A decision of the Court of Appeal in October last year has confirmed the eligibility of first home buyers for the first home duty concession when purchasing a tenanted property.
In Commissioner of State Revenue v Di Sipio & Anor  QCA 198 the Commissioner of State Revenue applied for leave to appeal a decision of the QCAT Appeals Tribunal that the Respondents, Mr Christopher Di Sipio and Ms Vanessa Rotelone remained eligible to receive the first home duty concession under section 92 of the Duties Act even though they had allowed the existing tenants to reside in the property for longer than six (6) months after the purchase date.
Leave to appeal was granted however the appeal was ultimately dismissed.
CONCESSION ELIGIBILITY UNDER THE DUTIES ACT
Section 92 of the Duties Act provides for a concession for first home buyers if:
- a person acquires (whether through transfer, agreement to transfer, or vesting) residential land; and
- the transferee/s is at least 18 years of age on the day the liability for transfer duty arises;
- the residence will be the first home of the person; and
- the unencumbered value of the land is $500,000
For a residence to be considered a person’s home, they must move into it within 1 year of the transfer date.
A person will become disentitled to the concession if they ‘dispose’ of the land within 1 year of the transfer date. If the property is disposed of, the Commissioner may reassess the transaction and transfer duty will be imposed on the purchase.
Mr Di Silvio and Ms Rotelone purchased their first home in Aspley in 2011. They received a concessional rate of duty as first home buyers under section 92 of the Act.
Settlement of the purchase occurred in August 2011. The property had existing tenants at the time of the purchase, whose lease expired in April 2012, eight (8) months after the settlement date. One of the terms of the contract assigned the tenant’s covenants, guarantees and bonds to the Respondents at settlement.
The Respondents moved into the property on 7 April 2012, after the lease expired.
The Commissioner reassessed the transfer duty payable on the purchase on the basis that the respondents had ‘disposed’ of the property by leasing or granting exclusive possession of it to the tenant’s, and considered that they were no longer eligible for the first home concession.
The Respondent’s challenged this decision in QCAT.
At first instance, the QCAT member agreed with the Commissioner that the Respondents had in fact disposed of the property by granting exclusive possession to the Tenant’s before their occupation date.
Section 154(2) of the Act provides that for section 154(1)(b)(i) a transferee ‘disposes’ of land if the transferee ‘leases or otherwise grants exclusive possession’ of part or all of the land to another person, other than if:
- another person (the occupier) has exclusive possession of the land before the occupation date; and
- the occupier is the transferor or owner of the land immediately before the transfer, or has exclusive possession of the land under a lease granted before the transfer date; and
- the occupier vacates the land as soon as reasonably practicable or within six (6) months of the transfer date (whichever is earlier); or, for an existing tenant, vacates the land on the termination of the current term of the lease, or within six (6) months, whichever is the earlier.
Since the Respondents had not arranged for their tenant to vacate the property within six (6) months of the settlement date, the QCAT member agreed with the Commissioner that the property had been disposed of by the Respondents.
That decision was set aside on appeal to the QCAT Appeal Tribunal.
The Appeal Tribunal concluded that that there had been no ‘disposal’ of the property, as the Respondents had only purchased the reversionary estate. There was no privity of contract between the Respondents and the Tenants. It was held that the Respondents had not leased the land to the tenant’s within the meaning of s154(2), nor had they granted them exclusive possession. The tenant’s were already in exclusive possession of the property on the transfer date, and they continued in possession after the transfer by attornment with the Respondents.
The Court of Appeal unanimously upheld the decision of the Appeals Tribunal.
Holmes CJ in her decision to dismiss the appeal stated that “It is desirable that s154(2) be given its ordinary meaning; which would in my view, entail reading the words “leases or otherwise grants exclusive possession” in s154(2) as requiring a positive act in that regard, not the mere continuation of an existing state of affairs.”
According to Her Honour “there is no warrant for construing s154(2) as contemplating that a lease or grant or exclusive possession can occur merely by the transferee’s acquisition of a property subject to an existing lease. The fact that for many purposes the transferee may stand in the shoes of the lessor does not mean that a disposition of land has occurred. While the Act defines “lessor” as including an assignee of the lessor, nothing suggests that the conferral of that status in any way gives rise to an implication that the assignee has actually leased or otherwise granted possession of the land to the Lessee. Nor do s8(1) of the Residential Tenancies and Rooming Accommodation Act and s35(A) of the Acts Interpretation Act operate in conjunction so as to make an assignee a person who gives the right to occupy the residential premises.”
WHY THIS DECISION IS GOOD NEWS FOR FIRST HOME BUYERS
This decision is good news because means that first home buyers no longer have to be concerned about losing their eligibility for the first home concession if they purchase a property which is subject to an existing lease which has longer than six (6) months to run.
The decision does not affect a first home buyer’s obligation to occupy the residence as their home within 1 year of the transfer date. As a result, care must still be taken to ensure that any existing lease of the property will expire before that time.
First home buyers must also take care to ensure that they do not let existing tenants remain in the property after the expiry date of an existing lease, as this will constitute a disposal of the property and they will then lose the benefit of the concession.
Of particular note is that the result of this decision is not yet reflected in the explanation of ‘disposal’ given by the Office of State Revenue in its ’Guide to claiming a home or first home transfer duty concession.’ This guide currently informs home buyers that “You will need to make appropriate arrangements to ensure existing tenants vacate the property within 6 months of the transfer date.” Following the decision in Commissioner of State Revenue v Di Sipio & Anor  QCA 198, this is no longer a requirement, provided that the tenants do not remain in the property after their lease expires, and that they vacate in sufficient time for the buyer to occupy the property within 12 months of the transfer date.
This decision will be equally applicable to the Home Duty Concession, as s154 also applies to concessions granted under s91 of the Duties Act.