Schumak v Chief Commissioner of State Revenue

[2007] NSWADT 224

CITATION:	Schumak v Chief Commissioner of State Revenue [2007] NSWADT 224
DIVISION:	Revenue Division
PARTIES:	APPLICANT Mandy Jayne Schumak RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	066129
HEARING DATES:	16 August 2007
SUBMISSIONS CLOSED:	10 September 2007
DATE OF DECISION:	26 September 2007
BEFORE:	Seve J - Judicial Member
CATCHWORDS:	Duties Act - First Home Plus Scheme - residence requirement - First Home Owners grant - reversal by administrator - Taxation Administration Act - liability to pay interest - Taxation Administration Act - liability to pay penalty tax
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:	Band v Chief Commissioner of State Revenue [2007] NSWADT 185 Elskaf v Chief Commissioner of State Revenue [2006] NSWADTAP 10 Ferrington v Chief Commissioner of State Revenue [2004] NSWADTAP 41 Single v Chief Commissioner of State Revenue [2006] NSW ADT 334
REPRESENTATION:	APPLICANT B W Gower, Solicitor RESPONDENT S Benjamin, Solicitor
ORDERS:	The reviewable decisions are affirmed

1 On 3 October 2002, the Applicant entered into a contract for the purchase of a property at 4/104 Chuter Avenue, Ramsgate (“the Property”) for $275,000. The purchase was settled on 6 December 2003. The Applicant applied for a grant under the First Home Owner Grant Act 2000 (“FHOG Act”) in respect to the purchase and for stamping of the contract under the First Home Plus (“FH Plus”) concession provisions of the Duties Act 1997 (“Duties Act”). Each application was ultimately approved. The Applicant received a grant of $7,000 under the FHOG Act and the contract was stamped with transfer duty of $6,742.50 under the then FH Plus provisions.

2 In November 2005, the Respondent (“Commissioner”) formed the view that the Applicant had not demonstrated that she satisfied the residence requirement under the FHOG Act and under the Duties Act and made the decisions (“the reviewable decisions”):

(1) to recall a grant of $7,000 paid to the Applicant and to impose a penalty of 30% of the grant ($2,100) under the FHOG Act; and

(2) to reverse the FH Plus concession and re-assess the contract with transfer duty of $8,115 under the Duties Act (involving $1,372.50 additional transfer duty payable by the Applicant) and to assess interest and penalty tax under the Taxation Administration Act 1996 (“TAA”).

3 The Commissioner disallowed the Applicant’s objections to the reviewable decisions. The Tribunal is here determining the application by the Applicant for the review of the reviewable decisions.

4 At the hearing, the Tribunal had before it, documents lodged by the Commissioner under s 58 of the Administrative Decisions Tribunal Act 1997 and written submissions of the Commissioner and the Applicant, including a sworn affidavit of the Applicant dated 16 January 2006 (“Affidavit”). A copy of the Applicant’s application for the FH Plus concession was not included in the s 58 documents and the Tribunal ordered that a copy be filed by the Commissioner after the hearing and it was. The Applicant and her father each testified and were cross-examined on oath at the hearing.

5 At the hearing, the Applicant indicated that she could obtain and provide to the Tribunal, additional documents to corroborate her case. The Tribunal made an order accordingly, for the Applicant to file and serve additional documents by 30 August 2007 however, nothing was received by the Tribunal from the Applicant since the hearing. Neither was any explanation for same given by the Applicant to the Tribunal, even after the Tribunal contacted the solicitor for the Applicant to remind the Applicant of the Tribunal’s order. Similar disregard for orders of the Tribunal was shown earlier, through unexplained delay in the filing and service of the Applicant’s written submissions by the date agreed at a directions hearing on 21 March 2007 which resulted in the original hearing date of 12 June 2007 having to be vacated and re-listed for 16 August 2007.

Legislation - Residence Requirement

6 The “residence requirement” under the FHOG Act and the “residence requirement” under the Duties Act, as applicable in this case, are similar but not identical (and each has been subsequently replaced).

7 For the purposes of the FHOG Act as it applies in this case, “residence requirement” is defined in s 3 as:

“residence requirement means the requirement that an applicant 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 the completion of the eligible transaction or a longer period approved by the Chief Commissioner (see section 12).”

8 Section 12(1) of the FHOG Act as it applies in this case provides:

“An applicant 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 Chief Commissioner.”

9 The expression “residence requirement” is not used in the Duties Act as it applies in this case (other than in the heading to s 76) but is attributable to the requirement in s 76(1) of the Duties Act (forming part of the FH Plus provisions) which provides:

“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.”

10 The Applicant submitted that she occupied the Property as her principal place of residence from settlement of her purchase on 6 December 2002 to October 2003.

11 To support the Applicant’s submission, the Applicant tendered her Affidavit and relied on a letter from her family’s doctor dated 3 March 2006 and also, her own and her father’s sworn testimony at the hearing.

12 The Applicant conceded that she did not alter the record of her address to the address of the Property in relation to her driver’s licence and the electoral roll but submitted that this was an over-sight and did not affect the fact that the Applicant actually occupied the Property as her principal place of residence.

13 Paragraphs 7 to 12 of the Applicant’s Affidavit stated:-

“7. After completion of the contract for sale I moved into the property on 6th December 2002. I lived in the property with Amanda Finchette.

8. Amanda made contributions to me on the basis of a share of expenses.

9. At the time of completion of the contract the arrangement for the supply of electricity was an account in the name of Amanda Finchette.

10. At the time of completion a telephone service was provided through an account with Telstra in the name of Amanda Finchette.

11. Subsequent to the completion I opened an account with the relevant water supply authority in my name.

12. As the accounts for electricity and telephone were already in existence and the arrangement was to share expenses there was no need, in my mind, to change those arrangements.”

14 Paragraphs 14 to 17 and 21 and 22 of the Affidavit stated:-

“14. From 6 December 2002, until October 2003, I resided at the property.

15 In October 2003 my mother was admitted to hospital to undergo a knee reconstruction operation.

16. Subsequent to that operation, I moved back to the family home at 34 Jenkins Street, Matraville to assist my mother during her recuperation and rehabilitation.

17. During the subsequent period I alternated living at Matraville and my property. I do not recall the exact dates or period because they were on a needs basis in relation to my mother’s rehabilitation and recuperation after her operation.

21. Subsequent to my mother’s recuperation and rehabilitation my financial circumstances were such that I was unable to continue meeting mortgage payments on the property myself.

22. Some time in 2004 I decided to let the property to tenants at a market rent to assist me in meeting my mortgage repayments.”

15 At the hearing, the Applicant testified that the “tenants” referred to in paragraph 22 of the Affidavit was Amanda Finchette.

16 The Applicant also testified at the hearing that she had since sold the Property at the end of 2006 and was now married and lives with her husband at 19/581 Bunnerong Road, Matraville.

17 The Applicant submitted that the Applicant’s circumstances are somewhat analogous to the applicant in Single v Chief Commissioner of State Revenue [2006] NSW ADT 334 (“Single’s Case”) and that on the criteria established in Ferrington v Chief Commissioner of State Revenue [2004] NSWADTAP 41 (“Ferrington’s Case”) and the facts deposed in the Affidavit, the Property was the principal place of residence of the Applicant from the date of settlement to October 2003.

18 The Applicant submitted that in terms of penalties, the Applicant sincerely believed that she had satisfied the residence requirement and, should the Tribunal find that the Applicant did not satisfy the residence requirement, the failure to do so was not dishonest or blatant.

Commissioner’s Submissions

19 It was conceded by the Commissioner that if the Tribunal accepts that the Applicant occupied the Property on a full-time basis during the period from settlement to October 2003 and that she only quit the Property because of the unforseen illness of her mother, then it was accepted by the Commissioner that the Applicant would be entitled to the FHOG Act grant and the FH Plus concession. However, it was submitted by the Commissioner that there was insufficient evidence to demonstrate that the Applicant occupied and used the Property as her principal place of residence during that period. The Commissioner submitted that the objective evidence suggested that the Applicant never occupied and used the Property as her principal place of residence such objective evidence being listed by the Commissioner as:-

(a) The electricity usage was not in her name;

(b) She did not provide any telephone records;

(c) Her driving licence address was her family home address during the relevant period;

(d) Her electoral roll registration was her family home address during the relevant period - Section 101 of the Commonwealth Electoral Act 1918 has bearing on her failure to update her electoral roll registration;

(e) There were no insurance for the contents in her name during the relevant period;

(f) (repeat of (g));

(g) Her motor vehicle registration addresses were her family home – Pursuant to clause 30 of the road Transport (Driver Licensing) Regulation 1999 [“The holder of a driver licence must tell the Authority, not more than 14 days after the change, about any change in his or her (a) name, or (b) residential address, or address for service of notices…”];

(h) According to the ATO records the grant property was rented during the period commencing from 2 October 2003 (documents obtained from ATO);

(i) She has not provided any financial records to show that she was capable of meeting her mortgage payments prior to the purchase and during the relevant period;

(j) The Applicant had advised the mortgagee (Westpac) that the loan she had sought was for an investment purposes. In number of places within the loan application it is clearly marked that the purpose of the loan was for the purchase of an investment property (Documents obtained from the Bank);

(k) The normal verification by the Bank of the Applicant’s capacity to repay the loan had been waived due to the Applicant’s parent(s) had stood as guarantor for the loan.

20 The Commissioner submitted that the Applicant did not satisfy the Ferrington case criteria and that the Applicant’s parents’ home in Matraville remained the principal place of residence of the Applicant.

21 In the context of the penalty under the FHOG Act, the Commissioner referred the Tribunal to the following paragraph of the Appeal Panel decision in Elskaf v Chief Commissioner of State Revenue [2006] NSWADTAP 10:

“14 The Tribunal has dealt now in a number of decisions with factors relevant to the imposition of penalty under the FHOG Act: see, for example Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158; Snow v Chief Commissioner of State Revenue [2005] NSWADT 24; Allam v Chief Commissioner of State Revenue [2005] NSWADT 172. The Tribunal has indicated its acceptance of the basic approach taken by the Commissioner, which has been to impose a penalty of between 0 and 20% in circumstances where the applicant freely admits to the Tribunal and the Chief Commissioner that they did not occupy the property within the required period. In some cases none or a minimal penalty may be all that should be imposed, such as where the applicant has not been able to move in for reasons largely or wholly beyond their control, or in circumstances where the applicant did move in but did so just outside the 12 month period: see, for example, McKenzie v Chief Commissioner of State Revenue [2005] NSWADT 214.”

22 Under s 28(3) of the FHOG Act and s 100(3) of the TAA, the Applicant has the onus of proving the Applicant’s case in respect to the respective reviewable decisions.

23 The Applicant has essentially asked the Tribunal to accept the Applicant’s Affidavit and the sworn testimony of the Applicant and of her father and the letter from the family doctor, in discharge of the Applicant’s onus, without any further corroborative evidence and in spite of other evidence suggesting the contrary.

24 The Applicant has had ample opportunity since the reviewable decisions were made in November 2005, to obtain and provide to the Commissioner, corroborative evidence from the person with whom the Applicant claims to have shared occupation of the Property, Amanda Finchette. However, no such evidence from that person or any other additional corroborative evidence has been provided by the Applicant and the Applicant has not given any explanation for not doing so. Even after the Applicant was allowed by the Tribunal, additional time after the hearing, to file the evidence, nothing was provided and no explanation was given to the Tribunal. This was despite the Applicant having indicated at the hearing that the Applicant could and would provide additional documents and a reminder from the Tribunal after the hearing.

25 This factor, coupled with discrepancies between the Applicant’s submissions and other evidence before the Tribunal, weigh against the evidence of the Applicant and make it untenable for the Tribunal to accept the evidence provided by the Applicant, as proof that the Applicant satisfied the residence requirement under the FHOG Act and under the Duties Act.

26 The discrepancies between the Applicant’s submissions and other evidence before the Tribunal included:-

1. Existing Tenancy

Paragraph 4 of the Applicant’s Affidavit stated: “At the time of completion of the contract, Amanda Finchette was an existing tenant of the property. I was aware of that tenancy and took the property subject to that tenancy”.

At the hearing, the Tribunal raised the point that if the Applicant took the Property subject to an existing tenancy in favour of Amanda Finchette, then, if as indicated by the Applicant, that tenancy did not terminate until more than 12 months after the date of the contract for purchase of the Property by the Applicant, s 20(2) of the FHOG Act would be an issue, having regard to paragraph (i) of the definition of “completed” in s 13(5)(a) of the FHOG Act (Band v Chief Commissioner of State Revenue [2007] NSWADT 185).

The Applicant’s response to this was to assert that the Affidavit was incorrect and that in fact, the tenancy in favour of Amanda Finchette had been terminated on the purchase of the Property by the Applicant and Amanda Finchette and the Applicant both resided at the Property without any formal tenancy agreement between them. The Applicant’s solicitor submitted that this correction to the Affidavit was only a matter of syntax, however, it was more substantial than that.

2. Applicant’s Mortgage Application

In paragraph 13 of the Affidavit, the Applicant stated: “To fund the purchase of the Property I applied for, and was granted, a Mortgage with Westpac Banking Corporation”.

The copy of the application for finance for the Property that was signed by the Applicant and dated 13 October 2002 ticked the box “Investment Property” and not the box “Owner Occupied Property” for the Loan Purpose and, against the question “Will you rent out the property?” in the Loan Security section of the application, the “Yes” box was ticked and an amount of $953 was inserted opposite “specify rental per month”.

At the hearing, the Applicant asserted that the application was completed by or on the advice of another who sought to obtain the best interest rate for the Applicant. This does not escape the fact that the Applicant signed the application, asserting the statements in it, evidencing an intention to purchase the Property for investment purposes and not for home ownership.

3. FHOG Application

The application for the grant under the FHOG Act that was signed by the Applicant and dated 6 May 2003 was completed in respect of the statement: “Date you expect to occupy home” with the date “1/9/2003”.

At the hearing, the Tribunal questioned the Applicant as to why the Applicant’s FHOG application which was made on 6 May 2003, stated a prospective date of 1 September 2003 as the date that the Applicant expected to occupy the home, when the Applicant’s Affidavit asserted that from 6 December 2002, being a date prior to the date of FHOG application, the Applicant resided at the property? The Applicant’s response was that she could not explain the date in the application form.

27 The Applicant’s Affidavit stated (at 21) that subsequent to the Applicant’s mother’s recuperation and rehabilitation, the Applicant’s financial circumstances were such that the Applicant was unable to continue meeting mortgage payments on the Property herself. However, the Applicant did not point to any change in her financial circumstances since she purchased the Property.

28 The letter from the family doctor relevantly stated:

“In view of the injury and post operative complications, Mandy moved back into her family home in October 2003. This was at the request of her parents, not only to assist in the physical recovery, but to assist in the social need. Over the ensuing months, her mother developed depression requiring intervention with medication, and further social support by her daughter Mandy.”

29 The Tribunal does not accept the doctor’s statement regarding the Applicant’s move “back into her family home in October 2003” as fact that the Applicant occupied the Property as her principal place of residence to that time. No explanation was given by the Applicant as to how the doctor would have been in the position to independently verify what the principal place of residence of the Applicant was. In fact, the affidavit of the doctor annexing a copy of the letter as a true copy described the letter as “a letter dated 3 March 2006 in respect to the injuries and medical condition sustained by the Applicant’s mother” not as a letter in respect to the place of residence (let alone principal place of residence) of the Applicant.

30 The Applicant’s father testified that he assisted the Applicant with his vehicle, in moving personal property of the Applicant into the Property the week-end after settlement of the purchase and that the Applicant resided at the Property from that time, regularly visiting her parents at their home in Matraville, until the Applicant resided permanently with her parents again, after her mother’s accident and illness. The Applicant’s father also testified that Amanda Finchette remained in the Property after the purchase by the Applicant and indicated that this was good as it meant that the Applicant was not living alone at the Property. This testimony and that of the Applicant and the Affidavit are not sufficient to satisfy the Tribunal that the nature of the alleged occupation of the Property by the Applicant was of a permanent character. The evidence indicated that from the time of settlement of the purchase throughout the period claimed by the Applicant, the Applicant had accommodation available to her both at the Property and at the home of the Applicant’s parents. In the circumstances of the other factors in this case, the evidence does not establish to the Tribunal that the Property had become the principal place of residence of the Applicant, in place of the home of the Applicant’s parents.

31 The s 58 documents lodged with the Tribunal by the Commissioner included a council rate notice dated 1 December 2003 (i.e. after October 2003) and an overdue water account notice dated 30 April 2003 each addressed to the Applicant at the Property. In light of the other evidence before the Tribunal, these notices did not evidence that the Applicant resided at the Property at that time, let alone that the Property was the Applicant’s principal place of residence at any time.

32 This matter is distinguishable from Single’s Case where Judicial Member Hole was satisfied that the nature of the occupation of the subject property by the applicant in that case had the requisite element of permanence. In Single’s Case, there were no discrepancies between the applicant’s submissions and other evidence before the Tribunal as exist in this case as earlier mentioned.

33 For the foregoing reasons, the Tribunal agrees with the Commissioner’s submission that, applying the criteria in Ferrington’s case to the evidence before the Tribunal, the Property was not the principal place of residence of the Applicant for the purposes of the residence requirement under the FHOG Act or under s 76(1) of the Duties Act. Fundamentally, the Tribunal is not satisfied on the evidence before the Tribunal that any occupation of the Property by the Applicant had the requisite element of permanence.

34 On the evidence before the Tribunal, the Applicant has also not proven that she intended to occupy the Property on or within 12 months after settlement as her principal place of residence, so as to otherwise satisfy s 76(1) of the Duties Act.

35 The Applicant has not established any case that the Commissioner’s reversal of the FH Plus concession was given otherwise than in accordance with s 9(2) of the TAA.

36 It is unnecessary for the Tribunal to consider the issue raised by the Tribunal at the hearing, concerning s 13(5)(a)(i) of the FHOG Act in the context of 20(2) of the FHOG Act, since any such consideration will not affect the outcome of this case, given the earlier-mentioned findings.

Penalties

37 On the evidence before the Tribunal, particularly the copy of the application for finance for the Property that was signed by the Applicant and dated 13 October 2002 and the Applicant’s FHOG Act application dated 6 May 2003, the Applicant’s submission regarding penalties is not accepted.

Penalty under the FHOG Act

38 In Elskaf v Chief Commissioner of State Revenue [2006] NSWADTAP 10, the Appeal Panel held that 30% was a reasonable penalty under the FHOG Act, in light of the circumstances to which the Appeal Panel had referred, as cited in the Commissioner’s submissions aforementioned. In the same way, in the circumstances of the findings in this case, 30% was not an unreasonable penalty for the Commissioner to impose under the FHOG Act.

Interest and Penalty Tax under the TAA

39 The letter from the Commissioner to the Applicant which notified the Applicant of the Commissioner’s decision to reverse the FH Plus concession advised that: “In addition interest and penalty has been imposed in accordance with the Act” and “As a result, you are required to pay the Chief Commissioner the full dutiable amount of $1,878.83”.

40 The letter from the Commissioner to the Applicant did not indicate that the Commissioner had increased the penalty tax payable under s 27(2) of the TAA. The letter also did not refer to the Commissioner having remitted any penalty tax or interest payable under the TAA which, in the circumstances of this case, is not unreasonable.

41 However, the notice of assessment that was included with the letter to the Applicant did not specify any amount under “Penalty” and specified “$506.33” under “Interest” (apparently, an aggregate amount of penalty tax of 25% plus interest on the underpayment of transfer duty).

42 Section 15 of the TAA provides that a notice of assessment of a taxpayer’s tax liability issued following a tax default by the taxpayer must specify any interest and penalty tax payable by the taxpayer under Part 5 or section 95 in respect of the default.

43 The notice of assessment issued by the Commissioner failed to specify the penalty tax payable by the Applicant and incorrectly specified the interest payable by the Applicant. This did not affect the liability of the Applicant to pay interest on the underpayment of transfer duty under s 21 of the TAA and to pay penalty tax of 25% of the underpayment of transfer duty under s 26 and s 27(1) of the TAA. However, the Commissioner should still issue to the Applicant, a notice of assessment under the TAA, correctly specifying the penalty tax and interest respectively payable by the Applicant under Part 5 of the TAA, as required by s 15 of the TAA.

Conclusion

44 For the foregoing reasons, the Applicant has not proved her case under the FHOG Act or the TAA and the correct and preferable decision is to affirm the reviewable decisions.

Order

45 The reviewable decisions are affirmed.