Erdelyi and Commissioner of Taxation
[2007] AATA 1388
•31 May 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1388
ADMINISTRATIVE APPEALS TRIBUNAL )
) Nos QT2006/443
TAXATION APPEALS DIVISION ) QT2006/444
Re: CVETA ERDELYI and FRANK ERDELYI Applicants
And COMMISSIONER of TAXATION
Respondent
DECISION
Tribunal Mr R G Kenny, Member Date31 May 2007
PlaceBrisbane
Decision The Tribunal affirms the decision under review.
………[Sgd]……..
RG Kenny
Member
CATCHWORDS
TAXATION – assessable income – default assessments – burden of proof on taxpayer – sale of property not used as main residence of applicants – assessment of net capital gain – main residence exemption not applicable – net capital gain not disregarded – administrative penalty of 25% imposed – decision affirmed
Income Tax Assessment Act 1997 (Cth) s 102-5, 118-150
Taxation Administration Act 1953 (Cth) s 14ZZK, 284-75, 284-90
Taxation Determination TD 51
Case 26/93 93 ATC 320
REASONS FOR DECISION
31 May 2007 Mr RG Kenny, Member Application
1. On 15 July 2002, Cveta Erdelyi and Frank Erdelyi (the applicants), with their daughter Rozalija Erdelyi, purchased a vacant block of land at 14 Grenada Court, Varsity Lakes, in Queensland. After building a house on the land, it was sold. The settlement took place on 30 June 2004. On 17 February 2006, the Commissioner of Taxation (the respondent) issued default taxation notices of assessment for the year ending 30 June 2004 to Mr and Mrs Erdelyi. This included a net capital gain from the sale of the property for each of them and an administrative penalty was also imposed in the amount of 75% of the shortfall amount of tax liability. Objections by Mr and Mrs Erdelyi were upheld, in part, by the respondent who reduced the amount of net capital gain attributed to them. This resulted in shortfall amounts of $6,696.15 and $6,418.60 for Mr and Mrs Erdelyi, respectively. Also, the administrative penalties were reduced to 25% of those shortfall amounts. Mr and Mrs Erdelyi now seek review of those decisions by the Tribunal.
Issues and Legislation
2. The net capital gain assessed by the respondent in each of these matters was in the amount of $22,500 and this was assessed as income for each applicant under s 102-5 of the Income Tax Assessment Act 1997 (the ITAA Act). It resulted in the shortfall amounts noted above. These amounts were not disputed by Mr or Mrs Erdelyi and, on the basis of the material provided by the respondent, I am satisfied that the amounts were correctly calculated. I am also satisfied, on that material, that the administrative penalties, which were imposed under s 284-75(3) and s 284-90(1) of Schedule 1 of the Taxation Administration Act 1953 (the TAA) and which were reduced from the initial 75% to 25%, were appropriately calculated.
3. Although accepting the correctness of the calculations in their assessments, Mr and Mrs Erdelyi contend that they were exempt from paying capital gains tax because the house on the property at 14 Grenada Court, Varsity Lakes constituted their main residence for more than three months prior to the settlement date.
4. The main residence exemption arises under subdivision 118-B of the ITAA. Of relevance in this matter is s 118-150 which applies to those who build a dwelling on land in which they have an ownership interest. Subsection 118–150(3) provides that the exemption is applicable only if:
(a) the dwelling becomes the taxpayer’s main residence as soon as practicable after the work is finished; and
(b) it continues to be the taxpayer’s main residence for at least 3 months.
5. The issue for the Tribunal is whether Mr and Mrs Erdelyi’s circumstances meet those requirements. In the making of that determination, the burden of proving that the respondent’s decision should have been made differently rests with Mr and Mrs Erdelyi: see s 14ZZK(b)(iii) of the TAA.
Evidence
Mr Erdelyi and Ms Erdelyi
6. Mr Erdelyi and Ms Erdelyi gave the following evidence. They and Mrs Erdelyi purchased the property at 14 Grenada Court in July 2002 with the intention of building a house thereon for the three of them to reside in. At that time, they were living in the house of Ms Erdelyi at Pearwood Lane, approximately 10 minutes drive from 14 Grenada Court. It was intended that Ms Erdelyi’s house would be sold to assist her with her share of the purchase and building costs. Construction commenced in December 2003. However, it became clear to them that there were difficulties in disposing of Ms Erdelyi’s house and, therefore, in May 2004, the Grenada Court house was listed for sale. It was eventually sold and the settlement date was 30 June 2004.
7. The construction of the house had reached the lock-up stage by March 2004. Prior to this, Mr Erdelyi would attend the premises and assist in the organization of the construction. On one occasion, on arriving at the premises, he confronted a man who was in the process of removing tools from the garage. Because of this and because the vandalizing of other houses in the area, Mr Erdelyi decided to spend nights in the house. For about a month, he took up temporary residence each evening and returned to the Pearwood Lane house during the day. In March 2004, he and his wife moved into the Grenada Court house with the intention that they would live there permanently. It, therefore, was their main residence until the settlement date in June 2004.
8. Mr and Mrs Erdelyi took with them only those items which they considered necessary to reside in the house prior to the sale of the Pearwood Lane house and eventual relocation of all of the family. The move was undertaken by Mr Erdelyi in his utility vehicle with the assistance of his brother-in-law who owned a van. Most of their furniture remained at the Pearwood Lane House. This was done to enhance the prospects of the sale of that house. In any event, items such as the refrigerator, washing machine, drier and microwave oven belonged to Ms Erdelyi. The only items that were moved to Grenada Court were the main bedroom furniture, a television set, some casual chairs and table, some bar stools, a small amount of crockery and utensils, their clothing and personal items. Mr Erdelyi described the house as being finished inside at that time but with considerable work to be done outside in relation to landscaping including the building of a swimming pool. He spent most of his day in organizing and supervising those outside activities.
9. Mr and Mrs Erdelyi used the toilet and showering facilities of the en suite to their bedroom. They did not use the kitchen cooking facilities. Ms Erdelyi said that this was because the top plates of the stove had not been installed. Mr Erdelyi said that it had been completed but that they chose to use a portable gas cooking stove. He also said that they minimized the extent of meal preparations by purchasing food items from the mobile vendor who called on a daily basis to service the needs of the many tradespeople working in the area. In part, this was necessitated by the absence of any refrigeration facilities. There was no telephone installed at the premises because each of them utilized a mobile service. Mr Erdelyi said that he rarely watched television because he was too busy supervising the outside activities. In the absence of any clothes washing facilities, Mr and Mrs Erdelyi would either utilize those at Pearwood Lane or visit a Laundromat.
10. Ms Erdelyi said that she was unsure about whether there was a refrigerator in the premises. She said that, at times, she had a meal there and, in the absence of any kitchen setting, they used the folding chairs and table or sat on the bar stools.
11. Ms Erdelyi has since sold the Pearwood Lane house. Mr and Mrs Erdelyi now live with her in the premises that she owns at 9 Campelles Avenue Varsity Lakes. When asked about the date of purchase of that property, she said that it was after the sale of the Grenada Court house. However, she was shown a copy of a document from RP Data which recorded the sale details. It showed the purchase date as being 9 February 2004. She conceded that this was the case but said that the settlement date had been approximately six months later. She was also shown a copy of the record which indicated that the settlement had occurred on 13 April 2004. Again, she conceded that this was correct. Her evidence was that she needed to sell the Pearwood Lane house in order to enable her to make her financial contribution to the Grenada Court house but had been able to make the additional house purchase by ensuring that the contract was “subject to finance”.
12. In cross-examination, it was put to Mr Erdelyi that the electricity consumption in the premises was considerably lower than that which is recorded by the Australian Bureau of Statistics as the average use by families. He conceded that this may be so but said that he was not aware that there was any obligation to use any particular amount of electricity.
13. Mr Erdelyi said that he could not recall whether or not he had made amendments to his residential address in any official record or otherwise. This included his driver’s licence, his vehicle registration details or his address with Centrelink, on the electoral roll or with insurance or banking institutions.
14. Mr Erdelyi agreed that the real estate agent who had been engaged to sell the Grenada Court property had been to the premises on more than one occasion.
Other evidence
15. In evidence were Energex electricity accounts for 14 Grenada Court. For the billing period 2 February 2004 to 30 April 2004 the charge was $24.41. For the period from 30 April 2004 until 29 June 2004, it was $20.13. Also in evidence was a document prepared by the Australian Bureau of Statistics which provided information on various forms of household expenditure and, in the 2003/2004 year, household spending on domestic fuel and power averaged $24 a week with most of this being expenditure for electricity at $17 per week. Individual expense items included the following:
item $ per quarter three 60 watt bulbs 5 hours/day 12.00 colour TV 51 cm 8hrs/day 10.00 one 100 watt light 3 hrs/night 4.00 three 3 minute showers a day 40.00
16. Also in evidence was a final inspection certificate issued under the Standard Building Regulation 1993 (Qld) which certified that, for the construction of the house at Grenada Court, the inspection dates for the slab and frame were 22 December 2003 and 19 February 2004, respectively, and that the final inspection date was 29 June 2004.
17. A statutory declaration was completed by Terence Jones who was the real estate agent responsible for finalising the sale of 14 Grenada Court. He wrote:
“During the time of inspections of the property I did note that it was unusual that home at lock-up stage was always kept very clean internal and external and master bedroom was furnished with a double bed and it appeared that somebody was living there as the bed was made up to sleep in.”
Consideration
18. There is no definition of “main residence” in the relevant legislation. In evidence was the Commissioner of Taxation’s CGT Determination Number 51, dated 26 March 1992. It lists factors which may be taken into account in assessing whether or not a dwelling is a taxpayer’s sole or principal residence. It has been relied upon by the Tribunal: see Case 26/93 93 ATC 320 at 322. I am satisfied that it provides useful guidance in assessing whether the Grenada Court premises constitutes the “main residence” of Mr and Mrs Erdelyi. It reads:
1. Whether a dwelling is a taxpayer’s sole or principal residence is an issue which depends on the facts in each case.
2. Some relevant factors may include, but are not limited to:
(i) the length of time the taxpayer has lived in the dwelling
(ii) the place of residence of the taxpayer’s family
(iii) whether the taxpayer has moved his or her personal belongings into the dwelling
(iv) the address to which the taxpayer has his or her mail delivered
(v) the taxpayer’s address on the Electoral Roll
(vi) the connection of services such as telephone, gas and electricity
(vii) the taxpayer’s intention in occupying the dwelling
The relevance and weight to be given to each of these or other factors will depend upon the circumstances of each particular case.
19. Mr Erdelyi’s evidence was that he and his wife intended to make Grenada Court their permanent residence and moved only the bare necessities into the premises pending the sale by their daughter of her property at Pearwood Lane. Certainly, the evidence supports a minimal level of furniture and other household items in the premises. The declaration by Mr Jones only supports the presence of bedroom furniture and an absence of furniture from the remainder of the house. That small amount of furniture, alone, does not mean that the property was not the main residence of Mr and Mrs Erdelyi. However, there are other factors which point to that conclusion. This includes inconsistencies in the evidence given by Mr Erdelyi and by Ms Erdelyi. In relation to the kitchen stove, an important component of any household over a period of 3 months, Mr Erdelyi said that it was fully installed but that he chose to use a portable gas cooker. Ms Erdelyi said that the top of the stove had not been fitted and that this was the reason for using the portable stove.
20. Ms Erdelyi gave inconsistent accounts of the timing of the purchase of the family’s present residence at 9 Campelles Avenue. She gave her evidence in an unconvincing manner in relation to the timing of the purchase, and the need for her to sell the Pearwood Lane house in order to enable her to contribute to the costs of construction of the house at Grenada Court. Her evidence was that she had been able to make the additional house purchase by making the contract “subject to finance”. Nevertheless, the purchase was still completed before the sale of either of the other properties and, clearly, was not dependent on the finances relating to those sales.
21. I accept Mr Erdelyi’s contention that there is no obligation to use any particular level of electricity in occupying a household. However, the level of electricity consumption, as recorded in the electricity accounts for the time in which he claimed to be living there with his wife, is dramatically below that which is described in the average consumption figures given by the Australian Bureau of Statistics documentation. I also consider it significant that, despite his stated intention to make the home his permanent residence, he was unable to recall whether he took any steps towards notifying the relevant authorities or institutions of his change of address.
22. As noted above, the burden of proving that the respondent’s decision should have been made differently rests with the taxpayers. In this case, I cannot be satisfied Mr or Mrs Erdelyi have discharged the burden so as to show that 14 Grenada Court, Varsity Lakes, was their main residence for a period of at least three months in the 2003/2004 taxation year.
Decision
23. The decision under review is affirmed.
I certify that the 23 preceding paragraphs are a true copy of the reasons for the decision herein of Mr RG Kenny, Member
Signed: Fiona Kamst
Legal Research OfficerDate of Hearing 17 May 2007
Date of Decision 31 May 2007
The Applicants were unrepresented
For the Respondent Ms M Hall, Advocate
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