Rajan v Chief Commissioner of State Revenue
[2013] NSWADT 125
•05 June 2013
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Rajan v Chief Commissioner of State Revenue [2013] NSWADT 125 Hearing dates: On the papers Decision date: 05 June 2013 Jurisdiction: Revenue Division Before: A Verick, Judicial Member Decision: The assessment for land tax years 2010, 2011 and 2012 issued to the secondary taxpayer is affirmed.
Catchwords: Land Tax - liability of joint owners - Double Tax relief under s 33 for secondary taxpayer - whether "fairness" relevant in assessment process. Legislation Cited: Land Tax Management Act 1956
Land Tax Act 1956
Administrative Decisions Tribunal Act 1997
Land Tax Assessment Act 1910 (Cth.)
Taxation Administration Act 1996Cases Cited: Bailey v The Federal Commissioner of Land Tax [1911] 13 CLR 302
Ma v Federal Commissioner of Taxation (1992) 37 FCR 225
Federal Commissioner of Taxation v Dalco [1990] 168 CLR 614
Commissioner of Taxation v Ryan [2000] 201 CLR 109
Volpatti v Chief Commissioner of State Revenue [2007] NSWADT 222
Richard Walter v Deputy Federal Commissioner of Taxation [1995] 183 CLR 168
Gauci v Federal Commissioner of Taxation [1975] 135 CLR 81Category: Principal judgment Parties: Ajith S Rajan and Prabha Rajan (Applicants)
Chief Commissioner of State Revenue (Respondent)Representation: A Rajan and P Rajan (Applicant in person)
State Crown Solicitor (Respondent)
File Number(s): 126113
reasons for decision
The applicants jointly own two properties: 24 Kenton Crescent, Valentine and 191 Eastern Valley Way, Middle Cove. Ajith Rajan is also a sole owner of 87 Kindlebark Drive, Medowie. In addition, in the land tax years 2010 and 2011 Ajith Rajan was sole owner of another property: Unit 8, 40-42 Hume Street, Gloucester.
Sometime in October 2011, the Chief Commissioner, as part of his land tax compliance measures, used the Australian Taxation Office (ATO) rental data to check if rental properties had been properly included in land tax returns lodged by landowners in New South Wales. In the case of the applicants, 191 Eastern Valley Way, Middle Cove, which had been previously given a principal place of residence exemption under the Land Tax Management Act 1956 ("the Act"), was listed as a rental property in the ATO rental data.
The Chief Commissioner, on 17 October 2011 sent the applicants a land tax questionnaire to ascertain properties owned by the applicants. There was no response to the Chief Commissioner's questionnaire and a reminder was sent to the applicants on 11 November 2011. Again, there was no response from the applicants.
On 7 February 2012, the Chief Commissioner, from information available to him, issued two assessments for land tax years 2010, 2011 and 2012. One assessment was issued to the applicants in relation to the two properties jointly owned by the applicants. The second assessment was issued to Ajith Rajan in relation to his 50% share of the two properties and the properties solely owned by him.
An objection was lodged against the assessments on 6 March 2012, which was disallowed by the Chief Commissioner on 1 May 2012.
The applicants accept their primary liability to land tax as set out in the assessment issued to them as joint owners of the two properties but seek a review of the assessment issued to Ajith Rajan.
The Tribunal at the request of the parties agreed, pursuant to s 76 of the Administrative Decisions Tribunal Act 1997 (the "ADT Act"), to determine the proceedings in this matter "by considering the documents or other material lodged with or provided to the Tribunal and without holding a hearing". The Chief Commissioner has lodged a comprehensive bundle of documents under s 58 of the ADT Act and the parties have lodged various written submissions. The Tribunal is satisfied that "the issues for determination can be adequately determined in the absence of the parties".
During the relevant land tax years, pursuant to sections 7, 8 and 9 of the LTM Act, land tax was chargeable on the taxable value of land that was not exempt, based on the ownership of the land as at midnight on the 31 December of each preceding year for which land tax was to be levied.
In the case of joint owners of land, they are assessed and liable for land tax in accordance with the provisions found in s 27 of the LTM Act. Under s 27(1), joint owners together are called the "primary taxpayer" and are assessed as if they are a single owner. All joint owners are jointly liable for the land tax payable by the primary taxpayer.
Each joint owner is also called a "secondary taxpayer" and is, under s 27(2), separately assessed and liable in respect of:
(a) his or her individual interest in the land (as if he or she were the owner of a part of the land in proportion to his or her interest), together with
(b) any other land owned by him or her in severalty, and
(c) his or her individual interests in any other land.
In order to prevent double taxation on land included in assessments for both a primary taxpayer and a secondary taxpayer, a secondary taxpayer is allowed a deduction under s 33 of the LTM Act, which relates to the taxpayer's interest in the jointly owned land. Section 33 provides as follows:
33 Deductions to prevent double taxation
Where under this Act:
(a) any person is deemed to be the secondary taxpayer in respect of any land or interest, and
(b) it is provided that there shall be deducted from the land tax payable by the secondary taxpayer, in respect of the land or interest, such amount (if any) as is necessary to prevent double taxation,
the amount of the deduction (if any) shall be the lesser of the following amounts:
(i) the amount of land tax payable in respect of the land or interest by the secondary taxpayer, or
(ii) the amount of land tax (if any) payable in respect of the land or interest by the primary taxpayer aggregated with the amount of land tax (if any) payable in respect of the land or interest by a precedent secondary taxpayer (if any):
Provided that the secondary taxpayer shall be assessed and liable in respect of the land or interest, notwithstanding that the primary taxpayer is exempt from taxation in respect of the land or interest, or that there is no primary taxpayer in respect of the land or interest.
In calculating the deduction, s 33 must be read with s 34(1) which provides:
Where in this Act reference is made to the land tax payable by a person in respect of any land or interest, the reference is to so much of the whole land tax payable by the person as bears to the whole land tax payable by the person the proportion which the land value of the land or interest referred to bears to the land value of all the land (including any interest in land) owned by the person.
Sections 27 and 33 have been in the legislation in substantially similar form since 1956 when the LTM Act was enacted. They are based essentially on similar provisions, sections 38 and 43 respectively, of the Commonwealth Land Tax Assessment Act 1910. Various amendments were made to the Commonwealth legislation in 1911 in anticipation of an adverse decision of the High Court in Bailey v Federal Commissioner of Land Tax (1911) 13 CLR 302. The amendments included amendments to s 43, which are reflected in the current s 33 of the LTM Act. The issues before the court in Bailey do not have any relevance to the current matter.
In this matter, the issues for determination relate essentially to the correct interpretation of s 33 of the LTM Act. Land tax assessment for land tax years 2010, 2011 and 2012 issued to Ajith Rajan as a secondary taxpayer is the subject of this review.
The applicants chose the 2012 land tax year to raise the issues that concerned them, as follows:
1. Taking the example of tax assessment for the 2012 tax year, as above, why should the secondary deduction be $ 982.47 and not $ 2330 as The Act does not specify in Section 33 or, it appears, any other part of The Act, that you should take the lesser of the two above figures; and
2. Where is it specified that you will choose to apply 1.6% as above.
A further issue was added in their final written submission. The applicants claim that the Chief Commissioner has incorrectly applied the proportional ratio. In respect of the 2012 land tax year as an example, the applicants submit that the correct deduction should be $1,372 and not the amount of $982.47 as applied by the Chief Commissioner. The applicants claim that they are entitled to the higher amount on grounds of "fairness".
The Chief Commissioner's case is essentially that the applicants, pursuant to s 100(3) of the Taxation Administration Act 1996 ("the TA Act") "bear the onus of proving their case to the ordinary standard, that is, on the balance of probabilities: Ma v FCT (1992) 37 FCR 225 at 232 per Burchett J; and FCT v Dalco [1990] 168 CLR 614 at 626 per Deane J." And that the applicants have "have not discharged their onus of proof in establishing that the Assessments are incorrectly made". "In particular, the Applicants have not established, having regard to the relevant legislative provisions, that the deduction applied by the Chief Commissioner was incorrect or not in accordance with the provisions of the LTMA".
The Chief Commissioner in his written submissions also dealt with the "fairness" issue raised by the applicants-
39 In respect of the argument advanced by the Applicants that the deduction was not "fairly made", this is not relevant consideration for the Tribunal in reviewing the Assessments.
40 The High Court in Commissioner of Taxation v Ryan (2000) 201 CLR 109 makes clear that arguments as to unfairness do not apply. Their Honours said the following at 123:
But the question for decision is what are the circumstances in which an amended assessment may lawfully be issued? That question is not answered by asserting the existence of any "policy" or "general intention" unless that policy or intention is to be found reflected in the provisions of the Act. Appeals to general notions of "fairness" or "justice" do no more than attempt to mask the absence of any foundation in the legislation for the conclusion which is asserted.
41 As to general notions of fairness it has been said, in Volpatti v Chief Commissioner of State Revenue [2007] NSWADT 222 at [27] by Handley Acting Deputy President, that:
I note there is no general discretion in the LTMA allowing the Chief Commissioner to take into account other special circumstances that may apply in respect of a landowner which is not subject of an exemption under the Act.
42 It is clear that there is no general discretion available to the Chief Commissioner or, on application for review, this Tribunal, based on "fairness".
The assessment issued to Ajith Rajan by the Chief Commissioner for the 2012 land tax year was on the following basis -
Land items owned (%) Value
24 Kenton Cres Valentine 50 117500
87 Kindlebark Drive Medowie 100 135000
191 Eastern Valley Way
Middle Cove 50 223000
Total aggregated land value 475500
Assessment calculation
Aggregated taxable land value 475500
Less Threshold 396000
79500
Tax $100 Plus Balance @ 1.6% 1372.00
Less Secondary Deduction 982.47
Total tax payable $389.50
The Chief Commissioner also attached supporting information as to how the secondary deduction was calculated -
The secondary deduction of $982.47 being the lesser of:
Primary Calculation: = Interest in Primary x Tax in Primary
________________
Total Primary
340500 x $4660.00 = $2330.00
681000
OR
Secondary Calculation: = Interest in Primary x Tax in Secondary
_____________
Total Secondary
340000 x $1372.00 = $982.47
______
475500
The first two issues raised by the applicants can easily be disposed of.
The applicants claim that Ajith Rajan in his assessment, as a secondary owner should be given the benefit of a deduction of the full amount of the 50% proportion of the land tax that he is liable to under the primary assessment issued to both applicants as joint owners or at least the amount of $1,372. The short answer to that submission is that the deduction is governed by a statutory formula set out in s 33 of the LTM Act and it provides for a deduction of the lesser of the following amounts:
(i) the amount of land tax payable in respect of the land or interest by the secondary taxpayer, or
(ii) the amount of land tax (if any) payable in respect of the land or interest by the Principal taxpayer aggregated with the amount of land tax (if any) payable in respect of the land or interest by a precedent secondary taxpayer.
It is understandable why the applicants are in a quandary over this issue. A similar concern was expressed in argument in Bailey where Griffith CJ (at p 311) explained the nature of the relief from double taxation as follows:
The scheme of sec. 43 appears to be that the Treasury shall forego the fortuitous profit which it derives from the inclusion of the individual's joint interest in the rest of the joint property, but only to the extent equal to the burden cast upon him by the inclusion of that interest with separate property. If no deduction were made, his rate of taxation would be twice increased in respect of his joint interest, first, by reason of its inclusion with the other joint interests, and secondly, by its inclusion with his separate estate. In my opinion this would be double taxation in the sense in which that term is used in the Act.
Section 33 does not operate to provide the secondary taxpayer with a deduction equivalent to his or her share of the land tax paid or payable as a primary taxpayer. The amount of land tax payable by a secondary taxpayer is only reduced by a specified proportion of the tax paid in respect of the double taxed property. The Chief Commissioner in his written submissions explained how the double tax deduction is calculated -
15 A secondary taxpayer's interest in land, which he or she owns jointly with someone else, is included in both the joint assessment and the taxpayer's secondary assessment. In order to avoid double taxation, a secondary taxpayer is allowed a deduction, which is the lower dollar amount of the following two calculations:
1. The proportion of the primary tax attributed to the secondary taxpayer - For example, if a particular secondary taxpayer owns 50% of a parcel of land, then 50% of the average value included in the joint assessment, and consequently 50% of the primary tax is attributed to that taxpayer for the purposes of the first calculation of the deduction to avoid double taxation;
2. The proportion of secondary tax attributed to the secondary taxpayer's interest in each parcel of jointly owned land - For example, if a particular secondary taxpayer owns a 50% interest in a particular parcel, and the average value of that 50% interest represents 25% of the taxpayer's aggregate average value of all his or her interests in taxable land, then 50% of the secondary tax assessed is attributed to the taxpayer for the purposes of the second calculation to avoid double taxation.
The Chief Commissioner in his submissions also set out the "rationale" for the provision in the legislation -
16 This method of calculating land tax ensures that the land tax revenue base is not eroded by owners holding land in different combinations of joint and individual ownerships.
17 Therefore, the calculation of the allowable deduction is based on the proportionate average value of the jointly owned land that is included in both assessments. Without these provisions, land tax could be reduced by owners holding different parcels of land in different ownership combinations. For example, if A were to own a property with B and also own certain other properties in his own right, and or other properties jointly with C, D, E, F, G and H, each ownership combination would also get the benefit of a separate tax-free threshold. This would substantially reduce land tax revenue.
In this matter, the Chief Commissioner correctly applied the test as set out in s 33 for the 2012 land tax year and the two other land tax years in issue. This matter can be disposed of on this basis but I also need to deal with the other issues raised by the applicants.
The second issue raised by the applicants concerns the use of 1.6% rate to calculate the land tax payable under the assessment issued to Ajith Rajan. This can also be quite easily explained.
The LTM Act is the principal act, which contains provisions relating to the imposition, assessment and collection of land tax upon unimproved values of certain lands.
The LTM Act under s 62TB also sets the tax threshold for each land tax year. But the rate of tax to be levied is prescribed by the Land Tax Act 1956 (LT Act), which is to be read and construed with the LTM Act.
The applicable rate for the years under review are set out under s 3AL of the LT Act as specified in Part 1 of Schedule 13.The applicable rate for the years in issue is prescribed as "$100 plus 1.6 percent of the amount by which the taxable value exceeds the tax threshold". That explains the use of "1.6%" rate to assess the secondary taxpayer in this matter.
Finally, the "fairness" ground raised by the applicants also does not assist the applicants. It is not a relevant consideration in revenue matters unless a taxpayer has been denied procedural fairness, for example, the assessment process was undermined by allegations of bad faith (see: Richard Walter v Deputy Federal Commissioner of Taxation [1995] 183 CLR 168. The applicants have made no such allegations.
The applicants have failed to identify any error in the assessment and have thus not discharged the onus placed on them under s 100(3) of the TA Act. There was no onus on the Chief Commissioner to show that the assessment was correctly made (see Mason J in Gauci v Federal Commissioner [1975] 135 CLR 81 at 89 and approved by the Full High Court in Dalco.)
The assessment issued to the secondary taxpayer for the land tax years 2010, 2011 and 2012 must accordingly be affirmed.
In passing, I should make the observation that the issues raised by the applicants were merely questions involving the proper interpretation of the relevant provisions of both the LTM Act and the LT Act and should have been quite easily resolved by the parties at the initiative of the Chief Commissioner.
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Decision last updated: 05 June 2013
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