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Land tax – don’t venture too far from home for too long. The taxman is waiting!

Poor Mr Ghali. He seemed to be trying to do the right thing.  He separated from his wife of 20 years and let her stay in the former matrimonial home, which they jointly owned (house 1).  He even let her in on the deal to buy himself a new house by making her a joint owner (house 2).  Mrs Ghali then wanted an upgrade to house 1.  (She liked what he had “done with the place” at house 2 and why shouldn’t she be allowed to have the same standard of home?)

So being the nice guy he is, Mr Ghali agreed not only to renovate house 1 but to also move out of house 2 and into house 1 while the renovations were happening, and for Mrs Ghali to move into house 2 with all of her furniture.  For 6 long years Mr Ghali toiled to fix up house 1!  And then they swapped back.

But no good deed goes unpunished.  The Office of State Revenue came a knockin’. They claimed Land Tax on house 2 for 3 of the 6 years Mr Ghali was busy with the renovations.

Mr Ghali objected, saying that house 2 was his principal place of residence and so exempt from Land Tax (Land Tax Management Act 1956 (NSW) s10(1)(r) and Sch. 1A).  The Chief Commissioner rejected the objection.

So off to the Administrative Decisions Tribunal they went where in Ghali v Chief Commissioner of State Revenue [2011] NSWADT 261 Judicial Member Perrignon agreed with Mr Ghali.  You see!  Good guys don’t always finish last.

“No ways!” said the Commissioner, and on appeal they went to the ADT Appeal Panel where in Chief Commissioner of State Revenue v Ghali (RD) [2012] NSWADTAP 20 a 3 person panel granted the appeal and found Mr Ghali liable.

”Can’t be!” said Mr Ghali.  “Good guys don’t finish last” he said.  And so he appealed to the NSW Court of Appeal.

The NSWCA decision was handed down on 17 October 2013 in Ghali v Chief Commissioner of State Revenue [2013] NSWCA 340 (judgment by Judge of Appeal Basten, with Acting Judge of Appeal Tobias and Judge McDougall agreeing).

Mr Ghali’s argument all along was, in essence, that house 2 was his principal place of residence. He had only moved out temporarily so that his wife could have a place to stay while he was busy with the renovations at house 1.

Mr Ghali’s problem is the way in which the section granting the exemption for Land Tax for a primary residence is worded.  It states:

“Principal place of residence exemption

(1) Land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under this Act …

(2) Land is not used and occupied as the principal place of residence of a person unless: 

(a) the land, and no other land, has been continuously used and occupied by the person for residential purposes and for no other purposes since 1 July in the year preceding the tax year in which land tax is levied, …”

The problem for Mr Ghali is the underlined wording.  Due to his moving out of house 2, he could not be said to be in continuous use and occupation of that property.  The Court of Appeal found that, although he may have intended to return to house 2 one day and so was only temporarily not in use and occupation, subsection (2) shot down this argument as it, in specific terms, required continuous use and occupation.  It was simply a matter of fact as to whether Mr Ghali was in use and occupation during the period in question. Issues of future intention did not enter the question.

So that was that for Mr Ghali.  Appeal dismissed, and with Mr Ghali to pay the Office of State Revenue’s costs, just to rub salt into the wounds.

So what is the moral of the story (other than that nice guys always finish last)?  Tax laws can be confusing and can have a sting in the tail.  One should obtain proper tax advice each year and should tell their advisors everything to do with their dealings.  Even if the detail may seem irrelevant.  Mr Ghali probably wishes he had done so.

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NSW Court of appeal extends liability of builder’s for losses suffered by subsequent owners of commercial property

When an owner bought a commercial property from a developer, it was previously thought that the owner could not make a claim for losses he suffered due to defective building work performed under the contract between the builder and the developer.

An owner of residential premises was protected by section 18D of the Home Building Act 1989 (NSW).  This section provides that successors in title to property are protected by the Statutory Warranties in the Act.  So if you buy a residential property and defects emerge from building work done before you bought it, you will have a claim against the builder (provided you bring the claim within the stipulated period, which is 6 years for a breach that results in a structural defect or 2 years in any other case).  But no such statutory warranty is in place for a buyer of commercial premises.

The NSW Court of Appeal, in a judgment handed down on 25 September 2013, has decided that a claim can be brought by a purchaser for latent defects resulting from unworkmanlike building.  In The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd, judges Basten, MacFarlan and Leeming all agreed that the general law could impose a duty of care on a builder that would extent to subsequent owners of commercial premises.

This is a far-reaching and novel development in the law.  Indeed, the respondent in this appeal (Brookfield) argued that it should not be liable as such a duty has never been previously recognised in the law and it was entirely novel, meaning that liability should not be upheld. Brookfield also argued that, as the legislature had not seen fit to pass a law creating such a duty, it was not the provence of the courts to do so.

The court was not persuaded by these arguments. The court also looked to other jurisdictions and said that similar liability had been found to exist in those jurisdictions, namely the Appeal Division of the Supreme Court of Victoria, the Supreme Court of Canada, New Zealand and Singapore.

The impact of this case is that if defects emerge in a property that you have recently acquired, whether residential or commercial, you may have a claim against the builder for these defects despite the fact that you did not contract with the builder and may not even know who he/she is.

Contact Drayton Sher Lawyers should you wish to pursue such a claim or if you require advice with respect to your building and construction law rights.

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Get your will done or your descendants may face the consequences

We, at Drayton Sher Lawyers, are often amazed to find out how many people out there do not have Wills in place or who have outdated wills that they have never bothered to redo.  It’s bizarre because it is not a particularly difficult thing to get done.  We can only guess it’s because people don’t like to face death.  But, perhaps contrary to what you believe, you will die one day.  You’ve heard it before: There are only 2 certainties – death and taxes.  (And by the way, our tax department welcomes your calls also).

As a decision handed down by the NSW Court of Appeal on 15 October 2013 shows, it is better to get your Will sorted out because you can’t come back afterwards and tell everyone what you really intended.

Sion v NSW Trustee & Guardian involves the late Mr and Mrs Chamita.  They married in 1954.  They had no children.  They made Wills in 1966, in similar terms, leaving their property to each other and if the other should predecease then to an aunt and cousins in New York.

Mr Chamita made a new Will in 2001 in which he left the income of his estate to Mrs Chamita for life and after her death for the estate to go to 9 nieces and nephews of his wife (his wife’s sibling’s children).

Mr Chamita died in 2005 and Mrs Chamita died in 2009.  So based on the above, the New York cousins were to inherit, as were the 9 nieces and nephews.

It emerged in evidence in Court, at the first hearing in front of Judge Bergin, that the 1966 Wills had been made as they had as both Mr and Mrs Chamita felt an obligation to his New York aunt as she had protected Mt Chamita from the Nazis in World War II.  Mr Chamita, however, changed his Will in 2001 as his aunt had predeceased him.  Unfortunately Mrs Chamita could not likewise change her Will in 2001 as by this stage she was suffering from senile dementia.

The Chamitas had had over 30 years to change their Wills but had not done so, with the result that Mrs Chamita’s final wishes may not have been carried out.

But the case get’s a little bit more complicated and a bit stranger still.  The Appellants are 3 of the nieces and nephews of Mrs Chamita who inherited in terms of Mr Chamita’s will.  They claimed that during 1997 Mr and Mrs Chamita had entered into an agreement with them (or represented to them) that if the three of them looked after Mr and Mrs Chamita, they would leave their entire estates to them.  The Appellants set out detailed evidence of the conversations that lead to this “agreement”.

Judge Bergin found that the Appellants had not succeeded in proving the alleged agreement and questioned also if Mrs Chamita could, in fact, have made such agreement as she had senile dementia.

In the Appeal, Judges Basten, Barrett and Emmett agreed with Judge Bergin.  In addition to the grounds raised by Judge Bergin for her decision, the Judges of Appeal also referred to the authority of Bovaird v Frost [2009] NSWSC 337 where the Court found that, as a matter of human experience, when family members make promises to each other it is unlikely that they intend these to be legally binding.  The law presumes that family members do not intend to contract, on the formal sense, when making arrangements amongst themselves.

So the Appeal failed and the poor Appellants could only get their share along with their 6 co-beneficiaries.

The question that remains is why Mr and Mrs Chamita did not change their Wills to reflect the alleged agreement between them and the Appellants?  There are only 2 possible answers: firstly, they never got round to it; or secondly, that there was no such agreement with the Appellants.

This case illustrated how not updating Wills regularly can have an impact on those left behind.  A well drafted and accurate Will should be made by everyone wanting to be clear about what happens with their property after death.

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What happens on tour, stays on tour – high court decides that your employer can concern itself with your sexlife

The case raised in this posting has been in the newspapers quite a bit, and for good reason I suppose as it is to do with sex, and especially sex “on tour”.  What sells newspapers better than stories of sex?  It is reported as Comcare v PVYW and was decided by the High Court on 30 October 2013.

If you don’t know about it, the simple facts are that Miss X was employed by the Commonwealth government and was in regional NSW for work training.  While there she took the time to have sex one evening with someone who we can glean must have been a new flame.  During this ‘intercourse’ the glass light fitting above the bed was pulled from its mount by one of them and it struck Ms X in the nose and mouth.  We glean that the other party must have been a new flame as, as we all know, this sort of intercourse only occurs between new flames.

Miss X was injured and so claimed against the Commonwealth government’s insurer.  (How one would love to know what answer was given to the question in the claim form “Please describe, in detail, how the injury occurred.  If possible, attach a diagram or photos that will assist in this explanation.”)

The insurer rejected the claim on the basis that the injury was not suffered by Miss X “in the course of employment”.

After three previous hearings (in the Administrative Appeals Tribunal, the Federal Court and the Full Federal Court), the case found its way to the High Court.  In deciding on the matter, the High Court was divided, with 4 Judges saying that Comcare wasn’t liable to cover Miss X and 2 saying they were.

It has long been accepted that the “course of employment” extends beyond the work which a worker is employed to do to include things that are incidental to employment, such as having a lunch break and if required staying away from home for a period.

The central issue the High Court had to grapple with was how far should cover should be extended for employees injured while not specifically at work but while in an interlude between work duties.  The High Court had already decided on this issue in 1992 in Hatzimanolis v ANI Corporation, so the Judges in this case had to decide how to apply Hatzimanolis’s to the facts of this case.

The Judges interpreted the test set out in Hatzimanolis’s case differently.  The majority found that if an employee is injured while not actually engaged in work it must be asked what the employee was doing when injured. The Court found that in some cases, the injury will have occurred at and by reference to the place. But more commonly, it will have occurred while the employee was engaged in an activity.  When an activity was engaged in at the time of injury, the question is: did the employer induce or encourage the employee to engage in that activity? When injury occurs at and by reference to a place, the question is: did the employer induce or encourage the employee to be there?  If the answer to the relevant question is affirmative, then the injury will have occurred in the course of employment.

The minority did not like the application of 2 different tests by the majority.  Their view was that this was not what Hatzimanolis’s case required.  To them the case stated that an injury that an employee sustains at a place where an employer has induced or encouraged the employee to be during an interval or interlude in an overall period or episode of work is, without more, properly to be characterised as an injury in the course of the employee’s employment, unless the employee is engaged at the time of the injury in gross misconduct. They said further that it was not necessary that the employee, during that interval or interlude, also be undertaking a particular activity which the employer has expressly or impliedly induced or encouraged the employee to undertake. Nor, absent gross misconduct, is any inquiry into particular private activity of the employee relevant.

The minority found that it was not the business of an employer to concern itself with what an employee was up to in their private time. They stated that Hatzimanolis had established that:

“Gone is the artificial fragmentation of an interval or interlude in an overall period or episode of work spent by an employee at a particular place at the inducement or encouragement of an employer into yet shorter periods of time each of which is to be further separately accounted for and discretely related to the employment relationship. Gone also is the intrusive inquiry that such artificial fragmentation entails into personal choices made by an employee, hour-by-hour or minute-by-minute, during an interval or interlude.”

The standard nowadays was simply that “…it is sufficient for an injury sustained by an employee during an interval or interlude in an overall period or episode of work to be in the course of the employee’s employment that the employee is where the employee would not be but for his or her employment, and is doing what a man or woman so employed might do without gross impropriety.” The test applied by the majority was, in the words of Judge Gageler “… inconsistent with the Hatzimanolis principles; it is a return to the outmoded, artificial and intrusive form of analysis that the Hatzimanolis principles were formulated to overcome.”

So what do you think?  Does the effect of the majority’s decision seem to be a bit strained?

It means that if you injure yourself in your hotel room by slipping and falling in the shower you are covered or even if you are asleep and the light fitting falls out and hits you in the head you are covered, but if you are engaged in a liaison in the same hotel room and you cause the light fitting to fall you are not.  Is this a valid distinction?  Should an employer concern itself with what an employee does in his or her spare time?  Misconduct is not covered by insurance – is that not enough of a limit?

Certainly, it would seem that what happens on tour, stays on tour.

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Caveats over property: not hard to register but they can be costly if wrongly done

Let’s start with what a caveat is. A caveat is a notation on the title to a property by a person who claims that they have an “interest in land”. It is recorded with “Land & Property Information (NSW)” and acts to stop the proprietor from dealing with the land in any way. Examples of those with interest in the land are a purchaser of land who can place a caveat pending settlement, a lessee, or a person who has contributed to the purchase price of the property to stop the proprietor selling without him/her getting back their contribution. Recording the caveat consists of filling out the right form, which is a brief document, and paying the necessary fee. A fairly quick and easy process.

But the caveator must have “an interest in the land” and this is sometimes (or often) abused. In the case of Pascoe & Robinson (as Trustees for 124 Tennyson Rd Gladesville) v Michael James & Ors, decided last week, the Supreme Court decided that the defendants had done exactly that – they had lodged “unmeritorious” caveats over the land in question. A caveator is meant to lodge a caveat only with “reasonable cause” and where he fails to do so damages can be awarded against him/her.

Messrs Pascoe and Robinson had attempted to sell the land in question but were blocked due to the caveats put in place by the defendants. Pascoe and Robinson claimed that due to these unmeritorious caveats, they had suffered loss of interest due to the delay they suffered in receiving the proceeds of the sale as well as additional legal costs.

Judge Slattery found that the defendants were liable for the damages suffered by the plaintiffs. This, the Judge said, was based on the failure of the various caveators, as alleged suppliers of services, to deal with the registered proprietors in an attempt to resolve the issue of why the caveats were put in place. The defendants had also failed to explain the basis for their claim to have an equitable interest in the property. They made a vague assertion that their interests were based on invoices but could not sufficiently link these to the property. The Judge found that the defendants had no caveatable interest, had no actual belief that there was a caveatable interest in the Land, and had no reasonable grounds for holding such a belief.

The defendants were ordered to pay the plaintiffs about $8000 in lost interest and about $38000 in costs. They probably got off lightly.

Caveats can be a useful tool in protecting the interests of those who have legitimate claims to some interest in property, but they should be thought about carefully before being recorded. They are often lodged by people claiming an interest in land merely so as to frustrate the proprietor and in circumstances where there is absolutely no link to the land.

Before lodging caveats be certain that you do in fact have a ‘caveatable interest’ or interest in the land. If you do not, you, like Pascoe and Robinson, may find yourself facing an order to pay damages and legal costs.

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The Australian reports ‘ato targets rich Aussies’ offshore accounts’ (19 november 2013)

So this is news?  And it’s on the top of page 5.  (Surely this should be on the bottom of page 8 or 9.)

If you haven’t heard of Project Wickenby, you either haven’t been listening or you have decided to not want to hear. If you are one of those people, Project Wickenby is the seemingly innocuous name for the ATO’s biggest ever investigation into offshore bank accounts held by Australians and offshore tax structures set up by Australians for the purpose of evading tax.  It’s been on the go for many years and if you ask the ATO they will proudly tell you hope many cheats they have nailed and that they have, thus far, recovered many millions in unpaid taxes (the article in the Australian puts it at $428 million, but we’ve heard the ATO claim more than that).

The article says that the ATO have now obtained details of the offshore bank accounts of 7000 wealthy Aussies and are going through these to see whether the people have been paying their fair share of tax.  But there’s more to come because there is a meeting of the Global Forum to be held in Indonesia this week dealing with transparency and exchange of information for tax purposes where there will be discussions about implementing a program for regular exchange of information between countries, including bank balances.  The ATO already has relationships in place with various tax havens for the exchange of information, such as Bermuda, Jersey, Singapore and the British Virgin Islands.  So the net is closing!

In case you are uncertain, here is the simple story as far as taxes go: You must pay every cent (yes, every cent) of tax you are liable for to the Australian government.  You cannot avoid tax with cute offshore schemes and you are not allowed to lie to them about what you owe.  If you don’t believe that paying your taxes is the right thing to do, let me assure you that you in all likelihood be found out anyway and if you are you will be in trouble.  This is especially so in light of the new developments with regards to exchanges of information, as set out in the article.  What kind of trouble? Penalties, interest, the unpaid tax and if you can’t pay this the ATO will bankrupt you and get their taxes that way.  Now that’s if you are lucky.  If you aren’t lucky you may even have to do some hard time.

So that’s the bad news.  The good news is that there is a way to fix your tax affairs and make things right with the ATO.  The ATO encourages voluntary disclosures of undisclosed offshore funds.  You’re not going to get off Scott-free but you may be able to avoid criminal liability and may have a chance for reduced penalties.  But you have to come forward before the ATO finds you.  If the ATO finds you first they are highly unlikely to offer you a deal.

Our staff have successfully handled such applications for clients and, dare we say, avoided the ATO throwing the book at them.  Give us a call, we can assist with the process before things get ugly.

Is the ATO legally bound to apply its Practice Statements? Macquarie Bank chances it hand and comes up short

I suppose it was worth a shot, although after you read this article some of you might say “What were they thinking?”

In essence what happened in Macquarie Bank v Commissioner of Taxation (decided by the Full Federal Court of Australia sitting in Melbourne on 24 October 2013) was that the Bank tried to tie the ATO to act in terms of a Practice Statement issued by it.  The Bank contended that it had relied on the ATO’s Practice Statement which “outlines procedures to be followed and the factors to be considered by tax officers in relation to any circumstance in which the ATO is considering applying its view of the law”. The practice statement also states that it “must be followed in any circumstance where a tax officer applies the ATO view of the law”.

The Bank contended that the Commissioner proposed to assess Macquarie by applying the ATO view of the law both prospectively and retrospectively but without following the procedures or acting in accordance with the practice statement.  The Bank sought to argue that the Commissioner had acted contrary to his earlier statement, conduct and position, and seeks, in substance, to have the process of determining its tax liability proceed on the basis of those statements, conduct and position.

What is most interesting, or bizarre, about this argument is that it was not the Bank’s case that it was not liable for the tax due.  It was rather that the Commissioner was not permitted to proceed to assess the Bank in a way that is contrary to a view he may previously have held unless, and until, the practice statement has first been applied.

A novel argument indeed!

The primary Judge concluded that the practice statement did not, and could not, operate to prevent the application of the ATO’s view of the law if it be correct. The correctness of the ATO’s view in raising an assessment, and its legal effect upon the making of an assessment (or re-assessment), could be challenged.  However, the practice statement itself could not prevent, or authorise, the Commissioner from acting upon a view of the law when raising an assessment or re-assessment.

As you might have expected, this argument did not even get out of the starter blocks.  The Commissioner challenged it on the basis of a rule of the Federal Court allowing a defendant to have a claim dismissed on the basis that the plaintiff has no reasonable prospect of success in prosecuting the claim.  The Full Court agreed that this was the case.

As the learned primary judge correctly observed, said the Full Court, the practice statement could not fetter the Commissioner’s duty of assessment or re-assessment where the law operated to impose liability nor could it fetter the lawful process of making an assessment to that end.  So what were they thinking?  Maybe that when it comes to paying tax, any challenge is worthwhile!

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Unscrupulous builders will use any trick in the book to try escape liability – Not this time says judge hammerschlag

So what was the trick the builder tried this time?  Quite an audacious one actually.  In terms of s80D of the Strata Schemes Management Act 1996 (NSW), an owners corporation (“OC”) of a building must not seek legal advice or commence legal action unless a resolution is passed at a general meeting of the OC approving this.

Now this requirement is in the Strata Schemes Management Act, and based on this, as well as a common sense reading of the section, one would assume that this is intended for the protection of unit owners within a building and not as a loophole through which a builder who has been sued can try escape.  But no, they saw the loophole and they tried to drive their ute through it.

In The Owners Strata Plan No. 73943 v 2 Elizabeth Bay Road Pty Ltd the OC claimed against the builder for breach of the statutory warranties set out in the Home Building Act 1989 (NSW) due to alleged defective building work carried out by the builder.  The OC retained lawyers to bring the claim and the claim was initiated before a resolution to this effect had been properly passed.  The resolution was, however, passed after the event.  And wouldn’t you have guessed it, the builder found this out and shouted “hey that’s my defence”?

The position is precisely summed-up by Judge Hammerschlag as follows:

“The defendant moves for an order that the proceedings be struck out or dismissed on the grounds that they were commenced “without lawful authority”.

It puts that the prohibition in s 80D(1) on initiating legal action is only capable of being removed by a resolution passed before the action is taken and that the plaintiff’s resolution passed afterwards is ineffective to remove it. It puts that the absence of a prior resolution is an insuperable statutory inhibition on the commencement of proceedings and denies them legal effect.

The plaintiff accepts, the point having been taken, that to further the action there must be compliance with s 80D(1). It says that the resolution of 7 March 2013 is compliance. It accepts that if this is not the case the action cannot proceed.

This gives rise to the following two related questions:

(a) are proceedings commenced without prior compliance with s 80D(1) of no legal effect, that is, a nullity?

(b) if not, can the bar to legal action imposed by s 80D(1) be lifted by a subsequent resolution?”

Maybe the builders thought they were lucky as there were two authorities relied on by them that found that a failure to pass a resolution at all in terms of s80D would render proceedings brought by an OC void.  However, in those cases, unlike the present, there was no resolution passed after the fact and, in at least one authority, the defence was raised by a unit owner – the very person s80D seeks to protect.

So Judge Hammerschlag’s answers to the questions in (a) and (b) above were no to the first question and yes to the second.  His conclusion was as follows:

“Division 3 of the Strata Schemes Management Act is directed to curtailing expenditure and more widely to minimising internal dispute by way of imposing requirements on processes internal to the owners corporation.

The words of s 80D(1) do not, let alone clearly, reveal an intention to take away any common law right of the plaintiff or to curtail the jurisdiction of the court to entertain a claim.

I do not consider that a statutory purpose of a provision directed to limiting expenditure (and then only above particular levels) without specific authority is to visit nullity on legal action taken and the possible forfeiture of common law rights even where the necessary authority is given ex post facto.”

A valiant attempt by the builder, but not this time.

The issue was raised as a preliminary point, so the case still needs to go to a hearing to be finally determined.  Maybe the builder should just put its pride in its pocket and instead of trying to drive his ute through the loophole, drive it back to the building, loaded with tools, to do the necessary repairs or, failing that, loaded with money to pay the OC.

My bet is they’ll try their luck at a hearing.  If they’ve got the guts to try the preliminary point, they’ll think of something to try at the hearing too.  Maybe they’ll draw Judge Hammerschlag again.  Because what goes around, comes around.  Especially when you’re dealing with loopholes.