Lynch v Chief Commissioner of State Revenue

[2009] NSWADT 123

CITATION:	Lynch v Chief Commissioner of State Revenue [2009] NSWADT 123
DIVISION:	Revenue Division
PARTIES:	APPLICANTS Lynette Gail Lynch and Peter James Lynch RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	096034
HEARING DATES:	On the papers
SUBMISSIONS CLOSED:	14 May 2009
DATE OF DECISION:	26 May 2009
BEFORE:	Handley R - Deputy President
CATCHWORDS:	Land Tax exemption – principal place of residence
LEGISLATION CITED:	Land Tax Management Act 1956 Taxation Administration Act 1996
CASES CITED:	Chief Commissioner of Taxation v Ferrington [2004] NSWADTAP 41
REPRESENTATION:	APPLICANT In person RESPONDENT B Thomson, solicitor
ORDERS:	The decision under review is affirmed.

1 Lynette Gail Lynch has filed an application with the Tribunal for the review of a decision of the Chief Commissioner of State Revenue (‘the Respondent’), disallowing Ms Lynch’s and her husband Peter James Lynch’s objection to a notice assessing them as being liable for the payment of Land Tax on their jointly owned property at Ronald Avenue, Greenwich (‘the property’) on the ground that it was not their principal place of residence (‘PPR’) at the relevant time.

2 Since Mr and Ms Lynch are joint owners of the property, the Respondent has requested that Mr Lynch be joined as an applicant in these proceedings (submissions paragraph 18). There being no response to this request from Ms Lynch, and noting that the submissions filed by Ms Lynch were signed by both Mr and Ms Lynch, the Tribunal has decided to join Mr Lynch as an applicant.

The Facts

3 Mr and Ms Lynch (‘the Applicants’) purchased the property on 21 August 2000. On 1 January 2006, Mr Lynch entered into a Management Agency Agreement with Blunts Real Estate at Lane Cove authorising Blunts to lease the property for a term of 12 to 24 months. On 17 January 2006, Mr Lynch entered into a Residential Tenancy Agreement with Belinda Maree Forsyth to lease the property to Ms Forsyth for a period of two years from 10 February 2006 at a monthly rent of $4,280. On 1 February 2006, a rental bond of $3,940 was lodged with the Office of Fair Trading. Ms Forsyth vacated the property on 8 February 2008 and the rental bond was refunded on 5 March 2008.

4 On 29 January 2009, the Applicants sold the property and moved to Terrigal, where they currently reside.

5 On 15 December 2008, the Respondent issued a Land Tax notice of assessment for the property for the 2007 and 2008 Land Tax years totalling $8,486.60, and nominating a date for payment of 27 January 2009. Ms Lynch lodged an objection dated 24 December 2008, stating that she and her husband had let their house to cover their costs while they travelled around Australia following their retirement. At no time were they made aware of their potential liability for Land Tax, believing that Land Tax only affected those with more than one property. On 26 January 2009, the Applicants paid $8,366.30, being the full amount reduced by an early payment discount of $120.50.

6 On 4 February 2009, a delegate of the Respondent disallowed Ms Lynch’s objection on the ground that the Applicants had not occupied the property as their principal place of residence (‘PPR’) during the relevant period. On 23 February 2009, Ms Lynch lodged an application for a review of that decision by the Tribunal. The parties agreed that I should deal with this matter ‘on the papers’.

The Relevant Legislation

7 Pursuant to section 100(3) of the Taxation Administration Act 1996, an applicant for review bears the onus of proving his/her case in the Tribunal.

8 During the relevant period, pursuant to sections 7, 8 and 9 of the Land Tax Management Act 1956 (‘the LTM Act’), Land Tax was chargeable on the taxable value of land that was not exempt based on the ownership of the land as at midnight on the 31 December of each preceding year for which Land Tax was to be levied. Thus, the Applicants, being the registered owners of the property, were presumed to be liable for Land Tax on that land for the 2007 and 2008 Land Tax years based on their ownership of the land on 31 December of each preceding year, unless the land was exempt from tax.

9 Section 10(1) of the LTM Act provides, relevantly, that except where otherwise provided in the Act, certain lands shall be exempted from taxation under the Act, including:

(r) land that is exempt from taxation under the principal place of residence exemption, as provided for by Schedule 1A.

10 ‘Principal place of residence’ is defined in section 3(1):

" 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.

11 Schedule 1A of the LTM Act provides relevantly:

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) ...




(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".

(5) ...

8 Concession for absences from former residence

(1) If the Chief Commissioner is satisfied that:


(a) a person is the owner of land ("the former residence") that has been used and occupied by the person as his or her principal place of residence for a continuous period of at least 6 months, and

(b) the person uses and occupies other land (whether or not in New South Wales), that is not owned by the person, as his or her principal place of residence,


the person is taken, for the purpose of the principal place of residence exemption, to continue to use and occupy the former residence as his or her principal place of residence.

(2) The maximum period for which a person may be taken, under this clause, to continue to use and occupy a former residence as a principal place of residence is 6 years starting at the end of the last period (of at least 6 months) during which the former residence was used and occupied by the person as a principal place of residence (not including any period for which the person may be taken, under clause 7 or this clause, to have used and occupied the former residence as a principal place of residence).

...

(6) This clause applies in respect of the assessment of a person’s ownership of land in a tax year only if the Chief Commissioner is satisfied that no income has been derived from the use or occupation of the former residence in the preceding tax year, except as permitted by subclause (7).

(7) Income may be derived from the use or occupation of the former residence in a tax year if:

(a) the income is derived from a lease, licence or other arrangement under which a person has a right to occupy the former residence and the total period for which any such right of occupation is conferred does not exceed 6 months in the tax year, or

(b) the income is derived from any arrangement under which a person occupies the former residence, but the income is no more than is reasonably required to cover council, water and energy rates and charges and maintenance costs of the owner in respect of the residence.

The Applicants’ Submissions

12 The Applicants submit:

“Land Tax is a tax on investment property and excludes the family home. We find it impossible to see how our situation can be taxed as the property was our family home and at no time became an investment property.

As self-funded retirees we rented our home to fund our one and only trip around Australia. We had no investments to fund our trip – our home was our only asset. As retirees we knew we had to sell our home and leave Sydney to be able to survive financially and had to make the decision whether to sell before or after our long anticipated trip.

Despite intensive research into our trip we never became aware of this particular complexity of land tax and so decided to rent our home and sell when we returned from our 2 year trip.”

13 The Applicants said that had they known about the Land Tax issues, they could have adjusted their travelling dates. They consider the imposition of Land Tax ‘double dipping’ on the part of the Government since they also paid PAYG tax while they were travelling. Having been self-employed most of their lives, and with very little superannuation and no investments, they “feel that to levy land tax in this situation is grossly unfair”.

The Respondent’s Submissions

14 The Respondent submits that while the Applicants claim the property was their family home, there is no evidence that it was their PPR during the relevant years. In fact, the evidence shows the property could properly be characterised as an investment property during that period since the Applicants did not reside there and it was tenanted.

15 The Respondent submits for the PPR exemption to apply, the Applicants must establish that they “continuously used and occupied” the property as their PPR during the relevant years: Sch 1A, cl 2. However, because they leased the property and did not physically occupy it while they were away travelling, they did not do so and the cl 2 PPR exemption does not therefore apply for the relevant tax years.

16 With regard to cl 8, the Respondent states this concession only applies if no income has been derived from the use or occupation of the land in the preceding tax year except as permitted by cl 8(7). Clause 8(7) does not apply here because the property was let for more than six months in each of the two Land Tax years and the income derived from the lease was more than that reasonably required to cover outgoings on the property.

17 The Respondent denies that the imposition of Land Tax on the property was ‘double dipping’, noting that Land Tax and income tax are separately assessed by the NSW Government and Commonwealth Government respectively. The Respondent submits that the assessment should be confirmed and the application dismissed.

Consideration

18 The issue in this case is whether the Applicants are liable for Land Tax on the property for the 2007 and 2008 Land Tax years. As stated above, as the registered owners of the property, they are presumed to be liable for Land Tax on the land based on their ownership of the land on 31 December of each preceding year, unless the land was exempt from tax. There are two relevant provisions in this case: the PPR exemption set out in Sch 1A, cl 2 and the cl 8 concession for absences from a person’s PPR.

19 The PPR exemption in cl 2 does not apply because, on the Applicants’ evidence, they were absent from their property for a period of two years from 10 February 2006, when the property was let to a tenant. The applicants did not, therefore, ‘use and occupy’ the property as their PPR during the Land Tax years 2007 and 2008 as required by cl 2 for the PPR exemption to apply. Whether a person ‘uses and occupies’ premises as their PPR is to be assessed objectively in the light of the circumstances relating to actual occupation of the dwelling: Chief Commissioner of Taxation v Ferrington [2004] NSWADTAP 41, at [42]. ‘Occupy’ in this context means having immediate supervision or control of premises. Where a person lets premises, the right of occupation and control passes to the tenant for the duration of the lease. This is what occurred when the Applicants let their property for a period of two years.

20 The cl 8 concession also does not apply here because, pursuant to cl 8(7), the Applicants derived rental income from the property while they were away travelling around Australia for more than six months in each of the Land Tax years and the income was more than that reasonably required to cover outgoings from the property.

21 Unfortunately for the Applicants, the fact that they were not aware of the applicability of Land Tax in their situation does not affect their liability. Moreover, as the Respondent pointed out, Land Tax is a State tax collected by the NSW Government whereas income tax is a Federal tax collected by the Commonwealth Government. While I acknowledge that the Applicants believe the imposition of Land Tax is unfair in circumstances where the property in Greenwich was the only property they owned, was their home and the only means they had of generating sufficient income to enable them to travel around Australia on their retirement, at issue is the applicability of the relevant provisions of the LTM Act. As stated above, the owners of land are presumed to be liable for Land Tax chargeable on the taxable value of land unless the land is exempt from tax.

Decision

22 In the Applicants’ case, I am not satisfied that the relevant exemption and concession in Sch 1A of LTM Act apply, and the Respondent’s decision to assess the Applicants for Land Tax in respect of their Greenwich property for the 2007 and 2008 Land Tax years must therefore be affirmed.