Alldritt v Chief Commissioner of State Revenue

[2012] NSWADT 72

Administrative Decisions Tribunal

New South Wales

Case Title:	Alldritt v Chief Commissioner of State Revenue
Medium Neutral Citation:	[2012] NSWADT 72
Hearing Date(s):	26 March 2012
Decision Date:	26 April 2012
Jurisdiction:	Revenue Division
Before:	A Verick, Judicial Member
Decision:	The land tax assessment for the land tax year 2007 is confirmed.
Catchwords:	Land Tax - principal place of residence exemption - whether land "residential land" with an "excluded occupancy" - principal residence leased and owners in occupation of a studio on the land
Legislation Cited:	Land Tax Management Act 1956 Taxation Administration Act 1996
Cases Cited:	Haddad v Chief Commissioner of State Revenue (RD) [2011] NSWADTAP 35 McGrath and anor v Chief Commissioner of State Revenue [2007] NSWADT 46 Chief Commissioner of State Revenue v McGrath [2008] NSWSC 387 Chief Commissioner of State Revenue v McIlroy [2009] NSWADTAP 21 Chief Commissioner of State Revenue v Ferrington (GD) [2004] NSWADTAP 41
Texts Cited:
Category:	Principal judgment
Parties:	Farimah Alldritt and Michael Paul Alldritt (Applicants) Chief Commissioner of State Revenue (Respondent)
Representation
- Counsel:	Counsel AH Rider (Respondent)
- Solicitors:	MP Alldritt (Agent for Applicants) Crown Solicitor (Respondent)
File number(s):	116069
Publication Restriction:

REASONS FOR DECISION

1. This is an application made pursuant to s 96 of the Taxation Administration Act 1996 to review an assessment issued by the Chief Commissioner under the Land Tax Management Act 1956 ("the Act") in respect of the 2007 land tax year. The matter in issue relates to the refusal by the Chief Commissioner to grant the applicants a principal place of residence exemption to a property situated at 51 Kooloona Crescent, West Pymble ("the West Pymble property").

2. The applicants purchased the West Pymble property on 30 September 1999 and sold the property on 16 December 2007.

3. The West Pymble property constitutes of a main residence and a detached studio. In 2006 the main residence was rented to tenants. The applicants' claim relates to the use and occupation of the studio as their principal place of residence up to sometime in January/February 2007 when they commenced to occupy a residence that they had built on land situated at Green Point ("the Green Point property") purchased on 30 January 2004.

4. The applicants had received an occupation certificate for the new dwelling on 1 September 2005 but claim that, for various reasons, they were not able to occupy the Green Point property until January/February 2007. It was claimed that, in 2006 the children and Mrs Alldritt lived with relatives whilst Mr Alldritt used the studio as the applicants' principal place of residence.

5. At the hearing, Mr Alldritt represented both the applicants. Written and oral submissions were made by both parties as to the use and occupation of the two properties in the relevant period. But importantly, Mr Rider, counsel for the Chief Commissioner, drew the attention of the Tribunal to a threshold issue that the principal place of residence exemption was not available to the applicants for the West Pymble property for the relevant land tax year "regardless of whether or not it was the Applicants' PPR, on the basis that it had two separate dwellings on it, namely the House (which tenants lived in) and the Studio (which the Applicants allegedly lived in)". Mr Rider referred to Haddad v Chief Commissioner of State Revenue (RD) [2011] NSWADTAP 35 at [10]-[12]; McGrath and anor v Chief Commissioner of State Revenue [2007] NSWADT 46 at [50] - [55] and Chief Commissioner of State Revenue v McGrath [2008] NSWSC 387 at [48].

6. The threshold issue concerns the operation of the main provisions relating to the principal place of residence exemption found in Schedule 1A to the Act. In particular, it was submitted:

   33.In such a case, because the House was not, by definition, an "excluded residential occupancy" under cl. 4 of Schedule 1A, West Pymble was not a "parcel of residential land" under cl.3.

   34.Therefore, the PPR exemption under cl.2, which relevantly only applies to a parcel of residential land, could not apply to West Pymble for the Tax Year.

   35.With respect, the Applicants cannot succeed in this matter due to this threshold issue. In the circumstances, the Tribunal may, with respect, affirm the Assessment for the Tax Year on this basis alone.

7. The applicants' response was that they "do not believe" the respondent "in all fairness ... can hide behind the law by using excluded residential occupancy which in all aspects is ridiculous". The applicants also submitted that the "rules need to be applied fairly" and that they had knowledge of other cases where owners were allowed the principal place of residence exemption in similar circumstances.

Statutory Provisions

1. Section 7 of the Act provides that land tax is levied on the land value of all land in New South Wales that is owned by taxpayers other than land that is exempt from taxation under the Act. Under s 8 land tax is charged on land owned at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied.

2. Section 10(1) provides that, subject to exceptions not relevant for present purposes, certain lands are exempt from taxation. In the relevant year, s 10(1)(r) exempted the following land:

   Land that is exempt from taxation under the principal place of residence exemption, as provided by Schedule 1A.

3. The term "principal place of residence" is defined in s 3(1) of the Act, unless the context or subject matter otherwise indicates or requires, as follows:

   Principal place of residence of a person means the one place of residence that is, among the one or more places of residence of the person within and outside Australia, the principal place of residence of the person.

4. Clause 2 of Schedule 1A to the Act sets out in detail the provisions dealing with the principal place of residence exemption and was in the relevant year in the following terms:

   2Principal place of residence exemption

   (1) Land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under the Act, in respect of the year commencing 1 January 2005 or any succeeding year, if the land is:

   (a) a parcel of residential land, or

   (b) a strata lot or, subject to this Schedule, land comprised of 2 or more strata lots.

   (2) Land is not used and occupied as the principal place of residence of a person unless:

   (a) the land, and no other land, has been continuously used and occupied by the person for residential purposes and for no other purposes since 1 July in the year preceding the tax year in which land tax is levied, or

   (b) in any other case, the Chief Commissioner is satisfied that the land is used and occupied by the person as the person's principal place of residence.

   (3) If the owner of land is entitled to the exemption conferred by this clause, no other person is liable to be assessed for taxation under this Act in respect of the land during the period of the owner's entitlement to the exemption.

   (4) The exemption conferred by this clause is referred to as the principal place of residence exemption.

   (5) The principal place of residence exemption is subject to the restrictions set out in Part 4.

5. The term "residential land" is defined in cl 3 as follows:

   (1) In this Schedule, residential land means land that is used and occupied for residential purposes and for no other purpose, that use and occupation being use and occupation of a building or buildings designed, constructed or adapted for residential purposes, other than a building or buildings:

   (a) comprised of strata lots or residential units, or

   (b) containing (out of the total rooms in the building or buildings) occupancies other than that of the owner, or

   (c) from any part of which income is derived.

   (2) Land does not cease to be used and occupied as provided by subclause (1) by reason of there being on that land any building or improvement that is used or occupied for a purpose ancillary to that purposes for which the building is, or the buildings are, designed, constructed or adapted.

6. The exemption for land used and occupied, as a principal place of residence under cl 3 is only available for land used by the owner as a single occupancy. However, cl 4(1) provides a concession to owners where there is one other residential occupancy on the land other than that of the owner of the land provided it is an excluded residential occupancy under cl 4(2). The residential occupancies excluded under cl 4(2) are the following:

   (a) one room,

   (b) one suite of rooms (not being a flat) each room of which all occupants of the suite are entitled to occupy,

   (c) one flat,

   (d) one suite of rooms (not being a flat) each room of which all occupants of the suite are entitled to occupy, and one room,

   (e) one flat and one room,

   (f) 2 rooms, each of which is separately occupied.

7. Clause 4(3) further provides that "land does not cease to be residential land because there is on the land one, but no more than one, such excluded residential occupancy".

8. Clause 12(1) provides that for the purposes of the principal place of residence exemption, only one place of residence may be treated as the principal place of residence for all the members of the same family. Clause 12(2) provides that if members of a family own, whether jointly or separately, more than one residence used and occupied by any of them as a principal place of residence, the Chief Commissioner is to treat the one place of residence elected as the principal place of residence of the family as the principal place of residence of all members of the family in respect of a tax year.

Consideration

1. Broadly speaking, an owner of land is only entitled to the principal place of residence exemption in respect of any land tax year, if the land, (a) is a parcel of residential land; (b) has a single residential occupancy (other than one excluded residential occupancy) and (c) has been continuously used and occupied by the owner as his or her principal place of residence since 1 July in the year preceding the land tax year.

2. In this matter, the applicants were thus required under the law to establish that the West Pymble property was in the relevant land tax year a parcel of "residential land" and that the residence on the West Pymble property, that had been rented during the relevant period in 2006, was an "excluded residential occupancy" in order to be entitled to be considered for the principal place of residence exemption for the West Pymble property. It was not sufficient for the applicants to merely establish that the studio had been used and occupied as their principal place of residence since July 2006 or that the Green Point property had not been used as their principal place of residence in the year preceding the land tax year in issue.

3. Under cl 2, the principal place of residence exemption is only available if the land is a parcel of "residential land". The term "residential land" is defined in cl 3 to mean land that is used and occupied for residential purposes and for no other purpose.

4. In Haddad, a similar factual situation was in issue. On the land in that case were two dwellings. The main residence was rented to tenants and it was claimed by the taxpayer that she used what was a detached iron corrugated two bed room unit also situated on her land as her principal place of residence. In the first instance, the Tribunal held that the taxpayer was not entitled to the principal place of residence exemption simply because the land could not be regarded as a parcel of "residential land" in view of the letting of the principal residence to tenants. The Tribunal also held that the principal residence was not an "excluded residential occupancy" in terms of cl. 4 of Schedule 1A to the Act.

5. On appeal to the Appeal Panel of the Tribunal, the decision was affirmed, on the following basis:

   10 The first ground of appeal concerns the possibility of the appellant being entitled to the principal place of residence exemption provided for by Schedule 1A. The simple answer to the appellant's claim is that the Wadalba property is not a parcel of residential land within cl 2(1)(a) of Schedule 1A. That conclusion flows from the fact that, up to July 2007, there were two separate buildings on the property, one comprising a 3 bedroom house leased for residential purposes and the other 2 bedroom unit occupied by the appellant. By operation of cl 3(1)(c), the circumstances that income was derived from the 3 bedroom house takes the property outside the definition of "residential land" unless one of the concessions in Part 3 applies, there being no suggestion that cl 3(2) is applicable.

   11 Of the concessions in Part 3, the appellant relied on that contained in cl 4 for the period up to 7 July 2007, when the unit was destroyed by fire. The appellant contended that it was the 2 bedroom unit which constituted her PPR. To attract the operation of cl 4, the appellant must show that the 3 bedroom house was a residential occupancy contained within the building - i.e. the 2 bedroom unit occupied by the appellant as her PPR - and that it was an excluded residential occupancy within the meaning of cl 4(2). On the uncontested evidence, the house was not contained within the 2 bedroom unit. The two were sperate. Even if it were otherwise, the 3 bedroom house seems to fall squarely within the definition of "single dwelling" in s 6 (3) of the Act and is therefore excluded from the definition of "flat". Nor as a matter of construction could it be said that a 3 bedroom dwelling constitutes a "suite of rooms (not being a flat)" within either cl 4(2)(b) or 4(2)(d). The expression "suite of rooms" has a well-established meaning in common parlance as rooms which are not designed to be occupied as separate dwelling e.g. rooms lacking a bathroom, toilet facilities, a kitchen or laundry facilities.

   12 Accordingly the appellant, whatever the factual merits of her claim to occupy the 2 bedroom flat, cannot on the facts found by the Tribunal below establish her claim to the PPR exemption at anytime up to 7 July 2007.

6. The "residential land" issue was also considered in McGrath's case, referred to by the respondent. In McGrath, the taxpayers acquired the adjoining lot to their principal place of residence. On the adjoining land was an uninhabitable house awaiting demolition. The taxpayers claimed that both lots were exempt from land tax because both properties constituted a parcel of residential land for the purposes of the principal place of residence exemption. The Tribunal in the first instance found that the taxpayers failed as a threshold issue to establish that the adjoining lot was being used for residential purposes in terms of cl 3(1) of the Act because the house on the lot was not used for residential purposes nor was the building used or occupied for a purpose ancillary to the principal place of residence occupied by the taxpayers. An appeal by the taxpayers to the Appeal Panel was upheld. But in a further appeal to the Supreme Court prosecuted by the Chief Commissioner the decision of the Appeal Panel was set aside. In allowing the appeal his Honour noted that in the first instance the Judicial Member correctly regarded his "residential land" finding as determinative of the matter and that there was no error of law.

7. In the present matter, the applicants faced a similar difficulty.

8. The applicants had to establish that the West Pymble property was "a parcel of residential land" in the land tax year in issue. It was not in dispute that the main house was rented for most of the year, including the period from 1 July to 31 December 2006. And it was also not in dispute that the applicants earned rental income from the letting. The house in that period was an income-earning asset. The land, accordingly, was not entirely used for residential purposes as required by both cl 2 and cl 3. The applicants were not entitled to the principal place of residence exemption merely on this finding, but the applicants were also not entitled to the exemption because the main residence was not an excluded residential occupancy during the relevant period.

9. Clause 4 allows one residential occupancy to be disregarded in applying the principal place of residence exemption. Clause 4(1) provides that for the purposes of the principal place of residence exemption, if a building or buildings used or occupied for residential purposes contains or contain a residential occupancy other than that of the owner, the use of the building or buildings for purposes of that residential occupancy may be disregarded if the residential occupancy is an excluded residential occupancy. Clause 4(2) set out the excluded residential occupancies. Unfortunately, for the applicants, their house rented to tenants clearly did not qualify as an excluded residential occupancy within any of the excluded residential occupancies set out in cl 4(2). If they had rented out merely the studio and continued to use and occupy the main house as their principal place of residence, they may have been entitled to this concession. But in the present matter that was not the case.

10. Accordingly, it is not necessary to conclusively consider whether the studio was used and occupied by the applicants as their principal place of residence during the relevant period. Because "whatever the factual merits" of their claim to have used and occupied the property, the applicants cannot, on the above findings, establish that the West Pymble property was their principal place of residence.

11. However, in passing, I should make the following observations in relation to that claim. It is well established that while sleeping by itself in a place can be an indication of a principal place of residence, it not the sole matter to be taken into account. It must be a place where the owner has his or her belongings and "where he or she spends the most time, and which is shared (where applicable) with his or her spouse and children" (Chief Commissioner of State Revenue v McIIroy [2009] NSWADTAP 21 at [40]. It is also well established that "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 occupation for any other reason" (Chief Commissioner of State Revenue v Ferrington (GD)[2004] NSWADTAP 41 at [42].

12. In this matter, Mrs Alldritt and their children resided during the relevant period with relatives and all their household belongings had already been sent to the Green Point property. Only Mr Alldritt on his own spent some nights at the studio. The applicants also failed to produce any objective or independent evidence that the West Pymble property was their principal place of residence. But the Chief Commissioner was able to obtain by way of subpoena detailed records from Energy Australia indicating usage of electricity at the Green Point property, telephone records from Telstra showing that a number of calls were made in the region of Green Point, bank records indicating use of funds in the Central Coast region, RTA records showing the Green Point address as the applicants' address on the drivers' licences and records from the Electoral Commission recording the applicants' address as being Green Point from 3 March 2007. All these pointed to the Green Point property as their principal place of residence.

13. The assessment must therefore be confirmed.

    I hereby certify that this is a true and accurate record of the reasons for decision of the Administrative Decisions Tribunal.

    Registrar