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WADE & TAN v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2014] ACAT 79 (24 December 2014)

Last Updated: 6 January 2015

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

WADE & TAN v COMMISSIONER FOR ACT REVENUE
(Administrative Review) [2014] ACAT 79

AT 14/75 and AT 14/76

Catchwords: ADMINISTRATIVE REVIEW – land tax – penalty tax – relevant person – agent’s obligation additional to owner’s obligation – both owner and agent are relevant persons – taxpayer overseas and unaware of tax obligation – liability of agent – duty of agent to discharge taxpayer’s obligations – agent’s duty does not excuse the taxpayer – remission of penalty tax – fair and reasonable – exceptional circumstances includes accumulative factors


Legislation: Land Tax Act 2004 (ACT) ss 8, 14, 19A.
Taxation Administration Act 1999 ss 29, 31, 37, 53, 82, 100
107(A)(2), 108A
Legislation Act 2001 ss 142, 145

Cases: Alexandrou and Ors & Commissioner for ACT Revenue (Administrative Review) [2012] ACAT 66
Belconnen Premier Inn Pty Ltd v Commissioner for ACT Revenue [2014] ACAT 68
Fryar v Commissioner for ACT Revenue (Administrative Review) [2012] ACAT 73
Hanley & Commissioner for ACT Revenue (Administrative Review) [2012] ACAT 64
Hay v Commissioner for ACT Revenue (Administrative Review) [2014] ACAT 23
Jokhan and Jokhan v Commissioner for ACT Revenue (Administrative Review) [2012] ACAT 15
Pileggi v Australian Sports Drug Agency [2004] FCA 955; (2004) 138 FCR 107
Photo Corporation of Australia Pty Ltd and Commissioner for ACT Revenue [1994] ACTAAT 91
Rawson Finances Pty Ltd v Commissioner of Taxation (2013) FCAFC 26;
Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Federal Commissioner of Taxation [2007] AATA 130.
Scott and Anor v Commissioner of ACT Revenue [2013] ACAT 73
Steele v Commissioner for ACT Revenue (Administrative Review) [2010] ACAT 15
Theron v Commissioner for ACT Revenue (Administrative Review) [2013] ACAT 33
Touma v Chief Commissioner of State Revenue [2012] NSWADT 2

Texts/Papers: Explanatory Statement, Rates and Land Tax Legislation Amendment Bill 2009 (ACT).


Tribunal: Ms L. Beacroft – Member


Date of Orders: 24 December 2014
Date of Reasons: 24 December 2014
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 14/75 and 14/76

BETWEEN:

GEOFFREY WADE

& SIEW IMM TAN

Applicants

AND:

COMMISSIONER FOR ACT REVENUE

Respondent


TRIBUNAL: Ms L. Beacroft – Member


DATE: 24 December 2014

ORDER

  1. The decision of 15 July 2014 not to remit penalty tax is set aside.
  2. A decision remitting 20% of the penalty tax is substituted.
  3. To remove doubt, the result of Order 2 is that penalty tax will be imposed at 40% (instead of 50%) of tax unpaid.
  4. The Tribunal has no jurisdiction to review the decision regarding interest.

......................................
Ms L. Beacroft – Member

REASONS FOR DECISION

Background

  1. The applicants, Mr Wade and Ms Tan, are the owners of residential land (‘the property’) in the ACT and are liable for land tax for the rental period from March 2012 to May 2014. The Commissioner for ACT Revenue (‘the respondent’ or ‘the Commissioner’) administers the land tax and related legislation in the ACT. The case concerns the obligation to notify the Commissioner when a parcel of land is rented, the liability of agents for tax obligations, the appropriate rate of penalty tax, the remission of penalty tax, the imposition of interest on unpaid land tax and the jurisdiction of the ACT Civil and Administrative Tribunal (‘the Tribunal’) for the latter issue.
  2. On 12 August 2014, Mr Wade applied to the Tribunal for review of a decision by the Commissioner dated 15 July 2014 to disallow objection 3474 to an assessment of land tax.
  3. On 14 August 2014, Ms Tan also applied to the Tribunal for review of the decision. She was named on the assessment together with Mr Wade. The applications were taken by the Tribunal to have been made jointly and both parties presented their case together. Both parties filed materials and submissions jointly, and notwithstanding the existence of two separate files, they will be treated as joint applicants.

Assessment and Objection

  1. The applicants objected to the imposition of penalty tax as they were unaware of the existence of land tax, had relied on their agent and they had not engaged in deliberate fraud or tax avoidance.
  2. The objection was disallowed by the Commissioner on the ground that the applicants had not notified the Commissioner within 30 days of the rental of the property, contrary to section 14 of the Land Tax Act 2004 (‘LTA’). Under the Act, this triggered a tax default for the purposes of the Taxation Administration Act 1999 (‘TAA’) and imposed penalty tax on the applicants.
  3. The unpaid land tax came to the attention of the Commissioner who initiated an investigation. A notice under section 82 of the TAA (‘section 82 notice’) was sent to the applicants on 12 February 2014. The details of the assessment that followed are set out at paragraph 8.
  4. The period of rental was not in dispute, being 18 May 2012 to 17 May 2014. A copy of the Residential Tenancy Agreement was included in the T Documents (‘T-Docs’) at page 52. The applicants did not object to the primary land tax liability.
  5. On 17 February 2014, the Commissioner issued a notice of assessment to the applicants for the rental period. This notice was included in the T-Docs at page 64. This assessment included penalty tax at 50% with interest imposed. The amount of the penalty was $2767.52, and the interest was $477.66.

Conduct of the hearing

  1. A hearing was held on 1 December 2014.
  2. The applicants appeared in person, and Dr Jarvis appeared for the respondent instructed by Mr Kwan of the ACT Government Solicitor.
  3. Prior to the hearing, the parties lodged and exchanged Statements of Facts and Contentions and the authorities on which the parties sought to rely. The Commissioner prepared a folder of relevant documents which are known as the T-Docs.
  4. On the date of the hearing, the applicants handed up a further set of submissions to reflect the effect of the respondent’s reliance on the Fryar case. The respondent did not object to that document being handed up. In total, five documents were identified as containing the parties’ submissions:
    1. the applicants’ Statement of Facts and Contentions;
    2. the respondent’s Statement of Facts and Contentions;
    1. the applicants’ response to the respondent’s Statement;
    1. the respondent’s summary of submissions; and
    2. the applicants’ summary of submissions.
  5. While no party had filed a witness statement, the Tribunal heard evidence from Mr Wade on oath in relation to the circumstances surrounding the failure to notify.
  6. Facts were agreed as follows:

  1. The contested issues were as follows:

Legislation

  1. 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. [1] The LTA provides for a written notice to be given to the Commissioner[2] 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, then interest and penalty tax apply in addition to the land tax payable.
  2. Non-compliance is treated as a tax default under the TAA.[3] The amount of penalty tax is payable at a statutory rate depending on the circumstances of the default[4] and in some circumstances, is not payable[5], can be reduced[6] and/or can be remitted.[7]
  3. For unpaid land tax, the default rate of penalty tax is 25% [8] 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”. [9] This higher rate applies unless there is a “reasonable excuse”[10], the tax default “happened solely because of circumstances beyond the taxpayer’s control”[11] or the penalty tax is remitted.[12]
  4. While not relevant to this case, where there is an intentional disregard of a tax law, the rate increases to 75%. 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.[13]
  5. The amount of interest payable for a tax default is set out in the legislation.[14] The Commissioner can remit all or part of the interest in certain circumstances.[15]

Tribunal’s Jurisdiction and Powers

  1. The “burden” of showing that an “objection should be sustained” is with the taxpayer, the applicants in this case[16]. The Tribunal’s main task in this case is to decide if the taxpayer has shown that the objection should be sustained.[17]
  2. 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.[18]
  3. 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.[19]

Applicants’ Contentions

  1. The applicants’ contentions against the contested issues are summarised below.

a) The ‘relevant person’ for the purposes of section 14 of the LTA was the managing agent, and not the owner

  1. The applicant contended that in their case due to section 14 of the LTA, which requires that “[a] relevant person must tell the commissioner ... (a) that a parcel is rented”, the agent alone was required to inform the commissioner.
  2. The applicants point to subsection 5 (s14(5)) which provides at paragraph (b) that a relevant person means “if the owner has authorized an agent to act on the owner’s behalf in relation to the rental of the parcel – the agent”. The applicants contended that this section operates to fully shift the responsibility for notifying the commissioner to the agent.
  3. The applicants contended that the singularity of the words “relevant person” means that there is only one relevant person at any given time.
  4. The applicants also referred to the explanatory memorandum to the Rates and Land Tax Legislation Amendment Bill 2009 which introduced the concept of the ‘relevant person’. In that statement, the Minister noted that “the amendments will “provide a stronger mechanism to help ensure that property owners and their agents notify the ACT Revenue Office about the rental status of a property for land tax purposes”[20]. The applicants contended that the intent of the legislation was to impose legal obligations on agents who have been assigned management of rental properties.
  5. The applicants contended that section 19A of the LTA does not apply as it deals with the situation where the owner has failed to notify the Commissioner, not the situation where the agent has failed to notify the Commissioner. The applicants submitted that they should not be liable for penalty tax as they did not fail to notify the Commissioner; the agent had full responsibility.

b) The liability of the agent under section 53 of the Taxation Administration Act and the Commissioner’s choice to enforce

  1. The applicants contended that section 53 required an agent, who has possession, control or management of a property of a taxpayer, to ensure that the obligations of the taxpayer under a tax law that remain undischarged are discharged. The applicants contended that the availability of a penalty to be imposed upon the agent, in the same terms as a penalty that could be imposed upon the taxpayer, expressed the legislative intention that the agent themselves be responsible for the failure to discharge the obligation.
  2. The applicants contended that the Commissioner had failed to consider section 53, which together with section 14 of the LTA, shifted responsibility to the agent. The applicants submitted that the Commissioner was improperly seeking to proceed against the applicants and not the agents due to convenience or ease.
  3. The applicants submitted that this was a problem with the regulatory framework, under which the Commissioner sought to enforce its rights against the taxpayer in order to extract the maximum penalty. In contrast, the Commissioner did not seek to hold the agents to account despite the legislative intention to impose legal obligations on them.

c) The penalty tax of 50% was inappropriate in the circumstances

  1. The applicants did not rely heavily on this ground as their submission was focused on the other contentions. Their written submissions made no contentions directly on this point. However, they made oral submissions that are relevant and the issue is therefore discussed here.
  2. The content of the submissions was that they had engaged an agent. Implied in this, and together with their being overseas, is that either reasonable care relevant to subsection (2) or (6) (s31(2),(6)), or circumstances beyond the taxpayer’s control relevant to subsection (6) should be found, with the effect of either reducing the penalty tax rate to 25% or 0%.

d) The penalty tax should have been remitted

  1. The applicants contended that the penalty tax should have been remitted due to exceptional circumstances. The applicants pointed to three sets of circumstances that qualified as ‘exceptional’.
  2. The applicants contended that the combined effect of these three circumstances gave rise to ‘exceptional circumstances’ for the purposes of remission of penalty tax.
  3. The applicants distinguished the respondent’s authorities on the grounds of relevance due to differences in factual circumstances. The applicants submitted that the Steele v Commissioner for ACT Revenue[21] case was the only case which was directly relevant as it had very similar facts.
  4. The applicants distinguished Jokhan and Jokhan v Commissioner for ACT Revenue[22] on the basis that in that case the taxpayer was found to have intended to deceive the Commissioner. The applicants submitted that the findings on the liability of the taxpayer for the actions of their agent should be confined to the situation where the taxpayer intended to deceive. Therefore, the applicants submitted that that finding should not apply to the present facts.
  5. The applicants distinguished Fryar v Commissioner for ACT Revenue[23] on the basis that in that case the agent had specifically mentioned that they would not deal with the land tax matter. The applicants further submitted that Fryar was not an authority on the liability of the owner for the actions of the agent, as the relevant argument only appeared in the respondent’s submissions in that case and not in the consideration section of the judgment.

e) Review of interest

  1. The applicants contended that the Tribunal should review the imposition and the amount of interest. They submitted that in the Steele case the Tribunal had undertaken to review interest, and it was within the Tribunal’s jurisdiction to do so.

Respondent’s Contentions

  1. The respondent’s contentions against the contested issues are summarised below.

f) The ‘relevant person’ for the purposes of section 14 of the LTA was the managing agent, and not the owner

  1. The respondent’s contention was that, despite the responsibility of the agent, the liability that resulted from the failure to notify the Commissioner was borne by the owner.
  2. While the written Statement contended that it was the responsibility of the applicants or their agents to notify the commissioner, Dr Jarvis conceded at the hearing that the section 14(5) operated to make the agent the responsible person for notification to the Commissioner in this case.
  3. Despite this, the respondent contended that the application of section 19A of the LTA, which imposes interest and penalties where there is a failure to notify the Commissioner under section 14, meant that the owner was liable notwithstanding a failure by the agent. Dr Jarvis submitted that the words ‘owner ... fails to comply’ in s 19A(1)(b) should be read as including a failure by the agent on behalf of the owner. Otherwise, it was submitted, any taxpayer could avoid tax liability by pointing to any failure by the agent.
  4. The respondent further contended that owners should be held liable for failures of their agents. This contention relied both on the general law of agency, which attributes liability for actions or omission of agents to their principals, and previous authorities including the Jokhan and Fryar cases in which the failure of the agents led to the owners being liable.

g) The liability of the agent under section 53 of the Taxation Administration Act and the Commissioner’s choice to enforce

  1. The respondent made two contentions in relation to section 53 and the associated penalties.
  2. The first contention was that, read as a whole, the section applied to allow agents to disburse monies on behalf of their principal towards the payment of tax obligations. Dr Jarvis submitted that this was necessary because under ordinary principles of agency, the agent is not permitted to disburse money without a direction to do so. This power would be used to pay land or other tax out of incoming rent payments.
  3. In support of this argument Dr Jarvis pointed to subsection (4). In that subsection, there is a reference to ‘the whole or part of an amount that is assessed as being payable as tax ... and remains unpaid’. Dr Jarvis submitted that the whole section should be as merely payment of unpaid tax out of money that the agent holds on behalf of the principal.
  4. The second contention was that, despite any penalties which section 53 may impose on the agent for a failure to discharge obligations (including an obligation under section 14 of the LTA); the imposition of a penalty on the agent was a separate matter to the imposition of a penalty on the owners under section 30 of the TAA. Dr Jarvis submitted that the actual liability for penalty tax still arises for the owners. The liability of the agent, whether responsible under section 14 or not, could not relieve the taxpayer of their liability for penalty tax.
  5. Further, it was noted that the provisions were offence provisions which may lead to criminal prosecutions of the agents. It was submitted that this had no effect on the owners’ liability under sections 30 and 31 of the TAA and could not affect the penalty under those sections.

h) The penalty tax of 50% was inappropriate in the circumstances

  1. The respondent contended that the applicant had not taken reasonable care. The respondent submitted that the applicants had an obligation to search out their tax obligations, and that failure to do so was a failure to take reasonable care.
  2. The respondent relied on Jokhan for the principle that ‘mere engagement of an agent ... cannot be regarded as reasonable care’.
  3. The respondent submitted that considerations under section 31 could be taken into account in relation to the agent’s conduct in order to find reasonable care or circumstances outside control. Despite this, the lack of evidence to why the agent failed to notify the Commissioner, or whether they had taken reasonable care, meant that the Tribunal could not find that section 31 applied to reduce the amount of penalty tax.

i) The penalty tax should have been remitted

  1. The respondent contended that being overseas for the relevant period and being unaware of tax obligations, were not sufficient reasons to give rise to ‘exceptional circumstances’ which would allow a remission under section 37 of the TAA.
  2. The respondent referred to the decision of Steele, in which similar taxpayers residing overseas relying on their Australian agent were described as not having ‘exceptional circumstances’.
  3. The respondent further submitted that remission must be an exceptional event otherwise the scheme for automatic penalties and interest as a general deterrent would be undermined. The respondent submitted that ignorance of the law was not a defence, and mere engagement and reliance upon an agent should not excuse the taxpayer’s duty to find out about their tax obligations. The respondent relied on Steele for this proposition.
  4. The respondent submitted that dishonesty was not required for the imposition of penalty tax. The respondent submitted that the cases of Steele and Theron were examples of situations in which the taxpayers were found to have acted completely honestly and in good faith in relation to a liability of which they were not aware. Despite this, they were still liable for penalty tax.
  5. The respondent contended that failure by agents was not an exceptional circumstance. Rather, it was an all too common situation, for which the remedy was direct action against the agent. In support of this proposition the respondent relied on Dixon[24].

j) Review of interest

  1. The respondent contended that recent cases have settled that the Tribunal is unable to review the imposition and the amount of interest. The respondent submitted that the case of Alexandrou[25] was the authority for this proposition.

Consideration

  1. The Tribunal made findings in relation to the issues of law raised by the applicants’ contentions.

Meaning of ‘relevant person’ in section 14 of the LTA

  1. Section 14 requires a relevant person to notify the Commissioner if a parcel of land is rented. As the legal point raised is a point of interpretation, the section is set out below.
    1. Commissioner to be told if residential land rented

(1) This section applies in relation to a parcel of land that—

(a) is leased for residential purposes; and

(b) is rented by a tenant.

(2) A relevant person must tell the commissioner, in writing—

(a) that the parcel is rented; and

(b) when the rental began.

Note 1 If a form is approved under the Taxation Administration Act 1999, s 139C, the form must be used.

Note 2 It is an offence to fail to notify the commissioner under this section (see Taxation Administration Act 1999, s 67 (2)).

Note 3 It is also an offence to knowingly avoid paying, or disclosing a liability to pay, part or all of an amount of tax (see Taxation Administration Act 1999, s 65 (1)).

(3) The relevant person must tell the commissioner the information mentioned in subsection (2) not later than 30 days after—

(a) if there is a change of ownership of the parcel—the day the ownership changes; or

(b) in any other case—the day the rental begins.

(4) This section does not apply if the owner of the parcel of land is a corporation.

(5) In this section:

relevant person means—

(a) the owner of the parcel of land; or

(b) if the owner has authorised an agent to act on the owner’s behalf in relation to the rental of the parcel—the agent.

Examples—agent

accountant, real estate agent, solicitor

Note An example is part of the Act, is not exhaustive and may extend, but does not limit, the meaning of the provision in which it appears (see Legislation Act, s 126 and s 132).

  1. The crucial provision is subsection (5). There are two ways to read this subsection. The first is disjunctive: if the condition in paragraph (b) is met, then only paragraph (b) applies. The second is cumulative: if the condition in paragraph (b) is met, then both paragraphs (a) and (b) apply. The normal English usage is for ‘or’ to be used disjunctively. The word ‘and’ instead of the word ‘or’ would give it the conjunctive meaning. The provision should be presumed to be disjunctive – either (a) or (b) applies but not both. This presumption is rebuttable, and it was rebutted in cases such as Pileggi v Australian Sports Drug Agency.[26]
  2. Despite this presumption, principles of statutory interpretation require a ‘purposive approach’. In the ACT, this is provided by section 139 of the Legislation Act 2001. That section requires the interpretation that would best achieve the purpose of the Act to be preferred to any other interpretation. This is the ACT equivalent to s 15AA of the Commonwealth Acts Interpretation Act. In fact, section 138 may operate to strengthen the purposive approach by “displacing the apparent meaning of the Act”.
  3. The applicants point to the singularity of the words ‘relevant person’ to contend that the ‘exclusive or’ is correct and that there should only be one ‘relevant person’ at any given time. The number of the words “relevant person” is not determinative. Section 145 of the Legislation Act 2001 provides that “words in the singular number include the plural and words in the plural number include the singular”. It is not possible to draw inferences from the reference to ‘relevant person’ as it is normal drafting practice to define a term in the singular, even where there are clearly several of those persons or things existing at the same time.
  4. Subsection (2) requires ‘a’ relevant person to tell the Commissioner, not ‘the’ relevant person. While not conclusive and in contrast to the singularity or plurality of words, the use of the indefinite instead of the definite article is a guide. This contemplates there being more than one relevant person at a given time, either of which can notify the Commissioner in discharge of the obligation. The use of the indefinite article in subsection (2) can be reconciled with the use of the definite article in subsection (3) as the definite article is used in subsection (3) to refer to whichever of the relevant persons tells the Commissioner under subsection (2).
  5. It is in the Explanatory Statement that the answer lies. Section 142 of the Legislation Act 2001 allows the Tribunal to consider the explanatory statement for the Bill that became the Act to be used to assist in working out the meaning of an Act. Under the requirement to take a purposive approach, the legislative intention must be referred to.
  6. The Explanatory Statement states:

“The amendments seek to provide a more robust mechanism to support the existing requirement for owners to notify the Commissioner when a property becomes rented. The amendments do this by extending the requirement to notify the Commissioner to agents (such as real estate agents, accountants and solicitors) entrusted by the owner with the management of the parcel of land. This is in addition to the existing obligation that will continue to apply to the owners themselves. However, despite these amendments owners will still remain liable to any interest and or penalty tax payable in relation to any failure to notify the Commissioner of the rental in accordance with the Land Tax Act.” [emphasis added][27]

  1. It is clear that section 14 operates to make agents relevant persons in addition to the owner. That is, where an agent is authorised, both the owner and the agent are relevant persons. Either the owner, or the agent must notify the Commissioner within 30 days, and the failure of at least one of them to do so will trigger section 19A.
  2. This is consistent with a cumulative meaning. One can only presume that the draftsman used the word ‘or’ instead of the word ‘and’ to avoid the implication that both the owner and the agent had to inform the Commissioner. That concern would have been sufficiently met by the word ‘a’ in subsection (2), and would have been much clearer than the current language.
  3. The above construction of section 14 explains why there is no reference to agents in section 19A(1)(b). There is no need because there is still an obligation on the owner, which may or may not be discharged by the agent on behalf of the owner. Subsections (2) and (5) are quite clear in referring to the owner only. The Explanatory Statement confirms this in the last sentence extracted above at paragraph 67.
  4. It is difficult to say why the legislature introduced an obligation on the agent but maintained the full liability of the owner. It appears that the penalty available against the agent is that under section 53.
  5. Section 14 requires either the owner or the agent to inform the Commissioner. Where neither the owner, nor their agent has notified the Commissioner, the liability for interest and penalty tax under section 19A falls only on the owner.
  6. Given the findings set out in paragraphs 68 and 72 above, the case of Fryar, on which the respondent relies for the proposition that notwithstanding the operation of section 14 the principal retains full responsibility, need not be considered. Factors in that case (that the agent had specifically stated that they would not take on land tax matters) may distinguish Fryar, but it is not necessary to consider them. Similarly, other cases such as Jokhan do not need to be considered here.

Liability of the agent under section 53 of the TAA

  1. The Tribunal agrees with the applicants that section 53 applies to obligations wider than the mere paying of tax from rent receipts that they hold. There is no reason to read the language of subsections (2) and (3) restrictively just because subsection (4) refers to a specific situation. The obligation to notify the Commissioner under section 14 of the LTA is an obligation to which section 53(2) should apply.
  2. Further, it appears that the penalties under subsections (2) and (3) apply to the agent, and are not vicariously attributable to the principal. They are offence provisions, and the penalties would apply where the agent is prosecuted and convicted of the offence. It would be inconsistent to attribute liability arising from a criminal conviction to the principal.
  3. The owner’s liability arises under section 30, which creates the liability, and section 31, which imposes the amount of the penalty. The imposition of penalty depends on the occurrence of a tax default, such as that deemed by section 19A of the LTA.
  4. The Tribunal accepts Dr Jarvis’ submission that the penalties imposed under section 53 are independent of the penalties imposed under sections 30 and 31. It is open for a penalty to be imposed on both the owner and the agent, in the same amounts, as the sources of their liabilities are different. It is also open for only one of the two to be pursued.
  5. Further, the Commissioner is only able to directly seek the penalty from the taxpayer, as the penalty on the agent is subject to a prosecution. The final decision to prosecute is made by the Director of Public Prosecutions, briefed by the Commissioner for ACT Revenue. While this is a path that can be taken, it does not prevent the Commissioner from pursuing the taxpayer alone, or as well as, the agent.
  6. The Tribunal finds that the liability of the agent under section 53 does not relieve the owners of liability under sections 30 and 31.

Imposition of penalty under section 31

  1. Section 31 provides for a base 25% penalty tax rate. It increases that rate to 50% where the Commissioner is satisfied that the taxpayer (or their agent) failed to take reasonable care to fulfil the taxpayer’s obligations under a tax law.
  2. The Tribunal is unable to make any findings in relation to the agent’s conduct. Apart from their failure to discharge the obligations, there is no evidence as to how they acted in relation to those obligations and whether they exercised reasonable care.
  3. In relation to the applicants’ conduct, the Tribunal accepts that there is a positive obligation on the taxpayer to make enquiries. The case of Theron, although it is distinguishable on the basis that in that case the taxpayer did receive information but chose not to read it, still held that there is an onus on landlords to enquire about tax obligations. This was also the opinion in Steele.
  4. It was at all times open to the applicants to make contact with the Revenue Office, or their agent, directly on the matter of land tax. While the Tribunal recognises that there was no reason apparent to the applicants to undertake those inquiries as the tax in question was a concept unfamiliar to those overseas, the fact that it was possible to make those enquiries means that there were no uncontrollable circumstances. In line with the above authorities, it also means that the applicants did not take reasonable care for the purposes of section 31.
  5. In that context, the Tribunal finds that the applicants did not take reasonable care for the purposes of a reduction in penalty under section 31. The Tribunal recognises that the applicants never contended that that was the case.

Remission

  1. Penalty tax may be remitted by the Commissioner under section 37. That section gives a discretion to the Commissioner to remit all or part of an amount of penalty tax payable.
    1. Remission of penalty tax

The commissioner may remit all or part of an amount of penalty tax payable by a person if satisfied that—

(a) either—

(i) the person has taken reasonable steps to mitigate, or to mitigate the effects of, the circumstances that resulted in the liability for penalty tax; or

(ii) the circumstances that resulted in the liability for penalty tax were exceptional; and

(b) it would be fair and reasonable to remit all or part of the penalty tax.

Note The commissioner’s decision to refuse to remit penalty tax payable by a person is an internally reviewable decision (see s 107, def internally reviewable decision), and the commissioner must give an internal review notice to the person (see s 107B).

Reasonable steps to mitigate

  1. The applicants submitted that they were not contending that they took reasonable steps to mitigate the circumstances. Despite this, the respondent made submissions on this point. The Tribunal considered the point for the benefit of the applicants.
  2. The respondent pointed to the Commissioner’s discovery of the failure to notify before any action by the applicants. Further, Dr Jarvis submitted that the applicants could not have taken any steps to mitigate as they were unaware of the existence of land tax at all before they received the section 82 notice.
  3. The Tribunal accepts that the applicants did not take reasonable steps to mitigate the circumstances for the purposes of section 37(a)(i).

Exceptional circumstances

  1. A large part of the applicants’ submissions dealt with why the circumstances were exceptional. Their grounds are set out in their contentions above (refer to paragraphs 35 to 39).
  2. The case of Steele dealt with the remission of interest. For reasons discussed elsewhere in this decision, the imposition and amount of interest is not within this Tribunal’s jurisdiction. However, it contains some obiter comments about what would be exceptional circumstances.
  3. Mr and Mrs Steele, the applicants in that case, lived in Britain and bought an Australian property so they could avoid winter. In the time that they were not in Australia, they engaged a real estate agent to rent out the land.
  4. On the remission, at paragraph 12 Senior Member Hatch said:

All that the delegate seems to have done is noted that Mr and Mrs Steele lived overseas and were not experienced in Australian property matters and that it was reasonable for them to rely on their Real Estate Agent. I do not regard these circumstances as exceptional.

  1. In Steele the Commissioner remitted the penalty, despite the subsequent misgivings by Senior Member Hatch.
  2. The taxpayers in Steele seem to have contemplated, although it is not clear, renting out at the time they bought the property. The present applicants bought the property with the intention of living in it, but a change in circumstances caused them to rent it out. If they had bought the property with the intention of renting it out, the selling agent may have informed them about the requirement to pay land tax.
  3. The observations of Senior Member Hatch in Steele were applied in Theron. In that case, Presidential Member Symons considered the above opinion about exceptional circumstances. She also cited Senior Member Hatch’s comments in Steele:

There is no suggestion that the Applicants did anything other than fail to realise that a tax they had never heard of was payable ... but that does not in my opinion help them ...

  1. In Theron, the taxpayer was resident in the Australian Capital Territory. Presidential Member Symons compared her situation to that of the Steeles and found that her ability, as a local, to make enquiries was greater due to her access to the authorities. Further, the taxpayer in that case was sent information with her rates notices, but did not read them and was therefore not aware of the land tax requirement.
  2. The actions (or inactions) of the agent are also relevant. While it does not excuse the principal, it is a well settled principle of the general law of agency that an agent has a duty to act with skill and diligence. Further, where the agent holds him or herself out to be following a particular trade or profession (property management) the standard of care is higher. Unfortunately, the Tribunal cannot determine whether the agent has breached this duty. The agent was not called to give evidence, evidence which would have also been relevant to the section 31 considerations above. It might be argued that an adverse inference can be drawn from the applicants’ failure to call anyone from the agent’s business (Jokhan & Jokhan and Commissioner for ACT Revenue [2012] ACAT 15). However this is not warranted in this case. Mr Wade confirmed in his evidence that he had notified the agent of the tax matter before the Tribunal and the Applicants’ view that the agent was liable; however he had not received any reply. Given the Applicants are not legally trained, were credible in their evidence and had attempted to communicate with the agent about the matter before the Tribunal, no adverse finding about the nature of any evidence that might have been given by the agent is warranted. In the absence of evidence going to the agent’s conduct, which may have revealed a reasonable excuse for the failure to notify, the Tribunal cannot make a finding that there is a reasonable excuse.
  3. The applicants also contended that the system used by the ACT Revenue Office was inefficient and contributed to the 21 month delay in bringing the matter to the applicants’ attention. It is clear that the system that is being employed by the Commissioner is not effective in finding situations where the agent fails to inform the owners of their land tax obligations, whether it be at the beginning of the agency relationship or when the agent receives the notices from time to time on behalf of the owners. Despite this, it remains the responsibility of the taxpayer to make sure that their agents are discharging their obligations properly and not the responsibility of the Commissioner to find and inform taxpayers about irregularities. The principle that the onus is on the taxpayer was set out in relation to payroll tax in the Photo Corporation[28] case, and confirmed by the Tribunal in Belconnen Premier Inn.[29]
  4. Finally, the applicants pointed to the failure, in their submission, to consider the legislative provisions that would make the agents culpable. The Tribunal has set out its findings earlier that it was open to the Commissioner to impose a penalty on the taxpayer separately from the agent. They are not obliged to seek one or the other, and that they did not pursue the agent does not give rise to exceptional circumstances.
  5. Notwithstanding the very clear and settled onus on the taxpayer to find out their tax obligations, the combined effect of several factors in this case support a finding of exceptional circumstances. These circumstances are the applicants unexpectedly having to rent out the property and remain overseas, the fact that arrangements were put in place by them to ensure all liabilities were met, the unexpected failure of the licensed agent to inform them of the land tax requirements and other issues with the agent (whether or not these issues support a legal breach by the agent of their duty to their principal), the Applicants presence overseas during the whole of the relevant period without direct access to the mail sent by the Commissioner, and their credibility as witnesses. Their overall circumstances were distinguishable from those of applicants in the other cases relied on by the respondent. As in the Hay case, there are multiple circumstances which, in their totality, justify a finding of exceptional circumstances.
  6. It is important to clarify that the nature of exceptionality in this case is such that if any of the facts were different or less well evidenced, the applicants’ circumstances would not have been exceptional. The onus on the taxpayer to inform themselves about their tax liabilities still remains.

Fair and reasonable

  1. There was no argument about whether it would be fair and reasonable as the arguments relating to section 37 were focussed on the ‘exceptional circumstance’ requirement. Despite this, the Tribunal considered whether a remission would be fair and reasonable.
  2. Dr Jarvis submitted that the effect of a remission in this case may put them in a better position than someone who had paid their taxes on time and in accordance with the requirements. This is something that must be considered, as it would be unfair to those taxpayers if, by virtue of a breach, the taxpayer had the benefit of the money for the period for which it was unpaid and subsequently paid no penalty.
  3. Previous cases must also be considered. The applicants submitted that the Steeles, who the Tribunal found to be in similar circumstances, were granted a remission. Fairness and reasonableness requires some level of consistency in decision making, although it does not extend so far as to bind future decision makers. Indeed, it seems that it is difficult to distinguish the Steeles from the present applicants. None of them had heard of land tax and all of them had employed agents upon whom they relied to manage their properties. All of them had been let down in respect of land tax obligations. All of them had acted honestly and without intent to deceive.
  4. Upon consideration of Senior Member Hatch’s comments in Steele, as well as the comments of Presidential Member Symons in Theron, the Tribunal is of the view that it would not be unfair or unreasonable to deny the present applicants a remission. Although the Commissioner remitted in that situation, there is a consistent standard given by the Tribunal in all of those cases that these circumstances do not give rise to remission.
  5. The Tribunal agrees with Dr Jarvis that a remission should not generally put a defaulting taxpayer in a better position than a taxpayer who has done the right thing. Further to this however, the innocent defaulting taxpayer who, upon learning of their liability, immediately acknowledged and took steps to pay back the tax arrears should not be placed in the same situation as a defaulting taxpayer who fails to read their notices and subsequently denies primary liability. Fairness and reasonableness require that where the conduct shows good faith and honesty on the part of the taxpayer, then the penalty should, at least nominally, reflect that.
  6. In Steele, the penalty tax was fully remitted in a similar situation. In Theron, the penalty tax was not remitted but the facts were materially different for reasons given above.
  7. The Tribunal considers that in light of the nature of exceptionality in this case and the onus on the taxpayer, a full remission would be inappropriate. Even a 50% remission would be excessive, as that would put them in the position of someone with a reasonable excuse – which the Tribunal has found not to be the case. Therefore, the Tribunal remits 20% of the penalty tax imposed. To remove doubt, this is the equivalent of 10% of the unpaid tax for the purposes of section 31. This means that penalty tax should be imposed at 40% instead of 50%.
  8. The Tribunal has considered the issue of deterrence and balanced this with the requirement to determine the correct or preferable decision. In this case, even with a remission of penalty tax, some penalty tax is payable for the relevant period of unpaid land tax. Further, the interest imposed on the applicant is a deterrent to non-compliance.

Jurisdiction in relation to interest

  1. The Tribunal recognises that the Steele case deals with the remission of interest. This would indicate that the decision not to remit interest is reviewable by the tribunal.
  2. Despite this, the Tribunal accepts that it has no jurisdiction in relation to the imposition and amount of interest. Alexandrou was a case in which the Tribunal accepted it had no jurisdiction to consider interest. There are other established authorities in which the Tribunal has found that issues about interest are not within jurisdiction, including the Hay[30] case and the Hanley[31] case. For completeness, the reasons why the Tribunal has no jurisdiction are given below.
  3. The tribunal’s power to review decisions does not come from its own statute. Section 9 of the ACT Civil and Administrative Tribunal Act 2008 provides that a person may apply to the tribunal if an authorising law provides that an application may be made. The tribunal relies on other Acts (authorising laws) to give the tribunal the power to review decisions. Typically, each act which provides for reviewable decisions has a section setting out which decisions are reviewable.
  4. The reviewable decisions in relation to tax matters are set out in the Tax Assessment Act. Section 108A of that Act provides that “a taxpayer in relation to whom a reviewable decision is made may apply to the ACAT for review of the decision”. Section 107A(2) confirms that all of the tax laws are reviewed through this section.
  5. Section 107A(1) defines what a reviewable decision for the purposes of the tax laws. For ease, the subsection is extracted.

107A Meaning of reviewable decision etc—div 10.2

(1) For this division, a reviewable decision is a determination by the commissioner of an objection by the taxpayer to—

(a) an assessment; or

(b) a decision mentioned in schedule 1, section 1.2; or

(c) a decision under a tax law that is prescribed under the law for this section.

  1. This section means that before the tribunal can review anything, the taxpayer must object to those decisions. The ability to object to those three types of decisions is provided in section 100. The Commissioner’s determination on that objection enlivens the power of the tribunal to review the decision. For clarity, it should be noted that s 100(1)(b) is wider than s 107A(1)(b) as it includes decisions in schedule 2. These are decisions against which it is possible to object but which cannot be further reviewed by the tribunal.
  2. Subsection (a) is not raised at this point as the Dictionary to the TAA defines an assessment as being made by the Commissioner under Part 3 or substituted by the tribunal under Part 10. Interest and penalty tax under the TAA is dealt with in Part 5 and therefore does not constitute an assessment. Interest pursuant to s 19A of the LTA is separate from the TAA and is therefore not reviewable as an assessment.
  3. Subsection (c) is similarly not raised as the relevant prescribed decisions are those set out in section 38 of the LTA. None of those decisions relate to the imposition of interest for the present circumstances.
  4. Subsection (b) provides that decisions mentioned in schedule 1, section 1.2 are reviewable after a determination of an objection. For example, the Commissioner’s decision to impose penalty tax under section 31 (for which the taxpayer is liable under section 30) is a reviewable decision. The decision to refuse to remit penalty tax under section 37 is a reviewable decision.
  5. Neither the decision to impose or calculate interest, nor the decision to refuse to remit interest, is a reviewable decision in this schedule. The decision to refuse to remit interest under section 29, which appears to have been the subject of review in Steele, is a decision in schedule 2. As the law stands, that decision is subject to an objection but is not subject to review. It is unfortunate that the word ‘review’ is used in two differing senses but the legislation is clear that a decision in schedule 2 cannot be reviewed by the tribunal.

Conclusion

  1. Having made findings in relation to the grounds put forward by the applicants, the Tribunal makes some comments about the regulatory framework. Ms Tan made submissions to the effect that essentially innocent taxpayers who, the Commissioner does not dispute, act honestly and in good faith toward the discharge of their obligations as soon as they became aware of them, are penalised for the fault of their agents. The Tribunal heard the argument and agrees that this can be seen to be the effect of the regime. Unfortunately, the law is clear and the result in this case is the correct outcome according to law.
  2. The Tribunal agrees that a system such as that described by the applicants in their submissions, whereby information about the rental of parcels could be passed to the Commissioner more easily, might provide certainty as to the obligations of owners and agents. It might also reduce the amount of time it takes to discover a failure to notify, which would reduce the amount of penalties imposable as they relate to unpaid tax and the number of investigations by the respondent. However, any such changes are the province of government not the Tribunal.
  3. The decision of 15 July 2014 to not remit penalty tax is set aside. The Tribunal allows the objection and remits the penalty tax by 20% of the penalty tax imposed. To remove doubt, the amount of penalty tax is to be imposed at 40% of the tax unpaid. The Tribunal finds it has no jurisdiction to review decisions about interest.

......................................
Ms L. Beacroft – Member

HEARING DETAILS


FILE NUMBER:
AT 14/75 and AT 14/76
PARTIES, APPLICANT:
Geoffrey Wade
Siew Imm Tan
PARTIES, RESPONDENT:
Commissioner for ACT Revenue
COUNSEL APPEARING, APPLICANT
Self-represented
COUNSEL APPEARING, RESPONDENT
Dr D. Jarvis
SOLICITORS FOR APPLICANT
Self-represented
SOLICITORS FOR RESPONDENT
ACT Government Solicitor
TRIBUNAL MEMBERS:
Ms L. Beacroft, Member
DATES OF HEARING:
01 December 2014

[1] Land Tax Act 2004 (ACT) s 8(2),(3)

[2] LTA, s 14

[3] LTA, s 19A(5)(a)

[4] Taxation Administration Act 1999 (ACT) s 31

[5] TAA, s 31(6)

[6] TAA, ss 31(3), 32, 33

[7] TAA, s 37

[8] TAA, s 31(1)

[9] TAA, s 31(2)

[10] TAA, s 31(3)

[11] TAA, s 31(6)(b)

[12] TAA, s 37

[13] TAA, s 34

[14] LTA, s 19A; TAA, s 26

[15] LTA, s 36

[16] TAA, s 101(3)

[17] Rawson Finances Pty Ltd v Commissioner of Taxation (2013) FCAFC 26; Touma v Chief Commissioner of State Revenue [2012] NSWADT 2

[18] ACT Civil and Administrative Tribunal Act 2008 (ACT) s 68

[19] Scott and Anor v Commissioner of ACT Revenue [2013] ACAT 73, at paragraph 11

[20] Page 4, Explanatory Statement, Rates and Land Tax Legislation Amendment Bill 2009 (ACT).

[21] [2010] ACAT 15

[22] [2012] ACAT 15

[23] [2012] ACAT 73

[24] Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Federal Commissioner of Taxation [2007] AATA 130.

[25] Alexandrou and Ors & Commissioner for ACT Revenue [2012] ACAT 66

[26] [2004] FCA 955; (2004) 138 FCR 107.

[27] Page 4, Explanatory Statement, Rates and Land Tax Legislation Amendment Bill 2009 (ACT).

[28] Photo Corporation of Australia Pty Ltd and Commissioner for ACT Revenue [1994] ACTAAT 91.

[29] Belconnen Premier Inn Pty Ltd v Commissioner for ACT Revenue [2014] ACAT 68.

[30] Hay v Commissioner for ACT Revenue (Administrative Review) [2014] ACAT 23

[31] Hanley & Commissioner for ACT Revenue (Administrative Review [2012] ACAT 68

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