Wang v Chief Commissioner of State Revenue [2023] NSWCATAD 1

Background

The First and Second Applicant were spouses who jointly owned a residential property in Sydney (“Property”). The Applicants were separately assessed for Surcharge Land Tax in respect of the Property under s. 5A of the LTA. The First Applicant sought review of her land tax assessment for the 2021 tax year and the Second Applicant sought review of his assessments for the 2017 to 2022 land tax years.

From 2016 to 2018, the Applicants moved out of the Property in order to live nearer to their child’s school and rented the Property to others while they lived in a rented house. The Property was leased to various tenants during this period except for six days in 2016. In 2019 the Applicants upgraded the kitchen in the Property as they did not intend renting the Property out again.

The Applicants travelled to China in early 2020 with their child to live with the First Applicant’s parents. The First Applicant returned to Australia in September 2021, having been unable to return earlier due to the COVID-19 pandemic. The Second Applicant remained in China, stating that he felt obliged to stay in order to care for the elderly parents of the first Applicant.

The Second Applicant stated that at all times from 2016 he lived in the Property for various periods and regarded it as his principal place of residence, even when he was overseas or lived elsewhere in Sydney. The Applicants again rented the Property out on a temporary basis while they were staying in China.

The Statutory Framework

Surcharge Land Tax

Section 5A of the LTA provides that for the 2017 land tax year and subsequent years, Surcharge Land Tax is payable in respect of all residential land owned by “foreign persons”, within the meaning of the LTA, as at midnight 31 December of the year directly preceding the relevant land tax year.

For the purposes of the LTA, an individual is a “foreign person” at a given time if that person is not an Australian citizen ¹ and is not “ordinarily resident” in Australia.² For these purposes, a person is “ordinarily resident” in Australia if the person satisfies both of the following conditions:

1. The person has been in Australia for 200 or more days in the 12 months preceding the relevant time or date (“200-day requirement”); and
2. As at that time, the person is either:

• in Australia and the person’s continued presence in Australia is not subject to any limitations as to time imposed by law; ³
• not in Australia, but immediately before the person’s most recent departure from Australia, the person’s continued presence was not subject to any limitation in time imposed by law. ⁴

Both Applicants met the definition of ‘foreign person’ under s. 4 of the Foreign Acquisitions and Takeovers Act 1975 (Cth) as applied by the LTA during the relevant periods.

Section 5B of the LTA provides for an exemption from Surcharge Land Tax in respect of residential land if it is used and occupied as the owner’s principal place of residence.

Section 5B relevantly provides:

A person is eligible for an exemption from liability to pay surcharge land tax in respect of residential land for a land tax year because the land is the principal place of residence of the person only if—

• The person is a permanent resident at midnight on 31 December of the previous year (ie at the taxing date), and
• the Chief Commissioner is satisfied that, during the land tax year, the person intends to use and occupy the land as the principal place of residence of the person in accordance with the residence requirement, and
• the person lodges a declaration with a land tax return required to be furnished under section 12 of the Principal Act for the land tax year to the effect that the person has that intention.

The person must use and occupy the land as the person’s principal place of residence for a continuous period of 200 days in the land tax year. This requirement is referred to as the residence requirement.

The Chief Commissioner submitted that the Applicants did not satisfy the residence requirement in s. 5B(2) during the relevant period, and accordingly were not exempt from Surcharge Land Tax.

Issues for Determination

Senior Member Perrignon stated the material issues to be:

1. Whether the Applicants fell within the definition of ‘foreign persons’ in each relevant tax year.
2. In respect of the First Applicant, whether she used and occupied the Property as her principal place of residence in 2021 and satisfied the 200-day requirement in section 5B.
3. In respect of the Second Applicant:

• In respect of the 2017 tax year, whether any exemption was afforded by the legislation and, if so, whether he satisfied the criteria for eligibility.
• In respect of the 2018 and later tax years, whether he used and occupied the Property as his principal place of residence, satisfying the 200-day requirement in section 5B.

Decisions

2017 tax year

Senior Member Perrignon found that the Second Applicant’s application for review could not succeed in respect of the 2017 tax year as the principal place of residence exemption was not provided for in the legislation until the 2018 tax year. As there was no discretion in the LTA for the Chief Commissioner to exempt a taxpayer from tax on the grounds of unfairness, the assessment for 2017 was confirmed.

2018 tax year

As the Applicants leased the Property during this tax year, they did not continuously occupy it for a period of 200 days throughout the tax year. Senior Member Perrignon accordingly confirmed the assessment for 2018.

2019 tax year

As it was accepted that the Second Applicant used the Property for two discontinuous periods equalling 94 days during this tax year, the question for determination was whether he also used and occupied it as his principal place of residence while he was overseas for a further period of 106 days. While the Second Applicant’s intention to reside in the Property as soon as circumstances allowed was relevant, it was not determinative. Senior Member Perrignon was not satisfied that the Second Applicant occupied the Property as his ‘principal’ place of residence for 200 continuous days during the 2019 tax year as he had chosen to reside in China during this time and was not compelled to stay there by external circumstances.

2020 and 2021 tax years

Senior Member Perrignon was not satisfied that the 200-day residence requirement was satisfied in these years as the Property was leased to tenants during this time, meaning neither of the Applicants satisfied the principal place of residence requirement.

2022 tax year

Senior Member Perrignon was not satisfied that the Second Applicant’s use and occupation of the Property had been of a permanent character, nor that it had been his ‘principal’ place of residence as he had been living outside Australia for the whole of 2022 and had only been in Australia for 18 days since 2020. Accordingly, his use and occupation of the Property had been “of a transient or temporary nature” for some years.

Orders

The Tribunal decided that the land tax assessment for the First Applicant in respect of the 2021 tax year was confirmed, and the land tax assessments for the Second Applicant in respect of the 2017, 2018, 2019, 2020, 2021 and 2022 tax years were confirmed.

Link to the decision

Footnotes

1. Land Tax Act 1956 (NSW) (“LTADuties Act 1997 (NSW) (“Duties Act”), s. 104J(2)(a).
2. Land Tax Act 1956 (NSW) (“LTA”), s. 2A, read with Duties Act 1997 (NSW) (“Duties Act”), s. 104J(1) and Foreign Acquisitions and Takeovers Act 1975 (Cth) (“FATA”), s. 4 (definition of “foreign person”); see also LTA, s. 5A(6) (now repealed), as applicable before 5 March 2018.
3. LTA, s. 2A, read with Duties Act, s. 104J(1) and FATA, s. 5; see also LTA, s. 5A(6) (now repealed), as applicable before 5 March 2018.
4. Ibid.