Lee on Pty Limited v Chief Commissioner of State Revenue

[2002] NSWADT 272

CITATION:	Lee On Pty Limited -v- Chief Commissioner of State Revenue [2002] NSWADT 272
DIVISION:	Revenue Division
PARTIES:	APPLICANT Lee On Pty Ltd RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	026016
HEARING DATES:	20/09/2002
SUBMISSIONS CLOSED:	09/20/2002
DATE OF DECISION:	12/20/2002
BEFORE:	Verick A - Judicial Member
APPLICATION:	Taxation Administration Act - liability to pay interest
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Land Tax Management Act 1956 Taxation Administration Act 1996
CASES CITED:	Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 Olah v Chief Commissioner of State Revenue [2002] NSWADT 22 Moore v the Chief Commissioner [2002] NSWADT 49
REPRESENTATION:	APPLICANT P Lee, agent RESPONDENT D Martin, agent
ORDERS:	1. That the interest on late lodgement of the Land Tax returns at the market rates was correctly included in the Land Tax assessments for the 1998 to 2001 tax years.

1 The applicant seeks a review of an objection decision made by the Chief Commissioner of State Revenue (Chief Commissioner) in relation to Land Tax assessments for the 1998 to 2001 tax years issued on 20 March 2002. At issue is the applicant's claim, which can be generalised as a claim for a remission of the whole or part of the interest included in the assessments for failure to lodge land tax returns for the relevant years.

2 The question at issue is essentially whether the Chief Commissioner should remit the whole or part of the interest by exercising his powers found in s 25 of Division 1 of Part 5 of the Taxation Administration Act1996 (TA Act)

Background

3 The applicant is the owner of a residential property relevant to this application. The property situated in Hurstville was acquired by the applicant on 3 May 1996 and has been rented to tenants during the years in question.

4 As part of his on-going pursuit to include all properties subject to land tax in his assessment database, the Chief Commissioner sent to the applicant a notice of investigation in March 2002. The notice was a "Land Tax Questionnaire" which requested particulars of properties owned by the applicant to determine land tax liability, if any, of the applicant.

5 The applicant responded on the 13 March 2002 disclosing the ownership of the property at Hurstville. On the basis of the information received in response to the questionnaire, the Chief Commissioner issued to the applicant, land tax assessments for the years 1998 to 2001 tax years. In each assessment, the Chief Commissioner also included interest at both market and premium rates on late lodgement of the returns for these years.

6 Although the applicant was also liable for land tax for the 1997 year, the chief Commissioner did not make any assessment against the applicant for that year.

7 The applicant lodged on 10 May 2002 an objection against the assessments on the grounds that the Chief Commissioner should waive or remit all the interest included in the assessments on the grounds that the applicant's director/agent, Mr Peter Lee, lived interstate and was not aware of any land tax obligations in New South Wales.

8 On the 13 December 2001 the Chief Commissioner allowed the objection in respect of the interest included in the assessments at the premium rate but disallowed the objection in relation to the interest imposed at market rate.

The Taxpayer's case for remission of market rate interest

9 The applicant, in its objection, claims that it was not aware of any liability to land tax until it received the land tax questionnaire from the Chief Commissioner. The applicant's agent, Mr Peter Lee, resides in Adelaide and being interstate he claims that he was not aware of any land tax liability.

10 In the application for review, the applicant through Mr Peter Lee claims that there was failure on the part of the Chief Commissioner to provide it with any information relating to the land tax liability. In addition, the applicant considers that the delay of some six years on the part of the Chief Commissioner contributed to delay in the applicant attending to its land tax obligations.

The Chief Commissioner's case

11 The Chief Commissioner in his statement of reasons for decision for purposes of s 58 of the Administrative Decisions Tribunal Act1997 (ADT Act) has provided the following grounds to support the interest imposed at the market rate:

" Accordingly, it was determined that the imposition of late lodgement interest at the reduced market rate was appropriate, because to remit the interest in full would be inequitable to other taxpayers who did lodge their return by the due date.
The client was liable to land tax as at 31 December 1996 as the property was purchased in May 1996, and the value for the 1997 tax year was $174,000 and above the threshold of $160,000. Land Tax for the 1997 year would have amounted to $331.00 together with late lodgement interest. As Mr Lee returned the questionnaire promptly and made a true and fair disclosure the Chief Commissioner granted him a concession and did not assess the 1997 year. This was also as an acknowledgment that the office's education program could have been better in this period especially concerning interstate clients. Also taken into account was that the Chief Commissioner did not contact Mr Lee regarding the land tax until a few years after the company purchased the property."

12 The Chief Commissioner has also lodged additional reasons for purposes of s 58 of the ADT Act. The Chief Commissioner refers to the relevant legislation and states that "the onus of lodging a return rests with the taxpayer" and that the "failure to lodge a return was a culpable action by the taxpayer or their agent". The Chief Commissioner also makes the following statement to support his decision:

"The Chief Commissioner makes extensive attempts to make people aware of their land tax obligations, however the onus remains with the taxpayer. It is inappropriate for the Chief Commissioner to impose no interest on a taxpayer who has failed to lodge a return in the circumstances of this case. It would send the wrong message to others. Recalcitrant taxpayers could wait until an investigation commences and then expect to be treated the same as people who have made an effort to be informed of their tax liability."

13 Section 12(1) of the Land Tax Management Act 1956 (LTM Act) provides that the Chief Commissioner may in accordance with orders published in the Gazette require all persons or specified classes of persons to furnish land tax returns. Such Gazette notifications are made annually by the Chief Commissioner. In addition, s 12(1A) of the LTM Act provides that every person subject to such requirement shall furnish a land tax return to the Chief Commissioner on or before 31 January in that year.

14 In the present matter the applicant had not lodged any returns as required by the law. The applicant has been assessed to land tax on the basis of the information the applicant has provided to the Chief Commissioner as a result of an audit conducted by the Chief Commissioner.

15 As the applicant had failed to duly furnish any return for any of the relevant years, it is taken to have committed under s 72(1) of the LTM Act a "tax default" for the purposes of Part 5 of the TA Act.

16 Where a "tax default" occurs, interest is imposed under s 21 of the TA Act on the amount of tax unpaid on a daily basis from the end of the last day for payment until (and inclusive of) the day upon which the tax unpaid is paid. The applicable interest rate consists of a variable market rate component that is linked to the Treasury Note yield rounded to the second decimal place (4.89% for purposes of this application) and a premium rate component fixed by the TA Act at 8 per cent per annum.

17 The Chief Commissioner is allowed under s 25 of the TA Act to remit either the market rate component or the premium rate component of interest, or both, by any amount in such circumstances, as the Chief Commissioner considers appropriate. In this matter the Chief Commissioner accepted that there were sufficient grounds to warrant remission of the interest imposed at the premium rate but the circumstances did not warrant any remission of the interest imposed at the market rate.

Reasons and decision - whether any remission of any market rate interest is warranted

18 I agree with the Chief Commissioner that the law clearly places the onus of lodging a land tax return in each year with the taxpayer. In the present matter, the applicant failed to lodge the land tax returns in the relevant years and a "tax default" occurred in terms of the provisions found in s 72(1) of the LTM Act. The Chief Commissioner was entitled to impose an interest under the provisions of s 21 of the TA Act.

19 In Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 and Olah v Chief Commissioner of State Revenue [2002] NSWADT 22, I have expressed my views in relation to the imposition and remission of interest. In these cases I have, broadly, stated what circumstances are relevant in considering the remission of interest imposed as a result of a "tax default". It is necessary to show that the default was contributed in some way by the Chief Commissioner to justify any remission of the interest imposed at the market rate. As observed in Moore v the Chief Commissioner [2002] NSWADT 49 "interest imposed at the market rate is essentially to compensate the state for being denied the use of funds to which it is clearly entitled to at a particular point in time" and that it can only be remitted in "a very narrow category of situations, which arise entirely outside of the control of the taxpayer".

20 In the present matter, the applicant has failed to show any special circumstances that would justify remission of the interest imposed by the Chief Commissioner at the market rate. Whilst I am critical of the delay of some six years on the part of the Chief Commissioner in making the assessments against the applicant, I do not regard the delay as a sufficient ground to make any remission of the market rate of interest in this matter. There was a clear statutory duty on the part of the applicant to lodge the land tax returns in the relevant years but it simply failed to lodge the returns. The Chief Commissioner has correctly accepted that the applicant was not aware of its land tax obligations in making a full remission of the interest he had imposed at the premium rate. The circumstances, however, do not in my opinion warrant any remission of the market rate interest imposed in this matter.