CITATION: Issa v Chief Commissioner of State Revenue [2009] NSWADT 269 DIVISION: Revenue Division APPLICANT Azab Issa PARTIES: RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 096053 HEARING DATES: On the papers SUBMISSIONS CLOSED: 8 October 2009 DATE OF DECISION: 16 October 2009 BEFORE: Perrignon R - Judicial Member CATCHWORDS: Land tax Discretion to remit interest - Premium rate component of interest - Market rate component of interest Land Tax Management Act 1956 LEGISLATION CITED : Taxation Administration Act 1996 Valuation of Land Act 1916 Chief Commissioner of State Revenue v Incise Technologies Pty Limited & Anor [2004] NSWADTAP 19 CASES CITED: Macsif v Chief Commissioner of State Revenue [2007] NSWADT 116 Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 APPLICANT In person REPRESENTATION: RESPONDENT A Gerard, solicitor ORDERS: 1.The decision to demand interest in the assessment of 7 July 2008 is revoked 2.The assessment of 7 July 2008 is otherwise confirmed. REASONS FOR DECISION 1 In 2000, the Applicant, Mr Issa, purchased an investment property at Brighton-le-Sands in Sydney. He did not disclose its existence to the Chief Commissioner of State Revenue until 5 May 2008, when he lodged a completed Land Tax Questionnaire with the Chief Commissioner, at the latter's request. 2 On 7 July 2008, the Chief Commissioner assessed Mr Issa to land tax in respect of the property for the tax years 2004, 2005, 2006, 2007 and 2008. Mr Issa's home at Carlton was not assessed to land tax, as it attracted the 'principal place of residence' exemption under section 10(1)(r) of the Land Tax Management Act 1956. 3 The Notice of Assessment included a demand for interest on unpaid land tax for the first four of those tax years. The rate of interest was the sum of the market rate and the 'premium rate' of 8%. 4 On 22 January 2009, Mr Issa asked the Chief Commissioner to remit the interest, on the basis that he was in financial difficulties. The next day, the Chief Commissioner exercised his discretion under section 25 of the Taxation Administration Act 1996 by remitting so much of the interest as had been charged at the premium rate. He did not remit the balance of the interest, which had been charged at the market rate. 5 On 1 March 2009, Mr Issa lodged a formal objection, on the basis that the land values on which the assessment was based were too high, and sought 'assistance in the form of: waiving the interest, easy payment method and at least a one year plan to payback [sic] the amount.' 6 On 7 April 2009, the Chief Commissioner offered to discuss payment options with Mr Issa, but again declined to remit the market rate component of the interest charged. 7 In his Application for Review, Mr Issa does not specify precisely the decision of which review is sought. He asks for the following relief: - 'At least a ten year tax free period from the date of purchasing the house [at Brighton-le-Sands].' - 'Interest is not to be charged as this [is] a government not a business or bank.' - 'My property to be fairly assessed.' 8 The Tribunal infers that he seeks review of the following: a)The assessments of 7 July 2008, including the demand for interest. b)The decision of 22 January 2009 not to remit the market rate component of interest. 9 The Chief Commissioner has interpreted the Application as one seeking remission of interest only. In summary, he submits that sections 21, 22 and 72 of the Taxation Administration Act 1996 together authorised him to demand interest at the market and premium rates where, as here, a taxpayer has failed to lodge a land tax return as required by section 12(1A) of the Act. 10 The Chief Commissioner enjoys power to remit interest under section 25 of the Act. However, he says that in this case it would be inappropriate to remit the market rate component of interest, because the Chief Commissioner was not responsible, directly or indirectly, for the taxpayer's default, and the taxpayer has failed to demonstrate that the circumstances were otherwise exceptional. 11 The parties have agreed that the application be determined on the papers, without a hearing. There is no factual dispute before the Tribunal. Jurisdiction 12 Objection has been lodged by Mr Issa under section 86 of the Taxation Administration Act 1996, and disallowed by the Chief Commissioner. The Tribunal construes the objection as one relating to both the assessment of 7 July 2008, including the demand for interest, and the decision of 22 January 2009. It follows that the Tribunal enjoys jurisdiction under section 96 of the Act to review these decisions. 13 In respect of each decision, the taxpayer bears the onus of proving his or her case: section 100(3). Issues 14 The issues for determination may be summarised as follows. 1.Whether Mr Issa was liable to pay interest for failing to lodge returns for all or any of the tax years 2004, 2005, 2006 or 2007. 2. If so, whether it is appropriate to remit the 'market rate' component of interest or any part of it. 3. Whether Mr Issa has demonstrated any grounds for disturbing the assessments. 4. If so, whether it is appropriate to grant a 'ten year tax free period' from the date of purchase. Legislation 15 At all relevant times, section 12 of the Land Tax Management Act 1956 empowered the Chief Commissioner, by order published in the Government Gazette, to require specified classes of persons to furnish land tax returns for a specified year, identifying all land owned by them as at 31 December in the previous year, together with other information. 16 Notices requiring certain classes of owners of land in NSW to furnish land tax returns for the 2004, 2005, 2006 and 2007 tax years were published in the Gazette on 24 December 2003, 17 December 2004, 23 December 2005 and 22 December 2006 respectively. Copies of these notices are in evidence. 17 The classes of person required to furnish returns were described in paragraph 4 of each notice as follows. 1. Notice of 24 December 2003: 'persons who own land in NSW at midnight on 31 December 2003 and who were not liable for land tax for the 2003 tax year but who are liable for land tax for the 2004 tax year'. 2. Notice of 17 December 2004: 'persons who own land in NSW at midnight on 31 December 2004 and who were not liable for land tax for the 2004 tax year but who are liable for land tax for the 2005 tax year'. 3. Notice of 23 December 2005: 'persons who own land in NSW at midnight on 31 December 2005 and who were not liable for land tax for the 2005 tax year but who are liable for land tax for the 2006 tax year'. 4. Notice of 22 December 2006: 'persons who own land in NSW at midnight on 31 December 2006 and who were not liable for land tax for the 2006 tax year but who are liable for land tax for the 2007 tax year'. 18 The four notices required these classes of persons to furnish returns by 30 April 2004, 28 February 2005, 31 March 2006 and 1 March 2007 respectively. 19 In each case, Mr Issa failed to do so. 20 Subsection 72(1) of the Land Tax Management Act 1956 provided: 'A taxpayer who fails or neglects duly to furnish any return or information as and when required by this Act or the Chief Commissioner, or who fails to include in any return any land owned by the taxpayer, is taken to have committed a tax default for the purposes of Part 5 of the Taxation Administration Act 1996 .' 21 Subsection 72(2) provided that, in respect of a tax default, 'the taxpayer is liable to pay interest' in accordance with Part 5 of the Taxation Administration Act 1996. This did not confer on the Chief Commissioner a discretion to impose interest. On the contrary, it imposed on the taxpayer a statutory liability to interest. 22 Part 5 of the Taxation Administration Act 1996 includes section 21, which provided that, in case of a tax default, interest was payable on the amount of unpaid tax at the 'interest rate from time to time applying under this Division'. 23 The 'interest rate' was defined in section 22(1) as the sum of the 'market rate component' and the 'premium rate component'. Subsection (2) defined the 'market rate component' to mean a rate published in the Gazette, or in the absence of such rate the 'Bank Accepted Bill rate' (as defined). The 'premium component' was defined as being 8%. 24 Section 25 empowered the Chief Commissioner to remit the market rate component of interest or the premium rate component or both, by any amount, 'in such circumstances as the Chief Commissioner considers appropriate'. Liability to pay interest 25 Had the four gazetted notices applied to Mr Issa, he would have been required to lodge returns, and his failure to do so would have constituted a 'tax default' for the purposes of Part 5 of the Taxation Administration Act 1996. 26 The gazetted notice for the 2004 tax year was directed only to persons who were 'not liable for land tax for the 2003 tax year'. Similarly, the notices for the 2005, 2006 and 2007 tax years were directed only to persons 'not liable for land tax for the' 2004, 2005 and 2006 tax years respectively. 27 The Brighton-le-Sands property had been purchased in 2000 as an investment property. Mr Issa lived at all relevant times at Carlton. There is no evidence that the Brighton-le-Sands property ever attracted an exemption from land tax, or that the Chief Commissioner was barred from charging land tax on it for the 2003 tax year. For that reason, the Tribunal finds that Mr Issa was assessable to land tax in respect of that property for the 2003 tax year – even though he was not assessed for that year - and also for the tax years 2004 to 2007 inclusive, for which he was in fact assessed. It is unnecessary to make any finding as to the tax status of the property before 2003. 28 The gazetted notices do not use the phrase 'assessable to land tax', but rather, 'liable for land tax'. Section 39(1) of the Land Tax Management Act 1956 provides: 'Land tax payable by a taxpayer is due and payable as required by the relevant notice of assessment served on the taxpayer concerned.' For that reason, liability to pay land tax arises on assessment. 29 It might be argued that Mr Issa was not 'liable for land tax' in respect of the 2003 year, as that phrase was used in the first gazettal notice, because he was not assessed to land tax. However, in each of the gazetted notices, the word 'liable' is used in a wider sense. 30 The first notice, for instance, was gazetted on 24 December 2003, and relates to the 2004 tax year. Paragraph 4 of the notice provides that it applies to persons 'who were not liable for land tax for the 2003 tax year but who are liable for land tax for the 2004 tax year'. Paragraph 1 provides that its purpose, among other things, was to advise land-owners if and when they were required to lodge a return in respect of the 2004 tax year. One purpose of requiring returns was to collect information on the potential tax liability of land owners for that tax year. The notice related to persons who owned land at midnight on 31 December 2003 – that is, at a time later than the gazettal. It presupposed that, as at the date of gazettal, assessments would not have been issued for the 2004 tax year. Land tax for 2004 could only be charged on the basis of ownership as at midnight on 31 December 2003: section 8, Land Tax Management Act 1956. 31 For these reasons, the phrase 'liable for land tax for the 2004 tax year', where used in paragraph 4 of the notice, ought not be construed as meaning persons liable to pay land tax as at the date of the notice, but rather all persons assessable to land tax (from midnight on 31 December 2003) for the 2004 tax year, whether or not they have been assessed to land tax. 32 In paragraph 4 of the notice (see paragraph 30 supra), the word 'liable' is used twice in the same sentence. It ought properly be construed as having the same meaning on each occasion. If it means 'assessable to land tax' in relation to the 2004 tax year, it ought be similarly construed where used in relation to the 2003 tax year. 33 For the foregoing reasons, the Tribunal finds that the notice gazetted on 24 December 2003 applied only to persons who, among other things, were not assessable to land tax in respect of the 2003 tax year. Conversely, it did not apply to persons who were so assessable. Similarly, the three gazettal notices which followed did not apply to persons who were assessable to land tax for the tax years 2004, 2005 and 2006 respectively. 34 Mr Issa was assessable to land tax for the 2003 tax year, even though land tax was not assessed for that year. For that reason, he was not a person to whom the notice gazetted on 24 December 2003 applied. Ultimately, he was also assessable to land tax for the tax years 2004, 2005 and 2006. For those reasons, he was not a person to whom the notices gazetted on 17 December 2004, 23 December 2005, or 22 December 2006 applied. 35 It follows that Mr Issa: a) was not obliged to furnish returns in respect of the 2004, 2005, 2006 or 2007 tax years; b) did not, by failing to do so, commit a 'tax default' for the purposes of Part 5 of the Taxation Administration Act 1996; and c) was not liable to pay interest under section 72(1) of the Land Tax Management Act 1956 . 36 Accordingly the Chief Commissioner was not entitled to demand interest in the notice of assessment dated 7 July 2008. Remission of interest 37 It is strictly unnecessary to consider whether, if tax defaults had occurred and interest was payable, the Commissioner ought to have remitted any part of the interest charged. However, for the reasons enunciated by Kirby and Heydon JJ in Waterways Authority v Fitzgibbon (2005) 221 ALR 402, it is appropriate to consider that issue. 38 If interest was payable on a tax default, the Chief Commissioner was empowered to remit the premium rate component, which he did on 23 January 2009. He was empowered also to remit the market rate component, if he thought appropriate. On 22 January 2009, he declined to do so. 39 The Chief Commissioner's discretion to remit interest is unfettered. The circumstances in which it is proper to exercise the discretion were considered by the Appeal Panel of this Tribunal in Chief Commissioner of State Revenue v Incise Technologies Pty Limited & Anor [2004] NSWADTAP 19 at para [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.' 40 Putting to one side the issue of whether the Chief Commissioner in fact required Mr Issa to lodge returns, Mr Issa does not submit that the Chief Commissioner contributed to his failure to do so. On the evidence, there is no basis for such a finding. 41 In Macsif v Chief Commissioner of State Revenue [2007] NSWADT 116, Judicial Member Block quoted with approval the following passage from Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21: '24 The interest regime found in the [ Taxation Administration Act 1996 ] is essentially designed to promote compliance [with] 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 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 [ Taxation Administration Act 1996 ] 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).' 42 This extends the range of circumstances in which the Chief Commissioner might properly exercise his discretion to remit the market rate component of interest beyond those considered by the Appeal Panel in Incise Technologies. 43 There is no evidence that any of the 'exceptional circumstances' identified in Trust Co as justifying exercise of the discretion have occurred in this case. The only grounds advanced by Mr Issa as justifying that exercise are that he is the sole breadwinner for his family, that he is 'struggling to pay the mortgage', and that 'the land tax has no possible use as the money is not taken as a sales tax or transaction tax'. 44 The third and last of these propositions is unsupported by evidence, and must be rejected. Even if it were correct, the potential use of tax revenue does not provide a proper basis for review of a decision to assess land tax. There is nothing in Mr Issa's submission to demonstrate that the remaining circumstances alleged are 'exceptional'. It is therefore unnecessary to consider whether 'exceptional circumstances' are required for the exercise of the discretion, or whether anything other than the fault of the Chief Commissioner would justify that exercise. 45 For these reasons, the Tribunal would not be satisfied that the decision of the Chief Commissioner to decline to remit the market rate component of interest, if it fell to be decided, ought be set aside. Review of assessment 46 The sole basis put forward for review of the assessment of 7 July 2008 is an allegation that the valuations upon which it was based were too high. 47 Land tax is levied and paid on the 'taxable value' of all land in New South Wales, unless the land is exempt: section 7, Land Tax Management Act 1956. The 'taxable value' of land is ascertained under section 9 of the Act, as the average of the land value of the land over a specified period. 48 The 'land value of land', for any tax year, is the value entered in the Register as the land value of the land as at 1 July in the previous year: subsection 9(4). The "Register" is defined as the Register of Land Values kept by the Valuer-General under section 14CC of the Valuation of Land Act 1916. The land values entered in the Register by the Valuer-General are values ascertained by him under Part 1B of the latter Act. 49 Thus, the 'taxable value' of land on which land tax is levied ultimately depends on the value of that land, as ascertained by the Valuer-General, and entered by him in the Register. The Chief Commissioner is not empowered to value land for land tax purposes. He has not purported to do so in this case. He has properly relied upon the values entered by the Valuer-General in the Register. 50 Where a land owner considers that a valuation notified by the Valuer-General under section 29 of the Valuation of Land Act 1916 is too high or low, he or she may lodge an objection with the Valuer-General: section 29(3A). If dissatisfied with the outcome of the objection, he or she may appeal to the Land and Environment Court under section 37(1) of the Act. 51 As required by statute, the Chief Commissioner has not himself determined the value of Mr Issa's land, but has based his assessment on the land values ascertained by the Valuer-General. The Chief Commissioner himself did not value the land. It follows that a determination of land value formed no part of his assessment, and a dispute as to land value cannot provide a proper ground for disturbing that assessment. 52 Mr Issa may take up any such dispute with the Valuer-General, in accordance with and subject to the statutory requirements. The material before the Tribunal suggests that he has already discussed the matter with the Valuer-General's Office, and has been advised that any revue of land value is likely to result in its increase, rather than decrease. 53 On the evidence, the Tribunal is not satisfied that there is any basis for disturbing the assessments of 7 July 2008. For the reasons given, the demand for interest falls into another category. Tax-free period 54 Neither the Chief Commissioner, nor the Tribunal on review of his decisions, enjoys a discretion to grant a 10-year period free of land tax. Even if there was power, no basis for exercising it has been demonstrated. Orders 55 The Tribunal makes the following orders. 1. The decision to demand interest in the assessment of 7 July 2008 is revoked. 2. The assessment of 7 July 2008 is otherwise confirmed. 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.