Loomes v Chief Commissioner of State Revenue [2014] NSWCATAD 133

Summary

The Taxpayers, sought review of the Chief Commissioner’s land tax assessment of land acquired for the purpose of building their principal place of residence.  The Taxpayers argued that the Chief Commissioner should have written off the tax under s.110 of the Taxation Administration Act.

The Tribunal confirmed the assessment.  The Tribunal concluded there was no basis for applying section 110 because there was no evidence that the tax liability was irrecoverable, and indicated the only avenue for relief available for the Taxpayers would be to apply to the Hardship Review Board.

Background

The Taxpayers (Sandra and Peter Loomes), purchased the property at 18 Franklin Road, Cronulla (“the Property”) on 5 November 2010 with the intention of making it their principal place of residence (“PPR”). They planned to demolish the existing dwelling on the property and construct a new one while remaining in their existing rental accommodation until construction was completed.

From 22 November 2010 to mid-February 2011, the property was leased to relatives of a work colleague of Sandra Loomes in need of short-term emergency accommodation. The dwelling was demolished on 10 March 2011, a new dwelling was constructed, and the Taxpayers moved into the new house on 25 November 2011.  The Chief Commissioner assessed land tax for the 2011 land tax year as the property had been leased on the taxing date for the 2011 tax year (midnight on 1 December 2010).

Taxpayers’ submissions

The Taxpayers initially sought a review of the assessment, relying on the concession for unoccupied land intended to be an owner’s principal place of residence.  However, as the property had been leased to a tenant on the taxing date, it was not eligible for exemption.

Consequently, at the hearing the Taxpayers did not contest the correctness of the Chief Commissioner’s assessment of the Property for land tax.  Instead, they based their case solely on s.110 of the Taxation Administration Act 1996 (“TA Act”), which authorised the Chief Commissioner to write off the whole or any part of any unpaid tax if satisfied that action to recover the tax is impracticable or unwarranted.

The Taxpayers asked the Tribunal to consider the unfairness of their helping a family in need, receiving a small amount of rent in return, and being taxed for the whole tax year. They agreed to pay 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.

The Taxpayers submitted that if the Tribunal considered full imposition of the tax unwarranted, it may, pursuant to section 110, waive whole or part of the tax. The Chief Commissioner submitted that the writing off of tax could not form part of the assessment, and s 110 constitutes a purely accounting function.

Tribunal’s decision

The Tribunal noted that liability to land tax is created by the Land Tax Management Act 1955 (“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 Act¹. In addition, although it is stated in section 8 of the LTM Act that the Chief Commissioner “may” issue an assessment, the function has been held to be mandatory rather than discretionary².   That is, once the LTM Act makes a taxpayer liable to pay land tax, the Chief Commissioner is required to act to give effect to the relevant taxation law. Even if the Chief Commissioner did not act, the liability to land tax created by the LTM Act would remain in effect.

Under section 96 of the TA Act, the taxpayer may apply for review of a decision made by the Chief Commissioner that has been the subject of an objection. This means the Tribunal must review the assessment for land tax, not the disallowance of the objection.

Section 110 of the TA Act permits the Chief Commissioner to write off unpaid tax in particular circumstances. The Tribunal decided in Volpatti v Chief Commissioner of State Revenue³ that 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 if such circumstances are not the subject of an exemption under the Act. The Tribunal pointed out that it was open to the Taxpayer to apply to the Hardship Review Board for relief from paying the tax.

The Tribunal held that section 110 authorises the Chief Commissioner to write off assessed tax, but does not give the Chief Commissioner a discretion not to impose tax, nor to waive it. Therefore it cannot form part of the process followed by the Chief Commissioner in assessing a person for land tax. The Taxpayers’ case must be directed to the decision actually made.  The Chief Commissioner made no decision concerning section 110.

In addition to the above, the Tribunal concluded that section 110 merely gave effect to an accounting practice and concluded that the term ‘write off’ is not the same as waiver, noting at 41:

“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 Tribunal also noted that writing off a tax debt does not extinguish the debt, but merely reflects the creditor wish to not expend funds in recovering it. The Tribunal noted that: section 110(2) declares:

“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”.

The Tribunal could not reconcile the meaning the Taxpayers advocated for the term ‘unwarranted’ in s.110(1). There was no evidence to suggest that the amount of tax is irrecoverable.

The Tribunal concluded there was no basis for applying section 110 and the only avenue available for the Taxpayers would be to apply to the Hardship Review Board.

Orders

The decision under review was affirmed.

Link to decision

Loomes v Chief Commissioner of State Revenue [2014] NSWCATAD 133

Footnotes

1. ^ See Gunasti v Chief Commissioner of State Revenue [2012] NSWADT 218
2. ^ Gunasti v Chief Commissioner of State Revenue [2012] NSWADT 218, [29]-[34]
3. ^ [2007] NSWADT 222 at [23]-[27]