Moore v Chief Commissioner of State Revenue

[2002] NSWADT 49

CITATION:	Moore -v- Chief Commissioner of State Revenue [2002] NSWADT 49
DIVISION:	Revenue Division
PARTIES:	APPLICANT Ian James David Moore Elaine Mary Moore RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	016020
HEARING DATES:	07/01/02
SUBMISSIONS CLOSED:	01/10/2002
DATE OF DECISION:	04/05/2002
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
REPRESENTATION:	APPLICANT In person RESPONDENT G Van Emmerik, agent
ORDERS:	That the interest on late lodgement of the Land Tax returns at the market and premium rates was correctly included in the Land Tax assessments for the 1996 to 2001 tax years.

1 This is an application to review an objection decision made by the Chief Commissioner of State Revenue (Chief Commissioner) in respect of Land Tax assessments for the 1996 to 2001 tax years.

2 The only question at issue is whether there are grounds for remission of the whole or part of the interest included in the assessments for late lodgement of Land Tax returns for the relevant years.

Background

3 The applicants own or have owned the following properties:

(a) two units in Drummoyne which were acquired in 1995 and 1998 respectively as investment properties;
(b) a residence at Hawkesbury Road, Winmalee acquired in 1984 and since used as their principal residence;
(c) three other properties in Winmalee, purchased in 1990,1991 and 1996 and sold in 1999,1999 and 1997 respectively; and
(d) a holiday cottage in Berowra Waters acquired in 1999

4 The Chief Commissioner sent on 8 December 2000 to the applicants a notice of investigation under s 72 of the Taxation Administration Act (TA Act). The notice was a "Land Tax Questionnaire" which requested particulars of properties owned in the current year or in previous years by the applicants to determine land tax liability, if any, of the applicants.

5 The applicants responded to the questionnaire and, in addition, provided the following explanation:

"We have not lodged a return previously, although we have monitored our Land Tax obligations since purchasing our first investment property in 1990, however the advice given to us at that time by an accountant was that because all land was jointly owned, our liability for Land Tax would be assessed separately on the 50% ownership each of us held.
Until this year, on this basis, we have assumed that we were not liable for Land Tax. Have the rules been changed? If so we feel this is extremely unfair to assess ownership by two persons as a single entity."

6 On the basis of the information received in response to the questionnaire, the Chief Commissioner issued to the applicants, land tax assessments for the years 1996 to 2001 tax years. In each assessment, the Chief Commissioner also included a penalty tax and interest at both market and premium rates on late lodgement of the returns for these years.

7 The applicants lodged on 20 June 2001 an objection against the assessments on the grounds that the Chief Commissioner should make a full remission of the penalty tax and interest components included in the assessments.

8 The Chief Commissioner allowed the applicants' objection to remit the penalty tax but disallowed the objection in respect of the interest included in the assessments.

9 The applicants now seek a review of the decision made by the Chief Commissioner not to remit the interest included in the assessments.

The Taxpayers' case for remission of interest

10 The applicants had been aware "of the possibility of liability for Land Tax" since 1990 when they purchased their first investment property. They had, on several occasions, consulted their Melbourne based accountant who advised that they would only be subject to land tax for their individual ownership of property. The Melbourne accountant also advised the applicants that, on that basis, each applicant would become liable to land tax only in the 2000 year but recommended that the applicants consult a NSW based accountant or check the Office of State Revenue website to ensure that the advice given to them was correct.

11 The applicants consulted a NSW based accountant in late 1999 who also advised the applicants that by dividing their "total holdings by two and subtracting the threshold from each holding" they were individually not liable to any land tax. The accountant in a letter dated 8 January 2001 addressed to the applicants has confirmed as follows: "Further to discussions with you today, it appears that my interpretation of your Land Tax liability in late 1999 may have been incorrect."

The Chief Commissioner's case

12 The Chief Commissioner in his statement of reasons for purposes of s 58 of the Administrative Decisions Tribunal Act (ADT Act) has provided the following grounds to support his decision to include interest at both market and premium rates: (a) " a tax default did occur by the failure to lodge a land tax return and was a culpable action by the taxpayer."; (b) " the majority of people who own property other than their home, see themselves as investors and take on investments in the full knowledge of all its ramifications - capital gains, negative gearing, yield, stamp duty, land tax etc." and (c) "where the investor is unsure of or does not know of, the full ramifications, they usually seek professional advice."

Relevant Legislation

13 Generally speaking, 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 in respect of the property. 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.

14 In the present matter the applicants on the erroneous assumption that they were individually liable had not, lodged any returns. The applicants have thus been assessed on the basis of the information that they provided in response to the Land Tax questionnaire that they received from the Chief Commissioner.

15 As the applicants had failed to duly lodge land tax returns for the relevant years in issue, they have been taken to have committed under s 72(1) of the LTM a "tax default" for the purposes of Part 5 of the TA Act.

16 If a "tax default" occurs, the taxpayer is liable to pay, under s 21 of the TA Act, interest on the amount of land tax unpaid calculated on a daily basis from the end of the last day for payment until the day it 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%.

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.

18 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 examined in some detail the scope of the provisions relating to the imposition and remission of interest found in Part 5 Division 1 of the TA Act. 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".

19 Interest imposed at the market rate is essentially to compensate the state for being denied the use of the funds to which in law it is clearly entitled to at a particular point in time. Accordingly, it can only be remitted in exceptional circumstances. In a very narrow category of situations, which arise entirely outside of the control of the taxpayer, would a taxpayer be entitled to a remission.

20 On the other hand, the premium rate component is a form a penalty and a wider range of circumstances would justify its remission.

21 In the present matter, the Commissioner had also imposed a penalty tax under s 26 of the TA Act. A penalty tax is imposed in more serious cases where a "tax default" occurs. At the objection stage, the Chief Commissioner remitted the penalty tax on the ground that, whilst it was accepted that the applicants were unaware of their of their obligations, "the failure to seek proper advice was a culpable action" because "the culpable action did not warrant the imposition of penalty tax".

22 In the present matter, the applicants accept that they are "investors" and, accordingly, they were correctly categorised by the Chief Commissioner as such. They also sought advice, as would have been the case with investors. But, unfortunately, both their Melbourne and local accountants advised them incorrectly.

23 When can incorrect advice warrant a remission of the interest imposed under s 21 of the TA Act? Clearly, if the Chief Commissioner gives the incorrect advice to a taxpayer, the taxpayer would be entitled to a full remission. That would be a circumstance outside the control of the taxpayer. However, where an independent adviser gives incorrect advice to a taxpayer, that would really be a matter between the taxpayer and the adviser. It will only be relevant if the advice relates to a contentious or unsettled area of the land tax law and the advice is based on all relevant authorities. In the latter situation, it could support remission of the premium rate component but not the market rate component.

24 In the present matter, the advice was simply incorrect in respect of a fairly basic and clear issue of liability. The NSW based accountant only provided advice in late 1999. Until then the applicants had relied on their Melbourne accountant. No contact was made with the Office of the State Revenue at any time before the investigation. The applicants were, at all relevant times, aware of land tax liabilities, but had acted on the wrong assumption that each owner of joint property was liable only in respect of the individual's 50% value of the joint property with the threshold applying to the total amount of each individual's total amount of that 50% share. The applicants had "monitored" their Land Tax obligations on this basis since purchasing their first investment property in 1990.

25 The Chief Commissioner has had no role in all this. He was not consulted nor contributed in any way to the position taken by the applicants.

26 There is some ground for sympathy for the applicants' position but it is not sufficient ground to warrant remission of the interest included in the assessments.