New South Wales Supreme Court CITATION : Delmege v Chief Commissioner of State Revenue [2009] NSWSC 1052 HEARING DATE(S) : 1 October 2009 JUDGMENT OF : Gzell J EX TEMPORE JUDGMENT DATE : 1 October 2009 DECISION : Application refused. Application for adjournment to raise the issue by amended assessment granted upon payment of indemnity costs on assessment or agreement and undertaking to serve amended assessments within seven days. CATCHWORDS : TAXES AND DUTIES - Land Tax - at hearing of a review the Chief Commissioner sought to justify his rejection of the plaintiffs' notice of objection on the basis that there were other occupants of the premises thereby excluding intended use of as deemed actual use of a principal residence under the Land Tax Management Act 1956, s 10T(2)(c) - s 10T(2)(c) not relied upon in objection decision - Chief Commissioner sought leave to call further evidence of occupation LEGISLATION CITED : Land Tax Management Act 1956 CASES CITED : McNally and Anor v Commissioner of State Revenue (NSW) [2003] NSWSC 1118; 2004 ATC 4007 Commissioner of Taxation v Jackson (1990) 27 FCR 1 Maxwell Philip Delmege (First Plaintiff) PARTIES : Narelle Patricia Delmege (Second Plaintiff) Chief Commissioner of State Revenue (Defendant) FILE NUMBER(S) : SC 3603/08 COUNSEL : C J Bevan (Plaintiffs) I Young (Defendant) SOLICITORS : Evangelos Patakas & Associates (Plaintiffs) Crown Solicitor's Office (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J THURSDAY 1 OCTOBER 2009 3603/08 MAXWELL PHILIP DELMEGE & ANOR v CHIEF COMMISSIONER OF STATE REVENUE EX TEMPORE JUDGMENT 1 I have before me a review of the Chief Commissioner of State Revenue's decision that land at 1758 Pittwater Road, Bayview was not the principal place of residence of the plaintiffs, Maxwell Philip Delmege and his wife, Narelle Patricia Delmege. 2 The matter was the subject of direction through the ECM court. On 29 May 2009 the solicitors for the Chief Commissioner said that, on the basis that no further evidence was filed and no further subpoenas for production were issued on behalf of Mr and Mrs Delmege, the Chief Commissioner did not propose to adduce any evidence and, therefore, did not seek a court direction in that regard. 3 On 4 June 2009, consequent upon that indication, I set the matter down for hearing before me for two days to commence today. I made orders that Mr and Mrs Delmege deliver an outline of argument by 16 September 2009, the Chief Commissioner deliver his outline by 23 September 2009 and Mr and Mrs Delmege deliver any reply by 28 September 2009. 4 Mr and Mrs Delmege lodged their outline and in response to the Chief Commissioner's outline, they lodged a reply. 5 Without the leave of the Court, counsel for the Chief Commissioner served a supplementary submission on 29 September 2009. It stated that the Chief Commissioner relied on an exclusion under the Land Tax Management Act 1956, s 10T to the principal place of residence exemption based on intended use. That provision, so far as is material, was in the following terms: "(1) If the Chief Commissioner is satisfied that the owner of land (or, if there are joint owners, any one or more of them) intends to use and occupy the land solely as his or her principal place of residence, that intended use and occupation of the land is to be regarded as its actual use and occupation for the purposes of section 10(1)(r). (2) This section does not apply unless: (a) (Repealed) (b) the Chief Commissioner is satisfied that the intended use and occupation of the land is not unlawful, and (c) while the owner is the owner, the land is not used or occupied except as his or her principal place of residence." 6 The supplementary submission stated that the Chief Commissioner contended that other persons had resided in the premises and he intended to use the Land Tax Management Act, s 10T(2)(c) to exclude the principal place of residence exemption with respect to the 2002 and 2003 land tax years, which are not the subject of this review, as well as with respect to the 2004, 2005 and 2006 land tax years, which are the subject of this review. 7 Counsel for the Chief Commissioner has said, however, that the Chief Commissioner will not seek to displace the granting of the principal place of residence exemption to Mr and Mrs Delmege for the earlier years. 8 The Chief Commissioner, while being aware of some use and occupation by persons other than Mr and Mrs Delmege, seeks to adduce evidence to establish further incidence of occupation by another person or persons. The Chief Commissioner did not rely upon the Land Tax Management Act, s 10T(2)(c) in making his assessment nor in his decision upon the notice of objection lodged on behalf of Mr and Mrs Delmege. 9 In my view, the operation of the Land Tax Management Act, s 10T(2)(c) may be raised by the Chief Commissioner subsequent to this review, thereby entitling Mr and Mrs Delmege to lodge an objection to a new assessment based on that ground, but, the matter not having formed part of the objection decision under review, it is not appropriate for the Chief Commissioner to raise it now, nor to adduce evidence to support it. 10 In McNally and Anor v Commissioner of State Revenue (NSW) [2003] NSWSC 1118; 2004 ATC 4007 at [29] I said so much. I went on to say as follows: "30. The Taxation Administration Act 1996, s 101(1)(b) empowers the court to make an assessment or other decision in place of the assessment or other decision to which the application relates. Since the application relates to the assessment of the taxable value of the Noraville property, that provision does not enable the court, in my opinion, to make an assessment of the taxable value of the Greenwich property. 31. The structure of the Act is to require the Chief Commissioner to consider a notice of objection under the Taxation Administration Act 1996, s 86 and either to allow the objection in whole or in part or to disallow it under s 91(1) and give his reasons for the determination on the objection in terms of s 93(2). 32. The analogous structure under the former provisions of the Income Tax Assessment Act 1936 (Cth) were the subject of discussion by the High Court in FCT v ANZ Savings Bank Ltd (1994) 181 CLR 466; 29 ATR 11; 94 ATC 4844. It was held that the taxpayer bore the onus of establishing that an assessment was excessive and there was nothing confining the Commissioner of Taxation to matters in the notice of objection and once the decision on the objection was before the court it was seised of the decision in its entirety and the Commissioner was entitled to justify his assessment by arguing that some deductions which had been allowed by the assessment were in law not allowable so that the whole or part of the tax payable was still payable and the assessment was, accordingly, not excessive. 33. The structure of the Land Tax Management Act 1956 (NSW) and the Taxation Administration Act 1996 (NSW) is different. Assessments are confined to taxable values of discrete parcels of land. 34. The defendant did not assess a land value of the Greenwich property on the basis that it was not subject to exemption because of the use made by Mr McNally of the office. The plaintiffs did not have the opportunity to object to any such assessment. Nor have they had the opportunity, if such an assessment was raised, to consider the potential operation of the Land Tax Management Act 1956 (NSW), s 9C. 35. In my view it is not open to the Chief Commissioner to seek to support his assessment of the land value of the Noraville property in this way. It would be unfair for the defendant to be allowed to raise issues with respect to the land value of a different parcel of land to offset any diminution in his assessed land value of the Noraville property." 11 In my view, that statement of principle is generally applicable and not restricted to the circumstances that arose in that case. The analogous situation arises here where the Chief Commissioner, at a hearing of a review, seeks to support his objection decision on a totally different ground from that to which Mr and Mrs Delmege had appealed in their notice of objection. 12 A similar approach arises with respect to any attempt by the Commissioner of Taxation to raise Part IVA of the Income Tax Assessment Act 1936 (Cth) in relation to an assessment on the hearing of an appeal from a decision that did not rely upon Part IVA. 13 In Commissioner of Taxation v Jackson (1990) 27 FCR 1 at 4 there is a reference to what Gummow J did as the primary judge. He formulated a question for decision. The question was this: "2. In an appeal against the disallowance by the Respondent [ie the Commissioner] of an objection against an assessment of the taxable income of a taxpayer for a year of income made on the ground that a particular amount is included in the assessable income of the taxpayer by reason of the provisions of the Act other than Pt IVA, is the Commissioner entitled to place reliance upon a determination, made pursuant to s 117F(1) and made after the disallowance of the objection and after the institution of the appeal, that a like amount should be included in the assessable income of the taxpayer pursuant to s 177F(1)(a)?" 14 His Honour answered the question in this fashion: "Part IVA played no part in the processes of assessment for the two years in question. To intrude now into the matters of which the Court is seized, the effect of determinations expressed to have been made after the institution of proceedings would be to change the nature of those matters from challenges to the decisions of the Respondent some years ago to disallow the taxpayer's objections to particular amended assessments. Put another way, upon a proper construction of the Act, the making of a determination under s 177F(1)(a) to cancel the whole or part of the amount referable to a tax benefit is then given effect (i) by a determination (under subs 177F(2)) of the provision of the Act by which the amount is deemed included in the assessable income of the taxpayer, and (ii) by assessment or amended assessment as earlier described in these reasons." 15 On appeal Hill J, with whom Burchett and von Doussa JJ agreed, said at 16-17: "A prerequisite of the Commissioner making the determination, however, will be his conclusion that but for the operation of Pt IVA the whole of the amount would not have been included in the assessable income. Notionally, therefore, the Commissioner will commence the process of making a determination under Pt IVA, in a case such as the present, by excluding the amount included in assessable income in the previous assessment (in this case that assessment being itself a default assessment), presumably because he has taken the view that that amount was not assessable income of the taxpayer. Having done so, he then proceeds to make his determination under s 177F(1). In the present case, this involved the Commissioner making determinations that an amount (which happened to equate to the net figures added to taxable income in the previous amended assessments) was to be included in the assessable income of the taxpayer in each of the years in question. The result of this process can be seen, therefore, to be that the Commissioner must be taken to have removed from the assessable income theretofore calculated the amount of gross income derived by the trustee, and to have added to that assessable income the amount referred to in his determination. These are, of course, alterations to the constituent elements of the credit side of the account which constituted the particulars of the assessment then on foot. Prima facie, if that were all that were done, the deductions for amounts claimed to have been incurred by the trustee, which had been allowed as debits to the constituent items in the previous assessments would continue to be allowable. Thus, the effect of the determination under s 177F would be a reduction in Mr Jackson's taxable income." 16 His Honour concluded at 20-21: "Under the present law, an appeal to this Court from the Administrative Appeals Tribunal is an appeal on a question of law: s 44 of the Administrative Appeals Tribunal Act ; Brown v Repatriation Commission (1985) 7 FCR 302 at 303; Commissioner of Taxation (Cth) v Brixius (1987) 16 FCR 359. The Commissioner, in an appeal from the Tribunal where he had been unsuccessful, would be unable to raise at all the question of the operation of Pt IVA as that would have been a matter not before the Administrative Appeals Tribunal. Yet, if the Commissioner's submission be accepted, the making of the s 177F determination does not involve the amendment of the assessment, so the Commissioner would be unable at a later time to issue an amended assessment, notwithstanding that the limitation period had not yet run. The interpretation which I believe to be correct would bring about the result that the Commissioner, having made the s 177F determination would be able to amend the assessment, and if it were objected against and the objection were disallowed, the question of the operation and effect of Pt IVA could be litigated, at the option of the taxpayer, either in the Administrative Appeals Tribunal or this Court." 17 That decision enforces the view I expressed in McNally. I therefore disallow the Chief Commissioner's additional submissions and I disallow the tender of any evidence to support the contention that s 10T(2)(c) of the Land Tax Management Act applied in the 2004, 2005 and 2006 land tax years to exclude the principal place of residence exemption. 18 The Chief Commissioner now seeks an adjournment to raise the Land Tax Management Act, s 10T(2)(c) with respect to all the land tax years. 19 I am sympathetic to Mr Bevan's submissions that the application that is now made by the Chief Commissioner will give rise to prejudice. Mr Bevan points out that Mr Delmege is here ready to give evidence. Mrs Delmege is in a serious condition in hospital on life support and paying the costs of an adjournment would not deal with the prejudice concerned if I accede to the application. 20 On the other hand, there will be a need for another hearing if I proceed today, not only in relation to the 2004 to 2006 years, but also in relation to the 2002 and 2003 years. 21 It seems to me that there should be but one hearing that covers all those matters and the only way in which that is possible is to accede to the application. 22 Costs thrown away as a result of the adjournment are offered and, in light of the way in which this matter was raised, as indicated in my earlier ex tempore judgment, it is appropriate that those costs be assessed on an indemnity basis and, I should add, to be paid forthwith upon assessment or agreement. 23 The Chief Commissioner has through his counsel offered an undertaking that the assessments with respect to the years I have mentioned will be made within seven days. 24 Upon the Defendant by his counsel undertaking that he will issue amended assessments to the Plaintiffs with respect to the 2002 and 2003 land tax years, and raise the issue of Land Tax Management Act, s 10T(2)(c) with respect to the 2004 to 2006 land tax years by amended assessment or otherwise, I stand this matter back into the ECM Court. I order the Defendant to pay the Plaintiffs' costs thrown away by the adjournment on an indemnity basis and forthwith upon assessment or agreement. *********** 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.