SMITH V COMMISSIONER for ACT REVENUE

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

SMITH v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2016] ACAT 25

AT 42/2015

Catchwords: ADMINISTRATIVE REVIEW – land tax – interest and penalty tax – interest not a reviewable decision – taxpayer engaged professionals – does not remove the taxpayer’s obligation to notify Commissioner –investigation initiated and no notice required – no voluntary disclosure by taxpayer – taxpayer did not exercise reasonable care, had no reasonable excuse and had no basis for remission

Legislation cited: ACT Civil and Administrative Tribunal Act 2008, s 68 Land Tax Act 2004 ss 8, 14, 19A, 38, 53 Taxation Administration Act 1999 ss 26, 31, 32, 33, 34, 37, 82, 101, 107A

Cases cited: Commissioner for ACT Revenue v Dataflex Pty Ltd and ACT Civil and Administrative Tribunal [2011] ACTCA 14 Belconnen Premier Inn Pty Ltd v Commissioner for ACT Revenue [2014] ACAT 68 Dess v Commissioner for ACT Revenue [2015] ACAT 63 Hay v Commissioner for ACT Revenue [2014] ACAT 23 Jokhan and Jokhan v Commissioner for ACT Revenue [2012] ACAT 15 Photo Corporation of Australia Pty Ltd v Commissioner for ACT Revenue [1994] ACTAAT 91 Rawson Finances Pty Ltd v Commissioner of Taxation (2013) FCAFC 26 Scott and Anor v Commissioner of ACT Revenue [2013] ACAT 73 Steele v Commissioner for ACT Revenue [2010] ACAT 15 Talisco Pty Ltd v Sarney (1987) 18 ATR 420 Theron v Commissioner for ACT Revenue [2013] ACAT 33 Touma v Chief Commissioner of State Revenue (NSW) [2012] NSWADT 2 Wade & Tan v Commissioner for ACT Revenue [2014] ACAT 79 2

Tribunal: Senior Member L. Beacroft

Date of Orders: 5 April 2016 Date of Reasons for Decision: 5 April 2016 ACT CIVIL & ADMINISTRATIVE TRIBUNAL AT 42/2015

BETWEEN:

STEPHEN SMITH Applicant

COMMISSIONER FOR ACT REVENUE Respondent

TRIBUNAL: Senior Member L Beacroft

DATE: 5 April 2016

The Tribunal Orders that:

1. The reviewable decision of 13 May 2015 is confirmed.

……………………………….. General President L. Crebbin for and on behalf of the Tribunal 2

REASONS FOR DECISION

Background 1. The applicant, Mr Stephen Smith, is the owner of residential land (‘the Giralang property’) in the ACT. The Commissioner for ACT Revenue (‘the respondent’ or ‘the Commissioner’) administers the land tax and related legislation in the ACT.

2. On 10 June 2015 the applicant applied to the Tribunal for review of a decision by the Commissioner dated 13 May 2015 (‘the reviewable decision’) to disallow the applicant’s objection to an assessment of land tax dated 8 October 2014 (‘the assessment’).

Assessment and Objection 3. The issue of possible unpaid land tax came to the attention of the Commissioner and the Commissioner issued a notice (‘section 82 notice’), dated 4 August 2014, and issued a further notice, dated 25 August 2014, to a Yass address. The section 82 notices advised that an investigation had ‘commenced’ and required certain information to be provided by the taxpayer.1

4. After the Commissioner made phone contact with the applicant’s partner on 19 September 2014, using a phone number available for a rental advertisement for the Giralang property,2 a third section 82 notice was sent to the Giralang property. The applicant provided a response to the section 82 notice and changed his address for receipt of communications from the Commissioner on 7 October 2014.3

5. The assessment subsequently issued by the Commissioner imposed penalty tax at the rate of 50% of the tax payable, being $3,321.95, and also imposed interest at the statutory rate of $4,550.78. The assessment was for a period from quarter 3, 2007-2008 to quarter 1, 2014-2015 (‘the rental period’).4 During the proceedings the applicant advised that he did not object to the payment of the

1 Page 1 of the section 82 notices issued to the applicant, T documents 16, 17 and 19 2 Record of telephone conversation dated 19 September 2014, by B Jackson, Inspection Officer, ACT Revenue, T document 18 3 T documents 20 and 21 4 T document 23 3

land tax or interest, however he objected to the imposition of penalty tax or in the alternative contended that it should be reduced to 25%.5

6. The objection was disallowed by the Commissioner in the reviewable decision. The Commissioner decided that the applicant had not notified the Commissioner within 30 days of the renting of the property, contrary to section 14 of the Land Tax Act 2004 (‘LTA’), and had not paid the land tax for the rental period as required under the LTA and Taxation Administration Act 1999 (‘TAA’). The Commissioner also found no grounds for reduction or remission in the penalty tax or interest imposed.

Conduct of the hearing 7. A hearing was held initially set down for 6 October 2015, and at the applicant’s request adjourned to 11 January 2016.

8. The applicant appeared in person, and Ms Katavic appeared for the respondent instructed by Ms Kate Smyth of the ACT Government Solicitor.

9. Prior to the hearing, the parties lodged and exchanged statements of facts and contentions and lists of the authorities on which the parties relied. The Commissioner prepared a folder of relevant documents which are known as the T-Docs.

10. On the date of the hearing the Commissioner submitted a print out of a form letter, dated 9 December 2009, which the Commissioner’s witness, Mr Jackson, said had been sent to the applicant acknowledging a change of postal address for rates notices and providing general information about land tax.6 The Tribunal also heard sworn evidence from Mr Smith and Mr Tonna, Compliance Officer and Mr Jackson, Inspection Officer, Compliance Office, ACT Revenue.

11. Following the hearing both parties submitted further and final submissions.

12. Uncontested facts were as follows:

(a) The addresses notified to the Commissioner’s office by the applicant were:

5 Page 1 of the applicant’s final submissions dated 1 February 2016 6 Exhibit R1 4

i. from the purchase date, the Giralang property;7

ii. from 9 December 2009, a property in Yass, NSW;8

iii. from 7 October 2014, a PO Box in Dickson ACT.9

(b) Addresses registered with the Commissioner by the applicant to receive communications including rates for the Giralang property were the ones used by the Commissioner for the first two section 82 notices sent to him about the Giralang property, and the applicant received the third section 82 notice at the address of the Giralang property (refer to paragraph 4 above). (c) The applicant had a credit for rates on the Giralang property from 2011- 12, having initiated direct debts from this time. (d) The applicant purchased the property in 2005 and resided there until 2007-08, from which time it was rented for the rental period and land tax was payable. (e) In 2007-2008 the applicant moved to Yass and some 12 months later the applicant then resided elsewhere in various places.

13. The contested issue is set out below:

(a) Is penalty tax of 50%10 appropriate in the circumstances, or should the penalty tax be reduced and/or remitted under various sections of the TAA?11

Legislation 14. In summary, the grounds for imposition of land tax are that the property is leased on the first day of the quarter and is rented at any time in the previous quarter.12 The LTA provides for a written notice to be given to the Commissioner,13 by the landowner or their agent about a property being rented and the date from which it is rented. If land tax is imposed and section 14 is not complied with by the owner or any agent, then interest and penalty tax (in

7 Transfer, T document 3 8 T document 8 and oral evidence of Mr Smith at hearing 9 T document 20 and 21 10 Section 31(2)of the TAA 11 Sections 31(3), 31(6), 32, 33 and 37 of the TAA 12 Section 8(2), (3)(b) of the LTA 13 Section 14 of the LTA 5

addition to the land tax) is payable by the landowner.14 The LTA has separate criminal penalty provisions that can apply to agents in certain circumstances,15 but these provisions do not relieve the owner of liability for compliance with land tax requirements and any penalty tax or interest imposed.16

15. Failure of the taxpayer to pay land tax is treated as a tax default under the TAA.17 The amount of penalty tax is payable at a statutory rate depending on the circumstances of the default,18 and in some circumstances is not payable,19 can be reduced,20 and/or can be remitted.21

16. For unpaid land tax, the default rate of penalty tax is 25%22 of the unpaid tax. The Commissioner can increase the rate to various higher levels depending on the circumstances. In this case, the Commissioner increased the rate of penalty tax to 50%, which applies if the default was “caused wholly or partly by a failure by the taxpayer…to take reasonable care”.23 This higher rate applies unless there is a ‘reasonable excuse’24, the tax default “happened solely because of circumstances beyond the taxpayer’s control”25 or the penalty tax is remitted.26

17. While not relevant to this case, where there is an intentional disregard of a tax law, the rate increases to 75%.27 The rate of 90% applies if the taxpayer or their agent conducts themselves in various unsatisfactory ways after being notified that an investigation is to be a carried out.28

18. If the taxpayer voluntarily discloses a liability for land tax to the Commissioner prior to being informed that an investigation will be carried out29 or after this but

14 Wade & Tan v Commissioner for ACT Revenue [2014] ACAT 79 at paragraph[72] 15 Section 53 of the LTA 16 Wade & Tan v Commissioner for ACT Revenue [2014] ACAT 79 17 Section 19A(5)(a) of the LTA 18 Section 31 of the TAA 19 Section 31(6) of the TAA 20 Sections 31(3), 32, 33 of the TAA 21 Section 37 of the TAA 22 Section 31(1) of the TAA 23 Section 31(2) of the TAA 24 Section 31(3) of the TAA 25 Section 31(6)(b) of the TAA 26 Section 37 of the TAA 27 Section 31(5) of the TAA 28 Section 34 of the TAA 29 Section 32 of the TAA 6

before the investigation begins,30 then the taxpayer receives an 80% or 20% reduction in penalty tax respectively.

19. The amount of interest payable for a tax default is set out in the legislation.31 The Commissioner can remit all or part of the interest in certain circumstances;32 however the Commissioner did not remit the interest in this case.

Tribunal’s jurisdiction and powers 20. The burden of showing that an objection should be sustained is with the taxpayer, the applicant in this case.33 The Tribunal’s main task in this case is to decide if the taxpayer has shown that the objection should be sustained.34

21. The Tribunal may confirm, vary or set aside the decision being reviewed. If the decision is set aside, the Tribunal may make a substitute decision or remit the matter for decision back to the decision-maker in accordance with any directions or recommendations of the Tribunal.35

22. Where a taxpayer defaults on their tax liabilities, interest is payable, and may be remitted. However, decisions about interest and any remittal are not reviewable by the Tribunal.36

Applicant’s contentions 23. The applicant’s contentions on the one contested issue in paragraph 13 above are summarised below.

Is penalty tax of 50% appropriate in the circumstances? 24. In summary, the applicant contended that he was a compliant taxpayer, was not aware of the differing land tax regimes in the different states and that in the ACT land tax was payable, and was prompt in responding to the section 82 notice once he received it. He had engaged a NSW accountant, and used him “prudently” by preparing paperwork himself and then the accountant completed 30 Section 33 of the TAA 31 Section 19A of the LTA and section 26 of the TAA 32 Section 36 of the LTA 33 Section 101(3) of the TAA 34 Rawson Finances Pty Ltd v Commissioner of Taxation (2013) FCAFC 26; Touma v Chief Commissioner of State Revenue [2012] NSWADT 2 35 Section 68 of the ACT Civil and Administrative Tribunal Act 2008 36 Scott and Anor v Commissioner of ACT Revenue [2013] ACAT 73, [11]; section 38 of the LTA and section 107A and schedule 1, item 1.2 of the TAA 7

the final paperwork for submitting to the Australian Tax Office or as required; the applicant said he spoke to his accountant about this case and his accountant said that it would be hard for him to pick up a land tax issue given this “method”.37 The applicant had a credit on the rates for the Giralang property that was available to be used to off-set the land tax. He also contended that this credit should have alerted the Commissioner to the problem that the applicant was not receiving his mail from the Commissioner.38 He contended that he had not received information from the Commissioner over many years that land tax was payable.39 He said that he had not received the letter, Exhibit R1, and pointed out that he was not renting the PO box which is shown in the address line of the letter at that time.40

25. During the proceedings the applicant also raised that the investigation had not been properly initiated in that the Commissioner had not followed usual procedures, citing Fraud Control Guidelines which require written confirmation and a plan to be in place to initiate an investigation.41 The applicant contended that if the Commissioner’s contentions were accepted then “any officer…that commences any enquiry in relation to a Land Tax matter would be deemed to have commenced an authorised investigation.”42 The applicant contended that initiating an investigation is a serious matter since it involves an investigation using “intrusive powers” which breach “people’s privacy.”43 Further, the applicant contended that the Commissioner had withheld information from its enquiries made in April 2014 until after the applicant had responded to the section 82 notices, which “denied the right to procedural fairness.”44

26. The applicant also raised that the Commissioner had not conducted the enquiries and follow up in a timely manner: the Commissioner took some months from April 2014 when the suspected non-payment of land tax first came to the Commissioner’s attention, to issue the first section 82 notice, and the

37 Oral evidence of Mr Smith at hearing 38 Page 3 of the applicant’s final submission, dated 1 February 2016 39 Page 2 of the application for review of a decision, dated 10 June 2015 40 Oral evidence Mr Smith at hearing 41 Page 3 of the applicant’s final submission dated 1 February 2016 42 Page 4 of the applicant’s final submission dated 1 February 2016 43 Page 3 of the applicant’s final submission dated 1 February 2016 44 Page 3 of the applicant’s final submission dated 1 February 2016 8

Commissioner then belatedly called the phone number on the rental advertisement in September 2014.

Respondent’s contentions 27. The respondent’s contentions against the issue listed in paragraph 13 above are summarised below.

Is penalty tax of 50% appropriate in the circumstances? 28. The respondent accepted that the applicant had not intended to commit a tax default. However, the respondent submitted that penalty tax at the rate of 50% was appropriate in the circumstances. The respondent contended that the applicant had not exercised reasonable care and has no reasonable excuse. Mere ignorance of the laws,45 including issues about the complexity of tax laws or confusion due to different tax laws applying between states, does not justify a reduction of penalty tax and is not a reasonable excuse.

29. The Commissioner contended that the applicant’s rates notices had contained general information about land tax. Also the applicant had been sent general information about land tax in his rates notices while he resided at the Giralang property from 2006-07 to 2007-08, and also in the letter, dated 9 December 2009.46 The Commissioner’s witness, Mr Jackson, gave evidence that the latter letter was sent on 9 December 2009. He explained that the reason that the most recent address and not the then address of the applicant was on the print-out of the letter was due to the system; the system automatically updates the address upon printing and an archived copy of the letter showing the actual address it was sent to was not available.47

30. The respondent contended that the applicant had the onus of notifying the Commissioner that his property was rented and he had not done so. The Commissioner contended that this duty remained with the taxpayer even though

45 Page 4 of the respondent’s statement of facts and contentions dated 9 September 2015 citing Scott v Commissioner of ACT Revenue [2013] ACAT 73, Theron v Commissioner for ACT Revenue [2013] ACAT 33 and Steele v Commissioner for ACT Revenue [2010] ACAT 15 46 Exhibit R1 47 Oral evidence of Mr Jackson at hearing 9

he engaged a professional to assist him and/or even if the professional also had a duty to notify the respondent of the renting of the property.48

31. The Commissioner contended that the applicant had responsibility for notifying the Commissioner of any change of address for receipt of communications including rates notices, and referred to authority.49 The Commissioner contended that in this case the applicant had not shown reasonable care in that he had not changed his address for receipt of communications for some years after moving out of the Giralang property, and again for some years after moving out of the Yass property.

32. Further, the applicant did not take steps to mitigate the circumstances that led to the default, did not have exceptional circumstances to justify a reduction or remittal of the penalty tax and it would not be fair and reasonable to do so.50

33. The respondent contended that a reduction of the penalty tax, due to the applicant’s voluntary disclosure before being informed that an investigation was to be undertaken51 or before it began52 was not available to him. The applicant had not made a voluntary disclosure prior to the start of the investigation, which began in April 2014.53 Also the response to the third notice was not “accurate”.54 The Commissioner did not provide notice of the commencement of an investigation to the applicant; however the respondent is not required to do so.55 The Commissioner contended that its investigation was not subject to the Fraud Control Guidelines56, and cited authority for the term investigation being given

48 Respondent’s statement of facts and contentions, dated 9 September 2015, page 4-5, citing Steele v Commissioner for ACT Revenue [2010] ACAT 15, Jokhan and Jokhan v Commissioner for ACT Revenue [2012] ACAT 15 and other cases 49 Dess v Commissioner for ACT Revenue [2015] ACAT 63 50 Respondent’s statement of facts and contentions, dated 9 September 2015, page 5 citing Talisco Pty Ltd v Sarney (1987) 18 ATR 420 and other cases 51 Section 32 of the TAA 52 Section 33 of the TAA 53 Page 1 respondent’s statement of facts and contentions, dated 9 September 2015, referring to searches made by the respondent dated 29 April 2014 at the Australian Tax Office and with the Rental Bond Board ACT, T13-T14; Oral evidence Commissioner’s witnesses at hearing 54 Page 5, respondent’s statement of facts and contentions, dated 9 September 2015 55 Pages 1-3, respondent’s final submission dated 22 February 2016, citing Commissioner for ACT Revenue v Dataflex Pty Ltd and ACT Civil and Administrative Tribunal [2011] ACTCA 14 and other cases 56 Page 2, respondent’s final submission dated 22 February 2016 10

it ordinary or natural meaning: “the act or process of searching or inquiring in order to ascertain facts.”57

Findings and decision Is penalty tax of 50% appropriate in the circumstances? 34. The Tribunal finds that the applicant was an honest witness, and accepts that he was ignorant of his land tax obligations in regard to the property despite engaging a professional. However this does not excuse him from liability for penalty tax, and there are no grounds for reducing or remitting the penalty tax, for the reasons set out below.

35. The Tribunal accepts the arguments of the respondent that the liability for penalty tax falls on the owner even though he engaged a professional. Any duty or liability of a professional person engaged by the taxpayer does not necessarily relieve the taxpayer of their duty or liability regarding land tax or any associated penalty tax or interest. There is consistent authority for this finding, most recently the Wade case.58

36. The Tribunal accepts the respondent’s submissions that there is a positive obligation on the taxpayer to make enquiries about their tax liabilities, and there is no positive obligation on the Commissioner to issue an invoice in the absence of notification pursuant to section 14 of the LTA about the renting of the property. The cases of Theron59 and Steele60 held that there is an onus on landlords to enquire about tax obligations. The principle that the onus is on the taxpayer was set out in relation to payroll tax in the Photo Corporation61 case, and confirmed by the Tribunal in Belconnen Premier Inn.62 It remains the responsibility of the taxpayer to make sure that the professionals they engage are discharging their obligations properly, and landowners are at liberty to take action against professionals who fail in their duties.

57 Commissioner for ACT Revenue v Dataflex Pty Ltd and ACT Civil and Administrative Tribunal [2011] ACTCA 14 at paragraph 49 58 Wade & Tan v Commissioner for ACT Revenue [2014] ACAT 79 59 Theron v Commissioner for ACT Revenue [2013] ACAT 33 60 Steele v Commissioner for ACT Revenue [2010] ACAT 15 61 Photo Corporation of Australia Pty Ltd v Commissioner for ACT Revenue [1994] ACTAAT 91 62 Belconnen Premier Inn Pty Ltd v Commissioner for ACT Revenue [2014] ACAT 68 11

37. The Tribunal finds that the applicant did not take reasonable care for the purposes of section 31(2) TAA and did not have a reasonable excuse, and has no grounds for remitting the penalty tax for the reasons set out by the respondent in paragraphs 28 to 33 above.

38. In the Hay case, the applicant was found to have failed to take reasonable care but the Tribunal accepted that he should have a reduction in the penalty tax due to the combined effect of his personal circumstances which differed markedly from the applicant here: in the Hay case the applicant’s circumstances included:

…the severe mental illness of a relative for whom he cared, the ill-health and medical emergencies of another relative for whom he also cared, his family and work responsibilities, and the impact on him of each of these circumstances and the totality of these circumstances.63

39. Similarly in the Wade case, where the applicants successfully argued for a reduction in penalty tax, the applicants’ personal circumstances differed from the applicant here in important respects: they were unexpectedly detained overseas for the entire rental period, and experienced issues with their agent while also having no direct receipt of mail at any time sent by the Commissioner.64

40. The Tribunal acknowledges the applicant’s concerns about ensuring the legality of investigations undertaken by the Commissioner. This and other issues related to the Commissioner’s investigative powers and penalty tax reductions were considered by the Court of Appeal in the Dataflex case65 and the Tribunal is bound by that decision. In the light of the Dataflex case and the evidence of the respondent, the Tribunal accepts that the investigation commenced on the 29 April 2014 (refer to paragraph 33 above), before any of the three section 82 notices were issued to the respondent. Therefore sections 32 and 33 of the TAA are not applicable in this case.

63 Hay v Commissioner for ACT Revenue [2014] ACAT 23 [33] 64 Wade & Tan v Commissioner for ACT Revenue [2014] ACAT 79, [100] 65 Commissioner for ACT Revenue v Dataflex Pty Ltd and ACT Civil and Administrative Tribunal [2011] ACTCA 14 12

Summary of Findings 41. The Tribunal finds that:

(a) the liability for penalty tax falls on the owner even though he engaged a professional;

(b) the applicant did not take reasonable care and does not have a reasonable excuse;

(c) the investigation was initiated on 29 April 2014 before any of the three notices were issued, and the applicant did not make a voluntary disclosure; and

(d) the circumstances that resulted in the liability for penalty tax were not exceptional and there are no grounds for a remission of penalty tax

42. The Tribunal orders as follows:

1. The reviewable decision of 13 May 2015 is confirmed.

……………………………….. General President L. Crebbin for and on behalf of the Tribunal 13

HEARING DETAILS

FILE NUMBER: AT 42/15

PARTIES, APPLICANT: Stephen Smith

PARTIES, RESPONDENT: Commissioner for ACT Revenue

COUNSEL APPEARING, APPLICANT N/A

COUNSEL APPEARING, RESPONDENT Ms Katavic

SOLICITORS FOR APPLICANT Self-Represented

SOLICITORS FOR RESPONDENT ACT Government Solicitor

TRIBUNAL MEMBERS: Ms L Beacroft – Senior Member

DATES OF HEARING: 11 January 2016