Forbes v Chief Commissioner of State Revenue

[2009] NSWADT 218

CITATION:	Forbes v Chief Commissioner of State Revenue [2009] NSWADT 218
DIVISION:	Revenue Division
PARTIES:	APPLICANT Susan Forbes RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	096044
HEARING DATES:	On the papers
SUBMISSIONS CLOSED:	22 July 2009
DATE OF DECISION:	18 August 2009
BEFORE:	Verick A - Judicial Member
CATCHWORDS:	Land tax – assessment of interest
LEGISLATION CITED:	Land Tax Management Act 1956 Taxation Administration Act 1996 Administrative Decisions Tribunal Act 1997
CASES CITED:	Crea & Anor v Chief Commissioner of State Revenue [2002] NSWADT 125 Gangemi v Chief Commissioner of State Revenue [2008] NSWADT 194 Giunta v Chief Commissioner of State Revenue (RD) [2005] NSWADTAP 11 Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor [2004] NSWADTAP 19 Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21
REPRESENTATION:	APPLICANT In person RESPONDENT A Gerard, solicitor
ORDERS:	The decision under review is affirmed

REASONS FOR DECISION

Introduction

1 The applicant is the registered proprietor of a residence situated at Paddington in the State of New South Wales (“the property”) and seeks the review of a decision made by the respondent to impose market rate interest in accordance with the provisions of the Taxation Administration Act 1996 (“the TA Act”) in a land tax assessment issued under the Land Tax Management Act 1956 (“the LTM Act”) in respect of the property for the 2005-2007 land tax years.

2 The applicant does not dispute her liability to pay the land tax in question but disputes the imposition of the interest at market rate. The matter essentially involves a question of whether the interest was correctly assessed and whether the interest should be reduced or remitted.

Factual Background

3 The parties requested that this matter be determined “on the papers”. The Tribunal is satisfied that it is a matter that can be determined, as provided by s 76 of the Administrative Decisions Tribunal Act 1997 (the “ADT Act”), “by considering the documents or other material lodged with or provided to the Tribunal and without holding a hearing” because “the issues for determination can be adequately determined in the absence of the parties”.

4 The papers before the Tribunal were the documents filed by the respondent pursuant to s 58 of the ADT Act and written submissions with attachments by both parties.

5 The facts are not in dispute. The applicant in her written submissions has set out the essential “facts and chronology” leading to this application as follows:

“The applicant was absent from NSW from February 2004 until February 2007.

During this period the applicant was unaware of the commencement from March 31, 2005 of the obligation to pay land tax.

In a letter from OSR dated November 8, 2008 the applicant was advised that she may be liable to pay land tax.

In correspondence dated December 28, 2008 the applicant received a land tax assessment of $29,369.20 inclusive of $4,058.68 of penalty interest. (original penalty interest was $9,184.28 – with remission $5125.50)

January 9 2009, the applicant submitted an objection to OSR against the late penalty payment.

January 21, the OSR acknowledged the applicant’s letter.

February 1 the applicant paid the assessed tax less the penalty interest.

February 9 the applicant received notification from OSR of the disallowance of the objection together with stated rationale.

March 20 an application to ADT was made for review of the decision.

April 3 the interest payment was made.”

6 The applicant has in her response to the respondent’s Land Tax Questionnaire also disclosed the ownership of another property situated at Macquarie Street, Sydney since 27 January 2000. This is an investment property and presumably let to tenants since its acquisition.

TA ACT

7 The relevant interest provisions are as follows:

“21 Interest in respect of tax defaults

(1) 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 for payment until the day it is paid at the interest rate from time to time applying under this Division.

…

22 Interest rate

(1) The interest rate is the sum of:

(a) the market rate component, and

(b) the premium component.

(2) The market rate component is:

(a) unless an order is in force under paragraph (b), the Bank Accepted Bill rate rounded to the second decimal place (rounding 0.005 upwards), or

(b) the rate specified for the time being by order of the Minister published in the Gazette.

(3) The premium component is 8% per annum.

(4) In this section, the Bank Accepted Bill rate in respect of any day is the yield rate for 90-day Bank Accepted Bills published by the Reserve Bank for the month of May in the financial year preceding the financial year in which the day occurs.

…

25 Remission of interest

The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount.”

Submissions

8 The applicant’s case is that she only became aware of her land tax liability when she received a letter from the respondent in November 2008. She accepts her land tax liability but submits that the obligation to pay penalty interest is unreasonable and relies on the following five arguments:

(1) The applicant was unaware nor was made aware of her liability to land tax. The media used by the respondent to draw attention to land tax “is not working for out of town property owners or those who are not continuous residents of NSW”. The applicant and her accountant resident in Victoria were not “exposed” to the respondent’s media coverage.

(2) It is irrational to be charged for the late payment of anything when there is no acknowledgment nor verification of the underlying obligation. “Until the certain sum of any obligation and the due date are agreed the applicant does not see how a unilateral calculation of late interest can apply”.

(3) The delay of the notification and hence the late assessment was at OSR’s determination. “It is not appropriate the applicant is the one to be penalised. The notification, which is within OSR’s control, could have been more promptly handled by OSR who had the means of initiating correspondence with the applicant earlier i.e. closer to March 31, 2005.”

(4) There has been no tax default as defined by the law. “As there has been no failure to pay under the terms of that law the applicant has not committed a tax default.”

(5) No “asymmetric economic benefit” was gained by the applicant. “OSR argues that the late interest covers the opportunity loss on interest not earned. This implies a gain to the applicant of a similar amount. In fact the lateness of the notification and subsequent payment penalises the applicant to a greater extent because income tax deductibility is only allowed in respect of 2006. The earlier years are denied. As this is a greater amount than the interest expense the applicant may have saved or earned there is no incentive for the applicant to gain at OSR’s expense.”

9 The respondent’s case was that “the responsibility of lodging a land tax return, on or before 31 January of each relevant land tax year, setting out the details of all land owned by the taxpayer as at midnight on 31 December of the previous year, rests with the taxpayer: see s12(1) & s12(1A) of the L T Management Act; see also Crea & Anor v Chief Commissioner of State Revenue [2002] NSWADT 125, at para. [14]; see also Gangemi v Chief Commissioner of State Revenue [2008] NSWADT 194, at para. [13]”.

10 It was further submitted that under s 72(1) of the LT Management Act “a taxpayer who fails or neglects to lodge a return, as required by s 12 is taken to have committed a tax default for the purposes of Part 5 of the TA Act” and that, if a tax default occurs, a taxpayer is liable to pay interest under s 21(1) of the TA Act. And that the relevant principles governing the imposition and remission of the market rate interest as considered in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor [2004] NSWADTAP 19, Giunta v Chief Commissioner of State Revenue (RD) [2005] NSWADTAP 11 and Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 support the respondent’s decision to impose and not to remit the market rate interest in this matter.

Discussion and Reasons

11 The question at issue in this matter was whether the market rate interest was properly included in the relevant land tax assessments and whether there were appropriate circumstances to remit the interest.

12 The applicant’s case was essentially that she and her Melbourne based accountant were not aware of the land tax liability in respect of the property and that the respondent failed to bring to her attention the relevant land tax obligations. In particular, the respondent’s publicity campaigns failed to include owners absent from New South Wales. Further, the applicant’s case was that, until the land tax assessment was received by her, there was no outstanding land tax liability and that no “tax default” occurred as the land tax was paid by the applicant on the relevant due date.

13 I agree with the respondent’s written submission “that the responsibility of lodging a land tax return, on or before 31 January of each relevant land tax year, setting out the details of all land owned by the taxpayer as at midnight on 31 December of the previous year, rests with the taxpayer”. Under s 12(1) of the LT Management Act, the respondent may by order published in the Gazette require all persons or specified classes of persons to furnish land tax returns for a specified year or years or for a specified year and each subsequent year. The respondent has, for each of the years under review, published Orders in the Gazette requiring owners who became liable to land tax to lodge an “Initial Return”. Having lodged an Initial Return an owner is only required to lodge a Variation Return in a subsequent year if there is any change in the liability to land tax of the land in question. Under s 12(1A) of the LT Management Act, every person required to lodge a return by the Order published in the Gazette must “furnish a land tax return to the Chief Commissioner on or before 31 January in that year”. This obligation extends to an owner of land in New South Wales who is absent from the State for whatever reason. There is no statutory requirement on the respondent to inform individually every owner of land in New South Wales of his or her land tax obligations. The law is clear. It places the burden entirely on an owner to lodge the relevant land tax return when required.

14 Although there is no statutory obligation, the respondent undertakes to actively inform the public of their land tax liability by way of media advertisements and seminars. The respondent’s website also offers useful information to owners of land as to their land tax obligations.

15 Section 72(1) of the LT Management 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

16 In this matter, the applicant’s liability was only established through inquiries made by the respondent. The applicant had failed to lodge the necessary return. As there was a “tax default” on the part of the applicant the respondent was required by the law to impose interest. 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 is the Treasury Note yield rounded to the second decimal place unless a market rate of interest is specified by an order of the Minister made under s 22(2)(b) of the TA Act and published in the Gazette. The premium rate component is fixed by s 22(3) of the TA Act at 8 per cent per annum.

17 The respondent is, pursuant to his powers found in s 25 of the TA Act, able to remit the market rate component or the premium rate component of interest, or both, by any amount in such circumstances, as the respondent considers appropriate. In this matter, the premium rate component was remitted by the respondent when making the assessment. Only the market rate interest imposed in the assessment is subject of this review.

18 The market rate component, as was observed by the Tribunal’s Appeal Panel 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”. The Appeal Panel went on to state as follows:

“This, as we see it, 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. The Tribunal made the observation at [50] that to justify any remission of the market rate component of interest, it would be necessary to show that in some way the Commissioner contributed to the default. We agree with this observation.”

19 In Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 the Tribunal explained the narrow circumstances when the market rate of interest 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).”

20 The “tax default” in this matter was entirely due to the applicant’s failure to lodge the necessary return in relation to her land tax liability in respect of the property. The applicant claimed that she was not aware of her land tax liability until she received a letter from the respondent. The applicant’s accountant, although based in Melbourne, would be familiar with land tax liability for rental properties as a similar land tax system operates in Victoria. The applicant has also owned an investment property since 2000 as disclosed in her response to the respondent’s Land Tax Questionnaire. She would have been advised at the time of the purchase of that property of her land tax liability. Interest is imposed from the date the relevant land tax becomes due. In this matter the land tax was due in each year the property was rented to tenants. The liability does not arise when an assessment is issued. The liability to land tax arises each year on the basis of ownership. Her other objection was that the respondent ought to have informed her earlier of the land tax liability. There is no such statutory obligation on the respondent. The onus was on the applicant to lodge the necessary Initial Return and pay the land tax each year in question. No exceptional or special circumstances have been brought to the attention of the Tribunal in this matter to warrant any remission of the market rate interest.

21 For the foregoing reasons, having regard to all the material before the Tribunal, the correct and preferable decision on this application is to affirm the decision of the respondent.

Order

22 The respondent’s decision to impose interest at market rate in the assessment for the 2005-2007 land tax years is affirmed.