CITATION: Condous v Chief Commissioner of State Revenue [2005] NSWADT 117 DIVISION: Revenue Division APPLICANT PARTIES: Tasso Condous RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 056004 HEARING DATES: 23/05/2005 SUBMISSIONS CLOSED: 05/23/2005 DATE OF DECISION: 05/26/2005 BEFORE: Block J - ADCJ (Judicial Member) APPLICATION: Taxation Administration Act - liability to pay interest MATTER FOR DECISION: Principal matter Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Land Tax Management Act 1956 Taxation Administration Act 1996 CASES CITED: Trust Co of Australia v Commissioner of State Revenue [2002] NSWADT 21 APPLICANT REPRESENTATION: S Condous, agent RESPONDENT S Benjamin, solicitor ORDERS: The objection decision under review is affirmed REASONS FOR DECISION 1 The decision under review is the disallowance of an objection against the market rate interest component of land tax assessments in respect of a property at 19 Paris Avenue, Earlwood (the "Property") for the 2000, 20001 and 2002 land tax years (referred to collectively as the 'relevant years" and individually by reference to the actual year) 2 It is relevant to note that the actual land tax exclusively of interest in respect of the relevant years has been paid and so that the only issue is as to the interest component of the assessments. It is relevant also, and in particular, that interest was charged at the market rate; the interest in question and which is in issue does not include a premium component. 3 The Tribunal had before it the documents lodged pursuant to Section 58 of the Administrative Decisions Tribunal Act 1997. 4 Mr. Condous, who appeared on behalf of his son, the Applicant, said that his son bought the Property in January 1999 and that he moved into it in order to effect necessary repairs in December 2001 prior to and in anticipation of his marriage in February 2002. The Property was, after its acquisition in January 1999, leased, in February 1999, for a period of 26 weeks. When that period expired the tenant stayed in occupation until notice to quit was given nearly3 years later. Notice to quit was given according to Mr. Condous a month before the Applicant's marriage; the Applicant then corrected that statement so as to state that the notice was given a month before November 2001. Mr. Condous insisted that the Applicant moved into the Property in November 2001 in order to perform repairs but in such manner that it became, as from that time his principal place of residence ("PPR") and more particularly because he slept at the Property at night from that time. 5 Mr. Condous said that in February 1999 he phoned the OSR and spoke to a male person (name not known) in the employ of the OSR. That employee was informed that the Property had been let out on a temporary basis. He was told also that the Applicant had no other real property. According to Mr. Condous, the OSR employee informed him that in those circumstances no land tax would be payable. Assuming that such a statement was made in the manner alleged and in the terms alleged by Mr. Condous, it was clearly wrong, and it is clear as a matter of law that there is no estoppel against the Respondent who is obliged to administer the Land Tax Management Act 1956 (the "Act") according to its terms. 6 The statement by Mr. Condous to the Tribunal that the Applicant moved into the Property in December 2001 is directly contradicted by the terms of a comprehensive letter addressed by the Applicant to the Respondent on 3 December 2004, and reading as follows: LAND TAX ASSESSMENTS: OBJECTION TO INTEREST ON LATE LODGEMENT Reference is made to land tax assessments which were issued to me by the Office of State Revenue by notices dated 30 October 2004 and relate to a property at 19 Paris Avenue Earlwood (copies of notices of assessment are attached). These assessments were in respect of the 2000, 2001 and 2002 tax years and were based on taxable land values as at 31 December 1999, 2000 and 2001 amounting to $300,000, $315,000 and $330,000 respectively. My Client ID Number is 60100084 The property in question was acquired by me for a consideration of $360,000, contracts having been exchanged on 9 December 1998 and settlement completed on 20 January 1999. This property was acquired by me when I was engaged to my fiancé and it was always my intention to use it as my principle place of residence immediately after getting married. During the period 22 February 1999 to 22 December 2001 the property was leased in order to assist me in paying off the mortgage loan taken out in respect of the property. Repairs were subsequently carried out on the property between 22 December 2001 and 10 February 2002, the date I was married. Since the latter date, my wife and I have used the said property as our principle place of residence. My wife is now expecting our first child and, on becoming the sole income earner, any interest imposed on late lodgement would place a great strain and burden on our financial commitments. Before receiving these notices of assessment, I was under the impression that a person was liable to land tax only if he/she owned more than one parcel of land as at 31 December of each year. I was also under the impression that exemption for land tax applied to residential land that is improved if that land is intended to be used and occupied as the owner's principle place of residence. In any event, I have never received any annual valuations for land tax made by the Valuer-General as at July 1st preceding each land tax year. I therefore was not in a position to know that the land values in question exceeded the threshold for the relevant years resulting in the land tax liabilities under consideration. The only valuations I have received were those made as at 11 October 1999 and 25 October 2002 for local government rating purposes. In this regard, during a recent telephone conversation with one of your enquiry officers, I was advised that the annual valuations for land tax made by the Valuer-General are not the same as the valuations done for local government rating purposes. If I had known that I was liable to land tax for the years in question, I would have lodged the land tax returns for the relevant years by the respective due dates. In the light of the circumstances outlined above, I contend that the respective amounts of interest on late lodgement imposed in respect of the relevant tax years are excessive and should be remitted to NIL. I am therefore lodging an objection against each of the assessments in regards to the imposition of such amounts of interest. 7 If the Applicant had moved into the Property in December 2001 in such manner that it then became his PPR there might have been a question as to the land tax payable in respect of the 2002 year. The PPR exemption in its terms required that the Property had been occupied as such from the preceding 1 July and there would thus not have been strict compliance with the requirements of the Act. The Respondent is in this regard vested with a discretion which enables him to waive strict compliance. As to whether he would or could have waived strict compliance, and having regard to the short period of possession in December 2001, alleged to have taken place, is academic bearing in mind the Applicant's letter dated 3 December 2004 in which he stated categorically that he became resident in the Property only at the time of his marriage in February 2002. 8 As noted previously in this decision the interest component which is in dispute is interest computed at the market rate. Under the Taxation Administration Act 1996 interest in the case of a tax default (which includes the late lodgement of a return) can be charged at the aggregate of the market rate and a premium rate. The market rate is designed to compensate the Respondent for the fact that payment of the tax was not made on the date when it should have been made. 9 The Tribunal agrees with the decision of this Tribunal in Trust Co of Australia v Commissioner of State Revenue [2002] NSWADT 21: the Tribunal refers in particular to clauses 24 to 27 of that decision reading as follows: 24 The interest regime found in the TA Act is essentially designed to promote compliance of the relevant taxation laws. The interest regime also promotes equity between the taxpayers who meet their taxation obligations on time and taxpayers who do not meet such obligations as and when required by the law. In addition, it compensates the state for loss of use of funds. 25 The market rate component would reflect the use by the party in question of the relevant amount of money on one hand, and the lack of use of the relevant funds by the state on the other. But the fixed premium rate component is a rate imposed by way of a penalty for the "tax default" in question. A premium rate of interest is imposed where a "tax default" is a result of some culpable conduct on the part of the taxpayer. The Chief Commissioner can also impose a penalty tax under s 26 of the TA Act in cases where more serious tax defaults occur due to deliberate conduct of taxpayers. 26 Different considerations should apply when applications for remission of market rate or premium rate interest are determined by the Chief Commissioner. In considering applications, the Chief Commissioner, of course, needs to take into account all the facts of each individual case. 27 In cases where an amount of interest is imposed by the application of the market rate, only exceptional circumstances would justify any remission. The narrow category of circumstances would include cases where the "tax default" is entirely due to a fault of the Chief Commissioner. Other circumstances would include situations completely out of the control of the taxpayer, such as postal strikes, serious illness of the taxpayer and natural disasters (bush fires, floods and earthquakes). 10 The Tribunal has consistently and in numerous similar cases ruled that where returns have been submitted (and tax paid) late market rate interest should not save in exceptional circumstances, in the nature of those set out in Trust Co, be reduced. This decision accords with that in Trust Co and in many similar cases 11 The Tribunal notes that in this case Mr. Condous, according to his statement, sought advice on the basis that the Property had been let out on a temporary basis. It may be that the Property was let on a short-term basis to begin with but that short term lease became, over time, a much longer lease. There was no suggestion that any further advice was sought. But in any event any such advice (if such advice was given and which is itself open to doubt) would not, as I have said, constituted an estoppel against the Respondent. The terms from the terms of the Applicant's letter dated 3 December 2004, and quoted in full earlier in these reasons, make it clear that the Applicant is by no means a novice in this area. 12 The Tribunal finds that the decision under review should be affirmed. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.