Zhang v Chief Commissioner of State Revenue

[2005] NSWADT 178

CITATION:	Zhang & anor v Chief Commissioner of State Revenue [2005] NSWADT 178
DIVISION:	General Division
PARTIES:	APPLICANTS Min Zhang and Yijang Zhou RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	043409
HEARING DATES:	30/03/2005
SUBMISSIONS CLOSED:	04/29/2005
DATE OF DECISION:	08/04/2005
BEFORE:	Montgomery S - Judicial Member
APPLICATION:	first home owners grant - reversal of original decision - First Home Owners Grant Act - first home owners grant - reversal of original decision
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	First Home Owners Grant Act 2000
CASES CITED:	Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158 Chief Commissioner of State Revenue v Farrington (GD) [2004] NSWADTAP 41. Rauf -v- Chief Commissioner of State Revenue [2005] NSWADT 176
REPRESENTATION:	APPLICANTS In person RESPONDENT S Benjamin, solicitor
ORDERS:	I vary the decision of the Chief Commissioner to impose, pursuant to section 45(3) of the First Home Owner Grant Act 2000, a penalty of 20% of the grant and in its place imposes a penalty of 15% of the grant (i.e. $2,100).

1 Ms Min Zhang and Mr Yijang Zhou (“the Applicants”) lodged an application on 17 September 2002 for a grant of $14,000 under the First Home Owner Grant Act 2000 (“the Act”) in relation to a unit known as Unit 307/6 Wentworth Drive Liberty Grove (“the property”). The contract of sale was dated 30 August 2001. The settlement took place on 11 September 2002. The Office of State Revenue processed the application and the grant was paid on 18 September 2002. The grant was paid in advance subject to compliance with the residency requirement of the Act.

2 Section 7(1)(a) of the Act requires applicants to comply with the eligibility criteria. Section 12(1) contains eligibility criterion 5, which requires the Applicants to occupy the property as their principal place of residence within 12 months after completion of the eligible transaction.

3 On 4 August 2004, the Chief Commissioner of State Revenue (“the Chief Commissioner”) issued a notice under section 45 of the Act requiring the Applicants’ to repay the $14,000 grant that had been paid, together with a penalty of $2,800; ie a total assessment for $16,800. The assessment was issued on the basis of confirmation by the Applicants that they had not used the property as their principal place of residence within 12 months from the date of settlement.

4 The Applicants lodged an objection to the assessment. The facts are not in dispute. They asserted that they had a genuine intention to reside at the property. However, they rely on the contamination of the area surrounding their property as the reason for not taking occupation and the use of the property as their principal place of residence. In summary, they stated that they could not take up residence in the property as required by section 12(1) and use it as their principal place of residence due to health related reasons. It was close to dioxin contaminated site and they did not want to run a risk to the health of their baby by exposing her to that contamination. The Applicants have sent their baby to China to be cared for by her grandparents.

5 The Applicants’ objection was disallowed and an application for review was lodged with the Tribunal.

6 The issues for determination which are raised in this application are as follows:

(a) whether the Chief Commissioner’s decision to reverse the provision of the grant to the Applicants and to require repayment was the correct and preferable decision in the light of all of the relevant circumstances; and

(b) whether the decision of the Chief Commissioner to impose a penalty of 20% was the correct and preferable decision in the light of all of the relevant circumstances.

7 The Applicants purchased the property with the intention of using it as their principal place of residence. They tenanted the property soon after they settled in September 2002. In August 2004, after the Office of State Revenue (“OSR”) initiated action to find out if the Applicants have taken up residence at the property, the applicants requested their tenants to vacate the property.

8 The matter was heard on 30 March 2005. On that day I determined that the Applicants were liable to repay the grant amount. In making that determination I was satisfied that they had not complied with the residency requirement in section 12(1) of the Act which requires the Applicants to occupy the property as their principal place of residence within 12 months after completion of the eligible transaction.

9 I accepted the evidence in regard to the Applicants’ intentions at the time they made their application and that it was based on a belief that they would reside in the property within 12 months of their purchasing it. However, the Applicants’ intention was not the only basis on which the Chief Commissioner made the grant. It was made on the “anticipation of compliance” with the “residency requirements”. That is, it was made on the basis that the Applicants would meet these requirements and occupy the property as their principal place of residence before 11 September 2003. Meeting this requirement included residing in the property and it is not sufficient to only have an intention to do so: Chief Commissioner of State Revenue v Farrington (GD) [2004] NSWADTAP 41. The Applicants did not seek an extension of the time in which they were required to occupy the property.

10 The “residency requirements” of section 12 of the Act was an essential eligibility criterion that the Applicants had to meet in order to qualify for the grant. As the Applicants did not satisfy the “residency requirements”, the decision of the Chief Commissioner to give the Applicants a grant was not correct.

11 I did not determine the issue of whether the Applicants should also be required to pay a penalty. The parties were invited to make submissions on that issue and they have done so.

12 The Applicants’ submission is essentially that they have made an honest mistake in that they did not advise the OSR that their circumstances had changed or ask for an extension of the time limit to meet the residency requirements. They conceded that his was due to their ignorance. They asserted however that the OSR could have done a much better job to widely educate the public and communicate the program to the public like the Australian Taxation Office has done. They contend that there is wider education or communication that can be done so that others can avoid this trauma in the future.

13 They further submitted that their separation from their daughter has been a devastating experience. They made the decision to allow her to go to Shanghai because of the contamination and the necessary remediation with the intention that she would return and they would move into the property when their baby is a little older and her immune system has built up.

14 The Applicants contend that but for the exceptional and grave circumstances they would have commenced residency at the property at an earlier date in compliance with the residency requirement. They submit that the correct and preferable decision is that no penalty should be imposed or, alternatively, if the Tribunal considers that a penalty ought to be imposed, then a reduced penalty should be imposed.

15 The Chief Commissioner contends that the power under section 45(3) of the Act allows the Chief Commissioner to impose a penalty because the Applicants did not notify the Chief Commissioner of non-compliance with the residency requirement. The Applicants had the opportunity of informing the Chief Commissioner about their situation and sought permission to occupy the property. In the event that such permission was not granted, then the Applicants could have returned the grant of $14,000.

16 The Chief Commissioner provided submissions in relation to the First Home Owners Grant Business Rules (“the Business Rules”), an internal working document that is used as the basis for determining what penalty is imposed in relation to an ineligible grant recipient. These submissions largely repeat submissions made in the matter of Rauf -v- Chief Commissioner of State Revenue [2005] NSWADT 176. I do not repeat them here. In my decision in that matter I made some observations in relation to the manner in which the OSR uses the Business Rules. Those comments are equally applicable in this matter.

17 In this case Mr Benjamin, for the Chief Commissioner, disputes the Applicants’ claim that they had the genuine intention to occupy the property but could not do so due to contamination in the area. He contends that many others who purchased property in the same suburb took up residence in their respective properties. Therefore the Applicants' claim does not appear to be a valid one.

18 Mr Benjamin further submitted that the Applicants’ arrangement of sending their child to China should have logically allowed the Applicants at least to occupy and use the property as their principal place of residence. Instead they were renting a property in Strathfield. He argued that the fact that the Applicants did not take up occupancy of the property, even after sending the child to China, indicate that the argument about involving the child did not have a bearing on where they lived.

19 Accordingly, the Chief Commissioner does not concur with the Applicants' view that the contamination in and around their property should be considered as an exceptional circumstance that prevented them from taking up occupation and use the property as their principal place of residence.

20 However, the Chief Commissioner considered that a penalty reduction of 5%, from 25% to 20%, was reasonable, and consistent with the Business Rules, because the Applicants were cooperative and provided necessary information during the investigation.

21 As I found in Rauf -v- Chief Commissioner of State Revenue, I consider that the factors which were considered in Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158 provide a useful basis for determining whether to impose a penalty in matters of this kind. At paragraph 62 of his decision in Calcaro Molony JM stated:

“62 The question that then arises is one of the amount of the penalty. Applying the criteria discussed above, the factors relevant to the determination of penalty in Mr Calarco’s case are:

a) the need to deter others from not complying the conditions of grant;

b) the fact that Mr Calarco provided incorrect information as to when he would be occupying the premises in his application to grant;

c) the fact that (as I have found) Mr Calarco’s initial intention was to live in the premises as his own home at the end of the tenancy;

d) the fact that Mr Calarco’s original intention was frustrated by his own financial circumstances;

e) the opportunity cost factor;

f) the fact that Mr Calarco showed little respect for matters of propriety and less attention to detail in his dealings with the Administrator;

g) Mr Calarco’s failure to be candid with the Administrator and the Tribunal;

h) Mr Calarco’s straitened financial circumstances.”

22 Of the eight factors listed in Calarco, factors (d), (f), (g) and (h) do not apply in this case. In this matter the circumstances to which the Applicants refer are health related and not financial circumstances.

23 In this matter I do not share the Chief Commissioner’s view that these issues did not constitute an exceptional circumstance that should be taken into account. It is a matter to be determined in each case whether exceptional circumstances exist. I have no doubt that the Applicants were required to make very difficult decisions with respect to their daughter and no doubt their separation from their daughter has been a devastating experience. Prima facie there was an issue of dioxin contamination near to the property. Understandably, they were concerned about the health issues associated with contaminated land. In my view the fact that others may have occupied nearby properties does not lead inevitably to the conclusion that these issues did not constitute an exceptional circumstance for the Applicants.

24 I am also satisfied that these circumstances would have overshadowed the approach that the Applicants adopted in relation to the property generally. Had the OSR taken greater steps to raise public awareness of the residency requirements their minds may have been focused during this difficult period.

25 Nevertheless, I do not agree with the Applicants that no penalty should be imposed. The fact remains that the property was tenanted and the Applicants received market rent during the period in which they retained the grant amount. If the grant amount had not been available to the Applicants, they would have had to obtain the amount from other sources. This would have cost them an interest amount. This is the opportunity cost factor referred to in Calarco. In my view, the Applicants should pay a penalty that recognizes that as being the case.

26 In my view, the decision of the Chief Commissioner to impose a penalty of 20% of the grant is excessive. In the circumstances it is my view that the appropriate penalty is one of 15% of the grant amount i.e. $ 2,100.

Order

I vary the decision of the Chief Commissioner to impose, pursuant to section 45(3) of the First Home Owner Grant Act 2000, a penalty of 20% of the grant and in its place imposes a penalty of 15% of the grant (i.e. $2,100).