Nguyen v Chief Commissioner of State Revenue [2022] NSWCATAD 354
Background
The Applicant is a citizen of Vietnam. On 15 October 2018, he was granted a Contributory Parent (subclass 143) permanent visa. On 13 June 2019, the Applicant executed a contract to purchase a property in Box Hill (the “Property”). In the 12-month period prior to the purchase of the Property the Applicant spent 114 days in Australia. Upon execution of the contract, the Applicant indicated to the Chief Commissioner that he was a citizen of Vietnam; that he was a “foreign” person; that he was an exempt foreign permanent resident who would occupy the Property as his principal place of residence for a continuous period of 200 days within the first 12 months after the liability date (the date of the agreement); and that the land acquired was vacant residential land.
On 18 October 2021, the Chief Commissioner determined that the Applicant was liable to pay surcharge purchaser duty and issued a Notice of Assessment of surcharge purchaser duty of $46,800 plus interest of $8,248.48. The Chief Commissioner remitted the interest from $8,248.48 to $392.37.
The Applicant objected to the assessment. On 7 March 2022, the objection was disallowed on the basis that the exemption in s. 104ZKA of the Duties Act did not apply, as the Applicant had not resided in the property as his principal place of residence for at least 200 continuous days in the 12-month period following acquisition of the Property.
The Statutory Framework
Duty on Transactions and Agreements for Sale
Chapter 2 of the Duties Act contains provisions relating to the imposition of duty on transactions concerning “dutiable property”. Section 8 provides that an agreement for sale or transfer of dutiable property is a relevant transaction for which duty is imposed under that Chapter. Section 12(2) provides that liability for duty arises when a transfer of dutiable property occurs, being the date the agreement for the sale or transfer of land is entered into (s. 9(2)).
Surcharge Purchaser Duty
Chapter 2A of the Duties Act contains provisions relating to the imposition of an additional “surcharge purchaser duty” on specific transactions involving foreign persons (see s. 104G). Section 104L(1)(a) provides that surcharge purchaser duty is chargeable on a transfer of “residential-related property” to a “foreign person”.
The definition of “foreign person” under the Duties Act is imported from the Foreign Acquisitions and Takeovers Act 1975 (Cth), with modification (Duties Act, s. 104J). Under the modified definition, a person is not a “foreign person” on the relevant date if that person is an Australian citizen or otherwise satisfies the following two requirements:
- The person has been in Australia for 200 or more days in the 12 months preceding the time (ie date) (“200-day requirement”); and
- As at the relevant 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; or
- 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.
Section 104N provides that, in respect of a surcharge duty transaction that is an agreement for sale or transfer, the transfer occurs at the time the agreement is entered into.
Section 104ZKA provides for an exemption from surcharge purchaser duty for certain permanent residents who use the subject property as a principal place of residence, as follows:
Section 104N provides that, in respect of a surcharge duty transaction that is an agreement for sale or transfer, the transfer occurs at the time the agreement is entered into.
Section 104ZKA provides for an exemption from surcharge purchaser duty for certain permanent residents who use the subject property as a principal place of residence, as follows:
104ZKA Exemption for certain permanent residents in respect of principal place of residence
- No surcharge purchaser duty is chargeable on a transfer, or an agreement for the sale or transfer, of residential-related property if each transferee under the transfer or agreement who would otherwise be liable to pay that duty is an exempt permanent resident.
- A transferee under a transfer or agreement is an exempt permanent resident if:
- the transferee is a permanent resident when a liability for duty charged by Chapter 2 on the transfer or agreement arises (or would arise but for a concession or exemption from duty under that Chapter), and
- the Chief Commissioner is satisfied that the transferee intends to use and occupy the residential land to which the residential-related property relates as a principal place of residence in accordance with the residence requirement.
- The residential land must be used and occupied by the exempt permanent resident as his or her principal place of residence for a continuous period of at least 200 days within the first 12 months after the liability date. This requirement is referred to as the residence requirement.
- The liability date is the date on which liability to surcharge purchaser duty first arose in respect of the share in the residential-related property transferred, or agreed to be transferred, to the exempt permanent resident.
- If the residence requirement is not complied with in relation to the residential land, the Chief Commissioner must assess or reassess the surcharge purchaser duty chargeable on the transfer or agreement as if the exemption under this section had never applied …”
Submissions
Applicant's submissions
The Applicant submitted that he should not be liable for surcharge purchaser duty on the following grounds:
- he was prevented from constructing a residence on the Property to use as his principal place of residence in accordance with s. 104ZKA of the Duties Act due to travel restrictions and delays in the building industry as a result of the COVID-19 pandemic;
- s. 104ZKA(4) of the Duties Act did not require the period of 200 continuous days to commence and end within the 12-month period but was instead satisfied if the resident moved into the property within 12 months of the liability date and occupied the property for at least 200 days thereafter; and
- in any event, the Chief Commissioner should exercise a discretion to exempt the Applicant from surcharge purchaser duty on the basis that it would be “unfair”.
The Chief Commissioner submitted that the Applicant was not eligible for the exemption in s. 104ZKA of the Duties Act because he did not use and occupy the Property as his principal place of residence for a continuous period of 200 days within 12 months of entering into the contract to purchase the Property.
Decision
The Tribunal found that the Applicant was not “ordinarily resident” in Australia at the time the dutiable transaction was entered into, being 13 June 2019, and was therefore liable to pay surcharge purchaser duty on the Property unless an exemption applied. This was because, although the Applicant was a permanent resident and his presence in Australia was therefore not subject to any limitation as to time, he had only been in Australia for 114 days in the 12 month period preceding 13 June 2019 and therefore the first limb of s. 5 of the FAT Act (as adopted by s. 104J of the Duties Act) was not satisfied.
The Tribunal confirmed that s. 104ZKA(4) required the Applicant to demonstrate that the Property was used and occupied by him as his principal place of residence for a continuous period of at least 200 days within the first 12 months after the liability date, contrary to the Applicant’s submissions.
The Tribunal found that the Applicant had failed to satisfy the residence requirement in s. 104ZKA(4) and therefore did not qualify for the principal place of residence exemption. The Tribunal noted that under the residence requirement the Applicant would have had to move into the Property by 26 November 2019, which was prior to lockdowns or border closures in Australia arising from the COVID-19 pandemic. The Tribunal held that, while the COVID-19 pandemic may have affected the Applicant’s ability to return to Australia from March 2020 and therefore would have affected planned construction work, it did not impact his ability to comply with the residence requirement.
The Tribunal confirmed that the Chief Commissioner does not have discretion to exempt a taxpayer from surcharge purchaser duty where the statutory criteria are not met, regardless of whether the imposition of the duty is “unfair” or “unjust” due to the COVID-19 pandemic. In any event, the Tribunal was not satisfied that the COVID-19 pandemic impacted the Applicant such that the imposition of surcharge purchaser duty was “unfair”, given that:
- a development application was not lodged until 14 October 2019;
- there was no evidence to suggest that the Applicant intended to build a granny flat on the property to use as his residence until March 2020; and
- the Applicant was required to enter Australia by 29 November 2019 and the travel ban was not imposed in Australia until March 2020.
The Tribunal was not satisfied that there was a basis for remitting the market rate component of interest imposed by the Chief Commissioner.[1] The Tribunal noted that, although the market rate component of interest may be waived in exceptional circumstances,[2] the facts of this case did not meet that standard because the tax default arose prior to the COVID-19 pandemic, and there was no evidence to suggest that the Applicant intended to build a granny flat on the property to use as his residence until March 2020.
Orders
- The Chief Commissioner’s assessment of surcharge purchaser duty is confirmed
Link to the decision