on his or her own agenda or procedure in this regard, contrary to the strict compliance time table and conditions imposed by Parliament, unless there are special circumstances or an extension is granted by the Chief Commissioner. In this case the Tribunal finds that the applicants' embarked on their own agenda to continue to rent out the property during the requisite period, to apply to demolish and rebuild and in doing so, misunderstood their obligations to comply with the principal condition to occupy within the requisite period. The intention to embark on their own agenda and to disregard their obligations to occupy the existing dwelling, is a not a special circumstance, notwithstanding any misunderstanding of those obligations as inconvenient, ignorant or otherwise. The Tribunal affirms the Respondent's determination to disallow the grant. Interest and Penalty 25 In this case the Applicants did not occupy the property within 12 months, and they filed in their primary obligation under the terms of the grant. In addition, they did not notify the Commissioner of that failure and they did not repay the grant within 14 days of the expiry of the 12 months as per the section 20(1)(b) and section 20(3). 26 The Chief Commissioner seeks to impose a penalty of 20 percent and the Applicant objects to the impost of the penalty on the following grounds: a) They have been delayed in their rebuilding and demolition, by effectively delay in the planning approval process and conditions. b) They have derived no income from the property for 20 months. c) They are required to meet the continuing financial burdens of Council, water and sewerage rates and general maintenance costs. As to this point, no evidence in the form of financial statements or income was tendered in evidence. Significantly, the Applicants did not mention or include any mortgage evidence. 27 The Respondent cited the eight points derived from Calcaro v Chief Commissioner of State Revenue [2004] NSW ADT 158 in its submissions on the factors to consider on setting a penalty. In support of the figure of 20 percent the respondent cited the following cases: 1) Allam v Chief Commissioner of State Revenue [2006] NSW ADT127 2) Adasi v Chief Commissioner of State Revenue unreported 24 September [2004] NSW ADT file 043208 3) Snow v Chief Commissioner of State Revenue (No.1) [2005] NSW ADT 224 4) Nguyen v Chief Commissioner of State Revenue [2006] NSW ADT 237 In the current circumstances the Chief Commissioner stated the reasons for applying the 20 percent principal as: The penalty tax for the purposes of the legislation should be administered as a market rate and premium component s so as to reflect the usual approach found in the [Taxation Administration Act] and quoted the position set out by President O'Connor at Paragraph 24 of Snow v Chief Commissioner of State Revenue (No. 1) [2005] NSW ADT 244, whereby a base rate penalty be applied for usual cases where the applicant has failed to occupy and a higher rate be imposed for dishonest applicants. In addition, the Respondent contends there was a failing by the applicants to properly advise the Chief Commissioner of their failure to occupy or to repay the original grant within the 14 day period. In fact the funds were not repaid for a period of about 20 months, during a period when the property was rented and the applicant received a benefit to the detriment of the public purse. This fact that the applicants derived financial benefit for the period they retained the grant, does in the view of the Tribunal, lessen the strength of the applicants' argument of financial stress. The applicability of the 20 percent penalty here as a measure of the opportunity cost of the loss of use of funds to the public purse is accepted by the Tribunal, when viewed against all of the facts and circumstances referred to in the case law cited. The applicants filed to occupy, were co-operative and honest with the audit investigation, had on their assertion an intention to use the property as a residence, but were incorrect in their interpretation and understanding of the legislation and their immediate obligation to occupy the property with the existing dwelling house as per their application for the grant. The decision of the Chief Commissioner of State Revenue to request repayment of the First Home Owner Grant in the sum of $7,000.00 together with a penalty of 20 percent is affirmed.