CITATION: Kashian & anor -v- Chief Commisioner of State Revenue [2002] NSWADT 137 DIVISION: Revenue Division APPLICANTS Kegan Kashian PARTIES: Vicki Kashian RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 026005 HEARING DATES: 02/04/02 SUBMISSIONS CLOSED: 04/11/2002 DATE OF DECISION: 08/12/2002 BEFORE: Verick A - 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 Chief Commissioner of State Revenue [2002] NSWADT 21 Olah v Chief Commissioner of State Revenue [2002] NSWD 22 APPLICANTS REPRESENTATION: In person RESPONDENT G Van Emmerik, agent ORDERS: That this matter be remitted to the Chief Commissioner to take the appropriate action to adjust the amount of interest included in the Land Tax assessment for the 1997 to 2001 tax years by remitting the amount of interest included in the assessment in respect of the period from 2 April 2002 to 8 November 2002. Introduction 1 The applicants seek a review of an objection decision made by the Chief Commissioner of State Revenue (Chief Commissioner) in relation to a land tax assessment for the 1997, 1998, 1999, 2000 and the 2001 tax years. 2 The principal question at issue is essentially whether the Chief Commissioner should remit the whole or part of the interest included in the assessments for late lodgement of land tax returns for the relevant years by exercising his powers found in s 25 of Division 1 of Part 5 of the Taxation Administration Act 1996 (TA Act) 3 A short subsidiary question arises in relation to the 1997 year as to whether an assessment has been properly issued by the Chief Commissioner for that year. Background 4 The applicants are the owners of two properties. They acquired Lot 1 Strata Plan 11453, 19 Bortfield Drive, Chiswick by a transfer registered at the Land Titles Office on 25 June 1992 and which, has since the acquisition, been occupied as their principal residence. They acquired 94 Henley Drive, Rodd Point by a transfer registered at Land Titles Office on 5 September 1996 to construct their new home. This review is concerned only with the second property. 5 As part of his audit activities to include all properties subject to land tax in his land tax data base, the Chief Commissioner sent to the applicants a notice of investigation on 1 April 2001. The notice was a "Land Tax Questionnaire" sent under section 72 of the TA Act which requested particulars of properties owned by the applicants to determine land tax liability, if any, of the applicants. 6 The Chief Commissioner claims that no reply was received to the notice of investigation. Consequently, a Land Tax Notice of Assessment was issued to the applicants for tax years 1997 to 2001 on the basis of the information held by the Chief Commissioner. The Chief Commissioner also imposed a penalty tax and interest at both market rate and premium rate for failure to lodge the relevant returns. 7 The applicants lodged an objection on 8 November 2001 against the assessment on the grounds that the Chief Commissioner should waive or remit all the penalty tax and interest included in the assessment. 8 The Chief Commissioner allowed the objection in relation to the penalty tax and the premium component of the interest but disallowed the objection in respect of the market rate component of the interest included in the assessment. Relevant Legislation 9 An owner of property liable to land tax is required to lodge an "Initial Return" and no further returns unless the owner seeks for any reason to vary the land tax payable. Land tax returns are required to be lodged under s 12 of the Land Tax Management Act 1956 (LTM Act) in accordance with orders published in the Gazette. 10 In the present matter the applicants had not lodged any returns as required by the law. The applicants have been assessed to land tax on the basis of the information that the Chief Commissioner had obtained through his audit activities. 11 As the applicants had failed to duly furnish any return, they are taken to have committed under s 72(1) of the LTM Act a "tax default" for the purposes of Part 5 of the TA Act. 12 Where a "tax default" occurs, interest is imposed under s 21 of the TA Act on the amount of tax unpaid on a daily basis from the end of the last day for payment until (and inclusive of) the day upon which the tax unpaid is paid. The applicable interest rate consists of a variable market rate component, which is linked to the Treasury Note yield rounded to the second decimal place (4.89% for purposes of this application), and a premium rate component fixed by the TA Act at 8 per cent per annum. In more serious cases of a tax default the Chief Commissioner is also entitled to impose a penalty tax. 13 The Chief Commissioner is allowed under s 25 of the TA Act to remit either the market rate component or the premium rate component of interest, or both, by any amount in such circumstances, as the Chief Commissioner considers appropriate. A similar remission provision is found in s 33 of the TA Act that gives the Chief Commissioner power to remit penalty tax. The Taxpayer's case for remission of market rate component of interest 14 The applicants claim that they were not aware of any liability to land tax until they received the notice of assessment from the Chief Commissioner. 15 Mr Kashian also claims that for some years he had relied on tax accountants to prepare his income tax returns but there was no mention of land taxes by the accountants. In fact, when providing information to prepare his income tax return, Mr Kashian had inquired about land tax that was mentioned in the draft tax return used by his tax agent to prepare his return as an available tax deduction. But his accountants "totally ignored the land tax" issue and gave him no information as to any liability to land tax. 16 The applicants were also not informed of any land tax liability by their solicitors acting for them in the purchase of the relevant property. The applicants also do not consider themselves as investors. The property was purchased to build their principal residence. 17 The applicants also claim that if they had received the questionnaire in April 2001 and responded in time they could have avoided the interest "given the assurance that interest may be (not will be) imposed". The basis of this claim is the Chief Commissioner's statement in the letter attached to questionnaire - "If we do not hear from you by the above date, we may issue an assessment based on the information we hold, and under sections 21 & 26 of the Taxation Administration Act 1996 interest and penalties may be imposed." (emphasis added) 18 In their written submission to the Tribunal, the applicants have further expanded their grounds. In particular, the applicants claim that the Chief Commissioner had contributed to the delay in attending to their land tax liabilities. The Chief Commissioner had not made any effort to inform them of their obligations until the assessment were issued in November 2001 in respect of years 1997 to 2001 demanding payment of a total sum of $25,812.70. 19 They are critical of the Chief Commissioner's conduct in not taking any action against them in respect of land tax until five years had expired. They have sought to compare his behaviour in not making any effort to collect the land tax for five years with the prompt approach usually taken by other agencies in collecting outstanding dues. The Chief Commissioner's case 20 In the assessment issued to the applicants following compliance activity by the Commissioner interest at both the market and premium rate and a 20% penalty tax were imposed. At the objection stage, the Commissioner accepted that the taxpayer had not received the questionnaire and that there was no evidence of any intentional disregard of the land tax law in remitting the penalty tax imposed. The Chief Commissioner also accepted that the applicants had taken "reasonable care" by relying on tax agents and their solicitors in not lodging any land tax returns. On that basis the Chief Commissioner remitted the premium rate of interest included in the assessment. 21 The Chief Commissioner has, however, refused to remit the market rate of interest included in the assessment on the ground that the "rate reflects the loss of investment opportunity for the Government which would have been available if the tax had been assessed and paid on time". Reasons and decision - whether an assessment was served in relation to the 1997 year 22 The applicants were served with a consolidated one page statement which constituted the "Land Tax Notice of Assessment for 2001 - 2000 - 1999 - 1998 - 1997 Tax Years" with a "Support Schedule" containing details of what amounts were included for each year by way of assessment, penalty tax and interest on late lodgement. In addition the Chief Commissioner also sent a "Support Schedule" for each relevant year. In these schedules, the Chief set out details of how the land tax was calculated for each year. For all years other than the 1997 year, the schedules contained the words "The assessment for the …year is based on the following land owned as at 31 December…" In respect of the "Support Schedule" for the 1997 year these words were missing. 23 Under s14 of the TA Act, the Chief Commissioner is authorised to issue a notice of assessment showing the amount of assessment and in such form approved by the Chief Commissioner. Section 15 of the LTM Act deals with assessments made in relation to land tax. This section requires that an assessment issued under s 14 of the TA Act in relation to land tax must include a statement as to the amounts determined under the Valuation of Land Act 1916 as to the land value (or other relevant value) of the land and any allowances or apportionment factors relevant to the land, from which the taxable value of the land has been derived. 24 The TA Act also provides that the validity of an assessment is not affected because a provision of a taxation law has not been complied with. 25 Unlike the Commonwealth income tax laws, the TA Act and LTM Act allow the Chief Commissioner to issue a single consolidated assessment for all years that may be relevant when making an assessment. The Chief Commissioner was therefore entitled in this matter to issue a consolidated assessment for the relevant years. The details relating to the "land value" contained in the "Support Schedule" for each year satisfied the requirements of s 15 of the LTM Act. I am also of the view that nothing really turns on the missing words in respect of the "Support Schedule" for the 1997 year. Accordingly, the applicants were issued with a proper assessment for all the relevant years including the 1997 year. Reasons and Decision - whether any remission of interest imposed at market rate is warranted 26 In the present matter the Chief Commissioner has, at the objection stage, remitted in full the premium rate interest and penalty tax that he had imposed in the assessments. The only issue for the present review is whether there are grounds to remit the whole or any part of the interest at market rate included in the land tax assessments. 27 Interest at market rate can only remitted in exceptional circumstances (Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 and Olah v Chief Commissioner of State Revenue [2002] NSWD 22). 28 The Chief Commissioner does not dispute the claim made by the applicants that they did not receive the questionnaire sent in April 2001. The Chief Commissioner is not able to produce a copy of the particular questionnaire that was sent to the applicants. The Chief Commissioner had out sourced the issue of the questionnaires and copies of letters sent are not retained. 29 The Chief Commissioner also accepts that the applicants have not intentionally disregarded the law and that they have taken "reasonable care" by seeking advice from their tax agents and their solicitors when purchasing the property. 30 The only reason that the Chief Commissioner has advanced to support the imposition of the interest at market rate is that the "rate reflects the loss of investment opportunity for the Government which would have been available if the tax had been assessed and paid on time". 31 This is a case where the applicants, otherwise law abiding, were simply not aware of their land tax obligations. They claim that the Chief Commissioner should have acted more diligently and not waited for five years to expire before sending them a fairly large land tax bill which included a substantial amount by way of interest for the period that the applicants had not lodged the relevant land tax returns. 32 The applicants also claim that if they had received the Chief Commissioner's questionnaire in April 2001 they would have responded immediately and the interest or part of the interest at the market rate would not have been imposed in their case. 33 Tax laws in most jurisdictions place the burden on taxpayers to comply with the requirements relating to the lodgment of returns. The responsibility to become subject to a tax regime is usually a responsibility placed on taxpayers. The land tax laws are similarly designed. But unlike most other taxes, particulars of liability, if any, to land tax in relation to properties in New South Wales is on public record. Particulars of any property are available by a perusal of land registrations at the Land Titles Office. 34 Combined with the Chief Commissioner's position that ignorance of the land tax law is a mitigating circumstance, there is a some responsibility on the Chief Commissioner to ensure that owners of properties who have not lodged returns but have a land tax liability in relation to any property or properties be brought into his land tax data base within a reasonable time period. A five years delay is in my opinion excessive when information about properties is on public record. Although I am critical of the delay, unfortunately the burden of lodging land tax returns is clearly placed by law on the taxpayer. In those circumstances the delay would not in my opinion constitute a consideration that would be appropriate to exercise the discretion to remit any part of the interest imposed at the market rate by the Chief Commissioner. 35 However, there is merit in their argument that the Chief Commissioner should have taken better care in ensuring that the questionnaire reached their postal address. Having out sourced this responsibility, the matter was in a sense outside the control of the Chief Commissioner. But, nevertheless, it was essential that the Chief Commissioner made sure that the system worked well. The Chief Commissioner must, therefore, accept responsibility for any failure of the out sourced system. 36 As indicated in the Trust Co of Australia and Olah cases, remission of the "market" rate of the interest can only be made in exceptional circumstances. One of the situations that would give rise to the exercise of the discretion to remit any part of the interest imposed at market rate would be one where the Chief Commissioner had contributed in some way to the tax default. In the present matter, the applicants have acted diligently upon being informed of their land tax responsibilities. That conduct in relation to the non-receipt of the questionnaire in my opinion would be a consideration as to whether it is appropriate to exercise the discretion to remit any of the market rate interest. I accept the applicants' submission that if the questionnaire had reached their address in April 2001 they would have immediately lodged their returns and met with their land tax obligations. Accordingly, when all the facts of this case are taken into account, there are circumstances that warrant remission of the "market rate" component for the period from 2 April 2001 when the questionnaire should have been received by the applicants and 8 November 2001 when the assessment for the relevant years was received by the applicants. 37 This matter should be remitted to the Chief Commissioner to make the necessary adjustment to the relevant assessment by excluding such part of the market rate component of the interest that was included in the assessment in respect of the period 2 April 2001 to 8 November 2001. 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.