Legislation: Land Tax Act 2004 (ACT) ss 19A(5), 36

Taxation Administration Act 1999 (ACT) ss 26, 29, 31, 37

Case Law: Larner and Commissioner for ACT Revenue (1994) 94 ATC 2104

CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 52 of 2009

COMMISSIONER FOR ACT REVENUE

1. This in application for review of a decision made by a delegate of the Respondent with respect to penalty tax and interest on unpaid land tax in relation to Block 18 Section 166 Division of Gungahlin. The land tax which was assessed with respect to the land was for periods from 16 July 2003 to 15 July 2009.

1. The Applicants are British Nationals. The Applicants as a result of family and friends who live in Australia and particularly in the Canberra region decided to purchase a house in Canberra so that they could spend part of the year living here. The Applicants are now in retirement and spend part of the year living in Canberra and part of the year living in Great Britain and as such would seem to enjoy the year without enduring a winter.

2. As Mr and Mrs Steele would not be living in their house in Canberra for all of the year they decided that for the period of the year when they were not using the house they would let it out through an Agent. The Steele's then organised for the general rates to be paid directly from their own bank account. The Applicants were unaware of the need to pay land tax with respect to a house which was rented out and simply made no enquiries with respect to that matter.

As I have said above, the Applicants made arrangements for payment of general rates and made no enquiries with respect to land tax. Various documents were admitted into evidence and the Respondent did not require Mr and Mrs Steele to be cross examined. I have no reason to doubt the evidence of Mr and Mrs Steele and indeed Counsel for the Respondent said that the Respondent accepted the evidence of the Applicants. That evidence is that Mr and Mrs Steele had no idea what land tax was as they say there is no equivalent tax where they live in Great Britain. As the rates were being paid by direct debit from their bank account they were not receiving a lot of the usual mail that the rates and land tax office send out and as such nothing was brought to their attention. It seemed that even their Agent in Canberra who was organising the short-term rentals did not tell them about land tax. Eventually the Respondent discovered that the land was being leased out for various periods and that land tax was not being paid. Once that occurred the Respondent made an assessment with respect to land tax and imposed a penalty tax and interest on the unpaid land tax.

There is no suggestion that Mr and Mrs Steele did anything dishonest. What they did was fail to make themselves aware of a tax liability which was imposed upon them as a result of owning land in a foreign country.

Once the Applicants received the assessments for land tax penalties and interests, objections were lodged. The Applicants made detailed and cogent arguments with respect to their innocence with respect to any wrongdoing and sought that the penalty and interest be remitted. Eventually the Respondent agreed to remit the penalty tax but declined to remit any part of the interest.

This application is therefore with respect to the interest component of the assessment issued by the Respondent.

Before moving onto the interest it is worth briefly looking at the issue of penalty tax even though that matter has already been dealt with and is not subject to this appeal process. Penalty tax is imposed pursuant to subsection 19A(5) of the Land Tax Act 2004 (ACT) which states that Division 5.2 of the Taxation Administration Act 1999 (ACT) applies.

Division 5.2 starts from the simple position that where a tax default happens the taxpayer is liable to pay penalty tax in the amount of twenty five percent (25%) of the unpaid tax (section 31 and section 31(1)). The initial decision of the Respondent of 11 March 2009 was to impose a penalty of 25%. According to that decision it was based upon the decision of the ACT Administrative Appeals Tribunal in Larner and Commissioner for ACT Revenue (1994) 94 ATC 2104. In particular the decision relies upon the President's decision where he said "there was certainly a failure on the part of the owners to appreciate their obligations, but no evidence of a deliberate concealment of information. Nevertheless, the penalty should reflect the failure to meet statutory obligations to supply true information to the Revenue Office and report changes in circumstances affecting liability to tax. I would regard an appropriate penalty in the circumstances as being 40% of the tax payable for the years 1991-1992 and 1992-1993."

That decision was based upon the predecessor to the current legislation. That was the Rates and Land Tax Act 1926 (ACT) and in particular sections at 22EB and 22EC which stated as follows:

(a) fails to give any information as required by this Act; or

(b) provides any such information, whether orally or in writing, that is false or misleading in a material particular;

the owner is liable to pay, as a penalty, an additional amount equal to double the amount of any land tax payable in relation to that parcel of land.

(2) The commissioner shall assess the amount of penalty tax payable by an owner of a parcel of land under subsection (1) and shall, as soon as practicable after making the assessment, give the owner written notice of the assessment and of the due date for payment of the penalty tax.

If the commissioner is satisfied that it is fair and reasonable that all or part of any penalty tax payable or paid in relation to a parcel of land should be remitted or refunded, the commissioner may remit or refund the relevant amount to the owner of the parcel of land.

Those sections are quite different to the scheme with respect to penalty tax in Division 5.2 of the Taxation Administration Act 1999 (ACT). Under the repealed legislation the Commissioner could remit or refund the penalty tax in full where the Commissioner was satisfied that it was fair and reasonable so to do.

It is not clear to me as the basis upon which the Delegate for the Commissioner remitted the penalty of 25%. The 25% penalty tax can only be remitted pursuant to section 37 where the Commissioner is satisfied that the tax payer took reasonable steps to mitigate or mitigate the effects of the circumstances that resulted in the liability for penalty tax or that the circumstances that resulted in the liability were exceptional. All that the delegate seems to have done is noted that Mr and Mrs Steele lived overseas and were not experienced in Australian property matters and that it was reasonable for them to rely on their Real Estate Agent. I do not regard these circumstances as exceptional. It is common for people to own land in foreign countries and the expectation at least for tax law in the ACT is that the tax payer is meant to find out what liability exists.

I also fail to see how relying on the managing Real Estate Agent can ameliorate any of the problems for the tax payer. Division 5.2 refers to the tax payer "or a person acting on behalf of the tax payer". These words are meant to take away any doubt as to the tax payer trying to sheet home blame to another person. Even without those words I would not have any difficulties in finding that a Real Estate Agent was in terms of the general law acting at all times on behalf of the tax payer. There may of course be some exceptions to the general rules as to Agency but they are unlikely to be applicable in a straight forward Real Estate Agency situation. I find it difficult to see that the Applicants took reasonable steps to mitigate the effects of the circumstances which resulted in the penalty where that situation continued for about six (6) years and only came to light as a result of the Commissioner's own enquiries. Having an Australian Real Estate Agent managing the property only in my view exacerbates the problems for the tax payer.

Of course the only matter to be reviewed by me is with respect to the interest rate. At this point it is worth noting that remission of interest in this matter is governed by section 36 of the Land Tax Act 2004 (ACT). Pursuant to section 36 the Commissioner has to be satisfied that it is fair and reasonable to remit all or part of the interest payable. If the matter were governed by section 29 of the Taxation Administration Act 1999 (ACT) the Commissioner may remit all or part of the interest but the Commissioner does not seem to be given any guidelines as to what should be taken into account and the Commissioner is not even guided by the words "fair and reasonable".

As a starting point, it is worth noting that the interest is in two parts. The interest is governed by section 26 of the Taxation Administration Act 1999 (ACT) which states that the interest rate is the sum of the market rate component and the premium component. To remit the market rate component would be to place the Applicant in a better position. There can be no justification in this case for doing that. Remission of the market rate component of the interest could only arise in an exceptional case and this is certainly not such a case.

That leaves me to determine whether the premium component or the interest should be remitted. Under section 36 I stand in the place of the Commissioner and need to be satisfied that it is fair and reasonable having regard to the circumstances that contributed to the delay or any other relevant matter. The circumstances in this case are not extraordinary. As I have already said, many people own property in foreign countries and the expectation under our law is that the tax payer needs to ascertain what tax liabilities may exist. The Applicants gave evidence that they had a Canberra Solicitor act on their behalf when purchasing the subject property. Once they had purchased the property they engaged a Canberra Real Estate Agent to act as the managing Agent for the property. I am unable to see anything in the circumstances which contributed to the delay as being helpful to the Applicant in considering remission of the premium component of the interest rate. In fact I regard those circumstances as supporting the imposition of the premium component of the interest rate.

Section 36 also allows me to look at any other relevant matter. One relevant matter firmly in the Applicants favour is that at all times they acted honestly. There is no suggestion that the Applicants did anything other than fail to realise that a tax which they had never heard of was payable. Every tax payer can sympathise with the Applicants but that does not in my opinion help them with respect to the premium component of the interest rate.

In the circumstances I can see no bases pursuant to section 36 of the Land Tax Act 2004 (ACT) by which any part of the interest as calculated should be remitted.

RESPONDENT: COMMISSIONER FOR ACT REVENUE

TRIBUNAL MEMBER/S: MR BRIAN HATCH, SENIOR MEMBER

DATE/S OF HEARING: 28 January 2010 PLACE: CANBERRA

DATE/S OF DECISION: 31 March 2010 PLACE: CANBERRA

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