Michales v Chief Commissioner of State Revenue

[2002] NSWADT 93

CITATION:	Michales v Chief Commissioner of State Revenue [2002] NSWADT 93
DIVISION:	Revenue Division
PARTIES:	APPLICANT Peter Michales RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	026002
HEARING DATES:	02/04/2002
SUBMISSIONS CLOSED:	04/02/2002
DATE OF DECISION:	06/03/2002
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 Income Tax Assessment Act 1936 (Cth) 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
REPRESENTATION:	APPLICANT In person RESPONDENT G Van Emmerik, agent
ORDERS:	That this matter be remitted to the Chief Commissioner to take the appropriate action to adjust the amounts of interest included in the Land Tax assessments for the 1998 to 2001 tax years by remitting the premium rate components from the amounts of interest included in the assessments.

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. 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 Act (TA Act)

Background

3 The applicant is the owner of two properties relevant to this application. On 30 January 1996 the applicant acquired 23 Bagdad Street, Regents Park and in the following year he acquired 96 Quakers Road, Marayong. Both properties are residential properties and have 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 on 27 April 2001. 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 It is claimed by the Commissioner that the applicant failed to respond to the questionnaire. The Chief Commissioner proceeded to issue to the applicant Land Tax Assessments on the basis of whatever information the Commissioner had for years 1998 to 2001. The Commissioner also imposed interest at both market rate and premium rate for failure to lodge the relevant returns.

6 The applicant lodged on 5 November 2001 an objection against the assessments on the grounds that the Chief Commissioner should waive or remit all the interest included in the assessments.

7 On the 13 December 2001 the Chief Commissioner disallowed the objection in respect of both components of the interest included in the assessments.

The Taxpayer's case for remission of interest

8 The applicant, in his objection, claimed that he was not aware of any liability to Land Tax until he received the assessments from the Chief Commissioner.

9 In the application for review, the applicant claims that he did not receive any questionnaire or bill until he received the relevant assessments.

The Chief Commissioner's case

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

that the "premium rate of interest was to stand as the taxpayer was considered not to have taken reasonable care" and that the "failure to lodge a land tax return together with the failure to respond to the notice of investigation was considered to be culpable actions by the taxpayer and did not warrant any remission of the interest imposed".

11 An owner of property liable to land tax is required to lodge an "Initial Return" and no further returns unless the owner seeks for any reason to vary the land tax payable. Land Tax returns are required to be lodged under s 12 of the Land Tax Management Act (LTM Act) in accordance with orders published in the Gazette.

12 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 that the Chief Commissioner had obtained through his own audit activities.

13 As the applicant had failed to duly furnish any return, he 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.

14 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.

15 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.

Reasons and decision - whether any remission of interest is warranted

16 In two recent decisions, 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".

17 In the present matter the Chief Commissioner has, at the objection stage, refused to remit the interest that he had imposed in the assessments on the ground that the taxpayer had not taken "reasonable care". Before this Tribunal, the Chief Commissioner also relies on the ground that the failure to lodge the relevant land tax returns together with the failure to respond to the Commissioner's notice of investigation are "culpable actions". The Chief Commissioner therefore takes the view that there are no circumstances to warrant any remission of the interest imposed at both the market and premium rates.

18 The concept of "reasonable care" is central to the application of the Commonwealth income tax short fall penalty provisions, which were introduced in 1992 as part of self-assessment. The Commonwealth Income Tax Assessment Act, 1936 has a fairly elaborate statutory scheme (Part VII - ss 222A -228) to deal with tax short falls. The scheme is essentially designed to deal with omission of income, incorrect claims or false and misleading statements in tax returns. The Commonwealth Income Tax Assessment Act also contains independent provisions to deal with penalty interest for late or unpaid taxes.

19 The concept of "reasonable care" is not found in the provisions dealing with penalties in the TA Act. There is also no statutory basis for the use of the concept. It is a term more closely associated with the common law of negligence. The relevance of the concept for purposes of dealing with cases for remission of interest under the TA Act is, in my opinion, questionable. However, for the reasons given below I do not have to definitively consider the use of the concept in the present matter.

20 In each case it is necessary to consider the particular circumstances of the taxpayer which would include the taxpayer's background, level of involvement in property dealings, knowledge, education, experience and skill.

21 The applicant's principal reason for not complying with the land tax law was ignorance of the law. Whilst ignorance of the law is no excuse in law, it is a factor that has relevance when considering the level of penalty for non-compliance.

22 There is a real obligation on the revenue to improve compliance in the first instance by assisting taxpayers and educating them about their obligations. It is necessary to ensure that taxpayers become aware of these obligations. The tax laws are not designed to unduly penalise honest mistakes by taxpayers who are quite willing to comply with the law if they are only aware of their obligations. As was the case in this matter, the applicant paid the land tax as soon as he became aware of his obligation to pay the tax.

23 In imposing interest at both the market and premium rates the Chief Commissioner had relied on the ground that the taxpayer's failure to lodge land tax returns and in not responding to his notice of investigation were culpable actions and as such did not warrant any remission of the interest.

24 At the hearing the applicant drew attention to the fact that he had not received the Chief Commissioner's notice of investigation. The Chief Commissioner's representative, correctly in my view, conceded that it was difficult for the Chief Commissioner to maintain that the notice had in fact been sent and received by the taxpayer.

25 In addition, the applicant relies on the ground that until he received the assessments he was not aware of any Land Tax liabilities. Nor was he advised by his accountant or any other person of any Land Tax liability.

26 The applicant has, in my opinion, raised sufficient grounds to warrant a remission of the "premium" component of the interest that the Chief Commissioner has included in the applicant's land tax assessments.

27 As indicated in the Trust Co of Australia and Olah cases, remission of the "market" rate of the interest can only be made in exceptional circumstances. The market rate interest represents compensation to the revenue for the time value of money over the period of the late payment of the relevant land tax. In this matter the applicant has failed to show any exceptional circumstance to warrant any remission of the "market rate" component.

28 This matter accordingly should be remitted to the Chief Commissioner to make the necessary adjustments to the relevant assessments by excluding the premium component of the interest that was included in the assessments.