Philpot v Chief Commissioner of State Revenue

[2008] NSWADTAP 18

Appeal Panel - Internal

CITATION:	Philpot v Chief Commissioner of State Revenue (RD) [2008] NSWADTAP 18 This decision has been amended. Please see the end of the decision for a list of the amendments.
PARTIES:	APPELLANT Kim Philpot RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	079065
HEARING DATES:	28 February 2008
SUBMISSIONS CLOSED:	28 February 2008
DATE OF DECISION:	7 April 2008
BEFORE:	Needham J SC - Deputy President; Verick A - Judicial Member; Bennett C - Non Judicial Member
CATCHWORDS:	Question of law - leave to extend to the merits
MATTER FOR DECISION:	Principal matter
DECISION UNDER APPEAL:	Philpot v Chief Commissioner of State Revenue [2007] NSW ADT 243
FILE NUMBER UNDER APPEAL:	066115
DATE OF DECISION UNDER APPEAL:	10/15/2007
LEGISLATION CITED:	Duties Act 1997 First Home Owner Grant Act 2000
CASES CITED:	Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158 Cushieri v Chief Commissioner of State Revenue [2003] NSWADT 288 Gregoriou v Chief Commissioner of State Revenue [2003] NSWADT 145 Greig v Chief Commissioner of State Revenue [2006] NSWADT 146 Knight and anor v Chief Commissioner of State Revenue [2008] NSWADT 83 Mackellar v Chief Commissioner of State Revenue [2005] NSWADT 116 Powles v Chief Commissioner of State Revenue [2006] NSWADT 156 Rauf v Chief Commissioner of State Revenue [2005] NSWADT 176 Rositano v Chief Commissioner of State Revenue [2004] NSWADT 289 Zhang & anor v Chief Commissioner of State Revenue [2005] NSWADT 178
REPRESENTATION:	APPELLANT In person RESPONDENT S Benjamin, agent
ORDERS:	The decision of the Chief Commissioner, including that in relation to penalty, is affirmed.

REASONS FOR DECISION

1 Ms Philpot, the appellant, appeals from a decision of the Tribunal given by J Greenwood, Judicial Member, on 15 October 2007. That decision affirmed the decision of the respondent, the Chief Commissioner of State Revenue, to require repayment of the appellant’s grant under the First Home Owner Grant 2000 (“FHOG Act”) and recovery of the stamp duty concession granted to the appellant and known as First Home Plus (“FHP”) pursuant to the Duties Act 1997. The sums involved are:

(a) $7,000 under the FHOG Act;

(b) $8,117.00 as FHP duty concession;

(c) interest (at date of the hearing in the Tribunal below being $1,717.15); and

(d) penalty of 20 percent.

2 The appellant sought, at the appeal, to extend the appeal to the merits of the decision. There was no contest from the respondent that, given that the grounds of appeal included a claim that the learned Tribunal member failed to take into account evidence in support of the application, it was in this circumstance appropriate to do so. Accordingly, the Appeal Panel heard argument on the merits of the decision pursuant to section 115 of the Administrative Decisions Tribunal Act 1997.

The Decision

3 The original decision recited the following facts, which were not in contention at the appeal:

(a) The appellant purchased property near Ulladulla with the purchase settling on 9 August 2004 after a contract exchange on 28 June 2004.

(b) The appellant applied for a First Home Owner Grant of $7,000 in around September 2004, and also at some time applied for a stamp duty concession under FHP.

(c) On 19 April 2006 the respondent reversed his decision to pay the grant, and an assessment for repayment of the $7,000 plus a 20 percent penalty was issued on that day.

(d) On 20 April the respondent required repayment of the FHP duty concession amount of $8,117.50 and imposed interest in the sum of $1,717.15. An assessment in the amount of $9,834.15 issued on that day.

(e) The appellant objected to the assessments on 19 June 2006;

(f) The respondent determined the objections adversely to the appellant and notified the appellant by letters dated 5 July 2006 and 11 July 2006;

(g) On 18 October 2006 the appellant lodged an application for review with the Tribunal.

4 The basis for the decisions of the Commissioner was that the appellant admittedly did not occupy the property for a continual period of six months, or indeed at all. The property was purchased with the intent of living there but the appellant was unable to find employment in the area, as the property is near Ulladulla on the south coast, and she resided in rental premises in Maroubra, a suburb of Sydney. Her financial circumstances did not extend to her residing in the property without employment.

5 It is common ground that the appellant travelled back and forth to the property during the first twelve months of her ownership of it, but that that occupation did not constitute occupancy as her principal place of residence.

6 The Tribunal decision also determined a claim for suppression of identity of the appellant, or non-publication of the reasons, adversely to the respondent. An application for leave to appeal from that part of the decision was refused by J. Needham SC, Deputy President Member, on 14 November 2007.

Legislation

7 The relevant legislation provides as follows:

First Home Owner Grant Act 2000

7 Entitlement to grant

(1) A first home owner grant is payable on an application under this Act if:

(a) the applicant or, if there are 2 or more of them, each of the applicants complies with the eligibility criteria, and

(b) the transaction for which the grant is sought:

(i) is an eligible transaction, and

(ii) has been completed.

(2) Despite sub-section (1)(a), an applicant need not comply with the eligibility criteria to the extent the applicant is exempted from compliance by section 8A(2), 9(2) or 12(2).

(3) Despite sub-section (1)(b), a first home owner grant is payable before completion of the relevant eligible transaction, as authorised by section 20.

(4) Only one first home owner grant is payable for the same eligible transaction.

… .

12 Criterion 5—Residence requirement

(1) An applicant for a first home owner grant must:

(a) commence occupation of 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 the period approved by the Chief Commissioner under this section, and

(b) occupy the home as a principal place of residence for a continuous period of at least 6 months or the period approved by the Chief Commissioner under this section.

(2) This requirement is referred to in this Act as the residence requirement .

(3) The Chief Commissioner may, if satisfied there are good reasons to do so, do either or both of the following:

(a) approve the commencement of occupation by the applicant of the home, to which the application relates as a principal place of residence more than 12 months after completion of the eligible transaction,

(b) approve the occupation of the home as a principal place of residence for a period of less than 6 months.

(4) The Chief Commissioner may, if satisfied there are good reasons to do so, exempt an applicant from the residence requirement.

(5) An approval or exemption under this section may be given by the Chief Commissioner at any time, even if the period of 12 months after completion of the eligible transaction has already expired or the applicant’s occupation of the home as a principal place of residence has already ceased.

(6) 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.

Duties Act 1997

69 The nature of the scheme

This scheme is intended to help people who are acquiring their first home. Under the scheme, the acquisition and any mortgage given to assist the financing of the acquisition is subject to a concession or exemption from duty.

…

71 Restrictions on eligibility—previous ownership of residential property or first home concession

(1) A purchaser or transferee under an agreement or transfer may apply under the scheme, but will be eligible only if the purchaser or transferee is a first home owner.

(2) A first home owner is an individual:

(a) who has not at any time owned residential property in Australia (either solely or with someone else) and has not previously been a party to an application under the scheme that was approved by the Chief Commissioner, and

(b) whose spouse (if any) has not at any time owned residential property in Australia (either solely or with someone else) and has not previously been a party to an application under the scheme that was approved by the Chief Commissioner.

…

76 Residence requirement

(1) The home must be occupied by the first home owner or one of the first home owners who is acquiring it as a principal place of residence for a continuous period of at least 6 months, with that occupation starting within 12 months (or such longer period as the Chief Commissioner may approve) after completion of the agreement or transfer. This requirement is referred to as the residence requirement.

(2) The Chief Commissioner may, if satisfied there are good reasons to do so in a particular case:

(a) modify the residence requirement by approving a shorter period of occupation by a first home owner, or

(b) exempt a first home owner from the requirement to comply with the residence requirement.

(3) In the case of an agreement or transfer for the acquisition of a vacant block of residential land, it is sufficient that the Chief Commissioner is satisfied that the vacant block is intended to be used as the site of a home to be occupied by the first home owner or one of the first home owners who is acquiring it as a principal place of residence.

(4) (Repealed)

(5) For the purpose of this section, an agreement or transfer is completed when a purchaser or transferee becomes entitled to possession of the home and, if the interest in the land acquired by the purchaser or transferee is registrable under a law of the State, the interest is so registered.

(6) (Repealed)

8 It can be seen that without an exemption from the residence requirement under section 12(4) of the FHOG Act, or section 76(2)(b) of the Duties Act 1997, the appellant does not qualify for either residence requirement.

The Appeal

9 The appellant based her appeal on two grounds.

10 The first ground of appeal was that the learned Tribunal member failed to take into account in a proper manner a number of authorities cited by her at the hearing.

11 This ground of appeal failed on two counts. The first is that the decision of the Tribunal below deals with the four authorities cited by the appellant (being Gregoriou v Chief Commissioner of State Revenue [2003] NSWADT 145, Rositano v Chief Commissioner of State Revenue [2004] NSWADT 289, Cushieri v Chief Commissioner of State Revenue [2003] NSWADT 288 and Mackellar v Chief Commissioner of State Revenue [2005] NSWADT 116) in unexceptionable terms. Secondly, each of those decisions has a common thread, that in each of them the applicant lived in the premises for a short period of time but then had to move out due to a change in circumstance, and argued that the residence requirement was fulfilled despite the short period of occupation. Each of those decisions, however, was decided under the former legislative conditions, which did not require continuous occupation for six months within the first twelve months. Accordingly, even if the learned Tribunal member had failed to take those decisions into account, they are decisions on a specific legislative provision, which predates that which applies to the appellant.

12 The second ground of appeal was that no penalty should be imposed.

13 At a late point during argument, and after leave to extend to the merits had been granted, the appellant withdrew a ground of appeal that the learned Tribunal member had not taken into account her medical conditions. That ground of appeal was withdrawn as the appellant recognised that any publicity, or indeed publication, of the decision in her matter would result in her medical issues being part of the greater public knowledge, and she did not wish this to happen. The respondent did not withdraw his consent to the extension of the appeal to the merits and in the circumstances the Appeal Panel will not unilaterally withdraw the leave granted despite the disappearance of the basis for it. As the appellant has represented herself throughout, some degree of latitude should be applied to strict reliance on procedure.

14 As no error of law was pointed to in the imposition of the penalty, and the appeal had been extended to the merits, it would be possible for the Appeal Panel to consider the merits of the decision to impose a penalty. No reasons for the original imposition of the penalty was given in the letter dated 19 April 2006. The reasons given for the imposition of the penalty of 20 percent in the determination of the objection was as follows (see page 21 of the section 58 documents):

“The Chief Commissioner has ascertained that the applicant did not meet the residency requirement and is therefore not entitled to retain the grant. After dissection of all the relevant facts I am content that the amount of 20 percent is the correct amount as the applicant failed to notify the Chief Commissioner within 12 months and 14 days that she would not be fulfilling the residency requirement as per section 20(3) of the Act. Her request that this amount should be waived or reduced should also be rejected. In this case, the applicant has had the use of money to which she was not entitled to for approximately 2 years. The applicant has had the use of the $7,000 grant and if interest was charged on this amount at the standard credit rate, the applicant would be worse off than paying the 20 percent penalty in question. The applicant is required to repay the grant, together with the 20 percent penalty”. (quote cleaned up for grammatical clarity).
15 Section 45 of the First Home Owner Grant Act 2000 gives the power to impose a penalty. That section provides:
“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 the 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.”

16 The section gives no guidance on the proper amount of a penalty. Twenty per cent appears to be a standard penalty in cases where, as this, the Commissioner takes the view that there was no dishonesty or fraud but merely a failure to notify the Commissioner that the residence requirement was not fulfilled. It is worth noting that there is no allegation whatever of any fraud or misconduct on the part of the appellant.

17 In addition, the appellant points to the facts that:

(a) no income was derived from the property during the relevant period (that is, the first twelve months of ownership);

(b) her financial circumstances were such that it was not fair to impose a penalty; and

(c) she at all times intended to use the property as her principal place of residence but was thwarted by circumstance.

18 From a consideration of matters, which come before the Tribunal, the 20 percent penalty is imposed in most circumstances where no fraud is relied on by the Commissioner. The imposition of a penalty was considered in Rauf v Chief Commissioner of State Revenue [2005] NSWADT 176 in considerable detail far more detail, in fact, than was produced in this case. The learned Tribunal Member (Mr Montgomery) (at [21] cited the decision in Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158, in which Judicial Member Molony “made reference to a number of factors which were considered useful in determining whether a discretionary decision to impose a civil penalty was the correct and preferable decision.” Those factors were listed at paragraph 51 of the decision in Calcaro:
“A useful list of relevant factors which a court might take into account in determining the amount of a civil penalty was proposed by the Australian Law Reform Commission in Principled Regulation: Federal Civil and Administrative Penalties in Australia (2002) ALRC 95 in recommendation 29-1. These factors concern the discretionary imposition of civil penalties under Commonwealth Legislation, which given the non-discretionary nature of Commonwealth administrative penalties, are more akin to the discretionary imposition of penalties under the First Home Owner Grant Act . The recommendation said:

“Unless unsuitable to a particular provision, in determining the amount of a civil penalty, the courts should take account of all relevant factors, including:

(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 the 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 cooperation with the authorities; and

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

19 The usefulness of the Calcaro factors was recently examined and doubted in the decision of Knight and anor v Chief Commissioner of State Revenue [2008] NSWADT 83 by Judicial Member Verick, a member of this Appeal Panel. In that decision, Mr Verick said (at [26]-[33]):
26 The … [ Calcaro ] factors were recommendations made by the Australian Law Revision Commission in Principled Regulation: Federal Civil and Administrative Penalties in Australia (2002) ALRC 95 (in recommendation 29-1) to deal with the imposition of civil penalties under the Commonwealth Trade Practices and Company Laws. Under these laws the penalty provisions are complex and generally deal with fairly sophisticated schemes usually affecting a vast number of the community.

27 The First Home Owner Grant legislation is fairly straightforward and deals with a simple scheme to provide grants to first homebuyers. The above factors, accordingly, should be applied with some caution and necessary modifications when considering penalties under section 45 of FHOG Act. The FHOG Act was originally introduced to encourage and assist home ownership, and to offset the effect of the Goods and Services Tax (GST). The scheme has been continued to assist first homebuyers to acquire properties in a fairly difficult real estate market and to some extent to offset the higher mortgage interest payable on home loans.

28 It is important to note that a penalty under the FHOG Act is akin to a civil fine and is not another tax or an interest payment. (Tilley v FC of T (1944) 3 AITR 76 and Sabiel v FC of T (1926) R & McG. 87) If it were to be a tax or an interest payment the FHOG Act would have prescribed a rate. The penalty allowed under section 45 is up to the amount of the grant. As a penalty is akin to a fine, in imposing a penalty it may not be appropriate to take into account any “opportunity cost”.

29 When the legislature gives an administrator a wide power to impose penalties without any prescription, the administrator usually formulates policy guidelines for his or her officers in administering such provisions and for the public at large. Unfortunately, the Commissioner has issued no guidelines or rulings and he seems to apply in cases where there is a failure on the part of an applicant to satisfy the residence requirement, and in the absence of any false statements, a standard 20 percent penalty.

30 The bases on which the Commissioner can impose a penalty are set in sub-sections (2) and (3) of section 45 of the FHOG Act.

31 Sub-section (2) penalties can only be imposed where it can be established that “as a result of an applicant’s dishonesty” an amount has been paid by way of a first home owner grant. In the notice requiring repayment or a separate notice, the Commissioner is entitled to impose a penalty not exceeding the amount the applicant is required to repay.

32 Sub-section (3) penalties apply in two circumstances. The first circumstance is where the applicant fails to repay the grant required under section 45. The other circumstance where the Commissioner is entitled to impose a penalty is where an applicant fails to make a repayment of the grant under a condition of the grant.

33 Another approach to determine the appropriate penalty under section 45 of the FHOG Act is to categorise cases, depending on the level of culpability, where it is relevant for the Commissioner to consider the imposition of penalties. Factors that need to be taken into account to determine the level of culpability would include:

(1) the truthfulness of the original statements made by the applicant in his or her application for the grant;

(2) the surrounding circumstance including the intention of the applicant in relation to the occupation and use of the property as his or her principal place of residence at the time when seeking the grant;

(3) the reasons for failure to comply with conditions of the grant;

(4) whether the applicant has occupied the property as his or her principal place of residence;

(5) the candour of the applicant in his or her responses to compliance inquiries; and

(6) whether the grant been refunded.”

20 In Rauf, it was noted at paragraph [31] that the Commissioner had issued Business Rules in relation to the imposition of a penalty, which provided (in 2005, when Rauf was decided):
"The following are guidelines for the imposition of any penalty where there was a failure to meet the conditions of Section 20. Where as a voluntary disclosure an applicant for a first home owner grant makes a repayment required under a legislative condition of the grant:
- no penalty is to be imposed;
Where, as a voluntary disclosure, an applicant for a first home owner grant makes a repayment required under a legislative condition of the grant outside the 14 day period specified in the legislation:
-A penalty of 5 percent of the grant be imposed as a voluntary disclosure before investigation. This approach is under review within OSR.
Where an applicant for a first home owner grant failed to make a repayment required under a legislative condition of the grant and as a result of a "show cause letter" which has issued the Applicants makes an immediate voluntary disclosure:
- A penalty of 20 percent of the grant be imposed as a voluntary disclosure during investigation.
Where an applicant for a first home owner grant failed to make a repayment required under a legislative condition of the grant, a "show cause letter" has issued and the Applicants is unable to satisfy the residency requirement or any other eligibility requirement:
- A penalty of 30 percent of the grant be imposed.
In any case where it can be established there has been an intentional disregard of the law by an applicant.
- A penalty of 100 percent of the grant be imposed".
21 While there was no evidence that the Business Rules remain in the form in which they existed when cited in Rauf , it is clear that the appellant falls within the 20 percent category of an applicant who makes a voluntary disclosure of the non-compliance after a “show cause” letter is issued. The section 58 documents show that on being asked for a Statutory Declaration as to her compliance with the residency criterion, the appellant truthfully noted that she had not so occupied the property.

22 The Business Rules are not a public document but are issued so that there is internal consistency within the Office of State Revenue in imposing penalties. The Judicial Member in Rauf made the following comments in relation to the non-public nature of the Business Rules (at [39]-[40]:

“39 I note the Chief Commissioner's reference to the Business Rules and the fact that this is an internal working document and is not made available for the public. This is an admission of lack of transparency in the decision making process which in my view is a great cause for concern. I am at a loss to understand why the public should not have access to a document that is used as a basis for decision-making that involves imposition of penalties on citizens of this State. I am at a loss to understand why the Office of State Revenue has resisted the provision of the Business Rules to the Tribunal before this matter.

40 I share the concerns that Mr Rauf has in relation to the manner in which the Business Rules are applied. Lack of transparency increases the possibility that a policy will be inflexibly applied with little or no regard for the particular circumstances of Applicants. It also limits a citizens opportunity to challenge the decision making process or the decision.’

23 While there is much to be said for consistency in administrative decision making, the need for consistency should not be allowed to trickle over into the realm of inflexibility. In this case we are not told how or even whether the Business Rules were applied, although they were mentioned in passing in argument. It is accordingly difficult to see whether any proper application of the principles set out in Calcaro or Knight, or of the Business Rules were made, whether an independent mind was applied to the quantum of a penalty in the appellant’s case, or whether the question of a penalty was essentially a rubber-stamp.

24 In the circumstances, a proper approach is to apply the principles set out in Knight and to arrive at a penalty. Unfortunately the appellant has not done much more than merely state that she was financially unable to live at the property during the period of 12 months after purchase; no hard financial evidence was supplied either at the hearing at the Tribunal below or before the Appeal Panel. While we accept that she was unable to find employment in the local area, this is not an exceptional circumstance, which is so out of the ordinary that no penalty should be imposed. Examples of reduction of penalty in exceptional circumstances can be found in Zhang & anor v Chief Commissioner of State Revenue [2005] NSWADT 178 (concerns with the location of the property near a contaminated site and the health of their young child), Greig vChief Commissioner of State Revenue [2006] NSWADT 146 (some occupation of the flat on a casual basis with an intention of permanency but interrupted by separation and divorce). Generally speaking, financial circumstances are not see as “exceptional circumstances”. In a factually similar case, Powles v Chief Commissioner of State Revenue [2006] NSWADT 156, Judicial Member Hole said (at 34):

“The Act establishes a scheme for the payment of grants to first home owners. A finite period for application and also for occupation is prescribed with provision for discretionary extensions being available; those discretionary extensions must be exercised only in exceptional circumstances. The circumstances in this case are not exceptional, rather the decision of the applicants to defer going into occupation outside the time prescribed was made with regard to their financial stability.”
25 It seems to us that the current facts are similar to those in Rauf , where the penalty was reduced from 20 percent to 15 percent on the basis of personal difficulties in taking up residence. In this matter and in Rauf , while the recipient of the grant did not volunteer the information that the residence criterion was not complied with, the appellant never tried to hide the fact that she had not used the property as her principal place of residence in accordance with the residence requirements of the FHOG Act and the Duties Act 1997. However, in Rauf , the grant was repaid in accordance with the Commissioner’s request and that was one of the bases upon which the penalty was reduced. The appellant in this case has not repaid any part of the grant despite an offer at the outset to do so at a rate of $50 per month. She has had the FHOG money for over three and a half years. It may be thought more equitable for interest, rather than a penalty, to be imposed in such circumstances; however, the FHOG Act, unlike the Duties Act 1997, has no provision for the imposition of interest. As noted in Knight , a penalty is not a substitute for interest. But the fact that the moneys were not repaid, and despite our finding that the applicant has been candid and forthright, there was never any basis for her retaining the grant, must impact on the imposition of a penalty and the rate at which it is imposed.

26 We are therefore of the view that this is not an appropriate case in which to vary the rate of penalty imposed.

Order

The decisions of the Chief Commissioner, including that as to penalty, are affirmed.

10/04/2008 - Property to be known as "near Ulladulla". - Paragraph(s) 3 and 4.