Executors of the Estate of William Kevin Hughes v Chief Commissioner of State Revenue
[2009] NSWADT 8
•14 January 2009
CITATION: Executors of the Estate of William Kevin Hughes v Chief Commissioner of State Revenue [2009] NSWADT 8 DIVISION: Revenue Division PARTIES: APPLICANT
John Dennis Hughes and Kevin Bernard Hughes as Executors of the Estate of William Kevin HughesFILE NUMBER: 086029 HEARING DATES: 29 October 2008, 28 November 2008 SUBMISSIONS CLOSED: 28 November 2008
DATE OF DECISION:
14 January 2009BEFORE: Verick A - Judicial Member CATCHWORDS: Land tax exemption – principal place of residence LEGISLATION CITED: Administrative Decisions Tribunal Act 1997
Land Tax Management Act 1956
State Revenue Legislation Further Amendment Act 2003
Taxation Administration Act 1996
Valuation of Land Act 1916CASES CITED: Spassked Pty Ltd v Commissioner of Taxation [2007] FCAFC 205
Ryan & anor v Commissioner of Land Tax [1982] 1 NSWLR 305
Capri v Chief Commissioner of State Revenue [2007] NSWADT 70
Philpot v Chief Commissioner of State Revenue (RD) [2008] NSWADTAP 18
Knight and anor v Chief Commissioner of State Revenue [2008] NSWADT 83
Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21
Chief Commissioner of State Revenue v Sacco (RD) [2008] NSWADTAP 61
Chief Commissioner of State Revenue v McGrath [2008] NSWSC 387
Chief Commissioner of State Revenue v Coleman and anor [2007] NSWSC 625
Chief Commissioner of State Revenue v Incise Technologies Pty Ltd (RD) 2004 NSWADTAP
Ventura Pty Ltd v West Tamar Council [2004] TASSC 136
Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24REPRESENTATION: APPLICANT
RESPONDENT
R Hughes, agent
A Hughes, agent
R Rider, barristerORDERS: (1) The assessment for land tax for the land tax years 2003 to 2007 is affirmed
(2) The assessment in relation to interest is varied by the remission of the premium component from the total interest included for the 2003 to 2007 land tax years.
Introduction
1 The Applicants are the executors of the Estate of the late William Kevin Hughes and they seek a review of the Respondent’s decision to assess land tax in respect of 45 Banksia Road, Caringbah, New South Wales (“the Property”) for the 2003 to 2007 land tax years.
2 The principal issue in these proceedings is whether the Property or any part of it was exempt from land tax in the relevant tax years under the principal place of residence exemption in section 10(1)(r) of the Land Tax Management Act 1956 (“the Act”).
3 A subsidiary issue involves a question of whether interest was correctly assessed by the Respondent in accordance with the provisions of the Taxation Administration Act 1996 (NSW)(“the TA Act”) and whether the interest or any part of the interest should be reduced or remitted.
Factual Background
4 In addition to the documents lodged by the Respondent pursuant to section 58 of the Administrative Decisions Tribunal Act 1997, the Tribunal received written submissions from the Respondent. The Tribunal also accepted the tender as exhibits of three affidavits, one made by Mrs Hughes, the widow of the late Mr Hughes, and one each by two of his sons. The affidavits provided the Tribunal with historical information as to the ownership, development and use of the Property by the late Mr Hughes.
5 The facts in this matter are not in dispute and have been summarised by the Respondent’s counsel in his written submission as follows (without footnotes):
“3. In or around 1937, the Applicants’ father, the late Mr. William Kevin Hughes (Mr. Hughes), became an owner of the Property.
4. In or around 1945, Mr. Hughes purchased 47 Banksia Road, Caringbah (No.47), the lot adjoining the Property.
5. From the late 1940’s onwards, No.47 was the principal place of residence of Mr. Hughes and his wife, Mrs. Dorothy Hughes (Mrs. Hughes).
6. In and around 1969, the Property became tenanted and a fence was built at the half way mark of the Property (Fence), which divided the block into two.
7. From about 1969 onwards until the present day, the rear portion of the Property was used by the Hughes family for the location of their clothes line, a chicken run, a vegetable garden, a place for cutting and storing firewood, a place for storing gardening tools and a place for their dogs to run.
8. On 15 September 1995, Mr. Hughes objected to the Respondent’s Land Tax Notices of Assessment for the Property for the 1991 to 1994 Tax Years.
9. In December 1995, the then Treasurer of New South Wales advised that Mr. Hughes would be granted an exemption from land tax for the Property on the basis that it formed part of the parcel of residential land that Mr. Hughes used as his principal place of residence (Treasurer’s Letter).
10. On 1 February 1996, the Respondent wrote to Mr. Hughes and advised him that his objection had been allowed for the 1991 to 1994 Tax Years on the basis that the exemption as principal place of residence for contiguous blocks of land had been met, as well as exemption under the dual occupancy provisions, and that an exemption under s. 10(1)(r) of the Act was to apply (Commissioner’s Letter).
11. On 28 September 2000, Mr. Hughes passed away.
12. After Mr. Hughes passed away, Mrs. Hughes continued to live at No.47 during the Tax Years. Mr. Hughes’s Will gave Mrs. Hughes the right to reside at No.47.
13. During the Tax Years, the house on the Property was tenanted and the Fence remained in place.
14. During the Tax Years, both the Property and No.47 were registered in the name of the late Mr. Hughes and this remains the case as at the date of these submissions.”
6 The events leading to these proceedings were also usefully summarised by the Respondent’s Counsel as follows:
“15. On 21 September 2007, and again by way of reminder on 16 October 2007, the Respondent sent a land tax registration questionnaire addressed to ‘William K Hughes’ at 47 Banksia Road Caringbah (i.e. No.47).
16. On 5 November 2007, the respondent received a Land Tax Questionnaire completed and signed by ‘William Hughes’ (who at that time was deceased) as ‘Land Owner’ on 29 October 2007, which claimed the principal place of residence exemption from land tax for both the Property and No.47.
17. On 6 November 2007, the Respondent issued a Land Tax Notice of Assessment for the Property and No.47 (and other land) for the Tax Years.
18. On 20 December 2007, the Applicants’ solicitor (Solicitor) wrote to the Respondent and objected to the assessment on the basis that the Property and No.47 adjoined each other and both were used by Mrs Hughes as one principal place of residence (Objection).
19. On 8 February 2008, the Respondent wrote to the Solicitor and advised that he had accepted the Objection to the assessment for No.47 on the basis that Mrs. Hughes had used No.47 as her principal place of residence during the Tax Years. However, the Respondent disallowed the Objection to the assessment for the Property, as it had been tenanted ‘since 1993’ and therefore the Property and No.47 could not be regarded as ‘one parcel of residential land’ because they were not ‘undivided by use’ (Decision) – the principal place of residence (PPR) exemption therefore did not apply to the Property for the Tax Years.
20. On 4 March 2008, the Respondent issued a Land Tax Notice of Assessment for the Property (and other land), but exempted No.47 from land tax, for all Tax Years (Assessment). In the Assessment the Respondent remitted interest payable on the unpaid land tax for all Tax Years, but imposed interest for late lodgement of land tax returns for the Property for the 2003 to 2006 Tax Years (Interest).
21. On 16 April 2008, the Applicants filed an Application for review of the Decision and Assessment (Application) in the Tribunal. The Applicants’ reasons for applying were that the Property (or at least part of it) formed a parcel of land with No.47 and that this parcel should be exempt from land tax under the PPR exemption in s.10(1)(r) of the Act. The Applicants also submitted that the imposition of the Interest was harsh and unreasonable, as they took reasonable care and the requirement to lodge land tax returns was contrary to the Treasurer’s Letter.”
Relevant Legislative Provisions
7 Land tax is charged under s 8 of the Act on all land in New South Wales owned at midnight on the thirty-first of December immediately preceding the year for which the land tax is levied other than land which is exempt from taxation under the Act.
8 “Owner” is defined in section 3(1) of the Act to include:
“(a) in relation to the land, every person who jointly or severally, whether at law or in equity:
(i) is entitled to the land for any estate of freehold in possession, or
(ii) is entitled to receive, or is in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise,
…
(d) a person who, by virtue of this Act, is deemed to be owner.”
9 Section 10 of the Act sets out various categories of land that enjoy exemption from land tax under the Act. Relevantly, the exemption for an owner’s principal place of residence is broadly set out in s 10(1)(r).
10 For the 2003 land tax year, the relevant provisions relating to the principal place of residence exemption were as follows:
“ 10 Land exempted from tax
(1) Except where otherwise expressly provided in this Act the following lands shall … be exempted from taxation under this Act:
(r) with respect to taxation leviable or payable in respect of the year commencing on 1 January 1998 or any succeeding year, land that has a land value in respect of the year of less than the premium tax threshold and that is used and occupied as the principal place of residence of the owner of the land (or, if there are joint owners, as the principal place of residence of one or more of them) and for no other purpose … being:
…
(ii) a parcel of residential land, or
(iii) a parcel of residential land on which there is also one of the residential occupancies referred to in subsection (1D) (b) (ii) (A)-(F),
…
(1FA) For the purpose of subsection (1) (r), if the owner of land dies and the land is used and occupied as the principal place of residence of:
(a) a person using and occupying the land under a right of occupancy created by the will of that owner, or
(b) a person (other than a tenant) who resided with the owner immediately before his or her death and who continues to use and occupy the land with the permission of the deceased person’s personal representative, or of any other person, granted under a power or right conferred by the will of that person,
then the person who so uses and occupies the land is taken to be the owner of the land, but only while that use and occupation continues.”
11 The provisions relating to the principal place of residence exemption were amended by State Revenue Legislation Further Amendment Act 2003 (NSW) and the substantive provisions dealing with the principal place of residence exemption are currently set out in a new Schedule 1A to the Act. These provisions took effect on 31 December 2003 and apply to the 2004 to 2007 land tax years in this matter.
12 A modified section 10(1)(r) was retained in the main body of the Act in the following terms:
“10 Land exempted from tax
(1) Except where otherwise expressly provided in this Act the following lands shall … be exempted from taxation under this Act:
…
(r) land that is exempt from taxation under the principal place of residence exemption, as provided by Schedule 1A,”
13 The relevant provisions of Clause 2 of Schedule 1A for purposes of this matter are as follows:
“Schedule 1A – Principal place of residence exemption
…
Part 2 – Principal place of residence exemption
2 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 … if the land is:
(a) a parcel of residential land
…
(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, or
(b) in any other case, the Chief Commissioner is satisfied that the land is used and occupied by the person as the person’s principal place of residence.
…
(4) The exemption conferred by this clause is referred to as the “ principal place of residence exemption ”.
…
Part 3 - Concessions in application of principal place of residence exemption
…
10 Concession for tenancy following death of owner
For the purposes of the principal place of residence, if the owner of land dies and the land is used and occupied as the principal place of residence of:
(a) a person using and occupying the land under a right of occupancy created by the will of that owner, or
(b) a person (other than a tenant) who resided with that owner immediately before his or her death and who continues to use and occupy the land with the permission of the deceased person’s personal representative, or of any other person, granted under a power or right conferred by the will of that owner,
then the person who uses and occupies the land is taken to be the owner of the land, but only while that use and occupation continues.”
Submissions
14 The Applicants’ case was essentially that the Respondent has, since December 1995, accepted that the Property along with No 47 Banksia Road formed one parcel of residential land and exempt as land used and occupied as a principal of residence. Reliance was placed in particular on the exemption that was granted to the late Mr Hughes by the Respondent in a letter dated 1 February 1996.
15 At the hearing when the exemption provisions were explained to the Applicants, this submission was modified and the exemption was only claimed for the part of the Property, which was fenced off from the residence on the Property and used by Mrs Hughes as part of her principal place of residence in the years in issue. The grounds for this submission were that No 47 and that part of the Property formed a “parcel of residential land” which Mr Hughes had used and occupied as his principal place of residence.
16 In relation to the interest imposed under the TA Act, the Applicants submitted that the imposition of the interest was harsh and unreasonable, as they took reasonable care and the requirement to lodge land tax returns for the years in question was contrary to the letters that their late father had received from both the Treasurer of New South Wales and the Respondent.
17 The Respondent’s basis for the assessment in respect of the Property was that there were different “owners” for the Property and No 47. It was submitted that Mrs Hughes was, under s 10 (1FA) of the Act for the 2003 land tax year and under Clause 10 of Schedule 1A to the Act for the 2004-2007 land tax years, the deemed owner for land tax only in respect of No 47 and that the ownership of the Property was either with Public Trustee or the Applicants as executors upon probate.
18 The Respondent submitted that the letter dated 1 February 1996 contained incorrect advice and that the property was “never exempt from land tax”. In any case it was submitted that “the views which the respondent expressed in that letter only applied to the facts and law which applied in the relevant tax years” and that “as land tax is an annual tax which depends on the facts and law in a particular tax year, the letter did not bind the Respondent in relation to any other tax years, including the Tax Years”. In support, the Respondent cited the recent decision of the Full Federal Court in Spassked Pty Ltd v Commissioner of Taxation [2007] FCAFC 205.
19 It was further argued by the Respondent that:
“… the principles in Ryan v Commissioner of Land Tax [1982] 1 NSWLR 305 do not assist the Applicants. The court held in Ryan that two lots only comprised a ‘parcel of residential land’ where the lots were undivided by physical separation, title, use and occupation. However, the evidence shows that during the Tax Years, the Property and No.47 were physically divided by the Fence and legally divided in use, because the front part of the Property was tenanted.”
20 The Respondent further submitted that No 47 and any part of the Property did not constitute “a parcel of residential land” for the following other reasons:
“… there was no provision of the Act which empowered the Respondent to only impose land tax on the tenanted front part of the Property. Also the Act did not empower the Respondent to reduce the taxable value of the Property, such that land tax was only (effectively) payable on the tenanted front part of the Property. Specifically, sections 9C (all Tax Years) and section 9D (2005-2007 Tax Years) of the Act did not apply because the Property was not used and occupied as the PPR of the owner. Therefore it is irrelevant whether or not the Property was ‘mixed development land’ or ‘mixed use land’ within the meaning of Divisions 5 and 5A, respectively, of Part 1B of the Valuation of Land Act 1916 (NSW) (VLA).
… the Valuer-General did not have any power under the VLA to value the Rear Portion separately to the Property as a whole (see ss.6A, 14A, 26, 26A, 27 and 28A of the VLA). Further, the Valuer-General was required to value No.47 and the property separately, because part of the Property was leased and also buildings were erected on the properties which were obviously adapted to separate occupation (see s.26 of the VLA).
… it was not appropriate for the respondent to exercise his compromise assessment powers (see s.12 of the TAA) under the Taxation Administration Act 1996 (NSW)(TAA) to (effectively) exempt the Rear Portion from land tax.
… In its recent decision in Capri v Chief Commissioner of State Revenue [2007] NSWADT 70, the Tribunal has refused, in materially similar circumstances to the present case, a taxpayer’s claim for a partial exemption from land tax for the rear portion of a parcel of tenanted land which adjoined his PRR.”
21 In relation to the imposition of interest the Respondent’s submission was that:
“… on the evidence, there was no basis for the Respondent to remit (see s.25 of the TAA) the market rate component (see s.22(2) of the TAA) of the Interest – the Respondent did not contribute to the Applicants’ tax defaults (See Philpot v Chief Commissioner of State Revenue (RD) [2008] NSWADTAP 18, which approved of the Tribunal’s comments in its recent decision in Knight and anor v Chief Commissioner of State Revenue [2008] NSWADT 83 at para. [33]. Further, there was no basis for the Respondent to remit (see s.25 of the TAA) the premium rate component (see s.22 (3) of the TAA) of the Interest – the Applicants’ tax defaults resulted from their own culpable conduct (see Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 at para. [25].”
Reasons and Decision
22 There was no dispute that No 47 was exempt from land tax in the land tax years in question under the principal place of residence exemption provisions found in the Act. In particular, it was exempt in the 2003 land tax year under section 10A of the Act and in the 2004 to 2007 land tax years under clause 10 of Schedule 1A to the Act.
23 The issue before the Tribunal was whether any part of the Property, in particular the rear of the Property that was fenced off from the building on the Property and used by the late Mr Hughes as part of his principal place of residence, was exempt from land tax in the land tax years under review. Essentially, the Tribunal was required to consider whether No 47 and any part of the Property could be considered as forming a parcel of residential land for purposes of the principal place of residence exemption.
24 As observed by the Appeal Panel of the Tribunal in Chief Commissioner of State Revenue v Sacco (RD) [2008] NSWADTAP 61:
“9. There is no statutory guidance as to what constitutes a ‘parcel of residential land’. ‘[T]he expression ‘parcel of land’ is of uncertain meaning and not confined to land within a certificate of title or conveyance’: per Underwood J at [17] in Ventura Pty Ltd v West Tamar Council [2004] TASSC 136, a land valuation case; cited with approval by the Full Court, on appeal, Ventura Pty Ltd v West Tamar Council [2005] TASSC 99 (appeal allowed on other grounds).”
25 In the absence of any statutory guidance, reliance is usually placed on a judicial test formulated by Hunt J in Ryan & anor v Commissioner of Land Tax [1982] 1 NSWLR 305 at 310:
“[I]n my view … contiguous blocks of land can comprise a ‘parcel of residential land’ within s.10(1)(r)(ii) only where they are undivided not only by physical separation but also in use, occupation and title.”
26 This test, as observed by the Appeal Panel in Sacco, “has acquired something of a quasi-legislative status”. The test has been accepted in two recent Supreme Court cases – Chief Commissioner of State Revenue v McGrath & anor [2008] NSWSC 387 and Chief Commissioner of State Revenue v Coleman & Another [2007] NSWSC 625.
27 In order to succeed the Applicants were required to establish the four ‘unities’, described by the Appeal Panel in Sacco as “commonality of title, commonality of use, commonality of occupation and physical commonality”. These criteria had to be established in relation to the parcel of residential land made up of No 47 and that part of the Property, which had been used by the late Mr Hughes as his principal place of residence.
28 The Respondent’s case was that in the present matter the important element of common ownership was not present in the relevant land tax years. In the alternative, it was argued that there were technical difficulties in assessing only the tenanted front part of the Property or exempting only part of the Property from land tax under the Act. And that under the Valuation of Land Act 1916 (NSW) the Valuer-General did not have any power to value the rear portion of the Property separately to the Property as a whole.
29 I do not think the technical difficulties highlighted by the Respondent assist in the resolution of the question. As observed by Underwood J in Ventura Pty Ltd (cited with approval by the Appeal Panel in Sacco) the expression “parcel of land” is “not confined to land within a certificate of title or conveyance”. In my opinion a block and part of another block of land can comprise a “parcel of residential land” where in terms of the Ryan test “they are undivided not only by physical separation but also in use, occupation and title”. His Honour’s formulation in Ryan was made against the facts before the court. In Ryan there were two blocks, one owned jointly by Mr and Mrs Ryan and the other by only Mr Ryan. His Honour was not required to consider any other factual situation, such as that for consideration in this matter or any other situation that may arise, for example a “parcel of residential land” made up of three blocks.
30 But the issue in this matter is complicated by the fact that Mrs Hughes only acquired a right of occupancy of only No 47 created by the will of the late Mr Hughes, a right recognised by section 10 (1FA) of the Act and clause 10(a) of Schedule 1A to the Act. Under these provisions Mrs Hughes was “taken to be the owner” of only No 47 in the relevant land tax years. The ownership of the Property including the rear portion was with the executors upon probate and before probate with the Public Trustee. Although No 47 and the rear portion of the Property was undivided by any physical separation and used and occupied by Mrs Hughes as her principal place of residence, she did not have any “title” to the rear portion of the Property. In those circumstances the Applicants were clearly not entitled to rely on the Ryan test. The Respondent was accordingly required under the Act to assess the whole of the Property in the relevant land tax years.
31 In passing, I should make the observation that when Ryan was decided the exemption found then in s 10(1)(r)(ii) of the Act was restricted to “a parcel of residential land not exceeding 2,100 square metres in area” that was used and occupied as a principal place of residence by the owner. The current exemption does not prescribe any such restriction and in some circumstances the Ryan test may offer a fairly generous concession.
32 Having decided that the Ryan test does not assist the Applicants, I turn to whether the Applicants were entitled to rely on two letters – one dated 11 December 1995 from the then Treasurer confirming that the Property was exempt for the 1991 to 1994 land tax years as the Property formed “part of the parcel of residential land used by Mr Hughes as his principal place of residence”, and the other from the Respondent dated 1 February 1996 allowing the objection to the assessments made against the Property for those years.
33 The Respondent’s considered position was “that the Property was never exempt” and that the Respondent’s “letter to Mr Hughes dated 1 February 1996, which stated that the PPR exemption for contiguous blocks of land (and the dual occupancy provisions) applied to the properties was incorrect”. Alternatively, it was argued that “the views expressed in that letter only applied to the facts and law which applied in the relevant tax years” and that “as land tax is an annual tax which depends on the facts and law in a particular tax year, the letter did not bind the Respondent in relation to any other tax years, including the Tax Years”.
34 I agree with the submission made by the Respondent’s counsel that it is now well established that -
“Decisions on income tax, land tax and ratings assessments constitute an established exception to the general rules as to res judicata. Decisions on one year’s tax or rate … do not create estoppels in respect of another year’s tax or rate … The liability of the taxpayer for a subsequent year’s tax or rate is not strictly the same question as his liability for an earlier year, even where no material circumstance has changed.” (Spencer Bower, Turner and Handley ( Res Judicata , 3rd Edition) at 300)
35 Recently, the Full Federal Court in Spassked Pty Ltd v Commissioner of Taxation [2007] FCAFC confirmed that these principles applied in relation to Commonwealth income tax laws. These principles would equally apply to a state or territory revenue law.
36 The Respondent was in these circumstances not bound or estopped by the statements contained in the letters when making the assessment for the land tax years under review.
37 The matter that remains is the imposition of interest by the Respondent in the assessment under review.
38 Section 21(1) in Part 5 of the TA Act provides that if a “tax default” occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day when the payment was due until the day upon which the outstanding tax is paid. The applicable interest rate consists of a variable market rate component and a premium rate component. The market rate component fluctuates and is connected to an external rate, the Reserve Bank’s Accepted Bill rate. The premium rate component is fixed by section 22(3) of the TA Act at 8 per cent.
39 Under section 12 of the Act, the Applicants were required to furnish land tax returns in the relevant years under review but failed to lodge the necessary land tax returns in respect of the Property. Section 72(1) of the Act provides that a taxpayer who “fails or neglects duly to furnish any return or information as and when required by this Act or the Chief Commissioner, or fails to include in any return any land owned by the taxpayer, is taken to have committed a tax default for the purposes of Part 5” of the TA Act. As a “tax default” occurred in this matter the Respondent was required to under section 21(1) of the TA Act to impose interest in the assessment made against the Applicants. In the assessment, the Respondent imposed an interest amount, which included both the market rate and premium rate components.
40 The market rate component, as was pointed out by the Appeal Panel of the Tribunal in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19, “is intended to compensate the Commissioner (on behalf of the Government of New South Wales) for not having the benefit of the tax payment from the time it was due … is a component that could rarely, if ever, be waived as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time”.
41 On the other hand, as observed by the Appeal Panel in Incise, the premium rate of interest “is a form of penalty” and its purpose “is to provide an additional economic deterrent against taxpayers failing to meet their obligations on time”.
42 The Chief Commissioner is then given by section 25 of the TA Act discretion, “in such circumstances as the Chief Commissioner considers appropriate”, to remit the market rate component or the premium rate component or both by any amount. The High Court has held that, “where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard” (Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 39-40 per Mason J).
43 Under sections 21 and 22 of the TA Act a taxpayer who commits a tax default is liable to pay interest made up of both the market rate component and premium component. The Respondent has no discretion to waive this liability under those sections and he is strictly required to impose the interest in a case where the taxpayer commits a tax default. The discretion given under section 25 recognises that in certain circumstances the automatic application of those provisions may result in an unreasonable or unjust outcome.
44 In Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 the Tribunal explained the circumstances when the market rate interest component can be remitted as follows:
“27 In cases where an amount of interest is imposed by the application of the market rate, only exceptional circumstances would justify any remission. The narrow category of circumstances would include cases where the ‘tax default’ is entirely due to a fault of the Chief Commissioner. Other circumstances would include situations completely out of the control of the taxpayer, such as postal strikes, serious illness of the taxpayer and natural disasters (bush fires, floods and earthquakes).”
45 In the case of the premium rate component, it would depend on the culpability and general behaviour of the taxpayer in attending to his land tax affairs. In Incise the Respondent “nominated four cumulative criteria for the circumstances where the premium component of interest should be remitted, namely -
(1) all principal tax that is owing and not in dispute has been fully paid;
(2) there has been co-operation by the taxpayer in providing relevant information to the Commissioner so as to enable the Commissioner to issue assessments;
(3) such co-operation by the taxpayer has occurred prior to any investigation being commenced by the Commissioner (voluntary disclosure) or, at the very least, within reasonable time after requests for information have been made by the Commissioner – i.e. the taxpayer has taken reasonable care; and
(4) there has been no wilful default by the taxpayer in not paying tax on time.”
46 The Appeal Panel agreed with the Respondent subject to the following qualification -
“63 The first of these criteria could be clarified to ‘all principal tax that has been assessed and is not in dispute has been fully paid at the time of the request for remission of interest’. With this change, we agree that these four cumulative criteria are relevant and appropriate to the question of the circumstances in which the Commissioner should remit the premium component of interest. There may also be other circumstances where it could be appropriate to remit the premium component such as, as previously noted, where the Commissioner has in some way contributed to the tax default.”
47 In this matter, the Applicants’ liability to land tax in relation to the Property was established through various inquiries made by the Respondent.
48 The Applicants’ case was essentially that they had not lodged the necessary land tax returns for the Property because they had relied on the letter dated 1 February 1996 in which the Respondent had indicated that the “requirements for exemption as principal place of residence for contiguous blocks of land have been met as well as exemption under the dual occupancy provisions, and an exemption under section 10 (1) (r) of the Land Tax Management Act 1956 is to apply” to No 47 and the Property.
49 The Applicants as executors of the estate of the late Mr Hughes were largely guided by his will and other documents left by him. Acting on the correspondence between the late Mr Hughes and the Respondent they had taken the view that the Property was treated as exempt by the Respondent and on that basis did not lodge the necessary land tax returns.
50 There was no suggestion by the Respondent that the Applicants had not co-operated with the Respondent, nor was there any suggestion that there was any wilful default by the Applicants in not paying tax on time. The Applicants took reasonable care by providing the Respondent with all the information that was required in relation to the Property. In this matter there was also no intentional disregard or deliberate neglect by the Applicants in attending to their land tax obligations. In the circumstances of this matter, remission of the premium component would, in my opinion, be well within the scope and purpose of the discretion given to the Respondent under section 25 of the TA Act. In reaching this view, I have had regard to the competing needs for deterrence as opposed to an unintended and harsh result.
51 The circumstances, however, do not go far enough to warrant any remission of the market rate interest included in the assessment. The Applicants’ case did not fall within the narrow category of circumstances to justify remission of the market rate interest component.
Orders
(1) The assessment for land tax for the land tax years 2003 to 2007 is affirmed
(2) The assessment in relation to the interest is varied by the remission of the premium component from the total interest included for the 2003 to 2007 land tax years.
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