Kleyn v Chief Commissioner of State Revenue

[2009] NSWADT 219

CITATION:	Kleyn v Chief Commissioner of State Revenue [2009] NSWADT 219
DIVISION:	Revenue Division
PARTIES:	APPLICANT James Paul Kleyn RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	086137
HEARING DATES:	11 May 2009
SUBMISSIONS CLOSED:	11 May 2009
DATE OF DECISION:	18 August 2009
BEFORE:	Hirschhorn M - Judicial Member
LEGISLATION CITED:	Land Tax Management Act 1956 Family Law Act 1975 State Revenue Legislation Amendment Act 2008 Taxation Administration Act 1996
CASES CITED:	Ryan and Another v Commissioner of Land Tax [1982] 1 NSWLR 305 Chief Commissioner of State Revenue v McGrath & Anor [2008] NSWSC 387 Chief Commissioner of State Revenue v Geoffrey Harry Coleman & Another [2007] NSWSC 625Commissioner of State Revenue v Sacco [2008] NSWADTAP 61 Ford v Chief Commissioner of State Revenue [2009] NSWADT 192 Kinging and Anor v Chief Commissioner of State Revenue [2005] NSWADT 239 Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor [2004] NSWADTAP 19 Giunta v Chief Commissioner of State Revenue [2005] NSWADTAP 19 McDonald’s Australia Ltd v Chief Commissioner of State Revenue [2005] NSWSC 6
REPRESENTATION:	APPLICANT In person RESPONDENT Ms Kaur-Bains of Counsel
ORDERS:	The objection decision of the Chief Commissioner in respect of the 2004-2008 land tax years inclusive is affirmed.

Introduction

1 This was an application for review of a decision of the Chief Commissioner (“the Respondent) on 19 December 2008 that disallowed an objection by the Applicant (dated 7 September 2008) in respect of land tax assessments issued to the Applicant for the 2004-2008 years inclusive for a property at 21 Seabreeze Pde, Green Point.

2 The Applicant appeared in person. He prepared written submissions and made oral submissions at the hearing. He did not file evidence but instead relied on his submissions and certain documents contained in the documents filed by the Respondent pursuant to Section 58 of the Administrative Decisions Tribunal Act 1997 (“the Section 58 documents”).

3 The Respondent filed the Section 58 documents, written submissions and made oral submissions at the hearing.

Facts

4 The facts were not in contest between the parties.

5 The Applicant and his wife are the registered owners of a property at 19 Seabreeze Pde (Lot 67 in DP 31825) as tenants in common in equal shares. A residential house is built on that land and it is used and occupied by the Applicant and his wife.

6 The land at 19 Seabreeze Pde is narrow sloping block with a very steep driveway. The Applicant said that the block was approximately 50 feet wide and that the driveway contained an 80 degree curve in order to achieve an acceptable inclination in the distance available.

7 On or around 26 October 2001, the Applicant purchased an adjoining property, 21 Seabreeze Pde (Lot 68 in DP 31825) when it came onto the market fortuitously. The Applicant explained that he used some money he withdrew from a trust fund to fund the purchase of the property.

8 At the time that 21 Seabreeze Pde was purchased, it was registered in the Applicant’s name only. This was still the case at the time of the hearing before the Tribunal.

9 The Applicant explained at the hearing that his solicitor prepared the papers for the purchase of 21 Seabreeze Pde in the Applicant’s name only and it was something that the Applicant was not even consciously aware of at the time. He was simply intent on acquiring the adjacent land whilst it was on the market which was akin to a “once in a lifetime” opportunity for he and his wife. He described the fact that the land was registered in his name only rather than in both his and his wife’s name jointly as simply an oversight.

10 There is no residence on the land at 21 Seabreeze Pde and the Applicant explained that he and his wife use a flat area on the land to park their caravan. They have also constructed a driveway on part of the land and the Applicant explained at the hearing that they, as well as visitors and tradesman, usually enter by driving up the steep driveway at 19 Seabreeze Pde and then exit using the driveway at 21 Seabreeze Parade. He explained that in the absence of 21 Seabreeze Pde, it had only been possible to exit 19 Seabreeze Pde by reversing vehicles down the steep driveway and negotiating the sharp curve on the way. One visitor had done this and ended up in an uncovered drain and had to be towed out.

11 The Applicant included in his evidence a copy of an approval for construction of a vehicular crossing (i.e. driveway) on 21 Seabreeze Pde dated 17 April 2002

12 There is no dividing fence at all between the land at 19 and 21 Seabreeze Parade.

13 The Applicant and his wife also own a property in Turramurra which was not relevant to the present matter, save for the fact that the value of that land together with the land at 21 Seabreeze Pde essentially resulted in the Applicant exceeding the land tax threshold in the relevant years and the Applicant was liable for land tax in respect of the aggregate taxable value of the properties.

14 Land tax assessments were issued to the Applicant on 2 October 2008 for the 2004-2008 land tax land tax years inclusive. In these assessments:

(i) the land at 19 Seabreeze Pde was treated as exempt pursuant to the principal place of residence exemption;

(ii) the land at 21 Seabreeze Pde was treated as subject to land tax;

(ii) the land at Bowen Ave, Turramurra was treated as subject to land tax.

15 On or around 7 September 2008, the Applicant objected to the 2004-2008 assessments.

16 On or around 19 November 2008, the Respondent disallowed the Applicant’s objection in full.

17 The Applicant made then made the present application for review by the Tribunal.

18 At the hearing, in response to a question from the Tribunal, the Respondent confirmed that there was no contest between the parties that, as a matter of fact, there was both unity of “use” and “occupation” in relation to the properties at 19 and 21 Seabreeze Pde. It was also accepted by the Respondent that there was no form of physical barrier or separation between the two properties. These factual matters are important for the purposes of the meaning of “a parcel of residential land” and the application of the test in Ryan and Another v Commissioner of Land Tax [1982] 1 NSWLR 305 (“Ryan’s case”) discussed below.

19 Accordingly, at the hearing, it was clear to the Tribunal that the issue between the parties essentially concerned whether or not the “title” of the properties was undivided for the purposes of the application of the test in Ryan’s case and later decided cases in respect of the meaning of “a parcel of residential land” in the exemption from land tax for a taxpayer’s principal place of residence.

Issue

20 The issue for the Tribunal to decide is whether the property at 21 Seabreeze Pde is subject to land tax in respect of the 2004-2008 land tax years inclusive?

21 In respect of the abovementioned issue, a question essentially arises as to whether 21 Seabreeze Pde forms together with 19 Seabreeze Pde, “a parcel of residential land”, such that these properties are exempt from land tax under the principal place of residence exemption in Section 10(1)(r) and Schedule 1A, Part 2(1)(b)(i) of the Land Tax Management Act 1956 (the “LTMA”) (or Schedule 1A, Part 2(1)(a) LTMA for the 2005 land tax years and following)?

Applicant’s case

22 The Applicant’s case was essentially that 21 Seabreeze Pde and the contiguous land at 19 Seabreeze Pde comprised the Applicant and his wife’s principal place of residence for land tax purposes and therefore was exempt from land tax.

23 The Applicant submitted that the two properties were undivided not only by physical separation but also by use and occupation.

24 Whilst the title holders of the property varied slightly, the purpose of occupancy of 21 Seabreeze Pde was clearly with the intent of its use in conjunction with the parcel 19 Seabreeze Pde. Both titles included the Applicant’s name (the Applicant also being an occupant of both). It was unclear whether Hunt J ever intended such a constrictive interpretation of “title” in Ryan’s case.

25 The slight variation to the title of 21 Seabreeze Pde in so far as the Commonwealth Family Law Act 1975 is concerned would have no impact in relation to the entitlement of the Applicant’s spouse. The Act would regard the ownership of both titles to be jointly held and as such would in the case of separation equally provide for both parties.

26 The titles to both 19 and 21 Seabreeze Pde both contain the Applicant’s name and are seamless in that sense. It would be a different scenario all together if 21 Seabreeze Pde had been owned by a different party or by, say, a company.

Respondent’s case

27 The Respondent’s case was, essentially, that one of the fundamental requirements for a “parcel of residential land” for the purposes of Schedule 1A LTMA (per the tests set out by Hunt J in Ryan’s case) is that there be “unity of title” as well as unity of use and occupation and no physical separation or barrier between the contiguous properties in question.

28 Indeed, Counsel for the Respondent noted the similarity of the facts in the present case with those in Ryan’s case. In Ryan’s case, Mr and Mrs Ryan jointly purchased a property at 1 Baden Road, Kurraba Point. At the same time, and in his name only, Mr Ryan purchased the contiguous block of land known as 3 Baden Road, Kurraba Point. In that case, the different ownership of the titles to the abovementioned properties was ultimately fatal to the taxpayer’s claim that there was a “parcel of residential land” for the purposes of the principal place of residence exemption from land tax.

29 Counsel for the Respondent referred to a number of decisions of the Tribunal, the Appeal Panel and the Supreme Court of NSW that have applied the tests set out by Hunt J in Ryan’s case including Kinging and Anor v Chief Commissioner of State Revenue [2005] NSWADT 239 and Chief Commissioner of State Revenue v Geoffrey Harry Coleman & Another [2007] NSWSC 625.

30 In response to the Applicant’s submissions regarding the Family Law Act 1975, Counsel for the Respondent noted that whilst a spouse could seek an order under the Act, there was not an automatic caveatable interest in any land held by the other spouse. In the present case, although it was possible for property law rights to be redistributed under the Family Law Act 1975, there was nothing that gave Mr Kleyn’s spouse, a present legal right to 21 Seabreeze Pde.

31 In relation to interest, Counsel for the Respondent stated that the premium component of interest had been remitted by the Respondent.

Relevant legislative provisions

32 Pursuant to Sections 7, 8 and 9 of the LTMA, land tax is levied each year on the land value of all land in New South Wales owned by a taxpayer at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied other than land which is exempt from taxation under the LTMA.

33 In respect of the 2004 land tax year, there existed a principal place of residence exemption in Section 10(1)(r) and Schedule 1A of the LTMA in Part 2. The exemption was in the following terms (as at 31 December 2003):

Section 10

(1) Except where otherwise expressly provided in this Act the following lands shall, subject to sections 10B, 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,

...

Schedule 1A Principal place of residence exemption

Part 1 Preliminary

1 Definitions

(1) In this Schedule:

principal place of residence exemption—see clause 2.

residential land—see clause 3.

taxing date—means midnight on the thirty-first day of December.

(2) For the purposes of this Schedule, a reference to the owner of land includes, if there are joint owners, any one or more of those joint owners.

Part 2 Principal place of residence exemption

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 on 1 January 2004 or any succeeding year, if:

(a) the land has a land value in respect of the year of less than the premium tax threshold, and

(b) the land is:

(i) a parcel of residential land, or

(ii) a lot under the Strata Schemes (Freehold Development) Act 1973 or a lot under the Strata Schemes (Leasehold Development) Act 1986.

(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.

3 Residential land—meaning

(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 lots within a strata plan or residential units, or

(b) containing (out of the total of all 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 the purposes for which the building is, or the buildings are, designed, constructed or adapted.

Note. Clause 4 allows one residential occupancy to be disregarded in applying the principal place of residence exemption. Clause 5 allows the use of land for purposes ancillary to a business conducted at a different place to be disregarded in certain circumstances.

34 In respect of the 2004 land tax year, Section 3 provided:

(1) In this Act, unless the context or subject-matter otherwise indicates or requires:

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.

35 In respect of the 2005-2008 land tax years, Schedule 1A Part 2(2) was in the following terms (all other relevant provisions were the same as that set forth above for the 2004 land tax year):

Part 2 Principal place of residence exemption

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) a parcel of residential land, or

(b) a lot under the Strata Schemes (Freehold Development) Act 1973 or a lot under the Strata Schemes (Leasehold Development) Act 1986.

36 On the basis of the tests in Ryan’s case (and the acceptance of these tests in a number of decided cases that have followed Ryan’s case by the Supreme Court, the Appeal Panel of the Tribunal and the Tribunal including: Chief Commissioner of State Revenue v McGrath & anor [2008] NSWSC 387 (per Gzell J), Chief Commissioner of State Revenue v Geoffrey Harry Coleman & Another [2007] NSWSC 625 (per Handley AJ), Chief Commissioner of State Revenue v Sacco [2008] NSWADTAP 61, Kinging and anor v Chief Commissioner of State Revenue [2005] NSWADT 329 and most recently by the Tribunal in Ford v Chief Commissioner of State Revenue [2009] NSWADT 192), it is clear that in order for contiguous blocks of land to comprise “a parcel of residential land” (for the purposes now of Sch 1A, cl 2(1) LTMA) they must, amongst other requirements, be undivided by “title”.

37 Similarly to the facts in Ryan’s case, the Kinging case and most recently in the Ford case, the difference in the holder(s) of the title of the two properties in question, 19 and 21 Seabreeze Pde, means that title to these two properties is not “undivided” for the purposes of the application of the test in Ryan’s case. The test was enunciated by Hunt J at 310 as follows:

[I]n my view…contiguous blocks of land can comprise a “parcel of residential land” within s 10(1)(r)(ii) [now Sch 1A, cl2(1)] only where they are undivided not only by physical separation but also in use, occupation and title.

38 As the Appeal Panel observed in Chief Commissioner of State Revenue v Sacco at paragraph [10], the tests in Ryan’s case have acquired something of a “quasi-legislative status”. Indeed, amendments were subsequently introduced effective for the 2009 land tax years and following by State Revenue Legislation Amendment Act 2008 (clauses 13 and 14) that now enshrine some of the tests in Ryan’s case in the LTMA. As the amendments only apply from the 2009 land tax year, they are not relevant to the Applicant’s matter and instead the decision in Ryan’s case is applicable.

39 Although the Applicant points out that his name does appear on both titles and it is only on the title of 19 Seabreeze Pde where the title is held jointly with his wife, this still amounts to the title of the properties being divided – the title to the two properties is not held by precisely the same persons. As the Respondent’s Counsel pointed out, this was exactly the same factual scenario as in Ryan’s case itself (where Mr Ryan held one property in his own name and the contiguous property with his wife jointly) and Kinging’s case (where the Applicant and his wife jointly owned one property at 49 Lincoln Avenue, Collaroy and the Applicant subsequently purchased an adjoining property at 51 Lincoln Avenue in his own name because his wife was away at the time).

40 I note also, in the recent Ford case, the Tribunal held because at the relevant land tax taxing time (31 December 2006 and 31 December 2007) the relevant properties were held by different family members, they did not constitute a parcel of residential land because title to the land was not undivided (at paragraph [45]).

41 I must say that I found the Applicant to be a very sincere person at the hearing and I accept his statement that it was merely an oversight that his wife was not included on the title to 21 Seabreeze Pde.

42 However, on the basis of the long acceptance and application of the principles in Ryan’s case by the Tribunal, the Appeal Panel as well as a superior Court (the Supreme Court of NSW) and where the facts in the present case are clearly analogous to Ryan’s case, the Applicant must fail in his contention that the two properties formed “a parcel of residential land” in the 2004-2008 land tax years inclusive for the purposes of the principal place of residence exemption in Section 10(1)(r) and Schedule 1A, Part 2(1)(b)(i) of the LTMA. The decision of the Respondent under review is therefore affirmed.

43 I agree with the submissions of the Respondent in response to the arguments raised by the Applicant concerning the Family Law Act 1975. The test in Ryan’s case looks to the relevant title-holder of the property for property law purposes (refer also Ford’s case at paragraph [45]). Although it is indeed true that rights to property can be redistributed under the Family Law Act 1975 (refer Section 79 regarding alteration of property interests), there was no evidence that this had been actually occurred in the present case or that the Applicant’s wife appeared on the title of 21 Seabreeze Pde as at 31 December 2003-31 December 2007 inclusive for the purposes of the 2004-2008 land tax years inclusive. Further Section 79 does not give a party to a marriage, any legal or equitable right to property before an order is made under Section 79(1) (In the Marriage of Tozer (1989) FLC 92-052) and a right to apply for an alteration of property interests is not a caveatable interest in real property terms (Ioppolo v Ioppolo (1978) 5 Fam L.N. 27).

Interest

44 In this case, the Respondent imposed interest at the market rate and premium rate and the Counsel for the Respondent confirmed that the premium component of interest had been remitted.

45 I note that the Applicant’s objection and application for review did not specifically refer to the matter of interest and neither did the objection decision of the Respondent dated 19 November 2008. On the basis however that the Applicant’s objection objected simply to the 2004-2008 “assessments”, the Respondent’s objection decision disallowed in full that objection and the Respondent’s Counsel raised the matter of interest at the hearing, I have briefly dealt with this matter.

46 Section 3 of the Taxation Administration Act 1996 (“TAA”) defines a “tax default” in the following terms:

tax default means a failure by a taxpayer to pay, in accordance with a taxation law, the whole or part of tax that the taxpayer is liable to pay.

47 Sections 21 and 22 TAA set out the obligation of a taxpayer to pay interest in respect of a tax default as follows:

21 Interest in respect of tax defaults

(1) If a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day for payment until the day it is paid at the interest rate from time to time applying under this Division.

(2) Interest is payable under this section in respect of a tax default that consists of a failure to pay penalty tax under Division 2 but is not payable in respect of any failure to pay interest under this Division.

22 Interest rate

(1) The interest rate is the sum of:

(a) the market rate component, and

(b) the premium component.

(2) The market rate component is:

(a) unless an order is in force under paragraph (b), the Bank Accepted Bill rate rounded to the second decimal place (rounding 0.005 upwards), or

(b) the rate specified for the time being by order of the Minister published in the Gazette.

(3) The premium component is 8% per annum.

(4) In this section, the Bank Accepted Bill rate in respect of any day is the yield rate for 90-day Bank Accepted Bills published by the Reserve Bank for the month of May in the financial year preceding the financial year in which the day occurs.

48 Section 25 TAA provides for the circumstances in which the Respondent (or the Tribunal standing in the shoes of the Respondent on review) may remit interest:

25 Remission of interest

The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount.

49 The Tribunal (including the Appeal Panel of the Tribunal) has stated on prior occasions (refer Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor [2004] NSWADTAP 19 at [60], Giunta v Chief Commissioner of State Revenue [2005] NSWADTAP 19 at [21]), that in the ordinary circumstances of an omission to pay tax which is then made up later, the Government is entitled to ask for some interest in order to compensate it for the time value of money (i.e. the late payment of tax) even though it may not have arisen by the taxpayer in any way conniving to pay the tax late.

50 The Appeal Panel also said in the Incise Technologies case at [60]

This [the market rate component], as we see it, is a component that could rarely, if ever, be waived as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time….

51 In Giunta v Chief Commissioner of State Revenue [2005] NSWADTAP 19 at [26], the Appeal Panel however noted that general considerations “not be used as a fetter upon the discretion which is couched in general terms and must be exercised according to its language and depending on the facts of each case”: McDonald’s Australia Ltd v Chief Commissioner of State Revenue [2005] NSWSC 6 at [100].

52 In the present case, only the market rate of interest has been applied by the Respondent. The premium component was remitted by the Chief Commissioner.

53 There is nothing in the facts of this case that I can see that would warrant a remission of the market rate component of interest. Ultimately the property at 21 Seabreeze Pde was not held by precisely the same persons that held 19 Seabreeze Pde in the relevant land tax years and thus title was divided for the purposes of the 2004-2008 land tax years.

54 As was observed by the Appeal Panel in the Giunta case at [14] and [17], land tax in NSW involves a self-assessment system and accordingly it is incumbent on taxpayers to determine and then pay any liability they have to land tax in respect of a particular land tax year. There is nothing to suggest any fault on the part of the Respondent in this case for the non-payment of land tax on 21 Seabreeze Pde and no other apparent grounds for remission of the market rate component of interest (which as set out above in the decided cases, essentially compensates the Respondent for the time value of money).

Orders

55 For the reasons above, I make the following order:

1. The objection decision of the Chief Commissioner in respect of the 2004-2008 land tax years inclusive is affirmed.