Dr Jarvis submitted that the remission of penalty tax or interest called for exceptional circumstances to be established otherwise the deterrence scheme in the LTA would be undermined. He referred to Riverland Retreat v Commissioner of State Revenue [2004] VCAT 1366 and American Express International v Commissioner of State Revenue [2003] VSC 32.

In relation to the rate of penalty tax under the TAA, Dr Jarvis argued that on the evidence before the Tribunal it should not be less than 50%. The Applicant was aware of his obligations to pay land tax. He was an experienced valuer and real estate agent of many years' standing, who had paid land tax on a commercial property and who had previously applied for an exemption from land tax on the property (T3-p50). Both before and after 1 July 2004, the Applicant had not taken reasonable care to fulfil his relevant tax obligations nor did the Applicant have any reasonable excuse.

Dr Jarvis also proposed that on the facts in this matter there was sufficient material for the Tribunal to conclude that the Applicant had intentionally disregarded a tax law in that he had not notified the Commissioner that the property was rented. He said penalty tax should be levied at the rate of 75%.

In dealing with the remission of penalty tax, Dr Jarvis contended that the Applicant had not provided any acceptable reasons for the failure to notify the Commissioner of the rental status of the properties, nor had he provided any other material as to why it would be fair and reasonable to remit the penalty.

Dr Jarvis argued that interest under section19 or section 19A of the LTA cannot be reviewed by the Tribunal because it is not prescribed by section 38 of the LTA nor is it otherwise reviewable pursuant to the provisions of section 107A or schedule 1.2 of the TAA. He said the Commissioner accepted that interest would only be payable if the assessed sum was not paid by the date fixed for payment in the assessment. Mr Hanley had paid the land tax and penalty tax by the due date and hence no interest was payable on any of the assessed amounts.

1. The Commissioner assessed land tax on the property from Q2 of 2002/2003 to Q2 of 2003/2004 inclusive. Mr Hanley conceded that the property was rented for Q2 of 2002/2003 but said the tenants left before Christmas 2002. A rental bond form was signed by Nichols on 20 August 2002 and electricity was connected in the tenant's name on 26 August 2002. This is confirmation that the property was rented in Q1 of 2002/2003.

2. Any further liability for land tax depends on when the tenancy ended. Mr Hanley first said it ended in December 2002. A neighbour Ms Judy McGregor wrote a letter on 8 November 2010 (T155) saying the tenancy was from September 2002 to September 2003. Mr Hanley said he provided these dates. In cross examination, he said the tenancy might have ended three to six months prior to September 2003. On 1 September 2003, he applied for and later obtained a return of the rental bond lodged in August 2002. In his evidence,

Mr Hanley admitted that following a car accident in 1994 his memory of dates, times and places was not good and a bit "grey". Mr Harris submitted that Mr Hanley "is easily flustered with regard to dates and they are confusing".

Mr Hanley said the tenants damaged the property and he made substantial repairs and renovations and attempted to sell the property by auction on 22 November 2003. He said he was suffering financially at this time. He provided no satisfactory explanation for his delay of nine months in seeking a return of the rental bond when he was short of money. Mr Hanley produced no receipts or other documentary evidence to support his position that from Christmas 2002 to September 2003 he was carrying out extensive repairs and renovations. He said all his records were lost when he moved from house to house or he had disposed of them because the Australian Taxation Office did not require them to be kept for more than seven years. Earlier in his dealings with the Commissioner Mr Hanley wrote in an email "I have not received income/rent or other services in lieu of money from any of the people you have listed as being tenants in my property"(T18). The tenants listed include Nichols who Mr Hanley now admits was a tenant in Q2 of 2002/2003. Based on all of the above evidence, the Tribunal does not accept Mr Hanley's version of the events.

3. On the evidence the Tribunal finds that the tenancy ended some time before 1 September 2003, but not a long time before that date, and that the property was rented in Q1 of 2003/2004. It follows that land tax is payable on the property from Q2 of 2002/2003 to Q2 of 2003/2004 inclusive.

1. The Commissioner assessed land tax on the property from Q3 of 2004/2005 to Q4 of 2006/2007 inclusive. Although the Applicant had earlier claimed not to have received income or rent from the tenants arranged by Havelock, he now concedes that the persons listed by the Commissioner in an email of 14 September 2010 (T18) were rent paying tenants. This concession is an acceptance that the Commissioner correctly assessed land rent on the property as set out above. The Applicant however continues to dispute the Commissioner's assessment of penalty tax and interest.

1. The Commissioner assessed land tax on the property from Q3 of 2009/2010 to Q1 of 2010 /2011 inclusive. He assessed that no land tax was payable for Q3 of 2009/2010 but under section 7(2) of the TAA this is an assessment of a tax liability and is part of the decision for which the Applicant has sought review.

2. Dr Pattison, one of the occupiers, gave evidence that her first payment was for the monthly period commencing on 1 December 2009. She said "rent" was paid up to the finalisation of the purchase of the property on 6 December 2010. The information from the Australian Taxation Office for the year ending 30 June 2010 (Exhibit R3), which is sourced from Mr Hanley's income tax returns, shows a rental period of 30 weeks which is consistent with payments starting on 1 December 2009. Mr Hanley was not sure when actual occupation commenced but thought it was after Christmas 2009. This statement may be correct but it would seem from the above that the right of occupation commenced on

The Applicant argued that the occupiers were not tenants and what was paid was a licence fee. The document signed by the parties is called a "property-caretakers licence agreement" although at page 56 of the Applicant's Facts and Contentions he describes it as a "legally binding deferred time sale agreement". There is some dispute as to when this document was signed. It is dated 19 October 2010 but some clauses suggest that perhaps the year is incorrect and it should be 2009. Dr Pattison thought it was signed in September 2010. She also said she did not arrive in the ACT until mid-January 2010. The Applicant in his evidence was not clear when the document was signed. Mr Harris argued that it was signed in 2009 and it was a contract for the sale of the property and that once the document was signed Dr Pattison and Mr Chew occupied not as tenants but as purchasers because of the application of section 6E(1)(a) of the RTA.

The Tribunal prefers the evidence of Dr Pattison that the document was correctly dated 19 October 2010. It does not consider the document to be a legally binding agreement for the sale of the property as the price is not fixed nor is there a mechanism for fixing the price other than the agreement of the parties. It follows that section 6E(1)(a) of the RTA does not apply.

The document does however contain the necessary elements to constitute a tenancy agreement namely the term, rent, parties, premises and a commencement date. It is irrelevant that the parties choose to call the document a "property-caretakers licence agreement". In the Tribunal's view this is a tenancy agreement as defined in the LTA and rent was paid by the tenants.

Mr Harris also argued that once the contract of sale of 21 October 2010 was signed the purchasers ceased to be tenants because of the application of section 6E(1)(a) of the RTA. Dr Jarvis said that this Act had no application to the meaning of "tenancy agreement" under the LTA. The Tribunal does not need to decide this matter as the Commissioner has not made an assessment for Q2 and Q3 of 2010/2011, but in any event the exact date is irrelevant for land tax purposes provided the property was rented in the quarter commencing 1 October 2010, which seems to be the case.

The Tribunal finds that the property was rented from 1 December 2009 to a date in Q2 of 2010/2011. This means that the Applicant is liable for land tax from and including Q3 of 2009/2010 to Q1 of 2010/2011. The Commissioner did not assess any land tax for Q2 and Q3 of 2010/2011 so these quarters are not before the Tribunal, but it would seem that the taxpayer would be liable for land tax because the property was rented from1 December 2009 to at least the 21 October 2010, the date of the contract of sale.

1. The Commissioner acknowledged that the basis for the calculation of the land tax differed between section 22A of the RLTA and section 59 of the LTA. He said that a corrected assessment would be required for those periods where the RLTA applied, that is, prior to 1 July 2004.

1. In the period before the LTA commenced on 1 July 2004, penalty tax under section 22EB of the RLTA was fixed at 200% of the land tax payable. There were no graduations of penalty tax as appear in sections 31-34 of the TAA. In section 22EC the RLTA did provide for the remission or refund of penalty tax if the Commissioner considered it fair and reasonable to do so.

2. The Commissioner conceded the rate of penalty tax for the period prior to 1 July 2004 under the RLTA was incorrectly assessed and a corrected assessment is required for the period prior to 1 July 2004.

3. Section 22EC allowed the remission of penalty tax under the RLTA but that section is now repealed. Any remission of penalty tax is now provided for in section 37 of the TAA which sets out a more restrictive regime. The criteria set out in section 37 require reasonable steps to be taken" to mitigate, or mitigate the effects of, the circumstances that resulted in the liability for penalty tax" or in the alternative that "the circumstances that resulted in the liability for penalty tax were exceptional". There is no evidence before the Tribunal that any steps to mitigate were taken or that the circumstances were in any way exceptional. However, in addition the Commissioner must be satisfied that it is fair and reasonable to remit the penalty tax. In light of the Tribunal's later finding, that the tax default was caused wholly or partly by Mr Hanley's intentional disregard of a tax law, the Tribunal finds it would not be fair and reasonable to remit all or part of the penalty tax.

1. The Tribunal notes the Commissioner acknowledged that under the RLTA there was no provision for the payment of interest. Dr Jarvis also indicated that the Commissioner did not consider that interest should be charged on land tax or penalty tax assessed under the RLTA and taken to be payable under the LTA by section 48 of the transitional provisions of the LTA.

Section 14 of the LTA requires the owner of land or an authorised agent to inform the Commissioner when residential land is rented and when the rental began. This must be done within thirty days of the start of the tenancy or the day ownership of the land changes. This strict obligation is placed on the owner because it is the owner who knows when the property is rented or when ownership changes. If the owner fails to do this, section 19A of the LTA treats that failure as a tax default for the purposes of penalty tax under Division 5.2 of the TAA.

Division 5.2 creates a penalty regime based on the degree of culpability of the taxpayer. If the taxpayer took reasonable care to comply with a tax law or the default occurred because of circumstances beyond the taxpayer's control, no penalty tax is payable under section 31(6) of the TAA. At the other end of the scale if the Commissioner informs a taxpayer that an investigation is to be carried out and the taxpayer, for example, destroys relevant records or obstructs an authorised officer the penalty rate under section 34 is 90% of the land tax.

In between these extremes, if a taxpayer fails to take reasonable care in carrying out tax obligations the penalty tax rate is set at 25% by section 31(1) of the TAA. The rate increases to 50% under section 31(2) if the Commissioner is satisfied there is no reasonable excuse for the failure. The rate reaches 75% under section 31(5) when the tax default was caused wholly or partly by the intentional disregard of a tax law by the taxpayer or a person acting for the taxpayer.

The imposition of the rates of 25% and 50% imports an objective element by the use of the terms "reasonable care" and "reasonable excuse". The question that needs to be answered is: what would a reasonable person do in the circumstances of the taxpayer? These issues, in the context of Commonwealth taxation law, were considered in Aurora v Commissioner of Taxation (No.2) [2011] FCA 1090 and Commissioner of Taxation v Traviati [2012] FCA 546.

Although penalty tax was imposed under the RLTA, remission is now dealt with under the TAA. Section 22EC of the RLTA gave a discretion to remit or refund the penalty tax if the Commissioner was satisfied it was "fair and reasonable" to do so. The extremely high fixed penalty of 200% was tempered by the broad discretion to remit or refund. With the repeal of the RLTA a more restrictive approach to remission was set out in section 37 of the TAA. However, the penalty tax rates in the TAA are set well below the 200% rate in the RLTA. Even if a taxpayer deliberately damages or destroys tax records required to be kept under a tax law, the highest penalty tax rate is 90%. The repeal of the RLTA and the transitional provisions of the LTA seem to have had an untended and unfortunate consequence for those taxpayers assessed after the repeal of the RLTA for periods before 1 July 2004.

In this matter, Mr Hanley was aware of his obligations to pay land tax and to inform the Commissioner when his property was rented. He was an experienced valuer and real estate agent of many years standing who had paid land tax on a commercial property and who had previously applied for an exemption from land tax on the property (T3-p50). He said in his evidence that he had been told by a Revenue Office staff member that he did not have to pay land tax on his own residence but conceded he may have asked the wrong question to elicit that answer. He also produced a letter addressed to him from Havelock (Exhibit A2), saying land tax was not payable on houses rented under the Social Landlords Program. However the letter was shown to be a forgery when the alleged writer Ms Bassett gave evidence that she was not employed by Havelock at the time and she did not write the letter. Mr Hanley denied he had forged the letter. He could not recall how it came into his possession.

Mr Hanley had his accountant, Mr Hanna, acting for him at the time but omitted to obtain advice from him about his tax obligations. He had earlier consulted Mr Hanna about paying a fee to his own company Location Real Estate in 2002. Mr Hanley claimed that Revenue Circular REV006 (Exhibit A7) supported his position that the property was not subject to land tax but the Tribunal cannot agree with Mr Hanley's view. On any reasonable interpretation of the circular he was liable for land tax on the property.

The Tribunal considers that both before and after 1 July 2004, the Applicant had not taken reasonable care to fulfil his relevant tax obligations nor did the Applicant have any reasonable excuse for not doing so. However the facts in this matter show that the Commissioner should have concluded that the Applicant had intentionally disregarded a tax law but the Commissioner did not do so. The Tribunal finds that the correct penalty tax rate is 75% because the tax default was caused wholly or partly by the Applicant's intentional disregard of a tax law.

Mr Hanley also sought remission of the penalty tax based on hardship grounds. These are his financial and health problems which he set out in his submissions to the Commissioner and the Tribunal. Although the Mr Hanley seems to have lost money in some of his business dealings and from his divorce, he is employed as a valuer with the Australian Taxation Office and in December 2010 sold the property for about $750,000. His health problems are real but from his medical reports they can be managed and he is being treated. The Tribunal does not consider that the grounds are sufficient to justify a remission of any penalty tax.

1. The Tribunal has considered the relevant provisions in the LTA and the TAA. It accepts Dr Jarvis' submission that neither the imposition of interest nor its remission can be subjected to review by the Tribunal.

2. If the Tribunal is wrong to conclude that it lacks jurisdiction to review interest then the Tribunal adopts the analysis of the interest provisions set out in paragraphs 24 to 30 inclusive of Trust Company of Australia Limited v Chief Commissioner of State Revenue [2002] NSWADT 21. The NSW provisions are essentially the same as those in sections 25 to 29 of the TAA. The evidence in this matter does not disclose any exceptional circumstances that would justify the remission of the market rate component of the interest.

3. In the Trust Company case the Chief Commissioner of State Revenue remitted the whole of the premium or penalty component of the interest because the taxpayer had initiated contact to clarify the tax liability. The Tribunal would not remit the penalty component in the circumstances of the present case where the tax default was caused wholly or partly by the intentional disregard by the applicant of a tax law.

1. As a final comment the Tribunal would like to commend the Commissioner's staff for the courtesy and politeness they showed in their dealings with Mr Hanley.

2. Having regard to the evidence and the submissions put to it the Tribunal has made the findings set out in below and will make orders pursuant to

section 68(3) of the ACT Civil and Administrative Tribunal Act 2008 setting aside the decisions of the Commissioner for ACT Revenue and remitting those decisions to him and directing him to reconsider those decisions in accordance with the findings of the Tribunal.

3. The Applicant is liable for land tax for the following periods:

1. from Q2 of 2002/2003 to Q2 of 2003/2004 inclusive; 2. from Q3 of 2004/2005 to Q4 of 2006/2007 inclusive; and

1. from Q3 of 2009/2010 to Q1 of 2010/2011 inclusive.

For the period prior to 1 July 2004, land tax and penalty tax is to be assessed under the RLTA and after that date under the LTA.

No interest is payable on land tax and penalty tax assessed under the RLTA.

Interest on penalty tax assessed under the LTA may only be imposed on amounts unpaid after the payment date in the assessment has passed.

The Tribunal lacks jurisdiction to review the decision of the Commissioner to impose interest on land tax and penalty tax under the LTA.

The tax default in the period after 1 July 2004 was caused wholly or partly by the Applicant's intentional disregard of a tax law and that penalty tax of 75% should be imposed by the Commissioner.

Following the repeal of section 22EC of the RLTA any remission or refund of penalty tax is governed by section 37 of the TAA.

The Applicant has failed to meet the eligibility criteria for the remission of penalty tax under section 37 of the LTA.

FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )