Jokhan and Jokhan v Commissioner for ACT Revenue

[2012] ACAT 15

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

JOKHAN and JOKHAN & COMMISSIONER FOR ACT REVENUE (Administrative Review) [2012] ACAT 15

AT 11/111

Catchwords:  ADMINISTRATIVE REVIEW- Land Tax – penalty tax –

remission of penalty – Jones v Dunkel inference – disregard of tax law

Legislation:    Land Tax Act 2004 (ACT), ss.14A, 19A(5) and 36, and Division 5.2

Taxation Administration Act 1999, ss.26, 29, 31, 34, 37 and 82

Case Law:     Briginshaw v Briginshaw (1938) 60 CLR 336

Re Dixon v Federal Commissioner of Taxation
(2006) ATC 2092, 2097

Jones v Dunkel (1959) 101 CLR 298

Photocorp v ACT Revenue [1994] ACTAAT 91

Riverland Retreat v Commissioner for State Revenue (Vic)
 (2004) 56 ATR 490

Steele v ACT Revenue [2010] ACAT 15

Talisco Pty Ltd v Sarney (1987) 18 ATR 420

Tribunal:       Mr W.B Loftus, Senior Member

Date of Orders:  28 March 2012
Date of Reasons for Decision:         28 March 2012

AUSTRALIAN CAPITAL TERRITORY          )

CIVIL & ADMINISTRATIVE TRIBUNAL     )          AT 11/111

BETWEEN:

RM JOKHAN and SJK JOKHAN

Applicants

AND:

COMMISSIONER FOR ACT REVENUE

Respondent

TRIBUNAL:            Mr W.B Loftus, Senior Member

DATE:  28 March 2012

ORDER

1.The decision under review is confirmed.

………………………………..

Mr W.B. Loftus

Senior Member

REASONS FOR DECISION

1.The applicants jointly own three residential properties in the Australian Capital Territory as follows:

a)9/164 Monash (34 Barraclough Avenue)

b)16/78 Griffith (23 Frome Street)

c)22/101 Monash (17 Ahern Place)

2.On 28 October 2011, the delegate of the respondent issued an assessment of land tax, interest and penalties in respect of the properties.  The assessment was issued pursuant to powers in the Land Tax Act 2004 (LTA) and the Taxation Administration Act 1999 (TAA), to which further reference will be made in detail later.

3.The primary tax and interest in respect of the three properties has been paid and no issue is taken by the owners of the properties as to their liability and quantum.  On 4 November 2011, the applicant RM Jokhan filed an application for review of the respondent’s decision in so far as it related to the interest and penalty tax imposed. Although the applicant Mr RM Jokhan signed the application in his own name, the other owner of the properties Ms SJK Jokhan has executed a power of attorney authorising RM Jokhan to act on her behalf. At the hearing RM Jokhan represented both applicants. It also became apparent at the hearing that all negotiations with the respondent had been conducted by RM Jokhan.

4.There were of course decisions made on 28 October 2011, in respect of each of the three properties.  The applications in respect of each are on identical grounds. Thus there are three separate sets of T- Documents in almost identical terms.  For ease of reference only the first set will be referred to, that relating to 9/164 Monash, unless some different fact relates to the other two in which case it will be made clear which set of T Documents is referred to.

FACTS

5.There was no dispute about the facts.  Each party tendered documents as follows:

1.Exhibit 1- 3 sets of T- Documents;

2.Applicants’ Statement of Facts and Contentions and documents attached;

3.Respondent’s  Statement of Facts and Contentions; and

4.Applicants’ further Statement of Facts and Contentions

Each relied upon the facts set out in the tendered documents.

6.The respondent relied upon the facts set out in the three Land Tax Reports – T33(1),T35(2)and T32(3).  In respect of each property, the reports show various contacts by email and telephone between Mr Jokhan and officers of the respondent, over the period from August 2010 until the assessments were issued on the 21 March 2011.  The respondent made repeated inquiries as to the situation with each of the properties in an endeavour to ascertain whether and, if so for what period, land tax was due and owing.

7.Eventually on 21 March 2011 land tax assessments were issued in respect of each of the three properties.  On 9 May 2011, RM Jokhan’s solicitors advised by letter that the applicants accepted liability for the assessments of primary tax but objected to the imposition of interest and penalty tax.  This letter enclosed payment for the land tax but not the penalty or interest.  The objection to interest was later withdrawn.

8.On 26 August 2010, an investigation was authorised and commenced and the applicants were informed on that date by letter - T9(1), (2) and (3) – that an authorised investigation had begun.

9.On 20 September 2010, the ACT Revenue Office wrote to the owners of the properties seeking further information in respect to the properties –T12 (1), (2), (3).  These letters again advised that an investigation had begun and emphasised to the property owners that penalties up to 90% of the primary tax could be imposed for the giving of false or misleading information.

10.Following telephone conversations between RM Jokhan and an officer of the ACT Revenue, an emailed reply was sent on 25 October 2010 to the Revenue Office.  The respondent considered that reply was less than clear and did not provide all the information sought to allow the respondent to make assessments of land tax in relation to the three properties.

11.After several letters requesting information which were not adequately answered by the applicant RM Jokhan, on 24 February 2011 requests for information pursuant to section 82 notices were posted and emailed to the applicants.  They required responses by 10 March 2001.  Responses were not given in time and assessments including penalties were issued on 25 March 2011.

12.The background and facts as set out above were undisputed. It was also agreed that the primary tax and interest on it were owed, which constituted tax defaults. Tax defaults enliven the provisions of Division 5.2 of the TAA, concerning penalty tax and remission of penalty tax. The sole issue therefore before the Tribunal was whether penalty tax at the rate of 90%, or any lesser rate, should have been imposed or, if imposed, should have been remitted in whole or in part.

THE LEGISLATION

13.Penalty tax is imposed pursuant to Section 19A of the LTA Act which states that Division 5.2 of the TAA applies. Division 5.2 contains detail of how penalties following a tax default are to be applied and calculated and rules governing remission.

14.TAA Division 5.2 relevantly is as follows -

30(1)  If a tax default happens the taxpayer is liable to pay penalty tax in addition to the amount of tax unpaid.

(2)Penalty tax imposed under this division is in addition to interest.

(3)..............

31(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 of 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 taxpayer satisfies the commissioner that the taxpayer (or a person acting on behalf of the taxpayer) had a reasonable excuse for the failure.
(4)  ................

(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 is payable in relation to a tax default if the commissioner is satisfied that –

(a)the taxpayer (or a person acting on behalf of a taxpayer) took reasonable   care to comply with 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.

32........................

33..........................

34The amount of penalty tax payable in relation to a tax default is 90% of the amount of tax unpaid if the commissioner is satisfied that, after the commissioner has informed the taxpayer that an investigation is to be carried out and before the investigation is completed, the taxpayer (or a person acting on behalf of the taxpayer) –

(a) ...................

(b)fails  without reasonable excuse, to comply with a requirement made by the commissioner under division 9.2 for the purposes of determining the taxpayer’s tax liability; or

(c)..................

(d)otherwise shows intentional disregard for a tax law

Table 34  ...........

36..................

37 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.

DISCUSSION   

15.Division 5.2 of the TAA is applied by section 19A (5) of the LTA. This provides that penalty tax at the rate of 90% should be imposed where it is found that there has been an intentional disregard for tax law. In this case, the respondent alleges that the failure to respond to three notices under section 82 of the TAA dated 24 February 2011 by the due date 10 March 2011 is evidence of such intentional disregard-section 34(b) of the TAA refers. The respondent also relies on section 34(d) of the TAA arguing that in respect to all three properties misinformation has been given at various times.

16.The major ground put forward by the applicants for non-compliance with the section 82 notice is that, as RM Jokhan had instructed his solicitor on or about
1 March 2011 to attend to it, it was his solicitor’s fault, and not his, for failing to contact ACT Revenue until 18 March 2011, no request for a extension of time having been made.  The solicitor accepts that the fault was his.  SJK Jokhan relied upon RM Jokhan to settle the matter with the respondent.

17.The solicitor in his letter of 9 May 2011 stated that he received instructions in relation to the section 82 notice on 1 March 2011 but that he “failed to attend to these matters before 10 March 2011, due to other commitments”.  The solicitor telephoned an officer of ACT Revenue initially on 18 March 2011.  No explanation is given why “other commitments” prevented him attending to the notices, or seeking further time to do so, in the period 1 March to 10 March 2011.  Nor was any explanation given for the period 10 March to
18 March 2011.

18.The opportunity was given to RM Jokhan during the hearing to telephone the solicitor so that evidence might be adduced to ascertain if it constituted “reasonable excuse”.  During an adjournment for this purpose Mr Jokhan telephoned the solicitor’s office.  The solicitor was not called to give evidence, even by telephone, and no explanation for this was given.  The effect of this in terms of the High Court decision in Jones v Dunkel (1959) 101 CLR 298 had previously been explained to RM Jokhan.  The inference thus arises that the solicitor could offer little or no evidence to assist the applicants’ case as to reasonable excuse.

19.It is clear from the wording of the legislation that a failure to comply by a taxpayer’s agent is a default by the taxpayer in these circumstances. I find that the solicitor failed to take reasonable care on behalf of the taxpayer to comply with the notice and his failure to comply is not a reasonable excuse under the scheme of the TAA to avoid penalty tax under either section 31 or section 34. Moreover on numerous occasions in answer to requests for information, the answers of RM Jokhan were at best vague or non responsive and at worst misleading or inaccurate.

20.I am comfortably satisfied, giving the applicants the benefit of the test in Briginshaw v Briginshaw (1938) 60 CLR 336, that the applicants were aware of their land tax obligations from previous dealings in respect of properties that they had previously owned.

21.In relation to 9/164 Monash the applicant was aware of his obligations because he had previously paid land tax on that property (T21, T25).  RM Jokhan pleaded that he did not fully understand his obligations because English was his second language.  However he appeared to me to be fluent in English and I do not accept that he did not understand.  In any event ignorance of the law is not a reasonable excuse in terms of the legislation.

22.The applicants failed to disclose the correct tenancy details between July 2000 and 2007.  No explanation was offered by the applicants for their non- compliance during this period.  Dr Jarvis, counsel for the respondent Commissioner, submitted that it ought to be inferred that the applicant’s  non- compliance established an intentional disregard for tax law for the following reasons-

(a)his awareness of land tax obligations with previous dealings,

(b)his failure to disclose true tendency details, and

(c)his non compliance for such a lengthy period.

The same reasoning applies in relation to the other two properties, that is the property in Griffith and the other property in Monash.

23.In relation to 16/78 Griffith, the applicants were aware of land tax obligations as they had paid land tax in relation to other properties.  The applicants failed to comply with their land tax obligations between 2004 and 2011.

24.The applicant RM Jokhan claimed that he left his land tax obligations relating to the property to his ex-wife SJK Jokhan who was a resident in the property.  It was claimed that she lived there since March 2005 and that therefore RM Jokhan was unaware of the liability until receiving the section 82 notice (T10). I did not accept this explanation as there had been considerable correspondence and contact between RM Jokhan and the office of the respondent. In any event as land tax obligations are legally those of the owner (not of a tenant), it was unreasonable to fail to take any steps to ensure compliance with those obligations between 2005 and 2011.

25.To the extent that the arrangement between the applicants was one where one of them accepted the liability, it does not constitute a reasonable excuse for non-compliance under the scheme of the TAA for tax penalty.

26.In relation to 22/101 Monash, the applicants advised ACT Revenue that it was rented from August 2009.  There was no explanation other than “oversight” for non-compliance with land obligations (T10).  In relation to the applicants’ failure to take reasonable care to fulfil their taxpayer’s obligations, mere “oversight” is not a reasonable excuse.

27.In fact, the applicants had failed to pay land tax or disclose tenancy details from July 2000 to July 2011.

28.Remission of penalty tax or interest must be an exceptional event since otherwise the scheme in the LTA and TAA for automatic penalties and interest as general deterrence of tax default would be undermined: Talisco Pty Ltd v Sarney (1987) 18 ATR 420, 87 ATC 4343, 4345; Riverland Retreat v Commissioner for State Revenue (Vic) (2004) 56 ATR 490,497-8.

29.Similarly, the scheme of the LTA and TAA- whereby the taxpayer remains liable for the default of an agent –is inconsistent with the exercise of discretion not to grant remission to the applicants solely on the basis that the default was caused by an agent: Steele v Revenue [2010 ] ACAT 15; Re Dixon v Federal Commissioner of Taxation (2006) ATC 2092, 2097.

30.Other possible mitigating factors are absent.

(a)There was no voluntary disclosure of the non-compliance.  The tax defaults were discovered during inquiries by the ACT Revenue Office: cf  Photocorp v ACT Revenue [1994] ACTAAT 91 citing AUSCO v ACT Revenue (unrep).

(b)The applicants’ responses to ACT Revenue inquiries about the apparent tax defaults gave incomplete and incorrect information.

(c)There is no evidence of any hardship to the applicants that would result from payment of penalty tax.

31.As to remission of penalty the respondent contends that it should not be remitted for the following reasons:

(a)The tax remained outstanding until 9 May 2011, when it was forwarded under cover of a letter from the solicitor for the applicant RM Jokhan.  The interest and the penalty were not paid at this time.

(b)The liability to pay the tax arose in 2000 (2 properties) and 2001

(1 property) and continued until 2011.

(c)Liability for interest under section 19A arises if section 14A (disclosure of rental tenancies) is not complied with. Such non-compliance occurred in relation to each of the 3 properties in circumstances where the applicants were aware of the existence of the obligation.

(d)The principal circumstance that contributed to the delay in payment was the applicant’s neglect.  No other satisfactory reason has been put forward for the non-compliance in each case: cf Steele v ACT Revenue.

(e)The applicants had been previously subject to investigation for land tax default (T25-22/101 Monash).

These contentions were not challenged.

32.It was unfortunate that the applicants were represented by RM Jokhan himself.  However, he was given every opportunity and assistance to present the applicants’ case. His arguments for reduction or remission of penalties included –

(a)negligent failure by his solicitor,

(b)he had taken reasonable care by briefing his solicitor,

(c)the Land Tax Office gave him incorrect advice after he had been notified that he was being investigated,

(d)English is his second language and therefore he did not understand fully his obligation under the law, and

(e)he did not mean or attempt to deceive.

33.These are all fully set out in the applicants’ Statement of Facts and Contentions (Exhibits 2 and 4).  The failure to satisfy the section 82 notice was not adequately explained in terms of the legislation.  Furthermore, there was a great deal of other evidence which leads to the inference that actions taken by one or other of the applicants  indicated an intention to disregard the tax law.

34.The reasons for decision of the respondent are not in error and I see no reason why the respondent’s decision should be set aside or varied by remission or otherwise.

35.The decision under review is confirmed.

………………………………..

Mr W.B Loftus

Senior Member

PUBLICATION DETAILS

TO BE PUBLISHED

To be completed by Tribunal Staff

PART A  

PUBLICATION DETAILS

TO BE PUBLISHED

To be completed by Tribunal Staff

PART A

FILE NUMBER:	AT 11/111
PARTIES, APPLICANT:	RJ Jokhan and SJK Jokhan
PARTIES, RESPONDENT:	Commissioner for ACT Revenue
COUNSEL APPEARING, APPLICANT
COUNSEL APPEARING, RESPONDENT	ACT Government Solicitor
SOLICITORS FOR APPLICANT
SOLICITORS FOR RESPONDENT	Ms Bayer
TRIBUNAL MEMBERS:	Mr B. Loftus
DATES OF HEARING:	20 February 2012
PLACE OF HEARING:	Canberra

PART B

RECOMMENDATION:

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

COMMENTS: