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B&L Linings Pty Ltd v Chief Commissioner of State Revenue (2008) 74 NSWLR 481 Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19 Deverich v Chief Commissioner of State Revenue [2009] NSWADT 198 Knight v Chief Commissioner of State Revenue [2008] NSWADT 83 RVO Enterprises Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 64 Sobhani v Chief Commissioner of State Revenue [2009] NSWADT 198
Background
On 23 November 2015, the Applicants entered into a contract (Contract) with Logue Homes Pty Limited for the purchase of a property, being a lot in a freehold strata scheme development undertaken by the vendor, located at Gregory Hills (Property).
On 12 December 2016, the Applicants lodged an application for concession from duty with the Chief Commissioner (Concession). They subsequently paid transfer duty on the Contract on the basis that the Concession was allowed.
On 3 March 2017, Camden Council issued an interim occupation certificate for the Property. On or about 7 March 2017, the Applicants entered into occupation of the Property under an occupancy agreement with the vendor.
On 9 July 2017, Mr Kirkovski’s then full-time employment was terminated.
On 22 July 2017, the Applicants entered into a selling agency agreement with a real estate agent for the marketing and sale of the Property.
On 3 August 2017, the Applicants entered into a contract for the purchase of a vacant residential block in Oran Park (Oran Park Property). On 15 August 2017, Mr Kirkovski received an offer of employment from a new employer which he accepted on 16 August 2017.
On 16 October 2017, the Applicants’ purchase of the Property under the Contract settled.
On 20 October 2017, the Applicants entered into a contract for the sale of the Property.
On 24 October 2017, the Applicants were registered as the registered proprietors of the Property.
On 25 October 2017, the Applicants lodged with the Chief Commissioner an application for a grant under the First Home Owner Grant (New Homes) Act 2000 (NSW)(FHOG Act) (Grant).
On 27 October 2017, the Grant was paid to them in the value of $15,000.
On 7 November 2017, the Applicants’ purchase of the Oran Park Property settled.
On 4 December 2017, the Applicants’ sale of the Property settled.
The Statutory Framework
Concession
At the relevant time, Div 1 of Pt 8 of Ch 2 of the Duties Act 1997 (NSW) (Duties Act) provided for a scheme under which a concession or exemption from transfer duty on certain acquisitions of land was allowed which was intended to help people acquiring their first home.
In particular, s76 of the Duties Act limited the availability of the exemption or concession as follows:
76 Residence requirement
The home must be occupied by the first home owner or one of the first home owners who is acquiring it as a principal place of residence for a continuous period of at least 6 months, with that occupation starting within 12 months (or such longer period as the Chief Commissioner may approve) after completion of the agreement or transfer. This requirement is referred to as the residence requirement.
The Chief Commissioner may, if satisfied there are good reasons to do so in a particular case:
modify the residence requirement by approving a shorter period of occupation by a first home owner, or
exempt a first home owner from the requirement to comply with the residence requirement.
In the case of an agreement or transfer for the acquisition of a vacant block of residential land, it is sufficient that the Chief Commissioner is satisfied that the vacant block is intended to be used as the site of a home to be occupied by the first home owner or one of the first home owners who is acquiring it as a principal place of residence.
(Repealed)
For the purpose of this section, an agreement or transfer is completed when a purchaser or transferee becomes entitled to possession of the home and, if the interest in the land acquired by the purchaser or transferee is registrable under a law of the State, the interest is so registered.
Grant
One of the eligibility criteria for the Grant was in s 12 of the FHOG Act which provided as follows:
12 Criterion 5 - Residence requirement
An applicant for a first home owner grant must:
commence occupation of 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 the period approved by the Chief Commissioner under this section, and
occupy the home as a principal place of residence for a continuous period of at least 6 months or the period approved by the Chief Commissioner under this section.
This requirement is referred to in this Act as the residence requirement.
The Chief Commissioner may, if satisfied there are good reasons to do so, do either or both of the following:
approve the commencement of occupation by the applicant of the home to which the application relates as a principal place of residence more than 12 months after completion of the eligible transaction,
approve the occupation of the home as a principal place of residence for a period of less than 6 months.
The Chief Commissioner may, if satisfied there are good reasons to do so, exempt an applicant from the residence requirement.
An approval or exemption under this section may be given by the Chief Commissioner at any time, even if the period of 12 months after completion of the eligible transaction has already expired or the applicant’s occupation of the home as a principal place of residence has already ceased.
Section 13 of the FHOG Act relevantly provided as follows:
13 Eligible transactions
An eligible transaction is:
a contract made on or after 1 October 2012 for the purchase of a new home in New South Wales, or
a comprehensive home building contract made on or after 1 October 2012 by the owner of land in New South Wales, or by a person who will on completion of the contract be the owner of land in New South Wales, to have a new home built on the land, or
the building of a new home in New South Wales by an owner builder if the building work commences on or after 1 October 2012.
A contract is a contract for the purchase of a home if the contract is a contract for the acquisition of a relevant interest in land on which a home is or is to be built under the contract by or on behalf of the vendor.
An eligible transaction is completed when:
in the case of a contract for the purchase of a home:
the purchaser becomes entitled to possession of the home under the contract, and
except in the case of a terms contract, if the purchaser acquires an interest in land under the contract that is registrable under a law of the State - the purchaser’s interest is registered under that law, or
in the case of a contract to have a home built—the building is ready for occupation as a place of residence, or
in the case of the building of a home by an owner builder—the building is ready for occupation as a place of residence.
Submissions
The Applicants submitted that the Contract was not for the purchase of a home but for the construction of a home on vacant land, or in other words, the eligible transaction fell within s 13(1)(b) of the FHOG Act. The consequence of that submission was that the relevant completion date under s 13(5)(b) was when the building was ready for occupation as a place of residence.
Further, the Applicants sought to have the residence requirement considered satisfied by reason of their occupancy of the Property from 7 March 2017 until early December 2017. They also referred to the effect of the termination of Mr Kirkovski’s employment on their financial circumstances. The Tribunal interpreted this submission as a request for waiver of the full residence requirement on the basis that the adverse change in their economic situation amounted to good reason to waive the full residence requirement.
Decision
Nature of eligible transactions
The Tribunal accepted the Chief Commissioner’s submission that the Contract was an eligible transaction within the meaning of s 13(1)(a) of the FHOG Act, namely, “a contract made … for the purchase of a new home in New South Wales:” [25].
In support of its characterisation of the Contract as an eligible transaction under s 13(1)(a), the Tribunal cited the following reasons ([27]):
Section 13(2) of the FHOG Act provides that “a contract for the purchase of a home” is a “contract for the acquisition of a relevant interest in land on which a home is or is to be built under the contract by or on behalf of the vendor.” Under s 5(2)(a) of the FHOG Act, a “relevant interest” includes “an estate in fee simple in land.”
The relevant provisions of the Contract fall squarely within the above definition since the Contract provides for the Applicants to acquire an interest in land on which the vendor, between the making of the Contract and settlement of the Contract, is to build a home.
Paragraphs (b) and (c) of s 13(1) deal with different situations, where the prospective first homeowner either personally (paragraph (c)) or under contractual arrangements with a builder (paragraph (b)) procures the construction of the proposed home. In these cases, the homeowner assumes the primary economic and legal risk of completing construction of the home, subject to any contractual arrangements with the builders or contractors engaged by the homeowner.
In the circumstances of paragraph (a) however, it is the vendor of the land, not the purchaser, who bears the economic and legal risk in constructing the home. It is the vendor’s responsibility to bring the home to completion and it is the vendor who bears the risk of doing so.
Residence requirement
The Tribunal recognised the consequence of characterising the Contract as a contract for the purchase of a home (per s 13(1)(a)), namely, that s 13(5)(a) provides that such an eligible transaction is completed when:
the purchaser becomes entitled to possession of the home under the relevant contract; and
the purchaser’s interest in land acquired under the contract is registered under the applicable real property legislation.
Therefore, the relevant completion date for the Contract was 24 October 2017 when the Applicants were registered as registered proprietors of the Property: [29]. This meant that any occupation of the Property by the Applicants before 24 October 2017 could not count in determining whether they satisfied the residence requirement under s 12 of the FHOG Act, even though they had occupied the Property for between 8 and 9 months in total.
The completion date of the relevant agreement under s 76(5) of the Duties Act was also the date on which the Applicants’ interest in the Property was registered under New South Wales law, that is, 24 October 2017: [32].
Accordingly, the Tribunal held that the Applicants did not satisfy the residence requirement either under the FHOG Act or the Duties Act.
Modification of residence requirement
Both the Duties Act and the FHOG Act provided for the Chief Commissioner to modify, or relieve the Applicants from compliance with, the relevant residence requirement: see s 76(2) Duties Act and ss 12(3)(b) and 12(4) FHOG Act.
The Tribunal accepted that the Applicants’ occupation of the Property from 7 March 2017 was consistent with a real bona fide intention to occupy and use the home at that time, consistent with the bona fide intention described in authorities including Sobhani v Chief Commissioner of State Revenue [2009] NSWADT 198 (at [53]) and Deverich v Chief Commissioner of State Revenue [2010] NSWADT 268 (at [48]).
However, SM Boxall considered that something more than the simple fact that the Property was occupied before completion of the Contract is necessary to provide a “good reason” to enliven the Chief Commissioner’s discretion. The Applicants’ occupation of the Property before completion of the Contract cannot of itself be either “a change in circumstances after the purchase of the home” or “an impediment beyond the control of the applicant [that] prevents the occupation of the property for a continuous period of six months” of the kind contemplated in Sobhani and Deverich: [38].
The facts that (1) the Applicants entered into a contract to purchase the Oran Park Property two weeks before Mr Kirkovski secured alternative employment, and (2) Mr Kirkovski accepted an offer of new employment within five weeks of the termination of his previous employment both tend against the submission that the Applicants were forced to dispose of the Property due to difficult financial circumstances: [41].
Moreover, by the time of the application for the Grant, the Applicants had already entered into a contract for the sale of the Property and therefore could no longer have had any intention for the Property to be their home: [42].
Interest and penalty
In relation to interest and penalty on the Concession, the Tribunal held that (1) the imposition of interest was standard and in accordance with ss 21 and 22 of the Taxation Administration Act 1996 (TAA), and (2) the imposition of penalty tax at the rate of 20% on the duty forgone was a routine application of penalty tax under s 26 of the TAA, at the reduced rate provided for in s 29 which reflects the Applicants’ cooperation with the investigation: [53].
As to the penalty on the Grant, the Tribunal had regard to the relevant factors outlined in the decision of Knight v Chief Commissioner of State Revenue [2008] NSWADT 83 at [33]. Balancing all the relevant factors, the Tribunal concluded that the Chief Commissioner had acted within his power in imposing penalty under s 45(3) of the FHOG Act and reached a result consistent with having undertaken an assessment of the factors relevant to the exercise of his discretion: [59] – [64].
Orders
The Tribunal confirms under s 101(a) of the Taxation Administration Act 1996 the Respondent’s decision on 13 September 2021 in Duties Notice of Assessment Number 10195351-002.
The Tribunal confirms under s 29(1)(a) of the First Home Owner Grant and Shared Equity Act 2000 the Respondent’s decision on 10 September 2021 in First Home Owner Grant Assessment Notice concerning Application ID UIN2243564.
