Elliott v Chief Commissioner of State Revenue
[2006] NSWADT 266
•12/09/2006
CITATION: Elliott v Chief Commissioner of State Revenue [2006] NSWADT 266 DIVISION: Revenue Division PARTIES: APPLICANT
Ross Elliott
RESPONDENT
Chief Commissioner of State RevenueFILE NUMBER: 066046 HEARING DATES: 8/09/2006 SUBMISSIONS CLOSED: 09/08/2006
DATE OF DECISION:
09/12/2006BEFORE: Block J - ADCJ (Judicial Member) CATCHWORDS: Land tax exemption - principal place of residence MATTER FOR DECISION: Principal matter LEGISLATION CITED: Land Tax Management Act 1956 CASES CITED: Summerville v Chief Commissioner of State Revenue 2006 NSWADT159 REPRESENTATION: APPLICANT
RESPONDENT
In person
H El-Hage, solicitorORDERS: The decision under review is, in respect of the 2005 and 2006 years, affirmed; it is not necessary for the Tribunal to deal with the revised assessment for the 2004 year
Part A: Background and Introduction
1 The decision under review related originally to land tax assessments against the Applicant in respect of the 2004, 2005, and 2006 land tax years, and which are referred to collectively as the “relevant years”; individual relevant years are distinguished be prefacing the word “year” with a reference to the actual year. By the date of the hearing, the Respondent had revised the assessment (in the circumstances set out later in this decision) referable to the 2004 year, in such manner that the 2004 year became irrelevant, leaving only the remaining relevant years in issue. This decision relates to two parcels of residential real property in New South Wales; they are those situate at 32 Lake Road, Blackwall (“the Blackwall Property”) and 16 Farrell Road, Woy Woy (“the Woy Woy Property”).
2 The facts fall within a very narrow compass. The Applicant purchased the Blackwall Property in late 2003 and he moved into it in January 2004 after the premises were renovated. Prior to that time the Applicant’s principal place of residence (“PPR”) was the Woy Woy Property in which he had lived since 1990. His written submissions set out that the Woy Woy Property was previously his parents’ home and that after their deaths he acquired it (presumably) by way of inheritance at least as to part and given that he said that he bought out his sister’s share. The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act 1997 and also submissions by the parties.
3 In his written submissions filed in July 2006, the Applicant claimed that he had been trying to sell the Woy Woy Property for some time but that he was unsuccessful; he assigned his lack of success in selling the Woy Woy Property to the of imposition of vendor duty and also amendments to the law as regards land tax thresholds, which so he alleged, resulted in a record plunge in property values in New South Wales. In this context his written submissions read in part as follows:
- As I slowly resumed work on reduced hours in late 2003, I reassessed my plans to reduce the stresses in my life. I decided to purchase a home at 32 Lake Road Blackwall in November 2003 that was in much better condition than the house at 16 Farrell Road.
I spent the next couple of months doing painting and other small jobs at the weekends; and moved into 32 Lake Road in late January 2004.
To minimise outgoing fees, and as the property market was relatively buoyant at the time, I decided to sell the property at 16 Farrell Road myself, without the involvement of a real estate agent.
I erected a 90cm x 120cm "For Sale" sign at the premises that had been made by a professional sign writer.
I also began advertising the property in the local paper - The Express Advocate - on a regular basis, including the dates shown on copies of my credit card statements enclosed in the file. Further ads were placed in this paper and paid by cheque. Also enclosed in the file are copies of one of the actual ads from the Express Advocate, and one of the ads I placed in the Coast to Coast Property Advertiser.
I have also been in regular contact with a list of builders/developers in the local peninsular area, who may be looking for their next development site.
However in 2004 the NSW government introduced legislation which resulted in the NSW Property market plunging to record depths.
The abolishment of the tax free threshold for Land Tax, and the introduction of the Exit tax; meant investment and development in NSW was no longer a viable option.
This situation has made it almost impossible for me to sell 16 Farrell Road without incurring huge financial losses.
In December 2003, I was advised by several valuations that the property would sell for around $630000 due to its land size of 854sgm, large enough for 3 villas to be approved by Gosford Council. (Emphasis added by the Tribunal)
4 In his oral submissions to the Tribunal (and it was not necessary for the Applicant to give oral evidence) the Applicant informed the Tribunal that he is a sales executive employed by TNT, and that he has been in the employ of TNT (including for this purpose another company acquired by it), for some 17 years. He informed the Tribunal that he inherited the Woy Woy Property as to one half, that in 1999 or 2000 he purchased the other half share from his sister, (who inherited that other half), for $130,000, and that he has owned it ever since then. The Applicant again alleged that because of the abolition of the tax free threshold for land tax and the imposition of vendor duty, real property suffered a record plunge in value. In his written submissions he had claimed that to sell the Woy Woy Property for what he could get for it would involve him in severe financial loss. As to how this could be so given the manner in which he acquired it, is not clear. As I understood his oral submissions however, to sell the Woy Woy Property at what it would currently fetch, would deprive him of what would otherwise have been his anticipated profit. These aspects are of little relevance to what is in effect a question of law. It may be noted however that Mr. El-Hage advised the Tribunal that the land tax threshold was abolished for the 2005 year and reinstated (at an amount of $352,000) for the 2006 year. Moreover the vendor duty provisions attracted so much criticism that they were abolished in their entirety after what was, in relation to taxing provisions, a relatively short period.
5 Notices of assessment were originally issued against the Applicant in respect of the relevant years on the basis that the Blackwall Property was his PPR in respect of all three relevant years. Subsequently the 2004 assessment was revised after the Applicant provided information that the Woy Woy Property was his PPR in respect of that tax year (the 2004 year) at the relevant taxing date (31 December 1993). In the result the Applicant in respect of the 2004 year received an exemption for the Woy Woy Property. On this basis, the Blackwall Property would have attracted land tax for the 2004 year but for the fact that its value was below the then applicable threshold. It is for this reason in particular that the 2004 year became irrelevant.
Part B: The legislation
6 Nearly all of the relevant legislation is contained in clauses 8 to 11 both inclusive of the Respondent’s written submissions; those clauses can conveniently be incorporated in this decision as follows:
- 8. The Land Tax Management Act 1956 ("LTMA") exempts certain land from land tax. Land that is used as a `principal place of residence' is exempted from land tax pursuant to section 10(1) (r), which provides:
- "10 Land exempted from tax
(1) Except where otherwise expressly provided in this Act the following lands shall, subject to sections 108, 10D, 10E, 10G and 10P, be exempted from taxation under this Act:
(r) land that is exempt from taxation under the principal place of residence exemption, as provided for by Schedule 1A,”
- "2 Principal 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 this Act, in respect of the year commencing 1 January 2005 or any succeeding year, if the land is:
a parcel of residential land, or
a lot under the Strata Schemes (Freehold Development) Act 1973 or a lot under the Strata Schemes (Leasehold Development) Act 1986.
- 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
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.
(4) The exemption conferred by this clause is referred to as the principal place of residence exemption."
10. Schedule 1A of the LTMA provides a further concession from land tax as follows:
- "7 Concession for sale of former principal place of residence
(1) If the Chief Commissioner is satisfied that, on a taxing date (the relevant taxing date):
(a) a person is the owner of land (the former residence) that was the principal place of residence of the person on the relevant taxing date or was the principal place of residence of the person on the preceding taxing date, and
(b) the person is the owner of other land (the new residence) that is being or is intended to be used and occupied by the person as his or her principal place of residence,
both the former residence and the new residence are taken, for the purpose of the principal place of residence exemption, to be used and occupied by the person as the person's principal place of residence on the relevant taxing date.
(2) This clause applies in respect of land owned by a person only if the Chief Commissioner is satisfied that:
(a) the former residence has not been used or occupied except as the person's principal place of residence, and no income has been derived from the use or occupation of the residence, since the preceding 1 July, except:
(i) income derived from an excluded residential occupancy (within the meaning of clause 4), or
(ii) income derived under a lease or licence entered into by the purchaser under a contract for the sale of the former residence for a period pending completion of the sale, and
(b) the person became the owner of the new residence within the period of 6 months before the relevant taxing date, and
(c) since the person became owner of the new residence the new residence has not been used or occupied except:
(i) as the person's principal place of residence, or
(ii) by a tenant under a lease entered into by the previous owner, and
(d) the person intends to dispose of the former residence within 6 months after the relevant taxing date.
(3) If the principal place of residence exemption applies by operation of this clause to land not actually used and occupied by a person at the relevant taxing date, the exemption is revoked if
(a) the person fails to dispose of the former residence within 6 months after the relevant taxing date, or such further period as may be approved by the Chief Commissioner, or
(b) the person is not actually using and occupying the new residence as his or her principal place of residence by the next taxing date immediately following the relevant taxing date.
(4) The effect of the revocation is that the principal place of residence exemption is taken not to have applied 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.
(5) For the purposes of this clause, a person disposes of a former residence if:
(a) the person ceases to be an owner of the former residence, or
(b) the person enters into an agreement for the sale of the former residence." (Emphasis has been added by the Tribunal in respect of the provisions which are most significant for the purposes of this decision)
- Land tax shall be charged on land as owned at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied."
7 I intend in this decision to refer, as did the Respondent in his submissions, to the Land Tax Management Act 1956 as “LTMA”. Although in the ordinary course, a taxpayer cannot as a matter of law have more than one PPR, (and see clause 8 below as to the relevant definition) clause 7 of schedule 1A (“the schedule”) to LTMA allows for a limited exception to this rule, and in terms of which a taxpayer can in certain circumstances enjoy a PPR exemption for two residences. The clause 7 concession is available in its terms subject to the rules prescribed in that clause7, and in this instance clause 7(2) (b) is of particular relevance. For this purpose the Blackwall Property is the “new residence” and the relevant taxing date in respect of each relevant year is the immediate preceding 31 December, and thus 31 December 2004 for the 2005 year and 31 December 2005 for the 2006 year.
8 Section 3(1) of LTMA defines “principal place of residence” in relation to a person as “the one place of residence that is ... the principal place of residence of the person”.
Part C: Contentions by the parties as to the law.
9 The Applicant cited the decision of this Tribunal in Summerville v Chief Commissioner of State Revenue 2006 NSWADT159 in support of his case. That decision can be disposed of quite simply by noting that it relates in its terms to clause 6 of the schedule, and which deals with the position where a taxpayer acquires property intending that it will become his PPR. Clause 6 of the schedule is not relevant for the purposes of this matter and nor equally is the decision in Summerville.
10 The Applicant referred in particular to clause 7(3) of the schedule which provides that the clause 7 exemption is revoked if a person fails to dispose of the residence described as the former residence, within 6 months of the relevant taxing date or such other period as the Respondent may approve. The Applicant contended that the discretionary power vested in the Respondent under clause 7(3) applied for the whole of the clause, that there was no basis for supposing that it applied only for the purposes of clause 7(3) and that in all of the circumstances the Respondent, or the Tribunal standing in the shoes of the Respondent, should extend the period of 6 months prescribed by clause 7(2)(b) from 6 months to a period of 3 years commencing from January 2004 when he took occupation of the Blackwall Property.
11 The Respondent contended that clause 7(3) of the schedule is not relevant simply because clause 7(3) comes into operation (by way of revocation of an exemption otherwise available) only if there is in fact an exemption. Put in other words, and having regard in particular to its opening words, clause 7(3) cannot operate at all unless there is in existence an available exemption in the first place; to be entitled to the exemption requires compliance with inter alia clause 7(2) (b), Clause 7(2) (b) in its terms provides for an exemption (in this instance of the Woy Woy Property) only if the “new residence” (in this instance the Blackwall Property) was acquired within 6 months of the relevant taxing date. The relevant taxing dates for the 2005 and 2006 years were 31 December 2004 and 31 December 2005 respectively and since the Blackwall Property was acquired in 2003 clause 7(2)(b) could not be complied with and thus the exemption did not ever come into existence for those relevant years. This being so the revocation provisions of clause 7(3) could not have any operation. The Respondent noted that clause 7(2)(b) does not contain any discretionary power of extension and contended (correctly) that the fact that clause 7(3) contains such a power is not relevant.
12 In the view of the Tribunal the Respondent’s contentions are altogether correct. Put succinctly the exemption in clause 7 comes into effect if there was compliance with clause 7(2)(b) and there was not. Clause 7(3) and the discretionary powers contained in it do not come into play at all and there is no substance in the Applicant’s contentions that the discretion in clause 7(3) somehow flowed into or could be taken into account for the purpose of clause 7(2).
13 The Respondent’s contentions as to the fact that there was no relevant available discretion cannot have come as a surprise to the Applicant. In a letter dated 8 February 2006 (Tab 9 of the section 58 documents) the Respondent explained why the exemption was not available for both properties. Much the same explanation was set out in a letter dated 16 Match 2006 (Tab 13 of the section 58 documents). In the latter letter the Respondent said in categorical terms that “There is no provision within the legislation to allow the Chief Commissioner to extend this time frame”. If the Applicant did not comprehend these comparatively simple explanations he did, it would seem, have access to professional advice; in a letter to the Respondent received in December 2005, the Applicant noted that he could be contacted through his accountant Anne-Marie Winchester. It must be remembered that the Applicant is a man of 57 who occupies a senior position. If he did not understand or accept the Respondent’s explanation or if his accountant could not assist him, he could have obtained legal advice as to whether the explanation by the Respondent was correct but there was no suggestion by the Applicant that he did so. During the course of the hearing the Tribunal was informed that the assessments include interest calculated in accordance with both the market rate and the premium rate. The Applicant did not address the interest component of the assessments in any way whatever and in particular did not seek a reduction of the interest component. In these circumstances it is unnecessary for the Tribunal to deal specifically with the interest aspect although it might note that the circumstances are such that if an interest reduction had been sought the Tribunal would not have been disposed to grant such an application.
Part D: The relevant years specifically and conclusion
14 In respect of the 2004 year and in accordance with the revised assessment for that year the Woy Woy Property was treated as exempt and the Blackwall Property was assessed at nil because as set out previously, its value was below the threshold. No tax was charged to the Applicant in respect of the 2004 year and it is thus unnecessary for the Tribunal to consider the 2004 year.
15 In respect of each of the 2005 and the 2006 years, the Applicant could not comply with clause 7(2)(b) of the schedule simply because he purchased the Blackwall Property in 2003 and thus prior (in respect of each of those relevant years) to the commencement of the period of six months prescribed by that clause 7(2)(b). There is, as I have said, no statutory basis upon which the Respondent, or the Tribunal standing in his shoes, can grant discretionary relief.
16 Accordingly the decision under review in respect of the 2005 and 2006 years is affirmed.
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