Olah v Chief Commissioner of State Revenue

[2002] NSWADT 22

CITATION:	Olah -v- Chief Commissioner of State Revenue [2002] NSWADT 22
DIVISION:	Revenue Division
PARTIES:	APPLICANT Vera Olah RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	016002
HEARING DATES:	28/11/2001
SUBMISSIONS CLOSED:	02/28/2002
DATE OF DECISION:	02/25/2002
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 Freedom of Information Act 1989 Land Tax Management Act 1956 Taxation Administration Act 1996
CASES CITED:	Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21
REPRESENTATION:	APPLICANT K Grant, agent RESPONDENT G Van Emmerick, agent
ORDERS:	1. That this matter be remitted to the Chief Commissioner to take the appropriate action to adjust the amounts of interest included in the assessments by remitting the premium rate components from the amounts of interest included in the assessments; 2. That the document "Business Rules" is not an exempt document under Cl.9(1)(a) and (b) of the FOI Act.

Introduction
1 This is an application for review of an objection decision made by the Chief Commissioner of State Revenue (Chief Commissioner) in respect of assessments under the Land Tax Management Act 1956 (LTM Act). The application is made under Division 2 of the Taxation Administration Act 1996 (TA Act).

2 The principal issue that the applicant seeks a review relates to interest amounts that were included in the Land Tax assessments for the late lodgement by the taxpayer of returns for the 1997 to 2000 years of assessment. The taxpayer seeks a remission of the full amount of the interest or alternatively some part of the interest imposed.

3 An additional issue that arises relates to a claim by the Chief Commissioner that his "Business Rules" to guide his officers in the imposition and remission of interest and penalty tax is an "exempt document" for purposes of the Freedom of Information Act 1989 (FOI Act).

4 With the agreement of the parties, the application was decided on the documents and material lodged with the Tribunal pursuant to the provisions of s 76 of the Administrative Decisions Tribunal Act 1997 (ADT Act). The documents and material included those lodged by the Chief Commissioner as required under s 58 of the ATD Act, the statement of reasons for the decision of the Chief Commissioner under s 49(3) of the ATD Act and written submissions of the parties.

5 The Chief Commissioner also provided the Tribunal with three copies of a document titled "Business Rules" dealing with the exercise of the Chief Commissioner's discretion under s 25 and s 33 of the TA Act but claimed that the document is an "exempt document" within Cl.9 of Schedule 1 of the FOI Act and that s 124 of the ATD Act applies to preclude disclosure of the document to the applicant.

Background
6 The facts are simple and not in dispute.

7 The applicant has since 1988 owned a unit in Artarmon which has been leased to tenants through a firm of real estate agents. In 1992 the applicant acquired a property in Queens Park and used it as a principal residence till the middle of 1994 when her husband was transferred to Singapore for two years. The property was rented through an estate agent and remains a rented property.

8 Mr Olah was transferred to Canberra at the end of his two year stay in Singapore. When it became clear to the applicant and her husband that they would be in Canberra for a longer period than they had expected, they purchased a home in Canberra in December 1999. Mr Olah has since retired and the couple have yet to make a decision as to their future base, Sydney or Canberra.

9 The Chief Commissioner sent the applicant a notice of investigation on the 24 November 2000. 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.

10 The applicant responded to the questionnaire and in addition provided the following explanation:

'As you can see I have two properties in Sydney: a small investment flat in Artarmon and our home in Queens Park. They are managed by different real estate agents, neither of whom has brought the issue of land tax to my attention previously. I doubt either the "land value" of the flat would be near the threshold of $192,000 but I imagine that our home at Queens Park could well be over that amount, and taken together the total is almost certainly more than the threshold figure.
I regarded Queens Park as our Principal Residence until my husband's transfer to Canberra became permanent and we moved into our new home in Canberra on 14 December 1999.'
11 The Chief Commissioner on receipt of this information proceeded to issue Land Tax Assessments to the applicant for years 1997 to 2001 which also imposed a penalty tax and interest at both market rate and premium rate on late lodgement of the returns in question.

12 The applicant lodged on 28 May 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.

13 The Chief Commissioner allowed the applicant's objection to remit the penalty tax but disallowed the objection in respect of the interest imposed in the assessments.

14 The applicant now seeks a review of the decision made by the Chief Commissioner not to remit the interest included in the assessments.

The Taxpayer's case for remission of interest
15 The applicant in a written statement claims that she was not aware of her liability to Land Tax until she received the questionnaire from the Chief Commissioner. She had only spent two short periods as resident in Sydney and a lot of years in overseas locations due to her husband's employment. Due the their "itinerant lifestyle" she relied on estate agents to manage her two properties and attend to all matters including land tax. The applicant claims that she was never informed by either agent of any liability she might have in relation to land tax.

16 The Chief Commissioner does not dispute any of the above facts.

The Chief Commissioner's case
17 The Chief Commissioner in his statement of reasons for decision for purposes of s 58 of the ADT Act has provided the following grounds to support the interest imposed at both market and premium rates:

(1) the applicant's real estate agents who received rate notices from the relevant council were aware that the Queens Park property was above the threshold and should have informed the applicant of her land tax liability;
(2) the Chief Commissioner accepted that the applicant was unaware of her land tax obligations but "failure to seek proper advice was a culpable action"; and
(3) that the applicant by having two rental properties was an "investor" who should have "the full knowledge of all its ramifications - capital gains, negative gearing, yield, stamp duty, land tax etc" or should have obtained professional advice in respect of her land tax obligations.
Relevant Legislation
Land Tax
18 Liability under s 7(1) of the LTM Act for land tax in New South Wales rests with the owner of land as at midnight on the 31 December of the preceding year other than land which is exempt from taxation under the Act. An owner 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 LTM Act in accordance with orders published in the Gazette.

19 In the present matter no returns had been lodged by the applicant. She was assessed to land tax on the basis of information that she suppled in a Land Tax questionnaire as requested by the Chief Commissioner.

20 Section 72(1) of the LTM Act provides that a taxpayer who fails or neglects duly to furnish any return as and when required by the Act or the Chief Commissioner is taken to have committed a "tax default" for the purposes of Part 5 of the TA Act.

21 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 market rate component which is linked to the Treasury Note yield rounded to the second decimal place and a premium rate component fixed by the TA Act at 8 per cent per annum.

22 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.

23 In cases where serious "tax defaults" occur, the Chief Commissioner can also impose a penalty tax (s 26 TA Act). The Chief Commissioner is allowed to remit the penalty tax by any amount he considers appropriate (s 33 TA Act).

Reasons and decision - whether applicant is entitled to any further remission of interest imposed
24 I have dealt with the provisions of the "interest regime" found in the TA Act more fully in my decision in Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21. For purposes of this decision I will adopt the following paras of the decision to support my decision in this matter:

"23 The Chief Commissioner is given a wide discretionary power to make a remission in circumstances he considers appropriate. The relevant legislation and the explanatory notes to the legislation when introduced provide no guidance as to the circumstances, that would warrant the exercise of this discretionary power. The Chief Commissioner, unlike his counterpart in Victoria, has not issued any publicly available document disclosing circumstances that would be taken into account when considering remission of either or both the interest amounts.
24 The interest regime found in the TA Act is essentially designed to promote compliance of the relevant taxation laws. The interest regime also promotes equity between the taxpayers who meet their taxation obligations on time and taxpayers who do not meet such obligations as and when required by the law. In addition, it compensates the state for loss of use of funds.
25 The market rate component would reflect the use by the party in question of the relevant amount of money on one hand, and the lack of use of the relevant funds by the state on the other. But the fixed premium rate component is a rate imposed by way of a penalty for the "tax default" in question. A premium rate of interest is imposed where a "tax default" is a result of some culpable conduct on the part of the taxpayer. The Chief Commissioner can also impose a penalty tax under s 26 of the TA Act in cases where more serious tax defaults occur due to deliberate conduct of taxpayers.
26 Different considerations should apply when applications for remission of market rate or premium rate interest are determined by the Chief Commissioner. In considering applications, the Chief Commissioner, of course, needs to take into account all the facts of each individual case.
27 In cases where an amount of interest is imposed by the application of the market rate, only exceptional circumstances would justify any remission. The narrow category of circumstances would include cases where the "tax default" is entirely due to a fault of the Chief Commissioner. Other circumstances would include situations completely out of the control of the taxpayer, such as postal strikes, serious illness of the taxpayer and natural disasters (bush fires, floods and earthquakes).
28 On the other hand, a wider range of circumstances would be available to justify a remission of the premium rate interest. Cases where, as was the case in the present matter, there has been a change in ownership of a property and the lodgment of an "Initial Return" was not made due to some confusion as to its lodgement."
25 In the present matter, the applicant was not aware of any liability with regard to Land Tax until she received the questionnaire from the Chief Commissioner. Her two properties were managed by estate agents, who at no time, brought to her attention, her obligations to pay Land Tax. She and her husband spent a considerable time overseas and on their return took up residence in Canberra.

26 The Chief Commissioner has, in considering the applicant's objection, remitted the penalty tax that had been imposed in the original assessments. The Chief Commissioner has proceeded to do so on the grounds that "there is no evidence of deliberate intention to disregard the law".

27 However, the Chief Commissioner has refused to remit any of interest on the ground that the applicant is an "investor" and as such ought to have either known her obligations or sought advice to meet her Land Tax obligations. The applicant had owned a unit for some time which never had any Land Tax liability. The Land Tax liability only arose when the applicant leased her principal residence. It is difficult, on the facts to regard the applicant as an "investor" as suggested by the Chief Commissioner.

28 The Chief Commissioner in his statement of reasons for purposes of s 58 of the ADT Act, suggests that he will impose "the premium rate of interest in cases where there is failure to lodge a return or there is evidence that the failure to lodge or late lodgement of the return is due to culpable conduct by the taxpayer". There is no evidence in this matter of any deliberate disregard by the applicant of her Land Tax obligations.

29 I think it is necessary to consider against all the facts of each case whether the rate of any penalty imposed would produce an unreasonable or unjust result.

30 In view of all the surrounding facts of this matter I am of the opinion that there are sufficient grounds to remit the premium rate component of the interest amount that was included in the assessments. There are, however, no exceptional grounds to remit the market rate component of the interest. This matter is accordingly remitted to the Chief Commissioner to take the appropriate action to adjust the amounts of interest included in the assessments issued to the applicant.

Freedom of Information Issue
31 In Trust Co. of Australia Ltd v Chief Commissioner of State Revenue [2002] NSWADT 21 I rejected the Chief Commissioner's claim that the document "Business Rules" was an exempt document under Cl.9(1)(a) and (b) of Schedule 1 to the FOI Act.

32 The Chief Commissioner's claim for a similar exemption in this case is rejected on the same grounds and reasons given in that decision (paras 31 -53). I am also satisfied that the applicant in this matter has not been, in any way, prejudiced by the non-disclosure of the document.