Hanley and Commissioner for Act Revenue; (Administrative Review)
[2012] ACAT 64
•28 September 2012
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
HANLEY & COMMISSIONER FOR ACT REVENUE
(Administrative Review) [2012] ACAT 64
AT 11/107
Catchwords:
Land tax – when interest payable – market rate component of
interest – premium or penalty rate component of interest – remission of interest - penalty tax – remission of penalty tax – licence – licence fee – rent – rented – tenancy agreement – intentional disregard of a tax law – reasonable excuse – reasonable care – fair and reasonable – hardship – exceptional circumstances.
List of legislation: ACT Civil and Administrative Tribunal Act 2008, s.68
Land Tax Act 2004, ss. 8, 9, 14, 19, 19A, 30, 31, 37, 38, 48 & 59 & Division 5.2
Rates and Land Tax Act 1926 (Repealed), ss. 22AAB, 22A, 22BB, 22EB & 22ECResidential Tenancies Act 1997, s.6E
Taxation Administration Act 1999, ss. 7, 25-29, 31-34, 37, 107A & Schedule 1.2
List of cases: American Express International v Commissioner of State Revenue [2003] VSC 32
Aurora v Commissioner of Taxation (No.2) 2011 FCA 1090
Commissioner of Taxation v Traviati [2012] FCA 546
Riverland Retreat v Commissioner of State Revenue
[2004] VCAT 1366
Trust Company of Australia Limited v Chief Commissioner of State Revenue [2002] NSWADT 21
Tribunal: Mr A. O’Neil – Senior Member
Date of Orders: 28 September 2012
Date of Reasons for Decision: 28 September 2012
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 11/107
BETWEEN:
TONY HANLEY
Applicant
AND:
COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL: Mr A. O’Neil – Senior Member
DATE: 28 September 2012
ORDER
It is ordered that:
Pursuant to section 68(3) of the ACT Civil and Administrative Tribunal Act 2008, the decisions of the Commissioner for ACT Revenue under review in this matter be set aside and remitted to the Commissioner for reconsideration in accordance with the directions and findings set out herein.
………………………………..
Mr A. O’Neil
REASONS FOR DECISION
On 2 November 2011 Mr Tony Hanley (“the Applicant” or “Mr Hanley”) made an application to the ACT Civil and Administrative Tribunal (“the Tribunal”) for the review of a decision of the Commissioner for ACT Revenue (“the Commissioner”) of 9 September 2011. The decision disallowed an objection to the assessment of land tax, penalty tax and interest on Block 3 Section 6 Campbell, located at 18 Chown Street (“the property”), owned by the Applicant. On 12 December 2011 the Tribunal ordered that the Applicant be granted an extension of time to seek review of the decision
The periods of assessment of land tax on the property were covered by two enactments. The Rates and Land Tax Act 1926 (Repealed) (“RLTA”) applied in the period prior to 1 July 2004. Subsequent to that date the relevant act was the Land Tax Act 2004 (“LTA”). The Taxation Administration Act 1999 (“TAA”) applied at all relevant times.
The hearing
The matter was heard on 2 and 3 April 2012. Additionally, further submissions and argument were heard on 25 June 2012. Mr O. Harris of Harris Wake Solicitors represented the Applicant on 2 and 3 April 2012, but on 25 June the Applicant explained he was unable to attend either in person or by telephone although he filed his own general submissions and attached argument on the legal issues from another solicitor. The Commissioner was represented by Dr D. Jarvis of counsel. The Tribunal had before it the documents (“T docs”) relevant to the decision under review together with the Applicant’s Facts and Contentions and the Respondent’s Facts and Contentions including a witness statement from Mr J. Tonna, an officer with the ACT Revenue Office. The Applicant, Mr Tonna, Dr C. Pattison and Ms M. J. Bassett gave oral evidence to the Tribunal. An affidavit of Ms L. Tomlins was filed but she was not called to give evidence.
Legislation
“Lease” is defined in the RLTA as follows:
lease means a lease from the Commonwealth or the Territory, and includes an agreement with the Commonwealth or Territory—
(a)for a lease of a parcel of land; or
(b)for the tenancy or occupation of a parcel of land,
The following sections of the RLTA are relevant to the decision under review:
22AABInterpretation for pt 4
(1)In this part:
prescribed date, in relation to a quarter, means the first day of the quarter.
quarter means the period of 3 months beginning on 1 July, 1 October, 1 January or 1 April.
rent means valuable consideration for which a tenant is liable under a tenancy agreement in relation to the tenancy or a period of the tenancy.
tenancy agreement means an agreement under which a person grants to another person for value a right of occupation of a parcel of land for use as a residence—
(a)whether the right of occupation is exclusive or not; or
(b)whether the agreement is express or implied; or
(c)whether the agreement is in writing, is oral, or is partly in writing and partly oral;
but does not include an agreement conferring a right of occupation solely as a boarder or lodger.
tenant means a person who has a right of occupation under a tenancy agreement, or the person’s legal representative, heir or assign.
trustee does not include—
(a)in relation to a dead person—an executor of the will, or an administrator of the estate, of the dead person; or
(b)a guardian or manager of the property of a person under a legal disability.
(2) For this part, a parcel of land or dwelling shall not be taken to be rented only because a tenant is liable to pay for rates, land tax, repairs, maintenance or insurance in relation to the parcel or dwelling.
(3)For this part, a parcel of land or a dwelling that is—
(a)leased for residential purposes; and
(b)rented at any time in a quarter;
shall be taken to be rented on the prescribed date in the next quarter unless—
(c)the owner gives written notice to the commissioner before the beginning of the next quarter that the parcel of land or dwelling will not be rented at any time in that quarter; or
(d)the owner gives written notice to the commissioner during the next quarter that the parcel of land or dwelling has not been, and will not be, rented at any time in that quarter; or
(e)the owner gives written notice to the commissioner that the parcel of land or dwelling is not rented during a continuous period of at least 91 days that—
(i)begins in the firstmentioned quarter after the
prescribed date in that quarter; and
(ii)ends in the next quarter.
22AImposition of land tax
(1)Land tax at the appropriate rate mentioned in subsection (2) is imposed for a quarter for each parcel of rateable land that is not exempt from land tax.
(2)For subsection (1), the appropriate rate is as follows:
(a)for a parcel of residential land that is owned by a company or trustee or is rented—the rate for each part of the average unimproved value of the land mentioned in column 2 of the following table that is mentioned opposite that part in column 3 of the table;
(b)for a parcel of commercial land—the rate for each part of the average unimproved value of the land mentioned in column 2 of the following table that is mentioned opposite that part in column 4 of the table.
column 1
item
column 2
part of average unimproved value of parcel
column 3
annual rate for residential land mentioned in paragraph (a)
column 4
annual rate for commercial land
1 $0 — $100 000 1% 1% 2 $100 001 — $200 000 1.25% 1.4% 3 $200 001 and over 1.5% 1.7% (3)This section is subject to section 24A (Unit subdivisions).
22BBCommissioner must be told if land leased for residential purposes is rented
(1)A person who becomes the owner of a parcel of land that is leased for
residential purposes, and becomes or continues to be rented by a tenant
on the change of ownership, must tell the commissioner in writing
within 30 days—
(a)that the parcel became or continued to be rented; and
(b)the date when the parcel became rented.
(2)The owner of a parcel of land that is leased for residential purposes
must tell the commissioner in writing within 30 days if the parcel
becomes rented by a tenant.
(3)Subsections (1) and (2) do not apply to a company.
22EBPenalty tax
(1)If the owner of a parcel of land—
(a)fails to give any information as required by this Act; or
(b)provides any such information, whether orally or in writing,
that is false or misleading in a material particular;
the owner is liable to pay, as a penalty, an additional amount equal to double the amount of any land tax payable in relation to that parcel of land.
(2)The commissioner shall assess the amount of penalty tax payable by an
owner of a parcel of land under subsection (1) and shall, as soon as
practicable after making the assessment, give the owner written notice
of the assessment and of the due date for payment of the penalty tax.
22ECRefund or remission of penalty tax
If the commissioner is satisfied that it is fair and reasonable that all or part of any penalty tax payable or paid in relation to a parcel of land should be remitted or refunded, the commissioner may remit or refund the relevant amount to the owner of the parcel of land.
The relevant definitions of “lease”, “rent” and “tenancy agreement” within the LTA are:
lease means a lease from the Commonwealth or the Territory, and includes an agreement with the Commonwealth or the Territory—
(a)for a lease of a parcel of land; or
(b)for the tenancy or occupation of a parcel of land.
rent means valuable consideration for which a tenant is liable under a tenancy agreement in relation to the tenancy or a period of the tenancy.
tenancy agreement—
(a)means an agreement under which a person grants to someone else for value a right of occupation of a parcel of land for use as a residence—
(i)whether the right of occupation is exclusive or not; and
(ii)whether the agreement is express or implied; and
(iii)whether the agreement is in writing, is oral, or is partly in writing and partly oral; but
(b)does not include an agreement giving a right of occupation only as a boarder or lodger.
Part 2 of the LTA deals with the imposition and payment of land tax. The following sections in Part 2 are relevant:
8 When is something rented for pt 2?
(1) For this part, a parcel of land or dwelling is not taken to be rented only because a tenant is liable to pay for rates, land tax, repairs, maintenance or insurance in relation to the parcel or dwelling.
NoteFor provision about multiple dwellings on a parcel of land, see s 15.
(2) For this part, a parcel of land or dwelling is taken to be rented if it is rented on the 1st day of a quarter.
(3) For this part, a parcel of land or dwelling is taken to be rented on the 1st day of a quarter if—
(a)it is leased for residential purposes on that day; and
(b)it was rented at any time in the previous quarter.
(4) However, the parcel of land or dwelling is taken not to be rented on the 1st day of a quarter if—
(a)the owner gives written notice to the commissioner before the beginning of the quarter that the parcel or dwelling will not be rented at any time in the quarter; or
(b)the owner gives written notice to the commissioner during the quarter that the parcel or dwelling has not been, and will not be, rented at any time in the quarter; or
(c)the owner gives written notice to the commissioner after the quarter that the parcel was not rented at any time in the quarter; or
(d)the owner gives written notice to the commissioner that the parcel or dwelling was not rented during a continuous period of at least 91 days that—
(i)begins in a quarter after the 1st day of the quarter; and
(ii)ends in the following quarter.
(5) Also, if the owner of a parcel of land becomes the owner on the 1st day of a quarter or during the previous quarter, the parcel is taken to be not rented on the 1st day of the quarter unless—
(a)the owner advises under section 14 that the parcel is rented; or
(b)the commissioner is otherwise satisfied that the parcel is rented.
9Imposition of land tax
(1) Land tax at the appropriate rate is imposed for a quarter on each parcel of rateable land that is—
(a)rented residential land; or
(b)residential land owned by a corporation or trustee; or
(c)commercial land.
(2) The appropriate rate of land tax for a parcel of land is the amount worked out for the parcel as follows:
determined rate × average unimproved value
(3) However, land tax is not imposed on a parcel of land that is exempt under section 10 or section 11.
(4) In this section:
average unimproved value means the average unimproved value of the parcel of land under the Rates Act 2004.
commercial land—
(a)means rateable land that is not residential land or rural land; and
(b)includes part of a parcel of land used for commercial purposes.
determined rate means the rate determined under the Taxation Administration Act, section 139.
NoteThe power to determine a rate under the Taxation Administration Act includes the power to determine a different rate for different matters or different classes of matters (see Legislation Act, s 48).
14Commissioner to be told if residential land rented
(1) This section applies in relation to a parcel of land that—
(a)is leased for residential purposes; and
(b)is rented by a tenant.
(2)A relevant person must tell the commissioner, in writing—
(a)that the parcel is rented; and
(b)when the rental began.
Note 1If a form is approved under the Taxation Administration Act 1999, s 139C, the form must be used.
Note 2It is an offence to fail to notify the commissioner under this section (see Taxation Administration Act 1999, s 67 (2)).
Note 3It is also an offence to knowingly avoid paying, or disclosing a liability to pay, part or all of an amount of tax (see Taxation Administration Act 1999, s 65 (1)).
(3)The relevant person must tell the commissioner the information
mentioned in subsection (2) not later than 30 days after—
(a)if there is a change of ownership of the parcel—the day the ownership changes; or
(b)in any other case—the day the rental begins.
(4)This section does not apply if the owner of the parcel of land is a
corporation.
(5)In this section:
relevant person means—
(a)the owner of the parcel of land; or
(b)if the owner has authorised an agent to act on the owner’s behalf in relation to the rental of the parcel—the agent.
Examples—agent
accountant, real estate agent, solicitor
NoteAn example is part of the Act, is not exhaustive and may extend, but does not limit, the meaning of the provision in which it appears (see Legislation Act, s 126 and s 132).
Part 3 of the LTA deals with enforcement. Section 19A reads:
19AInterest and penalty tax payable on land tax if no disclosure
(1)This section applies if—
(a)land tax is imposed on a parcel of rateable land under
section 9 (1)(a); and
(b)the owner of the parcel of land fails to comply with section 14
(Commissioner to be told if residential land rented).
(2)The owner is liable to pay interest on the amount of land tax from the
end of 30 days after the 1st day of the 1st quarter for which the tax is
imposed.
(3)Interest on the amount of land tax is worked out—
(a)for each calendar month that the amount is payable; and
(b)on the 1st day of that month; and
(c)at the interest rate applying to that day; and
(d)on the total amount of land tax that is payable on a day when the interest is worked out.
NoteThe Minister may determine an interest rate for this section under the Taxation Administration Act, s 139.
(4) For subsection (3) (a), if an amount of land tax is payable for part of a
calendar month, interest is payable for the whole month.
(5) The Taxation Administration Act, division 5.2 (Penalty tax) applies to
the owner of the parcel of land as if—
(a)the owner’s failure to comply with section 14 were a tax
default; and
(b)a reference to interest under division 5.1 were a reference to
interest under this section; and
(c)a reference to the amount of tax unpaid were a reference to the
amount of land tax payable.
(6) This section applies to land tax imposed before or after the
commencement of this section.
The following transitional provisions in the LTA are relevant:
45Meaning of repealed Act for pt 7
In this part:
repealed Act means the Rates and Land Tax Act 1926 (repealed).
48Land tax payable under repealed Act
(1)This section applies if—
(a)land tax (including penalty tax and interest) was payable under
the repealed Act; and
(b)the land tax had not been paid before 1 July 2004.
(2)The land tax is taken to be payable under this Act.
The following sections of the TAA are relevant to the decision under review:
30Penalty tax in relation to certain tax defaults
(1)If a tax default happens, the taxpayer is liable to pay penalty tax in
addition to the amount of tax unpaid.
NoteA taxpayer may also be liable to pay penalty tax under the Land Tax Act 2004, s 19A (5) (Interest and penalty tax payable on land tax if no disclosure).
(2)Penalty tax imposed under this division is in addition to interest.
(3)Penalty tax is not payable in relation to a tax default that consists of a
failure to pay—
(a)interest under division 5.1; or
(b)penalty tax previously imposed under this division.
31 Amount of penalty tax
(1)The amount of penalty tax payable in relation to a tax default is 25% of the amount of tax unpaid, subject to this division.
(2)The amount of penalty tax payable in relation to a tax default is 50% of
the amount of tax unpaid if the commissioner is satisfied that the tax default was caused wholly or partly by a failure by the taxpayer (or a person acting on behalf of the taxpayer) to take reasonable care to fulfil the taxpayer’s obligations under a tax law.
(3)Subsection (2) does not apply if the tax payer satisfies the
commissioner that the taxpayer (or a person acting on behalf of the taxpayer) had a reasonable excuse for the failure.
(4)Subsections (2) and (3) apply to a tax default that happened before
their commencement in the same way as they apply to a tax default that happened after their commencement.
(5)The amount of penalty tax payable in relation to a tax default is 75% of
the amount of tax unpaid if the commissioner is satisfied that the tax default was caused wholly or partly by the intentional disregard by the taxpayer (or a person acting on behalf of the taxpayer) of a tax law.
(6)No penalty tax is payable in relation to a tax default if the
commissioner is satisfied that—
(a)the taxpayer (or a person acting on behalf of the taxpayer) took
reasonable care to comply with the tax law; or
(b)the tax default happened solely because of circumstances
beyond the taxpayer’s control (or if a person acted on behalf of the taxpayer, because of circumstances beyond either the person’s or the taxpayer’s control) but not amounting to financial incapacity.
Note The commissioner’s decision to impose penalty tax is an internally reviewable decision (see s 107, def internally reviewable decision), and the commissioner must give an internal review notice to the taxpayer (see s 107B).
37Remission of penalty tax
The commissioner may remit all or part of an amount of penalty tax payable by a person if satisfied that—
(a)either—
(i)the person has taken reasonable steps to mitigate, or to mitigate the effects of, the circumstances that resulted in the liability for penalty tax; or
(ii)the circumstances that resulted in the liability for penalty tax were exceptional; and
(b)it would be fair and reasonable to remit all or part of the penalty tax.
NoteThe commissioner’s decision to refuse to remit penalty tax payable by a person is an internally reviewable decision (see s 107, def internally reviewable decision), and the commissioner must give an internal review notice to the person (see s 107B).
Section 6E(1) of the Residential Tenancies Act 1997 (“the RTA”) is also relevant. It reads:
6ECertain people given right of occupation not tenants
(1) A residential tenancy agreement does not include an agreement for the right to occupy premises if the person given the right of occupation is—
(a)a party to an agreement entered into honestly for the sale or purchase of the premises; or
(b)a boarder or lodger; or
(c)a person prescribed by regulation.
Overview of the legislation
On 1 July 2004, the RLTA was repealed although land tax and penalty tax were taken to be payable under the LTA by the transitional provisions. The grounds for the imposition of land tax under the RLTA and the LTA are essentially the same. The land must be held under a crown lease for residential purposes on the first day of the quarter and it must have been rented at some time in the previous quarter. Both Acts provide for notices to be given to the Commissioner to remove liability for land tax in the light of changed rental circumstances. Penalty tax may be levied under both Acts although the rates and conditions differ.
Structure of the Decision
After setting out the contentions of the parties, the Tribunal proposes to consider the three periods when the Commissioner contends the property was rented and the Applicant says that for all or part of these it was not. The first period commenced in late 2002 when the property was let to Ms Nichols and Mr Francis. The second period commenced in late 2004 when Havelock Housing Association Inc. (“Havelock”), a community housing association, arranged for various disadvantaged people to occupy the property under the Social Landlord Program. The final period commenced in late 2009 when Dr Pattison and Mr Chew agreed to occupy the property and later purchased it in 2010.
Applicant’s contentions
In relation to the first period, Mr Harris accepted that land tax was correctly levied for Quarter 2 (Q2) of 2002/2003. However he submitted that the tenants had left the property in December 2002 and that the property was not leased for residential purposes on the first days of Q3 and Q4 of 2002/2003 nor for Q1 and Q2 of 2003/2004 as required by section 8(3)(a) of the LTA. Mr Harris referred to the LTA but because this was prior to 1 July 2004, section 22AB(3)(a) of the RLTA was the relevant section. Nothing turns on this as the sections are in all material respects the same. He said that the Applicant was not liable for land tax for this reason.
In relation to the second period Mr Harris said that his client had been provided with documentation specifically ‘Revenue Circular GEN006’ (Exhibit A7) and had a number of discussions with Havelock which the Applicant considered was an agent of the Department of Housing and Community Services and, as such, of the ACT government. He relied on these and formed the view that he did not have to pay land tax.
Mr Harris submitted that at the beginning of the final period the applicant and the occupiers had honestly entered into a licence to occupy the property as part of an agreement for the sale and purchase of it (T152-154). Under section 6E(1)(a) of the RTA the right to occupy a property in these circumstances does not create a residential tenancy agreement.
Mr Harris argued that his client had made a diligent effort to understand and comply with the land tax laws and should not have any penalty tax assessed against him.
The Applicant made a number of submissions to the Commissioner and to the Tribunal which were rude and discourteous to the staff of the ACT Revenue Office and which Mr Harris said should be disregarded. He said his client was under emotional stress and in this condition he became angry and sarcastic.
Commissioner’s contentions
The Commissioner contended that, save for the exceptions set out below, the assessment of 19 October 2010 and the disallowance of the Applicant’s objection were correct and the evidence showed the property was rented at the relevant times.
Dr Jarvis said that land tax and penalties incurred prior to 1 July 2004 should have been accessed under the RLTA. The Commissioner assessed land tax and penalty tax under the LTA. Penalty tax under the RLTA was set at 200% for failing to inform the Commissioner that a property was rented. Dr Jarvis said the Applicant had failed to inform the Commissioner. He also said that the Commissioner had incorrectly charged interest on land tax and penalty tax under the RLTA, as that act did not provide for interest to be charged; corrected assessments would need to be issued.
Dr Jarvis submitted that the remission of penalty tax or interest called for exceptional circumstances to be established otherwise the deterrence scheme in the LTA would be undermined. He referred to Riverland Retreat v Commissioner of State Revenue [2004] VCAT 1366 and American Express International v Commissioner of State Revenue [2003] VSC 32.
In relation to the rate of penalty tax under the TAA, Dr Jarvis argued that on the evidence before the Tribunal it should not be less than 50%. The Applicant was aware of his obligations to pay land tax. He was an experienced valuer and real estate agent of many years’ standing, who had paid land tax on a commercial property and who had previously applied for an exemption from land tax on the property (T3-p50). Both before and after 1 July 2004, the Applicant had not taken reasonable care to fulfil his relevant tax obligations nor did the Applicant have any reasonable excuse.
Dr Jarvis also proposed that on the facts in this matter there was sufficient material for the Tribunal to conclude that the Applicant had intentionally disregarded a tax law in that he had not notified the Commissioner that the property was rented. He said penalty tax should be levied at the rate of 75%.
In dealing with the remission of penalty tax, Dr Jarvis contended that the Applicant had not provided any acceptable reasons for the failure to notify the Commissioner of the rental status of the properties, nor had he provided any other material as to why it would be fair and reasonable to remit the penalty.
Dr Jarvis argued that interest under section19 or section 19A of the LTA cannot be reviewed by the Tribunal because it is not prescribed by section 38 of the LTA nor is it otherwise reviewable pursuant to the provisions of section 107A or schedule 1.2 of the TAA. He said the Commissioner accepted that interest would only be payable if the assessed sum was not paid by the date fixed for payment in the assessment. Mr Hanley had paid the land tax and penalty tax by the due date and hence no interest was payable on any of the assessed amounts.
The first period
The Commissioner assessed land tax on the property from Q2 of 2002/2003 to Q2 of 2003/2004 inclusive. Mr Hanley conceded that the property was rented for Q2 of 2002/2003 but said the tenants left before Christmas 2002. A rental bond form was signed by Nichols on 20 August 2002 and electricity was connected in the tenant’s name on 26 August 2002. This is confirmation that the property was rented in Q1 of 2002/2003.
Any further liability for land tax depends on when the tenancy ended. Mr Hanley first said it ended in December 2002. A neighbour Ms Judy McGregor wrote a letter on 8 November 2010 (T155) saying the tenancy was from September 2002 to September 2003. Mr Hanley said he provided these dates. In cross examination, he said the tenancy might have ended three to six months prior to September 2003. On 1 September 2003, he applied for and later obtained a return of the rental bond lodged in August 2002. In his evidence,
Mr Hanley admitted that following a car accident in 1994 his memory of dates, times and places was not good and a bit “grey”. Mr Harris submitted that Mr Hanley “is easily flustered with regard to dates and they are confusing”.
Mr Hanley said the tenants damaged the property and he made substantial repairs and renovations and attempted to sell the property by auction on 22 November 2003. He said he was suffering financially at this time. He provided no satisfactory explanation for his delay of nine months in seeking a return of the rental bond when he was short of money. Mr Hanley produced no receipts or other documentary evidence to support his position that from Christmas 2002 to September 2003 he was carrying out extensive repairs and renovations. He said all his records were lost when he moved from house to house or he had disposed of them because the Australian Taxation Office did not require them to be kept for more than seven years. Earlier in his dealings with the Commissioner Mr Hanley wrote in an email “I have not received income/rent or other services in lieu of money from any of the people you have listed as being tenants in my property”(T18). The tenants listed include Nichols who Mr Hanley now admits was a tenant in Q2 of 2002/2003. Based on all of the above evidence, the Tribunal does not accept Mr Hanley’s version of the events.
On the evidence the Tribunal finds that the tenancy ended some time before 1 September 2003, but not a long time before that date, and that the property was rented in Q1 of 2003/2004. It follows that land tax is payable on the property from Q2 of 2002/2003 to Q2 of 2003/2004 inclusive.
The Havelock period
The Commissioner assessed land tax on the property from Q3 of 2004/2005 to Q4 of 2006/2007 inclusive. Although the Applicant had earlier claimed not to have received income or rent from the tenants arranged by Havelock, he now concedes that the persons listed by the Commissioner in an email of 14 September 2010 (T18) were rent paying tenants. This concession is an acceptance that the Commissioner correctly assessed land rent on the property as set out above. The Applicant however continues to dispute the Commissioner’s assessment of penalty tax and interest.
The final period
The Commissioner assessed land tax on the property from Q3 of 2009/2010 to Q1 of 2010 /2011 inclusive. He assessed that no land tax was payable for Q3 of 2009/2010 but under section 7(2) of the TAA this is an assessment of a tax liability and is part of the decision for which the Applicant has sought review.
Dr Pattison, one of the occupiers, gave evidence that her first payment was for the monthly period commencing on 1 December 2009. She said “rent” was paid up to the finalisation of the purchase of the property on 6 December 2010. The information from the Australian Taxation Office for the year ending 30 June 2010 (Exhibit R3), which is sourced from Mr Hanley’s income tax returns, shows a rental period of 30 weeks which is consistent with payments starting on 1 December 2009. Mr Hanley was not sure when actual occupation commenced but thought it was after Christmas 2009. This statement may be correct but it would seem from the above that the right of occupation commenced on
1 December 2009.
The Applicant argued that the occupiers were not tenants and what was paid was a licence fee. The document signed by the parties is called a “property-caretakers licence agreement” although at page 56 of the Applicant’s Facts and Contentions he describes it as a “legally binding deferred time sale agreement”. There is some dispute as to when this document was signed. It is dated 19 October 2010 but some clauses suggest that perhaps the year is incorrect and it should be 2009. Dr Pattison thought it was signed in September 2010. She also said she did not arrive in the ACT until mid-January 2010. The Applicant in his evidence was not clear when the document was signed. Mr Harris argued that it was signed in 2009 and it was a contract for the sale of the property and that once the document was signed Dr Pattison and Mr Chew occupied not as tenants but as purchasers because of the application of section 6E(1)(a) of the RTA.
The Tribunal prefers the evidence of Dr Pattison that the document was correctly dated 19 October 2010. It does not consider the document to be a legally binding agreement for the sale of the property as the price is not fixed nor is there a mechanism for fixing the price other than the agreement of the parties. It follows that section 6E(1)(a) of the RTA does not apply.
The document does however contain the necessary elements to constitute a tenancy agreement namely the term, rent, parties, premises and a commencement date. It is irrelevant that the parties choose to call the document a “property-caretakers licence agreement”. In the Tribunal’s view this is a tenancy agreement as defined in the LTA and rent was paid by the tenants.
Mr Harris also argued that once the contract of sale of 21 October 2010 was signed the purchasers ceased to be tenants because of the application of section 6E(1)(a) of the RTA. Dr Jarvis said that this Act had no application to the meaning of “tenancy agreement” under the LTA. The Tribunal does not need to decide this matter as the Commissioner has not made an assessment for Q2 and Q3 of 2010/2011, but in any event the exact date is irrelevant for land tax purposes provided the property was rented in the quarter commencing 1 October 2010, which seems to be the case.
The Tribunal finds that the property was rented from 1 December 2009 to a date in Q2 of 2010/2011. This means that the Applicant is liable for land tax from and including Q3 of 2009/2010 to Q1 of 2010/2011. The Commissioner did not assess any land tax for Q2 and Q3 of 2010/2011 so these quarters are not before the Tribunal, but it would seem that the taxpayer would be liable for land tax because the property was rented from1 December 2009 to at least the 21 October 2010, the date of the contract of sale.
Land Tax under the RLTA
The Commissioner acknowledged that the basis for the calculation of the land tax differed between section 22A of the RLTA and section 59 of the LTA. He said that a corrected assessment would be required for those periods where the RLTA applied, that is, prior to 1 July 2004.
Penalty Tax under the RLTA
In the period before the LTA commenced on 1 July 2004, penalty tax under section 22EB of the RLTA was fixed at 200% of the land tax payable. There were no graduations of penalty tax as appear in sections 31-34 of the TAA. In section 22EC the RLTA did provide for the remission or refund of penalty tax if the Commissioner considered it fair and reasonable to do so.
The Commissioner conceded the rate of penalty tax for the period prior to 1 July 2004 under the RLTA was incorrectly assessed and a corrected assessment is required for the period prior to 1 July 2004.
Section 22EC allowed the remission of penalty tax under the RLTA but that section is now repealed. Any remission of penalty tax is now provided for in section 37 of the TAA which sets out a more restrictive regime. The criteria set out in section 37 require reasonable steps to be taken” to mitigate, or mitigate the effects of, the circumstances that resulted in the liability for penalty tax” or in the alternative that “the circumstances that resulted in the liability for penalty tax were exceptional”. There is no evidence before the Tribunal that any steps to mitigate were taken or that the circumstances were in any way exceptional. However, in addition the Commissioner must be satisfied that it is fair and reasonable to remit the penalty tax. In light of the Tribunal’s later finding, that the tax default was caused wholly or partly by Mr Hanley’s intentional disregard of a tax law, the Tribunal finds it would not be fair and reasonable to remit all or part of the penalty tax.
Interest under the RLTA
The Tribunal notes the Commissioner acknowledged that under the RLTA there was no provision for the payment of interest. Dr Jarvis also indicated that the Commissioner did not consider that interest should be charged on land tax or penalty tax assessed under the RLTA and taken to be payable under the LTA by section 48 of the transitional provisions of the LTA.
Penalty Tax under the LTA
Section 14 of the LTA requires the owner of land or an authorised agent to inform the Commissioner when residential land is rented and when the rental began. This must be done within thirty days of the start of the tenancy or the day ownership of the land changes. This strict obligation is placed on the owner because it is the owner who knows when the property is rented or when ownership changes. If the owner fails to do this, section 19A of the LTA treats that failure as a tax default for the purposes of penalty tax under Division 5.2 of the TAA.
Division 5.2 creates a penalty regime based on the degree of culpability of the taxpayer. If the taxpayer took reasonable care to comply with a tax law or the default occurred because of circumstances beyond the taxpayer’s control, no penalty tax is payable under section 31(6) of the TAA. At the other end of the scale if the Commissioner informs a taxpayer that an investigation is to be carried out and the taxpayer, for example, destroys relevant records or obstructs an authorised officer the penalty rate under section 34 is 90% of the land tax.
In between these extremes, if a taxpayer fails to take reasonable care in carrying out tax obligations the penalty tax rate is set at 25% by section 31(1) of the TAA. The rate increases to 50% under section 31(2) if the Commissioner is satisfied there is no reasonable excuse for the failure. The rate reaches 75% under section 31(5) when the tax default was caused wholly or partly by the intentional disregard of a tax law by the taxpayer or a person acting for the taxpayer.
The imposition of the rates of 25% and 50% imports an objective element by the use of the terms “reasonable care” and “reasonable excuse”. The question that needs to be answered is: what would a reasonable person do in the circumstances of the taxpayer? These issues, in the context of Commonwealth taxation law, were considered in Aurora v Commissioner of Taxation (No.2) [2011] FCA 1090 and Commissioner of Taxation v Traviati [2012] FCA 546.
Although penalty tax was imposed under the RLTA, remission is now dealt with under the TAA. Section 22EC of the RLTA gave a discretion to remit or refund the penalty tax if the Commissioner was satisfied it was “fair and reasonable” to do so. The extremely high fixed penalty of 200% was tempered by the broad discretion to remit or refund. With the repeal of the RLTA a more restrictive approach to remission was set out in section 37 of the TAA. However, the penalty tax rates in the TAA are set well below the 200% rate in the RLTA. Even if a taxpayer deliberately damages or destroys tax records required to be kept under a tax law, the highest penalty tax rate is 90%. The repeal of the RLTA and the transitional provisions of the LTA seem to have had an untended and unfortunate consequence for those taxpayers assessed after the repeal of the RLTA for periods before 1 July 2004.
In this matter, Mr Hanley was aware of his obligations to pay land tax and to inform the Commissioner when his property was rented. He was an experienced valuer and real estate agent of many years standing who had paid land tax on a commercial property and who had previously applied for an exemption from land tax on the property (T3-p50). He said in his evidence that he had been told by a Revenue Office staff member that he did not have to pay land tax on his own residence but conceded he may have asked the wrong question to elicit that answer. He also produced a letter addressed to him from Havelock (Exhibit A2), saying land tax was not payable on houses rented under the Social Landlords Program. However the letter was shown to be a forgery when the alleged writer Ms Bassett gave evidence that she was not employed by Havelock at the time and she did not write the letter. Mr Hanley denied he had forged the letter. He could not recall how it came into his possession.
Mr Hanley had his accountant, Mr Hanna, acting for him at the time but omitted to obtain advice from him about his tax obligations. He had earlier consulted Mr Hanna about paying a fee to his own company Location Real Estate in 2002. Mr Hanley claimed that Revenue Circular REV006 (Exhibit A7) supported his position that the property was not subject to land tax but the Tribunal cannot agree with Mr Hanley’s view. On any reasonable interpretation of the circular he was liable for land tax on the property.
The Tribunal considers that both before and after 1 July 2004, the Applicant had not taken reasonable care to fulfil his relevant tax obligations nor did the Applicant have any reasonable excuse for not doing so. However the facts in this matter show that the Commissioner should have concluded that the Applicant had intentionally disregarded a tax law but the Commissioner did not do so. The Tribunal finds that the correct penalty tax rate is 75% because the tax default was caused wholly or partly by the Applicant’s intentional disregard of a tax law.
Mr Hanley also sought remission of the penalty tax based on hardship grounds. These are his financial and health problems which he set out in his submissions to the Commissioner and the Tribunal. Although the Mr Hanley seems to have lost money in some of his business dealings and from his divorce, he is employed as a valuer with the Australian Taxation Office and in December 2010 sold the property for about $750,000. His health problems are real but from his medical reports they can be managed and he is being treated. The Tribunal does not consider that the grounds are sufficient to justify a remission of any penalty tax.
Interest under the LTA
The Tribunal has considered the relevant provisions in the LTA and the TAA. It accepts Dr Jarvis’ submission that neither the imposition of interest nor its remission can be subjected to review by the Tribunal.
If the Tribunal is wrong to conclude that it lacks jurisdiction to review interest then the Tribunal adopts the analysis of the interest provisions set out in paragraphs 24 to 30 inclusive of Trust Company of Australia Limited v Chief Commissioner of State Revenue [2002] NSWADT 21. The NSW provisions are essentially the same as those in sections 25 to 29 of the TAA. The evidence in this matter does not disclose any exceptional circumstances that would justify the remission of the market rate component of the interest.
In the Trust Company case the Chief Commissioner of State Revenue remitted the whole of the premium or penalty component of the interest because the taxpayer had initiated contact to clarify the tax liability. The Tribunal would not remit the penalty component in the circumstances of the present case where the tax default was caused wholly or partly by the intentional disregard by the applicant of a tax law.
Conclusion and Summary of Findings
As a final comment the Tribunal would like to commend the Commissioner’s staff for the courtesy and politeness they showed in their dealings with Mr Hanley.
Having regard to the evidence and the submissions put to it the Tribunal has made the findings set out in below and will make orders pursuant to
section 68(3) of the ACT Civil and Administrative Tribunal Act 2008 setting aside the decisions of the Commissioner for ACT Revenue and remitting those decisions to him and directing him to reconsider those decisions in accordance with the findings of the Tribunal.
The Applicant is liable for land tax for the following periods:
a)from Q2 of 2002/2003 to Q2 of 2003/2004 inclusive;
b)from Q3 of 2004/2005 to Q4 of 2006/2007 inclusive; and
c)from Q3 of 2009/2010 to Q1 of 2010/2011 inclusive.
For the period prior to 1 July 2004, land tax and penalty tax is to be assessed under the RLTA and after that date under the LTA.
No interest is payable on land tax and penalty tax assessed under the RLTA.
Interest on penalty tax assessed under the LTA may only be imposed on amounts unpaid after the payment date in the assessment has passed.
The Tribunal lacks jurisdiction to review the decision of the Commissioner to impose interest on land tax and penalty tax under the LTA.
The tax default in the period after 1 July 2004 was caused wholly or partly by the Applicant’s intentional disregard of a tax law and that penalty tax of 75% should be imposed by the Commissioner.
Following the repeal of section 22EC of the RLTA any remission or refund of penalty tax is governed by section 37 of the TAA.
The Applicant has failed to meet the eligibility criteria for the remission of penalty tax under section 37 of the LTA.
………………………………..
Mr A. O’Neil – Senior Member
PUBLICATION DETAILS
TO BE PUBLISHED
To be completed by Tribunal Staff
PART A
FILE NUMBER: | AT 11/107 |
PARTIES, APPLICANT: | Tony Hanley |
PARTIES, RESPONDENT: | Commissioner for ACT Revenue |
COUNSEL APPEARING, APPLICANT | |
COUNSEL APPEARING, RESPONDENT | |
SOLICITORS FOR APPLICANT | |
SOLICITORS FOR RESPONDENT | L. Tomlins, ACT Government Solicitor |
TRIBUNAL MEMBERS: | Mr A. O’Neil, Senior Member |
DATES OF HEARING: | |
PLACE OF HEARING: |
PART B
RECOMMENDATION:
FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )
COMMENTS:
2