Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Woods v Chief Commissioner of State Revenue [2014] NSWCATAD 151 Hearing dates: 21 August 2014 Decision date: 23 September 2014 Jurisdiction: Administrative and Equal Opportunity Division Before: A Verick, Senior Member Decision: The matter is remitted to the Chief Commissioner to reconsider his reassessment for the land tax year 2008 as directed. Catchwords: TAXES AND DUTIES - Land Tax - failure to occupy intended principal place of residence - whether respondent entitled to issue reassessment under s 9 of the Taxation Administration Act 1996 more than five years after initial assessment to exempt the land under cl.6 of Schedule 1A of the Land Tax Management Act 1956. Legislation Cited: Land Tax Management Act 1956 Taxation Administration Act 1996 Cases Cited: Chief Commissioner of State Revenue v Print National Pty Ltd [2013] NSWCA 96 Keness and another v Chief Commissioner of State Revenue [2014] NSWCATAD 17 Vlahos & Ors v Chief Commissioner of State Revenue [2013] ADT 1 Ex parte Preston [1985] AC 835 R v Inland Revenue Commissioners; Ex parte National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617 R v Inland Revenue Commissioners; Ex parte Unilever Plc [1996] BTC 183 Bellinz Pty Ltd v Federal Commissioner of Taxation (1998) 84 FCR 154 Category: Principal judgment Parties: Rodger and Donna Woods (Applicants) Chief Commissioner of State Revenue (Respondent) Representation: Counsel A H Rider Counsel for Respondent R & D Woods (Applicants in person) Crown Solicitor's Office (Respondent) File Number(s): 1410161 reasons for decision 1The Applicants have applied to the Tribunal for a review of the Chief Commissioner's decision dated 17 December 2013 disallowing their objection to the Land Tax Reassessment issued on 7 August 2013 to impose land tax on their former intended place of residence at 82 Mitchell Parade, Mollymook Beach for the 2008 land tax year. 2The reassessment was issued because the Applicants failed to actually use and occupy the Mollymook Beach land as their principal place of residence for a period of at least six months as required by clause 6 of Schedule 1A to the Land Tax Management Act 1956 (the LTM Act). 3The sole issue for determination is whether the Chief Commissioner was authorised under s 9(3) of the Taxation Administration Act 1996 (the TA Act) to issue the reassessment more than five years after the Chief Commissioner initially assessed the Mollymook Beach land as exempt for the 2008 tax year under clause 6 of Schedule 1A to the LTM Act. Factual Background 4The short facts in this matter are not in dispute. 5The Applicants acquired the Mollymook Beach land in November 2007 intending to build a house that was to be their principal place of residence in retirement. 6On or about 20 December 2007, the Applicants began 'the process of commencing a Development Application with the Shoalhaven City Council'. This was their 'initial application to demolish an old dilapidated dwelling and build a new dwelling' on the Mollymook Beach land. But no application was sent because the Applicants learnt 'from various sources' that they 'would have some issues with this application, due to new sea level rulings'. 7In October 2010, the Applicants sold their then principal place of residence situated in Conjola and began living in a rented house at Narrawallee. 8On 9 May 2011, the Chief Commissioner in writing requested the Applicants to 'validate the exemption' that had been granted to them. They were required to produce documentation indicating their use and occupation of the property since the completion of the building. 9The Applicants responded by informing the Chief Commissioner that 'due to new coastal management rulings' they had not been able to build their residence 'within the time allocated'. The Chief Commissioner granted them a further extension of the exemption. 10In September 2011, the Applicants 'drafted new plans and submitted a Development Application with Shoalhaven City Council' which was finally granted in early 2012 but subject to meeting 'all new guidelines'. 11The Applicants 'discussed' their new plans with a few of the local builders and council and then realized that the cost now to build the intended home was way above what they had anticipated. 12Against that background, they proceeded to purchase a new home on 30 March 2012 at Milton. 13In or about August 2013, the Applicants advertised the Mollymook Beach land for sale, now with an approved development. The Applicants sold the Mollymook Beach land with settlement occurring on 11 November 2013. 14On 8 August 2013, the Chief Commissioner in writing revoked the exemption given to the Applicants on the grounds that, on the information available to the Chief Commissioner, the Applicants had failed to comply with the exemption granted to them. Attached to the notice of revocation was the reassessment for the 2008 to 2013 land tax years imposing land tax on the Mollymook Beach land. 15The Applicants lodged an objection on 5 September 2013 against the reassessment for the 2008 to 2013 land tax years, which was disallowed by the Chief Commissioner on 17 December 2013. 16An application for review was lodged with the Tribunal on 1 April 2014. 17On 13 May 2014, the Applicants then solicitor wrote to the Chief Commissioner's solicitor and advised that the Applicants were now only seeking a review on the sole ground that the reassessment was invalid because it was issued more than five years after the initial assessment issued on 14 February 2008. 18Subsequently, on or about 27 May 2014, the Applicants withdrew their application for review for the 2009 to 2013 land tax years. The application before the Tribunal is accordingly only in relation to the 2008 land tax year. Principal Place of Residence Exemption Provisions 19 Land used and occupied, as the owner's principal place of residence is exempt from land tax under s 10(1) (r) of the LTM Act. The provisions dealing with this exemption are set out in Schedule 1A of the LTM Act. 20Clause 1(1) in Schedule 1A of the LTM Act defines the principal place of residence exemption by reference to Clauses 2 and 3. The exemption broadly extends to land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose. 21Relevantly, the concession also extends to unoccupied land intended to be used and occupied solely by the owner as the owner's principal place of residence, but subject to certain conditions. The concession is set out in Clause 6 and it was in the following terms as at 31 December 2007, the taxing date for the 2008 land tax year - 6 Concession for unoccupied land intended to be owner's principal place of residence (1) An owner of unoccupied land is entitled to claim the land as his or her principal place of residence, if the owner intends to use and occupy the land solely as his or her principal place of residence. In such a case, the owner is taken, for the purpose of the principal place of residence exemption, to use and occupy the unoccupied land as his or her principal place of residence. (2) This clause does not apply unless: (a) the land is unoccupied because the owner intends to carry out, or is carrying out, building or other works necessary to facilitate his or her intended use and occupation of the land as a principal place of residence, and (b) if those building or other works have physically commenced on the land, no income has been derived from the use and occupation of the land since that commencement, and (c) the intended use and occupation of the land is not unlawful. (3) This clause applies in respect of the assessment of a person's ownership of land only in the period of: (a) 2 tax years immediately following the year in which the person became owner of the land, or (b) if the land is used and occupied for residential purposes by a person other than the owner at any time after the person became owner, 2 tax years immediately following the tax year in which the building or other works necessary to facilitate the owner's intended use and occupation of the land are physically commenced on the land. (4) The Chief Commissioner may extend the period in which this clause applies if the owner of the unoccupied land demonstrates that: (a) there is a delay in the completion or, in a case referred to in subclause 3 (b), the commencement of the building or other works necessary to facilitate the owner's intended use and occupation of the land, and (b) the delay is due primarily to reasons beyond the control of the owner. (5) If the principal place of residence exemption applies by operation of this clause to land not actually used and occupied by a person as his or her principal place of residence on a taxing date, that exemption is revoked if the person fails to actually use and occupy the land as his or her principal place of residence by the end of the period in which this clause applies in respect of the assessment of the person's ownership of the land and to continue to so use and occupy the land for at least 6 months. (6) The effect of the revocation is that the principal place of residence exemption is taken not to have applied to the land in respect of any tax year to which, but for the revocation, it would have applied. Land tax liability is to be assessed or reassessed accordingly. (7) This clause does not apply in respect of land owned by a person if: (a) the person or any member of the person's family (within the meaning of clause 12) is entitled to have his or her actual use and occupation of other land taken into account under section 9C or under this Schedule, or (b) the person owns land outside New South Wales that is the principal place of residence of the person or a member of the person's family (within the meaning of clause 12), or (c) the land, or if combined with adjoining land of which the person is an owner, is capable of having more than 2 residences or residential units lawfully built on it. Tax Administration Act 22In this matter, it is necessary to refer to the relevant provisions dealing with the Chief Commissioner's assessments and reassessments powers. They are found in the TA Act. As recently observed by the Court of Appeal (Bathurst CJ, Beazley P and Gzell J) in Chief Commissioner of State Revenue v Print National Pty Ltd [2013] NSWCA 96 - The TA Act does not raise taxes. That is the function of other "taxation laws". 23The term 'taxation laws' is defined in s 4 of the TA Act to include both the LTM Act and the TA Act. 24The Court of Appeal went on to state the purpose of the TA Act as follows: [27] The purpose of the TA Act is to enable the Chief Commissioner to carry out his statutory functions under the taxation laws. Thus s 61 of the TA Act provides that the Chief Commissioner has the general administration of the TA Act and the other taxation laws and may do all such things as are necessary or convenient to give effect to the TA Act and the other taxation laws. [28] Section 7 of the TA Act sets out in more detail its purposes with a précis of the Parts of the legislation. It is as follows: 7 Purpose of Act and relationship with other taxation laws (1) The purpose of this Act is to make general provision with respect to the administration and enforcement of the other taxation laws. (2) The other taxation laws include provisions with respect to: (a) the imposition of tax and its payment, and (b) exceptions to and exemptions from liability to the tax, and (c) entitlements to refunds. (3) This Act includes general provisions with respect to: (a) assessments and reassessments of tax liability, and (b) obtaining refunds of tax, and (c) imposition of interest and penalty tax, and (d) approval of special tax return arrangements, and (e) collection of tax, and (f) record keeping obligations of taxpayers and general offences, and (g) tax officers and their investigative powers and secrecy obligations, and (h) objections and reviews, and (i) miscellaneous matters such as service of documents, corporate criminal liability and evidence. 25In the present matter, only the Chief Commissioner's power relating to making a reassessment is in issue. The Chief Commissioner's reassessment power is set out in s 9 of the TA Act as follows: 9 Reassessment (1) The Chief Commissioner may make one or more reassessments of a tax liability of a taxpayer. (2) A reassessment of a tax liability is to be made in accordance with the legal interpretations and assessment practices generally applied by the Chief Commissioner in relation to matters of that kind at the time the tax liability arose except to the extent that any departure from those interpretations and practices is required by a change in the law (whether legislative or non-legislative) made after that. (3) The Chief Commissioner cannot make a reassessment of a tax liability more than 5 years after the initial assessment of the liability, unless: (a) the reassessment is to adjust tax to give effect to a decision on an objection or review as to the initial assessment, or (b) at the time the initial assessment or reassessment was made, all the facts and circumstances affecting the liability under the relevant taxation law of the person in respect of whom the assessment or reassessment was made were not fully and truly disclosed to the Chief Commissioner and, as a result, the tax liability was assessed at a lower amount than the Chief Commissioner would otherwise have been assessed it, or (c) the reassessment is authorised to be made more than 5 years after the initial assessment by another taxation law, or (d) the reassessment is made as a consequence of an application by a taxpayer, being an application made within 5 years after the initial assessment of the liability, and the reassessment reduces the tax liability. (4) The initial assessment of a tax liability remains the initial assessment of the liability for the purposes of this Act even if it is withdrawn under section 13. Submissions 26The Chief Commissioner's case was set out by his counsel in his written submissions as follows: 26. Relevantly, the PPR exemption was automatically revoked by operation of law under cl.6(5) of Schedule 1A if the land was not actually used and occupied as the person's PPR for at least six (6) months. Here, it is undisputed that the Applicants never used and occupied the Land as their PPR. Rather, the Applicants admit that they used and occupied other land as their PPR for the whole period they owned the Land. 27. Crucially, these facts engaged the automatic revocation of the exemption for the Tax Year (and later land tax years) under cl.6(5). Further, cl.6(6) of Schedule 1A provided that the effect of this revocation was that the PPR exemption was taken not to have applied to the Land for any tax year. In these circumstances, cl.6(6) mandated that the land tax liability was to be reassessed accordingly. 28. Importantly, neither the revocation of the exemption nor the mandatory requirement to reassess land tax liability was subject to any time limitation under the Act. Further, as the Respondent's power to extend the exemption was unlimited in time, the mandatory requirement for him to reassess land tax liability upon the automatic revocation of the exemption was necessarily unfettered in time. In this regard, it would be an odd result if the Respondent initially assessed and extended the PPR exemption for ten (10) years but was precluded from reassessing land tax liability in circumstances where the land was sold after 10 years but never used and occupied as a person's PPR. Put simply, the automatic revocation for the exemption would be meaningless if the mandatory requirement to reassess land tax liability was limited in time. 29. Based on the above, it is clear that cl.6(6) of Schedule 1A of the Act (being a "taxation law" under the TAA) expressly authorised (and in fact, required) the Respondent to reassess the Applicants' land tax liability for the Land for the Tax Year without regard to any time limitation when the PPR exemption was automatically revoked. 30. In these circumstances, it is clear that the proviso in s.9(3)(c) of the TAA is engaged and that the general five (5) year limitation of the Respondent reassessing a person's tax liability does not apply here. 31. For these reasons, the Respondent was empowered to issue the Reassessment and it was valid for the Tax Year. 32. For completeness, the Respondent has no discretion under the Act to waive the automatic and mandatory operation of cl.6(5) and/or cl.6(6) of Schedule 1A nor any general discretion to waive the Applicants' land tax liability for the Land for the Tax Year. 27The Applicants did not advance any legal argument to support their submission that the Chief Commissioner was barred under s 9(3) of the TA Act to issue the reassessment more than five years after the land was assessed as exempt for 2008 land tax year. Their case was essentially, on the sole ground that they did not have a choice to build their future principal place of residence on the land. This was because of the circumstances that delayed their application for development approval and subsequently circumstances that required them to incur expenditure beyond their means to construct the residence. Reasons for Decision 28Although counsel for the Chief Commissioner has provided an extreme example of a delay of ten years to support the proper construction of the law, I agree with the reasoning and reject the submission that the Chief Commissioner lacked power under s 9(3) of the TAA to make the reassessment. 29In this matter there was no dispute that the Applicants failed to actually use and occupy the Mollymook Beach land as their principal place of residence for a period of at least 6 months as required under Clause 6(5). They had on 30 March 2012 instead bought land situated at Milton and the residence on the land became their principal place of residence. The failure to comply with the requirement of Clause 6(5), as submitted by the Chief Commissioner, led to the 'automatic revocation of the exemption' for the relevant land tax years including the 2008 land tax year. 30The issue as to whether the Chief Commissioner had the power to go beyond the five years limitation imposed by s 9(3)(c) of the TA Act is, I think, resolved by the then provisions found in Clause 6(4). The provisions clearly allowed the Chief Commissioner an unlimited power to extend the concession. The revocation power would have been a Clayton's power if the Chief Commissioner were restricted in the manner suggested by the Applicants. The only observation that I make is that the assessing power in Clause 6(6) could have been more elegantly drafted. 31The Applicants' factual grounds do not assist them either. There is no general discretion in the LTM Act to take into account other special circumstances to allow any concession where there is a clear failure to comply with the requirement that the land must be actually used and occupied for at least six months. The main delay occurred because the Applicants could not sell the land without an approved development. This was not for their own residence but for the benefit of the purchaser and to obtain a higher price for the sale of the Mollymook Beach land. 32In passing, I note that the current provisions of Clause 6(3)(a) provide for a fixed period of '4 tax years immediately following the year in which the person became owner of the land'. The power to extend time under Clause 6(4) has also been taken away from the Chief Commissioner. 33On the basis of the above reasons the reassessment for the land tax year 2008 should be confirmed. However, a matter of concern has arisen subsequent to the hearing of this application. 34In a recent decision not considered at the hearing, Senior Member Frost in Keness and another v Chief Commissioner of State Revenue [2014] NSWCATAD 17 in refusing an application for extension of time under Clause 6, in the same terms as in the present matter, noted as follows: 54 If they fail to achieve a further extension of the Clause 6 Concession, then they will lose the exemption that they had for all the earlier years. (In that circumstance, the Chief Commissioner has indicated that, although he has power to make new assessments for the earlier years (2005, 2006 and 2007), he does not propose to do so.) 35Clause 6(2) directs the Chief Commissioner to make a reassessment of a tax liability 'in accordance with the legal interpretations and assessment practices generally applied by the Chief Commissioner in relation to matters of that kind at the time the tax liability arose'. 36In Print National the Court of Appeal noted that 's 61 of the TA Act provides that the Chief Commissioner has the general administration of the TA Act and other taxation laws and may do all such things as are necessary or convenient to give effect to the TA Act and other taxation laws'. 37The question that thus arises is whether the Chief Commissioner relied on some general discretion or in terms of Clause 6(2) the Chief Commissioner applied some well established assessment practice in Keness not to reassess some of the earlier land tax years. 38In Vlahos & Ors v Chief Commissioner of State Revenue [2013] ADT I briefly considered whether the Chief Commissioner was obliged to adhere to the doctrine of fairness when exercising his statutory powers as follows: 33 Finally, I need to briefly deal with the submission by the applicants that they had paid the full duty on the contract and it was unfair to make them pay any additional duty on the dutiable transaction. 34 The courts in England have ruled that, in exceptional circumstances, a taxpayer is entitled to judicial review of a decision taken by the revenue within the ambit of an abuse of power if a decision is "unfair" because there is an obligation on the revenue to treat a taxpayer fairly and not to discriminate between one taxpayer and another: R v Inland Revenue Commissioners; Ex parte Preston [1985] AC 835 at 866-867; R v Inland Revenue Commissioners; Ex parte National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617 and R v Inland Revenue Commissioners; Ex parte Unilever Plc. [1996] BTC 183. 35 These cases were considered by the Full Federal Court in Bellinz Pty Ltd v Federal Commissioner of Taxation (1998) 84 FCR 154 and the court expressed the view that there "is little difficulty in accepting that, where a decision-maker, including the Commissioner of Taxation, has a discretion, a principle of fairness will require that that discretion be exercised in a way that does not discriminate against taxpayers". 39The 'fairness' question was not considered at the hearing but having become aware of the Chief Commissioner's decision in Keness the Tribunal is obliged to remit this matter to the Chief Commissioner to reconsider his decision to reassess having regard to any general discretion or his assessing practices as generally applied in similar cases. 40The matter is accordingly remitted to the Chief Commissioner. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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. Decision last updated: 23 September 2014