Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Loomes v Chief Commissioner of State Revenue [2014] NSWCATAD 133 Hearing dates: 1 September 2014 Decision date: 10 September 2014 Jurisdiction: Administrative and Equal Opportunity Division Before: Prof G D Walker, Senior Member Decision: The decision under review is affirmed. Catchwords: LAND TAX - power to write off WORDS AND PHRASES - "write off" - "unwarranted"-- "impracticable". Legislation Cited: Administrative Decisions Review Act 1997; Civil and Administrative Tribunal Act 2013; Criminal Code (Cth);Land Tax Management Act 1955; Property Agents and Motor Dealers Act 2000 (Qld);Taxation Administration Act 1996 Cases Cited: Chief Commissioner of State Revenue (CCSR) v Paspaley [2008] NSWCA 184; Gunasti v CCSR [2012] NSWADT 218; In re South British Insurance Co [1980] ACLC 34419; Re el Sombrero [1958] Ch 900; Thornley v Heffernan [1995] ACL Rep 435 (NSW 4), BC 9505326; Volpatti v CCSR [2007] NSWADT 222. Texts Cited: Encyclopaedic Australian Law Dictionary Category: Principal judgment Parties: Sandra and Peter Loomes (Applicants) Chief Commissioner of State Revenue (Respondent) Representation: Counsel E Walker (Respondent) Peter and Sandra Loomes (Applicants in person) Crown Solicitors Office (Respondent) File Number(s): 1410178 reasons for decision 1The applicants Sandra and Peter Loomes applied to this tribunal on 10 April 2014 for review of a decision by the respondent to assess them for land tax in the sum of $3892 for the 2011 tax year. In terms the application sought review of the respondent's disallowance of their objection to the assessment, but as will appear below, the decision appealed from must actually be the original assessment decision. 2The facts of the case are not in dispute. The applicants are the registered proprietors of land situated at 18 Franklin Road, Cronulla, New South Wales, which they purchased on 5 November 2010 with the intention of making it their principal place of residence. They planned to demolish the existing dwelling on the land and construct a new one, remaining in their existing rental accommodation until construction was completed. 3On 22 November 2010, the applicants leased the land to relatives of a work colleague of Mrs Loomes who needed to find alternative accommodation while searching for a longer-term lease on a residence, paying rent to the applicants while occupying the land. After some months they found new accommodation and moved out of the land in mid-February 2011. 4The dwelling on the land was demolished on 10 March 2011 and construction continued through that year, the applicants moving into the new house on 25 November 2011, where they have lived ever since. 5On 7 November 2013, the Chief Commissioner wrote to the applicants asking them to complete a questionnaire for the purpose of determining the applicants' liability for land tax. Following completion of the questionnaire, the applicants were assessed for land tax in the amount of $3892 for the 2011 land tax year. 6The applicants lodged an objection to that assessment on 1 March 2014 claiming the principal place of residence (PPR) exemption and relying on the concession for unoccupied land intended to be an owner's PPR. The respondent disallowed the objection on 24 March 2014, indicating that as the applicants had leased the land, the unoccupied land exemption could not apply. The applicants then applied to this tribunal for review on the grounds of hardship and of failure to consider relevant legislation, specifically s 50 of the Land Tax Management Act 1956 (LTM Act), s 106A of the Taxation Administration Act 1996 (TA Act) and s 110 of the TA Act. 7At the hearing the applicants indicated that they no longer intended to rely on the PPR exemption and on the related unoccupied land concession, or on hardship, but would base their case solely on s 110. They sought a review of the Chief Commissioner's decision to impose the land tax, taking into account his powers under s 110 of the TA Act, and a finding that further action to recover the tax would be, in the circumstances, unwarranted. 8The issue in this case is therefore whether s 110 applies so as to empower the respondent, and by extension the tribunal, to write off the whole or any part of the applicants' unpaid land tax. Applicable law 9As the Court of Appeal explained in Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184 at [12] - [14], the statutory scheme creating the liability of a landowner to land tax is structured as a two-part scheme. The relevant taxing act is the Land Tax Management Act 1956 (LTM Act), while procedures applicable to a variety of State taxing acts are provided in the Taxation Administration Act 1996 (TA Act). By s 7 of the LTM Act, land tax is to be levied and paid on the taxable value of all land situated in New South Wales which is owned by taxpayers, except to the extent that land is exempt from tax under the LTM Act. 10By s 8 of the LTM Act, such land tax is to be charged on land owned at midnight on the 31 December immediately preceding the year for which land tax is to be levied. Under s 9(1) of the LTM Act, land tax is payable by the owner on the taxable value of all of the land in New South Wales owned by that owner which is not exempt from taxation under the LTM Act. 11By s 61 of the TA Act, the Chief Commissioner is charged with the general administration of the TA Act and the LTM Act, and is empowered to do all things necessary to give effect to the taxation laws, including the LTM Act. An important function vested in the Chief Commissioner by the TA Act is created by s 8(1): "The Chief Commissioner may make an assessment of the tax liability of a taxpayer". 12Two points should be noted at the outset. First, liability to land tax is created by the LTM Act, and although the Chief Commissioner administers that Act, he does not impose the liability himself. That liability is created by direct operation of the LTM Act: Gunasti v Chief Commissioner of State Revenue [2012] NSWADT 218. Secondly, although the use of the word "may" in s 8 might suggest that the Chief Commissioner has a discretion as to whether to make an assessment or not, the function has been held to be mandatory rather than merely facultative; Gunasti at [29] - [34]. 13Consequently, once the LTM Act by operation of law makes a taxpayer liable to pay land tax, the Chief Commissioner is required to act, and in so doing to give effect to the relevant taxation law, by generating an appropriate assessment: see Gunasti at [32]. Even if the Chief Commissioner were to fail to act, the liability to land tax created by ss 7, 8 and 9 of the LTM Act would remain in effect. Certain exemptions from liability are provided for, mainly in ss 10 and 10A of the LTM Act, but they are not relevant to the present application. 14Under s 96 of the TA Act, the taxpayer may apply to this tribunal for review under the Administrative Decisions Review Act 1997 (ADR Act) of a decision made by the respondent that has been the subject of an objection. In such cases s 100(3) places the onus of proof on the applicants. Section 96 limits this tribunal's jurisdiction for review to the decision of the respondent that was the subject of the objection (being the assessment for land tax), not the disallowance of the objection: Paspaley at [28], [53]. Where, as in this case, the application seeks review of the respondent's disallowance of the objection, the tribunal has no jurisdiction. It is therefore necessary and appropriate to treat the application as seeking review of the original assessment. 15 In determining an application for review, this tribunal is to decide what is the correct and preferable decision, having regard to the material before it and the relevant law (ADR Act s 63(1)). In doing so, it may exercise the functions conferred or imposed upon the respondent by relevant legislation (ADR Act s 63(2)). 16This tribunal may either affirm or vary the respondent's decision, set it aside and make a decision in substitution of it, or set aside the respondent's decision and remit the matter for reconsideration by the respondent (ADR Act s 63(3)). 17Division 5 of part 10 of that TA Act establishes and empowers a Hardship Review Board to deal with cases in which the exaction of the full amount of tax would result in serious hardship for the person or the person's dependants. Section 106B of the TA Act also permits the respondent to exercise the functions of the board in certain circumstances, if the amount of unpaid tax is less than $2000 in any particular case for any financial year. 18Section 110 of the TA Act permits the respondent to write off unpaid tax in particular circumstances: 110 Writing off of tax (1) The Chief Commissioner may write off the whole or any part of any unpaid tax if satisfied that action, or further action, to recover the tax is impracticable or unwarranted. (2) The writing off of tax does not affect the liability of the taxpayer to pay the tax or the power of the Chief Commissioner to recover it. (3) This section has effect despite the provisions of the Public Finance and Audit Act 1983 or another taxation law. 19Section 50 of the LTM Act applies the board's discretion to waiving the payment of land tax. The evidence 20The applicants did not adduce any oral evidence, but relied on two unsworn written statements that were attached to the original application, the first being by Sandra Loomes and dated 5 March 2014. In it Mrs Loomes stated that the Cronulla property was purchased by the applicants on 5 November 2010 solely as their PPR and family residence. 21The purchase followed the sale of their property at Loftus, where they had lived for about 18 years. After selling the Loftus property, the family moved into a rented house in Caringbah. While living there they found a suitable property to buy as their new PPR, the Cronulla land. As the existing house on the property was not suitable by reason of its age, disrepair and size, they began the process of preparing to demolish it and construct a new dwelling on the site. 22The applicants took possession of the Cronulla property on 5 November 2010, but because of the difficulty in finding rental property at that time, and given the short time frame before demolition of the existing house, it was not practicable to move the family into the existing house and out again a few months later. The applicants therefore decided to leave the Cronulla property vacant. 23A work colleague of Mrs Loomes, who was aware that the applicants had a vacant house awaiting demolition, enquired whether her brother-in-law and young family could rent it for a short term over the Christmas period, as they had been evicted from their long-term rental accommodation and could not find a place to live, thus facing the prospect of being homeless during the holiday season. The applicants agreed to allow the family to move into the Cronulla property for a short term while they continued their search for a longer term rental property. They moved in on 22 November 2010 and were made aware that the house was to be demolished early in 2011. 24The family secured a suitable rental property and were able to move out in mid-February 2011. The house was left vacant until demolition on 10 March 2011. The new house was constructed during 2011 and possession was handed over on 25 November that year. The applicants and their family have had possession and lived in the Cronulla house as their PPR since that date. 25Mrs Loomes stressed that the Cronulla land was purchased solely as their PPR and that the short term rental was incidental and unplanned. The applicants consented to it to help the family who were desperate for short-term accommodation. The income from the rental was declared and income tax was paid, but if land tax were levied, the result would be that the taxes paid on the income would exceed the income itself, an absurd result. The amount of land tax assessed appears to be for a full 12 month period, yet the family lived in the old house only for approximately 3 months. 26The other statement, dated 5 March 2014, was by Julie Nimmo PhD, who has been at work colleague of Mrs Loomes for the past seven years. Dr Nimmo states that in 2010 she was aware that the applicants had sold their Loftus house and moved into rented accommodation at Caringbah while waiting to settle the purchase of the Cronulla land. She was aware that the Cronulla property was purchased as their PPR and that they did not intend to move into it directly as they were planning to demolish it and rebuild within a matter of months. 27In November 2010 Dr Nimmo's brother-in-law Scott Haberfield and his young family were evicted from their long-term rental property and facing considerable hardship while locating another long-term rental property. The rental arrangement to which the applicants agreed was unplanned. It gave her brother-in-law a breathing space to be able to find a suitable home to rent long-term for his family. Applicants' submissions 28The applicants made written and oral submissions. The written submissions acknowledge that the applicants lost the benefit of the PPR exemption by renting the property to Mr Haberfield, but asked the tribunal to consider the unfairness of their helping a family in need, receiving a small amount in return, and being taxed for the whole tax year. They agreed to paying a proportion of the tax assessed, equivalent to the fraction of time the property was occupied by others, as a proportion of the whole year. It was simply the case that the land tax imposed exceeded the rental received, and in addition they were subject to income tax on it. They had exposed themselves to a liability for land tax by unknowingly forfeiting the PPR provisions. "However it is surely fair to ask that the circumstances be taken into account. It was not done for greed". 29The applicants pointed out that s 110 referred to either whole or partial waiver of the tax if the tribunal considered full imposition of the tax unwarranted. They disagreed with the respondent's argument that the writing off of tax could not form part of the assessment and stressed that the tribunal appears to have the power to either waive all of that land tax imposed, or part of it, being the fraction of time the property was tenanted. The applicants had offered to pay that proportion. 30Nor did the applicants agree that the discretion to write off was nothing more than an accounting function, as that proposition received no support from the Act itself or from the authorities. 31The applicants' oral submissions were presented by Mr Loomes, who reiterated the facts set out above and added that they had been fortunate to obtain the Caringbah property when they needed it, as the rental market was extremely tight, as had been well publicized at the time. There were even auctions for leases. When they completed the purchase of the Cronulla land they were well advanced with their plans to demolish the existing house and rebuild. To move into the Cronulla house and move out again to permit demolition would not be practicable because of the difficult rental market at the time, so they decided to leave the property vacant and demolish in about February 2011, or otherwise as soon as possible, remaining in the Caringbah rental in the meantime. 32They felt they could not refuse Dr Nimmo's request on her brother-in-law's behalf for an emergency short-term lease of the property, but thought it would not be a problem provided that they could protect their rights and those of the intending tenants. Mr Loomes accordingly contacted the Fair Trading office to ascertain the proper steps to be taken, as they wished the matter to be conducted in accordance with all legal requirements. The fair trading authorities gave them relevant advice but did not mention the possibility of land tax liability, nor did they consider that possibility themselves. 33The leasing arrangement was not entered into for reasons of profit but in order to assist a family in need. They thought it was not reasonable to refuse the request except with a good reason, as otherwise Mrs Loomes could face pressure at work. They did charge rent, amounting in total to $2700 before income tax, which fell to $1822.50 net. The OSR land tax questionnaire letter had arrived unexpectedly in 2013 and gave the impression that the decision about liability had already been made, leaving open only the possibility that interest might be forgone. They had completed the questionnaire honestly but as a result were left with a total tax liability that exceeded the income earned, an absurd state of affairs. When the law gives an absurd result, something must be wrong. 34The applicants had asked the respondent for a stay of their liability to instalments pending the determination of this application, but that had been refused, although they were given a new instalment plan requiring smaller payments on a monthly basis. They have made all payments on time to date, but Sutherland Shire Council had by resolution made his position, and those of a number of other employees, redundant. That decision was currently on hold, but the family faced the prospect of hardship if he were to lose his employment. Although they did not wish to continue making payments, they found the respondent's attitude intimidating and did not wish to incur the prospect of facing legal action. They hoped that by paying the instalments in accordance with the plan, they were not prejudicing their position. As a family with teenage children, the possibility of hardship to them remains, although the applicants did not wish to expose their financial affairs to the tribunal. They relied instead on s 110, as collection would be unwarranted. While the respondent does not have a discretion to exempt the applicants from liability, he could refrain from seeking to recover the full amount. 35After they had initiated the appeal to this tribunal, Mrs Loomes had received a telephone call from an OSR officer who asked why they were appealing and told her that the applicants could not win the application. He said he was giving them a caution because of their possible liability for costs. He persisted in addressing her as "Sandy", although she had told him her name was Sandra Loomes. She found his manner intimidating. 36Mr Loomes said the applicants agreed that the application of land tax in the assessment was correct, but maintained that collection was discretionary. They had sought a stay pending the appeal, which had been denied, but had continued to make payments because of the letters from the respondent threatening further action. Consideration 37The applicants do not contest the correctness of the Chief Commissioner's assessment of the Cronulla property for land tax, nor do they press their earlier claim that the PPR exemption and the related unoccupied land concession apply to it for the relevant tax year, or their earlier submission that the respondent should waive their tax liability for reasons of hardship. As the tribunal decided in Volpatti v Chief Commissioner of State Revenue [2007] NSWADT 222 at [23] - [27], there is no general discretion in the LTM Act allowing the Chief Commissioner to take into account special circumstances, including hardship, that may apply to a particular landowner which are not the subject of an exemption under the Act. The tribunal pointed out that it was open to the applicant in that case to apply to the Hardship Review Board for relief from paying the tax. The present applicants thus relied solely on s 110 of the TA Act. 38Section 110 authorizes the respondent to write off assessed tax, but does not give the respondent a discretion not to impose tax or to waive it. It applies only after tax is imposed and thus cannot form part of the process followed by the respondent in assessing a person for land tax. Even if the Chief Commissioner could have considered s 110 at the time of making the assessment, it could not form the basis of the review in this case as the Chief Commissioner made no decision concerning it. While under s 100(2) the applicant's and the respondent's cases on an application for review are not limited to the grounds of the objection, their cases must be directed to the decision actually made and that is the subject of the review application. 39Even if the tribunal had jurisdiction to apply s 110 in this case, the applicant would need to show that the section's requirements were satisfied. 40Neither party referred the tribunal to any authorities on the interpretation of s 110 and it would therefore appear that this may be a case of first impression. 41The first point to note is that the section creates a discretion to "write off" all or part of any unpaid tax. Writing off is not the same as waiver. It is an accounting transaction that reduces the value of an asset or an account receivable to zero when there is no longer a use for a fixed asset or an account receivable realistically cannot be collected. The amount written off may then be transferred to an account for doubtful debts. The term is used in its accounting sense in the context of tax law: see Encyclopaedic Australian Legal Dictionary. 42Deciding when a debt is for practical purposes irrecoverable will usually require evidence of uncollectibility, such as the passage of a long period of time, disappearance of the debtor or a pattern of the debtor's avoiding creditors. Writing off does not extinguish the debt but simply means that the creditor is no longer willing to expend resources on trying to collect it, at least for the time being. If conditions were to change, the creditor could decide to resume recovery efforts. 43This accounting practice is made statutory and somewhat explicit by s 110(2), which declares that "The writing off of tax does not affect the liability of the taxpayer to pay the tax or the power of the Chief Commissioner to recover it". 44That provision adds force to Mr EA Walker's submission on behalf of the respondent that s 110 constitutes a purely accounting function, and answers the applicants' submission that the Act does not support that view of the section. The reference in s 110(3) to the Public Finance and Audit Act 1983 further strengthens that contention, as, indeed, does the section's use of the accounting term "write off" itself. 45Before writing off of tax under s 110, the Chief Commissioner must be satisfied that "to recover the tax is impracticable or unwarranted". In Thornley v Heffernan (1995) ACL Rep 435 (NSW 4), BC 9505326 at 7, McLelland J explained that "The expression "impracticable" does not mean "impossible". It directs attention to considerations of a practical, rather than a theoretical nature arising out of the particular circumstances...." (see also Re el Sombrero [1958] Ch 900, 904; In re South British Insurance Co [1980] ACLC 34419). There is no evidence in this case to suggest that recovery is impracticable, and indeed the fact that the applicants have paid all instalments to date on time rather indicates the opposite. The doubt that still exist about the future of Mr Loomes's position at Sutherland Shire Council creates the possibility that his financial position could deteriorate in the future, but at this stage that is speculative. 46In any case, the applicants do not argue that recovery is impracticable, but that it is "unwarranted". They submit that their short-term leasing of the property to the Haberfield family was not done for gain, but in order to help a family facing a short-term emergency, and that to assess the applicants for the whole year in an amount exceeding the rental received in such circumstances produces an absurd result. While they do not raise hardship as a ground for challenging the assessment, they do contend that it supports the conclusion that further collection efforts by the respondent are unwarranted. 47The word "unwarranted" does not appear to have been the subject of any judicial definition. It can carry a wide range of meanings, including arbitrary, excessive, unauthorized, groundless, ultra vires, undue or superfluous. In the Property Agents and Motor Dealers Act 2000 (Qld) it refers to a motor vehicle that is not covered by a warranty. In the Criminal Code (Cth) s 138.1 it appears to mean unjustified or arbitrary. 48Section 110 deals with the accounting concept of writing off a debt. In that context, the word "unwarranted" can most reasonably be interpreted as referring to a consideration in an accounting transaction. So viewed, it should be read as denoting the process of deciding whether an account receivable must for practical purposes be categorized as irrecoverable, for example by reason of the long effluxion of time, the disappearance of a debtor or other indications that further recovery efforts would be futile and a waste of resources. The word therefore cannot in this context bear the range of meanings that the applicants advocate, that is, absurd, harsh, unfair or incongruous. 49In this case there is no evidence to suggest that the unpaid amount of tax is for practical purposes irrecoverable or that collection efforts would be futile. The conclusion must therefore be that there is no basis for applying s 110 so as to suspend any further collection of the unpaid balance of the land tax assessed. The only avenue now available to the applicants would therefore appear to be an application to the Hardship Review Board. 50The decision under review is affirmed. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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. Decision last updated: 10 September 2014