McEwin and McEwin v Commissioner for Act Revenue (Administrative Review) - [2013] ACAT 67

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

McEWIN & McEWIN v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2013] ACAT 67

AT 13/ 24 & AT 13/34
Catchwords: ADMINISTRATIVE REVIEW – land tax – penalty tax –decision to impose interest not reviewable by Tribunal – whether the Commissioner under a duty to investigate liability for land tax – no obligation on Commissioner – obligation on taxpayers to tell Commissioner that property rented and when rental began – failure to take reasonable care to comply with obligation – carelessness on part of agents and applicants – no reasonable excuse for failure – not fair and reasonable to remit all or part of penalty tax – penalty tax and penalty interest not an unreasonable double penalty – no basis for order for costs

Legislation: Land Tax Act 2004, ss 14 and 19A
Taxation Administration Act 1999, ss 30, 31, 37, 101, 107A and 108A
ACT Civil and Administrative Tribunal Act 2008, s 48

Cases: Steele v Commissioner for ACT Revenue [2010] ACAT 15
Theron v Commissioner for ACT Revenue [2013] ACAT 33
CIC Australia Ltd v ACT Planning and Land Authority, Mainore Pty Ltd and ACT Civil and Administrative Tribunal [2013] ACTSC 96

Tribunal: Mr. A. O’Neil – Senior Member

Date of Orders: 11 October 2013
Date of Reasons for Decision: 11 October 2013

ACT CIVIL AND ADMINISTRATIVE TRIBUNAL
AT 13/24 & AT 13/34

BETWEEN:

ROBYN JULIA McEWIN &
ROBERT IAN McEWIN
Applicants

AND:

COMMISSIONER FOR ACT REVENUE

Respondent

TRIBUNAL: Mr. A. O’Neil – Senior Member

DATE:11 October 2013
ORDER

The Tribunal Orders that:

The Decision under review is confirmed.

………………………………..
Mr. A. O’Neil – Senior Member

REASONS FOR DECISION

Introduction

Mrs. R.J. McEwin and Dr. R.I. McEwin (the Applicants) were the owners of Block 15 Section 33 Red Hill, located at 34 Endeavour Street, (the property) at all relevant times when land tax was assessed although the property has now been sold. The property was rented during 2004 and 2005. Its rental status was reported by the real estate agents PBM and land rent was assessed and paid.
The property was again rented for various periods between 2009 and 2012 but no one advised the Commissioner for ACT Revenue (the Respondent or the Commissioner) of the letting. When the fact of the letting came to the attention of the Respondent, the Applicants were assessed for land tax, penalty tax and interest under the Land Tax Act 2004 (the LTA) in conjunction with the Taxation Administration Act 1999 (the TAA).
The Applicants do not dispute that the land tax as assessed by the Respondent is payable. Following the Respondent’s rejection of the Applicants’ objection to the assessment, they now separately seek review by the ACT Civil and Administrative Tribunal (the Tribunal) of the decision to impose penalty tax and interest. The Tribunal ordered that the applications were to be heard together as for all practical purposes they are the one application.

The Hearing

The matter was heard on 27 September 2013. The Applicants were represented by Dr McEwin who together with Mrs McEwin gave brief evidence to the Tribunal. The Respondent was represented by Mr Bayliss of the ACT Government Solicitor’s Office. The Applicants filed Facts and Contentions and also a response to the Respondent’s Facts and Contentions. The Respondent did not call any witnesses or cross examine Dr or Mrs McEwin but relied on the documents produced to the Tribunal as material relevant to the decision under review (the T- documents). The Tribunal also had before it the Facts and Contentions of the Respondent together with a set of Supplementary Documents filed by the Respondent.

Relevant Law

The law relevant to the imposition, remission, rates of penalty tax and interest in this case, is contained in sections 14 and 19A of the LTA, and sections 30, 31, 37,101,107A and 108A of the TAA. Section 48 of the Civil and Administrative Tribunal Act 2008 (the ACAT Act) is relevant to the issue of costs. These provisions are set out at the end of the decision.

The Applicants’ Contentions

The Applicants’ objection to the imposition of penalty tax and interest is on the grounds set out below.
The Applicants argue that at various times during the period when land tax was assessed, the Applicants had three real estate agents PBM, BPPM and LJHM acting on their behalf. The agents notified the Respondent on three occasions that they were acting for the Applicants and expressly or by implication that the property was rented. The Commissioner responded to the notices from BPPM and LJHM for rates purposes, but not in relation to land tax.
The Applicants say that had the Commissioner responded properly to the first notice in 2009, the non-payment of land tax would have become clear at that time and any penalty tax and interest would have been substantially reduced. It is therefore reasonable and proper that the penalty tax and interest be assessed on this basis. This argument applies to the two subsequent notices from BPPM and LJHM.
The Applicants contend that based on the exceptional powers that the TAA confers on the Commissioner, he was under a duty of care to investigate whether land tax was payable once notice had been given to him and that this duty of care should be exercised at a high level.
The Applicants further say that they have been honest and truthful at all times in dealing with this matter once it was brought to their attention.
Additionally the Applicants contend that to impose both a penalty tax and penalty interest for the same default, is an unreasonable double penalty and should be set aside.
Finally the Applicants argue that they should be reimbursed for their costs of returning to Australia from their residence overseas for the hearing of this matter.

The Respondent’s Contentions

The Respondent contends that the imposition or remission of interest is not reviewable by the Tribunal.
The Respondent further contends that the tax default of the Applicants was caused wholly or partly by their failure (or the failure by a person acting on their behalf) to take reasonable care to fulfill their obligations under section 14 of the LTA. This section requires a taxpayer to tell the Commissioner when a parcel of residential land is rented and when the rental began. The Respondent says the Applicants had no reasonable excuse for their failure to comply with the requirements of section 14 of the LTA.
The Respondent submits that the circumstances that led to the Applicants’ failure to pay tax were not exceptional and it would not be fair and reasonable to remit all or part of the penalty tax under s.37 of the TAA.
The Respondent argues that a penalty tax of 50% is the correct and preferable decision reflecting the Applicants’ failure to take reasonable care to meet their obligation to inform the Commissioner and to pay land tax.

Jurisdiction of the Tribunal

The provisions governing the amount of interest payable and its remission are contained in Division 5.1 of the TAA. These are not among the decisions listed in Schedule 1 to the TAA that can be reviewed by the Tribunal. Schedule 2 to the TAA also makes it clear that decisions on interest are reviewable only by the Commissioner. It follows that the Tribunal has no jurisdiction to review the imposition or remission of interest. A decision under section 37 is a reviewable decision by virtue of the operation of sections 107A, 108A and Schedule 1 of the TAA.

Penalty Tax

The rates of penalty tax and the circumstances in which they are applied are set out in sections 31 and 34 of the TAA. In the Tribunal’s opinion sections 31(5) and 34 have no relevance as there is no suggestion of an intentional disregard of a tax law, or of concealment.
The Applicants’ principal argument is that, once the Commissioner received notices from the real estate agents, he was under a duty to investigate whether there were any tenancies and liability for land tax. In my view it is necessary to examine the nature of the three notices received by the Commissioner to establish whether it is reasonable to say that an investigation should have suggested itself to the Commissioner.
The first notice from PBM (T-33) set out that the property was not rented and that the Commissioner will be advised when it is rented. Even if the LTA or the TAA imposed some kind of obligation, the nature of PBM’s notice makes it clear that PBM has assumed that obligation and that the agent intended to initiate contact if a rental arose. Nothing further was heard from PBM. It would seem from the documents and statements that it was BPPM who were successful in renting the property not PBM.
There is no copy of the second notice said to have been given by BPPM to the Commissioner. An officer of the ACT Revenue Office indicated to the Applicants by e-mail that from 8 September 2009, the address for rates notices is c/- BPPM. The evidence is silent on the nature of the notice given to change the address. This is the basis on which the Applicants argue that the Commissioner had notice of the rental, or that he should have commenced an investigation into whether the property was rented and land tax was payable. If the Commissioner was under an obligation to investigate, this obligation would not have been triggered by such vague evidence of the notice as is now before the Tribunal.
The third notice that the Applicants say obliged the Commissioner to investigate is from LJHM and set out as “attachment 1” to the Applicants’ Statement of Facts and Contentions. It is entitled “New Re-Direction” and instructs the ACT Revenue Office to send “any future Rates and Land Tax “to LJHM and provides an address. It also states that the firm is now “the managing agent for this property”. While it mentions “land tax” and “managing agent” it does not state the property is rented. Is it sufficient merely to say that LJHM are the managing agents and to mention “land tax” to require the Commissioner to commence an investigation? In my view more is required.
None of the three notices set out above are sufficient to alert the Commissioner to the need to investigate whether a parcel of land is being rented even if, as the Applicants argued, that obligation existed. In my view neither the LTA, nor the TAA, place any such obligation on the Commissioner. Section 14 of the LTA places the obligation squarely on the Applicants to tell the Commissioner that the property has been rented and when that rental began. This they failed to do.
Moreover it was not merely the agents of the Applicants who failed to notify the Respondent. When, for each of the years 2009, 2010 and 2011, BPPM sent rental profit and loss statements to the Applicants, the statements clearly showed that no land tax had been paid. This omission was not acted upon by the Applicants and no notice was sent to the Respondent. There is no suggestion that this was deliberate, but it was careless of the Applicants who had previously paid land tax on the property.
If the circumstances in subsection 31(6)(a) of the TAA are met, then no penalty tax is payable. This subsection requires that a taxpayer take reasonable care to comply with the tax law. In this matter neither the Applicants, nor their agents, informed the Respondent of the tenancies even though the Applicants and their agents were aware of this obligation. As the Tribunal has stated in Steele v Commissioner for ACT Revenue [2010] ACAT 15 and Theron v Commissioner for ACT Revenue [2013] ACAT 33, even ignorance of a taxpayer’s obligation under land tax legislation is not an acceptable excuse for non-compliance. In my view the Applicants did not take reasonable care to comply with section 14 of the LTA and the circumstances do not fall within subsection 31(6)(a) of the TAA. It should be noted that section 101 of the TAA places the burden on a taxpayer to show that an objection should be upheld.
Subsection 31(6)(b) provides that no penalty tax is payable if the tax default happened because of circumstances beyond the taxpayer’s control. There is no evidence before the Tribunal to suggest that the tax default was caused by anything except carelessness on the part of the agents and the Applicants. The circumstances were at all times within the control of the Applicants or their agents. This provision has no relevance to this case.
A basic penalty tax of 25% of the land tax unpaid is imposed by section 31(1) of the TAA. However the rate rises to 50% under section 31(2) if the Commissioner is satisfied that the tax default was caused wholly or partly by a failure by the taxpayer to take reasonable care to fulfill the taxpayer’s obligations under a tax law. The penalty tax reverts to 25% if the Commissioner is satisfied that the taxpayer has a reasonable excuse for the failure.
In the present matter the Applicants were aware of their obligation to pay land tax and notify the details of tenancies to the Respondent. As mentioned earlier, this Tribunal has in other cases concluded that even ignorance of the requirement to pay land tax and give notification of letting to the Commissioner, is not a reasonable excuse.
I therefore find that the failure to notify the Commissioner of the letting of the property was caused wholly or partly by the failure by the Applicants, or their agents, to take reasonable care to fulfill their obligations under section 14 of the LTA. I further find that the Applicants had no reasonable excuse for that failure. I conclude that the Commissioner correctly imposed penalty tax of 50% of the unpaid land tax.
The Applicant’s argument that it is unreasonable to assess them for both penalty interest and penalty tax is not consistent with section 30(2) of the TAA which states that penalty tax is in addition to interest. This argument is rejected.

Remission of Penalty Tax

The Commissioner has discretion to remit penalty tax in whole or in part if the Applicants satisfy the requirements of section 37 of the TAA. The first requirement is in the form of two alternatives. Either the taxpayer has taken reasonable steps to mitigate, or to mitigate the effects of, the circumstances that resulted in the liability for penalty tax; or the circumstances that resulted in the liability for penalty tax were exceptional.
The circumstance that resulted in the tax liability was the failure through carelessness to inform the Commissioner that the property was rented. The Commissioner has now been informed of the rental details following service of the section 82 notice and the applicant is now aware of the oversight, but in any event, the property has been sold. The time when the discretion to remit is to be exercised is when the question of remission of penalty tax is decided. That was 8 February 2013 in the case of the Commissioner, and the date of this decision in the case of the Tribunal. It seems to the Tribunal that on both dates the taxpayer has actually mitigated the circumstances that resulted in the tax liability and has satisfied section 37(a)(i). Although it is not necessary to decide whether the circumstances that resulted in the tax liability were exceptional, it is difficult to characterise a careless oversight in this way.
The second requirement contained in section 37(b) is that the decision maker must be satisfied that it would be fair and reasonable to remit all or part of the penalty tax. The circumstances of this case are set out in earlier paragraphs but mention must also be made of the careless way that the section 82 notice was answered on 9 July 2012 (T11). The answer did not reveal the earlier tenancies. The Tribunal accepts that the Applicants were always honest in their dealings with the Commissioner, but the evidence is that there was also a degree of carelessness that gave a misleading view of the facts. In all of these circumstances the Tribunal is not satisfied that it is fair and reasonable to remit all or part of the penalty tax.

Costs

In CIC Australia Ltd v ACT Planning and Land Authority; Mainore Pty Ltd and ACT Civil and Administrative Tribunal [2013] ACTSC 96 (31 May 2013) the ACT Supreme Court held that section 48(1) of the ACAT Act requires that parties to proceedings in the Tribunal must bear their own costs except in the circumstances set out in section 48(2), or in section 49 which is not relevant to these proceedings. The evidence before the Tribunal does not establish that any of the circumstances contemplated in subsections 48(2) are present in this matter. The Applicant’s claim to be awarded costs must therefore fail.

Conclusion

Having regard to all of the material before the Tribunal and the findings previously made, the Tribunal confirms the decision under review.

………………………………..

Mr. A. O’Neil – Senior Member

Legislative Provisions

Land Tax Act 2004

Commissioner 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).

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.

Taxation and Administration Act 1999

Penalty 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.
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.
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).
Remission 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).

Grounds for objection
(1)The grounds for the objection must be stated fully and in detail, and must be in writing.
(2)The grounds for the objection, for a reassessment, are limited to the extent of the reassessment.
(3)The burden of showing that an objection should be sustained lies with the taxpayer making the objection.

107AMeaning of reviewable decision etc—div 10.2
(1)For this division, a reviewable decision is a determination by the commissioner of an objection by the taxpayer to—
(a)an assessment; or
(b)a decision mentioned in schedule 1, section 1.2; or
(c)a decision under a tax law that is prescribed under the law for this section.

(2)For the ACT Civil and Administrative Tribunal Act2008, section 9 (Applications under authorising laws), the tax laws are taken to be a single authorising law.

108AApplications for review
The taxpayer in relation to whom a reviewable decision is made may apply to the ACAT for review of the decision.
NoteIf a form is approved under the ACT Civil and Administrative Tribunal Act 2008 for the application, the form must be used.

ACT Civil and Administrative Tribunal Act 2008

Costs of proceedings
(1)The parties to an application must bear their own costs unless this Act otherwise provides or the tribunal otherwise orders.
(2)However—
(a)if the tribunal decides an application in favour of the applicant—the tribunal may order the other party to pay the applicant the filing fee for the application; or
(b)if the tribunal considers that a party to an application caused unreasonable delay or obstruction before or while the tribunal was dealing with the application—the tribunal may order the party to pay the reasonable costs of the other party arising from the delay or obstruction; or
(c)subject to section 49, if a party to the application contravenes an order of the tribunal—the tribunal may order the party to pay the costs or part of the costs of the application to the other party; or
(d)if the application is an application for review of a decision under the Heritage Act 2004, the Planning and Development Act 2007 or the Tree Protection Act 2005, and the tribunal makes an order under section 32 (2) (Frivolous and vexatious applications)—the tribunal may order the applicant to pay the reasonable costs of the other party arising from the application.
(3)For subsection (2) (d), reasonable costs of the other party arising from the application include reasonable legal costs but do not include holding costs.
Examples—holding costs
· interest and lender imposed charges associated with a loan
· costs of engaging workers and subcontractors and hiring equipment for a development
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).

PUBLICATION DETAILS

FILE NUMBER:	AT 13/24 & AT 13/34
PARTIES, APPLICANT:	Robyn Julia McEwin & Robert Ian McEwin
PARTIES, RESPONDENT:	Commissioner for ACT Revenue
COUNSEL APPEARING, APPLICANT	Self Represented
COUNSEL APPEARING, RESPONDENT	Mr. R. Bayliss - ACT Government Solicitor
SOLICITORS FOR APPLICANT	Self Represented
SOLICITORS FOR RESPONDENT	Mr. J. Kwan - ACT Government Solicitor
TRIBUNAL MEMBERS:	Mr. A. O’Neil – Senior Member
DATES OF HEARING:	27 September 2013
PLACE OF HEARING:	ACAT, Canberra