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Delmege & Anor v Chief Commissioner of State Revenue [2014] NSWSC 1865

Date of judgement 24 December 2014 Proceeding No. 201001811
Judge(s) White J
Court or Tribunal Supreme Court of New South Wales
Legislation cited Income Tax and Social Services Contribution Assessment Act 1936-1955 (Cth)

Income Tax Assessment Act 1936 (Cth)

Land Tax Management Act 1956

Premium Property Tax Act 1998

State Revenue Legislation Further Amendment Act 2003

Taxation Administration Act 1996
Catchwords

TAXES AND DUTIES - land tax - exemptions and concessions - concession for unoccupied land intended to be owners' principal place of residence - Land Tax Management Act 1956 (NSW) s 10T - whether s 10T concession applicable to land used and occupied by persons other than owners of land during relevant land tax years - administration of land tax legislation - reassessments - Taxation Administration Act 1996 (NSW) s 9(3) - whether Chief Commissioner precluded from raising new assessments more than five years after initial assessment - meaning of full and true disclosure - whether tax liability assessed at lower amount than Chief Commissioner would have assessed if given full and true disclosure - whether taxpayer or Chief Commissioner bears onus of proving conditions in Taxation Administration Act 1996 (NSW) s 9(3)(b) which if satisfied permit Chief Commissioner to make reassessment more than five years after initial assessment

STATUTORY INTERPRETATION - savings and transitional provisions - State Revenue Legislation Further Amendment Act 2003 (NSW) Schedule 4 cl 13 - whether transitional provisions had effect of continuing to apply provisions of the Land Tax Management Act 1956 (NSW) as in force immediately before 31 December 2003 to determine availability of s 10T concession

Cases cited Delmege v Chief Commissioner of State Revenue [2009] NSWSC 1052

Federal Commissioner of Taxation v S Hoffnung & Co Ltd (1928) 42 CLR 39

FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360

Foster v Federal Commissioner of Taxation (1951) 82 CLR 606

McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263

Metricon Qld Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 982

M I M Holdings Ltd v Federal Commissioner of Taxation (1997) 36 ATR 108

Vines v Djordjevitch (1955) 91 CLR 512

White Industries Australia Pty Ltd v Federal Commissioner of Taxation [2003] FCA 599; (2003) 129 FCR 276

Background

In these proceedings, Maxwell and Narelle Delmege, (the Taxpayer), sought review of the Chief Commissioner’s land tax assessments for the years ended 30 June 2002 to 2006 (“Tax Period”).

The proceedings concerned the liability of the Taxpayer to land tax for the Tax Period. The particular issue was whether a property at 1758 Pittwater Rd, Bayview (“the Bayview Property”) that was purchased by the Taxpayer in about April 2001, and sold in May 2007, was exempt from land tax pursuant to s.10T of the Land Tax Management Act 1956 (“the LTMA”) on the ground that it was their intended principal place of residence.

This section and related sections were repealed as at 31 December 2003. The Taxpayer contended that by reason of the transitional provisions, s. 10T of the LTMA continued to operate so as to provide an exemption from land tax in respect of the 2004-2006 land tax years.

The Taxpayer conceded that if Schedule 1A applied in respect of the 2004-2006 land tax years, then the principal place of residence exemption was inapplicable because the Taxpayer did not take up actual use and occupation of the Bayview Property as their principal place of residence by the end of the period to which Clause 6 of the LTMA applied in respect of an assessment of their ownership.

Primary Decision

Principal Issues

  1. Whether, in respect of the 2002 and 2003 land tax years, an exemption under s.10T of the LTMA was not available to the Taxpayer because the Bayview Property was used and occupied by other persons for parts of those years;

  2. Whether, by reason of the transitional provisions in Schedule 4 cl 13 of the State Revenue Legislation Further Amendment Act 2003 that introduced Schedule 1A into the LTMA and inserted Part 15 into Schedule 2 to the LTMA, and in particular Clause 35, the provisions of the LTMA as they were in force immediately before 31 December 2003 continued to apply to determine the availability of the exemption for the 2004-2006 land tax years;

  3. If so, whether the exemption under s. 10T was not available to the Taxpayer because the Bayview Property was used and occupied by others for parts of those periods; and

  4. Whether the Chief Commissioner was precluded from raising new assessments for the 2002-2004 land tax years on 1 October 2009 by reason of s. 9(3) of the Taxation Administration Act 1996 (“the TAA”).

Purchase, occupation and use of the Bayview Property

Upon purchasing the Bayview Property in 2001, the Taxpayer decided to knock down the existing dwelling and build a new one. In 2002, they instructed an architect. It took some years for architectural drawings to be completed. In about March 2004, a development application was lodged with Pittwater Council and approval was given in July 2005. After receiving it, the Taxpayer consulted a number of builders, however due to financial difficulties they contended that they could no longer afford to build the residence. The Bayview Property was sold in May 2007.

During the Tax Period, the Taxpayer maintained their principal place of residence at Surfview Rd, Mona Vale (“Mona Vale property”), which was owned by a company of which Mr Delmege was director and shareholder. The Taxpayer used the Bayview Property sporadically over their years of ownership.

Between August 2001 and November 2002, the Taxpayer allowed a family friend, Mr Lindsay Hughes and his wife, to reside at the Bayview Property while their house, also located on Pittwater Road, was being renovated. During this time the Taxpayer did not spend much time at the Bayview property. Mr Hughes’ payments of $1,000 were characterised by him and the Taxpayer not as rent but as “outgoings.”

Under cross-examination, Mr Delmege said that he asked Mr Hughes to care-take the Bayview Property to limit the risk of vandalism. In a statutory declaration, Mr Hughes made no reference to this and White J did not accept that this was the sole reason for Mr Hughes’ occupation; in fact White J concluded that the principal reason for Mr and Mrs Hughes’ occupation of the Bayview Property was that they needed somewhere to stay while their house was being renovated.

Similarly, Mr Delmege deposed that Mr John Gilmore had resided at the Bayview Property for approximately two years from late 2003 until early 2005. Electricity accounts issued to Mr Gilmore for the period 16 June 2003 to 10 December 2004 evidenced that Mr Gilmore occupied the caretaker’s cottage on the Bayview Property during that time. Mr Gilmore did not give evidence. White J inferred that this was an arrangement of mutual convenience.

Ms Holly Stubington, Mrs Delmege’s daughter resided at the Bayview property from April to July 2006 as she and her family needed a place to stay after selling their home.

Assessments

The initial assessment for the 2002 land tax year was made on 25 June 2002 and the Bayview Property was treated as wholly exempt under s. 10(1)(r)(ii) of the LTMA. The initial assessment for the 2003 land tax year assessed the Bayview Property for tax only in so far as it exceeded the premium tax threshold.

On 23 November 2006, the Chief Commissioner issued re-assessments for land tax for the 2002-2006 years. On March 2007, PKF, chartered accountants, issued an objection to those assessments, stating that the Taxpayer had “resided on the Bayview land on a regular basis…and…allowed a family to reside on the property for ... 18 months during 2004 and 2005.” [1] White J found that this was inconsistent with the evidence adduced in the case. The Hughes’ possession took place in 2001-2002 and Mr Gilmore’s possession was in 2003 and 2004. White J resolved that the Taxpayer did not reside in the Bayview Property at all. They resided in the Mona Vale property.” [2]

On 6 May 2008, the Chief Commissioner allowed the objection against the assessment for the 2002 and 2003 land tax years and accepted that the "concession" under s. 10T of the LTMA was available for those years. A refund for 2002 and 2003 was provided. The Chief Commissioner rejected the objection to the assessment for the 2004-2006 years on the basis that Clause 6 of Schedule 1A applied as from the 2004 tax year.

Liability for land tax in the 2002 and 2003 years

The Chief Commissioner conceded that s. 10T(1) was satisfied. That is, it was common ground that the Taxpayer intended to use and occupy the Bayview Property solely as their principal place of residence.

White J considered the effect of the occupation by Mr and Mrs Hughes, and Mr Gilmore. Counsel for the Taxpayer submitted that the only relevant time for considering the effect of use and occupation by other parties was as at 31 December immediately preceding the land tax year in question. White J stated that even though s. 8 charges land tax at a single point in time, s. 10T(2)(c) requires a determination as to how the land has been used and occupied not at the same moment the land tax is charged, but for a period expressed by the words “while the owner is the owner”:

“In my view, once land has been used otherwise than as the owner's intended principal place of residence the concession under s. 10T(1) ceases to be available for any future land tax year.” [3]

In both cases the Bayview Property was used and occupied by third parties for their own advantage. White J concluded that the incidental advantage to the Taxpayer of having the Bayview Property occupied did not mean that it was not used or occupied except as the Taxpayer' intended principal place of residence. Rather, the Bayview Property was used and occupied to provide accommodation as needed by Mr and Mrs Hughes and Mr Gilmore. Therefore, the concession under s. 10T(1) was not available for any of the land tax years in question, even if s.10T continued to be applicable from 31 December 2003.

Effect of Transitional Provisions

White J went on to consider whether the Taxpayer could claim an entitlement to the 2004 to 2006 land tax years if a contrary view to the above were to be reached and the Taxpayer were found to be entitled to the benefit of the concession set out in s.10T(1) of the LTMA in respect of the 2002 to 2003 land tax years.

His Honour found that if s. 10T had not been repealed, the Taxpayer would only be entitled to the benefit of the concession for the two tax years immediately following the tax year in which they became the owners of the Bayview Property, unless the Chief Commissioner had extended the operation of that section on the basis of an acceptable delay pursuant to s.10T(4) of the LTMA. No such application for extension had been sought or granted by 31 December 2003 when s. 10T was repealed.

Clause 13 of Schedule 4 to the State Revenue Legislation Further Amendment Act 2003 inserted transitional provisions into the LTMA as Part 15 of Schedule 2 of that Act. Clause 35(1) of schedule 2 provides that the 2003 amendments did not affect existing liability to land tax, and that the existing liability only relates to the 2003 and prior land tax years.

Counsel for the Taxpayer relied on subclauses 35(2) and (3), which dealt with references in Schedule 1A to land owned and occupied as a principal place of residence before 31 December 2003. The Taxpayer submitted that the effect of Clause 35(2) was that where land was used and occupied as at 31 December 2003 as a principal place of residence it was to be treated as continuing to be so used and occupied thereafter because s. 10(1)(r) would continue to apply after 31 December 2003.

However, White J reasoned that subclause 35(2) is subject to subclause (1), where subclause (1) makes it clear that the amendments made by the 2003 amending Act do apply in respect of a land tax year commencing on or after 1 January 2004. Subclauses 35(1) and (2) were intended to have a harmonious operation and therefore the Taxpayer’ construction did not give weight to the opening words of subclause (2). White J concluded that s. 10T would not apply to the Taxpayer's liability for land tax for the 2004 and later land tax years.

Validity of reassessments for the 2002 and 2003 land tax years

Counsel for the Chief Commissioner submitted that the reassessments of 1 October 2009 were authorised under s. 101(1)(d) and (e) of the TAA, whether or not they were also authorised under s. 9 of that Act.

Section 9(3) of the TAA enumerates situations where the Chief Commissioner may make a reassessment more than 5 years after the initial assessment of the tax liability, including, instances where, at the time of the initial assessment, all the facts and circumstances affecting the liability were not fully and truly disclosed to the Chief Commissioner.

The Chief Commissioner submitted that the Taxpayers have the onus of establishing the matters set out in s. 9(3)(b). [4] White J concluded that despite s. 9 adopting a different structure for the setting of the conditional time limitation in s 9(3), it does not affect the applicability of the reasoning in McAndrew:

“… in review proceedings the notice of assessment is prima facie evidence (although only prima facie evidence) of the amount or particulars of the assessment, which is reinforced by s 100(3), that the onus rests on the taxpayer to establish that the conditions authorising the Chief Commissioner to make a reassessment more than five years after the initial assessment of the liability are not satisfied.” [5]

In this case, White J was satisfied that the Taxpayers had sufficiently discharged their onus of establishing that the conditions in s. 9(3)(b) under which the Chief Commissioner could make a reassessment more than five years after the initial assessment were not satisfied. His Honour found that the Chief Commissioner, with full knowledge of the material facts, assessed the Taxpayers' tax liability on 6 May 2008 in the same amount as was assessed for the 2003 year and assessed the Taxpayers' tax liability for the 2002 year on the basis that the concession in s. 10T applied and the Bayview Property was only liable to tax to the extent it exceeded the premium property tax threshold. It was only during the 2008 proceedings, before the hearing, that the Chief Commissioner took a different view as to the Taxpayers' liability for the 2002 and 2003 land tax year.

White J further stated:

“If the Taxpayers can show that there was full and true disclosure, or, if there was not, that the absence of full and true disclosure did not result in the Chief Commissioner's assessing the tax liability at a lower amount than he would otherwise have assessed it, then the reassessment can be revoked in review proceedings. That is a different question from whether the tax was assessed at a lower amount than was payable. The Taxpayers have made good this ground of challenge in respect of the 2002 and 2003 land tax years.” [6]

His Honour concluded that the 2002 and 2003 reassessments should be revoked and liability for land tax determined on the basis that they are not liable for the full amount of land tax payable for the 2002 and 2003 years. This is so, notwithstanding that a Taxpayers' liability does not depend on an assessment; as was stated in McAndrew, A provision such as s. 9(3) goes to the substantive liability of the Taxpayers. Further, this limitation on the Chief Commissioner’s power to make a reassessment five years after the initial assessment means he cannot claim that the Taxpayers are liable for an amount for which he is precluded from making a reassessment.

Liability for land tax for the 2004 land tax year

In respect of the 2004 land tax year, a new assessment was made on 1 October 2009, more than five years after the initial assessment. The initial assessment was issued on 2 April 2004 for the 2004 tax year assessed the Taxpayers as being liable for a total land tax of $44,740.

This was reassessed on 22 November 2006 for the 2004 tax year. There was no new assessment or reassessment made for the 2004 land tax year on 6 May 2008. The new assessment issued on 1 October 2009 for the 2004 land tax year was in the same sum as set out in the reassessment of 22 November 2006; a reassessment which was made in time.

In light of the above, the assessment of 1 October 2009 was a reissue of the assessment made on 22 November 2006 not a reassessment: “a reassessment of an initial assessment is an amendment of the initial assessment, not an independent and additional assessment”. [7]

Conclusion

His Honour concluded that the Chief Commissioner’s reassessments of 1 October 2009 in respect of the 2002 and 2003 land tax years should be revoked but the assessments issued on that date in respect of the 2004-2006 land tax years are confirmed. There should be a recalculation of what amount, if any, is owing to the Chief Commissioner as a result of those conclusions having regard to the payments made by the Taxpayers.

Link to decision

Delmege & Anor v Chief Commissioner of State Revenue [2014] NSWSC 1865

Footnotes

  1. Delmege & Anor v Chief Commissioner of State Revenue [2014] NSWSC 1865, [43].

  2. Delmege & Anor v Chief Commissioner of State Revenue [2014] NSWSC 1865, [44].

  3. Delmege & Anor v Chief Commissioner of State Revenue [2014] NSWSC 1865, [54].

  4. McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 as approved in FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360. McAndrew was concerned with the effect of ss 170, 173, 177 and 190(b) of the Income Tax and Social Services Contribution Assessment Act 1936-1955 (Cth).

  5. Delmege & Anor v Chief Commissioner of State Revenue [2014] NSWSC 1865, [81].

  6. Delmege & Anor v Chief Commissioner of State Revenue [2014] NSWSC 1865, [83].

  7. Delmege & Anor v Chief Commissioner of State Revenue [2014] NSWSC 1865, [87].

Last updated: 19 May 2016