Lyras v Commissioner for Act Revenue (Administrative Review)
[2019] ACAT 115
•10 December 2019
ACT
CIVIL & ADMINISTRATIVE TRIBUNAL
LYRAS & ANOR v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2019] ACAT 115
AT 54/2019
Catchwords: ADMINISTRATIVE REVIEW – land tax – when did the tenancy commence – valuable consideration – whether the applicant had a reasonable excuse for not paying land tax
Legislation cited: Land Tax Act 2004 ss 7, 8, 9, 36, 38, 39
Taxation Administration Act 1999 ss 31, 37, 107, 108A, Sch 1
Cases cited:Commissioner for ACT Revenue v Butt & Carey [2016] ACAT 109
Tribunal: Member D Mulligan
Date of Orders: 10 December 2019
Date of Reasons for Decision: 10 December 2019
AUSTRALIAN CAPITAL TERRITORY ) AT 54/2019
CIVIL & ADMINISTRATIVE TRIBUNAL )
BETWEEN:
ARI LYRAS
First Applicant
ARTHUR LYRAS
Second Applicant
SOULA LYRAS
Third Applicant
AND:
COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL:Member D Mulligan
DATE:10 December 2019
ORDER
The Tribunal orders that:
The application under review is confirmed, as is the applicants’ liability to pay:
(a)$1242.15, land tax,
(b)$621.08, penalty tax at the rate of 50 per cent; and,
(c)$456.07, interest
…………………………..
Member D Mulligan
REASONS FOR DECISION
Mr Arthur Lyras and Mrs Soula Lyras are the parents of Mr Ari Lyras (Mr Lyras). The family owns a portfolio of properties in the ACT and interstate, which Mr Lyras manages on behalf of his parents and himself.
On 8 August 2015, Mr Lyras purchased, on behalf of his parents and himself, a property located at 30 Bonython Street, Downer, ACT (the property).
The property was purchased as an investment and was intended to be rented to tenants.
On 21 August 2015, Mr Lyras advertised the property for rent.
On 9 September 2015, Mr Lyras took out insurance on the property.
On 11 September 2015, the sale of the property was settled.
When purchased, the property was in a poor condition. It had been infested by rats and possums. The ceilings were stained and the carpets stank.
Mr Lyras had plans to work in Sydney in late September 2015. He planned to be out of Canberra for about seven weeks. As a matter of fact he returned to Canberra in late October or early November 2015.
Mr Lyras anticipated that he would be unable to arrange the cleaning of the property and its renovation, prior to his departure or during his absence. Mr Lyras explained:[1]
In my best interest I have no other choice but to go work in Sydney as I knew about this Job prior to purchasing the house. If I didn’t go I would make a loss of seven times of what the amount of this rent I was getting from 30 Bonython Street Downer per month.
[1] Statement of Ari Lyras dated 13 August 2019 at [13]
Three students wanted to lease the property in its uncleaned and unrenovated condition.
On 13 September 2015, a tenancy agreement was signed by Mr Lyras and the three students. According to the tenancy agreement the tenancy was for a fixed term, commencing on 18 September 2015 and finishing on 18 February 2016. [2]
[2] Annexure ‘B’ to Statement of Ari Lyras dated 13 August 2019
A bond lodgement form was also signed on 13 September 2015 by the parties and expressed the date the tenancy was to commence as being 18 September 2015. This form was lodged with the rental bond authority.
On 15 September 2015, Mr Lyras received $2,520 from the tenants who were to move into the property. Mr Lyras asserts that this figure comprised:
(a)Bond – $1,680; and
(b)Rent for the period 2-15 October 2015 – $840.
The tenants had electricity connected to the property. It was connected on 18 September 2015.
According to Mr Lyras the four tenants (another tenant joined the initial three, shortly after the tenancy agreement was signed) agreed to clean and renovate the property between 18 September and 1 October 2015.
The applicants did not pay the women for their work, although they did reimburse them for their out-of-pocket expenses related to the renovation.
Mr Lyras characterised the tenants’ work in the following way:[3]
Between the 18 Sept - 2 October (two weeks) the four young inexperienced ladies pulled up the carpet, polished pine timber floor boards, painted and cleaned the property.
This would have been a struggle to complete in two weeks by a professional let alone four inexperienced ladies.
[3] Statement of Ari Lyras dated 13 August 2019 at [18]-[19]
The tenants’ labours made the property liveable and occupiable weeks earlier than otherwise would have been the case.
In my view, the labour expended in renovating and cleaning the property by the four unpaid tenants during the two week period, was a significant benefit to the applicants. It saved them paying professionals to do the work necessary to turn the property from something that was uninhabitable into something the four tenants could reasonably live in.
According to Mr Lyras, during this period (18 September-2 October 2015), he charged the tenants no rent.
According to Mr Lyras the tenants commenced paying rent on 2 October 2015.
On 15 March 2016, Mr Lyras completed a Residential Land Tax Notification Form[4] in which he stated, in relation to the property; “this property is currently rented by a tenant and has been rented since 2/10/15.”
[4] Annexure ‘J’ to statement of Ari Lyras dated 13 August 2019
At this time, land tax was imposed for a quarter on each parcel of rateable land that was rented residential land.[5] A parcel of land was taken to be rented if it was rented on the first day of a quarter.[6] The parcel of land was taken to be rented on the first day of a quarter if it was rented at any time in the previous quarter.[7]
[5] Land Tax Act 2004 (Republication No 19) section 9(1)
[6] Land Tax Act 2004 (Republication No 19) section 8(2)
[7] Land Tax Act 2004 (Republication No 19) section 8(3)
As a consequence of stating that the rental of the property occurred on 2 October 2015, the applicants were not obliged to pay land tax on the property for the second quarter of the 2015-2016 tax year.
Had Mr Lyras stated on the notification form that the tenancy had commenced on 18 September 2015, then the applicants would have been liable to pay land tax for the second quarter of the 2015-2016 tax year.
The ACT Revenue Office undertook a land tax investigation in relation to the property. By email of 5 March 2019,[8] Mr Lyras was advised of the assessment. The notice of assessment[9] required the applicants to pay $2,319.30, made up as follows:
(a)$1,242.15 land tax (Q2 2015-16);
(b)$621.08 penalty tax @ 50% (Q2 2015-16); and
(c)$456.07 interest.
[8] T-Documents page 53
[9] T-Documents page 54
By email of 5 March 2019,[10] Mr Lyras objected to the assessment.
[10] T-Documents page 58
By letter of 30 May 2019,[11] the Commissioner for ACT Revenue (the Commissioner) disallowed the objection to land tax, penalty tax and interest.
[11] T-Documents pages 6-9
On 25 June 2019, Mr Lyras filed an application for the review of the decision at ACAT, in which he sought the following orders “DROP THE LAND TAX & INTEREST & RE-IMBURSE ME THE ACAT FEE”.
During the course of the hearing of the application for review it became clear that Mr Lyras also wanted to review the decision to impose the penalty tax of $621.08.
The law
I can determine whether land tax accrued during the second quarter of the 2015-2016 tax year.[12] I can also determine whether penalty tax at the rate of 50 per cent, should be imposed on the applicants.
[12] Taxation Administration Act 1999 (Republication No 31) sections 107 and 108A, Schedule 1, items 1.1(b) and 1.2(d)
However, I have no jurisdiction to review the decision of the Commissioner’s refusal to remit the interest charge that has been imposed.[13]
[13] Land Tax Act 2004 (Republication No 19) sections 36(1), 38, 39(1)
I note that the amount of interest claimed by the Commissioner will necessarily change if I decide to allow the objection to either remit the land tax or penalty tax.
The applicants’ have the burden of satisfying the tribunal, to the civil standard, that the land tax for the second quarter of the 2015-2016 tax year did not accrue and that the penalty tax liability should be either remitted in full or reduced to 25 per cent.
Mr Lyras argues that as he was not receiving any rental payments, for the period 18 September-1 October 2015, the property was not rented during that period.
Mr Lyras also contends that as the tenants were not in residence in the property during the period 18 September-1 October 2015, the property cannot be viewed as being rented during that time.
If Mr Lyras’ contentions are correct then the applicants are not liable to pay the land tax, penalty tax and, by necessary implication, the interest sought by the respondent.
The key issue in deciding this application for review is whether or not the property was rented to the tenants between 18 September 2015 and 1 October 2015.
Section 7 of the Land Tax Act 2004 (Republication No 19) was in force at the time. It explains the concepts of rent and tenancy agreements. It provides:
Definitions for pt 2
In this part:
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 the right of occupation only a boarder or lodger.
There was plainly a tenancy agreement between the tenants and Mr Lyras. A tenancy agreement was executed by the parties on 13 September 2015.
Additionally, oral terms were added to supplement the written tenancy agreement.
The parties orally agreed for the tenants to undertake the cleaning and renovation works the property needed to become habitable. This work was agreed to be undertaken by the tenants at no cost to the applicants, although it was agreed that the applicant pay the tenants out-of-pocket expenses for the items used during the course of the renovation works.
This agreement benefited the applicants as they received free labour. It benefited the tenants as they were able to secure a property to live in, even if they had to do the work to make it habitable.
Was the property ‘rented’ from 18 September 2015 or from 2 October 2015?
Mr Lyras’ submission is that the property was not actually rented for the purposes of land tax until 2 October 2015.
His application is based on the premise that the property was not rented until 2 October 2015, as the property was not being lived in until that date and that no rent was payable until that date.
There are significant indicia which goes to show that the tenancy agreement commenced on 18 September 2015. This includes:
(a)The fact that the tenancy agreement on its face was expressed to be of a fixed term duration between 18 September 2015 and 18 February 2016.
(b)That the bond lodgement form Mr Lyras lodged with the rental bond authority stated that the “Date of Tenancy Commencement” was “18/9/15”.
(c)The fact that the tenants had electricity connected to the property from 18 September 2015.
There are two other flaws in the approach urged by Mr Lyras:
(a)The definition of rent means ‘valuable consideration’. The term valuable consideration it is not limited to money and in this case includes the substantial amount of free work undertaken by the four tenants over a two-week period.
It is likely that the value of this work, which transformed an uninhabitable house into a habitable home, would have cost the applicant’s several thousand dollars were a professional to have undertaken it
As a matter of fact I find the tenants labours to be ‘valuable consideration’ within the definition of ‘rent’.
(b)The fact that the property was not being used to live in during the period 18 September 2015-2 October 2015 is irrelevant. A tenancy gives a person the right to occupy premises for which they provide valuable consideration. It does not oblige a person to be resident during the course of a tenancy.
For those reasons I am satisfied the property was rented by the applicants to the tenants, under a fixed term tenancy commencing on 18 September 2015.
Consequently, I confirm the decision under review in relation to land tax for quarter two in the financial year 1 July 2015-30 June 2016.
I should note that three of the tenants provided brief written statements. None of the three were able or prepared to give evidence, even by telephone, in relation to the matter. Their evidence related to when they moved into the property. One of the tenants said “when we got the keys we quickly moved in. We signed the tenancy agreement and moved in straightaway.” The statement of the other two tenants stated “2 October 2015 – Tenants moved in and started paying rent”.
Given the way I have approached the issue of rent, the tenants’ evidence is of little relevance and I give it little weight.
The penalty tax
As submitted by counsel for the respondent, penalty tax is integral to the protection of the public revenue. It encourages payment of tax liabilities by the due date, discourages tax defaults and encourages the voluntary an early disclosure of tax defaults where they do occur. It provides general and specific deterrence.
The amount of penalty tax payable in relation to a tax default is 25 per cent, unless the Commissioner exercises his or her discretion under section 31 of the Taxation Administration Act 1999 (Republication No 31).[14]
[14] Taxation Administration Act 1999 (Republication No 31) section 31
The Commissioner may increase the amount of penalty tax, relating to a tax default, to 50 per cent of the amount of tax unpaid, if he or she is satisfied that the tax default was caused wholly or partly by the failure of the taxpayer to take reasonable care to fulfil the taxpayer’s obligations under a tax law.[15]
[15] Taxation Administration Act 1999 (Republication No 31) section 31
In this case the Commissioner considered the circumstances of this case and advised the applicants:
As a tax default occurred, under section 31 of the Taxation Administration Act 1999 (TAA) and section 36 of the LTA, you are liable for penalty tax and interest respectively.
Based on the grounds put forward in your objection, I do not consider it warranted to enliven section 31(6) (no penalty tax payable) or section 37 (remission of penalty tax), TAA, or section 36 (remission of interest), LTA.[16]
[16] T-Documents page 7
I am satisfied the Commissioner acted correctly when he upheld the decision to impose the 50 per cent penalty tax provided for in the assessment of 5 March 2019.
Land tax, and other taxes, are largely levied by the Commissioner on the basis of the information provided by a taxpayer to the Commissioner. If the information is accurate the Commissioner is able to calculate the correct amount of tax a taxpayer is liable to pay.
The Commissioner will not be able to impose the correct tax on a taxpayer if the information provided by the taxpayer is incorrect.
Taxpayers owe a duty of honesty and candour to the Commissioner when they complete and return documents from which their tax liability will be determined.
Had the applicants provided in the Residential Land Tax Notification Form of 15 March 2016, or subsequently, the information that Mr Lyras had entered into a contract to lease the property from 18 September 2015, and that Mr Lyras had lodged a bond lodgement form in which he stated that the tenancy commenced from on 18 September 2015, then the correct land tax would have been calculated from that time.
The applicants failure in March 2016, to provide the correct information about when the tenancy commenced, meant that the correct land tax could not be determined until after the Commissioner undertook the investigations which lead to the assessment of 5 March 2019.
Pursuant to section 31(2) of the Taxation Administration Act 1999 (Republication No 31), I am satisfied the tax default was caused wholly or partly by the taxpayer failing to provide, in March 2016, an accurate statement as to the date as to when the tenancy commenced, this being information required for the assessment of tax. In my view the applicants’ failure to provide this information amounted to a “failure of the taxpayer to take reasonable care to fulfil the taxpayer’s obligations under a tax law”.[17]
[17] Taxation Administration Act 1999 (Republication No 31) section 31 (2)
Consequently, I confirm the Commissioner’s decision to impose 50 per cent penalty tax.
For the sake of completeness I note that the applicants’ could avoid penalty tax if they satisfied me that they had a reasonable excuse for the failure.[18]
[18] Taxation Administration Act 1999 (Republication No 31) section 31 (3)
A taxpayer may have ‘reasonable excuse’ in circumstances where acts, information, advice and events, especially events beyond the taxpayer’s control, actively lead to the failure to comply with a tax obligation.[19]
[19]Commissioner for ACT Revenue v Butt & Carey [2016] ACAT 109 at [34]
However, ignorance of the law and unfamiliarity with ACT tax laws have all been found not to be ‘reasonable excuses’.[20]
[20] Commissioner for ACT Revenue v Butt & Carey [2016] ACAT 109 at [34]
In this case the applicants have not advanced any reasonable excuse for the failure to comply with their tax obligations.
Pursuant to section 37 of the Taxation Administration Act 1999 (Republication No 31), I can remit all or part of the penalty tax if satisfied the applicants had taken reasonable steps to mitigate the circumstances (or the effects of the circumstances) that resulted in liability to pay penalty tax, or, if the circumstances that resulted in the liability for penalty tax were exceptional, and, if it would be fair and reasonable to remit penalty tax.
In this case there is no evidence to suggest the applicants took any steps to mitigate the circumstances that resulted in the tax liability.
………………………………..
Member D Mulligan
HEARING DETAILS
FILE NUMBER: | AT 54/2019 |
PARTIES, APPLICANT: | Ari Lyras, Arthur Lyras and Soula Lyras |
PARTIES, RESPONDENT: | Commissioner for ACT Revenue |
COUNSEL APPEARING, APPLICANT | N/A |
COUNSEL APPEARING, RESPONDENT | Mr Oram |
SOLICITORS FOR APPLICANT | N/A |
SOLICITORS FOR RESPONDENT | ACT Government Solicitors |
TRIBUNAL MEMBERS: | Member D Mulligan |
DATES OF HEARING: | 27 September 2019 |
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