James v Commissioner for ACT Revenue - [2013] ACAT 32

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

JAMES & COMMISSIONER FOR ACT REVENUE

(Administrative Review) [2013] ACAT 32

AT12/105
Catchwords: ADMINISTRATIVE REVIEW – land tax – penalty tax

List of legislation: ACT Civil and Administrative Tribunal Act 2008, ss 68

Rates and Land Tax Act 1926(repealed), ss 22BB, 22EB, 22EC
Land Tax Act 2004, ss 9, 14, 19A, 48
Taxation Administration Act 1999, ss 31- 37, 107A, 108A

List of Cases: Commissioner for ACT Revenue v Dataflex Pty Ltd and
ACT Civil and Administrative Tribunal [2011] ACTCA 14

Tribunal: Mary-Therese Daniel – Member

Date of Orders: 8 May 2013

Date of Reasons for Decision: 8 May 2013

AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 12/105

BETWEEN:
TREVOR AND DIANNE JAMES
Applicants

AND:

COMMISSIONER FOR ACT REVENUE

Respondent

TRIBUNAL: Mary-Therese Daniel – Member

DATE: 8 May 2013

ORDER
The Tribunal Orders that:
1.The decision under review is set aside and replaced with the following decision:
a)For the period 1 July 2002 – 30 June 2004 land tax be assessed in the amount of $1,736.67 and penalty tax at a rate of 200%;
b)For the period 1 July 2004 to 30 June 2012 land tax be assessed in the amount of $12, 528.65 and penalty tax at a rate of 50%.

………………………………..
Mary-Therese Daniel
Member

REASONS FOR DECISION

These proceedings consist of an application by Mr and Mrs James (applicants/owners) for review of a decision of the Commissioner for ACT Revenue (respondent/Commissioner). That decision, which was made on 30 November 2012, was to disallow the applicants’ objection to an assessment of land tax, penalty tax and interest for the period 1 July 2002 to 30 June 2012, in relation to a property they had owned in Amaroo.

The facts of this case

The background to the matter was largely agreed.
On 7 September 2001 the applicants purchased a property in Amaroo which was then leased to the Defence Housing Authority. This lease was registered with the Registrar-General at the Land Titles Office on 2 November 2001. The ACT Revenue Office has no record of receiving a Residential Land Tax notification form in relation to the property at or around this time.
The property remained leased until it was to be sold in May 2012. On 14 May 2012 the prospective purchaser’s solicitor applied to the ACT Revenue Office for a certificate of rates, land tax and other charges. In making enquiries to prepare the certificate, staff in the accounts area of the ACT Revenue Office noted that the electricity accounts for the property were in a different name to that of the registered owners, the applicants. The information as to the different names was then forwarded to the compliance area of ACT Revenue, on 15 May 2012, for investigation.
On 15 May 2012 a compliance inspector from ACT Revenue telephoned the applicant’s solicitor. Later that day a facsimile letter was sent to the solicitor, referring to the earlier telephone conversation and requesting that a land tax notification form be completed as soon as possible. The facsimile letter noted “The solicitor acting for the other party has requested a conveyance certificate, however, this cannot be issued until the land tax investigation is finalised.” and later “This request forms part of an authorised investigation”.
The applicants received a telephone call from their solicitor on 15 May 2012, and advised their solicitor that the property had at all times been rented. When the notification form was provided to them, they completed it, and it was provided to the Commissioner on 20 May 2012.
On 22 May 2012 the Commissioner issued an assessment of land tax in relation to the property. It is the policy of the Commissioner not to impose land tax more than 10 years in arrears. Consequently, there was no assessment for land tax for the period 7 September 2001 – 30 June 2002.
The assessment of land tax for the period 1 July 2002 to 30 June 2012 came to a total of $14,265.32. Penalty tax at a rate of 50% was imposed, together with interest on the unpaid amount at the prescribed rate from time to time. The total sum payable was $32,719.37.

The decision under review

On 8 July 2012 the applicants sought internal review of the assessment by the Commissioner. They did not argue that they were not liable to pay land tax. Rather, they submitted that no penalty tax should be payable as they had made no attempt to hide or obscure their non-compliance. They said they had believed that they fully complied with all ACT tax requirements. This was evidenced by the fact they had always paid land tax on their other rental properties both in the ACT and elsewhere. They said they had always used a reputable accountant, and never tried to hide this property from the Australian Taxation Office or other authorities. In the event that penalty tax was to be payable, they sought that it be reduced by 80% due to their disclosure of the matter before the investigation commenced. The applicant’s also asked for review of the ‘premium’ interest.
On 30 November 2012 the delegate of the Commissioner conducting internal review disallowed the applicant’s objection. The delegate stated “I disallowed the objection because the fifty per cent penalty tax was appropriate in the circumstances and the imposition of interest under the Land Tax Act 2004 (the Land Tax Act) is not subject to internal review.
The applicants paid the assessed amount, and instituted these proceedings for review of the Commissioners decision.

The hearing

Mr James represented himself and his wife at the hearing. He gave evidence and made submissions. He relied upon the matters set out in the application for review, and his written submission and attached documents. As I have noted above, there was largely no contest with any of the matters in relation to which he gave evidence.
The respondent, who was represented by Counsel, commenced the hearing by conceding that the decision on internal review was in error in misapplying certain provisions of the legislation, and would need to be replaced with a Tribunal decision. The respondent relied upon the T-documents filed by the respondent, the statement of facts and contentions, a chronology of events and written submissions.
Ms Mele, an objections officer at ACT Revenue, gave evidence as to the investigation in this matter specifically, and the procedures of the respondent generally in relation to investigations and information sharing.

The relevant legislation

The Rates and Land Tax Act 1926 (RLTA) (now repealed) provided for the imposition, assessment and remission of land tax for the relevant period to 30 June 2004.
Section 22A of the RLTA imposed land tax at specified rates upon residential premises that were subject to a lease, except where an exemption applied. Section 22BB of the RLTA imposed an obligation upon the owner of such a property to advise the Commissioner in writing within 30 days upon the property becoming leased.
Section 22EB of the RLTA provided that if a person failed to comply with this obligation to notify the Commissioner, the person would be liable to penalty tax of double the land tax payable. Section 22EC provided the Commissioner with a broad discretion to remit or refund penalty tax where satisfied this would be fair and reasonable. No interest on outstanding amounts of land tax was imposed by the RLTA.
On 1 July 2004 the RLTA was repealed and replaced by the Land Tax Act 2004 (LTA). Part 7 of the LTA dealt with the transitional issues of tax owing under the RLTA but not paid. Specifically, section 48 of the LTA provided that land tax payable under the RLTA but not paid as at 1 July 2004, including any penalty tax, would be taken to be tax payable under the LTA.
For the period 1 July 2004 to date, section 9 of the LTA, in terms essentially similar to the RLTA, provides that land tax would be payable in relation to a property which was subject to lease. Section 14 imposes an obligation on the owner to notify the Commissioner of the property being rented. Section 19A provides that where the owner does not notify the Commissioner as required by section 14, interest at prescribed rates applies to the land tax ultimately assessed.
Subsection 19A(5) of the LTA also provides that in circumstances of a failure to notify, the land tax is subject to penalty tax under Division 5.2 of the Taxation Administration Act 1999 (TAA). The relevant provisions of the TAA for this matter are:
31Amount 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.
NoteThe 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).
32Reduction in penalty tax for voluntary disclosure
The amount of penalty tax determined under section 31 is reduced by 80% if, before the commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out, the taxpayer discloses to the commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined.
33Reduction in penalty tax for disclosure before investigation
The amount of penalty tax determined under section 31 is reduced by 20% if, after the commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out and before it is begun, the taxpayer discloses to the commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined…
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).

The Tribunal’s jurisdiction in this matter

Section 108A of the TAA provides that the ACAT may review ‘reviewable’ decisions. Under section 68 of the ACT Civil and Administrative Tribunal Act 2008 (ACAT Act) when conducting such a review the Tribunal has all of the powers of the original decisions maker. A ‘reviewable’ decision is defined by section 107A of the TAA. These include decisions under section 31 of the TAA to impose penalty tax, and a decision under section 37 not to remit penalty tax.
There is no right to apply for a review, either internally or by the ACAT, in relation to the failure to reduce penalty tax under sections 32 and 33 of the TAA. Those section of the TAA operate to reduce the assessment under section 31, where the facts on which those sections are predicated exist, and this is reflected in the assessment which is issued.
In relation to interest imposed on unpaid land tax under section 19A of the LTA, while section 26 of the LTA provides the Commissioner with the power to remit all or part of interest payable, such a decision is not reviewable either internally or by the ACAT.

Was land tax payable?

I am satisfied that land tax was payable in relation to the Amaroo property, for the relevant period. This is not disputed by the applicants.

Should penalty tax be imposed, and if so in what amount?

In relation to the period 1 July 2002 – 30 June 2004 (the first period), land tax was imposed at that time pursuant to section 22A of the RLTA in an amount of $1736.67. This assessment is not disputed.
In relation to the period from 1 July 2004 to 30 June 2012 (the second period), land tax was imposed pursuant to the LTA in the amount of $12,528.65. This amount also is not disputed.
The question which next arises is whether penalty tax should be imposed on either amount, and if so at what rate?
Section 22EB of the RLTA operated during the first period to impose penalty tax, where a person had failed to comply with their obligation to notify the Commissioner for ACT Revenue of a property being leased.
In similar terms, the provisions of section 31 of the TAA would apply during the second period to impose penalty tax if there had been a ‘tax default’ or failure to notify the Commissioner by the applicants.
At the hearing, Mr James submitted that there had been no failure to notify, or ‘tax default’, because a notification that the land was rented had been provided to the Commissioner in 2001. He was not able to provide any evidence that a notification in the form of a Residential Land Tax notification form, available at the time, had been submitted by either the applicants or their solicitor. However, he pointed to the fact that such a form had been submitted by the applicants in relation to other rental properties, and he suggested that he had had trouble with the government losing forms before. He asked that the Tribunal infer that the applicants had submitted a notification form, but it had been lost by the respondent. I decline to draw that inference. I am not satisfied, on the evidence, that notification of the respondent in the usual form was made.
The applicants further submitted that the registering of the lease to DHA, with the Registrar-General of Land Titles, was effective notification of the Commissioner of the rental status of the property. This was on the basis that the Registrar-General could be taken to be the agent of the Commissioner, because of a combination of factors including:
·     the use of shared government shopfronts;
·     an acknowledgement on the back of the registration of lease form that “The information is regularly provided to various ACT Government agencies, including ... ACT Treasury”;
·     the practice of Land Titles Office notifying ACT Revenue of new ownership details in relation to parcels of land for the purpose of issuing of rates notices; and
· the provisions for service upon the Commissioner under section 127 of the TAA which allow service to occur by delivering it to any office of the Commissioner.
I am not persuaded by this submission.
The Registrar-General of Land Titles is a separate entity to the Commissioner for ACT Revenue. These offices are separate agencies for the purpose of information-sharing legislation such as the Privacy Act 1988 (Cth). Notwithstanding the notice on the back of the registration of lease form, at hearing, the evidence of the representative of the Commissioner was that she was unaware of any formal arrangement for information as to registration of leases to be routinely provided to the Commissioner for land tax purposes.
There was no evidence that the applicants thought that in dealing with the Land Titles Office they were dealing with the agent of the Commissioner for ACT Revenue. The evidence and submissions of Mr James were not that the applicants had registered the lease intending this to be notification of the Commissioner, but that in hindsight perhaps registration with the Registrar-General was legally effective as notification to the Commissioner.
I am not satisfied that the Registrar-General could be considered to be the agent of the Commissioner. Registration of a lease with the Land Titles Office does not amount to compliance with the obligation to notify the Commissioner of the rental status of a property.
It follows that I am satisfied that there was a failure to notify or ‘tax default’ by the applicants, such that penalty tax under section 22EB of the RLTA and section 31 of the TAA must be imposed for the relevant periods.
For the first period, under section 22EB of the RLTA the appropriate rate of penalty tax is 200%.
The amount of penalty tax that would be payable in relation to the second period depends upon the application of the provisions of sections 31, 32 and 33 of the TAA.
The starting point under section 31(1) of the TAA is a rate of 25%. This may be increased to 50% if 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 (section 31(2) TAA).
It seems that there was no intention on the part of the taxpayers to avoid the operation of the tax laws. Rather, the obligation to notify the Commissioner was simply overlooked at the time of purchase. This may have been because, with the previous properties, this notification had been arranged by the solicitor at that time acting for the applicants on the purchase. The failure to rectify this omission over the ensuing decade seems to have been also caused by overlooking the issue. Mr James gave evidence that the applicants personally arranged payment of all rates and land tax on properties owned by them directly or by other entities they had control over, but with a number of properties being managed at any one time the absence of a land tax assessment for this particular property was not noticed.
I am satisfied that these circumstances amount to a failure to take reasonable care by the taxpayer or a person acting on behalf of the taxpayer. This means that penalty tax at a rate of 50% would be payable, under the provisions of section 31(2) of the TAA.
The next question that must be considered is whether the taxpayer or person acting on their behalf had a reasonable excuse for the failure. While it is human to overlook things, this does not amount to a reasonable excuse for the purposes of section 31(3) of the TAA.
I have considered whether section 31(5) which imposes a 75% penalty rate where there has been intentional disregard of a tax law, applies. It is clear from the circumstances of this case that there has been no intention to disregard the law, and that the applicants promptly and honestly cooperated with the Commissioner once the oversight was brought to their attention. Section 31(5) is of no application.
Section 31(6) of the TAA is not applicable in this case, first because I have concluded above that the applicants failed to take sufficient care in this matter, but also because there is no basis on which I could conclude that the tax default was due to circumstances beyond their control.

The provisions of section 31 of the LTA, therefore, would require the imposition of penalty tax at a rate of 50% on the land tax payable in relation to the second period.
I turn then to a consideration of sections 32 and 33. Section 32 is not applicable, as there was no voluntary disclosure prior to contact with the officer representing the Commissioner. Section 33 also is not applicable, as the notification did not occur prior to commencement of the investigation.
The applicants pointed out, quite rightly, that a full disclosure was made by them, as soon as they were contacted by the Commissioner. Unfortunately for the applicants, it is clear from the evidence that contact came after the investigation had commenced. In the circumstances of this case, there was no prior warning of an investigation. The representative of the Commissioner gave evidence that in certain classes of more routine matter, such as audits, advance notice is given. However, in matters such as the current one the investigation commences upon receipt of information that there has been a tax default. There is no obligation upon the Commissioner to provide prior notice of an investigation (Commissioner for ACT Revenue v Dataflex Pty Ltd and ACT Civil and Administrative Tribunal [2011] ACTCA 14).
Consequently, I am satisfied that section 33 does not apply in the current matter.
I turn finally to a consideration as to whether the penalty tax payable in relation to the first or second period should generally be remitted.
At the time that the matter is now being considered, the general discretion to remit penalty tax imposed in relation to the first period, under section 22EC of the RLTA, is no longer available, having been repealed. Under the transitional provisions to the LTA, the land tax and penalty tax payable under the RLTA are now taken to be payable as land tax imposed under the LTA. This means that it is open to the Tribunal to consider whether the penalty tax imposed in relation to the first period should be remitted entirely or in part, under section 37 of the LTA.
Section 37 of the LTA provides a broad discretion to remit all or part of penalty tax where certain preconditions are made out. I am not satisfied that either of the preconditions in subsection (a) of that section are made out. There was no evidence of the applicants having taken steps to mitigate the circumstances that resulted in the liability for penalty tax. The circumstances that gave rise to the tax default were unusual for the applicants, given their proven record in paying their land tax, however this unfortunate oversight is not ‘exceptional’ for the purposes of section 37.
It follows that penalty tax at a rate of 200% should be imposed in relation to the first period, and penalty tax at a rate of 50% should be imposed in relation to the second period.
I have noted above that the imposition and remission of interest on unpaid land tax are not matters for the Tribunal.
The order that is made in this matter then is that the decision under review is set aside and replaced with the following decision:

For the period 1 July 2004 to 30 June 2012 land tax be assessed in the amount of $12, 528.65 and penalty tax on that sum at a rate of 50%.

As the applicants have already paid to the respondent the amount assessed on 30 November 2012, and given that interest will be imposed by the legislation, I request the Commissioner issue an updated assessment to the applicants, in accordance with this decision, incorporating the calculation of interest to the date of payment.

………………………………..
Mary-Therese Daniel
Member

PUBLICATION DETAILS

TO BE PUBLISHED

To be completed by Tribunal Staff

PART A

FILE NUMBER:	AT12/105
PARTIES, APPLICANT:	Trevor James and Dianne James
PARTIES, RESPONDENT:	Commissioner for ACT Revenue
COUNSEL APPEARING, APPLICANT
COUNSEL APPEARING, RESPONDENT	Ms Katavic
SOLICITORS FOR APPLICANT
SOLICITORS FOR RESPONDENT	ACT Government Solicitor
TRIBUNAL MEMBERS:	M-T Daniel
DATES OF HEARING:	19 April 2013
PLACE OF HEARING:	Canberra

PART B

RECOMMENDATION:

FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )

COMMENTS: