Goon v Chief Commissioner of State Revenue

[2007] NSWADT 17

CITATION:	Goon v Chief Commissioner of State Revenue [2007] NSWADT 17
DIVISION:	Revenue Division
PARTIES:	APPLICANT Poh Keng Good RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	066085
HEARING DATES:	29/11/2006
SUBMISSIONS CLOSED:	29 November 2006
DATE OF DECISION:	15 January 2007
BEFORE:	Verick A - Judicial Member
CATCHWORDS:	Duties Act - First Home Plus Scheme - residence requirement - First Home Owners grant - reversal of original decision
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Duties Act 1997 First Home Owner Grant Act 2000 Taxation Administration Act 1996
CASES CITED:	Chief Commissioner of State Revenue v Ferrington [2004] NSWADTAP 41 Zakariya v Chief Commissioner of State Revenue [2003] NSWADT 26 Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158 Marcus v Chief Commissioner of State Revenue [2005] NSWADT 98 Snow v Chief Commissioner of State Revenue (No 1) [2005] NSWADT 244
REPRESENTATION:	APPLICANT D Lloyd, agent RESPONDENT H El Hage, Solicitor Advocate
ORDERS:	1. The decision of the Chief Commissioner of State Revenue to recall the Grant and impose a penalty of 20% is affirmed; 2. The decision of the Chief Commissioner of State Revenue to revoke the concession granted to the Applicant in accordance with the First Home Plus Scheme under the Duties Act is affirmed

1 The Applicant seeks a review of a decision made by the Chief Commissioner of State Revenue (“the Respondent”) to recall a grant of $7,000 made to her under the First Home Owner Grant Act 2000 (‘FHOG Act”) together with a penalty of 20% ($1,400) in relation to a unit situated at O’Reilly Street, Parramatta (“the property”). In addition, the Applicant seeks a review of the decision made by the Respondent to revoke the concession granted to the Applicant in accordance with the First Home Plus Scheme (“the FHP Concession”) under the Duties Act 1997 (the “Duties Act”). The Applicant is required to pay a dutiable amount of $2,386.15 and with an interest amount of $938.79.

2 The three issues for determination are as follows:

(a) in relation to the Grant, whether the Applicant satisfied the principal place of residence requirement as set out in eligibility criterion 5 in s 12 of the FHOG Act;

(b) in relation to the penalty, whether in recalling the grant, the Respondent was entitled to impose a penalty of 20% under s 45 of the FHOG Act; and

(c) in relation to the FHP Concession, whether the Applicant satisfied the residence requirement set out in s 76 of the Duties Act.

3 The Applicant entered into a contract to purchase the property on 4 September 2002 and settlement of the purchase occurred on 25 October 2002. On the date the Applicant entered into the contract to purchase the property, the Applicant also applied for a first home owner grant under the provisions of the FHOG Act to assist her in part to purchase the property and received on 4 October 2002 a grant of $7,000.

4 On 2 November 2002 the Applicant entered into an exclusive management agency agreement with Elders Parramatta giving the agent authority to let the property for a term of “26 – 52” weeks. The agent, under the authority of the agreement, gave notice of termination to the tenants of the property that occupied the property prior to the purchase of the property by the Applicant to vacate the property by 13 January 2003. However, the tenants gave vacant possession of the property just before 24 December 2002.

5 The Applicant claims that she occupied the property from 24 December 2002 until 6 February 2003 and that after moving into the property she was assigned to ”late shift” work and “was not getting home until 11 p.m. – 12 a.m.” The Applicant further claims that she was using public transport to get home from work and “experienced several uncomfortable incidents including being abused, yelled at, whistled at and even followed on three separate occasions” and that she “became extremely concerned for her physical safety alone at night and became increasingly nervous and worried” and “made a decision that she could no longer reside in the property”. The Applicant moved back to live with her parents at their residence in Quakers Hill where she continues to reside.

6 The property has been let out to tenants from 6 February 2003 to date and has remained an investment property belonging to the Applicant.

7 The Respondent received information from a third party that the Applicant “did not live in the property and that she merely pretended to be living there”. The Respondent undertook an investigation and, on 1 December 2005, determined that the Applicant did not use the property as her principal place of residence as required within 12 months of acquiring the property and in a notice in writing demanded repayment of the full $7,000 amount of the grant and imposed a penalty of 20%. In another written notice, also dated 1 December 2005, the Respondent also reversed his decision to offer the First Home Plus concession under section 9(1) of the Taxation Administration Act 1997 (“the TA Act”). As a result, the Applicant was required to pay the Respondent the full dutiable amount of $2386.15 and $938.79 interest.

8 The Applicant, through her solicitors on 14 December 2005, objected to both demands on the grounds that she satisfied the eligibility criteria, in particular the residence requirement, as she “was resident at the premises for the period 24 December 2002 to 6 February 2003”. On 20 June 2006 the Respondent disallowed both objections. The Applicant now seeks a review of the objection decisions.

Relevant Legislation

9 The FHOG Act was introduced to encourage and assist home ownership and contains a complete scheme dealing with government financial grants to enable residents of New South Wales to purchase or build their first homes. The grants are also paid, in part, to offset the effects of the Goods and Services Tax on the acquisition of a first home.

10 Part 2 of Division 2 of the FHOG Act requires 5 Eligibility Criteria that an Applicant needs to satisfy to obtain a grant. This matter relates only to Criterion 5, the “Residence Requirement”, which is set out in s 12 of the FHOG Act. Section 12 as it then was (the terms have been amended to ensure that the criterion is not easily circumvented by Applicants) provided as follows:

“(1) An application for a first home owner grant must occupy the home to which the application relates as the Applicant’s principal place of residence within 12 months after completion of the eligible transaction or a longer period approved by the Commissioner.

(2) If an application is made by joint Applicants and at least one (but not all) of the Applicants complies with the residence requirement, the non-complying Applicant or Applicants are exempted from compliance with the residence requirement.”

11 The term “residence requirement” at the relevant time was defined in s 3 of the FHOG Act in the following terms:

“ residence requirement means the requirement that an Applicant for the first home grant must occupy the home to which the application relates as the Applicant’s principal place of residence within 12 months after the completion of the eligible transaction or a longer period approved by the Chief Commissioner.”

12 Section 13 of the FHOG Act sets out what an “eligible transaction” is for purposes of s 12. There is no dispute the purchase of the property was an “eligible transaction” for purposes of s 12 of the FHOG Act. The Respondent in recalling the grant has taken the view that the Applicant has only failed to satisfy the “residence test” set out in s 12 of the FHOG Act.

13 The Respondent has exercised his power under s 45 of the FHOG Act, which allows the Respondent to recover a grant where the Applicant fails to satisfy one or more of the eligibility requirements set in the law and also impose a penalty.

14 At the relevant time when the Applicant purchased the property the Duties Act also provided for a scheme “to help people who are acquiring their first home”. The acquisition, and any mortgage given to assist the financing of the acquisition of the first home, was subject to a concession or exemption from duty under s 74 of the Duties Act. To be entitled to the concession, an Applicant had to comply with s 76 of the Duties Act, which, at the relevant time, provided as follows:

“ 76 Residence requirement

(1) The home must be occupied or intended to be occupied by the person or persons who are acquiring it on or before settlement, or within 12 months after settlement, as the principal place of residence.

(2) This section does not apply to a person who acquires an interest in the property concerned solely for the purpose of assisting the other purchaser or purchasers in financing the acquisition (as referred to in section 73 (5)).”

15 In Chief Commissioner of State Revenue v Ferrington [2004] NSWADTAP 41, the Appeal Panel of this Tribunal identified six common principles which must be considered in order to establish whether an Applicant has occupied premises as his or her principal place of residence under the FHOG Act as follows:

‘42 First, the words “principal place of residence” should be given their ordinary meaning in the context in which they appear: … Secondly, consideration of whether a person has been residing or occupying premises as their principal place of residence is to be assessed objectively, in the light of the circumstances relating to the actual occupation of the dwelling: … Thirdly, the intention of the person concerned, gauged objectively, is relevant but not determinative of the issue: … Fourthly, 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 is occupation for some other purpose: … Fifthly, the short length of a person’s residence, while relevant, is not determinative of the issue: … This is so since a recipient’s occupation of a home, while short, may have the requisite degree of permanence to it. But that will not happen if, when considered objectively, the occupation was transient, temporary, contingent or of a passing nature, or for some other purpose. One may occupy premises for a short time on a transient, temporary, or contingent basis, but one can also occupy for a short time as one’s principal place of residence. It is the nature of that occupation which provides the element of permanence. The fact that a period of actual occupation is short, as is in the present case, will in practice make it harder for a recipient to show that the occupation was as his or her principal place of residence, but it will not make it impossible, … Sixthly, the reasons for a person’s departure from the home must be both reasonable and adequately explained when considered objectively in the light of their circumstances: …’ (Authorities cited to support each principle have been omitted)

16 The fifth principle, which is relevant in this matter, although identified as a common principle, would only apply to a limited number of cases. The Appeal Panel relied on the unreported decision of the Administrative Appeals Tribunal in Re Alison Lesley Gaines and Secretary of Health, Housing and Community Services. The facts in Gaines were very unusual and special which enabled the Administrative Appeals Tribunal to reach its decision to regard her cottage, which she occupied for only one week as her principal place of residence and because “the reason for vacating the premises early and subsequent decision to rent them out for six months and later to sell the property were all matters which were adequately explained by uncontested evidence of the changes in the Applicant’s attitude and circumstances”.

17 It is essential to note that the fourth and fifth principles, when read together, require the occupation to have a degree of permanence. But what the fifth principle attempts to clarify is that, in special circumstances, a short length of a person’s residence may have the requisite degree of permanence. Generally speaking, it would be necessary for an Applicant to produce strong objective evidence to support any claim made that a short stay at a particular premises was as his or her principal place of residence. And, as the Appeal Panel noted, it is “harder” for an Applicant to establish that a short “occupation was his or her principal place of residence”.

18 In addition, as observed by the Tribunal in Zakariya v Chief Commissioner of State Revenue [2003] NSWADT 26, the subjective intention of an Applicant at the date of purchase to occupy the property will not bring the Applicant within the eligibility criteria.

19 Further, in “determining an application for a review of a reviewable decision, the Tribunal is” under s 63 of the Administrative Decisions Tribunal Act 1997 (“ADT Act”), required “to decide what the correct and preferable decision is having regard to the material then before it” including any factual material and any applicable written or unwritten law. (Emphasis added) Accordingly, subsequent conduct of an Applicant is relevant in determining objectively, for example, the intention of the Applicant to occupy a property as his or her principal place of residence or the reasons for the acquisition of a property. In Ferrington the Appeal Panel correctly rejected a submission by the Chief Commissioner’s representative that “one must examine the nature of the occupation during the applicable period only”. Clearly, s 63 directs that the Tribunal in making its decision should have regard to the factual material before it at the time of the hearing of an application. The Tribunal is entitled to consider the evidence of the circumstances leading up to the purchase of the property and the Applicant’s conduct during and subsequent to the period of occupation.

Findings and Decision

20 In addition to the documents produced by the Respondent pursuant to section 58 of the ADT Act, documents were also produced from the solicitors who acted for the Applicant and the mortgagor/lender who provided funds to the Applicant in relation to the purchase of the property. The Applicant and her brother gave evidence at the hearing. A bundle of documents were also admitted as an exhibit used by the Respondent in cross-examination of the Applicant. The relevant documents in the bundle included a copy of the original contract for the sale of land in relation to the purchase of the property by the Applicant, copies of title search results, a copy of the residential tenancy agreement in respect of the tenancy of the property that existed at the time of the purchase, a copy of the planning certificate in respect of the property issued by the Parramatta City Council, a copy of the Applicant’s “Access Advantage Account Statement” from the ANZ Bank for the period 9 December 2002 to 7 March 2003, copies of the Applicant’s “ANZ Credit Card Statements” for the period 12 December 2002 to 6 February 2003 and a copy of the “Tenant Ledger Report” in relation to the property maintained by her estate agents.

21 The first matter for consideration is the issue under the FHOG Act. In order to satisfy Criterion 5 as it stood at the relevant time, an Applicant had to establish the following requirements:

(1) That the Applicant occupied the property within 12 months of the purchase of the property;

(2) That the property was occupied as the Applicant’s principal place of residence and

(3) That purchase of the property was an “eligible transaction”.

22 There is no dispute that the property was an “eligible transaction.

23 The Applicant in her written statement submits as follows:

“4. Having lived in the property within the first twelve months after settlement I had complied with the First Owners Grant as at the time that I applied for and received the grant. The grant application that I signed on 4/9/2002 contained no time stipulation what so ever in terms of requiring a continuous period of occupation of 3 months. There was no time stipulation at all at the time that I applied for and received the grant, neither express nor implied. Having lived in the property within the first twelve months after settlement I have therefore complied fully with the terms and conditions that I signed and agreed to under the FHPG application. Having complied with the terms and conditions of the grant I made a decision to move home to my parents due to serious concerns about my physical safety and subsequently moved out of the property on 6th February 2003.”

24 The Applicant in her written statement and in viva voce submissions has argued that there is sufficient evidence to support her claim that she resided in the property. She is only able to produce an electricity bill because she neither had a land telephone line or had gas connected to the property. In relation to the very low usage of electricity, the Applicant submits that it reflects her limited usage due to her returning to the property between 11pm and 12 am and the use of “energy efficient light globes” in the property.

25 The Respondent also provided the Tribunal with written submissions and made oral submissions at the hearing. The Respondent’s case is essentially that the Applicant has failed to discharge the onus of proving that she occupied the property between 24 December 2002 and 6 February 2003 as her principal place of residence. A great deal of reliance is placed by the Respondent on lack of objective evidence that she actually resided in the property as claimed. The Respondent submits that “the tax invoice from AGL Electricity Ltd reveals a very low electricity usage for the period 25 December 2002 to 6 February 2003, which is not commensurate with an occupation of the property for that period, including the use of ordinary household electrical items” and that the water bill issued by the Sydney Water Corporation on 1 May 2003 “does not provide any information relating to water usage during the period 24 December 2002 to 6 February 2003”.

26 The Respondent further points to other factors, which would suggest that the purchase of the property was not for occupation by the Applicant rather as an investment. The factors included the management agency agreement entered into by the Applicant on 2 November 2002, within a week of settlement authorising the agent to let the property and conferring on the agent the necessary control of the property, correspondence from the agent dated 16 January 2003 to the previous tenant that they were liable to costs of repairs to be carried out at the property and the purchase by the agent of Landlord’s Insurance on behalf of the Applicant on 10 December 2002 for a full year. Against these factors, the Respondent submits that even if the Applicant did reside at the property between 24 December 2002 and 6 February 2003, the Applicant had no intention to occupy the property as her principal place of residence as “the occupation was of a transient, temporary nature and did not constitute an occupation of the property as a principal place of residence”.

27 In addition, some reliance was placed by the Respondent on the evidence that emerged at the hearing. The Applicant claimed that she moved into the property on 24 December 2002 and was assisted by her brother. Her brother confirmed at the hearing that he helped her to move into property using a four wheel drive and that the exercise commenced in the morning and ended late in the afternoon. In cross-examination of the Applicant, the Respondent’s representative drew attention to two credit card transactions that the Applicant undertook on 24 December 2002 in the Sydney central business district. The Respondent submits that as the Applicant failed to give a satisfactory explanation as to how she could have carried out those two transactions if she was busy moving into the property in Parramatta at the same time, the Tribunal should be cautious about accepting her evidence as a whole.

28 I accept the submissions made on behalf of the Respondent.

29 The onus was on the Applicant, under s 28(3) of the FHOG Act. The Applicant was required to establish that she occupied the property as her principal place of residence. In the opinion of the Tribunal, the Applicant has failed to discharge it. Her brother’s evidence was merely that he assisted her to move and that on one or two occasions he met her there to go out to have a meal. There was some doubt that she could have moved on the 24 December 2002 as she claimed because, as pointed out by the Respondent’s representative to her in cross examination, she was shopping in the Sydney CBD on that date. No explanation was offered by the Applicant. Against this unexplained factual background, it is difficult to accept the Applicant’s brother’s evidence that it took them till late in the afternoon to move into the property. There is, therefore, some doubt as to whether the Applicant occupied the property for a period of time as claimed. The Applicant did not produce any independent evidence to support her claim.

30 The property has been rented out since 6 February 2003 and to date, remains an investment property of the Applicant. The Applicant has continued to stay with her parents. These are matters that the Tribunal can take into account in determining an application for a review of a reviewable decision under s 63 of the ADT Act.

31 These additional facts do not help the Applicant’s case. On the contrary, these facts would indicate that there was no intention on the part of the Applicant at the time of purchase of the property or subsequently for a number of years to establish an independent place as her principal place of residence. In the absence of any objective evidence, it is difficult to accept that any occupation of the property had the required quality. If there was any occupation, it was essentially temporary, perhaps an attempt to satisfy the residence requirement. Merely occupying the property for some days on a temporary basis does not satisfy the residence requirement. The occupation must have a degree of permanence, which the Applicant has failed to establish in this matter.

32 In the present matter, the Applicant did not seek any help from the police to ensure greater safety around her property nor was there any further attempt to reside or check if it was safe to move back. The excuse to move out in these circumstances would seem to be flimsy and not supported by any independent evidence. In addition, there is absent any evidence of alternative options taken by the Applicant to find another property to establish her principal place of residence. The only conclusion that can be reached in these circumstances is that the Applicant had no real plans to leave her parents’ residence and the property was purchased as an investment property. Further, the Applicant gave the impression in her evidence and other statements that she was of the view that, so long as she occupied the property for a few days, she would satisfy the residence requirement. That view of the law was clearly erroneous. The occupation had to be for purposes of establishing her principal place of residence. A temporary occupation for a short period did not satisfy this requirement. This was not a case like Gaines or Ferrington.

33 The grant is made to help Applicants to establish their first home and not to assist them to buy their first investment property. When all the facts are taken into account, it is difficult not to conclude that the Applicant was merely buying real estate as an investment.

34 But to use the analysis in Ferrington, one must consider all the surrounding circumstances. Unfortunately, in this matter, the evidence in relation to surrounding matters provides very little help to the Applicant to establish that her occupation of the property, for a short period, was essentially as her principal place of residence.

35 The next matter for consideration is the penalty that has been imposed by the Respondent under section 45 of the FHOG Act. Section 45 of the FHOG Act provided at the relevant time as follows:

“45 Power to require repayment and impose penalty

(1) The Chief Commissioner may, by written notice, require an Applicant (or former Applicant) for a first home owner grant to repay an amount paid on the application if:

(a) the amount was paid in error, or

(b) the Chief Commissioner reverses the decision under which the amount was paid for any other reason.

(2) If, as a result of an Applicant’s dishonesty, an amount is paid by way of a first home owner grant, the Chief Commissioner may, by notice in which repayment is required or a separate notice, impose a penalty not exceeding the amount the Applicant is required to repay.

(3) If an Applicant (or former Applicant) for a first home owner grant fails to make a repayment required under this section or the conditions of the grant, the Chief Commissioner may, by written notice, impose a penalty not exceeding the amount the Applicant is required to repay.

(4) If an amount is paid in error on an application for a first home owner grant to a third party, the Chief Commissioner may, by written notice, require the third party to repay the amount to the Chief Commissioner.”

36 In the present matter pursuant to s 45(3) of the FHOG Act, the Respondent imposed a penalty of 20% ($1,400) as the Applicant failed to repay the grant in accordance with the conditions on which it was issued.

37 The Tribunal has considered in a number of cases what factors are to be taken into account when exercising the discretion given to the Respondent in s 45. The factors relevant to the exercise of this discretion were comprehensively set out by Judicial Member Molony in Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158 at paragraphs [51] to [54]. They have been very usefully summarised in a succinct manner by Judicial Member Higgins in Marcus v Chief Commissioner of State Revenue [2005] NSWADT 98 at paragraph [17] as follows:

“a) the deterrent effect of the penalty;

b) the nature and extent of the contravention;

c) any loss or damage suffered, or gain made, as a result of the contravention;

d) the circumstances in which the contravention took place, including deliberateness of the conduct and the period over which it extended;

e) whether professional advice had been obtained in relation to the contravention, prior to the breach;

f) whether the person has previously been found by a court to have engaged in any related or similar conduct;

g) the degree of co-operation with the authorities; and

h) in the case of a natural person, the attitude of the offender.”

38 In addition, I think it is essential to note that the repayment of the grant is not subject to the payment of any interest on the amount of the grant. In this context the President of the Tribunal sought to highlight the difference between the “FHOG Act’s regime for dealing with defaults” and the regime dealing with “ordinary tax defaults” under the Taxation Administration Act (TAA) in Snow v Chief Commissioner of State Revenue (No 1) [2005] NSWADT 244. The President made the following important observations:

“… Under the TAA, a taxpayer in default may be called on to pay ‘interest’ on the amount due and ‘penalty tax’. ‘Interest’ is assessed at the ‘market’ rate and often has added to it a ‘premium component’. These two items at present add up to about 13%. On top of that the usual rate of ‘penalty tax’ is set at 25% and this may be moved up or down having regard to the conduct of the taxpayer in dealing with the default and the Commissioner over the matter. The FHOG Act approach does not involve differentiation of this kind.

24. As at the date of hearing, the grant had not been repaid. It was due to be repaid once the twelve months’ period had passed. In my opinion, at least, the penalty tax for purposes of this legislation should be administered as though it has market and premium components so as to reflect the usual approach found in the TAA. The cases would, the Tribunal thinks, be rare when the market rate could reasonably be waived (this rate reflects, as the Tribunal sees it, the opportunity cost that the revenue suffers by not having had the benefit of the money). One would expect to see more flexibility in dealing with the premium component which, as the Tribunal sees it, is meant to function as a general deterrent to misconduct. Any penalty beyond those levels should address conduct which involves some type of specific misconduct by the taxpayer (for example, lack of full co-operation and candour on the part of the taxpayer).”

39 In the present matter, default of the conditions of the grant came to the attention of the Respondent through a third party. The Respondent had to carry out an investigation in this matter. The fact that no voluntary disclosure is made by an Applicant of a default would also add to the factors supporting the imposition of a penalty.

40 Clearly, in this matter, the Applicant had no real intention of purchasing the property to establish her own principal place of residence. The Applicant was under the impression that the residence requirement would be satisfied by the occupation of the property in a “transient, temporary, contingent or passing nature”. At all times she had intended to acquire an investment property. Her subsequent conduct does not support her claim that she had intended to occupy the property as her principal place of residence. She has enjoyed the investment income from the property for almost four years. In addition, she would be entitled to a capital gain on the original investment. The grant is yet to be repaid.

41 When all the circumstances of this matter and the factors referred to above are taken into account, the imposition of a penalty would, in the opinion of the Tribunal, be appropriate. No reasons were advanced by the Applicant to justify any interference with the Respondent’s judgment setting the penalty at 20%.

42 The matter which remains is the objection decision in relation to the revocation by the Respondent of the FHP concession. The concession is available to an Applicant who occupies or intends to occupy the property purchased as his or her “principal place residence” within 12 months of settlement. In the present matter, the Applicant has failed to discharge the onus placed by the law on her to demonstrate that she purchased the property intending to occupy the property as her principal place of residence. In those circumstances, the Respondent was clearly entitled to revoke the FHP Concession.

43 Accordingly, the decisions under review are affirmed.