Downs v Chief Commissioner of State Revenue

[2002] NSWADT 51

CITATION:	Downs -v- Chief Commissioner of State Revenue [2002] NSWADT 51
DIVISION:	Revenue Division
PARTIES:	APPLICANT Regina Downs RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	016021
HEARING DATES:	07/01/2002
SUBMISSIONS CLOSED:	01/15/2002
DATE OF DECISION:	04/08/2002
BEFORE:	Verick A - Judicial Member
APPLICATION:	Taxation Administration Act - liability to pay interest
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Land Tax Management Act 1956 Taxation Administration Act 1996
CASES CITED:	Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 Olah v Chief Commissioner of State Revenue [2002] NSWADT 22
REPRESENTATION:	APPLICANT In person RESPONDENT G Van Emmerik, agent
ORDERS:	That this matter be remitted to the Chief Commissioner to take the appropriate action to adjust the amounts of interest included in the Land Tax assessments for the 1997 to 2001 tax years by remitting the premium rate components from the amounts of interest included in the assessments.

1 The applicant seeks a review of an objection decision made by the Chief Commissioner of State Revenue (Chief Commissioner) in relation to Land Tax assessments for the 1997 to 2001 tax years.

2 At issue is the applicant's claim which can be generalised as a claim for a remission of the whole or part of the interest included in the assessments for late lodgement of Land Tax returns for the relevant years.

3 The question at issue is essentially whether the Chief Commissioner should remit the whole or part of the interest by exercising his powers found in s 25 of Division 1 of Part 5 of the Taxation Administration Act (TA Act)

Background

4 The applicant was given as a gift by her mother a property in Paddington in 1992. Due to storm damage, this property remained unoccupied for three years. Since 1995 it has been a rental property of the applicant.

5 In 1995 the applicant acquired a property in Rooty Hill for occupation by her mother. But as her mother preferred to stay with the family the property was rented to tenants. However due to losses arising from this rental property, the applicant sold the property in March 1999.

6 In August 1996 the applicant acquired a property in Mount Druitt, which she has since occupied as her principal place of residence.

7 In addition to these two properties, the applicant also acquired in 1996 vacant land in Blackheath to build a future home.

8 As part of his on-going pursuit to include all properties subject to Land Tax in his assessment database, the Chief Commissioner sent to the applicant a notice of investigation on 20 November 2000. The notice was a "Land Tax Questionnaire" which requested particulars of properties owned by the applicant to determine land tax liability, if any, of the applicant.

9 The Chief Commissioner on receipt of this information proceeded to issue Land Tax Assessments to the applicant for years 1997 to 2001 that also imposed a penalty tax and interest at both market rate and premium rate on late lodgment of the relevant returns.

10 The applicant lodged on 22 August 2001 an objection against the assessments on the grounds that the Chief Commissioner should waive or remit all the penalty tax and interest included in the assessments.

11 The Chief Commissioner allowed the applicant's objection in relation to the penalty tax but disallowed the objection in respect of the interest included in the assessments.

The Taxpayer's case for remission of interest

12 The applicant, in her objection, claimed that she was not aware of her liability to Land Tax until she received the questionnaire from the Chief Commissioner. She also claimed that for some years she had relied on her tax accountants to prepare her tax returns but "there was no mention of applicable taxes to the properties I owned" by the accountants.

13 In her reasons for this application for review, she claims that her situation is genuine and that as she is going through "hardships" in the current environment and that the Chief Commissioner could, in those circumstances, "be a little lenient towards people like us".

14 In her written submission to the Tribunal, the applicant has further expanded her grounds. In particular, the applicant claims that the Chief Commissioner has incorrectly "labelled" her as an investor. In relation to the two principal properties, the Paddington house and the Rooty Hill property, the applicant claims they were acquired for family reasons. The Paddington house was given to her by her mother and remained unoccupied for three years due to storm damage to the property. The Rooty Hill property was acquired by the applicant for her mother "which she did not occupy because her mother ended up living with the family". The Rooty Hill property was sold as the applicant "was losing money on it".

The Chief Commissioner's case

15 The Chief Commissioner in his statement of reasons for decision for purposes of s 58 of the Administrative Decisions Tribunal Act (ADT Act) has provided the following grounds to support the interest imposed at both market and premium rates:

(a) " a tax default did occur by the failure to lodge a land tax return and was a culpable action by the taxpayer."
(b) " the majority of people who own property other than their home, see themselves as investors and take on investments in the full knowledge of all its ramifications - capital gains, negative gearing, yield, stamp duty, land tax etc." and
(c) " where the investor is unsure of or does not know of, the full ramifications, they usually seek professional advice."

16 An owner of property liable to land tax is required to lodge an "Initial Return" and no further returns unless the owner seeks for any reason to vary the land tax payable. Land Tax returns are required to be lodged under s 12 of the Land Tax Management Act (LTM Act) in accordance with orders published in the Gazette.

17 In the present matter the applicant had not lodged any returns as required by the law. The applicant has been assessed to land tax on the basis of the information that she furnished in the Land Tax questionnaire as requested by the Chief Commissioner.

18 As the applicant had failed to duly furnish any return, she is taken to have committed under s 72(1) of the LTM Act a "tax default" for the purposes of Part 5 of the TA Act.

19 Where a "tax default" occurs, interest is imposed under s 21 of the TA Act on the amount of tax unpaid on a daily basis from the end of the last day for payment until (and inclusive of) the day upon which the tax unpaid is paid. The applicable interest rate consists of a variable market rate component that is linked to the Treasury Note yield rounded to the second decimal place (4.89% for purposes of this application) and a premium rate component fixed by the TA Act at 8 per cent per annum.

20 The Chief Commissioner is allowed under s 25 of the TA Act to remit either the market rate component or the premium rate component of interest, or both, by any amount in such circumstances, as the Chief Commissioner considers appropriate.

Reasons and decision - whether any remission of interest is warranted

21 In two recent decisions, Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 and Olah v Chief Commissioner of State Revenue [2002] NSWD 22, I have examined in some detail the provisions relating to the imposition and remission of interest. In these cases I have, broadly, stated what circumstances are relevant in considering the remission of interest imposed as a result of a "tax default".

22 In the present matter the Chief Commissioner has, at the objection stage, remitted in full the penalty tax that he had imposed in the assessments. The only issue for the present review is whether there are grounds to remit the whole or any part of the interest included in the land tax assessments.

23 The Chief Commissioner has in considering this case placed the applicant in the "investor category". The Chief Commissioner's case is quite simple. That, as an investor, the applicant either ought to have knowledge of her land tax liabilities in relation to her property or ought to have sought professional advice.

24 The applicant's land tax liabilities relate to three properties, the Paddington, Rooty Hill and Blackheath properties. The Paddington property was given to her as a gift by her mother. This property was storm damaged and was not rented for nearly three years. The Rooty Hill property was acquired by the applicant for her mother but the mother preferred to live with the family and as a result was rented out. It was sold in 1999 because the applicant was "losing money on it". The Blackheath property was acquired by the applicant to build a future home.

25 In each case it is necessary to consider the individual circumstances of the taxpayer which would include the taxpayer's background, level of involvement in property dealings, knowledge, education, experience and skill.

26 It is difficult on the facts of this case to "label" the applicant as an investor. The applicant's principal reason for not complying with the land tax law was ignorance of the law. Whilst ignorance of the law is no excuse in law, it is a factor that has relevance when considering the level of penalty for non-compliance.

27 There is an obligation on the revenue to improve compliance in the first instance by assisting taxpayers and educating them about their obligations. The tax laws are not designed to unduly penalise honest mistakes by taxpayers who are quite willing to comply with the law if they are only aware of their obligations. As was the case in this matter, the applicant paid the land tax as soon as she became aware of her obligation to pay the tax.

28 There is no evidence that the applicant acted recklessly or intentionally disregarded her obligations. She simply was not aware of her obligations. Her income tax accountant had not advised her of any land tax obligations. The Chief Commissioner in considering her objection accepted her explanation of ignorance of the land tax law and remitted the penalty tax that he had imposed in the assessments. The Chief Commissioner, in not remitting any of the interest, relies on the ground that, as an investor, the applicant ought to have been aware of her obligations or should have sought advice from professional advisers. It is difficult to see how that was possible if, as the Commissioner accepts, that the applicant was simply not aware of her land tax obligations.

29 The applicant has, in my opinion, raised sufficient grounds to warrant a remission of the "premium" component of the interest that the Chief Commissioner has included in the applicant's land tax assessments.

30 As indicated in the Trust Co of Australia and Olah cases, remission of the "market" rate of the interest can only be made in exceptional circumstances. The applicant has failed to show any such circumstances to warrant any remission of the "market rate" component.

31 This matter accordingly should be remitted to the Chief Commissioner to make the necessary adjustments to the relevant assessments by excluding the premium component of the interest that was included in the assessments.

32 The applicant has also relied on "hardships in the current environment" as a ground in seeking remission of the interest. Waiver of tax on hardship grounds is a matter for the Hardship Review Board set up under Division 5 of the TA Act. This Tribunal has no jurisdiction to waive any tax on such grounds.