Legislation cited: Land Tax Act 2004 ss 7, 8, 9, 81

Cases cited: John Mastoris v the Commissioner for ACT Revenue [2010] ACAT 75

COMMISSIONER FOR ACT REVENUE

1. The decision under review is otherwise confirmed

COMMISSIONER FOR ACT REVENUE

1. The order of 8 November 2016 in this matter is amended pursuant to section 56(c)(iii) of the ACT Civil and Administrative Act 2008 by deleting order 1 and substituting the following:

"1. The decision of the respondent of 5 July 2016 is varied by allowing the objection of the applicant in respect of the period for quarter 1 of 2012-2013, with the effect that land tax is not payable for this period.

2. The decision under review is otherwise confirmed."

1. This is matter AT42 of 2016. It's an application brought by Peter Johnson and Susan Davenport, against the Commissioner for ACT Revenue. It's an application for review of a decision. The decision itself relates to an assessment of land tax under the Land Tax Act 2004, penalty tax under the Taxation Administration Act and interest under the Land Tax Act. The decision to refuse to remit interest, pursuant to section 36(1) of the Land Tax Act, is not a decision reviewable by this tribunal.
2. The application was filed on 27 July 2016 and refers to a reviewable decision of 19 April 2016. The application for review has a couple of annexures: one of them a statement of the reasons for applying for review, and the other one a statement of facts of the applicant with annexures. In the reasons for applying for review the applicants say:

The intent of the legislation is to impose land tax only if there was a profit made on the property, by way of rent, after the outgoing of rates, land tax, insurance and maintenance are deducted. This can be concluded from the fact that the exemption in section 8, subsection (1) of the Land Tax Act includes such disparate but basic expenses in relation to the property. It is clear that the intention is to levy land tax on profitmaking rental agreements, but not on those occupation agreements which make a loss.

In the present case, it transpires that with the imposition of land tax in 2016 the amounts paid by the occupants during the relevant period were insufficient to generate a profit, as we can see with the benefit of hindsight. Therefore, the exemption in section 8, subsection (1) applies and no land tax is payable in respect of the relevant period.

1. The other annexure sets out a very brief history of the occupation of the property, by two people: husband and wife, John White and Ruth Fleming- her statement, which is filed in the proceedings gives her name as Ruth Anne White. The relevant period is referred to in the notice of assessment as being split into two parts: from March 2009 to August 2011, when an occupation fee of $600 per month was paid by the occupants, and then another period from August 2011 to August 2012, at the rate of $820 per month.
2. The statement of facts also sets out a table, which shows a calculation of general loss, as it were, on the occupation of the premises, if the notional land tax is taken into account for the periods back in 2010, 11 and 12. It's clear that the applicants weren't aware of an obligation to pay land tax at the time of the occupation by Mr and Mrs White. Section 8, subsection (1) is relied on heavily by the applicants, and it is short - and it appears in part 2 of the Act, and is headed: 'When is something rented for Part 2'. The subsection actually deals with when something is taken not to be rented rather than when it actually is rented. But leaving aside that curiosity I'll read the subsection:

For this part, a parcel of land or dwelling is not taken to be rented only because a tenant is liable to pay for rates, land tax, repairs, maintenance or insurance in relation to the parcel or dwelling.

1. The use of the words 'is liable' - or 'is liable to pay' is a theme that I'll return to in the course of these reasons for decision. The applicants, I think it's fair to say, refined their argument, somewhat, and submitted a statement of facts and contentions to the tribunal, which was dated 14 September 2016. And the theme is similar, but they dwell on - and I'm referring to paragraphs 17 through to 22, inclusive, of the statement of facts and contentions. At paragraph 19 they return to the theme of 'liable', for the purposes of section 8, subsection (1). They say:

However, if land tax is payable in respect of the relevant period it follows that the occupants were liable to pay that land tax as their payments to the applicants were intended by all parties to the arrangement to be credited against all outgoings related to the property.

Therefore, it is submitted that the exemption in subsection (1) of section 8 applies and the property was not 'rented.'

1. The evidence at the hearing consisted of the T documents, a bundle of financial documents, two statements, one by the applicant Peter Johnson and also a statement by the occupant Ruth White. They were both required for crossexamination and gave oral evidence. There was a statement - or a table of calculations included in the evidence. Ms White, in her statement, referred to the period of their occupation, and said:

At the time we understood the payments would be used to cover ongoing costs related to the property. I did not know about land tax at that time and am still not clear what it is. I did not regard our arrangement with Peter and Sue as a rental arrangement, and our payments were well below what we would have had to pay as rent. Peter and Sue were very generous to allow us to live in the house for such a nominal amount.

1. It was evident from all the evidence that the parties - the occupants and the owners were friends and had a congenial and friendly relationship. I might even add 'easy going' to that description of the relationship. She amplified the evidence in her statement orally in her evidence at the hearing, and spoke of a loose arrangement with the applicants, regarding maintenance and some renovations that was carried out. That was that, generally, materials would be supplied by the applicants, and she and her partner would provide labour and undertake the work. She said that she did not directly pay rates, and they were not expected to repair some items - which I took to be major items of maintenance, such as storm damage repair.
2. The applicant also filed a statement - and he, at paragraph 4 of that statement, referred to the arrangements - or, perhaps, lack of them with the occupants. He says, in paragraph 4:

Our agreement with the occupants was oral, and Sue and I did not turn our minds to the question of whether we were creating a legal relationship with the occupants, but we certainly did not positively intend to create a legally enforceable relationship. The arrangement was informal, and a friendly arrangement only. The amount charged was intended to cover the costs of the property, including rates, insurance and maintenance, during the period that our friends stayed there.

At the time, Sue and I did not know that land tax was payable in the ACT. If Sue and I had known that land tax was payable in the ACT we would certainly have applied the payments from the occupants towards paying the land tax, along with the other outgoings.

1. He dilated on that evidence in the course of his oral evidence. Again, that statement contains a table, showing the allocation of the occupation fee that was paid if land tax were to have been paid at the time of the occupation. The T documents also contain a letter of 30 March 2016 - which was written by the applicants, to the Commissioner. That letter gives some insight into an earlier occupation, by friends of the applicants, prior to the subject period. The third and fourth paragraphs state:

We lived continuously in the property, as our principal residence, from the time of our purchase until March 2003. At that time, we left Canberra, temporarily, to work with Aboriginal communities in the western desert in Western Australia for three years. We believed that we would return after that time, but gradually developed responsibilities in the desert and continued to prolong our time away. Until 2012, we always assumed that we would return to live in the property. We have remained registered proprietors of the property, although we are now in the process of selling it.

When we left the property in March 2003 we allowed our friend Louise to live in the property rent free. This situation lasted until February 2009. She paid for insurance for the contents of the property, but did not pay us any amount to live there. She also had the use of our car. There was no written agreement. In early 2009 she moved to a property that she had purchased.

1. Mr Johnson said, in his oral evidence, that during the period of the occupation by Louise - that they were "haemorrhaging money." And I understood from his evidence the 'haemorrhaging' was in respect of the costs of maintenance of the house, including rates and water and other statutory charges. I also conclude from his oral evidence, and the evidence that I've just read from the letter, that the applicants did not want to continue to, as he said, 'haemorrhage money' after the subject occupants moved into the premises.
2. During the relevant period the applicants' friends John and Ruth White were in occupation and were paying a monthly sum of money in respect of their occupation - and I accept that that amount was not commercial rent -and was under - or even well under what could be regarded as a commercial rent for the premises. The applicants have submitted a calculation, which includes the amount of land tax now levied during that period. At that time there had been no assessment and there was no established liability for land tax. There was no liability for payment of land tax in the occupants for the purposes of section 81 of the Act.
3. The owners did not even know of their obligations under the Land Tax Act at the time - and in making that finding I am referring to the legal situation that existed from a practical point of view. A direct liability had not arisen, by way of an assessment having been made by the Commissioner - which, in my view, makes their argument based on the table a very circular one. I've already referred to section 8, subsection (1) referring to a 'liability', and that liability is liability of a tenant. A tenant doesn't assume legally, any obligation to the Commissioner.
4. What is, therefore, the meaning of 'liability' in subsection 8? In my view, within its context, it is not necessarily a legal liability. For the purposes of this case I take it to mean an agreed or assumed responsibility for payment of the items of the type listed in the subsection. As I've said, the applicants were not aware of their potential liability for land tax - and there was not any obligation of any kind, voluntary or otherwise, for the occupants to pay land tax, or an amount equivalent to land tax, at the time of their occupation.
5. The applicants refer to evidence that there was no intention on their part to establish a legal relationship with the occupants. They rely on the case of John Mastoris v the Commissioner for ACT Revenue [2010] ACAT 75. It was a case in which Senior Member Hatch said the following in conclusion at paragraph 29 of the decision:

In this matter I find that there was no tenancy agreement or rental payable in the terms of the Land Tax Act 2004. The circumstances in which Mr and Mrs Zervos lived on the property was not an arrangement whereby the property is subject to land tax, and accordingly I set aside the decision under review.

1. In my view, the substance of the Senior Member's decision is a finding that there was neither rent payable, nor a tenancy agreement, rather than that there was no legal relationship between the owners and the occupiers. The circumstance that there was no legal relationship accompanied his finding that there was no tenancy agreement or rent payable. It's appropriate to mention section 9 of the Act, which is the section which actually imposes the tax. Subsection (1) says:

Land tax at the appropriate rate is imposed for a quarter on each parcel of rateable land that is rented residential land.

Valuable consideration for which a tenant is liable under a tenancy agreement, in relation to the tenancy or a period of the tenancy.

1. Section 7 also defines 'tenancy agreement' as::

Tenancy agreement means an agreement under which a person grants to someone else for value a right of occupation of a parcel of land for use as a residence.

1. And then goes on to refer to some indicators. The effect of Senior Member Hatch's decision was that the relationship that existed in the facts of the case before him were not caught by section 9 of the Act. In my view, there are a number of circumstances that the transaction, in this particular case that I'm dealing with is caught by the provisions of section 9.
2. The applicants were aware that they were receiving income that, at least for tax purposes, should be regarded as rent for the occupation by the occupants. They declared this income to the Australian Tax Office.
3. The money that was paid in respect of the occupation by Mr and Ms White, was calculated not by any reference to maintenance costs, rates, et cetera. It was a sum that the occupants chose, which was some sort of compromise between what they thought was a fair thing in the circumstances for their occupation; and what they felt that they could afford to pay from their income. That, as such, comes from the evidence of Ms White. Confirmation of that view comes from the change in the amount paid that was brought about when their financial situation improved, and they, spontaneously, increased their payments because they were able to do so.
4. So that the occupation fee was not calculated by reference to the maintenance costs, the rates and other charges that may have cause a haemorrhage in the applicant's financial situation, but was simply something that was paid by the occupants - and was, if not largely, totally, a matter for their determination. The male applicant, Mr Johnson, did not give any evidence about discussion that he had with the occupants concerning fixing of a suitable occupation fee. He did give evidence of a joint intention, as far as he and the other owner was concerned, to try and cover the costs, but his evidence didn't extend into any particular calculation of how that could possibly have occurred - and, in any event, he did not contradict the evidence of Ms White, that is was the occupants who suggested the amount of the occupation fee.
5. This is not a case of form dominating substance in my view. The transaction is clearly caught by section 9(1), and the payments made were rent - and, in my further view, section 8(1) has no ameliorating affect. The parties have agreed that the period of assessment of land tax should not include Quarter 1 of 2012-2013. Subject to that adjustment, in my view, the decision, the subject of review, is the correct and preferable decision and should be confirmed.
6. The Orders of the Tribunal therefore are:
   1. The decision of the respondent of 5 July 2016 is varied by allowing the objection of the applicant in respect of the period for quarter 1 of 2012-2013, with the effect that land tax is not payable for this period.

2. The decision under review is otherwise confirmed