Darling v Chief Commissioner of State Revenue

[2006] NSWADT 175

CITATION:	Darling v Chief Commissioner of State Revenue [2006] NSWADT 175
DIVISION:	Revenue Division
PARTIES:	APPLICANT James Lyall Darling RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	056125
HEARING DATES:	8/02/2006
SUBMISSIONS CLOSED:	02/24/2006
DATE OF DECISION:	06/09/2006
BEFORE:	Hole M - Judicial Member
CATCHWORDS:	Duties Act - principal place of residence
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Duties Act 1997
CASES CITED:	Trust Co. of Australia Ltd v Chief Commissioner of State Revenue [2002] NSWADT 21
REPRESENTATION:	APPLICANT In person RESPONDENT B Baker, solicitor
ORDERS:	The Chief Commissioner of State Revenue has correctly reassessed the Vendor Duty and has applied the appropriate premium and market rate interest which is to accrue at the current rates applicable.

1 The applicant has applied for review of the decision by the Chief Commissioner of State Revenue to impose Vendor Duty on the sale of the property at Marrickville (“the property”), he has also applied for review of the imposition of premium interest and market rate interest on the unpaid Vendor Duty.

Facts

2 The applicant purchased the property by way of contract which was exchanged on 21 March 2003 and settled on 30 May 2003. The purchase price was $502,000.00.

3 On 18 December 2004 the applicant rented the property out.

4 The State Government introduced Vendor Duty in respect of sales entered into on or after 1 June 2004. This Vendor Duty was payable on the transfer of land in described circumstances.

5 On 10 May 2005, the applicant exchanged contracts for sale of the property for the sale price of $610,000.00. Settlement was expected to occur on 23 May 2005.

6 On 16 May 2005, the applicant signed a declaration as vendor in respect of the disposal of the property seeking exemption from the Vendor Duty. The declaration, in standard format, required the applicant to select the applicable box which indicated the reason for exemption. The applicant selected the box at paragraph 6 of the declaration being:-

“6 I am claiming an exemption from, or reduction in, the payment of vendor duty because:

Section 162B

A This property, and no other property, has been continuously used and occupied by me as my principal place of residence and for no other purpose for a period of at least two years ending immediately before the agreement was first executed”

7 On 25 June 2005 the applicant wrote to the Chief Commissioner of State Revenue voluntarily disclosing that he had not resided in the property for the requisite period. There was an appendix included setting out the relevant financial information. The applicant also advised the Chief Commissioner of State Revenue of various other matters including:

the purchaser had insisted on a short contract requiring settlement on 23 May 2005;

his solicitor advised him that he should pay under protest and lodge an application for exemption;

there were insufficient funds available to him to discharge the existent mortgages and to also pay the Vendor Duty;

settlement of the sale had been deferred by the purchaser to 27 May 2005 but the exemption had been organised;

he rented the property out on 18 December 2004 as he was financially forced to do so;

that he had bought the property in a deceased estate condition, had gone into occupation on exchange (on 21 March 2003) and had lived there while he renovated the house;

that he had made a substantial loss on the sale of the property;

that he had found that he could not financially remain in the house and needed to rent it out whereupon he then resided mainly at friends’ homes;

he also borrowed to maintain a business that he was operating being a business for tree pruning and plant propagation;

that on settlement of the sale all funds were distributed and he still had debt remaining.

8 The Compliance Officer of the Chief Commissioner of State Revenue responded to the applicant’s letter by letter dated 19 July 2005. The response indicated that there was no discretion available to the Chief Commissioner for principal place of residence exemption and that accordingly Vendor Duty was payable and a notice of assessment was enclosed. The applicant was also advised that no penalty had been imposed as a result of the voluntary disclosure. The Notice of Assessment was dated 19 July 2005 and the due date for payment noted as 9 August 2005, and in the event payment was not received on that date then interest would accrue after 9 August 2005 at a then current rate of 13.68%.

9 On 8 August 2005 the applicant forwarded an objection to the assessment to the respondent requesting reconsideration and noting the financial loss that he had suffered.

10 The objection was considered by the respondent and disallowed as:

the principal place of residence exemption did not apply;

the exemptions available under Section 162(1) of the Duties Act 1997 did not apply as the increase in the property value between purchase and sale was 21.5%. This increase being 9.5% above the permitted increase allowing exemption under Section 162J and being between 6.5% and 9.5% above the permitted increase allowing a concession under Section 162K.

11 The applicant was referred to the Hardship Board Review, however on enquiry by the applicant he found that he was not eligible as he was in employment.

Legislation

12 The applicable legislation is Section 162B of the Duties Act 1997 (“the Act”):

“162B Principal place of residence exemption

(1) A vendor duty transaction is not chargeable with vendor duty in relation to land to which the principal place of residence exemption applies.

(2) Subject to this Division, the principal place of residence exemption applies to land used and occupied by the vendor as the principal place of residence of the vendor, and for no other purpose, if the land:

(a) is a parcel of residential land, or

(b) is a strata lot, or

(c) is assessed as if it were a strata lot under section 21A or 21B of the Land Tax Management Act 1956.

(2) For the purposes of this Chapter, 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 for a period of at least 2 years ending immediately before the date on which, but for this Division, a liability for vendor duty would arise, or

(b) the land has been used and occupied by the person for residential purposes and for no other purposes for a total period of at least 3 years in the 5 years ending immediately before the date on which, but for this Division, a liability for vendor duty would arise and during those 3 years no other land was used and occupied by the person for residential purposes, or

(c) if the vendor became an owner of the land (or the land use entitlement to which the land is subject) less than 2 years before the date on which, but for this Division, a liability for vendor duty would arise, the Chief Commissioner is satisfied that the land, and no other land, has been continuously used and occupied by the person for residential purposes and for no other purposes since the vendor became an owner of the land (or land use entitlement).

…”

13 Vendor Duty was introduced on 1 June 2004. The Duty is charged on the dutiable value of the land related property.

Cross examination of applicant

14 The applicant was cross examined by the respondent’s representative particularly concerning the dates of the purchase of the subject property, the date the property was rented out, the dates of exchange of the contract for sale and settlement of the sale and the sworn declaration by him dated 16 May 2005.

15 In response to a question as to why he had ticked box 6A on the declaration when he knew he had not lived in the property for 2 years he responded that “Rightly or wrongly” he had ticked that box.

Applicant’s submissions

16 The applicant submitted that after he had exchanged contracts to sell the subject property his solicitor had advised him that he did not have sufficient funds to distribute. His solicitor advised him that he may be liable for Vendor Duty as he had not been in the property for 24 months and that he should pay the Duty then protest. He was unable to provide sufficient funds to settle and therefore signed the Vendor Duty declaration which claimed the exemption pursuant to Section 162B as set out in paragraph 12 above. The exemption was granted and he then forwarded the letter dated 25 June 2005 to the Chief Commissioner of State Revenue.

17 The applicant submitted that he had bought the subject property to live in. He moved in on exchange and then commenced renovating the property. He found that the interest bill was too high and felt financially that he needed to rent the property out which he did on 18 December 2004. He did not know that this would make the property subject to Vendor Duty.

18 The applicant rented the property out through an agent and then lived at a girlfriend’s place and other places. He submitted that he thought it was still his principal place of residence. He thought that as the income earned from renting the property out was less than the assessed Vendor Duty it would have been better financially to have left the property empty until sold.

19 He had made an arrangement with the Office of State Revenue (“OSR”) to pay the outstanding duty, $400.00 had been paid up to the date of the hearing. The applicant had sought a stay on payment pending hearing at the directions hearing on 12 January 2006, this application was not proceeded with.

20 The applicant submitted that after settlement of the sale he had forwarded the letter dated 25 June 2005 setting out all the details and asking that an exemption be granted.

Respondent’s submissions

21 The respondent’s representative submitted that Section 162B(2) of the Act provided that the subject land had to be “used and occupied by the Vendor as the principal place of residence of the Vendor” for a continuous period of 2 years immediately before the exchange of contracts for sale. In this matter the requisite period was 10 May 2003 to 10 May 2005. The applicant was in occupation from 21 March 2003 (pre purchase) to 18 December 2004 then the property was rented out from 18 December 2004 to 10 May 2005.

22 The respondent’s representative submitted that there was no exemption available to the applicant, and that there is no discretion available to alter the time requirements in Section 162B applicable as the applicant purchased the subject property more than 2 years before the liability arose.

23 The applicant has also been charged premium and market rate interest on the Vendor tax due, penalty tax has not been charged. The respondent’s representative submitted that:

“The applicant has been charged premium and market rate interest. Penalty tax was not imposed. In Trust Co. of Australia Ltd v Chief Commissioner of State Revenue [2002] NSWADT 21, Judicial Member Verick held that market rate interest will only be remitted in “exceptional circumstances”, where the “tax default” is entirely due to the fault of the Chief Commissioner. Judicial Member Verick noted that “premium interest” is imposed where the “tax default” is as a result of some culpable conduct by the taxpayer.”

24 The respondent’s representative also submitted that:

“On 10 (sic) May 2004, the applicant signed a declaration that he had occupied the property as his principal place of residence for at least 2 years ending immediately before the agreement was executed. The applicant knew that this was not true. In these circumstances, it is submitted that the imposition of premium and market rate interest was appropriate.”

25 Once the property had been rented out, then it became the principal place of residence of the person(s) residing in the property to the exclusion of the landlord, being the applicant. The subject property was not the applicant’s principal place of residence from 18 December 2004.

26 The submissions of the applicant that the subject property remained his principal place of residence are not accepted for the purposes of the requirements of Section 162A definitions.

27 The applicant knew, when he signed the declaration on 16 May 2005 that the subject property had not been continuously used and occupied by him as his principal place of residence for the 2 years prior to 10 May 2005.

28 The circumstances of the matter are particularly related to the financial stress that the applicant found himself in when he was required to meet the interest payment on his mortgages. He had decided to sell the subject property to resolve the financial stress and unfortunately did so without the knowledge of the effect that the imposition of the Vendor Duty would have. He found himself in an untenable position and “rightly or wrongly” signed a declaration that could not be supported.

29 The applicant did not delay in advising the Chief Commissioner of State Revenue of the full circumstances of his position when he forwarded the letter dated 25 June 2005. The Chief Commissioner of State Revenue has imposed premium interest, as supported by the reasoning of JM Verick in Trust Co of Australia Ltd v Chief Commissioner of State Revenue, as the conduct of the applicant in signing the unsupportable declaration may be considered culpable.

30 In my opinion, the applicant signed the declaration, ‘rightly or wrongly’ recklessly as he found himself in an untenable financial position and needed to resolve the financial crisis with an acceptance that he would attempt to resolve the documentary difficulties as soon thereafter as possible.

ORDER

The Chief Commissioner of State Revenue has correctly reassessed the Vendor Duty and has applied the appropriate premium and market rate interest which is to accrue at the current rates applicable.