Morris v Chief Commissioner of State Revenue

[2016] NSWCATAD 219

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:	Morris v Chief Commissioner of State Revenue [2016] NSWCATAD 219
Hearing dates:	7 September 2016
Date of orders:	11 October 2016
Decision date:	11 October 2016
Jurisdiction:	Administrative and Equal Opportunity Division
Before:	A Boxall, Senior Member
Decision:	The decision of the Respondent is affirmed.
Catchwords:	Land tax -principal place of residence
Legislation Cited:	Land Tax Management Act 1956
Cases Cited:	Paspaley v Chief Commissioner of State Revenue [2014] NSWCATAD 217 Spiros Theophilas v Chief Commissioner of State Revenue [2015] NSWCATAP 39
Category:	Principal judgment
Parties:	David John Morris (Applicant) Chief Commissioner of State Revenue (Respondent)
Representation:	Counsel: A Gerrard (Respondent)   Solicitors: David John Morris (Applicant in person) Crown Solicitor’s Office (Respondent)
File Number(s):	1610074

reasons for decision

Introduction

1. In this matter Mr David John Morris (variously, “Mr Morris” or the “Applicant”) seeks a review of the decision by the Chief Commissioner of State Revenue (variously, the “Chief Commissioner” or the “Respondent”) to issue under the Land Tax Management Act 1956 (the “Act”) a Land Tax Assessment Notice (the “Assessment”) for the 2015 land tax year in relation to the property located at Soldiers Point Road, Salamander Bay, NSW (the “Soldiers Point Property”).

2. The issue is whether the Soldiers Point Property falls for the 2015 land tax year within section 10(1)(r) of the Act, which in broad summary exempts a person from land tax on his or her principal place of residence. The detailed provisions which inform the operation of this section are found in Schedule 1A of the Act. References in these reasons to particular numbered sections and clauses are, in the absence of any indication to the contrary, to the correspondingly numbered sections of the Act and clauses of Schedule 1A.

Factual background

3. The factual background, on which there was no dispute between the Applicant and the Respondent, is as follows:

1. As at 31 December 2014, Mr Morris was the sole registered proprietor of the Soldiers Point Property. He and his wife together purchased the property in 1996, but on 23 September 1999 Mr Morris acquired his wife’s interest in it. In 2015 Mr Morris transferred a half share in the property to Mrs Morris, but that transaction is of no relevance for present purposes, since Mr Morris’ liability to land tax for the 2015 year is determined by reference to the land owned by him at midnight on 31 December 2014, in accordance with section 8.

2. Mr Morris also owns a 50% undivided interest as tenant in common in a property at Yachtsman Crescent, Salamander Bay, NSW (the “Yachtsman Crescent Property”). The other co-owner is Mr Morris’ sister, Ms McDonald. They inherited the property from their late father who died in 2012, and rented it to tenants under a lease which expired in April 2014.

3. In or about 2012, Mr and Mrs Morris decided to demolish the house built on the Soldiers Point Property, and to replace it with a new residence. Mr Morris lodged a development application to that effect with the local council, which was approved in 2013.

4. In anticipation of beginning the demolition and construction work at the Soldiers Point Property, Mr and Mrs Morris started to look for alternative accommodation during the first part of 2014. This coincided with the end of the lease of the Yachtsman Crescent Property, and its vacation by the tenants. Mr Morris and his sister reached agreement that he and Mrs Morris would occupy the Yachtsman Crescent Property during the redevelopment of the Soldiers Point Property, on terms which put Ms McDonald in the same financial position as she would have been if the property had been rented for the same rental as had been paid by the original tenants.

5. Following various relatively minor repair and refurbishment works at the Yachtsman Crescent Property, Mr and Mrs Morris moved into it in August 2014. This process took place over a period of several weeks, beginning in July 2014. Various items of their furniture, household belongings and domestic equipment accompanied them from the Soldiers Point Property. The balance, which included significant items such as their paintings and piano, was placed in storage at several locations, in anticipation of its return to Soldiers Point following completion of the new house.

6. The original house on the Soldiers Point Property was demolished in November 2014.

7. Mr Morris’ original expectation had been that the new house on the Soldiers Point Property would be completed by the end of 2015. In fact, completion was delayed, so that earlier this year the expected completion date had been pushed out to 31 August 2016. Mr and Mrs Morris remained in occupation of the Yachtsman Crescent Property. Whether they have now moved back to the Soldiers Point Property, or for that matter to some other property, is of no relevance to this application.

8. There is no dispute that the Soldiers Point Property and the Yachtsman Crescent Property are both land for purposes of the Act.

Ownership and the Act

4. Section 8 charges land tax for a year, which that section defines as a period of 12 months beginning on 1st January, on land “.. as owned at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied”.

5. Section 3 defines the word “owner”, and provides that similar words (such as, for example, the verb “to own” and its various grammatical forms) have corresponding meanings to that of “owner”. In relation to land, an owner includes, relevantly, “… every person who jointly or severally, whether at law or in equity ….. (i) is entitled to the land for any estate of freehold in possession …”.

6. As at 31 December 2014:

1. Mr Morris was the sole registered proprietor of the freehold of the Soldiers Point Property; and

2. Together with Ms McDonald, Mr Morris was a registered proprietor of the freehold of the Yachtsman Crescent Property.

7. What follows is that Mr Morris was:

1. the owner, within the meaning of section 3(1) of the Act, of both the Soldiers Point Property and the Yachtsman Crescent Property as at midnight on 31 December 2014, being “…..entitled to the land for a freehold estate in possession”, and

2. accordingly, liable to land tax for the 2015 year in respect of both properties,

subject to the provisions of the Act as to both the calculation of, and the availability of exemptions to liability for, land tax.

Possible exemptions

8. There are various exemptions potentially available, which are established in section 10. One of these is the exemption provided for in section 10(r), in relation to a person’s principal place of residence. It was common ground between the parties that the operative exemption, if any, was the one provided for by that section.

9. The starting point in determining whether this exemption applies is Clause 2, which:

1. exempts from taxation in respect of a tax year a person’s principal place of residence,

2. sets out certain basic criteria which must be satisfied in order to qualify for the exemption, being relevantly that:

1. the land is a parcel of residential land, a concept which is defined in clause 3, or a strata lot or lots, and

2. either:

1. 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 of the year preceding the relevant tax year, or

2. if not, the Commissioner is satisfied that the land is used and occupied as the person’s principal place of residence; and

3. provides for the availability of the exemption to be restricted in accordance with the provisions of clause 4.

Clause 2(4) calls the exemption provided for under clause 2 the “principal place of residence exemption”.

10. Clauses 4 to 10B provide for a variety of modifications to Clause 2. The effect of each of these, in respect of land to which it applies, is to treat land which would not otherwise qualify for the principal place of residence exemption under clause 2 as doing so if the criteria set out in the relevant clause are satisfied. Of these exemptions, the parties were in agreement that the only one potentially applicable was that provided for in clause 8 in relation to absences from a former residence.

11. There had been some suggestion at one time that the exemption under clause 6, in relation to vacant land on which the construction of an intended principal place is occurring or intended, might be applicable. Before the hearing, however, it was accepted by both parties that:

1. Mr Morris had acquired the Soldiers Point Property by, at the latest, 1999, and had thus owned the property for more than 4 years as at 31 December 2014; and

2. Mr Morris had occupied the Soldiers Point Property as his principal place of residence since 1996.

The significance of this is that exemption under clause 6 is available only in relation to land which has been either owned by the taxpayer for 4 years or less, or owned by the taxpayer for a longer period but used and occupied by another person for a period which expired no more than 4 tax years before the tax year in respect of which exemption is sought. Accordingly, the exemption provided for under Clause 6 could no longer apply to Mr Morris in relation to the Soldiers Point Property, so that there was no reason to give any further consideration to that clause.

12. Clause 8 provides, subject to various conditions and elaborations which are of no relevance in the present case, that where a person formerly used and occupied land as his principal place of residence the person will be taken for purposes of the principal place of residence exemption to continue to do so, if the Chief Commissioner is satisfied as to certain conditions. These are that:

1. the person used and occupied the former residence as a principal place of residence for a continuous period of at least 6 months; and

2. the person does not own any other land used and occupied by the person as a principal place of residence.

13. The net result is that if clause 8 applies, the relevant land will still be treated as a person’s principal place of residence even though by reason of the person’s cessation of use and occupation of the land it ceases:

1. to be “residential land” within the meaning of clause 3(1), or

2. to satisfy one of the tests in clause 2(2).

Does clause 8 apply?

14. Several matters need to be established in order to determine whether clause 8 applies in the present case. These are:

1. whether Mr Morris formerly occupied the Soldiers Point Property as a principal place of residence;

2. whether Mr Morris ceased to use and occupy the Soldiers Point Property as a principal place of residence;

3. whether Mr Morris used and occupied the Soldiers Point Property as a principal place of residence for a continuous period of at least 6 months; and

4. that Mr Morris does not own (in the statutory sense) any other land used and occupied by him as a principal place of residence.

15. As to the first and third of these matters, it is agreed between the parties that for many years until August 2014 this was the case.

16. As to the second of these matters:

1. The meaning of a person’s “place of residence” is well established, at least for purposes of the Act. It is usually understood as being the place where the person eats, drinks and sleeps.

2. Under section 3(1), a person’s principal place of residence is “… 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 …”. The words “… the one place of residence..” and “… among the one or more places of residence of the person…” are significant. Even though the word “principal” suggests a ranking as between multiple residences, the definition makes it clear that a sole place of residence can be a principal place of residence.

3. Applying this to Mr Morris’ situation, it is clear that as at 31 December 2014:

1. He had a place of residence at the Yachtsman Crescent Property. It was there that he had since August 2014 led the bulk of his day-to-day personal life. He and his wife lived there, and they had moved a selection of their possessions there to assist them in their daily life. It was, quite literally, the place where Mr Morris generally ate, drank and slept.

2. Mr Morris did not have a place of residence at the Soldiers Point Property. The residence on that land had been demolished in November 2014, so that there was no accommodation there in which he could reside. The property was in the possession of the builders, as they undertook their works of demolition and construction. It was simply not a place at which Mr Morris could or did reside.

3. What follows is that, as at 31 December 2014, the Yachtsman Crescent Property was, in the words of section 3(1), “… the one place of residence that is, among the one or more places of residence of [Mr Morris] within and outside Australia, the principal place of residence of [Mr Morris] …”.

4. It may well be that at 31 December 2014:

1. it was Mr Morris’ intention to return to the Soldiers Point Property to use and occupy it as his principal place of residence once the redevelopment works were complete, and

2. Mr Morris’ occupancy of the Yachtsman Crescent Property was temporary only, pending completion of the works at the Soldiers Point Property.

5. However material such considerations may be in deciding whether the criteria in other clauses are satisfied, they are entirely irrelevant in relation to clause 8:

1. The tests in clause 8 do not look to the taxpayer’s intention; rather, they look to a number of objective matters, which are summarised in paragraph 14 above.

2. In this respect clause 8 differs from clause 6, which expressly looks to a landowner’s intention as to which of multiple properties will be, following the completion of building works, his principal place of residence.

6. Mr Morris referred to the factors which had been identified in the Tribunal’s Appeal Panel decision in Spiros Theophilas v Chief Commissioner of State Revenue as distinguishing for purposes of a disentitling provision in clause 6(7), between a mere place of residence, on the one hand, and a person’s principal place of residence, on the other. He sought to demonstrate that his occupancy of the Yachtsman Crescent Property was in various respects consistent with the basis on which the successful appellant in that matter had occupied his temporary residence, and that in consequence it should not be treated as his principal place of residence. There are three observations to be made concerning this line of argument:

1. These matters might be relevant if clause 6 were the provision under consideration. It, however, is not the clause at issue here, which is clause 8.

2. Clause 8 does not contain the complexities of clause 6, nor does it - except if clause 12 applies, of which more below - necessitate consideration of the matters raised by Mr Morris in this part of his argument. Rather, clause 8 asks a simple factual question: where is the taxpayer’s principal place of residence, within the statutory meaning?

3. Accordingly, the factors which Mr Morris identified are irrelevant to the issue which the Chief Commissioner had to decide, and which is before the Tribunal in this hearing.

17. As for the fourth:

1. It is clear that Mr Morris was at all relevant times an owner of the Yachtsman Crescent Property, as set out in paragraphs 5 to 7 above.

2. Mr Morris seeks, however, in his submissions to apply a gloss to clause 8(1)(b). He argues that the clause’s requirement, that in order to qualify for exemption under clause 8 the taxpayer must not “…own any other land used and occupied by him as a principal place of residence …”, must be read as if the words “and owned” were interpolated into clause 8(1)(b), immediately after the word “occupied”. The result of this interpolation would be that in Mr Morris’ case, because his intention in owning the Yachtsman Crescent Property is to derive rental income from it, his temporary occupation of it during the redevelopment of the Soldiers Point Property would not disentitle the Soldiers Point Property from continuing to be exempted as his principal place of residence.

3. This argument fails, for two reasons:

1. First, the words in question simply do not form part of the clause.

2. Secondly, there is nothing in the context or purpose of the clause which might support such an interpolation. The clause operates clearly and logically without it, and in a way which is consistent with the underlying general objective of the principal place of residence exemption, namely to relieve a taxpayer from land tax in respect of a property which he owns and which he occupies as his principal place of residence.

4. Mr Morris also put the proposition that it was inappropriate for a property which:

1. he co-owned with his sister, and

2. for the occupation to which he paid rent to his sister,

to be considered as property owned by him for purposes of the test in clause 8(1)(b). The difficulty with this proposition lies in the Act’s definition of ownership of land, which is outlined in paragraph 5 above. This specifically includes as an owner of land, “… every person who jointly or severally, whether at law or in equity ….. (i) is entitled to the land for any estate of freehold in possession …”. For the reasons outlined in paragraphs 5 to 7 above Mr Morris is clearly an - if not the sole - owner of the Yachtsman Crescent Property for purposes of the Act, and in particular clause 8. The proposition he puts has no legal relevance.

18. It is, therefore, to the Yachtsman Crescent Property that the exemption under section 10(r) properly applies, subject to one final issue which Mr Morris sought to raise, and which is discussed in the following paragraphs.

19. Mr Morris argued that clause 12 applies, so as either:

1. To allow Mr Morris to nominate the Soldiers Point Property as his principal place of residence, or

2. To require the Chief Commissioner to treat the Soldiers Point Property, as the more valuable of the two properties, as Mr Morris’ principal place of residence.

The result would be to reduce Mr Morris’ land tax liability, by exempting the more valuable Soldiers Point Property and subjecting the less valuable Yachtsman Crescent Property to land tax.

20. The difficulty with this argument is that clause 12 is only engaged where “… members of a family own …. more than one residence used and occupied by any of them as a principal place of residence [emphasis added]…” . At the relevant time, being 31 December 2014, Mr Morris may well have owned two properties: he and his wife, however, used and occupied only one of them as their sole – and necessarily principal - place of residence. This was the Yachtsman Crescent Property. The essential pre-condition to the availability of the election provided for in clause 12, namely the use and occupation of multiple properties by family members as places of residence, was not satisfied. Clause 12 is, therefore, entirely irrelevant.

Conclusion

21. For the reasons set out above, the Tribunal affirms the Chief Commissioner’s decision.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 11 October 2016