2 The assessment of the respondent in relation to interest is confirmed.

Tim Grace of counsel instructed by Messrs Robertson Hyatts

Ms M Hines of counsel instructed by the Commissioner

3 This matter involves a question of whether penalty tax and interest were correctly assessed in accordance with the provisions of the Taxation Administration Act 1977 ("the Act") and whether those impositions should be reduced or remitted.

On 26 June 2002 Edward Gray as vendor and Riverland Retreat Pty Ltd ("Riverland") and/or nominee as purchaser entered into a contract of sale for the purchase of a property at 1-10 Lord Street, Port Campbell. The purchase price was $3,147,800.00 and goods to the value of $252,000 were sold with the property.

On 3 October 2002 the vendor executed a transfer of land in favour of Riverland.

On 21 May 2003 solicitors acting for the purchaser lodged the transfer with the State Revenue Office ("SRO") for stamping together with supporting documentation and a covering letter setting out the reasons for late lodgement. The letter requested leniency in respect of penalty and interest payable having regard to the circumstances set out therein. The transfer should have been lodged no later than 3 January 2003.

On 13 June 2003 the SRO issued assessment A141112 to Riverland. The assessment was for a total of $199,796.74 made up of primary duty of $187,000.00 on the consideration of $3,400,000.00, penalty of $9,350.00 (5% flat) and interest of $3,446.74 (4.84% per annum).

5 On 26 June 2003 the solicitors lodged an objection to the assessment and the grounds (in general terms) are set out below.

(a) The late lodgement for stamping of the transfer occurred as a result of a clerical oversight within their office, it did not reflect on Riverland and was not due to any attempt to avoid the payment of duty.

(b) The transaction involved complex mortgage documentation and the security for the finance of the property included second mortgages and three different banks. The three banks had different procedures, constant changes of staff and contact details and a general lack of understanding of procedures in relation to second mortgages which made the process slow and cumbersome. In order to better manage the file, it was split in two and the transfer and other security documents were inadvertently placed in the wrong file. This meant the solicitors overlooked diarising the stamping of the documents and stamping was delayed as a result. The file was reviewed in May 2003 and the unstamped documents were discovered. The documents were immediately lodged at the SRO together with a cheque for payment of duty and an explanation for the delay.

(c) The circumstances surrounding the late lodgement were compounded by the difficulties with the banks but it was essentially an oversight by the firm of solicitors. It will not be possible to seek repayment from Riverland and in view of the isolated nature of the occurrence they seek review of the penalty and interest.

6 On 22 September 2003 the respondent disallowed the objection. It asserted that penalty and interest had been correctly assessed in accordance with the Act and Revenue Ruling TAA 006. Its reasons were -

SRO did not substantially contribute to the error by providing incorrect or misleading advice to a taxpayer who relied on that advice to determine a tax liability;

The taxpayer had not taken reasonable care in the conduct of its tax affairs;

The tax default had not arisen as a result of circumstances beyond the taxpayer's control; and

Appropriate remissions of interest and penalties had already been allowed.

7 Section 16 of the Duties Act 2000 (in broad terms) provides that duty must be paid within 3 months of the liability arising and section 11 of that Act provides that liability for duty arises when a dutiable transaction occurs. Section 7(1) and (2) of the Duties Act sets out the transactions considered to be dutiable.

8 Divisions 1 and 2 of Part 5 of the Act set up a complete framework in relation to penalties and interest.

9 Division 1 dealing with interest relevantly provides as follows:

24. Interest in respect of tax defaults

(1) If a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day for payment until the day it is paid at the interest rate from time to time applying under this Division.

(2) Interest is payable under sub-section (1) in respect of a tax default that consists of a failure to pay penalty tax under Division 2 but is not payable in respect of any failure to pay interest under this Division.

27. Interest rate to prevail over interest otherwise payable on a judgment debt

The Commissioner, in such circumstances as the Commissioner considers appropriate, may remit interest payable by a taxpayer under this Division by any amount.

10 Division 2 dealing with penalty tax relevantly provides -

29. Penalty tax in respect of certain tax defaults

(1) If a tax default occurs, the taxpayer is liable to pay penalty tax in

(2) Penalty tax imposed under this Division is in addition to interest.

(3) Penalty tax is not payable in respect of a tax default that consists of a failure to pay-

(b) penalty tax previously imposed under this Division.

(1) The amount of penalty tax payable in respect of a tax default is 25% of the amount of tax unpaid, subject to this Division.

(2) The Commissioner may increase the amount of penalty tax payable in respect of a tax default to 75% of the amount of tax unpaid if the Commissioner is satisfied that the tax default was caused wholly or partly by the intentional disregard by the taxpayer (or a person acting on behalf of the taxpayer) of a taxation law.

(3) The Commissioner may determine that no penalty tax is payable in respect of a tax default if the Commissioner is satisfied that-

(a) the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law; or

(b) the tax default occurred solely because of circumstances beyond the taxpayer's control (or, if a person acted on behalf of the taxpayer, because of circumstances beyond either the person's or the taxpayer's control) but not amounting to financial incapacity.

31**. Reduction in penalty tax for disclosure before or during investigation**

(1) The amount of penalty tax determined under section 30 is to be reduced by 80% if, before the Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out, the taxpayer discloses to the Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined.

(2) The amount of penalty tax determined under section 30 is to be reduced by 20% if, after the Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out and before it is completed, the taxpayer discloses to the Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined.

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

11 By way of completion, the table that is found in the legislation (noted in the headings to sections 30, 31 and 32) under the heading "Explanatory Details" is replicated below.

Concealment or Hindrance in Establishing Under Payment

Failure to take reasonable care but no intentional disregard of the law

12 The respondent has issued a number of revenue rulings and Ruling TAA.003 is designed to be read in conjunction with section 30 of the Act. Each ruling is to be read in conjunction with Revenue Ruling Gen.01. These rulings do not have the force of law but are an interpretive tool for the respondent's staff and the public.

13 Section 57 of the Victorian Civil and Administrative Tribunal Act 1998 ("the VCAT Act") makes provision for the application of statements of policy and provides the specific framework for application of policy by this Tribunal. The Revenue Rulings are not of the class of policy documents contemplated by the legislation. For policy documents to be applied, they must be certified by the relevant Minister and gazetted in the manner contemplated by that section.

14 The Act also provides that on a review or an appeal, the taxpayer has the onus of proving the taxpayer's case. (See s.110)

15 The Tribunal heard evidence from a principal of the applicant's firm of solicitors and a statement made by him was admitted into evidence. He set out a history of the events regarding this transaction, gave an overview of the complexity of the loan arrangements and explained how this unfortunate state of affairs came about. The failure to lodge a transfer within the required time limit is surely one of any solicitor's worst nightmares. In this case the principals of the firm knew nothing of the default until after the prescribed time had elapsed when the ubiquitous "law clerk who is no longer with us" apprised the principals of the position. I accept the evidence that this transaction was more complicated than most, that there were a number of banks involved, there was urgency attached to the transaction, that the law clerk dealing with the file was experienced and had been with the firm for a number of years, and that the failure to lodge on time did not arise because of conspicuous neglect or wilfulness. Mistakes happen and no amount of system, supervision or oversight will ensure that they do not happen. We are often reminded that "to err is human" and whilst I would not urge divinity on the respondent, it does have the power to make human error less painful.

16 The applicant did not adduce any detailed evidence in relation to whether or not reasonable care had been taken by his firm. Rather it set out a summary in general terms.

17 The respondent argues that the market rate component (imposed under s.25(1)(a))is intended to compensate the Commissioner for not having the benefit of the tax payment from the time it was due and is a component that could rarely, if ever, be waived. In its submission it contended that to justify any remission of the market rate of interest, it would be necessary to show that in some way the Commissioner contributed to the default. It cites Chief Commissioner of State Revenue v Incise Technologies & Anor Pty Ltd [2004] NSWAFTAP 19 as authority for this proposition. At paragraph 60 that Tribunal (O'Connor DCJ presiding) stated as follows:

60. In our view the primary interest rate (the market rate component) is intended 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. So a rate is set which fluctuates, and is connected to an external rate, the Reserve Bank's Accepted Bill rate. This as we see it, is a component that 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. The Tribunal made the observation at [50] that to justify any remission of the market rate component of interest, it would be necessary to show that in some way the Commissioner contributed to the default. We agree with this observation.

61. On the other hand, the premium rate is a form of penalty. Its purposes, as we see it, is to provide an additional economic deterrent against taxpayers failing to meet their obligations on the time..........The 'premium rate' is intended as we see it to operate as the key disincentive to delaying tax payments.

18 The observation with which the Tribunal agreed (in para 60) is to found at paragraph 50 of the tribunal member's decision at first instance. His observation was -

There are however no grounds to remit the interest imposed at the market rate. In Trust Company v Chief Commissioner of State Revenue [2002] NSWADT 21and Olah v Chief Commissioner of State Revenue [2002] NSWADT 22, I have stated that it is necessary to show that the tax default was contributed in some way for the Chief Commissioner to justify any remission of interest imposed at the market rate."

19 Respectfully I must disagree with both tribunals on part of their reasoning. I agree that it will be very difficult to imagine circumstances where it will be in order to remit the market rate of interest, but the discretion provided in section 28 is wide and unrestricted. It does not distinguish between market and premium rate and it provides no constraining directions. It does not suggest that a particular circumstances (such as fault by the Commissioner) will give rise to remission of either type of interest; on the contrary it is silent except for the ambit discretion reposed in s.28. Section 28 sits at the conclusion of Division 1 of Part 5 of the Act. Division 1 is a code within itself. Similarly Division 2 dealing with penalty is a code within itself albeit a more prescriptive code.

20 The point I seek to make is that it is not correct to say that the only ground for remission of market interest will be a mistake on the part of the Commissioner. It may well be that I have misinterpreted the New South Wales decisions as there are some subtle differences in the two states' legislation although I can see no relevant differences in relation to the remission of interest.

21 That said I turn to whether it is proper in the circumstances to consider any remission of the component of market interest charged by the respondent.

22 Counsel for the applicant referred me to the High Court decision of Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; [1985-1986] 162 CLR 24,39 per Mason J. After discussing the ramifications of a decision-maker failing to take into account a relevant consideration, his Honour went on to state -

(b) What factors a decision-maker is bound to consider in making the decision is determined by construction of the statute conferring this discretion. If the statute expressly states the considerations to be taken into account, it will often be necessary for the court to decide whether those enumerated factors are exhaustive or merely inclusive. If the relevant factor -and in this context I use this expression to refer to the factors which the decision-maker is bound to consider - are not expressly stated, they must be determined by implication from the subject matter, scope and purpose of the Act. In the context of judicial review on the ground of taking into account irrelevant considerations, this Court has held that, where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject-matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard. ......By analogy, where the ground of review is that a relevant consideration has not been taken into account and the discretion is unconfined by the terms of the statute, the court will not find that the decision-maker is bound to take a particular matter into account unless an implication that he is bound to do so is to be found in the subject-matter, scope and purpose of the Act.

I have found his Honour's statement helpful and instructive in this case.

23 Counsel for the applicant submitted that I should have regard to the fact that the funds set aside for payment of the duty were deposited in the solicitors' trust account and thus earned no interest during the period. Certainly this is a matter that might be taken into account had the funds been earning interest in the interim period but I am not persuaded that the absence of interest is of sufficient (if any) weight, given the subject matter, scope and purpose of the legislation, for it to be a reason for remission of market rate interest. The fact is the revenue, through no fault of its own, was deprived of the funds for a period which, had the applicant complied with the law, it would have received, and had the use of earlier. I infer from the absence of the imposition of any premium rate interest that the surrounding circumstances were the subject of consideration when the Commissioner levied his assessment. I see no basis for remitting the interest levied.

24 That takes me to the more substantial argument, that is, the argument in relation to penalty tax. The assessment issued by the respondent sets the penalty at $9,350.00; that is, 5% of the primary tax outstanding. It arrived at that figure by the machinery provided in both sections 30 and 31. Section 30(1) of the Act provides that penalty tax is 25% of the unpaid tax. That amounts to $46,750.00. Sub-section (2) provides that the Commissioner has discretion to increase the penalty tax to 75% where he or she is satisfied the default was caused wholly of partly by the intentional disregard of the taxpayer. Sub-section (2) has no part to play here. Sub-section (3) gives a discretion to the Commissioner to determine that no penalty is payable if he or she is satisfied that -

(a) the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law; or

(b) the tax default occurred solely because of circumstances beyond the taxpayer's control (or, if a person acted on behalf of the taxpayer, because of circumstances beyond either the person's or the taxpayer's control) but not amounting to financial incapacity

25 The respondent's written submissions have provided me with something of a quandary. I take the liberty of repeating four of his submissions below -

(b).... If the Commissioner is satisfied that reasonable care was taken to comply with the taxation law or that the default occurred solely because of circumstances beyond the taxpayer's solicitors' control, the Commissioner may determine that no penalty tax is payable (s30(3)). The use of the word "may" is to be noted. It is submitted that the Commissioner's power to make a determination that o tax is payable in these circumstances, is discretionary. Thus, for example, even if satisfied that reasonable care was taken, the Commissioner could refuse to make a determination that no penalty tax were payable, eg, because it was not otherwise just or reasonable to do so.

(c) The Commissioner also has a residual power under s35, in such circumstances as the Commissioner considers appropriate, to remit penalty tax by any amount. Thus, for example, in the last example given, the Commissioner, while refusing to determine that no tax was payable, could partially remit the penalty tax on the grounds that reasonable care was taken, or some other appropriate ground.

(d) In the present case, the standard rate of penalty tax as reduced under s31 of the Act to 5%for voluntary disclosure has been assessed, there having been neither intentional disregard of a taxation law nor an absence of reasonable care: s30(1).

(e) In other words, the rate imposed has already taken account of the taxpayer's voluntary disclosure and lack of intention. It is submitted that it would be inappropriate to take account of them again in order to justify a remission of penalty tax under s35.

26 The quandary arises from the inference in the submission that the respondent had decided not to exercise the discretion given under s.30(3) notwithstanding there having been neither intentional disregard of a taxation law nor an absence of reasonable care. That of course is at odds with the reasons given in the Commissioner's correspondence dated 22 September 2003 wherein it declined to remit the penalty. The Commissioner stated there were no grounds to remit the penalty for the reasons set out in paragraph 4 hereof including its view (inter alia) that the taxpayer had not taken reasonable care etc.

27 I think it is clear from the assessment and the reasons provided that the Commissioner determined that the taxpayer did not fall within either (a) or (b). Rather it applied the reductions set out in section 31. That is, it reduced the amount of penalty tax by 80% (that is, 80% of $46,750.00) because the taxpayer had informed the Commission before any investigation commenced and had provided sufficient information to enable the nature and extent of the tax default to be determined.

28 As I understand Division 2 and in particular section 30(3), it gives the Commissioner an absolute discretion to determine that no penalty is payable. That is the discretion reposed in the Commissioner under that sub-section - all or nothing. The discretion does not allow the Commissioner to fix some penalty rate between zero and 25%. If it accepts that either the taxpayer or the taxpayer's representative falls within the criteria set out in either paragraphs (a) or (b), then it has the discretion to remit the penalty to zero. As I understand the order of events, the Commissioner did not form that view and thus was not called upon to exercise the discretion.

29 Section 31(1) contains no such discretion. It provides that if, "before the Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out, the taxpayer discloses to the Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined", then the penalty is to be reduced by 80%. It does not suggest there can be any variation. If that taxpayer falls within the sub-section his liability is reduced perforce by 80%. In this case, there was no investigation, nor indeed is there any evidence to suggest any was planned. The transfer was lodged and the circumstances explained. Disclosure was complete and the information supplied enabled the Commissioner to assess the duty without further investigation.

30 Section 35 is the last section in Division 2. It represents a "catch-all" in respect of penalties. In its wording it provides an unfettered discretion. The respondent submits that further to reduce the penalty would result in "double-counting" and has referred me to the Revenue Rulings in support of this proposition. That proposition may be in accord with the ruling but I do not consider it is in accord with the Act itself and indeed the ruling does not provide an absolute prohibition on any further reductions in any case. What the ruling suggests is that there will be cases where the penalties, if applied rigidly, may give rise to an unintended or unjust result. I am not persuaded that on any tenet of statutory interpretation, the reductions provided in section 30(3) or 31(1) serve to exclude the possibility of any further remission pursuant to section 35.

31 The respondent submitted that there was no evidence that the solicitors' firm had in place appropriate checks and systems and the absence of such evidence counted against remission under section 35. Whilst it is true the witness did not allude specifically to components of his firm's systems, I did form the distinct impression from him that generally their procedures had been subjected to considerable scrutiny. He told the Tribunal the file in question had been reviewed and as a result, the files of other paralegals were all reviewed, a new solicitor was appointed to supervise the firm's commercial mortgage files and I certainly gained the impression that it was unlikely such a oversight would occur again. Further, the firm's letter of objection located in the tribunal book also indicated it had "reviewed [their] procedures and taken steps to ensure that this situation does not occur again." Whilst that might not be sufficient to satisfy the tests set out in section 30(3)(a) and (b), it is certainly evidence that can be considered when having regard to any remission under section 35.

32 Counsel submitted that the discretion under section 35 must be exercised so as to advance to purpose of the Act and cited Harper J in American Express International Inc v CSRO [2003] VSC 32,59. His submission was that this purpose required more than specific deterrence and submitted that the need for general deterrence in the present case would make it inappropriate to exercise the remission power under s.35. There may be some force to that argument if there were no other deterrent imposed. Already the applicant will have to pay the amount of interest. This argument about deterrence might well have some limited force in the event no penalty was to be imposed at all, but that is not what I propose to do.

33 I did not find the analogy of the federal taxation laws and penalties levied under that legislation particularly helpful. Under the Commonwealth taxation scheme penalties apply if the failure to lodge represents a risk to the efficient operation of the taxation system. That is not the test under the Act in this case.

34 In conclusion counsel submitted that even if, contrary to his other submissions, the circumstances of this oversight were to be considered "rare and exceptional" ( a test I am not convinced applies in any case notwithstanding the decision in RVO Enterprises v CSRO [2004] NSWADT 64) then on any reasonable view, full remission could not be justified because to do so would place the taxpayer in as good position as he would be if he had proved the taking of reasonable care to comply, or the existence of circumstances beyond control. As I do not propose to remit the penalty in full I have put that submission to one side.

35 I am not persuaded that the respondent's arguments about remission in this case can be made out in totality. The discretion is clearly spelled out. It is untrammelled by direction or circumscription. In the circumstances of this case, where there has been no intentional disregard or deliberate neglect by the taxpayer, where the firm representing the taxpayer has already been subjected to considerable expense and embarrassment and doubtless some loss of client respect, where there has been no attempt by the taxpayer to mislead the Commissioner, where the imposition of the penalty in full will not have the effect of sending any compliance message to taxpayers as a group (albeit it probably sends one to lawyers), and where remission of part penalty is not outside the scope and purpose of the legislation, I consider that part of the penalty should be remitted. In deciding the quantum of the remission I have had regard to the competing needs for deterrence as opposed to an unintended and unjust result and I have concluded that an appropriate penalty of $1,000 should be levied.

36 The assessment of the respondent in relation to penalty tax is varied and remitted to the respondent for reconsideration in accordance with these reasons.

37 The assessment of the respondent in relation to interest is confirmed.