Phan v Chief Commissioner of State Revenue [2025] NSWCATAD 193;

1. To understand the factual background, as set out below, it is convenient to explain the law as it relates to SPD liability.
2. SPD is chargeable on a transfer, or an agreement for sale or transfer, of residential-related property to a foreign person: Duties Act, s 104L.
3. By s 104J of the Duties Act, a foreign person is a person who is a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the Commonwealth Act).
4. In the Commonwealth Act, s 4, a foreign person is an individual who is not ordinarily resident in Australia.
5. As far as relevant to this case, the Commonwealth Act, s 5, provides that an individual who is not an Australian citizen is ordinarily resident in Australia at a particular time if and only if:

(a) the individual has actually been in Australia during 200 or more days in the period of 12 months immediately preceding that time; and

(b) the individual's continued presence in Australia was not subject to any limitation as to time imposed by law.

1. Ms Phan is a citizen of Vietnam, who at the time of entering into the contract to purchase the apartment was in Australia on a Student visa (subclass 500), which was to expire on 15 March 2023. She acknowledges that, as the holder of a temporary visa at the relevant time, she did not satisfy paragraph (b) in [12] above, and as a result she was not 'ordinarily resident' in Australia, thus making her a 'foreign person' liable to SPD.
2. Nevertheless, and despite Ms Phan's characterisation as a 'foreign person', she would be exempt from SPD if she were an exempt permanent resident: Duties Act, s 104ZKA. To be an exempt permanent resident:

(a) she would have to have been a permanent resident when the liability for duty arose; and

(b) she would have to have satisfied the residence requirement - by intending to use and occupy, and then actually using and occupying, the apartment as her principal place of residence for a continuous period of at least 200 days within the first 12 months after entering into the contract.

1. Whatever her intention at the time of purchase, and no matter whether Ms Phan did ultimately satisfy the residence requirement, she could not have been an exempt permanent resident because she held a temporary visa at the relevant time. The consequence is that Ms Phan was liable to pay SPD on the agreement to purchase the apartment, and the exemption did not apply.

1. On 9 August 2022 Ms Phan's solicitors wrote to her about the proposed terms of the contract to purchase the apartment. In the letter they said:

Because you are a foreign purchaser, you will be required to pay a surcharge which will increase the total sum payable to Revenue NSW. We have used Revenue NSW's online calculator which has estimated that the total sum owed would be $159,720.00.

1. The total sum of $159,720.00 comprised $55,720.00 in 'standard' transfer duty and SPD of $104,000.00.
2. On 29 August 2022 Ms Phan entered into the contract to purchase the apartment. On the following day Ms Phan's solicitors wrote to her again, informing her that she would have to pay transfer duty totalling $159,720.00. That advice was correct. Significantly, Ms Phan should by that time have been expecting to have a liability of $159,720.00, in accordance with the advice her solicitors had now given her on two separate occasions.
3. On 5 September 2022 Ms Phan completed a Purchaser Declaration in respect of the transaction. At item 2.1 of the Declaration Ms Phan declared she was a foreign person, which was correct. At item 2.2 of the Declaration she was asked:

Is the purchaser/transferee an exempt permanent resident who will occupy the property as their principal place of residence for a continuous period of 200 days within the first 12 months after the liability date (date of agreement)?

1. She answered 'Yes' - which was incorrect, since she was not an exempt permanent resident (see [14]-[15] above). Even if she ultimately satisfied the residence requirement, the only correct answer to this question was 'No'.
2. Ms Phan's solicitors engaged a stamping agent, R & I Inhouse Stamping, to process the transaction under the EDR system. The solicitors forwarded Ms Phan's Purchaser Declaration, along with other documents, to R & I, and received in return a notification that the amount of duty payable was $55,720.00 - an amount that did not include the SPD of $104,000.00.
3. The solicitors immediately queried the duty calculation, noting that Ms Phan 'is a foreign national'. They received a reply saying that 'all the details provided on the purchaser declaration form in relation to country of citizenship' had been input to the EDR system and that the 'foreign person' label had been clicked 'yes'. The matter wasn't queried any further after that, and Ms Phan paid the calculated amount of $55,720.00.
4. It is difficult to reconcile R & I's response to the solicitors' query with the documents provided to the Tribunal for this review. At pages 119 and following of the Tribunal Hearing Book (THB) are various excerpts from the Commissioner's Modified Advanced Recoups System (MARS), and which should accurately reflect the information input by R & I - which, in turn, should be consistent with the information provided by Ms Phan in her Purchaser Declaration. But whereas Ms Phan declared she was a foreign person, MARS (THB 120) shows 'Total foreign interest 0%' instead of 100%. It is not clear from the evidence how that discrepancy arose. Also, while Ms Phan claimed in her Purchaser Declaration that she was a relevant exempt permanent resident (which, if correct, would have led to her being exempt from SPD), MARS at THB 120 contains the answer 'No' to the question 'Are you applying for a surcharge duty exemption?'.
5. It is also difficult to understand why the solicitors didn't look more deeply into the discrepancy between the position they had reached on researching Ms Phan's circumstances, and the position reached by R & I upon entering the information into MARS. No-one seems to have stopped to think through the possibilities:

(1) 'Did we get our advice wrong? Maybe we need to undertake further research and training on the surcharge legislation', or alternatively

(2) 'We know our advice was correct. This is the wrong outcome. We need to fix this'.

1. At that point it might have been discovered (as it should have been discovered earlier) that Ms Phan had provided incorrect information in her Purchaser Declaration. It might also have been discovered that R & I had input incorrect information to MARS (noting that R & I's errors were different from those of Ms Phan). With neither of those discoveries made, SPD amounting to $104,000 that should have been paid in 2022, wasn't.
2. Errors like that don't go undetected forever. In June 2024, the Commissioner issued a Notice of Investigation to Ms Phan in respect of a potential SPD liability. Ms Phan provided all requested documents and information in response to the notice. The Commissioner concluded, correctly, that Ms Phan had been a temporary resident at the relevant time, and that she was liable to pay SPD on the purchase of the apartment. A notice of assessment was issued, including interest and penalty tax as previously mentioned. These are the components of the assessment Ms Phan would like to see removed or reduced.

Relevant legislation - interest and penalty tax

1. A failure by a taxpayer to pay, in accordance with a taxation law, the whole or part of tax that the taxpayer is liable to pay is called a tax default: TA Act, s 3(1).

1. If a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid, calculated on a daily basis: TA Act, s 21(1).
2. The interest rate is the sum of the market rate component, and the premium component: TA Act, s 22(1).
3. In Ms Phan's case, interest totalling $20,432.12 was imposed but it has continued to accrue since the initial assessment.

1. Section 25 of the TA Act provides for the remission of interest.
2. Up until 31 January 2024, s 25 provided:

25 Remission of interest

The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount.

1. On 1 February 2024, the section was amended to provide as follows:

25 Remission of interest

(1) The Chief Commissioner may remit interest.

(2) The Chief Commissioner may issue guidelines setting out how interest must be remitted under this division.

(3) If guidelines are issued, interest must be remitted only in accordance with the guidelines.

(4) The imposition or remission of penalty tax is not relevant to the imposition or remission of interest.

1. At the time of the hearing, no guidelines had been issued under s 25(2).

1. In addition to interest, a penalty of 25% is imposed on a tax default: TA Act, ss 26 and 27. However, the Commissioner (or the Tribunal on review) may determine that no penalty is payable if satisfied the taxpayer took reasonable care, or the tax default was beyond the control of the taxpayer: TA Act, s 27(3).
2. The penalty that would ordinarily be imposed at 25% will be reduced to 20% if the taxpayer makes a disclosure during an investigation: TA Act, s 29(1).
3. In Ms Phan's case, penalty tax of $20,800.00 was imposed, calculated at the reduced rate of 20%.

1. Section 33 of the TA Act provides for the remission of penalty tax.
2. Up until 31 January 2024, s 33 provided:

33 Remission of penalty tax

The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount.

1. On 1 February 2024, the section was amended to provide as follows:

33 Remission of penalty tax

(1) The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount.

(2) The imposition or remission of interest is not relevant to the imposition or remission of penalty tax.

1. The case put on behalf of Ms Phan can be summarised as follows:

(1) She had always sought information relating to the SPD, and she took all reasonable steps to comply with her obligations. This indicates she took reasonable care.

(2) Ms Phan has paid all the tax she owes, she was fully co-operative with the Commissioner's investigation and there was no wilful default by her.

(3) Her incorrect answer at item 2.2 of the Purchaser Declaration was a 'clerical error'.

(4) By specifying in Part A of the Purchaser Declaration her visa number, subclass and expiry date, she effectively disclosed that she was not a permanent resident; that disclosure should have been enough to expose the error in her answer at item 2.2, making it impossible to process the transaction without the imposition of SPD.

(5) The tax default was contributed to by R & I, which, as an approved stamping agent, should be regarded as an agent of the Commissioner.

(6) R & I's incorrect calculation of the duty liability was completely out of Ms Phan's control.

1. The function of the market rate component is 'to compensate the Commissioner (on behalf of the Government of New South Wales) for not having the benefit of the tax payment from the time it was due' and for that reason it could 'rarely, if ever, be waived as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time': Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor (RD) [2004] NSWADTAP 19 at [60].
2. The use of the word 'rarely' leaves open the possibility of partial or full remission in appropriate (but probably only unusual or exceptional) circumstances. Such circumstances may include the Commissioner giving wrong advice to a taxpayer or in some other way contributing to the default. But circumstances like those, or others that may support remission of the market rate component, are not evident in this case.
3. Here, Ms Phan's solicitors advised her twice that she would be liable to the SPD. There is no adequate explanation of why they didn't then satisfy themselves that she was truly entitled to the apparent windfall she received when the R & I calculation of transfer duty came back with no amount payable as SPD. They queried the calculation at first, but the matter was taken no further when R & I responded, albeit apparently incorrectly, that they had accurately input the information provided in the Purchaser Declaration. The solicitors did not go back to check the answers in the Purchaser Declaration. Nor did they seek to establish how they had initially told their client - twice - that SPD was payable, when they were now being told it wasn't. The errors could have been identified by a careful review of the Purchaser Declaration, or by a detailed further discussion between the lawyers and R & I. Then there would have been no tax default in the first place.
4. For the avoidance of doubt, I reject the submission put on Ms Phan's behalf that R & I is or was an agent of the Commissioner. As a stamping agent authorised under s 37 of the TA Act, its authority extends to the lodgment of returns and calculation of tax on behalf of taxpayers, but when it calculates an amount of tax payable by a taxpayer it is not making an assessment: s 37(4). Not on any account could such an approval holder, when undertaking its role under s 37, be said to be acting as an agent of the Commissioner.
5. I am not satisfied the market rate component of interest should be remitted to any extent.

1. In Golden Age and Hannas the Rocks Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 249 at [102] Richmond J recognised that the premium component 'is penal in nature and serves the purpose of both imposing a penalty and deterring taxpayers from delaying payment of duty in what is essentially a self-assessment regime. Consequently, the culpability of the taxpayer in failing to pay the duty liability by the due date is an important matter in the exercise of the discretion.'
2. His Honour then referred to four criteria identified in Incise Technologies as relevant to the exercise of the discretion under s 25 of the TA Act:

(1) All principal tax that is owing and not in dispute has been fully paid;

(2) There has been cooperation by the taxpayer in providing relevant information to the Commissioner so as to enable him to issue assessments;

(3) Such cooperation has occurred prior to any investigation being commenced by the Commissioner or, at the very least, within a reasonable time after the request for information had been made by the Commissioner; and

(4) There has been no wilful default by the taxpayer in not paying tax on time.

1. It was noted in Incise Technologies that criterion (1) could be clarified to be 'all principal tax that has been assessed and is not in dispute has been fully paid at the time of the request for remission of interest' and that while the specified criteria were all relevant and appropriate matters for consideration, they were not exhaustive. The non-exhaustive nature of the criteria has been confirmed in Antegra Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 107 at [179] and Chief Commissioner of State Revenue v E Group Security Pty Ltd (No 2) [2022] NSWCA 259 at [105]- [106].
2. The part of Ms Phan's claim summarised at [41](2) of these reasons is evidently an attempt to indicate her satisfaction of the criteria in Incise Technologies.
3. The circumstances relevant to the consideration of those criteria are that Ms Phan was notified of the Commissioner's investigation by letter dated 26 June 2024 (THB 26). She was asked to address information held by the Commissioner indicating she had been a temporary resident of Australia at the time of the relevant transaction, and either:

(a) confirm that information; or

(b) if she thought the information was incorrect, provide specified documents, records and information by 17 July 2024 (that is, within 21 days).

1. On 12 July 2024 Ms Phan replied by email that the information was correct (THB 31). On 18 July 2024 one of the Commissioner's officers wrote to Ms Phan as follows (THB 34):

The next step would be to issue a Notice of Assessment. Please let me know if I can go ahead with the notice.

Please proceed ahead with the Notice of Assessment.

1. The Notice of Assessment issued on 25 July 2024 for a total amount of $145,142.12, with a payment due date of 15 August 2024 (THB 90). On 10 September 2024 a Re-issued Notice of Assessment (THB 100) was sent to Ms Pham, together with a Notice of Outstanding Debt (THB 102) in the amount of $42,100.03. By this date Ms Phan had paid the SPD of $104,000.00 (THB 134), and the only amounts then outstanding were the interest, which was continuing to accrue, and the penalty.
2. I have not identified the precise date on which Ms Phan paid the outstanding SPD. That it had been paid by the date of the Re-issued Notice of Assessment is clear from the papers before me. It may well have been paid by the due date of 15 August 2024 as shown on the Notice of Assessment, but I can't find that to have been the case. But I do find that Ms Phan paid the very significant amount of $104,000.00 within weeks of having been formally notified of her obligation to pay it.
3. Those circumstances lead me to a comfortable conclusion that the first three criteria in Incise Technologies have been satisfied. As far as the 'wilful default' criterion is concerned, the position is not so straightforward. This is because Ms Phan did not provide a witness statement in respect of her actions, or inaction, around the time when she made her Purchaser Declaration.
4. It has been submitted on her behalf that the incorrect answer at item 2.2 of the Declaration is the result of a 'clerical error', but that is hard to accept. What Ms Phan hasn't explained is what advice she asked for when she was completing the form; whether she read the explanatory notes accompanying the form; whether she understood the question but simply ticked the wrong box; whether she misunderstood the question; or whether there is some other explanation.
5. Nor has she explained what she did when she was notified SPD wasn't payable even though her solicitors had previously told her it was. It seems apt to describe her approach as lazy acceptance of a position that was favourable to her, indicating a lack of reasonable care. But was she wilful? In the absence of any evidence from her as to what she knew, what she thought, what she discussed, I can only speculate. I just don't know.
6. One of the more troubling aspects of this case is why the incorrect answer in the Purchaser Declaration wasn't picked up in the very beginning. It is not good enough for her representative to put to the Tribunal that the Declaration contained enough information in Part A for the Commissioner to be able to work out that Ms Phan wasn't an exempt permanent resident. First of all, the Declaration wasn't forwarded to the Commissioner anyway; it went to R & I to process the stamping. And second, the solicitors, who saw the Purchaser Declaration before it went to the stamping agent, were the ones who should have picked up the inconsistency and stopped the error in its tracks. Add to that the further error on the part of R & I and one can see the fault is shared by everyone involved.
7. At the very least, everyone involved failed to take reasonable care. Now, while that doesn't necessarily mean there should be no remission, it is important to note the statutory context in which the Tribunal is asked to consider whether to exercise the remission discretion. That context comprises:

(a) ADR Act s 63(1), which states the Tribunal's duty is 'to decide what the correct and preferable decision is having regard to the material then before it'; and

(b) TA Act s 100(3), under which the taxpayer has the onus of proving her case.

1. For an outcome favourable to Ms Phan, she must provide sufficient evidence to satisfy the Tribunal the 'correct and preferable decision' is to remit the premium component of interest in whole or in part. She has not done so. She has not explained the full circumstances behind the non-payment of SPD in 2022, and as a result I am not moved to alter the current assessment of interest.
2. I am not satisfied the premium component of interest should be remitted to any extent.

1. The first question is whether s 27(3) of the TA Act is attracted, so that no penalty tax is payable in the first place. This would require a finding that either:

(a) Ms Phan (or a person acting on her behalf) took reasonable care to comply with the taxation law; or

(b) the tax default occurred solely because of circumstances beyond her control or beyond the control of those acting on her behalf.

1. I have already found a lack of reasonable care, at least, on the part of everyone involved, and so paragraph (a) is not attracted. Nor is there any justification, on the evidence before the Tribunal, for a finding in accordance with paragraph (b). There are no circumstances leading to the occurrence of the tax default that were beyond the control of either Ms Phan or those acting on her behalf - her solicitors and the stamping agent.
2. That then brings me to the question of remission.
3. The Commissioner submits that while the power of remission under s 33 of the TA Act is broad and unfettered, it is to be exercised in a manner that is guided by the underlying purpose and policy of the TA Act and not in a way that defeats the fundamental legislative objectives of the scheme. I agree with that submission.
4. In Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd (2020) 103 NSWLR 772; [2020] NSWCA 126, Bathurst CJ stated:

[149] Having regard to the conclusion I have reached on the liability question it is strictly unnecessary to deal with these matters. However, it does not seem to me that the power in s 33 of the TAA to remit penalty tax 'in such circumstances as the Chief Commissioner considers appropriate' is limited either expressly or by necessary implication by the mandatory reductions required by ss 28 and 29. These mandatory reductions are a relevant matter for the Commissioner to take into account in considering whether to exercise the power to remit in s 33 but they do not limit that power.

[150] As the Chief Commissioner pointed out, in Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 657 Ward CJ in Eq stated at [301] that except in special circumstances, the general discretion under s 33 should not be exercised beyond the limits in ss 27(3) and 29 when the circumstances giving rise to a remission under s 27(3) of the TAA had not been made out. However that was a matter of discretion not power.

1. The 'mandatory reductions' under ss 28 and 29 of the TA Act, as referred to by the Chief Justice, are reductions for disclosures to the Commissioner before or during an investigation, respectively. While the power of remission is not limited by what is provided in ss 28 and 29 (Downer EDI, above), the expectation is that the power will be exercised only in 'special circumstances' (Bayton Cleaning, referred to in Downer EDI, above).
2. On the question of special circumstances, this case is not too different from others that have come before the Tribunal in the last few years. One possible differentiator is that the potential liability to SPD was identified at an early stage, whereas in many other cases people entered into transactions in absolute ignorance of the existence of the surcharge in the first place. But that actually makes this case less deserving of any penalty remission, because the issue was flagged, but then let go.
3. I haven't identified anything that would warrant remission of the penalty tax below the level at which it was assessed.

(1) The assessments of interest and penalty tax are confirmed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.