What is the appropriate penalty tax in the circumstances?

1. The applicants submitted that their circumstances demonstrated that they had exercised reasonable care, and/or had a reasonable excuse with the effect of either reducing the penalty tax rate to 25% or 0%[45], and/or the penalty tax should be remitted.[46]
2. The applicants provided documentary evidence[47] and gave oral evidence that they had used tax professionals to advise them about their rental properties, and they suggested that these professionals had some or all the responsibility for the tax default. In her oral evidence Ms Carey said she had made contact with her accountant about the proceedings, however they had not responded.
3. The applicants contended that the Commissioner had failed to effectively communicate to them that land tax was payable. In her oral evidence Ms Carey said she did not receive a land tax brochure with the rates notices until 2013-14. She confirmed that she did receive and read the latter mentioned land tax brochure, and for this reason she sent the email dated 27 October 2014 to the Commissioner (see paragraph 11 above). She said that the brochure appeared to her to be providing information to taxpayers about a new land tax requirement. Therefore she only turned her mind to renting history during 2013-14; her oral evidence was that she mentioned the date of 2 February 2014 in her email because it was her recollection of the date during 2013-14 when the property had been most recently rented to a group of students.
4. The applicants both submitted that they did not have intentional disregard for a tax law. Ms Carey explained the reasons for contents of her October 2014 email as set out in paragraph 26 above. In his oral evidence Mr Butt explained that while he did pay land tax on the Bentham property, he regarded this property as being subject to unusual grandfathered planning conditions. He also said that due to his experience as a professional in the construction industry he understood that developers did not usually pay land tax. Mr Butt explained in his evidence that for these reasons he did not ever conclude that he was liable for land tax for the property until this matter came to his attention.

1. The respondent's submissions against the two issues listed in paragraph 11 above are summarised below.

Is the land tax correctly assessed given the tenants did not have access to part of the property since it was being developed?

1. The respondent contended that the land tax was correctly assessed since the property was one parcel of land and did not have multiple dwellings rented for the rental period.[48] The structure on the property for workers was not a dwelling since it was not used for living[49], and the Certificate of Occupancy for the new dwelling did not issue until after the rental period, ie 31 August 2015.[50] Any land that the tenants may not have had access to was therefore irrelevant to the assessment of land tax.
2. The respondent submitted that while there are various exemptions for land tax under the LTA, including for a parcel of land owned by a corporation carrying on business as a builder or land developer[51], these did not apply to the applicants or the property for the rental period.

What is the appropriate penalty tax in the circumstances?

1. The respondent contended that the applicants had the onus of notifying the Commissioner that their property was rented; further that this duty remained with the taxpayer even where they engaged third parties to assist them.[52] Ignorance and oversight by the taxpayer does not justify a reduction in penalty tax.[53] In any case the respondent provided evidence that the applicants had been sent brochures informing them of land tax with the rates notices for the property over the rental period.[54]
2. The respondent submitted that the applicants had not exercised reasonable care and had no reasonable excuse, and referred to a line of authority to support this submission.[55]
3. In the proceedings before the Tribunal the respondent introduced a submission that the applicants had intentional disregard for a tax law. In summary the basis of this contention was that one of the applicants, Mr Butt had paid land tax for the Bentham property and therefore "was aware of their land tax obligations regarding rented property"[56], and cited authority to support this submission.[57] The respondent contended that while the objection confirmed a penalty tax rate of 50%, the Tribunal could set aside the decision and substitute a decision that imposes the higher penalty tax rate of 75%, being $18,769:98.[58]
4. The respondent submitted that the applicants did not have circumstances to justify a reduction or remittal of the penalty tax and it would not be fair and reasonable to do so. In particular the respondent submitted that the October 2014 email sent by Ms Carey to the Commissioner did not disclose fully the rental history of the property. As a result the Commissioner conducted an investigation, without prior notice to the taxpayer as the law allows[59], and subsequently issued a section 82 notice. In these circumstances the respondent submitted that the applicants did not make a voluntary disclosure pursuant to sections 32 and 33 of the TAA and therefore any associated reductions in penalty tax are not available to them.[60] In any case, the Commissioner further contended that a decision to not allow reductions in penalty tax under sections 32 and 33 TAA are not reviewable decisions.[61]
5. In regard to interest, the Commissioner submitted that decisions to impose interest and not to remit it are not reviewable by the Tribunal.[62]

Is the land tax correctly assessed given the tenants did not have access to part of the property since it was being developed?**

1. The Tribunal accepts the arguments of the respondent as set out in paragraphs 29 to 30 above.
2. In arriving at this conclusion, the Tribunal makes no adverse findings about the credibility of the applicants. The Tribunal accepts that Mr Butt held a genuine but unfortunately incorrect view that as developers of the property he and Ms Carey were exempt from land tax for the property. The Tribunal also accepts that Mr Butt genuinely believed the Bentham property differed in regard to land tax liabilities, due to a view he formed over many years and from meetings with government officials that the Bentham property is subject to unusual grandfathered requirements.

What is the appropriate penalty tax in the circumstances?

1. The Tribunal finds that the applicants did not take reasonable care. The Tribunal accepts the respondent's submissions that there is a positive obligation on the taxpayer to make enquiries about their tax liabilities and there is no positive obligation on the Commissioner to do so (in the absence of notification pursuant to section 14 of the LTA) about the renting of the property. The cases of Theron[63] and Steele[64] held that there is an onus on landlords to enquire about tax obligations. The principle that the onus is on the taxpayer was set out in relation to payroll tax in the Photo Corporation[65] case, and confirmed by the Tribunal in Belconnen Premier Inn.[66]
2. The onus falls on the applicants even though they engaged various professionals. Any duty or liability of a professional person engaged by the taxpayer does not necessarily relieve the taxpayer of their duty or liability regarding land tax or any associated penalty tax or interest. There is consistent authority for this finding.[67] It may be that the system which is employed by the Commissioner to administer the land tax laws can be improved for example, it may be able to be more effective in identifying situations earlier where taxpayers or professionals engaged by landowners overlook land tax requirements. Despite this, it remains the responsibility of the taxpayer to make sure that the professionals they engage are discharging their obligations properly, and landowners are at liberty to take action against professionals who fail in their duties.
3. The Tribunal finds that the applicants have no reasonable excuse. In the Hay case the applicant was found to have a reasonable excuse and obtained a reduction in the penalty tax, due to the combined effect of his personal circumstances which differed markedly from the applicant here. In the Hay case the applicant's circumstances included:

...the severe mental illness of a relative for whom he cared, the ill-health and medical emergencies of another relative for whom he also cared, his family and work responsibilities, and the impact on him of each of these circumstances and the totality of these circumstances.[68]

Unlike in the Hay case where the Tribunal found that the taxpayer had a reasonable excuse, in this case the applicant taxpayers confirmed in oral evidence that they had no circumstances that reduced their capacity to manage their affairs.

1. In regard to the respondent's submission to raise the penalty tax to 75%, the Tribunal notes that it appears that it has no power to increase the penalty to 75% for the reasons set out in paragraph 20 above. The Tribunal does not need to make a finding in respect of the latter issue, since the Tribunal finds that there is no intentional disregard for a tax law by the applicants in this case.
2. Both Mr Butt and Ms Carey explained any inconsistencies in their evidence (refer to paragraphs 26, 27 and 37 above), and the Tribunal accepts that they are truthful witnesses. The Tribunal notes that the Commissioner in its assessment, which was also confirmed in the reviewable decision, did not find a basis for intentional disregard by the applicants of a tax law. Demonstrating an intentional disregard by the taxpayer of a tax law requires more than unsatisfactory compliance.[69] This case can be distinguished from the circumstances and evidence in the Jokhan case, where the Tribunal found that the taxpayers had not 'adequately explained' failures to act and there was other evidence to support a finding of intentional disregard.[70] Similar to the Tribunal's finding in regard to one witness, McNeice, in the Touma case, I find that both the applicants in this case have 'positively satisfied' me that they did not have an intentional disregard of a taxation law.[71]
3. The Tribunal accepts the Commissioner's contention that in this case there was not full disclosure by the applicants prior to the investigation, and any reductions in penalty tax under sections 32 and 33 of the TAA are therefore not applicable.
4. In regard to interest, the Tribunal finds that decisions to impose interest and not to remit it are not reviewable by the Tribunal due to a lack of jurisdiction.
5. When considering whether the remission of penalty tax is fair and reasonable[72] previous cases must be considered. Fairness and reasonableness requires some level of consistency in decision making, although it does not extend so far as to bind future decision makers.
6. The applicants in the Steele case were granted a remission. It is difficult to distinguish the circumstances in Steele from the present applicants - all of them were ignorant of the land tax liabilities for the property, had employed agents upon whom they relied to manage their properties, and acted honestly and without intent to deceive. An additional significant factor in this case is that the Commissioner received an email from one of the applicants before any investigation began, albeit an email that was incomplete in its disclosure and only mentioned a date being when the property was most recently rented to a group of students. Nonetheless it was this email from Ms Carey that first alerted the Commissioner to possible unpaid land tax for the property. An additional factor in favour of a remission for the applicants is that one of the applicants held genuine but unfortunately incorrect views about land tax laws, which he had arrived at due to his professional experience with the construction industry.
7. The Tribunal finds that given the circumstances of the case and the Steele case, it would not be unfair or unreasonable to allow the present applicant a remission. Both the Theron[73] and Scott[74] cases can be distinguished from the circumstances here; in the latter two cases the applicants' reasons for non-compliance were largely about the busyness of their lives. Whereas in this case there are exceptional circumstances including the misunderstanding held by one applicant about the land tax liabilities for land being developed and the incomplete disclosure prior to the investigation by the other applicant. The Jokhan[75] case is distinguishable because it is a case where intentional disregard by the taxpayer was found to be proved, which is not the case here.
8. The Tribunal accepts that it would be unfair if the taxpayers in this case had a full remission since this would mean they gained the benefit of the money for the period for which it was unpaid and subsequently paid no penalty tax. Even a 50% remission would be excessive, as that would put them in the position of someone with a reasonable excuse, which the Tribunal has found not to be the case here. Therefore, the Tribunal remits 40% of the penalty tax imposed. To remove doubt, the result of the Tribunal's finding is that a penalty tax will be imposed at 30% (instead of 50%) of land tax payable for the relevant period.
9. The Tribunal has considered the issue of deterrence and balanced this with the requirement to determine the correct or preferable decision. In this case, even with a remission of penalty tax, some penalty tax is payable for the relevant period of unpaid land tax. Further, the interest imposed on the applicant is a deterrent to non-compliance.

1. The Tribunal finds that:
   • (a) land tax was correctly assessed and the fact that tenants of the property did not have access to part of the land since it was being developed is not relevant to the calculation of land tax in this case;
   • (b) the liability for interest and penalty tax falls on the owner even though they engaged professionals, and any duty or liability of a professional person engaged by the taxpayer does not necessarily relieve the taxpayer of their duty or liability regarding land tax;
   • (c) the applicants did not take reasonable care and do not have a reasonable excuse;
   • (d) there was incomplete voluntary disclosure by the applicants prior to the investigation, the Commissioner is not required to give the taxpayer notice of any investigation and sections 32 and 33 TAA do not apply in this case;
   • (e) the circumstances that resulted in the liability for penalty tax were exceptional and it would not be unfair or unreasonable to allow the present applicants a remission, particularly considering the email from one of the applicants which first alerted the Commissioner to possible unpaid land tax for the property, and also that the other applicant held a genuine but incorrect view about land tax laws which he had arrived at due to his professional experience with the construction industry
   • (f) a decision about interest and any remittal are not reviewable by the Tribunal due to a lack of jurisdiction.
2. The Tribunal orders as follows:
   • (1) The decision of 1 June 2015 not to remit penalty tax is set aside

(2) A decision remitting 40% of the penalty tax is substituted.

(3) To remove doubt, the result of Order 2 is that penalty tax will be imposed at 30% (instead of 50%) of land tax payable for the relevant period.

(4) In so far as the application seeks review of interest on land tax payable for the relevant period, it is dismissed for want of jurisdiction.

[2] Respondent's statement of facts and contentions, dated 2 October 2015, page 2

[3] Respondent's Land Tax Investigation Report, dated 16 January 2015, T-75

[4] Section 31(2) of the Taxation Administration Act 1999

[5] Notice of Assessment, dated 16 January 2015, T-78

[6] Reasons statement, dated 1 June 2015, page 8, T-41

[7] Email from Russell Stroud, ACT Revenue, dated 1 June 2015, T-96

[8] Respondent's statement of facts and contentions, dated 2 October 2015, page 6

[11] Sections 31(3), 31(6) and 37 of the TAA

[15] Wade & Tan v Commissioner for ACT Revenue (Administrative Review) [2014] ACAT 79 at [72]

[17] Wade & Tan v Commissioner for ACT Revenue (Administrative Review) [2014] ACAT 79

[30] Section 19A of the LTA and section 26 of the TAA

[35] Rawson Finances Pty Ltd v Commissioner of Taxation (2013) FCAFC 26; Touma v Chief Commissioner of State Revenue [2012] NSWADT 2

[36] Touma v Chief Commissioner of State Revenue (NSW) [2012] NSWADT 2 at [54]

[38] Section 68 of the ACT Civil and Administrative Tribunal Act 2008

[40] Scott and Anor v Commissioner of ACT Revenue [2013] ACAT 73, [11]; section 38 of the LTA and section 107A and schedule 1, item 1.2 of the TAA

[41] Letter to Mr Butt from ACT Planning and Land Authority, dated 22 June 2005, attachment 1 to applicants' statement of facts and contentions, dated 9 October 2015

[42] ACTmap Aerial view of the property, attachment E to applicants' statement of facts and contentions, dated 16 September 2015; oral evidence of Mr Butt, 23 October 2015

[47] Invoice from Deloitte Private for professional services for the year 2013, attachment 2 to applicants' statement of facts and contentions, dated 9 October 2015

[50] Certificate of Occupancy and Use, attachment 3 to the respondent's statement of facts and contentions, dated 2 October 2015

[52] Respondent's statement of facts and contentions, dated 2 October 2012, page 8

[53] Scott and Anor v Commissioner of ACT Revenue (Administrative Review) [2013] ACAT 73 at [11]

[54] Certificate issued pursuant to section 136 of the TAA, attachment 6 to respondent's statement of facts and contentions, dated 2 October 2015

[55] Steele v Commissioner for ACT Revenue (Administrative Review) [2010] ACAT 15, Theron v Commissioner for ACT Revenue [2013] ACAT 33 and Jokhan and Jokhan v Commissioner for ACT Revenue [2012] ACAT 15 cited in reasons statement, dated 1 June 2015, page 7, T-41

[56] Respondent's statement of facts and contentions, dated 2 October 2012, page 7

[57] Touma v Chief Commissioner of State Revenue [2012] NSWADT 2

[58] Respondent's statement of facts and contentions, dated 2 October 2012, page 10

[59] Respondent's statement of facts and contentions, dated 2 October 2012, page 6, citing Commissioner for ACT Revenue v Dataflex Pty Ltd and ACT Civil and Administrative Tribunal [2011] ACTCA 14

[60] Respondent's statement of facts and contentions, dated 2 October 2012, page 6

[61] Respondent's statement of facts and contentions, dated 2 October 2012, page 6

[62] Scott and Anor v Commissioner of ACT Revenue (Administrative Review) [2013] ACAT 73 at [11]; section 38 of the LTA and section 107A and schedule 1, item 1.2 of the TAA

[63] Theron v Commissioner for ACT Revenue [2013] ACAT 33

[64] Steele v Commissioner for ACT Revenue (Administrative Review) [2010] ACAT 15

[65] Photo Corporation of Australia Pty Ltd v Commissioner for ACT Revenue [1994] ACTAAT 91

[66] Belconnen Premier Inn Pty Ltd v Commissioner for ACT Revenue (Administrative Review) [2014] ACAT 68

[67] Wade & Tan v Commissioner for ACT Revenue (Administrative Review) [2014] ACAT 79

[68] Hay v Commissioner for ACT Revenue (Administrative Review) [2014] ACAT 23 [33]

[69] Highrise Concrete Contractors (Aust) Pty Ltd v Commissioner for ACT Revenue (Administrative Review) [2015] ACAT 3 at [61] citing HJA Holdings Pty Ltd & Ors v ACT Revenue Office [2014] ACAT 24

[70] Jokhan and Jokhan v Commissioner for ACT Revenue [2012] ACAT 15 at [33]

[71] Touma v Chief Commissioner of State Revenue (NSW) [2012] NSWADT 2 at [54], [55] and [56]

[73] Theron v Commissioner for ACT Revenue [2013] ACAT 33

[74] Scott and Anor v Commissioner of ACT Revenue (Administrative Review) [2013] ACAT 73

[75] Jokhan and Jokhan v Commissioner for ACT Revenue [2012] ACAT 15