Heckenberg v Chief Commissioner of State Revenue [2019] NSWCATAD 104

Background

The applicants applied for administrative review of land tax assessments issued by the Chief Commissioner in respect of undeveloped land in south-western Sydney purchased by them in September 2002 (“the Land”). The Land was purchased with the intention of building a large family home. The review concerned assessments for 14 tax years from 2004 to 2017 which included principal tax, and interest comprising market rate and premium rate components. The review as to the principal amounts of land tax concerned whether an extension of time to build the owners’ residence had expired. If the concession had expired in this case, the consequences were that the land became liable to land tax for all relevant tax back to 2004.

At all material times, the Land was unoccupied within the meaning of clause 6(1) of schedule 1A of the Land Tax Management Act 1956 (NSW) (“the Act”). The review of the assessments of principal amounts of land tax concerned whether or not the concession for unoccupied land intended to be the owners’ principal place of residence under clause 6 of schedule 1A of the Act had expired. That concession was ultimately determined based on whether the applicants had discharged their onus to establish that at each relevant tax date, completion of building of a residence on the Land had been delayed primarily due to reasons beyond their control.

After obtaining council approval for their development application in April 2003, the applicants had some building work for the home carried out in the first half of 2004. By the middle of 2004, all building work had ceased, and no further work was completed for several years afterwards. The main reason for this was uncertainty about the future status of the Land in light of I ts possible inclusion in a proposed Edmondson Park Urban Release Area precinct (“EPURA”) relating to government planning for urban growth and associated parkland in the area. The applicants would have received only the unimproved land value if the Land was resumed for park land, which made completion of the home financially undesirable as long as uncertainty as to the inclusion of the Land in the EPURA remained. Whether the Land would be included in the EPURA remained unclear despite “protracted dealings” involving the applicants and the Council and the Department of Planning for several years from 2005.

The question concerning interest in the land tax assessments was whether the whole or part of the various interest amounts should have been remitted.

The Statutory Framework

For the 2004 and 2005 tax years, clause 6(1) of schedule 1A extended the principal place of residence exemption to the owner of unoccupied land who intended to use the land solely as his or her primary place of residence, provided, relevantly, that the land was unoccupied because the owner intended to or was carrying out, building or other works necessary to facilitate his or her intended use and occupation of the land as a principal place of residence.

The clause applied to the assessment of a person’s ownership of land in the two-year period immediately following the year the person became the owner, but its application was extended where delay in the completion of the building or other necessary works was primarily due to reasons outside the owner’s control.

Clause 6 further provided that where the principal place of residence exemption applied due to the operation of the clause, the exemption will be revoked if the person fails to actually use and occupy the land as his or her principal place of residence by the end of the period of the application of the clause. Revocation meant that the exemption was taken not to have applied to the land in respect of any tax year to which it would otherwise have applied. If such circumstances occurred, the land tax liability related back so that it arose at each of the prior year taxing dates commencing 31 December 2003.

From 28 June 2010, the two-year period was increased to four years, but there was no provision for the extension of the 4-year period. "Nonetheless, the two-year period and associated ability to extend continued to apply in the present case by virtue of savings provisions in the Act."

Decision

1. Delay in building

The Tribunal concluded that the applicants had not established that delay in completion of the building before the expiry of the two year period was due primarily to reasons beyond their control at any relevant tax date: [71-72].

Although it was understandable that the applicants decided not to proceed with completion of the home in order to avoid the risk of adverse financial consequences, their decision nevertheless involved a choice. The proposed changes associated with the precinct did not present any “legal or practical obstacle” that prevented the completion of the building: [74].

Once it became clear in December 2014 that any issue of resumption no longer affected the applicants’ plan for the Land, the Tribunal did not consider that the financial circumstances of the applicants’ relied on by them in respect of the remaining tax years in dispute satisfied the “beyond control requirement”: [79]–[84].

Although the Tribunal noted that an inability to raise funds required to pay for the construction of a home might satisfy the requirement, the Tribunal was not persuaded that the applicants’ delay in completion “was not due primarily to a choice to pursue litigation rather than preserve financial capacity to do the building work” or “financial prudence rather than financial compulsion”: [68], [83].

2. Application for remission of interest

The Tribunal endorsed the approach adopted in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor (RD) [2004] NSWADTAP 19; 56 ATR 82 and applied in Madikian v Chief Commissioner of State Revenue [2017] NSWCATAD 263; that is, it might be appropriate for the Chief Commissioner to remit the premium component of interest where:

1. all principal tax that has been assessed and is not in dispute has been fully paid at the time of the request for remission of interest;
2. there has been co-operation by the taxpayer in providing relevant information to the Chief Commissioner so as to enable the Chief Commissioner to issue assessments;
3. such co-operation by the taxpayer has occurred prior to any investigation being commenced by the Chief Commissioner (voluntary disclosure) or, at the very least, within a reasonable time after requests for information have been made by the Chief Commissioner – i.e. the taxpayer has taken reasonable care; and
4. there has been no wilful default by the taxpayer in not paying tax on time.

The Tribunal decided that the Applicants satisfied this criteria for remission of the premium component prior to 25 September 2015. The Tribunal also remitted the market rate for the 2008 tax year, based on correspondence and conversations between the applicants and OSR (Revenue NSW) staff which led the Applicant to believe the concessional period to build their home had not expired.

The Tribunal decided the premium and market components of interest accruing from 25 September 2015 should not be remitted apart from a 1 month period in early 2017 during which the Applicants believed the 4-year period to build their home had not expired, based on advice from OSR.

Link to decision

Heckenberg v Chief Commissioner of State Revenue [2019] NSWCATAD 104